Exhibit 10.3


 


MERITAGE HOMES CORPORATION


STOCK OPTION PLAN


 


1.                                      Establishment,
Purpose and Definitions


 


(a)                                  The
Stock Option Plan (the “Option Plan”) of Meritage Homes 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 (as defined herein) of the Company
pursuant to (i) options which may qualify as ISOs under Section 422 of the
Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), or
(ii) NSOs which may not so qualify.


 


(d)                                 The
term “Affiliates” as used in this Option Plan means parent or subsidiary
corporations, as defined in Section 424(e) and (f) of the Code (but
substituting “the Company” for “employer corporation”), including parents or
subsidiaries which become such after adoption of the Option Plan.


 


2.                                      Administration
of the Plan


 


(a)                                  The
Option Plan shall be administered by members of the Board of Directors of the
Company (the “Board”) qualifying as “non-employee directors” as such term is
defined in Rule 16b-3 promulgated by the Securities and Exchange Commission
(the “Commission”).


 


(b)                                 The
Board may from time to time determine which employees of the Company or its
Affiliates or other individuals or entities (each an “option holder”) shall be
granted options under the Option Plan, the terms thereof (including without
limitation determining whether the option is an incentive stock option and the times
at which the options shall become exercisable), and the number of shares of
Stock for which an option or options may be granted.


 


(c)                                  If
rights of the Company to repurchase Stock are imposed, the Board may, in its
sole discretion, accelerate, in whole or in part, the time for lapsing of any
rights of the Company to repurchase shares of such Stock or forfeiture
restrictions.


 


(d)                                 If
rights of the Company to repurchase Stock are imposed, the certificates
evidencing such shares of Stock awarded hereunder, although issued in the name
of the option holder concerned, shall be held by the Company or a third party
designated by the Board in escrow subject to delivery to the option holder or
to the Company at such times and in such amounts as shall be directed by the
Board under the terms of this Option Plan. 
Share certificates


 





















 


representing Stock that is
subject to repurchase rights shall have imprinted or typed thereon a legend or
legends summarizing or referring to the repurchase rights.


 


(e)                                  The
Board shall have the sole authority, in its absolute discretion, to adopt,
amend and rescind such rules and regulations, consistent with the provisions of
the Option Plan, as, in its opinion, may be advisable in the administration of
the Option Plan, to construe and interpret the Option Plan, the rules and
regulations, and the instruments evidencing options granted under the Option
Plan and to make all other determinations deemed necessary or advisable for the
administration of the Option Plan.  All
decisions, determinations and interpretations of the Board shall be binding on
all option holders under the Option Plan.


 


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 5,900,000 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 per year.


 


(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


 


2





















 


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 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


 


(a)                                  Each
option granted pursuant to the Option Plan shall be evidenced by a written
stock option agreement (the “Option Agreement”) executed by the Company and the
person to whom such option is granted.  The
Option Agreement shall designate whether the option is an ISO or an NSO.


 


(b)                                 The
term of each ISO and NSO shall be no more than 10 years, except that the term
of each ISO issued to any person possessing more than 10% of the voting power
of all classes of stock of the Company or any Affiliate shall be no more than 5
years.  Subsequently issued options, if
Stock becomes available because of further allocations or the lapse of
previously outstanding options, will extend for terms determined by the Board
or the Committee but in no event shall an ISO be exercised after the expiration
of 10 years from the date of its grant.


 


(c)                                  In
the case of ISOs, the aggregate fair market value (determined as of the time
such option is granted) of the Stock to which ISOs are exercisable for the
first time by such individual during any calendar year (under this Option Plan
and any other plans of the Company or its Affiliates if any) shall not exceed
the amount specified in Section 422(d) of the Internal Revenue Code, or any
successor provision in effect at the time an ISO becomes exercisable.


 


(d)                                 The
Option Agreement may contain such other terms, provisions and conditions
regarding vesting, repurchase or other provisions as may be determined by the
Board.  To the extent such terms,
provisions and conditions are inconsistent with this Option Plan, the specific
provisions of the Option Plan shall prevail. 
If an option, or any part thereof, is intended to qualify as an ISO, the
Option Agreement shall contain those terms and conditions, which the Board
determines, are necessary to so qualify under Section 422 of the Internal
Revenue Code.


 


(e)                                  The
Board shall have full power and authority to extend the period of time for
which any option granted under the Option Plan is to remain exercisable
following the option holder’s cessation of service as an employee, director or
consultant, including without limitation


 


3





















 


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 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


 


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.


 


4





















 


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)                                  [Reserved.]


 


(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)                                  Except
as set forth in Section (b) below, each ISO and NSO granted pursuant to this
Option Plan shall, during the 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.


 


(b)                                 The
Board shall have the authority, in its discretion, to grant (or to sanction by
way of amendment to an existing option) NSOs which may be transferred by the
Participant during his or her lifetime to any Family Member (as defined
below).  Unless transfers for the
Participant have been previously approved by the Board, a transfer of an option
pursuant hereto may only be effected by the Company at the written request of
the Participant.  In the event an option
is transferred as contemplated herein, such transferred option may not be
subsequently transferred by the transferee (other than another transfer meeting
the conditions herein) except by will or the laws of descent and distribution.  A transferred option shall continue to be
governed by and subject to the terms and limitations of the Option Plan and
relevant Option Agreement, and the transferee shall be entitled to the same
rights as the Participant, as if the transfer had not taken place.


 


For purposes of this Section 9(b), the term “Family
Member” means spouse and any parent, stepparent, grandparent, child, stepchild,
or grandchild, including adoptive relationships or a trust or any other entity
in which these persons (or the Participant) have more than 50% of the
beneficial interest.


 


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,


 


5





















 


(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 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 assets
of the Company in liquidation or dissolution of the Company; or


 


6





















 


(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 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


 


7





















 


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.


 


8