Document:

Exhibit 4.8

                             RESTRICTION ON TRANSFER

THIS  WARRANT  AND THE SHARES OF COMMON  STOCK  ISSUABLE  UPON  EXERCISE OF THIS
WARRANT HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR  QUALIFIED  UNDER  ANY  STATE  SECURITIES  LAWS.  THIS  WARRANT  MAY  NOT  BE
TRANSFERRED,  AND THE SHARES OF COMMON  STOCK  ISSUABLE  UPON  EXERCISE  OF THIS
WARRANT  CANNOT BE SOLD OR  TRANSFERRED,  WITHOUT  (I) THE  OPINION  OF  COUNSEL
REASONABLY  SATISFACTORY  TO THE COMPANY THAT SUCH TRANSFER MAY BE LAWFULLY MADE
WITHOUT  REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED,  AND ALL
APPLICABLE STATE SECURITIES LAWS OR (II) SUCH REGISTRATION.

                                     WARRANT
                                  (REDEEMABLE)

                  To Subscribe for and Purchase Common Stock of

                               EDT LEARNING, INC.

     THIS  CERTIFIES  THAT,  for  value  received,   <<Holder_Name_>>,   or  its
registered  assigns (the  "Holder"),  is entitled to subscribe  for and purchase
from EDT Learning, Inc., a Delaware corporation (the "Company"), at the exercise
price of Three Dollars ($3.00) per share (the "Exercise Price") at any time from
and after the date hereof to and including the third  anniversary of the date of
this Warrant (this "Warrant"),  <<Notes__Warrants_to_be_issued_>>  shares of the
Company's  common  stock,  par value  $0.001  per share  ("Common  Stock").  The
Exercise Price shall be subject to adjustment as provided in Section 5 hereof.

     This  Warrant is one of several  Warrants  dated of even date  herewith and
issued by the Company  (collectively,  the "Warrants") as part of an offering of
60 (subject to increase to 110) units (the  "Units")  that was  conducted by the
Company and Murphy & Durieu,  the placement  agent for the  offering,  on a best
efforts  basis.  Each Unit  consists of one (1) Warrant  exercisable  for 50,000
shares of Common  Stock and one (1)  Convertible  Redeemable  Subordinated  Note
(collectively, the "Notes").

     This Warrant is subject to the following provisions, terms and conditions:

     1.   (a)  The rights  represented  by this  Warrant may be exercised by the
Holder hereof,  in whole or in part, by written notice of exercise  delivered to
the Company and by the surrender of this Warrant (properly endorsed if required)
at the  principal  office of the Company at 2999 North 44th  Street,  Suite 650,
Phoenix,  Arizona 85018 (or such other  location as the Company may designate by
notice in writing  to the Holder  hereof)  and upon  payment to it by  certified
check of the  Exercise  Price for the shares of Common  Stock to be issued  upon
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exercise  (the  "Warrant  Shares").  The Company  shall not be required to issue
fractions  of shares of Common  Stock  upon  exercise  of this  Warrant.  If any
fraction of a share would,  but for this Section,  be issuable upon any exercise
of this  Warrant,  and if the  Company  shall  have  elected  not to issue  such
fraction of a share, in lieu of such  fractional  share the Company shall pay to
the Holder,  in cash,  an amount equal to such fraction of the fair market value
per  share of  outstanding  Common  Stock of the  Company  on the  Business  Day
immediately  prior to the date of such  exercise (the fair market value for such
purpose shall be the closing  price of the Common Stock on the  principal  stock
exchange  on which the Common  Stock is then traded or the  principal  quotation
system in which bid and ask prices for the  Common  Stock are then  maintained).
The Company  agrees that the shares so  purchased  shall be and are deemed to be
issued  to the  Holder  as the  record  owner of such  shares as of the close of
business  on the date on which  this  Warrant  shall have been  surrendered  and
payment tendered for such shares as aforesaid.  Subject to the provisions of the
next  succeeding  paragraph,  certificates  for the shares of stock so purchased
(bearing  an  appropriate  legend  to  indicate  that the  shares  have not been
registered under securities laws) shall be delivered to the Holder hereof within
a reasonable time, not exceeding 10 days,  after the rights  represented by this
Warrant shall have been so exercised,  and,  unless this Warrant has expired,  a
new Warrant  reflecting  the shares,  if any, as to which this Warrant shall not
then have been  exercised  shall also be delivered to the Holder  hereof  within
such time.

          (b)  This  Warrant may be redeemed in whole,  but not in part,  at the
election of the  Company  for the price of $0.001 per share of Common  Stock for
which this  Warrant is  exercisable  at any time after such time as the  closing
price of the Common Stock (as quoted on the American Stock Exchange,  the NASDAQ
Stock Market, or such other national exchange, if any, on which the Common Stock
is then  quoted) has equaled or exceeded  $5.50 per share for a period of twenty
(20)  consecutive  trading days.  The Company shall provide  Holder with written
notice (the  "Redemption  Notice")  at least  thirty (30) days prior to the date
this Warrant shall be redeemed (such date of redemption,  the "Redemption Date")
of its intent to redeem this Warrant.  The  Redemption  Notice shall specify the
Redemption Date.  Nothing  contained herein shall be construed to prevent Holder
from  exercising this Warrant  subsequent to Holder's  receipt of the Redemption
Notice but prior to the Redemption  Date. Upon  redemption,  Holder (or the then
current  holder of this  Warrant)  shall be obligated to deliver this Warrant to
the Company for  cancellation  and the Company  shall be obligated to deliver to
Holder (or the then current  holder of this  Warrant) a check in an amount equal
to the product of (i) $0.001  multiplied  by (ii) the number of shares of Common
Stock for which this Warrant is then exercisable.

     2.   Notwithstanding  the  foregoing,  however,  the  Company  shall not be
required to deliver any  certificate  for shares of stock upon  exercise of this
Warrant  except in  accordance  with the  provisions  of this  Agreement and the
restrictive legend under the heading "Restriction on Transfer."

     3.   The  Holder  acknowledges  that this  Warrant  as well as the  Warrant
Shares for which this  Warrant may be  exercised,  have not been and,  except as
otherwise  provided  herein,  will not be registered under the Securities Act of
1933, as amended (the "Act"),  or qualified under  applicable  state  securities
laws and that the  transferability  thereof is  restricted  by the  registration

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provisions of the Act as well as such state laws. The Holder  represents that it
is  acquiring  the  Warrant  and will  acquire  the  Warrant  Shares for its own
account,  for  investment  purposes  only and not with a view to resale or other
distribution  thereof,  nor with  the  intention  of  selling,  transferring  or
otherwise  disposing of all or any part of such  securities  for any  particular
event or  circumstance,  except selling,  transferring or disposing of them upon
full  compliance  with all  applicable  provisions  of the Act,  the  Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Rules and Regulations
promulgated  by  the  Securities  and  Exchange  Commission  (the  "Commission")
thereunder,  and any  applicable  state  securities  laws.  The  Holder  further
understands  and agrees that (i) neither the Warrant nor the Warrant  Shares may
be sold  unless they are  subsequently  registered  under the Act and  qualified
under any applicable  state  securities laws or, in the opinion of the Company's
counsel,  an exemption from such  registration  and  qualification is available;
(ii) any routine  sales of the Company's  securities  made in reliance upon Rule
144  promulgated  by the  Commission  under the Act, can be effected only in the
amounts set forth in and pursuant to the other terms and  conditions,  including
applicable  holding  periods,  of that Rule;  and (iii) except as otherwise  set
forth herein,  the Company is under no obligation to register the Warrant or the
Warrant  Shares on their behalf or to assist it in complying  with any exemption
from  registration  under the Act.  The  Holder  agrees  that  each  certificate
representing  any Warrant  Shares for which this Warrant may be  exercised  will
bear on its face a legend in substantially the following form:

          These   securities  have  not  been  registered   under  the
          Securities  Act  of  1933  or  qualified   under  any  state
          securities  laws.  They  may not be  sold,  hypothecated  or
          otherwise   transferred  in  the  absence  of  an  effective
          registration statement under that Act or qualification under
          applicable   state   securities   laws  without  an  opinion
          acceptable to counsel to the Company that such  registration
          and qualification are not required.

     4.   The Company covenants and agrees that:

          (a)  all shares  that may be issued  upon the  exercise  of the rights
represented by this Warrant will, upon issuance,  be duly authorized and issued,
fully  paid  and  nonassessable  and  free  from all  preemptive  rights  of any
stockholder,  and from all taxes,  liens and charges  with  respect to the issue
thereof (other than transfer taxes);

          (b)  during the period  within  which the rights  represented  by this
Warrant may be  exercised,  the Company will at all times have  authorized,  and
reserved for the purpose of issue or transfer upon exercise of the  subscription
rights  evidenced by this Warrant,  a sufficient  number of shares of its Common
Stock to provide for the exercise of the rights represented by this Warrant; and

          (c)  during the period  within  which the rights  represented  by this
Warrant may be exercised,  the Company  further will use reasonable best efforts
to maintain  the  eligibility  of the Common  Stock for listing on the  American
Stock  Exchange and  quotation on the domestic  over-the-counter  market and use
reasonable best efforts to keep the Common Stock so listed and quoted.

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     5.   (a)  If the Company shall, after the date of issuance of this Warrant,
subdivide its outstanding shares of Common Stock into a greater number of shares
or consolidate its  outstanding  shares of Common Stock into a smaller number of
shares (any such event being called a "Common Stock  Reorganization"),  then the
Exercise Price shall be adjusted, effective at such time, to a number determined
by multiplying the Exercise Price then in effect by a fraction, the numerator of
which  shall be the  number of shares of Common  Stock  outstanding  immediately
before such Common Stock  Reorganization  and the  denominator of which shall be
the  number of shares  outstanding  after  giving  effect to such  Common  Stock
Reorganization.

