Exhibit 10.1

 

SETTLEMENT AND RELEASE AGREEMENT

 

This Settlement and Release Agreement (this “Agreement”) is made and entered
into freely and voluntarily the 9th day of April 2008, by and between Meritage
Homes Corporation (hereinafter referred to, collectively with all of its
subsidiaries and affiliates, as “Meritage”) and John R. Landon (hereinafter
referred to as “Landon”). Landon and Meritage shall be referred to collectively
as the “Parties.”

 

WHEREAS, Landon and Meritage are parties to that certain Employment Agreement,
effective as of July 1, 2003, as amended from time to time (the “Employment
Agreement”);

 

WHEREAS, Landon and Meritage are Parties to certain other agreements, executed
on or about June 12, 2006, which are a Stock Purchase Agreement (the “Stock
Purchase Agreement”), a Cooperation Agreement (the “Cooperation Agreement”), and
a Settlement Agreement and Mutual Release and Waiver of Claims (the “2006
Settlement Agreement”) (the Employment Agreement, Stock Purchase Agreement,
Cooperation Agreement and 2006 Settlement Agreement shall be referred to
collectively as the “Existing Agreements”); and

 

WHEREAS, certain disputes have arisen between the Parties in which both Parties
have made claims against the other, as are set forth in the pleadings of the
arbitration between the parties before the American Arbitration Association,
Case No. 71 166 00081 07 (the “Arbitration”);

 

WHEREAS, without admitting any liability to the other, the Parties wish to enter
into a final and amicable agreement to dispose of their outstanding
controversies;

 

NOW, THEREFORE, in consideration of the acts, payments, covenants, and mutual
agreements herein described and agreed to be performed, Landon and Meritage
agree as follows:

 

1.                                      Mutual Releases and Covenant Not to Sue.

 

(a)           In consideration of the matters referenced in this Agreement, John
R. Landon, Eleanor Landon, Landon Development Company, LLC, Landon Homes, L.P.,
Landon Family Partnership, L.P. (“the Landon Parties”) on behalf of each of
themselves and their respective heirs, executors, administrators, and assigns,
hereby forever release, discharge, cancel, waive, and acquit Meritage and its
subsidiaries, affiliates, agents, officers, owners, directors, employees,
insurers, and assigns, of and from any and all rights, claims, demands, causes
of action, obligations, damages, penalties, fees, costs, expenses, and
liabilities of any nature whatsoever, whether in law or equity (collectively,
“Claims”), which the Landon Parties have, had, or may hereafter have against
Meritage arising out of, or by reason of, any cause or matter, existing as of
the date of execution of this Agreement, WHETHER KNOWN TO THE LANDON PARTIES AT
THE TIME OF EXECUTION OF THIS AGREEMENT OR NOT, that relate to matters occurring
since the date of the 2006 Settlement Agreement, including, without limitation,
the matters subject to the Arbitration. This release shall not apply to (i) any
breaches by Meritage of this Agreement or the Existing Agreements (as modified
hereby) arising from events or occurrences on or after the date this Agreement
(ii) any vested amounts in Landon’s

 

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401(k) account or (iii) any right to indemnification, advancement of expenses,
limitation of liability or exculpation of liability to the extent provided under
or arising from the Articles of Incorporation or Bylaws of Meritage or under any
insurance policy maintained by Meritage benefiting Landon with respect to his
service as an officer, employee, or director of Meritage.

 

(b)           In consideration of the matters referenced in this Agreement,
Meritage, on behalf of itself and its subsidiaries, affiliates, agents,
officers, owners, directors, employees, insurers, and assigns, hereby forever
releases, discharges, cancels, waives, and acquits the Landon Parties and their
respective agents, officers, owners, directors, employees (including without
limitation Michael J. Gavin and Jim Arneson) from any and all Claims existing as
of the date of the execution of this Agreement, WHETHER KNOWN TO MERITAGE AT THE
TIME OF EXECUTION OF THIS AGREEMENT OR NOT, that relate to matters occurring
since the date of the 2006 Settlement Agreement (or, with respect to Eleanor
Landon, prior to the date of this Agreement), including, without limitation, the
matters subject to the Arbitration. This release shall not apply to any breaches
by Landon of this Agreement or the Existing Agreements (as modified hereby)
arising from events or occurrences on or after the date of this Agreement.

 

(c)           The Landon Parties and Meritage further covenant and agree not to
institute, nor cause to be instituted, any legal proceeding of any nature
whatsoever, including, without limitation, filing any claim or complaint with
any government agency alleging any violation of law or public policy or seeking
workers’ compensation from Meritage or Landon (or any of their representatives)
for any claim released hereunder premised upon any legal theory or claim
whatsoever, including without limitation, contract, tort, wrongful discharge,
personal injury, interference with contract, breach of contract, defamation,
negligence, infliction of emotional distress, fraud, or deceit, except that a
party hereto may file a legal proceeding against the other solely to enforce the
terms of this Agreement or the Existing Agreements (as modified hereby).

