Exhibit 4.1


 


MERITAGE HOMES CORPORATION


2006 STOCK INCENTIVE PLAN


 


EFFECTIVE DATE:  MAY
17, 2006


APPROVED BY STOCKHOLDERS: 
MAY 17, 2006


TERMINATION DATE:  MAY
16, 2016


 


ARTICLE 1

PURPOSE


 


1.1                                 GENERAL. The purpose of the Meritage Homes
Corporation 2006 Stock Incentive Plan (the “Plan”) is to promote the
success and enhance the value of Meritage Homes Corporation (the “Company”)
by linking the personal interests of the members of the Board, employees,
officers, executives, consultants and advisors to those of Company stockholders
and by providing such individuals with an incentive for outstanding performance
to generate superior returns to Company stockholders. The Plan is further
intended to provide flexibility to the Company in its ability to motivate, attract,
and retain the services of Board members, employees, officers, executives,
consultants and advisors upon whose judgment, interest, and special effort the
successful conduct of the Company’s operation is largely dependent.


 


ARTICLE 2

EFFECTIVE AND EXPIRATION DATE


 


2.1                                 EFFECTIVE DATE. The Plan is effective as of the date the
Plan is approved by the Company’s stockholders (the “Effective Date”).


 


2.2                                 EXPIRATION DATE. The Plan will expire on, and no Award may
be granted under the Plan after, the tenth anniversary of the Effective Date. Any
Awards that are outstanding on the tenth anniversary of the Effective Date
shall remain in force according to the terms of the Plan and the Award
Agreement.


 


ARTICLE 3

DEFINITIONS AND CONSTRUCTION


 


3.1                                 DEFINITIONS. The following words and phrases shall have
the following meanings:


 


(a)                                  “Award” means any Option, Stock
Appreciation Right, Restricted Stock Award, Performance Share Award, or
Performance-Based Award granted to a Participant under the Plan.


 


(b)                                 “Award Agreement” means any written
agreement, contract, or other instrument or document evidencing an Award.


 


(c)                                  “Board” means the Board of Directors
of the Company.


 


(d)                                 “Cause” means and will exist in the
following circumstances in which the Participant: (i) is convicted of a felony,
(ii) engages in any fraudulent or other dishonest act to the detriment of the
Company, (iii) fails to report for work on a regular basis, except for periods
of authorized absence or bona fide illness, (iv) misappropriates trade secrets,
customer lists, or other proprietary information belonging to the Company for
his or her own benefit or for the benefit of a competitor, (v) engages in any
willful misconduct designed to harm the Company or its stockholders, or (vi)
fails to perform properly his or her assigned duties.


 


(e)                                  “Change of Control” means and includes
each of the following:


 


(1)                                  A sale, transfer, or other disposition by the
Company through a single transaction or a series of transactions of securities
of the Company representing 50% or more of the combined


 

















 


voting power of the
Company’s then outstanding securities to any “Unrelated Person” or “Unrelated
Persons” acting in concert with one another. For purposes of this definition,
the term “Person” shall mean and include any individual, partnership, joint
venture, association, trust, corporation, or other entity (including a “group”
as referred to in Section 13(d)(3) of the Exchange Act). For purposes of this
definition, the term “Unrelated Person” shall mean and include any Person other
than the Company, or an employee benefit plan of the Company; or


 


(2)                                  A sale, transfer, or other disposition
through a single transaction or a series of related transactions of all or
substantially all of the assets of the Company to an Unrelated Person or
Unrelated Persons acting in concert with one another; or


 


(3)                                  Any consolidation or merger of the Company
with or into an Unrelated Person, unless immediately after the consolidation or
merger the holders of the common stock of the Company immediately prior to the
consolidation or merger are the beneficial owners of securities of the
surviving corporation representing at least 50% of the combined voting power of
the surviving corporation’s then outstanding securities.


 


(f)                                    “Code” means the Internal Revenue Code
of 1986, as amended.


 


(g)                                 “Committee” means the committee of the
Board described in Section 4.1.


 


(h)                                 “Covered Employee” means an employee
who is, or could be, a “covered employee” within the meaning of Section 162(m)
of the Code.


 


(i)                                     “Disability” means, for purposes of this Plan, that the Participant
qualifies to receive long term disability payments under the Company’s long
term disability insurance program, as it may be amended from time to time.


 


(j)                                     “Exchange Act” means the Securities
Exchange Act of 1934, as amended.


 


(k)                                  “Fair Market Value” means, as of any
given date, the fair market value of Stock on a particular date determined by
such methods or procedures as may be established from time to time by the
Committee. Unless otherwise determined by the Committee, the Fair Market Value
of Stock as of any date shall be the closing price for the Stock as reported on
the New York Stock Exchange (or on any national securities exchange on which
the Stock is then listed) for that date or, if no such prices are reported for
that date, the average of the high and low trading prices on the next preceding
date for which such prices were reported.