          (b)  If the Company  shall after the date of issuance of this  Warrant
issue or  distribute  to all or  substantially  all  holders of shares of Common
Stock  evidences of  indebtedness,  any other  securities  of the Company or any
property or assets other than cash,  and if such issuance or  distribution  does
not constitute a Common Stock  Reorganization  (any such nonexcluded event being
herein called a "Non-Cash Dividend"),  the Exercise Price shall be adjusted (but
not increased), effective immediately after the record date at which the holders
of shares of Common Stock are determined for purposes of such Non-Cash Dividend,
to a number determined by multiplying the Exercise Price immediately before such
Non-Cash Dividend by a fraction,  the numerator of which shall be the last sales
price per share of  outstanding  Common Stock of the Company on such record date
less the then fair market  value,  as  determined  in good faith by the Board of
Directors of the Company, of the evidences of indebtedness, securities, cash, or
property or other assets issued or  distributed  in such Non-Cash  Dividend with
respect to one share of Common Stock and the  denominator  of which shall be the
last sales price per share of outstanding Common Stock on such record date.

          (c)  If after the date of issuance of this Warrant  there shall be any
consolidation  or  merger  to  which  the  Company  is a  party,  other  than  a
consolidation  or a merger in which the Company is a continuing  corporation and
which does not result in any reclassification of, or change (other than a Common
Stock  Reorganization or a change in par value) in, outstanding shares of Common
Stock,  or any sale or  conveyance of the property of the Company as an entirety
or  substantially  as an  entirety  (any  such  event  being  called a  "Capital
Reorganization"),  then,  effective  upon  the  effective  date of such  Capital
Reorganization,  the Holder shall have the right to purchase,  upon  exercise of
this Warrant and in lieu of the shares of Common Stock  immediately  theretofore
purchasable  hereunder,  the kind and  amount  of  shares  of  stock  and  other
securities  and property  (including  cash) which the Holder would have owned or
have been entitled to receive after such Capital  Reorganization if this Warrant
had been exercised  immediately prior to such Capital  Reorganization,  assuming
such  holder (i) is not a person  with which the  Company  consolidated  or into
which the Company  merged or which merged into the Company or to which such sale
or  conveyance  was made,  as the case may be  ("constituent  person")  and (ii)
failed to exercise his rights of  election,  if any, as to the kind or amount of
securities,  cash or other property receivable upon such Capital  Reorganization
(provided  that if the kind or  amount  of  securities,  cash or other  property
receivable  upon such Capital  Reorganization  is not the same for each share of
Common  Stock held  immediately  prior to such  consolidation,  merger,  sale or

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conveyance  by other than a  constituent  person or an affiliate  thereof and in
respect  of  which  such  rights  of  election  shall  not have  been  exercised
("non-electing  share"),  then for the purposes of this  paragraph  the kind and
amount of shares of stock and  other  securities  or other  property  (including
cash) receivable upon such Capital Reorganization shall be deemed to be the kind
and amount so receivable per share by a plurality of the  non-electing  shares).
As a  condition  to  effecting  any Capital  Reorganization,  the Company or the
successor  or  surviving  corporation,  as the case may be,  shall  execute  and
deliver to the Holder an agreement as to the Holder's  rights in accordance with
this Section 5(c), providing for subsequent  adjustments as nearly equivalent as
may be  practicable  to the  adjustments  provided  for in this  Section  5. The
provisions  of this Section 5(c) shall  similarly  apply to  successive  Capital
Reorganizations.

          (d)  If after the date of the  issuance  of this  Warrant  the Company
shall issue by  reclassification  of its shares of Common Stock other securities
of the  Company,  then the  number of shares of Common  Stock  purchasable  upon
exercise of the Warrant  immediately prior to such issuance shall be adjusted so
that the Holder upon  exercise  hereof shall be entitled to receive the kind and
number of shares of Common  Stock or other  securities  of the Company  which it
would have owned or have been entitled to receive after such issuance,  had this
Warrant been  exercised  immediately  prior to such  issuance or any record date
with respect  thereto.  An  adjustment  made pursuant to this Section 5(d) shall
become  effective  upon the date of the issuance  retroactive to the record date
with  respect  thereto,  if any.  Such  adjustment  shall  be made  successively
whenever such an issuance is made.

          (e)  (i)  Any adjustments  pursuant  to this  Section  5 shall be made
successively whenever an event referred to herein shall occur.

               (ii) If the  Company  shall set a record  date to  determine  the
holders of shares of Common Stock for purposes of a Common Stock Reorganization,
Non-Cash  Dividend or Capital  Reorganization,  and shall  legally  abandon such
action prior to effecting such action, then no adjustment shall be made pursuant
to this Section 5 in respect of such action.

               (iii) No adjustment in the Exercise Price shall be made hereunder
unless such adjustment decreases such price by one percent or more, but any such
lesser  adjustment  shall be carried  forward  and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall serve to adjust such price by one percent or more.

               (iv) No adjustment in the Exercise  Price shall be made hereunder
if such adjustment  would reduce the exercise price to an amount below par value
of the Common  Stock,  which par value  shall  initially  be $0.001 per share of
Common Stock.

          (f)  As a condition  precedent to the taking of any action which would
require an  adjustment  pursuant to this  Section 5, the Company  shall take any
action  which may be  necessary,  including  obtaining  regulatory  approvals or
exemptions,  in order that the Company may thereafter  validly and legally issue

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as fully paid and  nonassessable  all shares of Common Stock which the Holder is
entitled to receive upon exercise thereof.

          (g)  Promptly  after an  adjustment or  readjustment  pursuant to this
Section 5 becomes  determinable,  the Company shall give notice to the Holder of
any action which requires an adjustment or readjustment pursuant to this Section
5, describing such event in reasonable  detail and specifying the record date or
effective  date, if  determinable,  the required  adjustment and the computation
thereof, if applicable.  If the Holder fails to object to any such notice within
30 days of  receipt  of the  Company's  notice,  the  adjustment  will be deemed
accepted by the Holder.

     6.   Upon  receipt of  evidence  satisfactory  to the  Company of the loss,
theft,  destruction  or  mutilation  of any Warrant and, in the case of any such
loss,  theft or  destruction,  upon receipt of indemnity or security  reasonably
satisfactory to the Company (the original Holder's  indemnity being satisfactory
indemnity in the event of loss,  theft or  destruction  of any Warrant  owned by
such  Holder),  or,  in the  case of any such  mutilation,  upon  surrender  and
cancellation of such Warrant, the Company will make and deliver, in lieu of such
lost,  stolen,  destroyed or mutilated  Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of shares of Common
Stock as provided for in such lost, stolen, destroyed or mutilated Warrant.

     7.   The Holder shall not, as holder of this  Warrant,  be entitled to vote
or to receive  dividends or be deemed the holder of Common Stock that may at any
time be issuable upon exercise of this Warrant for any purpose  whatsoever,  nor
shall  anything  contained  herein be  construed  to confer upon the Holder,  as
holder of this Warrant, any of the rights of a stockholder of the Company or any
right to vote for the  election of  directors  or upon any matter  submitted  to
stockholders  at any  meeting  thereof,  or to give or  withhold  consent to any
corporate action (including without limitation, a Capital Reorganization), or to
receive  notice of meetings,  or to receive  dividends or  subscription  rights,
until the Holder shall have  exercised  this  Warrant and been issued  shares of
Common Stock in accordance with the provisions hereof.

     8.   The  Holder of this  Warrant,  by  acceptance  hereof,  agrees to give
written notice to the Company before  transferring  this Warrant or transferring
any Common Stock  issuable or issued upon the exercise  hereof of such  Holder's
intention to do so,  describing  briefly the manner of any proposed  transfer of
this  Warrant or such  Holder's  intention as to the  disposition  to be made of
shares of Common Stock issuable or issued upon the exercise hereof.  Such Holder
shall  also  provide  the  Company   with  an  opinion  of  counsel   reasonably
satisfactory  to the  Company to the effect that the  proposed  transfer of this
Warrant or disposition of shares  received upon exercise  hereof may be effected
without  registration  or  qualification  (under  any  Federal or State law) and
without  causing  the  loss  of  the  applicable   securities  law  registration
exemption(s)  relied  upon by the  Company  when it issued  this  Warrant.  Upon
receipt of such written notice and opinion by the Company,  such Holder shall be
entitled to transfer  this  Warrant,  or to exercise  this Warrant in accordance
with its terms and  dispose  of the shares  received  upon such  exercise  or to
dispose of shares of Common Stock  received  upon the previous  exercise of this
Warrant, all in accordance with the terms of the notice delivered by such Holder
to the Company,  provided that an  appropriate  legend  respecting the aforesaid

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restrictions  on transfer and  disposition  shall be endorsed on this Warrant or
the certificates for such shares.

     9.   Subject to the  provisions  of Section 8 hereof,  this Warrant and all
rights hereunder are  transferable,  in whole or in part,  without charge to the
Holder  hereof,  at the principal  office of the Company by the Holder hereof in
person  or by its duly  authorized  attorney,  upon  surrender  of this  Warrant
properly endorsed and this Warrant is exchangeable, upon the surrender hereof by
the Holder  hereof at the office of the Company,  for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares which may be subscribed for and purchased hereunder,  each of such new
Warrants to represent  the rights to subscribe  for and purchase  such number of
shares  as  shall  be  designated  by said  Holder  hereof  at the  time of such
surrender. Each taker and Holder of this Warrant, by taking or holding the same,
consents  and agrees  that the bearer of this  Warrant,  when  endorsed,  may be
treated by the Company and all other  persons  dealing  with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights  represented by this Warrant,  or to transfer  hereof on the books of the
Company, any notice to the contrary notwithstanding;  but until such transfer on
such books, the Company may treat the registered  Holder hereof as the owner for
all purposes.