 

(d)           Meritage releases Arneson from the obligation in paragraph 6(a) of
his Separation and Severance Agreement, dated, accepted and delivered by
Mr. Arneson on July 27, 2006, such that paragraph 6(a) applies only to persons
employed by Meritage as of the date of this Agreement.

 

2.             Principal Economic Terms and Related Matters.

 

(a)           Simultaneously with the execution of this Agreement, Landon will
pay to Meritage the sum of $2,701,613.00 in cash. All payments to be paid by
Landon to Meritage under this Section 2 shall be paid by wire transfer on or
before the close of business on April 10, 2008 pursuant to the wiring
instructions set forth on Exhibit C to this Agreement.

 

(b)           On or before January 5, 2009, Landon will pay to Meritage an
additional sum of $875,000.00 in cash, Meritage stock, or a combination of both;
provided, however, Meritage shall have the right to demand the payment in cash
if it determines based on the advice of its securities counsel, independent
accountants or financial advisors that the receipt of Meritage stock from Landon
would (i) require Meritage to obtain a fairness opinion, (ii) be prohibited or
result in an adverse effect under Meritage’s then existing loan agreements,
credit agreements or indentures pursuant to which Meritage has outstanding
borrowed money, (iii) in

 

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Meritage’s reasonable determination, result in adverse accounting or tax
implications, (iv) in Meritage’s reasonable determination, be viewed unfavorable
by the investment community, or (v) have any adverse impact on a pending or
contemplated significant transactions, including but not limited to, a debt
offering, implementation, renewal or modification or a credit agreement, merger,
acquisition or equity offering (common or preferred). To the extent that
Meritage stock is paid by Landon, Landon shall deliver the number of shares
equal to the result of dividing the dollar amount to be paid in stock by the
closing price of Meritage common stock the day prior to the delivery date
(rounded to the nearest whole share).

 

(c)           Landon hereby releases any claim, rights or interest that he may
have to the amounts held in escrow at Guaranty Bank, Dallas, Texas, account
number *** and agrees that Meritage shall be solely and immediately entitled to
all funds in that account. Landon shall within two (2) business days of a
request by Meritage sign any documents that may be required by Guaranty Bank in
connection with the release of such funds; provided, however no such document
shall require Landon to assume any liability. The parties agree that Landon’s
execution of this Agreement shall constitute instructions to Guaranty Bank to
release all funds in the account to Meritage and that no further escrow
instructions are necessary or required from Landon.

 

(d)           Landon hereby acknowledges that Meritage has no obligation to pay
Landon any additional compensation, severance, non-competition, benefits or
payments or other consideration of any kind under this Agreement or any of the
Existing Agreements (as modified hereby).

 

(e)           The Parties hereby amend the Cooperation Agreement as follows:

 

(i)            Paragraph 2 of the Cooperation Agreement is modified by deleting
the phrase “upon termination of the Restriction Period (as such term is defined
in the Employment Agreement)” and substituting, “ on April 10, 2010”;

 

(ii)           The following text is added to the end of Paragraph
5(b)(ix) before the words “provided that”: “in furtherance of, or in relation or
with respect to, the actions prohibited by clauses (i) through (viii) above”;

 

(iii)          The following sentence is added to the end of paragraph 5(b):
“For the purposes of Section 5(b)(iii) hereof, as of any point in time,
‘extraordinary transaction’ does not include transactions solicited, invited or
widely proposed by Meritage to homebuilding industry participants (including
offers to sell real property).”

 

(f)            The Parties hereby amend the Employment Agreement as follows:

 

(i)            Section 8 of the Employment Agreement is deleted in its entirety
and replaced with the following:

 

8.                                       Restrictive Covenant. In consideration
of Executive’s employment and in consideration of the acts, payments, covenants
and mutual agreements described and agreed to be performed by the Settlement and
Release Agreement dated April 9, 2008 and the Existing Agreements (as defined
therein and modified thereby):

 

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***     CONFIDENTIAL INFORMATION HAS BEEN OMITTED

 

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A.                                   Through April 9, 2010, neither Executive,
either personally or as an officer, director, partner, member, manager,
employee, agent, or consultant of any entity, nor any “Landon Company” (as
hereinafter defined) or any “Affiliate” (as hereinafter defined) of a Landon
Company will “Hire” (as hereinafter defined) any “Meritage Employee” (as
hereinafter defined). Notwithstanding the foregoing, (i) if Executive hereafter
becomes a full time employee of a Large Homebuilder (as hereinafter defined),
the restrictions set forth in this Section 8(A) will not apply to any Meritage
Employee Hired by the Large Homebuilder that is not a Covered Officer and
(ii) upon notice from the Company, Executive shall have 30 days to cure any
inadvertent breaches of this Section 8(A) and the Meritage Employee is not a
Covered Officer (as hereinafter defined).