 


(l)                                     “Incentive Stock Option” means an
Option that is intended to meet the requirements of Section 422 of the Code or
any successor provision thereto.


 


(m)                               “Non-Employee Director” means a member
of the Board who qualifies as a “Non-Employee Director” as defined in Rule
16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the
Board.


 


(n)                                 “Non-Qualified Stock Option” means an
Option that is not intended to be an Incentive Stock Option.


 


(o)                                 “Option” means a right granted to a
Participant pursuant to Article 7 of the Plan to purchase Stock at a specified
price during specified time periods. An Option may be either an Incentive Stock
Option or a Non-Qualified Stock Option.


 


(p)                                 “Participant” means a person who, as a
member of the Board, employee, officer, or executive of, or consultant or
advisor to, the Company or any Subsidiary, has been granted an Award pursuant
to the Plan.


 


(q)                                 “Performance-Based Awards” means the
Performance Share Awards and Restricted Stock Awards granted to select Covered
Employees pursuant to Articles 9 and 10, respectively, but which are


 


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subject to the terms and
conditions set forth in Article 11. All Performance-Based Awards are intended
to qualify as “performance-based compensation” pursuant to Section 162(m) of
the Code.


 


(r)                                    “Performance Criteria” means the
criteria that the Committee selects for purposes of establishing the
Performance Goal or Performance Goals for a Participant for a Performance
Period. The Performance Criteria that will be used to establish Performance
Goals are limited to the following: pre- or after-tax net earnings, earnings
before interest expense (including interest amortized to cost of sales) and
income taxes (“EBIT”), earnings before interest expense (including interest
amortized to cost of sales), income taxes, depreciation and amortization
(“EBITDA”), revenue growth, operating income, operating cash flow, return on
net assets, return on shareholders’ equity, return on assets, return on
capital, share price growth, shareholder returns, gross or net profit margin,
earnings per share, price per share, and market share, any of which may be
measured either in absolute terms or as compared to any incremental increase or
as compared to results of a peer group. The Committee shall, within the time
prescribed by Section 162(m) of the Code, define in an objective fashion the
manner of calculating the Performance Criteria it selects to use for such
Performance Period for such Participant.


 


(s)                                  “Performance Goals” means, for a
Performance Period, the goals established in writing by the Committee for the Performance
Period based upon the Performance Criteria. Depending on the Performance
Criteria used to establish such Performance Goals, the Performance Goals may be
expressed in terms of overall Company performance or the performance of a
division, business unit, or an individual. The Committee, in its discretion,
may, within the time prescribed by Section 162(m) of the Code, adjust or modify
the calculation of Performance Goals for such Performance Period in order to
prevent the dilution or enlargement of the rights of Participants (i) in the
event of, or in anticipation of, any unusual or extraordinary corporate item,
transaction, event, or development, or (ii) in recognition of, or in
anticipation of, any other unusual or nonrecurring events affecting the
Company, or the financial statements of the Company, or in response to, or in
anticipation of, changes in applicable laws, regulations, accounting
principles, or business conditions.


 


(t)                                    “Performance Period” means the one or
more periods of time, which may be of varying and overlapping durations, as the
Committee may select, over which the attainment of one or more Performance
Goals will be measured for the purpose of determining a Participant’s right to,
and the payment of, a Performance-Based Award.


 


(u)                                 “Performance Share Award” means a
right granted to a Participant pursuant to Article 9, to receive cash, Stock,
or other Awards, the payment of which is contingent upon achieving certain
performance goals established by the Committee.


 


(v)                                 “Plan” means this Meritage Homes
Corporation 2006 Stock Incentive Plan, as amended.


 


(w)                               “Restricted Stock Award” means Stock
granted to a Participant pursuant to Article 10 that is subject to certain
restrictions and to risk of forfeiture.


 


(x)                                   “Stock” means the common stock of the
Company and such other securities of the Company that may be substituted for
Stock pursuant to Article 13.


 


(y)                                 “Stock Appreciation Right” or “SAR”
means a right granted to a Participant under Article 8 to receive the
appreciation on Stock.


 


(z)                                   “Subsidiary” means any corporation or
other entity of which a majority of the outstanding voting stock or voting
power is beneficially owned directly or indirectly by the Company.


 


ARTICLE 4

ADMINISTRATION


 


4.1                                 COMMITTEE. The Plan shall be administered by the
Executive Compensation Committee of the Board. The Committee (or subcommittee
thereof) shall consist of at least two individuals, each of whom


 


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qualifies as (i) a
Non-Employee Director, and (ii) an “outside director” pursuant to Section
162(m) of the Code and the regulations issued thereunder.


