MONTEREY HOMES
STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND DEFINITIONS.
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a) The Stock Option Plan (the "Option Plan") of Monterey Homes (the
"Company"), is hereby adopted. The Option Plan shall provide for the
issuance of incentive stock options ("ISOs") and nonqualified stock options
("NSOs").
b) The purpose of this Option Plan is to promote the long-term success of the
Company by attracting, motivating and retaining key executives, consultants
and directors (the "Participants") through the use of competitive long-term
incentives which are tied to stockholder interests by providing incentives
to the Participants in the form of stock options which offer rewards for
achieving the long-term strategic and financial objectives of the Company.
c) The Option Plan is intended to provide a means whereby Participants may be
given an opportunity to purchase shares of Stock of the Company pursuant to
(i) options which may qualify as ISOs under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), or (ii)
NSOs which may not so qualify.
d) The term "Affiliates" as used in this Option Plan means parent or
subsidiary corporations, as defined in Section 424(e) and (f) of the Code
(but substituting "the Company" for "employer corporation"), including
parents or subsidiaries which become such after adoption of the Option
Plan.
2. ADMINISTRATION OF THE PLAN
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a) The Option Plan shall be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors of the Company from time
to time (the "Board").
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 "Committee"). Members of the
Committee shall serve at the pleasure of the Board.
c) The Committee may from time to time determine which employees of the
Company or its Affiliates or other individuals or entities (each an "option
holder") shall be granted options under the Option Plan, the terms thereof
(including without limitation determining whether the option is an
incentive stock option and the times at which the options shall become
exercisable), and the number of shares of Stock for which an option or
options may be granted.
d) If rights 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 Committee 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 which is subject to repurchase rights shall have imprinted or typed
thereon a legend or legends summarizing or referring to the repurchase
rights.
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 options granted under the Option Plan and to make all other
determinations deemed necessary or advisable for the administration of the
Option Plan. All decisions, determinations and interpretations of the
Committee shall be binding on all option holders under the Option Plan.
3. STOCK SUBJECT TO THE PLAN
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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 shares of Common Stock that can be issued under this Option Plan is
225,000 shares, and the maximum shares of Common Stock that can be issued
to any one person under this Option Plan is 50,000 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 Committee 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 option
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.
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4. ELIGIBILITY
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Persons who shall be eligible to receive stock options granted under the
Option Plan shall be those individuals and entities as the Committee 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 OPTION GRANTED UNDER THE PLAN
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a) All ISOs and NSOs will have option exercise prices per option share not
less than the fair market value of a share of the Stock on the date the
option is granted, except that in the case of ISOs granted to any person
possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any Affiliate the price shall be not less than
110% of such fair market value. The price of ISOs or NSOs granted under the
Option Plan shall be subject to adjustment to the extent provided in
Section 3(c) above.
b) The fair market value on the date of grant shall be determined based upon
the closing price on an exchange on that day or, if the Stock is not listed
on an exchange, on the average of the closing bid and asked prices in the
Over the Counter Market on that day.
6. TERMS AND CONDITIONS OF OPTIONS
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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.
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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 determine are necessary to so
qualify under Section 422 of the Internal Revenue Code.
e) The Committee 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 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 belonging to the
Company for the option holder's own benefit or for the benefit of a
competitor, (v) the option holder engages in any willful misconduct
designed to harm the Company or its stockholders, or (vi) the option holder
fails to perform properly assigned duties.
g) No fractional shares of Stock shall be issued under the Option Plan,
whether by initial grants or any adjustments to the Option Plan.
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7. USE OF PROCEEDS
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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 Committee, 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
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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 be
will 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
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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
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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
Committee, 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 Committee. 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 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
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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 Committee 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
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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
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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,
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except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in liquidation or dissolution of
the Company; or
(iii)any reverse merger in which the Company is the surviving entity
but in which beneficial ownership of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to holders
different from those who held such securities immediately prior to
such merger.
b) Upon the occurrence of a Corporate Transaction, if the surviving
corporation or the purchaser, as the case may be, does not assume the
obligations of the Company under the Option Plan, then irrespective of the
vesting provisions contained in individual option agreements, all
outstanding options shall become immediately exercisable in full and each
option holder will be afforded an opportunity to exercise their options
prior to the consummation of the merger or sale transaction so that they
can participate on a pro rata basis in the transaction based upon the
number of shares of Stock purchased by them on exercise of options if they
so desire. To the extent that the Option Plan is unaffected and assumed by
the successor corporation or its parent company a Corporate Transaction
will have no effect on outstanding options and the options shall continue
in effect according to their terms.
c) Each outstanding option under this Option Plan which is assumed in
connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities
which would have been issued to the option holder in connection with the
consummation of such Corporate Transaction had such person exercised the
option immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the option price payable per share,
provided the aggregate option price payable for such securities shall
remain the same. In addition, the class and number of securities available
for issuance under this Option Plan following the consummation of the
Corporate Transaction shall be appropriately adjusted.
d) The grant of options under this Option Plan shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
14. REGULATORY APPROVALS
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The obligation of the Company with respect to Stock issued under the Plan
shall be subject to all applicable laws, rules and regulations and such
approvals by any governmental agencies or stock exchanges as may be required.
The Company reserves the right to restrict, in whole or in part, the delivery of
Stock under the Plan until such time as any legal requirements or regulations
have been met relating to the issuance of Stock, to their registration or
qualification under the Securities Exchange Act of 1934, if applicable,
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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
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Neither the action of the Company in establishing this Option Plan, nor any
action taken by the Board or the Committee 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
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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 divided rights, voting rights or any other
rights as a stockholder with respect to any options under the Option Plan
prior to the issuance of a stock certificate for such Stock.
d) If there is a conflict between the terms of any employment agreement
pursuant to which options under this Plan are to be granted and the
provisions of this Plan, the terms of the employment agreement shall
prevail
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