     10.  (a)  Upon  receipt  of  notice  (the  "Registration  Request  Notice")
requesting  registration  under the Securities Act of Underlying Shares (defined
below)  from the  holders  of Notes and  Warrants  representing  more than fifty
percent (50%) of the aggregate  Underlying Shares, on only one occasion,  at any
time  commencing on the date hereof and terminating  two years  thereafter,  the
Company will offer to Holder the opportunity to include its Underlying Shares in
such registration. The Company will use its reasonable best efforts to file with
the Commission as promptly as practicable, a registration statement (the "Demand
Registration  Statement"),  and will use its reasonable best efforts to have the
Demand Registration  Statement declared effective and remain effective until the
earliest of (i) two years after the date it is declared effective, (ii) the date
all the Underlying  Shares  registered  thereby have been sold, or, (iii) in the
reasonable opinion of the Company's  counsel,  the Underlying Shares may be sold
publicly  without  registration.  The Company will also use its reasonable  best
efforts to qualify the Underlying  Shares under the securities laws of the state
where Holder  resides  provided the Company is not required to execute a general
consent to service or to qualify to do  business  in such  state.  This offer to
Holder  shall be made within  twenty (20) days after the  Company  receives  the
Registration  Request Notice.  If Holder elects to include its Underlying Shares
in the Demand Registration Statement, it will, in a timely fashion,  provide the
Company and its counsel with such  information and execute such documents as the
Company's  counsel  may  reasonably  require to prepare  and  process the Demand
Registration  Statement,  it shall have no further rights to registration of its
Underlying  Shares  under this Section  9(a).  In the event that the Company has
filed a registration  statement  with the Commission  relating to its securities
within ninety (90) days prior to its receipt of the Registration Request Notice,
which registration statement has not been declared effective, Holder agrees that
the Company can thereafter delay the filing of the Demand Registration Statement
for a  period  not  to  exceed  ninety  (90)  days.  Anything  to  the  contrary
notwithstanding,  in no event  shall the  Company be  required  to file a Demand
Registration Statement with the Commission prior to one hundred and eighty (180)

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days after the date  hereof.  As used in this  Section 10,  "Underlying  Shares"
means (i) shares of Common Stock issuable upon  conversion of the Notes and (ii)
the Warrant Shares.

          (b)  If at any time after the date  hereof,  the  Company  proposes to
file  a  registration  statement  under  the  Act  with  respect  to  any of its
securities  (except  one  relating  to  employee  benefit  plans  or  a  merger,
acquisition  or  similar  transaction),  it shall  give  written  notice  of its
intention  to effect  such filing to the Holder at least 30 days prior to filing
such registration  statement (the "Piggyback  Registration  Statement").  If the
Underlying Shares have not been previously  registered and the Holder desires to
include its Underlying Shares in the Piggyback Registration  Statement, it shall
notify the Company in writing  within 15 days after  receipt of such notice from
the Company,  in which event the Company shall  include the Holder's  Underlying
Shares in the Piggyback Registration  Statement. If the Holder elects to include
its  Underlying  Shares in the  Piggyback  Registration  Statement  as set forth
herein, it shall, in a timely fashion,  provide the Company and its counsel with
such  information  and execute  such  documents  as its  counsel may  reasonably
require to prepare and process the Piggyback Registration Statement.

          (c)  The  Company  will  provide  the Holder with a copy of the Demand
Registration Statement or Piggyback Registration  Statement, as the case may be,
and any amendments thereto,  and copies of the final prospectus included therein
in such  quantities  as may  reasonably be required to permit the Holder to sell
its  Underlying  Shares  after the Demand  Registration  Statement  or Piggyback
Registration Statement is declared effective by the Commission.

          (d)  The Company will bear all expenses (except underwriting discounts
and commission,  if any, and the legal fees and expenses,  if any, of counsel to
the Holder) necessary and incidental to the performance of its obligations under
this Section 10.

          (e)  The Company and the Holder, if the Holder's Underlying Shares are
included in a Demand Registration  Statement or Piggyback Registration Statement
pursuant to this Section 10,  shall  provide  customary  and  appropriate  cross
indemnities to each other covering the information  supplied by the indemnifying
party  for  inclusion  in  such  Demand  Registration   Statement  or  Piggyback
Registration Statement.

          (f)  Anything to the contrary notwithstanding,  the Holder agrees that
as a condition for the Company  registering the Underlying  Shares, in the event
that the Piggyback  Registration  Statement in which the  Underlying  Shares are
included relates to an offering to be effected through or with the assistance of
an  underwriter,  the Holder will consent to restrict the sale of the Underlying
Shares or reduce (on a pro rata basis with shares of Common  Stock issued to any
other  stockholders of the Company prior to or after the date hereof,  and that,
as of the time of determination,  have presently exercisable registration rights
and are  requested  by  such  stockholders  to be  included  in  such  Piggyback
Registration  Statement) the number of Underlying Shares that may be included in
such registration in accordance with the requirements of such underwriter.

          (g)  Anything to the contrary  notwithstanding,  the Company shall not
be required to register  any  Underlying  Shares or provide  notices  under this
Section 10 to a Holder whose  Underlying  Shares are either (i) are covered by a

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then  currently  effective  registration  statement  or (ii)  in the  reasonable
opinion of the Company's  counsel,  may be sold  pursuant to the exemption  from
registration provided by Section (k) of Rule 144 promulgated under the Act.

     11.  Any notices  required or permitted to be given under the terms of this
Warrant  shall be sent by certified  or  registered  mail (with  return  receipt
requested)  or  delivered  personally  or by  courier  (including  a  nationally
recognized overnight delivery service) or by facsimile transmission.  Any notice
so given shall be deemed  effective three days after being deposited in the U.S.
Mail,  or upon  receipt if  delivered  personally  or by  courier  or  facsimile
transmission, in each case addressed to a party at the following address or such
other address as each such party  furnishes to the other in accordance with this
Section 11:

          If to the Company:       EDT Learning, Inc.
                                   2999 North 44th Street
                                   Suite 650
                                   Phoenix, AZ 85018
                                   Telephone: (602) 952-1200
                                   Facsimile: (602) 952-0544
                                   Attention: President

          If to the Holder:        <<Holder_Name_>>
                                   <<Address_of_Holder>>
                                   <<Holder_City_State_Zip>>
                                   Telephone:<<WorkPhone>>
                                   Facsimile:<<Fax>>

     12.  (a)  No  failure  or delay of the  Holder in  exercising  any power or
right  hereunder  shall  operate  as a waiver  thereof,  nor shall any single or
partial   exercise  of  any  such  right  or  power,   or  any   abandonment  or
discontinuance of steps to enforce such a right or power,  preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and  remedies of the Holder are  cumulative  and not  exclusive of any rights or
remedies  which it would  otherwise  have. The provisions of this Warrant may be
amended,  modified  or waived  with (and only with) the  written  consent of the
Company and the Holder.

          (b)  Any such amendment,  modification or waiver effected  pursuant to
this Section 12 shall be binding upon the Holder of the Warrant and Common Stock
issuable upon exercise, upon each future holder thereof and upon the Company. In
the event of any such  amendment,  modification or waiver the Company shall give
prompt notice thereof to the Holder and, if appropriate,  notation thereof shall
be made on any Warrant  thereafter  surrendered for  registration of transfer or
exchange.  No notice or demand on the  Company  in any case  shall  entitle  the
Company  to  any  other  or  further  notice  or  demand  in  similar  or  other
circumstances.

     13.  All  representations,  warranties  and  covenants  made by the Company
herein or in any certificate or other instrument delivered by or on behalf of it
in  connection  with the Warrant shall be considered to have been relied upon by
the  Holder  and  shall  survive  the  issuance  and  delivery  of the  Warrant,

                                       9
<PAGE>
regardless of any investigation  made by the Holder,  and shall continue in full
force and effect so long as any Warrant is  outstanding.  All  statements in any
such  certificate  or other  instrument  shall  constitute  representations  and
warranties hereunder.

     14.  All covenants, stipulations, promises and agreements contained in this
Warrant by or on behalf of the Company  shall bind its  successors  and assigns,
whether so expressed or not.

     15.  In case any one or more of the  provisions  contained  in this Warrant
shall be  invalid,  illegal  or  unenforceable  in any  respect,  the  validity,
legality or  enforceability  of the remaining  provisions  contained  herein and
therein shall not in any way be affected or impaired thereby.  The parties shall
endeavor  in  good  faith  negotiations  to  replace  the  invalid,  illegal  or
unenforceable  provisions  with valid  provisions  the economic  effect of which
comes as close as  possible  to that of the  invalid,  illegal or  unenforceable
provisions.

     16.  This Warrant shall be governed by and construed in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the State of
Delaware.

                           [Intentionally left blank.]

                                       10
<PAGE>
     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and this Warrant to be dated as of March 29, 2002.

                                        EDT LEARNING, INC.

                                        By
                                           -------------------------------------
                                           James M. Powers, Jr.
                                           President and Chief Executive Officer

                                       11
<PAGE>
                               FORM OF ASSIGNMENT
                       (To Be Signed Only Upon Assignment)

     FOR VALUE  RECEIVED,  the undersigned  hereby sells,  assigns and transfers
unto ___________________________ all of the rights of the undersigned under this
Warrant,  with  respect to the number of shares set forth  below,  and  appoints
___________________________  to  transfer  this  Warrant  on  the  books  of EDT
LEARNING, INC. with the full power of substitution in the premises.

NAME OF ASSIGNEE                    ADDRESS                     NUMBER OF SHARES
----------------                    -------                     ----------------

Dated: ______________________

In the presence of:

___________________________________         ____________________________________

          (Signature  must  conform in all respects to the name of the
          holder  as  specified  on the face of this  Warrant  without
          alteration,  enlargement or any change  whatsoever,  and the
          signature must be guaranteed in the usual manner.)
<PAGE>
                           SUBSCRIPTION FORM

      To be Executed by the Holder of this Warrant if such Holder
         Desires to Exercise this Warrant in Whole or in Part:

To:  EDT LEARNING, INC. (the "Company")

     The undersigned ___________________________________________________________

     Please insert Social Security or other
     identifying number of Subscriber: _________________________________________

hereby irrevocably elects to exercise the right of purchase  represented by this
Warrant for, and to purchase  thereunder,  _________  shares of the Common Stock
provided for therein and tenders payment herewith to the order of the Company in
the amount of  $___________,  such payment being made as provided on the face of
this Warrant.

     Please  issue a new Warrant  for the  unexercised  portion of the  attached
Warrant in the name of the  undersigned  or in such  other name as is  specified
below.

     The undersigned  requests that certificates for such shares of Common Stock
be issued as follows:

Name: __________________________________________________________________________

Address: _______________________________________________________________________

Deliver to: ____________________________________________________________________

Address: _______________________________________________________________________

Dated: ___________________________      Signature ______________________________

          Note:   The  signature  on  this   Subscription   Form  must
          correspond  with the name as  written  upon the face of this
          Warrant  in  every   particular,   without   alteration   or
          enlargement or any change whatever.<PAGE>
                                                                    EXHIBIT 10.1

This Exhibit contains confidential information which has been omitted and filed
separately with the Securities and Exchange Commission pursuant to a
Confidential Treatment Request under Rule 24b-2 of the Securities and Exchange
Act of 1934. The confidential information on pages 8, 10, 11, 31, 35, 39, 71 (on
Exhibit C), 72 (on Exhibit C), 82 (on Exhibit E), 84 (on Exhibit E), 85 (on
Exhibit E), 94 (on Exhibit F), 95 (on Exhibit F) and 96 (on Exhibit F) has been
replaced with an asterisk.