 


4.2                                 ACTION BY THE COMMITTEE. A majority of the Committee shall
constitute a quorum. The acts of a majority of the members present at any
meeting at which a quorum is present, and acts approved in writing by a
majority of the Committee in lieu of a meeting, shall be deemed the acts of the
Committee. Each member of the Committee is entitled to, in good faith, rely or
act upon any report or other information furnished to that member by any
officer or other employee of the Company or any Subsidiary, the Company’s
independent registered public accountants, or any executive compensation
consultant or other professional retained by the Company to assist in the administration
of the Plan.


 


4.3                                 AUTHORITY OF COMMITTEE. Subject to any specific designation in the
Plan, the Committee has the exclusive power, authority and discretion to:


 


(a)                                  designate Participants to receive Awards;


 


(b)                                 determine the type or types of Awards to be
granted to each Participant;


 


(c)                                  determine the number of Awards to be granted
and the number of shares of Stock to which an Award will relate;


 


(d)                                 determine the terms and conditions of any
Award granted pursuant to the Plan, including, but not limited to, the exercise
price, grant price, or purchase price, any restrictions or limitations on the
Award, any schedule for lapse of forfeiture restrictions or restrictions on the
exercisability of an Award, and accelerations or waivers thereof, based in each
case on such considerations as the Committee in its sole discretion determines;
provided, however, that the Committee shall not (i) have the authority to
accelerate the vesting or waive the forfeiture of any Performance-Based Awards,
or (ii) take any action or fail to take any action with respect to the
operation of the Plan that would cause all or part of the payment under any
Award to be subject to the additional tax under Section 409A of the Code;


 


(e)                                  determine whether, to what extent, and
pursuant to what circumstances an Award may be settled in, or the exercise
price of an Award may be paid in, cash, Stock, other Awards, or other property,
or an Award may be canceled, forfeited, or surrendered;


 


(f)                                    prescribe the form of each Award Agreement,
which need not be identical for each Participant;


 


(g)                                 decide all other matters that must be
determined in connection with an Award;


 


(h)                                 establish, adopt, or revise any rules and
regulations as it may deem necessary or advisable to administer the Plan;


 


(i)                                     interpret the terms of, and any matter
arising pursuant to, the Plan or any Award Agreement; and


 


(j)                                     make all other decisions and determinations
that may be required pursuant to the Plan or as the Committee deems necessary
or advisable to administer the Plan.


 


4.4                                 DECISIONS BINDING. The Committee’s interpretation of the Plan,
any Awards granted pursuant to the Plan, any Award Agreement and all decisions
and determinations by the Committee with respect to the Plan are final,
binding, and conclusive on all parties.


 


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ARTICLE 5

SHARES SUBJECT TO THE PLAN


 


5.1                                 NUMBER OF SHARES. Subject to adjustment provided in Article
13, the aggregate number of shares of Stock reserved and available for grant
pursuant to the Plan shall be 700,000, plus (i) the number of shares of Stock
available for grant pursuant to the Meritage Homes Corporation Stock Option
Plan (“Prior Plan”) as of the Effective Date, and (ii) the number of shares of
Stock that were previously granted pursuant to the Prior Plan and that either
terminate, expire, or lapse for any reason after the Effective Date. Any shares
of Stock issued in connection with Awards other than Options and Stock
Appreciation Rights shall be counted against the shares available for grant
pursuant to the previous sentence as 1.38 shares for every one share issued in
connection with such Award or by which the Award is valued by reference. Notwithstanding
the above, the maximum number of shares of Stock that may be awarded as
Incentive Stock Options under the Plan is 1,200,000.


 


5.2                                 LAPSED OR ASSUMED AWARDS. To the extent that an Award terminates,
expires, or lapses for any reason, any shares of Stock subject to the Award
will again be available for the grant of an Award pursuant to the Plan. Additionally,
to the maximum extent permitted by applicable law or any securities exchange
rule, shares of Stock issued in assumption of, or in substitution for, any
outstanding awards of any entity acquired in any form of combination by the
Company or any Subsidiary shall not be counted against shares of Stock
available for grant pursuant to this Plan. However, for avoidance of doubt, the
exercise of a stock-settled SAR or net-cashless exercise of an Option (or a
portion thereof) will reduce the number of shares of Stock available for
issuance hereunder by the entire number of shares of Stock subject to that SAR
or Option (or applicable portion thereof), even though a smaller number of
shares of Stock will be issued upon such an exercise. Also, shares of Stock
tendered to pay the exercise price of an Option or to satisfy a tax withholding
obligation arising in connection with an Award will not become available for
grant or sale under the Plan.


 


5.3                                 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award
may consist, in whole or in part, of authorized and unissued Stock, treasury
Stock or Stock purchased on the open market.


 


5.4                                 LIMITATION ON NUMBER OF
SHARES SUBJECT TO AWARDS.
Notwithstanding any provision in the Plan to the contrary, and subject to the
adjustment in Article 13, the maximum number of shares (counted, as described
in Section 5.1 above, as 1.38 shares awarded for every one share issued in
connection with such Award or by which the Award is valued by reference) of
Stock with respect to one or more Awards that may be granted to any one
Participant during a calendar shall be 100,000.


