February 1, 2000


     CHANGE OF CONTROL AGREEMENT

Dear Steve:

     The  Board  of  Directors  believes  that it is in the  best  interests  of
Meritage  Corporation  ("Meritage"),  and its  shareholders to take  appropriate
steps  to  allay  any  concerns  you  may  have  about  your  future  employment
opportunities with Meritage and its subsidiaries  (Meritage and its subsidiaries
are  collectively  referred  to as the  "Company").  As a result,  the Board has
decided to offer to you the benefits described below.

     Please bear in mind that these  benefits  are being  offered only to a few,
selected  employees and we accordingly ask that you refrain from discussing this
program with others.  Also,  please note that the benefits  described below will
only be effective if you sign the extra copy of this Change of Control Agreement
(the  "Agreement")  which is enclosed and return it to me on or before  February
20, 2000.

     1.   TERM OF AGREEMENT.

     This Agreement is effective immediately and will continue in effect as long
as you are  actively  employed by  Meritage,  unless you and  Meritage  agree in
writing to its termination.

     2.   SEVERANCE PAYMENT.

     If your  employment  with the  Company is  terminated  without  "Cause" (as
defined  in  Section  8) at any time  within  two years  following  a "Change of
Control"  (as defined in Section 6), you will  receive the  "Severance  Payment"
described  below.  You will also receive the Severance  Payment if you terminate
your  employment  for "Good Reason" (as defined in Section 7) at any time within
two years following a Change of Control.

     The  Severance  Payment  equals  the sum of (i) two times the higher of (x)
your base salary on the date of your termination of employment, or (y) your base
salary  on the date  preceding  the  Change in  Control,  and (ii) two times the
average of the higher of (x) your incentive compensation for the two years prior
to your  termination of employment,  or (y) your incentive  compensation  on the
date preceding the Change in Control.
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     The   Severance   Payment  will  be  paid  in  one  lump  sum  as  soon  as
administratively  feasible  following your termination of employment,  but in no
event more than 90 days following your termination of employment.

     You are not entitled to receive the Severance Payment if your employment is
terminated for Cause, if you terminate your employment  without Good Reason,  or
if your employment is terminated by reason of your  "Disability"  (as defined in
Section 10(d)) or your death.  In addition,  you are not entitled to receive the
Severance Payment if your employment is terminated by you or the Company for any
or no reason  before a Change of Control  occurs or more than two years  after a
Change of Control has occurred.

     In order to receive the  Severance  Payment,  you must  execute any release
reasonably requested by the Company.

     The  Severance  Payment  will be paid to you without  regard to whether you
look  for  or  obtain  alternative  employment  following  your  termination  of
employment with the Company.

     3.   BENEFITS CONTINUATION.

     If you are  entitled to  severance  under  Section 2, you will  continue to
receive  life,   disability,   accident  and  group  health  insurance  benefits
substantially  similar to those which you were  receiving  immediately  prior to
your  termination  of  employment  for a  period  of 24  months  following  your
termination of employment.  Such benefits shall be provided on substantially the
same terms and conditions as they were provided prior to the Change of Control.

     The Company does not intend to provide duplicative  benefits.  As a result,
benefits  otherwise  receivable  pursuant  to this  Section  shall be reduced or
eliminated if and to the extent that you receive such  benefits  pursuant to any
employment agreement you may have with the Company.

     Benefits  otherwise  receivable  pursuant  to this  Section  also  shall be
reduced or eliminated if and to the extent that you receive comparable  benefits
from any other source (for example,  another employer);  provided,  however, you
shall have no  obligation  to seek,  solicit or accept  employment  from another
employer in order to receive such benefits.

     4.   INCENTIVE COMPENSATION.

     If you are  employed by the Company on the day on which a Change of Control
occurs,  the incentive  compensation to which you will be entitled  (pursuant to
any performance-based incentive compensation program established by the Company)
for the calendar year in which the Change of Control  occurs will equal at least
the "Minimum Incentive Compensation Amount." The "Minimum Incentive Compensation
Amount"  will  equal the  incentive  compensation  to which you would  have been
entitled  if the year  were to end on the day on which  the  Change  of  Control
occurs,  based  upon  performance  up  to  that  date.  In  measuring  financial
performance, financial results through the date of the Change of Control will be
annualized.