                          MASTER TRANSACTION AGREEMENT

                                  BY AND AMONG

                              MERITAGE CORPORATION,

                             MTH HOMES-TEXAS, L.P.,

                              HAMMONDS HOMES, LTD.,

                        CRYSTAL CITY LAND & CATTLE, LTD.,

                             HAMMONDS HOMES I, LLC,

                              CRYSTAL CITY I, LLC,

                                       AND

                               RONNIE D. HAMMONDS

                               Dated June 12, 2002
<PAGE>
                          MASTER TRANSACTION AGREEMENT
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>                                                                                       <C>
ARTICLE I             DEFINITIONS ......................................................     1

         1.1      Definitions ..........................................................     1

ARTICLE II            PURCHASE AND SALE OF ASSETS ......................................     7

         2.1      Closing ..............................................................     7

         2.2      Assets to be Purchased ...............................................     7

         2.3      Assets Not Being Transferred .........................................     8

         2.4      Liabilities ..........................................................     8

         2.5      Purchase Price; Holdback; Adjustment; and Warranty and Reserve
                  Administration .......................................................    10

         2.6      Allocation of Purchase Price .........................................    12

         2.7      Risk of Loss .........................................................    12

ARTICLE III           REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER ...............    12

         3.1      Organization and Qualification .......................................    12

         3.2      Authority Relative to this Agreement .................................    12

         3.3      No Conflicts .........................................................    13

ARTICLE IV            REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES ................    13

         4.1      Organization and Qualification .......................................    13

         4.2      Authority Relative to this Agreement .................................    13

         4.3      Legal Capacity and Authority of Selling Parties ......................    13

         4.4      No Conflicts .........................................................    14

         4.5      No Consents ..........................................................    14

         4.6      Ownership Interests ..................................................    14

         4.7      Financial Statements .................................................    14

         4.8      Absence of Undisclosed Liabilities ...................................    14

         4.9      No Material Adverse Changes ..........................................    15

         4.10     Absence of Certain Developments ......................................    15

         4.11     Permitted Liens; Good Title to and Condition of Acquired Assets ......    16

         4.12     Legal Descriptions of Real Property ..................................    17
</TABLE>

                                      -i-
<PAGE>
                          MASTER TRANSACTION AGREEMENT
                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>                                                                                       <C>
         4.13     Real Property ........................................................    17

         4.14     Acquired Contracts ...................................................    20

         4.15     Warranties ...........................................................    21

         4.16     Environmental Matters ................................................    21

         4.17     Tax Matters ..........................................................    23

         4.18     Restrictions on Business Activities ..................................    24

         4.19     Intellectual Property ................................................    24

         4.20     Litigation ...........................................................    25

         4.21     Employees ............................................................    25

         4.22     Employee Benefit Plans ...............................................    25

         4.23     Insurance ............................................................    26

         4.24     Affiliate Transactions ...............................................    27

         4.25     Compliance with Laws .................................................    27

         4.26     Permits ..............................................................    27

         4.27     Membership Records; Minute Books .....................................    28

         4.28     Disclosure ...........................................................    28

ARTICLE V             CONDUCT OF SELLER PENDING THE CLOSING ............................    28

         5.1      Conduct of Business Pending the Closing ..............................    28

         5.2      Business Relationships ...............................................    29

         5.3      Notification of Certain Matters ......................................    30

         5.4      Required Approvals ...................................................    30

ARTICLE VI            ADDITIONAL AGREEMENTS ............................................    30

         6.1      Employment ...........................................................    30

         6.2      Break-Up Fee .........................................................    30

         6.3      No Negotiations ......................................................    31

         6.4      Public Announcements .................................................    31

         6.5      Confidentiality ......................................................    31

         6.6      Further Assurances ...................................................    32

         6.7      Right to Enter and Inspect ...........................................    32
</TABLE>

                                      -ii-
<PAGE>
                          MASTER TRANSACTION AGREEMENT
                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>                                                                                       <C>
         6.8      Tax on Prior Sales ...................................................    33

         6.9      Transfer of Permits ..................................................    33

         6.10     Landbanking ..........................................................    33

ARTICLE VII           CONDITIONS .......................................................    33

         7.1      Conditions to Obligation of Selling Parties ..........................    33

         7.2      Conditions to Obligations of Parent and Buyer ........................    34

ARTICLE VIII          CLOSING ..........................................................    37

         8.1      Selling Parties' Obligations .........................................    37

         8.2      Parent's or Buyer's Obligations ......................................    38

         8.3      Transfer Fees, Title Costs, and Closing Costs and Other Fees;
                  Prorations ...........................................................    38

ARTICLE IX            SURVIVAL AND INDEMNITIES .........................................    39

         9.1      Survival of Representations and Warranties ...........................    39

         9.2      Nature of Statements .................................................    39

         9.3      Arbitration ..........................................................    39

         9.4      Indemnification Agreement ............................................    39

ARTICLE X             TERMINATION/REMEDIES .............................................    40

         10.1     Termination ..........................................................    40

         10.2     Effect of Termination ................................................    40

         10.3     Specific Performance .................................................    40

ARTICLE XI            GENERAL PROVISIONS ...............................................    40

         11.1     Notices ..............................................................    40

         11.2     Counterparts .........................................................    41

         11.3     Governing Law ........................................................    41

         11.4     Assignment ...........................................................    41

         11.5     Gender and Number ....................................................    41

         11.6     Schedules and Exhibits ...............................................    42

         11.7     Waiver of Provisions .................................................    42

         11.8     Costs ................................................................    42

         11.9     Amendment ............................................................    42
</TABLE>

                                     -iii-
<PAGE>
                          MASTER TRANSACTION AGREEMENT
                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>                                                                                       <C>
         11.10    Severability .........................................................    42

         11.11    Binding Effect .......................................................    42

         11.12    Construction .........................................................    42

         11.13    Time Periods .........................................................    42

         11.14    Headings .............................................................    43

         11.15    Commission ...........................................................    43

         11.16    Access to Records ....................................................    43

         11.17    Entire Agreement .....................................................    43

         11.18    Enforcement of Rights ................................................    43
</TABLE>

                                      -iv-
<PAGE>
                          MASTER TRANSACTION AGREEMENT
                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<S>               <C>
Exhibit A  -      Asset Agreement
Exhibit B  -      Real Property Agreement
Exhibit C  -      Indemnification Agreement
Exhibit D  -      Dispute Resolution
Exhibit E  -      Escrow Agreement
Exhibit F  -      Non-Disclosure and Non-Compete Agreement
Exhibit G  -      Special Warranty Deed
Exhibit H  -      Assignment and Assumption Agreement
Exhibit I  -      Bill of Sale and Assumption Agreement
</TABLE>

MASTER TRANSACTION AGREEMENT SCHEDULES

<TABLE>
<S>                      <C>
Schedule 2.3C     -      Assets to be Written Off
Schedule 2.3D     -      Personal Assets
Schedule 2.4A(1)  -      Immaterial Breaches
Schedule 2.5C     -      Closing Balance Sheet
Schedule 2.6      -      Allocation of Purchase Price
Schedule 4.4      -      Conflicts
Schedule 4.5      -      Consents
Schedule 4.6      -      Ownership Interests
Schedule 4.7      -      Financial Statements
Schedule 4.8      -      Disclosed Liabilities
Schedule 4.9      -      Material Adverse Changes
Schedule 4.10     -      Certain Developments Since Date of Financial Statements
Schedule 4.11     -      Permitted Liens
Schedule 4.12     -      Legal Description of Real Property
Schedule 4.13     -      Disclosure for Real Property
Schedule 4.14     -      Disclosure on Acquired Contracts
Schedule 4.15     -      Warranty Disclosure
Schedule 4.16     -      Environmental Matters
Schedule 4.17     -      Tax Matters
Schedule 4.19     -      Intellectual Property
Schedule 4.20     -      Litigation
Schedule 4.21     -      Employee Information
Schedule 4.22     -      Employee Benefit Plans
Schedule 4.23     -      Insurance
Schedule 4.24     -      Affiliate Transactions
Schedule 4.25     -      Non-Compliance with Applicable Laws
Schedule 4.26     -      Permits and Land Use Entitlements
Schedule 5.1      -      Conduct Pending Closing
Schedule 7.2C     -      Required Consents
</TABLE>

                                      -v-
<PAGE>
REAL PROPERTY AGREEMENT SCHEDULES

<TABLE>
<S>                      <C>
Schedule 1.2      -      Acquired Contracts
Schedule 5.2      -      Real Property Assets; Title Binders; Surveys;
                         Disapproved Title Exceptions
</TABLE>

ASSET AGREEMENT SCHEDULES

<TABLE>
<S>                      <C>
Schedule 1.2      -      Assets to be Purchased
</TABLE>

                                      -vi-
<PAGE>
                          MASTER TRANSACTION AGREEMENT

         This MASTER TRANSACTION AGREEMENT (the "Agreement") is made as of June
12, 2002, by and among MERITAGE CORPORATION, a Maryland corporation ("MERITAGE
or PARENT"); MTH HOMES-TEXAS, L.P., a Texas limited partnership ("BUYER");
CRYSTAL CITY LAND & CATTLE, LTD., a Texas limited partnership ("CRYSTAL CITY");
HAMMONDS HOMES, LTD., a Texas limited partnership ("HAMMONDS HOMES," and
collectively with Crystal City, the "SELLER"); HAMMONDS HOMES I, LLC, a Texas
limited liability company ("HAMMONDS GP"); CRYSTAL CITY I, LLC, a Texas limited
liability company ("CRYSTAL GP," and collectively with Hammonds GP, the "GENERAL
PARTNERS"); and RONNIE D. HAMMONDS, an individual ("HAMMONDS"). Collectively,
Seller, General Partners, and Hammonds will be referred to herein as "SELLING
PARTIES."