 


ARTICLE 6

ELIGIBILITY AND PARTICIPATION


 


6.1                                 ELIGIBILITY.


 


(a)                                  General. Persons eligible to participate in this
Plan include all members of the Board, employees, officers, and executives of,
and consultants and advisors providing services to, the Company or a
Subsidiary, as determined by the Committee.


 


(b)                                 Foreign Participants. In order to assure the viability of Awards
granted to Participants employed in foreign countries, the Committee may
provide for such special terms as it may consider necessary or appropriate to
accommodate differences in local law, tax policy, or custom. Moreover, the
Committee may approve such supplements to, or amendments, restatements, or
alternative versions of, the Plan as it may consider necessary or appropriate
for such purposes without thereby affecting the terms of the Plan as in effect
for any other purpose; provided, however, that no such supplements, amendments,
restatements, or alternative versions shall increase the share limitations
contained in Article 5 of the Plan.


 


6.2                                 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from among all eligible individuals,
those to whom Awards shall be granted and shall determine the nature and amount
of each Award. No individual shall have any right to be granted an Award
pursuant to this Plan.


 


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ARTICLE 7

STOCK OPTIONS


 


7.1                                 GENERAL. The Committee is authorized to grant
Options to Participants on the following terms and conditions:


 


(a)                                  Exercise Price. The exercise price per share of Stock
pursuant to an Option shall be determined by the Committee and set forth in the
Award Agreement; provided that the exercise price for any Option shall not be
less than the Fair Market Value as of the date of grant.


 


(b)                                 Time and Conditions of
Exercise. The Committee
shall determine the time or times at which an Option may be exercised in whole
or in part provided that the term of any Option granted under the Plan shall
not exceed ten years. The Committee shall also determine the performance or
other conditions, if any, that must be satisfied before all or part of an
Option may be exercised. Unless otherwise provided in an Award Agreement, an
Option will lapse immediately if a Participant’s employment is terminated for
Cause.


 


(c)                                  Payment. The Committee shall determine the methods
by which the exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, promissory note, shares of Stock held for
longer than six months (through actual tender or by attestation), or other
property acceptable to the Committee (including broker-assisted “cashless
exercise” arrangements), and the methods by which shares of Stock shall be
delivered or deemed to be delivered to Participants.


 


(d)                                 Evidence of Grant. All Options shall be evidenced by a written
Award Agreement between the Company and the Participant in the form attached to
this Plan as Exhibit A. The Award Agreement shall include such additional
provisions as may be specified by the Committee.


 


7.2                                 INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be granted
only to employees and the terms of any Incentive Stock Options granted pursuant
to the Plan must comply with the following additional provisions of this
Section 7.2:


 


(a)                                  Exercise Price. Subject to Section 7.2(d), the exercise
price per share of Stock shall be set by the Committee, provided that the
exercise price for any Incentive Stock Option may not be less than the Fair
Market Value as of the date of the grant.


 


(b)                                 Exercise. In no event, may any Incentive Stock Option
be exercisable for more than ten years from the date of its grant.


 


(c)                                  Lapse of Option. An Incentive Stock Option shall lapse
pursuant to the following circumstances.


 


(1)                                  The Incentive Stock Option shall lapse ten
years from the date it is granted, unless an earlier time is set in the Award
Agreement.


 


(2)                                  The Incentive Stock Option shall lapse upon
termination of employment for Cause or for any other reason other than the
Participant’s death or Disability, unless otherwise provided in the Award
Agreement.


 


(3)                                  If the Participant terminates employment on
account of Disability or death before the Option lapses pursuant to paragraph
(1) or (2) above, the Incentive Stock Option shall lapse, unless it is
previously exercised, on the earlier of (i) the scheduled termination date of
the Option; or (ii) 12 months after the date of the Participant’s termination of
employment on account of Disability or death. Upon the Participant’s Disability
or death, any Incentive Stock Options exercisable at the Participant’s
Disability or death may be exercised by the Participant’s legal representative
or representatives, by the person or persons entitled to do so pursuant to the
Participant’s last will and testament, or, if the Participant fails to make
testamentary disposition of such Incentive 


 


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Stock Option or dies intestate,
by the person or persons entitled to receive the Incentive Stock Option
pursuant to the applicable laws of descent and distribution.


 


(d)                                 Individual Dollar Limitation. The aggregate Fair Market Value (determined
as of the time an Award is made) of all shares of Stock with respect to which
Incentive Stock Options are first exercisable by a Participant in any calendar
year may not exceed $100,000.00 or such other limitation as imposed by Section
422(d) of the Code, or any successor provision. To the extent that Incentive
Stock Options are first exercisable by a Participant in excess of such
limitation, the excess shall be considered Non-Qualified Stock Options.