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<PAGE>
     5.   STOCK OPTION ACCELERATION.

     Notwithstanding  anything in this  Agreement or in any option  agreement to
the contrary,  upon a Change of Control,  any stock options granted to you under
any of the  Company's  stock option plans shall  become  immediately  vested and
exercisable.

     6.   CHANGE OF CONTROL DEFINED.

     For purposes of this  Agreement,  the term Change of Control shall mean and
include the following transactions or situations:

          (a) A sale,  transfer,  or other  disposition  by  Meritage  through a
single  transaction  or a series  of  transactions  of  securities  of  Meritage
representing  50% or  more of the  combined  voting  power  of  Meritage's  then
outstanding  securities to any "Unrelated Person" or "Unrelated  Persons" acting
in concert with one another.  For purposes of this  Section,  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  Securities  Exchange  Act of 1934 (the  "Act")).  For
purposes of this Section, the term "Unrelated Person" shall mean and include any
Person other than the Company,  or an employee  benefit plan of the Company,  or
any officer,  director, or 10% or more shareholder of the Company as of the date
of this Agreement.

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

          (c) Any  consolidation or merger of Meritage with or into an Unrelated
Person,  unless immediately after the consolidation or merger the holders of the
common stock of Meritage  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.

     7.   GOOD REASON DEFINED.

     For purposes of this  Agreement,  the term "Good  Reason" shall include the
following  circumstances:  (a)  if the  Company  assigns  you  duties  that  are
materially  inconsistent  with, or the material reduction of powers or functions
associated with, your position, duties, or responsibilities with the Company, or
an adverse change in your titles, authority, or reporting  responsibilities,  or
in  conditions  of your  employment,  (b) if your base  salary is reduced or the
potential incentive  compensation (or bonus) to which you may become entitled to
at any level of performance by you or the Company is reduced, (c) if the Company
fails to cause any  successor to  expressly  assume and agree to be bound by the
terms of this  Agreement,  (d) any purported  termination by the Company of your
employment  for grounds other than for "Cause," (e) if the Company  relieves you
of your duties other than for "Cause," or (f) if you are required to relocate to
an employment location that is more than fifty (50) miles from Scottsdale, AZ.

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<PAGE>
     8.   CAUSE DEFINED.

     For  purposes  of this  Agreement,  the  term  "Cause"  will  exist  in the
following  circumstances:  (i) you are convicted of a felony, (ii) you engage in
any fraudulent or other dishonest act to the detriment of the Company, (iii) you
fail to report for work on a regular  basis,  except for  periods of  authorized
absence or bona fide illness,  (iv) you misappropriate  trade secrets,  customer
lists, or other  proprietary  information  belonging to the Company for your own
benefit  or for the  benefit  of a  competitor,  (v) you  engage in any  willful
misconduct designed to harm the Company or its stockholders, or (vi) you fail to
perform properly your assigned duties.

     9.   CEILING ON BENEFITS.

     The Internal  Revenue Code (the "Code") places  significant  tax burdens on
you and the Company if the total payments made to you due to a Change of Control
exceed prescribed limits.  For example,  if your limit is $749,999 (because your
"Base Period  Income" (as defined  below) is $250,000) and the "Total  Payments"
(as defined below) exceed the limit by even $1.00,  you are subject to an excise
tax under  Section  4999 of the Code of 20% of all amounts paid to you in excess
of $250,000. If your limit is $749,999, you will not be subject to an excise tax
if you receive exactly $749,999. If you receive $750,000, you will be subject to
an excise tax of $100,000 (20% of $500,000).

     In order to avoid this excise tax and the related adverse tax  consequences
for the Company, by signing this Agreement,  you agree that the present value of
your  Total  Payments  will not  exceed an amount  equal to 2.99 times your Base
Period Income. This is the maximum amount which you may receive without becoming
subject  to the excise  tax  imposed  by  Section  4999 of the Code or which the
Company may pay without loss of deduction under Section 280G of the Code.