 

As used herein:

 

“Landon Company” means any entity owned by Executive, his spouse, or his
children. The term “own” refers to record or beneficial ownership of at least a
5% interest in the entity.

 

“Affiliate” means with respect to any Person (as hereinafter defined), any other
Person that directly, or indirectly through one or more intermediaries, owns or
is owned by or is under common ownership with the Person specified. The terms
“owned” and “ownership” refer to record or beneficial ownership of at least a 5%
interest in the entity.

 

“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership or other entity.

 

“Meritage Employee” means any person who is employed by the Company as of
April 9, 2008 or otherwise becomes employed by the Company on or before April 9,
2010; provided, however, Meritage Employee shall not include any person who was
terminated by the Company after April 9, 2008.

 

“Hire” means to engage the services of another as a full or part time employee,
independent contractor or consultant. “Hire” also includes entering into any
partnership, joint venture, or other entity formed for developing, constructing,
financing, or selling any land, lot, or home.

 

“Covered Officer” means (i) Meritage Employees whose most recent title, office
or authority was that of Vice President, Executive Vice President, Divisional
President, or Regional President or higher and (ii) up to ten (10) additional
Meritage Employees to be designed by Meritage in writing to Executive by
April 14, 2008 (the persons so designed by Meritage, the “Designed Employees”).

 

“Large Homebuilder” means a corporation, partnership, limited liability company,
or similar entity, that is engaged in the business of homebuilding, construction
or

 

4

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land or lot development and has annual revenues from homebuilding operations
(based on such company’s 2007 fiscal year end) of more than $400 million.

 

B.                                     Through April 9, 2010, neither Executive,
either personally or as an officer, director, owner, partner, member, manager,
employee, agent, or consultant of any entity, nor any Landon Company or any
Affiliate of a Landon Company will engage in any (i) “Advertising” (as
hereinafter defined), or (ii) transaction involving the acquisition, sale,
development, construction, finance, lease, land banking or lot banking of any
land, lot, or home (a “Prohibited Transaction”), in each case with respect to
clause (i) and (ii) within or pertaining to the “Communities” identified on
Exhibit A to the Settlement and Release Agreement dated April 9, 2008. Following
are exceptions to the foregoing restrictions:

 

1.                                       After July 9, 2009, Executive may enter
into a purchase or option contract for the acquisition of lots within the
Communities identified on Exhibit A to the Settlement and Release Agreement
provided that Executive may not prior to April 10, 2010 close the acquisition of
such lots or begin construction of or on such lots (construction being defined
as any construction, physical development or physical improvement activities of
any kind other than applying for or obtaining a building permit);

 

2.                                       If Executive hereafter becomes a full
time employee of a Large Homebuilder, the restrictions set forth in this
Section 8(B) will not apply to any transaction pertaining to the Communities
insofar as it involves the Large Homebuilder;

 

3.                                       If Executive hereafter becomes a full
time employee or majority owner of a Small Homebuilder (as hereinafter defined),
the restrictions set forth in this Section 8(B) shall not apply to any
transaction pertaining to the Communities insofar as such transaction involves
the Small Homebuilder occurring before the time Executive becomes the employee
or majority owner of the Small Homebuilder but, for the avoidance of doubt, the
restrictions set forth in this Section 8(B) will apply to any transactions
occurring on, after or in contemplation of or connection with, Landon becoming
the employee or majority owner of the Small Homebuilder; and

 

4.                                       Upon notice from the Company, Executive
shall have 10 days to cure any inadvertent breaches of clause (i) of this
Section 8(B) provided that Executive and his Affiliates did not cause or induce
such breach.

 

With respect to Exhibit A, by April 30, 2008, Meritage shall provide specific
descriptions or depictions of the geographic boundaries of the Communities, such
as maps, plats, metes and bounds, legal descriptions, addresses, aerial
photographs, drawings, or other information sufficient to generally identify the
location and boundaries of the property.

 

5

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As used herein:

 

“Advertising” means marketing or advertising activities or materials occurring
on or adjacent to the Communities identified on Exhibit A to the Settlement and
Release Agreement or any newspaper or print advertising relating thereto, which
refer to or describe the Communities identified on Exhibit A to the Settlement
and Release Agreement.

 

“Small Homebuilder” means a corporation, partnership, limited liability company,
or similar entity, that is engaged in the business of homebuilding, construction
or land or lot development and has annual revenues from homebuilding operations
(based on such company’s 2007 fiscal year end) of less than $400 million.