 


(e)                                  Ten Percent Owners. An Incentive Stock Option shall be granted
to any individual who, at the date of grant, owns stock possessing more than
ten percent of the total combined voting power of all classes of Stock of the
Company only if such Option is granted at a price that is not less than 110% of
Fair Market Value on the date of grant and the Option is exercisable for no
more than five years from the date of grant.


 


(f)                                    Expiration of Incentive
Stock Options. No Award
of an Incentive Stock Option may be made pursuant to this Plan after the tenth
anniversary of the Effective Date.


 


(g)                                 Right to Exercise. Except as provided in Section 12.5, during
a Participant’s lifetime, an Incentive Stock Option may be exercised only by
the Participant.


 


ARTICLE 8

STOCK APPRECIATION RIGHTS


 


8.1                                 Grant Of SARs. The Committee is authorized to grant SARs
to Participants on the following terms and conditions:


 


(a)                                  Right to Payment. Upon the exercise of a SAR, the Participant
to whom it is granted has the right to receive the excess, if any, of:


 


(1)                                  the Fair Market Value of a share of Stock on
the date of exercise; over


 


(2)                                  the grant price of the SAR as determined by
the Committee, which shall not be less than the Fair Market Value of a share of
Stock on the date of grant.


 


(b)                                 Other Terms. All SARs grants will be evidenced by an
Award Agreement. The terms, methods of exercise, methods of settlement, and any
other terms and conditions of any SAR will be determined by the Committee at
the time of the grant of the Award and as set forth in the Award Agreement;
provided that the form of consideration payable in settlement of a SAR shall be
Stock.


 


ARTICLE 9

PERFORMANCE SHARES


 


9.1                                 GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted to each Participant. All
Awards of Performance Shares shall be evidenced by an Award Agreement.


 


9.2                                 RIGHT TO PAYMENT. A grant of Performance Shares gives the
Participant rights, valued as determined by the Committee, and payable to, or
exercisable by, the Participant to whom the Performance Shares are granted, in
whole or in part, as the Committee shall establish at grant or thereafter. Subject
to the terms of the Plan, the Committee shall set performance goals and other
terms or conditions to payment of the Performance Shares in its discretion
which, depending on the extent to which they are met, will determine the number
and value of Performance Shares that will be paid to the Participant.


 


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9.3                                 OTHER TERMS. Performance Shares may be payable in cash,
Stock, or other property, and have such other terms and conditions as
determined by the Committee and reflected in a written Performance Share Award
Agreement. Unless otherwise provided in an Award Agreement, Performance Shares
will lapse immediately if a Participant’s employment is terminated for Cause.


 


ARTICLE 10

RESTRICTED STOCK AWARDS


 


10.1                           GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards
of Restricted Stock to Participants in such amounts and subject to such terms
and conditions as determined by the Committee. All Awards of Restricted Stock
shall be evidenced by a written Restricted Stock Award Agreement.


 


10.2                           ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock). These
restrictions may lapse separately or in combination at such times, pursuant to
such circumstances, in such installments, or otherwise, as the Committee
determines at the time of the grant of the Award or thereafter.


 


10.3                           FORFEITURE. Except as otherwise determined by the
Committee at the time of the grant of the Award or thereafter, upon termination
of employment during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited; provided, however,
that the Committee may provide in any Restricted Stock Award Agreement that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive in whole or in
part restrictions or forfeiture conditions relating to Restricted Stock. Unless
otherwise provided in an Award Agreement, Restricted Stock will be forfeited
immediately if a Participant’s employment is terminated for Cause.


 


10.4                           CERTIFICATES FOR RESTRICTED
STOCK. Restricted Stock
granted pursuant to the Plan may be evidenced in such manner as the Committee
shall determine. If certificates representing shares of Restricted Stock are
registered in the name of the Participant, certificates must bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock, and the Company may, at its discretion,
retain physical possession of the certificate until such time as all applicable
restrictions lapse.


 


ARTICLE 11

PERFORMANCE-BASED AWARDS


 


11.1                           PURPOSE. The purpose of this Article 11 is to
provide the Committee the ability to qualify the Performance Share Awards
pursuant to Article 9 and the Restricted Stock Awards pursuant to Article 10 as
“performance-based compensation” pursuant to Section 162(m) of the Code. If the
Committee, in its discretion, decides to grant a Performance-Based Award to a
Covered Employee, the provisions of this Article 11 shall control over any
contrary provision contained in Articles 9 or 10.


 


11.2                           APPLICABILITY. This Article 11 shall apply only to those
Covered Employees selected by the Committee to receive Performance-Based Awards.
The Committee may, in its discretion, grant Restricted Stock Awards or
Performance Share Awards to Covered Employees that do not satisfy the
requirements of this Article 11. The designation of a Covered Employee as a
Participant for a Performance Period shall not in any manner entitle the
Participant to receive an Award for the period. Moreover, designation of a
Covered Employee as a Participant for a particular Performance Period shall not
require designation of such Covered Employee as a Participant in any subsequent
Performance Period and designation of one Covered Employee as a Participant
shall not require designation of any other Covered Employees as a Participant
in such period or in any other period.