     "Base  Period  Income" is an amount  equal to your  "annualized  includible
compensation" for the "base period" as defined in Sections 280G(d)(1) and (2) of
the Code and the regulations  adopted  thereunder.  Generally,  your "annualized
includible  compensation"  is the average of your annual taxable income from the
Company for the "base  period,"  which is the five  calendar  years prior to the
year in which the Change of Control  occurs.  These concepts are complicated and
technical and all of the rules set forth in the applicable regulations apply for
purposes of this Agreement.

     Your  "Total  Payments"  include the sum of the  Severance  Payment and any
other  "payments in the nature of  compensation"  (as defined in Section 280G of
the Code and the regulations adopted thereunder).

     If Meritage  believes  that these  rules will result in a reduction  of the
payments to which you are entitled under this  Agreement,  it will so notify you
within 60 days following  delivery of the "Notice of  Termination"  described in
Section 10. You and Meritage  will then,  at  Meritage's  expense,  retain legal
counsel,  certified public  accountants,  and/or a firm of recognized  executive
compensation  consultants to provide an opinion or opinions  concerning  whether
your Total Payments exceed the limit discussed above.

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<PAGE>
     Meritage will select the legal counsel,  certified  public  accountants and
executive  compensation  consultants.  If you do not  accept  one or more of the
parties  selected by Meritage you may provide  Meritage  with the names of legal
counsel,  certified public accountants and/or executive compensation consultants
acceptable to you. If Meritage does not accept the party or parties  selected by
you,  the  legal  counsel,   certified  public   accountants   and/or  executive
compensation consultants selected by you and Meritage, respectively, will select
the legal counsel,  certified public accountants  and/or executive  compensation
consultants to provide the opinions required.

     At a minimum,  the opinions required by this Section must set forth (a) the
amount of your Base Period  Income,  (b) the present value of the Total Payments
and (c) the amount and present value of any excess parachute payments.

     If the opinions state that there would be an excess parachute payment, your
payments  under  this  Agreement  will be reduced  to the  extent  necessary  to
eliminate the excess.

     You  will  be  allowed  to  choose  which  payment  should  be  reduced  or
eliminated,  but the payment you choose to reduce or eliminate must be a payment
determined by such legal counsel, certified public accountants, and/or executive
compensation  consultants to be includible in Total Payments. You will make your
decision in writing and deliver it to Meritage within 30 days of your receipt of
such opinions.  If you fail to so notify Meritage, it will decide which payments
to reduce or eliminate.

     If the  legal  counsel,  certified  public  accountants,  and/or  executive
compensation  consultants  selected to provide the opinions referred to above so
requests in  connection  with the opinion  required by this  Section,  a firm of
recognized  executive  compensation  consultants,  selected by you and  Meritage
pursuant to the procedures set forth above, shall provide an opinion, upon which
such legal counsel, certified public accountants,  and/or executive compensation
consultants  may rely, as to the  reasonableness  of any item of compensation as
reasonable  compensation  for  services  rendered  before or after the Change of
Control.

     If Meritage  believes that your Total Payments will exceed the  limitations
of this Section,  it will  nonetheless make payments to you, at the times stated
above, in the maximum amount that it believes may be paid without exceeding such
limitations.  The balance,  if any, will then be paid after the opinions  called
for above have been received.

     If the amount paid to you by Meritage is ultimately determined, pursuant to
the  opinion  referred  to above or by the  Internal  Revenue  Service,  to have
exceeded the limitation of this Section, the excess will be treated as a loan to
you by  Meritage  and shall be  repayable  on the 90th day  following  demand by
Meritage,  together with interest at the  "applicable  federal rate" provided in
Section 1274(d) of the Code.

     In the event that the  provisions of Sections 280G and 4999 of the Code are
repealed  without  succession,  this  Section  shall be of no  further  force or
effect.

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<PAGE>
     10.  TERMINATION NOTICE AND PROCEDURE.