 

C.            Executive represents to the Company that he is willing and able to
engage in businesses and activities not restricted or precluded hereunder and
that enforcement of the restrictions set forth in this Section 8 would not be
unduly burdensome on Executive. Executive agrees that the period of time
provided for in this Section 8 and the other provisions and restrictions set
forth herein are reasonable and necessary to protect the Company and its
successors and assigns in the use and employment of the goodwill of the business
conducted by Executive. Executive represents and warrants that the provisions of
Section 8 and 9 of this Agreement constitute valid and legally binding
obligations of Executive enforceable against Executive in accordance with their
respective terms.

 

D.            The provisions of this Section 8 will survive the termination of
this Agreement under Section 7 of this Agreement.

 

E.             Executive hereby covenants and agrees that, in the event any of
the provisions of this Section 8 shall be violated or breached, the Company
shall be entitled to obtain injunctive relief against the party or parties
violating such covenants without bond but upon due notice, in addition to such
further or other relief as may be available at equity or law. An injunction by
the Company shall not be considered an election of remedies or a waiver of any
right to assert any other remedies which the Company has at law or in equity. No
waiver of any breach or violation hereof shall be implied from forbearance or
failure by the Company to take action thereof. The prevailing party in any
litigation, arbitration or similar dispute resolution proceeding to enforce this
provision will recover any and all reasonable costs and expenses, including
attorneys’ fees.

 

(ii)           Section 15 of the Employment Agreement is deleted in its
entirety.

 

(iii)          A new section 19 is added to the Employment Agreement as follows:

 

19.          Liquidated Damages. The parties agree that damages resulting from
Executive’s breach of Section 8(A) of this Agreement would be difficult to
estimate or determine. Accordingly, the parties agree that if Executive breaches
any

 

6

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provision of Section 8(A) of this Agreement, he will pay to the Company, with
respect to each Meritage Employee Hired, as liquidated damages, and not as a
fine or penalty, damages in the following amounts:

 

·                  For any Meritage Employee with a position of Regional Vice
President or higher, $2.5 million per Meritage Employee;

 

·                  For any Meritage Employee with a position of Division
President or that is a Designated Employee, $500,000 per Meritage Employee;

 

·                  For any Meritage Employee with a position of Vice President
(other than a Designated Employee), $250,000 per Meritage Employee; and

 

·                  For any other Meritage Employee, $100,000 (other than a
Designated Employee) per Meritage Employee who is Hired and continues in such
employment beyond the cure period permitted in Section 8(A).

 

For the avoidance of doubt, the positions listed above refer to the positions a
Meritage Employee holds with the Company, and not the position that they are
Hired for by Executive. The foregoing remedies shall be in addition to any
remedy to which a party may be entitled to at law or in equity, including,
without limitation, injunctive relief.

 

(g)           The Parties hereby amend Section 7(b) of the Stock Purchase
Agreement by deleting the following text: “, and (ii) in the event of any
non-performance or breach of this Agreement by Landon, Meritage shall be
entitled, at its sole option, to rescind this Agreement, in which case Landon
shall be required to repay to Meritage the amount of the purchase price paid
hereunder and Meritage shall be required to return to Landon the Shares.”

 

(h)           Contemporaneously with the execution of this Agreement, Meritage
is executing the affidavit on Exhibit B hereto concerning Landon’s application
for a refund of certain income taxes paid in 2006. Meritage covenants and agrees
that it will not change its position in the future in a manner that is different
or inconsistent with the factual matters affirmed on Exhibit B.

 

3.             Dismissal of Arbitration. The Parties will dismiss the
Arbitration between them upon the execution of this Agreement and Meritage’s
receipt of $2,701,613.00 and the release of the escrowed funds to Meritage, with
each party to bear its own attorneys’ fees and costs, including 50% of any AAA
costs incurred in connection with the Arbitration.

 

4.             No Admission of Liability. Nothing contained in this Agreement
shall be construed in any manner as an admission by any party that it has, or
may have, violated any statute, law, regulation, or breached any contract or
agreement.

 

5.             Reliance. The Parties represent and warrant that: (a) each has
relied on his or its own judgment regarding the consideration for and language
of this Agreement; (b) each has been given a reasonable period of time to
consider this Agreement, has been advised to consult with independent counsel
before signing this Agreement, and has consulted with independent counsel

 

7

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with respect hereto; (c) neither party has in any way coerced or unduly
influenced the other to execute this Agreement; (d) neither party has relied
upon any advice or any representation of the other party’s counsel; and (e) this
Agreement is written in a manner that is understandable to both Parties.

 

6.             Nature of the Agreement. This Agreement and all provisions
thereof, including all representations and promises contained herein, are
contractual and not a mere recital and shall continue in permanent force and
effect. This Agreement and all attachments and the Existing Agreements (as
modified hereby) constitute the sole and entire agreement of the Parties with
respect to the subject matter hereof, and there are no agreements of any nature
whatsoever between the Parties hereto with respect to the subject matter hereof.
This Agreement may not be modified or changed unless done so in writing, signed
by both Parties. In the event that any portion of this Agreement is found to be
unenforceable for any reason whatsoever, the unenforceable provision shall be
considered to be severable, and the remainder of the Agreement shall continue to
be in full force and effect. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas without regard to choice of
law principles.