                                    RECITALS

         1. Seller owns and operates the Hammonds Homes land development,
homebuilding, and sales operations (the "HAMMONDS BUSINESS").

         2. Concurrently herewith, the parties are entering into that Agreement
of Purchase and Sale of Assets in the form attached as EXHIBIT A hereto ("ASSET
AGREEMENT"), that Agreement of Purchase and Sale of Real Property in the form
attached as EXHIBIT B hereto ("REAL PROPERTY AGREEMENT"), and that
Indemnification Agreement in the form attached as EXHIBIT C hereto (the
"INDEMNIFICATION AGREEMENT").

         3. Although not a condition to Closing, Parent and Buyer anticipate
financing the acquisition of the assets of the Hammonds Business using the
proceeds of a public offering of Parent's common stock under its recently filed
Form S-3 Registration Statement (the "FINANCING").

         4. Pursuant to this Agreement, the Asset Agreement, and the Real
Property Agreement, Buyer will acquire all or substantially all of the assets of
the Hammonds Business.

         In consideration of the covenants and mutual agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in reliance upon the representations and
warranties contained herein, the parties agree as follows:

                                   ARTICLE I
                                   DEFINITIONS

         1.1 Definitions. The following terms will have the meanings set forth
below where used in this Agreement and identified with initial capital letters.

         "ABOVEGROUND STORAGE TANK" will have the meaning ascribed to such term
in Sections 6901, et seq., as amended, of RCRA, or any applicable state or local
statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Aboveground Storage Tanks.

         "ACCOUNTING ARBITRATOR" will have the meaning set forth in Section 2.5.
<PAGE>
         "ACQUIRED ASSETS" will have the meaning set forth in Section 2.2.

         "ACQUIRED CONTRACTS" will have the meaning set forth in Section 1.2 of
the Real Property Agreement and the Asset Agreement.

         "ADJUSTED BOOK VALUE" will mean total equity of the Hammonds Business
as reflected on the Closing Balance Sheet and the Final Balance Sheet, as the
case may be, which are to be prepared in accordance with Adjusted GAAP.

         "ADJUSTED GAAP" will have the meaning set forth in Section 2.5.

         "AGREEMENTS" will have the meaning set forth in Section 11.17.

         "APPLICABLE LAWS" will mean all federal, state, regional, local, or
other governmental or quasi-governmental statutes, laws, rules, regulations,
codes, ordinances, orders, plans, injunctions, decrees, rulings, or judicial or
administrative interpretations thereof, including without limitation
Environmental Laws, which are or may be applicable to Seller, Buyer, the
Hammonds Business, or the Acquired Assets or the use, development, or condition
thereof or otherwise related to any of the Acquired Assets.

         "APPROVED TITLE EXCEPTIONS" will have the meaning set forth in Section
5.2 of the Real Property Agreement.

         "ASSETS" will have the meaning set forth in Section 1.2 of the Asset
Agreement.

         "ASSET AGREEMENT" will have the meaning set forth in the recitals.

         "ASSUMED CONSTRUCTION CLAIMS" will have the meaning set forth in
Section 2.4.

         "ASSUMED LIABILITIES" will have the meaning set forth in Section 2.4.

         "ASSUMPTION AGREEMENT" will have the meaning set forth in Section 8.1.

         "BILL OF SALE" will have the meaning set forth in Section 8.1.

         "BONDS" will have the meaning set forth in Section 4.23.

         "BREAK-UP FEE" will have the meaning set forth in Section 6.2.

         "BUYER" will have the meaning set forth in the recitals.

         "CLOSING" will have the meaning set forth in Section 2.1.

         "CLOSING DATE" will have the meaning set forth in Section 2.1.

         "CLOSING BALANCE SHEET" will mean a balance sheet, as of May 31, 2002
or such other date as provided in Section 7.2I(4), for the Hammonds Business,
prepared in accordance with Adjusted GAAP.

                                      -2-
<PAGE>
         "CODE" will mean the Internal Revenue Code of 1986, as amended.

         "CONSTRUCTION CLAIMS" will mean all claims, including, without
limitation, claims for breach of contract, claims for breach of express or
implied warranty, construction defect claims, claims for lost profits,
consequential damages, and incidental damages (but not punitive damages) with
respect to Assumed Construction Claims, and all losses, costs and expenses
relating to any work which has been done, or any corrective work that is to be
done, on a completed Housing Unit or on streets, gradings, landscaping and
homeowners' association improvements and all other similar subdivision work.

         "CONTRACT ASSIGNMENTS" will have the meaning set forth in Section 8.1.

         "DEED" will have the meaning set forth in Section 8.1.

         "DISCHARGE" will mean any manner of spilling, leaking, dumping,
discharging, releasing, or emitting, as any of such terms may further be defined
in any Environmental Law, into any medium including, without limitation, ground
water, surface water, soil, or air.

         "DISPUTE" will have the meaning set forth in EXHIBIT D.

         "DISPUTE NOTICE" will have the meaning set forth in EXHIBIT D.

         "EFFECTIVE DATE" will mean June 30, 2002 or such other date as provided
in Section 7.2I(4).

         "ENVIRONMENTAL LAW" or "ENVIRONMENTAL LAWS" will mean all federal,
state, regional, local, or other governmental or quasi-governmental statutes,
laws, Applicable Laws, rules, regulations, codes, ordinances, orders, plans,
injunctions, decrees, rulings, or judicial or administrative interpretations
thereof, as amended from time to time, which govern or relate to pollution,
protection of the environment, protection of endangered or threatened species of
flora or fauna, public health and safety, air emissions, water discharges,
hazardous or toxic substances, solid or hazardous waste, or occupational health
and safety, as any of these terms are or may be defined in such statutes, laws,
rules, regulations, codes, ordinances, orders, plans, injunctions, decrees,
rulings, or judicial or administrative interpretations thereof, including,
without limitation: the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization
Act of 1986, 42 U.S.C. Section 9601, et seq. (collectively "CERCLA"); the Solid
Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of
1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.
Sections 6901, et seq. (collectively "RCRA"); the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Sections 1801, et seq.; the Clean
Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as
amended, 42 U.S.C. Section 7401-7642; the Toxic Substances Control Act, as
amended, 15 U.S.C. Sections 2601, et seq.; the Federal Insecticide, Fungicide,
and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the
Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C.
Sections 11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational
Safety and Health Act of 1970, as amended, 29 U.S.C. Sections 651, et seq.
("OSHA").

                                      -3-
<PAGE>
         "ERISA" will mean Title IV of the Employee Retirement Income Security
Act of 1974, as amended.

         "ESCROW" will have the meaning set forth in Section 5.1 of the Real
Property Agreement.

         "ESCROW AGENT" will have the meaning set forth in Section 5.1 of the
Real Property Agreement.

         "ESCROW AGREEMENT" will have the meaning set forth in Section 2.5B.

         "EVALUATION INFORMATION" will have the meaning set forth in Section
6.5.

         "EXCLUDED ASSETS" will have the meaning set forth in Section 2.3.

         "EXCLUDED LIABILITIES" will have the meaning set forth in Section 2.4.

         "FINAL BALANCE SHEET" will mean a balance sheet reflecting the closing
balances for the Hammonds Business, prepared in accordance with Adjusted GAAP,
as of June 30, 2002 or such other date as provided in Section 7.2I(4).

         "FINANCIAL STATEMENTS" will have the meaning set forth in Section 4.7.

         "FINANCING" will have the meaning set forth in the recitals to this
Agreement.

         "GENERAL PARTNERS" will mean Hammonds Homes I, LLC and Crystal City I,
LLC.

         "GAAP" will mean generally accepted accounting principles, consistently
applied with past practice.

         "GOVERNMENTAL AUTHORITY" will mean any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or pertaining
to government, including, without limitation, any government authority, agency,
department, board, commission, or instrumentality of the United States, any
State of the United States, or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction, and any self-regulatory
organizations.

         "HAMMONDS" will mean Ronnie D. Hammonds.

         "HAMMONDS BUSINESS" will have the meaning set forth in the recitals.

         "HANDLE" will mean any manner of generating, accumulating, storing,
treating, disposing of, transporting, transferring, labeling, handling,
manufacturing, or using, as any of such terms may further be defined in any
Environmental Law, of any Hazardous Substances or Waste.

         "HAZARDOUS SUBSTANCES" will be construed broadly to include any toxic
or hazardous substance, material, or waste, and any other contaminant,
pollutant, or constituent thereof, whether liquid, solid, semi-solid, sludge,
and/or gaseous, including without limitation, chemicals, compounds, by-products,
pesticides, asbestos containing materials, petroleum or petroleum products, and
polychlorinated biphenyls, the presence of which requires or may require

                                      -4-
<PAGE>
investigation or remediation under any Environmental Laws or which are or become
regulated, listed, or controlled by, under, or pursuant to any Environmental
Laws, including, without limitation, RCRA, CERCLA, the Hazardous Materials
Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the
Clean Water Act, FIFRA, EPCRA, and OSHA, or any similar state statute, or any
future amendments to, or regulations implementing such statutes, laws,
ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has
been or will be determined or interpreted at any time by any Governmental
Authority to be a hazardous or toxic substance regulated under any other
statute, law, regulation, order, code, rule, order, or decree.

         "HOLDBACK FUND" will have the meaning set forth in Section 2.5B.

         "HOUSING UNIT" will mean a residential dwelling constructed or to be
constructed on a lot, together with the associated lot.

         "INDEMNIFICATION AGREEMENT" will have the meaning set forth in the
recitals.

         "INTELLECTUAL PROPERTY" will have the meaning set forth in Section 1.2
of the Real Property Agreement and the Asset Agreement.

         "LAND USE ENTITLEMENTS" will have the meaning set forth in Section
4.26.

         "LEASE ASSIGNMENTS" will have the meaning set forth in Section 8.1.

         "NON-DISCLOSURE AND NON-COMPETE AGREEMENT" will have the meaning set
forth in Section 7.2.

         "NOTICES" will have the meaning set forth in Section 4.16.

         "OPENING DATE" will have the meaning set forth in Section 5.1 of the
Real Property Agreement.

         "OPTIONED REAL PROPERTY" will have the meaning set forth in Section 1.2
of the Real Property Agreement.

         "OWNED REAL PROPERTY" will have the meaning set forth in Section 1.2 of
the Real Property Agreement.