 


11.3                           DISCRETION OF COMMITTEE WITH
RESPECT TO PERFORMANCE AWARDS. With regard to a particular Performance Period, the Committee shall
have full discretion to select the length of such Performance Period, the type
of Performance-Based Awards to be issued, the kind and/or level of the
Performance Goal, and whether the Performance Goal is to apply to the Company,
a Subsidiary or any division or business unit


 


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thereof. Unless otherwise
provided in an Award Agreement, Performance-Based Awards will be forfeited if a
Participant’s employment is terminated for Cause.


 


11.4                           PAYMENT OF PERFORMANCE
AWARDS. Unless otherwise
provided in the relevant Award Agreement, a Participant must be employed by the
Company or a Subsidiary on the day a Performance Award for such Performance
Period is paid to the Participant. Furthermore, a Participant shall be eligible
to receive payment pursuant to a Performance-Based Award for a Performance
Period only if the Performance Goals for such period are achieved. In
determining the actual size of an individual Performance-Based Award, the
Committee may reduce or eliminate the amount of the Performance-Based Award
earned for the Performance Period, if in its sole and absolute discretion, such
reduction or elimination is appropriate.


 


11.5                           MAXIMUM AWARD PAYABLE. The maximum Performance-Based Award payable
to any one Participant pursuant to the Plan for a Performance Period is 100,000
shares (counted, as described in Section 5.1 above, as 1.38 shares awarded for
every one share issued in connection with such Award or by which the Award is
valued by reference) of Stock.


 


ARTICLE 12

PROVISIONS APPLICABLE TO AWARDS


 


12.1                           STAND-ALONE AND TANDEM
AWARDS. Awards granted
pursuant to the Plan may, in the discretion of the Committee, be granted either
alone, in addition to, or in tandem with, any other Award granted pursuant to
the Plan. Awards granted in addition to or in tandem with other Awards may be
granted either at the same time as or at a different time from the grant of
such other Awards.


 


12.2                           TERM OF AWARD. The term of each Award shall be for the
period as determined by the Committee, provided that in no event shall the term
of any Option or Stock Appreciation Right granted in tandem with the Incentive
Stock Option exceed a period of ten years from the date of its grant.


 


12.3                           FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary on the grant or exercise of an Award may be made in
such forms as the Committee determines at or after the time of grant,
including, without limitation, cash, promissory note, Stock held for more than
six months, other Awards, or other property, or any combination, and may be
made in a single payment or transfer, in installments, or on a deferred basis,
in each case determined in accordance with rules adopted by, and at the
discretion of, the Committee.


 


12.4                           LIMITS ON TRANSFER.


 


(a)                                  General. Except as provided in Section 12.4(b) or
Section 12.5, no right or interest of a Participant in any Award may be
pledged, encumbered, or hypothecated to, or in favor of, any party other than
the Company or a Subsidiary, or shall be subject to any lien, obligation, or
liability of such Participant to any other party other than the Company or a
Subsidiary. Except as provided in Section 12.4(b) or Section 12.5, and except
as otherwise provided by the Committee, no Award shall be assigned,
transferred, or otherwise disposed of by a Participant other than by will or
the laws of descent and distribution.


 


(b)                                 Transfers to Family Members. The Committee shall have the authority, in
its discretion, to grant (or to sanction by way of amendment to an existing
Award) Awards 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 Committee, a transfer of an
Award pursuant hereto may only be affected by the Company at the written
request of the Participant. In the event an Award is transferred as
contemplated herein, such transferred Award 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 Award
shall continue to be governed by and subject to the terms and limitations of
the Plan and relevant Award 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 12.4(b), the term “Family Member” means spouse and any
parent, stepparent,


 


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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.


 


12.5                           BENEFICIARIES. Notwithstanding Section 12.4, a Participant
may, in the manner determined by the Committee, designate a beneficiary to
exercise the rights of the Participant and to receive any distribution with
respect to any Award upon the Participant’s death. A beneficiary, legal
guardian, legal representative, or other person claiming any rights pursuant to
the Plan is subject to all terms and conditions of the Plan and any Award
Agreement applicable to the Participant, except to the extent the Plan and
Award Agreement otherwise provide, and to any additional restrictions deemed
necessary or appropriate by the Committee. If the Participant is married and
resides in a community property state, a designation of a person other than the
Participant’s spouse as his beneficiary with respect to more than 50% of the
Participant’s interest in the Award shall not be effective without the prior
written consent of the Participant’s spouse. If no beneficiary has been
designated or survives the Participant, payment shall be made to the person
entitled thereto pursuant to the Participant’s will or the laws of descent and
distribution. Subject to the foregoing, a beneficiary designation may be
changed or revoked by a Participant at any time provided the change or
revocation is provided to the Committee.