 

7.             Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, for
whatever reason, the remaining provisions of this Agreement shall nevertheless
continue in full force and effect without being impaired in any manner
whatsoever.

 

8.             Notices. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing. Notice shall be deemed
sufficient: (a) when delivered by overnight courier or sent by facsimile;
(b) upon delivery when delivered personally; or (c) upon seventy-two (72) hours
after being deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, addressed to the party to be notified at such party’s address
or facsimile number, as subsequently modified by written notice, as follows:

 

(i)            if to Landon, to ***, Attn: John R. Landon, with a copy to Mark
T. Josephs, Jackson Walker L.L.P., 901 Main Street, Dallas, Texas 75202; or

 

(ii)           if to Meritage, to Meritage Homes Corporation, 17851 North 85th
Street, Suite 300, Scottsdale, Arizona 85255, Attn: General Counsel, with a copy
to David W. Jones, Beck, Redden & Secrest, L.L.P., 1221 McKinney, Suite 4500,
Houston, Texas 77010 .

 

9.             Attorneys’ Fees. In action or proceeding to enforce the terms of
this Agreement, the prevailing party shall recover from the other party its
reasonable attorneys’ fees.

 

10.          Arbitration. Any dispute, controversy, or claim, whether
contractual or non- contractual, between the parties hereto arising directly or
indirectly out of or connected with this Agreement or the Existing Agreements
(as modified hereby), relating to the breach or alleged breach of any
representation, warranty, agreement, or covenant under this Agreement of the
Existing Agreements (as modified hereby), unless mutually settled by the parties
hereto, shall be resolved by binding arbitration in accordance with the
Employment Arbitration Rules of the American Arbitration Association (the
“AAA”). Any arbitration shall be conducted by

 

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***     CONFIDENTIAL INFORMATION HAS BEEN OMITTED

 

8

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arbitrators approved by the AAA and mutually acceptable to Company and
Executive. All such disputes, controversies, or claims shall be conducted by a
single arbitrator, unless the dispute involves more than $1,000,000 in the
aggregate in which case the arbitration shall be conducted by a panel of three
arbitrators. If the parties hereto are unable to agree on the arbitrator(s),
then the AAA shall select the arbitrator(s). The resolution of the dispute by
the arbitrator(s) shall be final, binding, nonappealable, and fully enforceable
by a court of competent jurisdiction under the Federal Arbitration Act. The
arbitrator(s) shall award damages to the prevailing party. The arbitration award
shall be in writing and shall include a statement of the reasons for the award.
The arbitration shall be held in Dallas, Texas. The arbitrator(s) shall award
reasonable attorneys’ fees and costs to the prevailing party. Notwithstanding
this provision, nothing in this Agreement or the Existing Agreements (as
modified hereby) shall preclude either Party from seeking injunctive relief from
a court of competent jurisdiction to preserve the status quo during the pendency
of any dispute.

 

[Signature Pages Follow]

 

9

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Dated this 9th day of April, 2008.

 

 

 

MERITAGE HOMES CORPORATION

 

 

 

 

 

By:

 

/s/ C. Timothy White

 

Name:

C. Timothy White

 

Title:

EVP/General Counsel

 

10

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Dated this 9th day of April, 2008.

 

 

 

JOHN R. LANDON

 

 

 

 

 

By:

/s/

John R. Landon

 

 

 

John R. Landon

 

 

 

ELEANOR LANDON

 

 

 

 

 

By:

/s/

Eleanor Landon

 

 

Eleanor Landon

 

 

 

 

LANDON DEVELOPMENT COMPANY, LLC

 

 

 

 

 

By:

/s/ John R. Landon

 

Name:

  John R. Landon

 

Title:

President

 

 

 

LANDON HOMES, L.P.

 

 

 

 

 

By:

/s/ John R. Landon

 

Name:

  John R. Landon

 

Title:

  Authorized Agent

 

 

 

LANDON FAMILY PARTNERSHIP, L.P.