         "PARENT" will mean Meritage Corporation.

         "PERMITS" will have the meaning set forth in Section 4.26.

         "PERMITTED LIENS" will have the meaning set forth in Section 4.11.

         "PERMITTED MATERIALS" will mean (a) reasonable amounts of gasoline, and
oil or other vehicle lubricants stored in the vehicles and equipment used on the
Real Property, (b) reasonable amounts of fertilizers, herbicides and/or
pesticides, and ordinary, everyday painting and cleaning supplies, used only in
the ordinary course of completing and maintaining the buildings,

                                      -5-
<PAGE>
landscaping and improvements on the Real Property, and (c) standard building
components and materials which are properly and lawfully installed in or
incorporated into the improvements and may lawfully remain therein in accordance
with Applicable Laws, taking into account the nature, purpose and intended use
and occupancy thereof; provided that in all cases all such components,
materials, substances and other items referred to in clauses (a) through (c),
above, are stored, transported, used, installed, incorporated and disposed of,
in accordance with all Applicable Laws.

         "PERSON" will mean any natural person, corporation, general or limited
partnership, limited liability company, trust, sole proprietorship, or other
entity, organization or association of any kind.

         "PROCEEDINGS" will mean claims, suits, actions, arbitrations, dispute
resolution proceedings, judgments, penalties, fines or administrative or
judicial investigations or proceedings.

         "PROPERTY LEASES" will have the meaning set forth in Section 4.14.

         "PURCHASE PRICE" will have the meaning set forth in Section 2.5.

         "REAL PROPERTY" will have the meaning set forth in Section 1.2 of the
Real Property Agreement.

         "REAL PROPERTY ASSETS" will have the meaning set forth in Section 1.2
of the Real Property Agreement.

         "REAL PROPERTY AGREEMENT" will have the meaning set forth in the
recitals.

         "RESERVES" will mean the reserves for Unassumed Construction Claims.

         "SEC" will mean the Securities and Exchange Commission.

         "SELLER" will mean collectively Hammonds Homes, Ltd. and Crystal City
Land & Cattle, Ltd.

         "SELLING PARTIES" will mean Hammonds, Seller, and General Partners.

         "SUPPLEMENTAL TITLE REVIEW PERIOD" will have the meaning set forth in
Section 5.2 of the Real Property Agreement.

         "SURVEY" will have the meaning set forth in Section 5.2 of the Real
Property Agreement.

         "TAXES" will mean any and all federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, payroll, employment, recapture,
disability, real property, personal property, sales, use, transfer,
registration, value-added, alternative or add-on minimum, estimated,
"roll-back," any other taxes, assessments, or

                                      -6-
<PAGE>
government charges of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.

         "TAX RETURNS" will mean any return, declaration, report, claim to
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.

         "TITLE BINDER" will have the meaning set forth in Section 5.2 of the
Real Property Agreement.

         "TITLE COMPANY" will have the meaning set forth in Section 5.1 of the
Real Property Agreement.

         "TITLE POLICY" will have the meaning set forth in Section 5.2 of the
Real Property Agreement.

         "TITLE SUPPLEMENT" will have the meaning set forth in Section 5.2 of
the Real Property Agreement.

         "UNASSUMED CONSTRUCTION CLAIMS" will have the meaning set forth in
Section 2.4.

         "UNDERGROUND STORAGE TANK" will have the meaning ascribed to such term
in Section 6901 et seq., as amended, of RCRA, or any applicable state or local
statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Underground Storage Tanks.

         "WASTE" will be construed broadly to include any abandoned or disposed
agricultural wastes, biomedical wastes, biological wastes, bulky wastes,
construction and demolition debris, garbage, household wastes, industrial solid
wastes, liquid wastes, recyclable materials, sludge, solid wastes, special
wastes, used oils, white goods, and yard trash as those terms are defined under
any applicable Environmental Laws.

                                   ARTICLE II
                           PURCHASE AND SALE OF ASSETS

         2.1 Closing. The closing of the purchase and sale of the Acquired
Assets (the "CLOSING") will take place at 10:00 A.M. local time on the 20th day
of June, 2002 at the offices of Snell & Wilmer L.L.P., One Arizona Center, 400
E. Van Buren, Phoenix, AZ 85004 or such other time and place as provided in
Section 7.2I(4) or as Parent may establish by written notice to Seller no less
than three business days prior to an anticipated Closing. The day on which the
Closing actually occurs is herein sometimes referred to as the "CLOSING DATE."

         2.2 Assets to be Purchased. Upon the terms and subject to the
conditions set forth herein, and in reliance on the respective representations
and warranties of the parties contained herein and in the Asset Agreement and
the Real Property Agreement, at the Closing, Seller agrees to sell, convey,
grant, assign, and transfer to Buyer and Buyer agrees to purchase and acquire
from Seller all of the Real Property Assets, the Assets and any other assets,
properties, or rights of every nature, kind, description, tangible and
intangible, whether real, personal or mixed, whether accrued, contingent or
otherwise and whether now existing or hereinafter acquired

                                      -7-
<PAGE>
relating in any way to or used or held for use in connection with the Hammonds
Business, including, but not limited to, the assets of Crystal City's
wholly-owned subsidiaries, whether directly or indirectly owned (other than the
Excluded Assets) (the "ACQUIRED ASSETS").

         2.3 Assets Not Being Transferred. Seller will retain and Buyer will not
purchase the following ("EXCLUDED ASSETS"):

                  A. All of Seller's right, title and interest under or related
         to this Agreement, the Real Property Agreement or the Asset Agreement,
         including, without limitation, the consideration delivered pursuant to
         this Agreement;

                  B. Minute books, stock transfer ledgers and membership ledgers
         of the Seller;

                  C. Any deferred tax assets and any other assets that, as a
         result of the acquisition, will be written off by Buyer, as identified
         on SCHEDULE 2.3C, which will be prepared by Buyer;

                  D. The personal assets set forth on SCHEDULE 2.3D; and

                  E. To the extent provided in Section 2.5A, any cash or cash
         equivalents.

         2.4 Liabilities.

                  A. Assumed Liabilities; Loan Payments. Upon the terms and
         subject to the conditions of this Agreement, at the Closing, Buyer will
         assume from and after the Closing Date, and perform and pay when due,
         only the following liabilities and no others (the "ASSUMED
         LIABILITIES"):

                           (1) The obligations under the Acquired Contracts
                  solely to the extent arising out of events occurring on or
                  after the Closing Date (excluding any breaches thereof that
                  began prior to the Closing Date, the exclusion for which will
                  continue until Buyer has notice thereof and opportunity to
                  cure, other than (x) immaterial breaches disclosed on SCHEDULE
                  2.4A(1) and accepted in writing by Buyer prior to or at the
                  Closing; provided that any damages, settlements, expenses, or
                  costs incurred by Buyer or Parent in respect thereof will
                  count against the [*] deductible set forth in Section 4C of
                  the Indemnification Agreement or (y) breaches arising from
                  the failure of Seller to have timely purchased lots);

                           (2) Any Construction Claim that arises out of or is
                  related to any Housing Unit acquired hereunder that closes
                  after the Closing (the "ASSUMED CONSTRUCTION CLAIMS"); in each
                  case other than Construction Claims pending or, to the
                  Knowledge of Selling Parties, threatened on or prior to the
                  Closing; and

                           (3) All liabilities or obligations reflected on the
                  Closing Balance Sheet.

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                      -8-
<PAGE>
                  B. Excluded Liabilities. Notwithstanding any other provision
         of this Agreement, neither Parent nor Buyer will assume, acquire, or be
         responsible for any liabilities, obligations or expenses, whether fixed
         or contingent, known or unknown, matured or unmatured, executory or
         non-executory, to the extent such liability or obligations arise out of
         occurrences on or prior to the Closing Date, even if they do not become
         known until after such date, relating to or consisting of
         (collectively, the "EXCLUDED LIABILITIES"):

                           (1) Liabilities and obligations not reflected on the
                  Closing Balance Sheet;

                           (2) All liabilities, obligations and expenses
                  (including Taxes) of Selling Parties under this Agreement or
                  with respect to or arising out of the consummation of the
                  transactions contemplated by this Agreement;

                           (3) (a) Any Taxes (including deferred Tax
                  liabilities) applicable to Seller, the Hammonds Business, or
                  the Acquired Assets (except for property taxes for property of
                  Seller that has not closed prior to the Closing Date); (b) any
                  liabilities or obligations or expenses of the Seller related
                  to pending or threatened litigation against Seller, Hammonds
                  Business or the Acquired Assets; (c) any liabilities,
                  obligations, or expenses arising from or relating to or
                  consisting of any lien, encumbrance or claim affecting the
                  title to the Acquired Assets, other than Permitted Liens; (d)
                  any liabilities, obligations, or expenses under any contracts
                  arising or relating to the period prior to the Closing Date;
                  (e) any liabilities, obligations or expenses relating to any
                  environmental matter or condition; and (f) any liability or
                  obligation to or in respect of any employees or former
                  employees of Seller, including without limitation: (i) any
                  employment agreement, whether or not written, between a Seller
                  and any person; (ii) under any employee plan at any time
                  maintained, contributed to or required to be contributed to by
                  or with respect to Seller or under which Seller may incur
                  liability, or any contributions, benefits or liabilities
                  therefor, or any liability with respect to Seller's withdrawal
                  or partial withdrawal from or termination of any employee
                  plan; or (iii) with respect to any claim of an unfair labor
                  practice, or any claim under any state unemployment
                  compensation or worker's compensation law or regulation or
                  under any federal or state employment discrimination law or
                  regulation, except as to (d), (e), and (f), the extent set
                  forth on the Closing Balance Sheet; and

                           (4) Any Construction Claim that is not an Assumed
                  Construction Claim ("UNASSUMED CONSTRUCTION CLAIMS").

                  Anything contained in this Agreement to the contrary
         notwithstanding, Buyer will not assume the Excluded Liabilities, which
         Excluded Liabilities will at and after the Closing remain the exclusive
         responsibility of Seller. Seller will, and each of the Selling Parties
         agrees to cause Seller to, discharge all Excluded Liabilities in
         accordance with their terms (subject to Seller's right to contest
         obligations believed in good faith not to be then due) and Applicable
         Law.