 


12.6                           STOCK CERTIFICATES. Notwithstanding anything herein to the
contrary, the Company shall not be required to issue or deliver any
certificates evidencing shares of Stock pursuant to the exercise of any Award,
unless and until the Board has determined, with advice of counsel, that the
issuance and delivery of such certificates is in compliance with all applicable
laws, regulations of governmental authorities and, if applicable, the
requirements of any exchange on which the shares of Stock are listed or traded.
All Stock certificates delivered pursuant to the Plan are subject to any
stop-transfer orders and other restrictions as the Committee deems necessary or
advisable to comply with Federal, state, or foreign jurisdiction, securities or
other laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on which the Stock is listed, quoted, or
traded. The Committee may place legends on any Stock certificate to reference
restrictions applicable to the Stock. In addition to the terms and conditions
provided herein, the Board may require that a Participant make such reasonable
covenants, agreements, and representations as the Board, in its discretion,
deems advisable in order to comply with any such laws, regulations, or
requirements.


 


12.7                           ACCELERATION UPON A CHANGE
OF CONTROL. If a Change
of Control occurs and Awards are converted, assumed, or replaced by a
successor, the Committee shall have the discretion to cause all outstanding
Awards to become fully exercisable and all restrictions on outstanding Awards
to lapse. If a Change of Control occurs and Awards are not converted, assumed,
or replaced by a successor, all outstanding Awards shall automatically become
fully exercisable and all restrictions on outstanding Awards shall lapse. To
the extent that this provision causes Incentive Stock Options to exceed the
dollar limitation set forth in Section 7.2(d), the excess Options shall be
deemed to be Non-Qualified Stock Options. Upon, or in anticipation of, such an
event, the Committee may cause every Award outstanding hereunder to terminate
at a specific time in the future and shall give each Participant the right to
exercise Awards during a period of time as the Committee, in its sole and
absolute discretion, shall determine.


 


ARTICLE 13

CHANGES IN CAPITAL STRUCTURE


 


13.1                           SHARES AVAILABLE FOR GRANT. In the event of any change in the number of
shares of Stock outstanding by reason of any stock dividend or split,
recapitalization, merger, consolidation, combination or exchange of shares or
similar corporate change, the maximum aggregate number of shares of Stock with
respect to which the Committee may grant Awards, the number of shares of Stock
subject to any Award, and any numeric limitation expressed in the Plan shall be
appropriately adjusted by the Committee.


 


13.2                           OUTSTANDING AWARDS –
INCREASE OR DECREASE IN ISSUED SHARES WITHOUT CONSIDERATION. Subject to any required action by the
stockholders of the Company, in the event of any increase or decrease in the
number of issued shares of Stock resulting from a subdivision or consolidation
of shares of Stock or the payment of a stock dividend (but only on the shares
of Stock), or any other increase or decrease in the number of such shares
effected without receipt or payment of consideration by the Company, the
Committee shall proportionally adjust the number of shares of Stock subject to
each outstanding Award and the exercise price per share of Stock of each such
Award.


 


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13.3                           OUTSTANDING AWARDS – CERTAIN
MERGERS. Subject to any
required action by the stockholders of the Company, in the event that the
Company shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Stock receive securities of another corporation), each Award outstanding on the
date of such merger or consolidation shall pertain to and apply to the
securities that a holder of the number of shares of Stock subject to such Award
would have received in such merger or consolidation.


 


13.4                           OUTSTANDING AWARDS – OTHER
CHANGES. In the event of
any other change in the capitalization of the Company or corporate change other
than those specifically referred to in Article 13, the Committee may, in its
absolute discretion, make such adjustments in the number and class of shares
subject to Awards outstanding on the date on which such change occurs and in
the per share exercise price of each Award as the Committee may consider
appropriate to prevent the dilution or enlargement of rights relating to Awards
granted under the Plan.


 


13.5                           NO OTHER RIGHTS. Except as expressly provided in the Plan,
no Participant shall have any rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend, any
increase or decrease in the number of shares of stock of any class or any
dissolution, liquidation, merger, or consolidation of the Company or any other
corporation. Except as expressly provided in the Plan, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number of shares of Stock subject to an Award or
the exercise price of any Award.


 


ARTICLE 14

AMENDMENT, MODIFICATION, AND TERMINATION


 


14.1                           AMENDMENT, MODIFICATION, AND
TERMINATION. With the
approval of the Board, at any time and from time to time, the Committee may
terminate, amend or modify the Plan; provided, however, that (i) to the extent
necessary and desirable to comply with any applicable law, regulation, or stock
exchange rule, the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required, (ii) shareholder
approval is required for any amendment to the Plan that (A) increases the
number of shares available under the Plan (other than any adjustment as
provided by Article 13), (B) permits the Committee to grant Options with an
exercise price that is below Fair Market Value on the date of grant, (C)
permits the Committee to extend the exercise period for an Option beyond ten
years from the date of grant, or (D) permits the Committee to reprice
previously granted Options, and (iii) no such action shall be taken that would
cause all or part of the payment under any Award to be subject to the
additional tax under Section 409A of the Code.