 

 

 

 

 

By:

/s/ John R. Landon

 

Name:

  John R. Landon

 

Title:

General Partner

 

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EXHIBIT A
Protected Community List

 

DFW Communities

1.     South Pointe – Mansfield, TX

2.     Mira Lagos – Grand Prairie, TX

3.     Plantation – Burleson, TX

4.     Forest Meadows – Denton, TX

5.     Summit Parks – De Soto, TX

6.     Villages of Carmel – Denton, TX

 

Austin Communities

7.     Cantarra – Austin, TX

8.     Falcon Pointe – Pflugerville, TX

9.     Cold Springs – Leander, TX

10.   Terravista – Round Rock, TX

11.   Highland Horizons – Round Rock, TX

12.   High Pointe – Dripping Springs, TX

13.   Crystal Falls – Leander, TX

 

Houston Communities

14.   Cardiff– Katy, TX

15.   Silver Ranch – Katy, TX

16.   Westheimer Lakes North – Katy, TX

17.   Cypress Creek Lakes – Cypress, TX

18.   Aliana – Richmond, TX

19.   Telfair – Sugar Land, TX

20.   Cinco Ranch – Katy, TX

21.   Sienna Plantation/Sienna South – Missouri City, TX

22.   Oakhurst at Kingwood – Porter, TX

23.   Trails of Cypress Lakes – Tomball, TX

24.   Wood Creek – Montgomery, TX

 

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EXHIBIT B

Form of Affidavit

See attached

 

13

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BEFORE THE AMERICAN ARBITRATION ASSOCIATION
DALLAS, TEXAS

 

IN THE MATTER OF THE
ARBITRATION BETWEEN:

§

 

 

§

 

Meritage Homes Corporation,

§

 

 

§

 

Claimant

§

 

 

§

Case No. 71 166 00081 07

VS.

§

 

 

§

 

John R. Landon,

§

 

 

§

 

Respondent.

§

 

 

AFFIDAVIT OF C. TIMOTHY WHITE

 

STATE OF TEXAS

§

 

§

COUNTY OF DALLAS

§

 

BEFORE ME, the undersigned authority, personally appeared C. Timothy White, who
after being by me duly sworn, said the following:

 

1.             My name is C. Timothy White. I am over the age of eighteen (18)
years and I am fully competent to make this affidavit. Each of the statements in
this affidavit is within my personal knowledge and is true and correct.

 

2.             I am the Executive Vice President, General Counsel, and Secretary
of Meritage Homes Corporation (“Meritage”). I am authorized to speak on behalf
of Meritage for purposes of this affidavit. Meritage’s Second Amended Statement
of Claim in this proceeding, a true an correct copy of which is attached hereto
as Exhibit “A,” accurately reflects Meritage’s position that John R. Landon
(“Landon”) has been in violation of the Restrictive Covenant contained in his
Employment Agreement since the termination of his employment with Meritage on
May 17, 2006, as set forth in Section 7. Meritage and Landon settled all claims
and causes of action against the other on April 9, 2007.

 

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FURTHER AFFIANT SAYTH NOT.

 

 

 

 

 

C. Timothy White

 

 

SUBSCRIBED AND SWORN TO BEFORE ME on the 9th day of April, 2008.

 

 

 

 

 

Notary Public, State of Texas

 

2

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BEFORE THE AMERICAN ARBITRATION ASSOCIATION
DALLAS, TEXAS

 

IN THE MATTER OF THE ARBITRATION BETWEEN:

§

 

 

§

 

Meritage Homes Corporation,

§

 

 

§

 

Claimant

§

 

 

§

No. 71 166 00081 07

and

§

 

 

§

 

John R. Landon,

§

 

 

§

 

Respondent.

§

 

 

MERITAGE HOMES CORPORATION’S
SECOND AMENDED STATEMENT OF CLAIM

 

Claimant Meritage Homes Corporation submits this Second Amended Statement of
Claim against respondent John R. Landon. For cause of action, Meritage Homes
Corporation shows the following:

 

PARTIES

 

1.             Claimant Meritage Homes Corporation (“Meritage”) is a Maryland
corporation with its principal place of business at 17851 N. 85th Street,
Suite 300, Scottsdale, Arizona 85255.

 

2.             Respondent John R. Landon (“Landon”) is an individual residing at
2200 Willow Bend Drive, Plano, Texas 75093.

 

FACTUAL BACKGROUND

 

3.             Effective July 1, 2003, Meritage and Landon entered into an
Employment Agreement.

 

4.             Section 7A of the Employment Agreement, titled “Voluntary
Resignation by Executive or Termination Without Cause,” provides in part:

 

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If Executive voluntarily terminates his employment with the Company for any
reason after December 31, 2003 (or before such date, if with Good Reason), or
the Company terminates Executive without Cause, then . . . the Company shall pay
Executive $10 million (the Consulting, Severance and Non-Competition Payment),
in monthly installments of $416,666.67 in cash or by check, over the next two
years (the “Consulting Period” (subject to Executive’s compliance with this
Agreement, including Sections 8 and 9 as provided therein).

