MERITAGE CORPORATION
AMENDED STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND DEFINITIONS.
a. The Stock Option Plan (the "Option Plan") of Meritage
Corporation (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
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
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 475,000 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).
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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.
4. ELIGIBILITY
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
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.
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6. TERMS AND CONDITIONS OF OPTIONS
a. Each option granted pursuant to the Option Plan shall be
evidenced by a written stock option agreement (the "Option
Agreement") executed by the Company and the person to whom
such option is granted. The Option Agreement shall designate
whether the option is an ISO or an NSO.
b. The term of each ISO and NSO shall be no more than 10 years,
except that the term of each ISO issued to any person
possessing more than 10% of the voting power of all classes of
stock of the Company or any Affiliate shall be no more than 5
years. Subsequently issued options, if Stock becomes available
because of further allocations or the lapse of previously
outstanding options, will extend for terms determined by the
Board or the Committee but in no event shall an ISO be
exercised after the expiration of 10 years from the date of
its grant.
c. In the case of ISOs, the aggregate fair market value
(determined as of the time such option is granted) of the
Stock to which ISOs are exercisable for the first time by such
individual during any calendar year (under this Option Plan
and any other plans of the Company or its Affiliates if any)
shall not exceed the amount specified in Section 422(d) of the
Internal Revenue Code, or any successor provision in effect at
the time an ISO becomes exercisable.
d. The Option Agreement may contain such other terms, provisions
and conditions regarding vesting, repurchase or other
provisions as may be determined by the 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
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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.
7. USE OF PROCEEDS
a. 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
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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
a. 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
a. 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 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
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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
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
This Option Plan and all options issued under this Option Plan shall be
void unless this Option Plan is or was approved or ratified by (i) the
Board; and (ii) a majority of the votes cast at a stockholder meeting
at which a quorum representing at least a majority of the outstanding
shares of Stock is (either in person or by proxy) present and voting on
the Option Plan within twelve months of the date this Option Plan is
adopted by the Board. No ISOs shall be exercisable prior to the date
such stockholder approval is obtained.
13. CORPORATE TRANSACTIONS
a. For the purpose of this Section 13, a "Corporate Transaction"
shall include any of the following stockholder-approved
transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the
principal purpose of which is to change the State of
the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in
liquidation or dissolution of the Company; or
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(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
The obligation of the Company with respect to Stock issued under the
Plan shall be subject to all applicable laws, rules and regulations and
such approvals by any governmental agencies or stock exchanges as may
be required. The Company reserves the right to restrict, in whole or in
part, the delivery of Stock under the Plan until such time as any legal
requirements or regulations have been met relating to the issuance of
Stock, to their registration or qualification under the Securities
Exchange Act of 1934, if applicable, or any applicable state securities
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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 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
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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