 


14.2                           AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted pursuant to the Plan without the prior written consent of the
Participant.


 


ARTICLE 15

GENERAL PROVISIONS


 


15.1                           NO RIGHTS TO AWARDS. No Participant, employee, or other person
shall have any claim to be granted any Award pursuant to the Plan, and neither
the Company nor the Committee is obligated to treat Participants, employees,
and other persons uniformly.


 


15.2                           NO STOCKHOLDERS RIGHTS. No Award gives the Participant any of the
rights of a stockholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.


 


15.3                           WITHHOLDING. The Company or any Subsidiary shall have
the authority and the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy Federal, state, and local
taxes (including the Participant’s FICA obligation) required by law to be
withheld with respect to any taxable event concerning a Participant arising as
a result of this Plan. With the Committee’s consent, a Participant


 


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may elect to (i) have
the Company withhold from those shares of Stock that would otherwise be
received upon the exercise of any Option, a number of shares having a Fair
Market Value equal to the minimum statutory amount necessary to satisfy the
Company’s applicable federal, state, local or foreign income and employment tax
withholding obligations with respect to such Participant, or (ii) tender
previously-owned shares of Stock held by the Participant for six months or
longer to satisfy the Company’s applicable federal, state, local, or foreign
income and employment tax withholding obligations with respect to the
Participant.


 


15.4                           NO RIGHT TO EMPLOYMENT OR
SERVICES. Nothing in the
Plan or any Award Agreement shall interfere with or limit in any way the right
of the Company or any Subsidiary to terminate any Participant’s employment or
services at any time, nor confer upon any Participant any right to continue in
the employ or service of the Company or any Subsidiary.


 


15.5                           UNFUNDED STATUS OF AWARDS. The Plan is intended to be an “unfunded”
plan for incentive compensation. With respect to any payments not yet made to a
Participant pursuant to an Award, nothing contained in the Plan or any Award
Agreement shall give the Participant any rights that are greater than those of
a general creditor of the Company or any Subsidiary.


 


15.6                           INDEMNIFICATION. To the extent allowable pursuant to
applicable law, each member of the Committee or of the Board shall be
indemnified and held harmless by the Company from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by such member in
connection with or resulting from any claim, action, suit, or proceeding to
which he or she may be a party or in which he or she may be involved by reason
of any action or failure to act pursuant to the Plan and against and from any
and all amounts paid by him or her in satisfaction of judgment in such action,
suit, or proceeding against him or her provided he or she gives the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing
right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled pursuant to the Company’s
Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.


 


15.7                           RELATIONSHIP TO OTHER
BENEFITS. No payment
pursuant to the Plan shall be taken into account in determining any benefits
pursuant to any pension, retirement, savings, profit sharing, group insurance,
welfare or other benefit plan of the Company or any Subsidiary.


 


15.8                           EXPENSES. The expenses of administering the Plan
shall be borne by the Company and its Subsidiaries.


 


15.9                           TITLES AND HEADINGS. The titles and headings of the Sections in
the Plan are for convenience of reference only and, in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.


 


15.10                     FRACTIONAL SHARES. No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up or down as appropriate.


 


15.11                     SECURITIES LAW COMPLIANCE. With respect to any person who is, on the
relevant date, obligated to file reports pursuant to Section 16 of the Exchange
Act, transactions pursuant to this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors pursuant to the Exchange
Act. To the extent any provision of the Plan or action by the Committee fails
to so comply, it shall be void to the extent permitted by law and voidable as
deemed advisable by the Committee.


 


15.12                     GOVERNMENT AND OTHER
REGULATIONS. The
obligation of the Company to make payment of awards in Stock or otherwise shall
be subject to all applicable laws, rules, and regulations, and to such
approvals by government agencies as may be required. The Company shall be under
no obligation to register pursuant to the Securities Act of 1933, as amended,
any of the shares of Stock paid pursuant to the Plan. If the shares paid
pursuant to the Plan may in certain circumstances be exempt from registration
pursuant to the Securities


 


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Act of 1933, as amended, the
Company may restrict the transfer of such shares in such manner as it deems
advisable to ensure the availability of any such exemption.


 


15.13                     GOVERNING LAW. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Maryland.


 


15.14                     SECTION 409A. If any payments under this Plan are subject
to the provisions of Section 409A of the Code, it is intended that the terms of
this Plan will comply fully with and meet all the requirements of Section 409A
of the Code.


 


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