 

5.             Section 8 of the Employment Agreement, titled “Restrictive
Covenant,” provides in part:

 

In consideration of Executive’s employment, but subject to Section 7, Executive
agrees to the following:

 

A.            During the Restriction Period (as defined below), Executive will
not, directly or indirectly, either as an executive, partner, owner, lender,
director, adviser or consultant or in any other capacity or through any entity:

 

(1)           engage in any production homebuilding or home sales or within 100
miles of any Company project, provided that, for purposes of this
Section 8(a)(1), Executive (a) may own stock in the Company and less than 1% of
any other publicly traded homebuilder, and (b) may engage in custom homebuilding
(up to 5 homes annually for third parties and 2 for family members), land
banking or lot or land development; provided, however, that Executive may not
directly or indirectly engage in the sale of finished lots within the restricted
areas described above, unless at least 10 business days prior to any offer to a
third party, the lots are offered to the Company, and if the Company (or its
nominee) determines to purchase the property, the applicable selling party
negotiates a sale in good faith. If no such sale is then consummated, then the
applicable selling party may pursue a sale with a third party. If the terms of
such third-party sale are materially different than the offer made to the
Company, the Company (or its nominee) will have the right of first refusal to
purchase the lots within three business days of notice of the proposed sale to
such a third party. This notice must contain the specific terms and conditions
thereof and the proposed buyer. If the Company (or a nominee) does not respond
to the right of first offer within 10 days or the right of first refusal within
three days, the Company will be deemed to have waived the applicable right. The
Company or nominee can substitute cash for any non-cash consideration (at the
fair market value thereof). This right will arise again if the third party offer
is materially modified or amended.

 

(2)           hire any person who is, or within the six month period preceding
the date of such activity was, an employee of or consultant to the Company
(other than as a result of a general solicitation for employment); or

 

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(3)           solicit any customer or supplier of the Company (including lot
developers and land bankers) for a production homebuilding business or otherwise
attempt to induce any such customer or supplier to discontinue or materially
modify its relationship with the Company. During the Restriction Period,
Executive may utilize the services of Company suppliers for business operations
permitted under Section 8a(1), i.e., custom homebuilding, land banking and land
or lot development, so long as these activities do not disrupt or adversely
affect the Company’s relationships with such suppliers.

 

B.            The provisions of this Section 8 shall begin as of the date
hereof, will survive the termination of this agreement under Section 7 and will
expire two years from the Date of Termination provided that, to the extent
required, the notices under  Section 7 are given and the payments made as
provided therein (the “Restriction Period”).

 

6.             Effective May 17, 2006, Landon’s employment with Meritage was
terminated. Thereafter, effective June 12, 2006, Meritage and Landon entered
into a Settlement Agreement and Mutual Release and Waiver of Claims (“Settlement
Agreement”). In Section 2 of the Settlement Agreement, titled “Principal
Economic Terms,” the parties agreed that Landon’s termination would be treated
as a termination without cause and that they would comply with Sections 7, 8,
and 9 of the Employment Agreement:

 

(a)           Landon and Meritage agree that (i) Landon’s termination shall be
treated as a termination without Cause pursuant to, and that Landon will receive
the benefits provided by, Section 7A of the Employment Agreement applicable
thereto, and (ii) Landon will remain subject to the restrictive covenants and
confidentiality obligations of Sections 8 and 9 of the Employment Agreement.

 

(b)           Landon hereby represents and warrants that the provisions of
Sections 8 and 9 of the Employment Agreement constitute valid and legally
binding obligations of Landon, enforceable against Landon in accordance with
their respective terms.

 

(c)           Meritage agrees to make the Consulting, Severance and
Non-Competition Payments (as such term is defined in Section 7A of the
Employment Agreement) to Landon as, and to the extent, required by the terms of
the Employment Agreement. . . .

 

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7.             Contemporaneously with the Settlement Agreement, Meritage and
Landon also entered into a Stock Purchase Agreement under which Meritage agreed
to repurchase 1,000,000 shares of Meritage common stock from Landon at a price
of $52.19 per share, in the aggregate amount of $52,190,000.00. As with the
Settlement Agreement, the provisions of Sections 7, 8, and 9 of the Employment
Agreement were incorporated into the Stock Purchase Agreement:

 

WHEREAS, Landon and Meritage are parties to that certain Employment Agreement
effective as of July 1, 2003, as amended from time to time (the “Employment
Agreement”), which Employment Agreement imposes various continuing obligations
upon Landon, as set forth in Sections 8 and 9 thereof (the “Continuing
Obligations”) and upon Meritage, as set forth under Section 7 thereof.

 

* * *

 

Compliance with Agreements. Landon will comply in all respects with the terms
and provisions of this Agreement, the Settlement Agreement and . . . his
Continuing Obligations under the Employment Agreement.