     Any  termination  by the  Company  or  you  of  your  employment  shall  be
communicated  by  written  Notice  of  Termination  to you  if  such  Notice  of
Termination  is  delivered  by the  Company and to the Company if such Notice of
Termination  is  delivered  by  you,  all  in  accordance   with  the  following
procedures:

          (a) The Notice of Termination shall indicate the specific  termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances alleged to provide a basis for termination.

          (b) Any  Notice of  Termination  by the  Company  shall be in  writing
signed by the Chairman of the Board of Meritage  specifying  in detail the basis
for such termination.

          (c) If the Company shall furnish a Notice of Termination for Cause and
you in good faith  notify the  Company  that a dispute  exists  concerning  such
termination  within the 15-day period following your receipt of such notice, you
may elect to continue your employment  during such dispute.  If it is thereafter
determined  that (i) Cause  did  exist,  your  "Termination  Date"  shall be the
earlier of (A) the date on which the  dispute is finally  determined,  either by
mutual written  agreement of the parties or pursuant to the alternative  dispute
resolution  provisions  of Section  17, or (B) the date of your  death;  or (ii)
Cause did not exist,  your  employment  shall continue as if the Company had not
delivered  its Notice of  Termination  and there  shall be no  Termination  Date
arising out of such notice.

          (d) If the Company shall furnish a Notice of  Termination by reason of
Disability  and you in good  faith  notify  the  Company  that a dispute  exists
concerning such  termination  within the 15-day period following your receipt of
such notice, you may elect to continue your employment during such dispute.  The
dispute  relating  to the  existence  of a  Disability  shall be resolved by the
opinion of the licensed physician selected by Meritage,  provided, however, that
if you do not accept the opinion of the licensed physician selected by Meritage,
the dispute  shall be resolved by the opinion of a licensed  physician who shall
be selected by you; provided further,  however, that if Meritage does not accept
the opinion of the  licensed  physician  selected by you,  the dispute  shall be
finally resolved by the opinion of a licensed physician selected by the licensed
physicians  selected  by Meritage  and you,  respectively.  If it is  thereafter
determined that (i) a Disability did exist,  your  Termination Date shall be the
earlier  of (A) the date on which the  dispute is  resolved,  or (B) the date of
your death, or (ii) a Disability did not exist,  your employment  shall continue
as if the Company had not delivered its Notice of Termination and there shall be
no Termination Date arising out of such notice.  For purposes of this Agreement,
"Disability" shall be given the meaning ascribed to such term in your Employment
Agreement at the time the Disability determination is being made.

          (e) If you in good  faith  furnish  a Notice of  Termination  for Good
Reason  and the  Company  notifies  you that a  dispute  exists  concerning  the
termination  within the 15-day period  following  the Company's  receipt of such
notice, you may elect to continue your employment during such dispute.  If it is
thereafter  determined  that (i) Good Reason did exist,  your  Termination  Date
shall be the earlier of (A) the date on which the dispute is finally determined,
either by mutual written agreement of the parties or pursuant to the alternative

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<PAGE>
dispute resolution  provisions of Section 17, (B) the date of your death, or (C)
one day  prior to the  second  anniversary  of a  Change  of  Control,  and your
payments  hereunder shall reflect events occurring after you delivered Notice of
Termination;  or (ii) Good Reason did not exist,  your employment shall continue
after such  determination  as if you had not delivered the Notice of Termination
asserting Good Reason.

          (f) If you do not elect to continue employment pending resolution of a
dispute regarding a Notice of Termination, and it is finally determined that the
reason for termination set forth in such Notice of Termination did not exist, if
such  notice  was  delivered  by you,  you shall be  deemed to have  voluntarily
terminated  your  employment  other than for Good Reason and if delivered by the
Company,  the Company will be deemed to have terminated you other than by reason
of Disability or Cause.

          (g) For purposes of this Agreement, a transfer from Meritage to one of
its  subsidiaries  or a  transfer  from a  subsidiary  to  Meritage  or  another
subsidiary shall not be treated as a termination of employment.