                                      -9-
<PAGE>
         2.5 Purchase Price; Holdback; Adjustment; and Warranty and Reserve
Administration.

                  A. Purchase Price. At Closing, in addition to assuming the
         Assumed Liabilities, Parent will cause Buyer to pay to Seller, for the
         Acquired Assets and in immediately available funds, $46,364,000
         ("PURCHASE PRICE"), less the Holdback Fund. At Closing, Seller will
         have an Adjusted Book Value of at least $23,182,000. In the event of
         any shortfall or excess from these amounts as of the Closing Date or
         Effective Date, then, (i) in the case of a shortfall in Adjusted Book
         Value, Selling Parties will make a contribution of cash as is necessary
         to make up the shortfall, and (ii) in the case of any excess Adjusted
         Book Value, Buyer will remit the excess in cash to Seller. Such
         payments will be made, as appropriate, at Closing and upon resolution
         of final Adjusted Book Value as of the Effective Date pursuant to
         Section 2.5C below. Buyer may, in lieu of paying cash for the cash of
         Seller, allow Seller to distribute its cash to the partners thereof.

                  B. Holdback. At the Closing, Buyer will deliver to a
         designated escrow account, pursuant to the terms of an escrow agreement
         with Compass Bank, Houston, Texas, substantially in the form of EXHIBIT
         E attached hereto (the "ESCROW AGREEMENT") to be executed among Parent,
         Buyer, Seller, and the designated escrow agent, [*] of the Purchase
         Price payable to Seller, in cash by wire transfer of immediately
         available funds (the "HOLDBACK FUND"). The Holdback Fund will be held
         in an interest-bearing escrow account to satisfy indemnification claims
         of the Parent or Buyer that may arise under the Indemnification
         Agreement, as provided therein..

                           (1) The Holdback Fund, including interest earned on
                  amounts to be distributed from the Holdback Fund, will be
                  delivered by the designated escrow agent to Seller or its
                  designee as follows:

                                    (a) on the first anniversary of the Closing
                           Date, an initial distribution, in an amount equal to
                           [*], less any amount that Parent or Buyer are
                           entitled to retain under the provisions of the
                           Indemnification Agreement, and less any amount that
                           is disputed and subject to the dispute-resolution
                           provisions of EXHIBIT D;

                                    (b) on the second anniversary of the Closing
                           Date, an additional distribution, in an amount equal
                           to [*], less any amount that Parent or Buyer are
                           entitled to retain under the provisions of the
                           Indemnification Agreement, and less any amount that
                           is disputed and subject to the dispute-resolution
                           provisions of EXHIBIT D; and

                                    (c) on the third anniversary of the Closing
                           Date, the remaining balance of the Holdback Fund,
                           less any amount that Parent or Buyer are entitled to
                           retain under the provisions of the Indemnification
                           Agreement, and less any amount that is disputed and
                           subject to the dispute-resolution provisions of
                           EXHIBIT D.

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                      -10-
<PAGE>
                           (2) [*] Subject only to the limitations of the
                  Indemnification Agreement, Parent and Buyer may proceed
                  against any of the parties to the Indemnification Agreement.

                  C. Adjustment.

                           (1) For the purpose of making an initial
                  determination of Adjusted Book Value, Seller will deliver to
                  Parent, at least five days prior to the Closing, a Closing
                  Balance Sheet, prepared in accordance with Adjusted GAAP
                  consistent with SCHEDULE 2.5C. At Closing, subject to review
                  and tentative approval of the Closing Balance Sheet by Parent
                  and Buyer, any adjustment required by Section 2.5A will be
                  made (i.e., any necessary contributions of capital by Selling
                  Parties, or any necessary remittance by Seller of any excess
                  capital). For purposes of this Agreement and the transactions
                  contemplated hereby, the term "ADJUSTED GAAP" will mean GAAP,
                  including, without limitation, appropriate accruals for
                  warranty and other reserves, and bonuses, and except that (x)
                  Excluded Assets and Excluded Liabilities will be omitted; (y)
                  any profit or loss on the sale of real property to landbankers
                  or model homes to investors under Section 6.10 or Section 7.2Q
                  will be disregarded; and (z) any write off of the deposit
                  related to the Fry and West Little York property resulting
                  from Parent's failure to consent to its acquisition under
                  SECTION 5.1 shall be disregarded.

                           (2) No later than one month after the Effective Date,
                  Parent will deliver to Seller a balance sheet reflecting the
                  actual closing balances for the Hammonds Business, prepared in
                  accordance with Adjusted GAAP, as of the Effective Date (the
                  "FINAL BALANCE SHEET").

                           (3) The Final Balance Sheet will become final and
                  binding on the parties unless within 15 business days
                  following delivery thereof to Seller, Seller notifies Parent
                  in writing that Seller objects thereto. If Seller objects to
                  the Final Balance Sheet, and after good faith consultation
                  with respect to the objection, the parties are unable to reach
                  an agreement within 15 days, then the parties will resolve the
                  dispute in the manner provided in EXHIBIT D; PROVIDED,
                  HOWEVER, that the arbitrator will be an accounting firm of
                  national repute (other than the firms currently serving as
                  auditor for Parent or Seller) as may be mutually agreed upon
                  by Parent and Seller (the "ACCOUNTING ARBITRATOR"). The
                  determination of the Accounting Arbitrator will be final and
                  binding on all parties, and judgment on the arbitration award
                  may be enforced in any court having jurisdiction over the
                  subject matter of the controversy. Buyer and Seller will each
                  pay the cost of their own accounting and other professionals
                  and will bear equally the fees and expenses of the Accounting
                  Arbitrator.

                  D. Warranty and Reserve Administration. Subject to the
         following, Parent and Buyer will administer all construction claims to
         the extent of the Reserves included on the Closing Balance Sheet or as
         otherwise paid for by Seller in accordance with their

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                      -11-
<PAGE>
         standard procedures. However, Parent and Buyer are only obligated to
         administer and discharge Unassumed Construction Claims (but not to
         defend litigation in respect thereof) to the extent that the costs of
         those claims are less than the Reserves attributable to those claims.
         In the event that the costs attributable to any Unassumed Construction
         Claims exceed the Reserves attributable to those claims, Selling
         Parties will reimburse Parent or Buyer for the difference as an
         Excluded Liability under the Indemnification Agreement. On the second
         anniversary of the Closing, Parent or Buyer will deliver to Seller any
         amount of Reserves that remain except with respect to any Construction
         Claims that have been asserted and remain unresolved as of that date.
         Parent and Buyer will seek Seller's consent to the settlement of any
         Unassumed Construction Claim that exceeds, with respect to any single
         Housing Unit, $10,000. If Seller does not so consent, it will be
         responsible for addressing such claim. Parent will provide Seller with
         a quarterly report of warranty administration and the status of the
         Reserves.

         2.6 Allocation of Purchase Price. The Purchase Price and the Assumed
Liabilities will be allocated among the Acquired Assets in accordance with
Section 197 and 1060 of the Code and the regulations thereunder. Such allocation
will be reported consistently by Buyer and Seller on Internal Revenue Service
Form 8594, Asset Acquisition Statement, which will be filed with Buyer's and
Seller's Federal income tax returns for the tax year that includes the Closing
Date. No party makes any representation or warranty as to the tax treatment of
this transaction to any other party. SCHEDULE 2.6 sets forth an estimated
allocation as of March 31, 2002. A final allocation will be prepared at or as
soon as practicable after the Closing, consistent with SCHEDULE 2.6, and after
giving effect to the actual Purchase Price and Final Balance Sheet

         2.7 Risk of Loss. All risk of loss with respect to the Acquired Assets
on or before the Closing Date will remain the sole risk of Seller.

                                  ARTICLE III
               REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER

         As of the date hereof and as of the Closing Date, Parent and Buyer
hereby represent and warrant to Seller, the following:

         3.1 Organization and Qualification. Each of Parent and Buyer is a
corporation or partnership duly organized, validly existing, and in good
standing under the laws of the jurisdiction of incorporation or formation and
has the requisite power and authority to own and operate its properties and to
carry on its business as now conducted in every jurisdiction where the failure
to do so would have a material adverse effect on its business, properties, or
ability to conduct the business currently conducted by it.

         3.2 Authority Relative to this Agreement. Each of Parent and Buyer has
the requisite power and authority to enter into this Agreement and to carry out
its obligations hereunder. The execution and delivery of this Agreement by
Parent and Buyer and the consummation by Parent and Buyer of the transactions
contemplated hereby have been duly authorized by each of them, and no other
actions or proceedings, corporate or otherwise, on the part of Parent and Buyer
are necessary to authorize this Agreement and such transactions. This Agreement
has been duly executed and delivered by each of Parent and Buyer and constitutes
a valid and binding

                                      -12-
<PAGE>
obligation of each of them, enforceable in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, or other similar laws relating to the enforcement of creditors'
rights generally and by general principles of equity.

         3.3 No Conflicts. Parent and Buyer are not subject to nor obligated
under (i) any provision of their articles of incorporation, bylaws, articles of
organization, partnership agreement, or other organizational documents, as the
case may be; (ii) any material agreement, arrangement, or understanding (other
than lending arrangements); (iii) any material license, franchise, or permit; or
(iv) any law, regulation, order, judgment, or decree, which would be breached or
violated, or in respect of which a right of termination or acceleration would
arise, or pursuant to which any encumbrance on any of their assets would be
created, by its execution, delivery, and performance of this Agreement and the
consummation by it of the transactions contemplated hereby.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES
                               OF SELLING PARTIES

         For Purposes of this Article IV, the term "Knowledge of Selling
Parties" means that no facts or information have come to the attention of
Hammonds after reasonable inquiry that would make him aware of any inaccuracy of
the representations or warranties of Selling Parties set forth in this
Agreement. As of the date hereof and as of the Closing Date, Selling Parties
hereby represent, warrant, and agree as follows, to and for the benefit of
Parent and Buyer:

         4.1 Organization and Qualification. Seller and General Partners are
duly organized, validly existing, and in good standing under the laws of Texas
and have the requisite power and authority to own and operate their properties
and to carry on its business as now conducted.