 

7.             Since his termination, Landon has violated Section 8 of the
Employment Agreement, the Settlement Agreement, and Stock Purchase Agreement by,
directly or indirectly, either as an executive, partner, owner, lender,
director, adviser, or consultant or in another capacity or through an entity,
(1) engaging in production homebuilding or home sales within 100 miles of a
Meritage project; (2) engaging in the sale of finished lots within the
restricted area without first offering those lots to Meritage or providing
Meritage a right of first refusal to purchase the lots; (3) hiring one or more
persons who were employees of or consultants to Meritage; and (4) soliciting one
or more customers or suppliers of Meritage for a production homebuilding
business or otherwise attempting to induce such customers or suppliers to
discontinue or materially modify their relationship with Meritage.

 

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CAUSES OF ACTION

 

Count I – Declaratory Judgment

 

8.             Meritage repeats and realleges each and every allegation in the
paragraphs above with the same force and effect as if fully set forth herein.

 

9.             This is an action for declaratory judgment pursuant to
Section 37.001, et seq., of the Texas Civil Practice and Remedies Code for the
purpose of determining a question of actual, justiciable controversy between
Meritage and Landon concerning their rights and obligations under the Employment
Agreement, the Settlement Agreement, and the Stock Purchase Agreement.

 

10.           Meritage seeks declarations that (1) Landon has breached the
Employment Agreement, the Settlement Agreement, and the Stock Purchase
Agreement; (2) Meritage has no obligation to pay Landon the Consulting,
Severance and Non-Competition Payment; and (3) the Stock Purchase Agreement is
rescinded pursuant to Section 7(b) of the Stock Purchase Agreement, and Landon
shall be required to repay Meritage the amount of the purchase price and
Meritage shall be required to return the purchased shares to Landon.

 

11.           All conditions precedent to the assertion of this claim have been
met, or they have been waived by Landon.

 

Count II – Breach of Contract

 

12.           Meritage repeats and realleges each and every allegation in the
paragraphs above with the same force and effect as if fully set forth herein.

 

13.           As a result of Landon’s breach of contract, Meritage has suffered
damages in the form of installments on the Consulting, Severance, and
Non-Competition Payment for which it is entitled to recover.

 

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14.           As a result of Landon’s breach of contract, Meritage is entitled
to rescind the Stock Purchase Agreement.

 

15.           All conditions precedent to the assertion of this claim have been
met, or they have been waived by Landon.

 

Count III – Injunction

 

16.           Meritage repeats and realleges each and every allegation in the
paragraphs above with the same force and effect as if fully set forth herein.

 

17.           As authorized by the Employment Agreement, the Settlement
Agreement, and the Stock Purchase Agreement, Meritage seeks injunctive relief to
enjoin Landon’s breach of contract for the remaining term of the Restrictive
Covenant, as extended pursuant to Section 8D of the Employment Agreement, “for a
period equal to the duration of any breach.”

 

18.           All conditions precedent to the assertion of this claim have been
met, or they have been waived by Landon.

 

RESERVATION

 

19.           Meritage reserves the right to assert claims arising from any
further or additional breach or violation of the Employment Agreement, the
Settlement Agreement, the Stock Purchase Agreement, and any other agreement with
Landon, or any other duty owed by Landon

 

PRAYER

 

WHEREFORE, Claimant Meritage Homes Corporation requests that Respondent John R.
Landon appear and serve an answering statement herein, and that upon final
hearing hereof, the panel:

 

(a)           determine and adjudicate the rights and liabilities of the parties
as set forth above;

 

(b)           award Meritage actual damages plus pre-award interest;

 

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(c)

order the immediate release to Meritage of all installments on the Consulting,
Severance, and Non-Competition Payment currently held in escrow;

 

 

(d)

rescind the Stock Purchase Agreement and order Landon to repay Meritage the
amount of the purchase price and Meritage to return the purchased shares to
Landon;

 

 

(e)

award Meritage injunctive relief as set forth above;

 

 

(f)

award Meritage costs and reasonable and necessary attorneys’ fees; and

 

 

(g)

award Meritage all other relief as the panel may deem proper and just.

 

 

Respectfully submitted,

 

 

 

BECK, REDDEN & SECREST

 

A Registered Limited Liability Partnership

 

 

 

 

 

By:

 /s/ Joe W. Redden, Jr.

 

Joe W. Redden, Jr.

 

State Bar No. 16660600

 

David W. Jones

 

State Bar No. 00790980

 

Matthew P. Whitley

 

State Bar No. 24037703

 

1221 McKinney, Suite 4500

 

Houston, Texas 77010

 

Telephone: (713) 951-3700

 

Telecopier: (713) 951-3730

 

 

 

Attorneys for Meritage Homes Corporation

 

 

CERTIFICATE OF SERVICE

 

I hereby certify that a true and correct copy of the foregoing has been provided
by facsimile to Respondent’s counsel of record on February 18, 2007.

 

 

 

/s/ David W. Jones

 

David W. Jones

 

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EXHIBIT C

Wire Instructions

 

***

 

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***     CONFIDENTIAL INFORMATION HAS BEEN OMITTED

 

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