     11.  SUCCESSORS.

     Meritage  will  require  any  successor  (whether  direct or  indirect,  by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business  and/or  assets of Meritage  or any of its  subsidiaries  to  expressly
assume and agree to perform  this  Agreement  in the same manner and to the same
extent  that  Meritage or any  subsidiary  would be required to perform it if no
such  succession had taken place.  Failure of Meritage to obtain such assumption
and  agreement  prior to the  effectiveness  of any such  succession  shall be a
breach of this  Agreement  and shall  entitle  you to  compensation  in the same
amount and on the same  terms to which you would be  entitled  hereunder  if you
terminate your employment for Good Reason following a Change of Control,  except
that for  purposes of  implementing  the  foregoing,  the date on which any such
succession  becomes  effective shall be deemed the Termination  Date. As used in
this agreement  "Company" shall mean Company,  as  hereinbefore  defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.

     12.  BINDING AGREEMENT.

     This Agreement  shall inure to the benefit of and be enforceable by you and
your personal or legal representatives,  executors, administrators,  successors,
heirs,  distributees,  devisees and legatees. If you should die while any amount
would still be payable to you  hereunder  had you  continued  to live,  all such
amounts,  unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee,  legatee or other designee or, if there
is no such designee, to your estate.

     13.  NOTICE.

     For  purposes  of this  Agreement,  notices  and all  other  communications
provided for in this  Agreement  shall be in writing and shall be deemed to have
been  duly  given  when  delivered  or  mailed by  United  States  certified  or
registered mail,  return receipt  requested,  postage prepaid,  addressed to the
respective  addresses  set forth on the first page of this  Agreement,  provided
that all notices to Meritage  shall be directed to the attention of the Chairman
of the Board of Meritage  with a copy to the  Secretary of Meritage,  or to such
other  address  as either  party may have  furnished  to the other in writing in
accordance herewith,  except that notice of change of address shall be effective
only upon receipt.

     14.  MISCELLANEOUS.

     No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by you
and the Chairman of the Board of  Meritage.  No waiver by either party hereto at
any time of any breach by the other party  hereto of, or  compliance  with,  any
condition  or  provision  of this  Agreement to be performed by such other party
shall be deemed a waiver of similar or  dissimilar  provisions  or conditions at
the same or at any prior or subsequent  time.  No agreement or  representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have  been  made by  either  party  which  are not  expressly  set forth in this
Agreement.  The validity,  interpretation,  construction and performance of this
Agreement shall be governed by the laws of the State of Delaware  without regard
to its conflicts of law principles. All references to sections of the Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any  payments  provided  for  hereunder  shall  be  paid  net of any  applicable
withholding  required  under  federal,  state or local law. The  obligations  of
Meritage that arise prior to the expiration of this Agreement  shall survive the
expiration of the term of this Agreement.

     15.  VALIDITY.

     The invalidity or unenforceability of any provision of this Agreement shall
not  affect  the  validity  or  enforceability  of any other  provision  of this
Agreement, which shall remain in full force and effect.

     16.  COUNTERPARTS.

     This Agreement may be executed in several counterparts, each of which shall
he deemed to be an original but all of which  together will  constitute  one and
the same instrument.

     17.  ALTERNATIVE DISPUTE RESOLUTION.

     All claims,  disputes  and other  matters in  question  between the parties
arising under this Agreement shall, unless otherwise provided herein (such as in
Sections 9 and  10(d)),  be  resolved  in  accordance  with the  arbitration  or
alternative dispute resolution provisions included in your Employment Agreement.

     18.  EXPENSES AND INTEREST.

     If a good faith dispute shall arise with respect to the enforcement of your
rights under this Agreement or if any arbitration or legal  proceeding  shall be
brought in good faith to enforce or interpret any provision contained herein, or
to recover  damages for breach  hereof,  and you are the prevailing  party,  you
shall  recover from the Company any  reasonable  attorneys'  fees and  necessary
costs  and  disbursements  incurred  as  a  result  of  such  dispute  or  legal
proceeding,  and  prejudgment  interest  on any money  judgment  obtained by you
calculated  at the rate of interest  announced by Bank of America,  Arizona from
time to time as its prime rate from the date that  payments  to you should  have
been made under this Agreement.  It is expressly provided that the Company shall
in no event  recover  from you any  attorneys'  fees,  costs,  disbursements  or
interest as a result of any dispute or legal  proceeding  involving  the Company
and you.

     19.  PAYMENT OBLIGATIONS ABSOLUTE.

     Meritage's  obligation  to  pay  you  the  compensation  and  to  make  the
arrangements  in  accordance  with the  provisions  herein shall be absolute and
unconditional and shall not be affected by any circumstances; provided, however,
that Meritage may apply amounts  payable under this  Agreement to any debts owed
to the Company by you on your Termination  Date. All amounts payable by Meritage
in accordance  with this Agreement  shall be paid without  notice or demand.  If
Meritage has paid you more than the amount to which you are entitled  under this
Agreement,  Meritage  shall  have the right to  recover  all or any part of such
overpayment from you or from whomsoever has received such amount.

     20.  EFFECT ON EMPLOYMENT AGREEMENT.

     This  Agreement   supplements,   and  does  not  replace,  your  Employment
Agreement,  as it may be amended or replaced from time to time (the  "Employment
Agreement").  You will be entitled to receive all amounts due to you pursuant to
your Employment Agreement; but some payments under your Employment Agreement may
reduce  your  Severance  Payments  as  provided  in Section 2 and  benefits  due
pursuant to your  Employment  Agreement  may reduce the benefits due pursuant to
Section 3. In addition,  payments under your  Employment  Agreement may, in some
limited circumstances, be considered as part of your Total Payment and result in
a reduction  in  payments  as  provided  in Section 9. If there is any  conflict
between the  provisions of this  Agreement and your  Employment  Agreement,  the
provisions of this Agreement shall control.

     21.  ENTIRE AGREEMENT.

     This Agreement and your Employment Agreement set forth the entire agreement
between you and the Company  concerning  the subject  matter  discussed  in this
Agreement and supersede all prior agreements, promises, covenants, arrangements,
communications,  representations, or warranties, whether written or oral, by any
officer,  employee or  representative  of the Company.  Any prior  agreements or
understandings  with respect to the subject  matter set forth in this  Agreement
are hereby terminated and canceled.

     22.  DEFERRAL OF PAYMENTS.

     To the extent that any payment under this Agreement, when combined with all
other payments  received  during the year that are subject to the limitations on
deductibility  under  Section  162(m) of the Code,  exceeds the  limitations  on
deductibility  under  Section  162(m) of the Code,  such payment  shall,  in the
discretion of Meritage,  be deferred to the next succeeding  calendar year. Such
deferred  amounts shall be paid no later than the 60th day after the end of such
next succeeding  calendar year,  provided that such payment,  when combined with
any other payments subject to the Section 162(m) limitations received during the
year, does not exceed the limitations on  deductibility  under Section 162(m) of
the Code.

     23.  PARTIES.

     This Agreement is an agreement between you and Meritage.  In certain cases,
though,  obligations  imposed upon  Meritage may be satisfied by a subsidiary of
Meritage.  Any payment made or action taken by a subsidiary of Meritage shall be
considered  to be a payment  made or action  taken by Meritage  for  purposes of
determining whether Meritage has satisfied its obligations under this Agreement.

     If you would like to participate in this special benefits  program,  please
sign and return the extra copy of this letter which is enclosed.

                                        Sincerely,

                                        MERITAGE CORPORATION


                                        By: /s/ Larry W. Seay
                                            ------------------------------------
                                        Name: Larry W. Seay
                                        Its: Vice President

Enclosure

                                   ACCEPTANCE

     I hereby accept the offer to participate in this special  benefits  program
and I agree to be bound by all of the provisions noted above.

     Dated:  February 3, 2000

                                        /s/ Steven J. Hilton
                                        ----------------------------------------
                                        Steven J. Hilton