         4.2 Authority Relative to this Agreement. Each of the Selling Parties
has the requisite power and authority to enter into this Agreement and to carry
out their respective obligations hereunder. The execution and delivery of this
Agreement by Selling Parties and the consummation by Selling Parties of the
transactions contemplated hereby have been duly authorized, and no actions or
proceedings, corporate or otherwise, on the part of Selling Parties are
necessary to authorize this Agreement and such transactions. This Agreement has
been duly executed and delivered by each of the Selling Parties and constitutes
a valid and binding obligation of each Selling Party enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of equity.

         4.3 Legal Capacity and Authority of Selling Parties. Each of the
Selling Parties possesses the legal capacity to execute and deliver each
document to which they are each a party, to perform their respective obligations
thereunder, and to consummate the transactions contemplated thereby. With
respect to each document contemplated by this Agreement to which Selling Parties
are, or should be, a party, each Selling Party has or will duly execute and
deliver such documents, which will be a valid, legal and binding obligation of
each Selling Party enforceable against Each Selling Party in accordance with its
terms, as the case may be.

                                      -13-
<PAGE>
         4.4 No Conflicts. Except as set forth in SCHEDULE 4.4, Selling Parties
are not subject to nor obligated under (i) any provision of their articles of
incorporation, bylaws, articles of organization, operating agreement,
partnership agreement, or other organizational documents, as the case may be;
(ii) any agreement, arrangement, or understanding; (iii) any license, franchise,
or permit; or (iv) any law, regulation, order, judgment, or decree, which would
be breached or violated, or in respect of which a right of termination or
acceleration would arise, or pursuant to which any encumbrance on any of their
assets would be created, by its execution, delivery, and performance of this
Agreement and the consummation by it of the transactions contemplated hereby.

         4.5 No Consents. Except as set forth in SCHEDULE 4.5, no authorization,
consent, or approval of, or filing with, any public body, court, or authority or
pursuant to any Acquired Contract is necessary on the part of Selling Parties
for the consummation by Selling Parties of the transactions contemplated by this
Agreement.

         4.6 Ownership Interests. Except as disclosed in SCHEDULE 4.6, Seller
does not own any stock, partnership interest, joint venture interest, or any
other security issued by or equity interest in any other corporation,
organization, association, or entity whose business is real estate related.

         4.7 Financial Statements. Seller has provided: (a) the audited
financial statements of the Hammonds Business for and as of the fiscal years
ended December 31, 2001, 2000 and 1999 and (b) the unaudited consolidated
financial statements of the Hammonds Business for and as of the period ended
March 31, 2002 (the "FINANCIAL STATEMENTS"). The Financial Statements have been
prepared in accordance with GAAP on a consistent basis throughout the periods
involved and fairly present the financial position of the Hammonds Business as
of the dates thereof and the results of its operations and cash flows for the
periods then ended; provided that the March 31, 2002 Financial Statements have
been prepared in accordance with Adjusted GAAP. The Financial Statements are
attached hereto as SCHEDULE 4.7.

         4.8 Absence of Undisclosed Liabilities.

                  A. There are no obligations or liabilities relating to or
         affecting the Hammonds Business or the Acquired Assets (whether
         accrued, absolute, contingent, liquidated, unliquidated, or otherwise,
         whether due or to become due and regardless of when asserted), except:
         (i) liabilities reflected in the Financial Statements or disclosed in
         the notes thereto, (ii) liabilities which have arisen in the ordinary
         course of business after the date of the Financial Statements, (iii)
         liabilities specifically disclosed in SCHEDULE 4.8, and (iv) Excluded
         Liabilities.

                  B. As of the Closing, in accordance with Section 2.5C, Seller
         will have delivered the Closing Balance Sheet, prepared in accordance
         with Adjusted GAAP. There will be no obligations or liabilities
         relating to or affecting the Hammonds Business or the Acquired Assets
         (whether accrued, absolute, contingent, liquidated, unliquidated, or
         otherwise, whether due or to become due and regardless of when
         asserted), except: (i) liabilities reflected in the Closing Balance
         Sheet, (ii) liabilities which have arisen in the

                                      -14-
<PAGE>
         ordinary course of business after the date of the Closing Balance
         Sheet, (iii) liabilities specifically disclosed in SCHEDULE 4.8, and
         (iv) Excluded Liabilities.

         4.9 No Material Adverse Changes. Except as set forth in SCHEDULE 4.9,
since the date of the Financial Statements, there has not been any material
adverse change in the assets, financial condition, or operating results,
customer, employee, or supplier relations, business condition or prospects, or
financing arrangements related to the Hammonds Business or the Acquired Assets.

         4.10 Absence of Certain Developments. Except as set forth in SCHEDULE
4.10 or except as contemplated in and consistent with the terms of this
Agreement, the Asset Agreement or the Real Property Agreement, since the date of
the Financial Statements, Seller has not, in respect of the Hammonds Business:

                  A. Changed its accounting methods or practices (including any
         change in depreciation or amortization policies or rates) or revalued
         any of its assets;

                  B. Other than distributions necessary for Seller or its
         ultimate owners to pay taxes in respect of Seller, declared or paid any
         dividend or distributions;

                  C. Borrowed any amount under existing lines of credit, or
         otherwise incurred or become subject to any indebtedness, except in the
         ordinary course of business and in a manner and in amounts that are in
         keeping with historical practice;

                  D. Discharged or satisfied any lien (other than property taxes
         and assessments, business and personal property taxes, mechanic's liens
         and similar items discharged in the ordinary course of business
         consistent with past practices) or encumbrance;

                  E. Except as is reasonably necessary for the ordinary
         operation of the Hammonds Business and in a manner and in amounts that
         are in keeping with historical practice, mortgaged, pledged, or
         subjected to any lien, charge, or other encumbrance, any of its assets
         with a fair market value in excess of $25,000, except liens for current
         property taxes not yet due and payable;

                  F. Sold, assigned, or transferred (including, without
         limitation, transfers to any employees, shareholders, or affiliates)
         any assets or canceled any debts or claims, except in the ordinary
         course of business and consistent with past practices;

                  G. Sold, assigned, or transferred any patents, trademarks,
         trade names, copyrights, trade secrets, or other intangible assets, or
         disclosed any proprietary or confidential information to any person
         other than Parent or Buyer;

                  H. Suffered any extraordinary loss or waived any material
         right or claim, including any write-off or compromise of any contract
         or other account receivable;

                  I. Taken any other action or entered into any other
         transaction other than in the ordinary course of business and in
         accordance with past custom and practice, or

                                      -15-
<PAGE>
         entered into any transaction with an employee, shareholder, member,
         partner or officer of Seller or any other entity associated with the
         Hammonds Business;

                  J. Suffered any theft, damage, destruction, or loss of or to
         any property or properties owned or used by it, whether or not covered
         by insurance;

                  K. Increased the annualized level of compensation of or
         granted any extraordinary bonuses, benefits, or other forms of direct
         or indirect compensation to any employee, officer, director, or
         consultant that aggregate in excess of $25,000, or increased,
         terminated, or amended or otherwise modified any plans for the benefit
         of employees;

                  L. Except as is reasonably necessary for the ordinary
         operation of the Hammonds Business and in a manner and in amounts that
         are in keeping with historical practice, made any capital expenditures
         or commitments for property, plant and equipment that aggregate in
         excess of $25,000;

                  M. Engaged or agreed to engage in any extraordinary
         transactions or distributions, or except as is reasonably necessary for
         the ordinary operation of the Hammonds Business and in keeping with
         historical practice, entered into any contract, written or oral, that
         involves consideration or performance by it of a value exceeding
         $25,000 or a term exceeding one year;

                  N. Made any loans or advances to, or guarantees for the
         benefit of, any persons; or

                  O. Made charitable contributions or pledges, which in the
         aggregate exceed $10,000.

         4.11 Permitted Liens; Good Title to and Condition of Acquired Assets.
Seller's title to the Acquired Assets is free and clear of all liens and
encumbrances other than those listed on SCHEDULE 4.11 and Approved Title
Exceptions (collectively, the "PERMITTED Liens"). All of the Acquired Assets are
in good condition and repair, ordinary wear and tear excepted, and are usable in
the ordinary course of business. The Acquired Assets represent all of the assets
of the Hammonds Business and all of the assets necessary or required by Buyer to
continue to operate the Hammonds Business as conducted prior to the Closing.
Seller owns, or leases under valid leases, all property, machinery, equipment,
and other tangible and intangible assets necessary for the conduct of the
Hammonds Business. None of the assets attributable to, or necessary to the
operation of, the Hammonds Business, as conducted immediately prior to the
Closing, are held or owned by an entity other than Seller. There are no members,
shareholders, partners, or affiliates of Seller, including Hammonds or any other
Selling Party, that own any assets, licenses, permits or other authorizations
relating to the Acquired Assets or the Hammonds Business.

         4.12 Legal Descriptions of Real Property. SCHEDULE 4.12 sets forth a
Title Binder that contains a complete and accurate legal description for each
parcel of Owned Real Property owned or controlled by Seller.

         4.13 Real Property. Except as set forth on SCHEDULE 4.13:

                                      -16-
<PAGE>
                  A. With respect to any agreements, arrangements, contracts,
         leases, licenses, covenants, conditions, deeds, deeds of trust,
         rights-of-way, easements, mortgages, restrictions, surveys, title
         insurance policies, and other documents granting to Seller title to or
         an interest in or otherwise affecting the Real Property, no breach or
         event of default exists, and no condition or event has occurred that
         with the giving of notice, the lapse of time, or both would constitute
         a breach or event of default, by Seller or any other person.

                  B. The Real Property has all necessary access to and from
         public highways, streets, and roads and no pending or, to the Knowledge
         of Selling Parties, threatened proceeding or other fact or condition
         exists that could limit or result in the termination of such access.

                  C. Electric, gas (if applicable), sewage, telephone, and water
         utility facilities are available for connection and service to homes
         constructed or being constructed on the Real Property, which facilities
         are in compliance in all respects with all Applicable Laws, subject to
         such installation and connection charges with respect thereto which in
         the ordinary course of business are payable upon issuance of
         certificates of occupancy which have not yet been procured.

                  D. No condemnation, eminent domain, or similar proceeding
         exists, is pending or, to the Knowledge of Selling Parties, is
         threatened with respect to, or that could affect, any of the Real
         Property.

                  E. Any buildings and improvements on the Real Property to the
         extent installed or constructed by Seller are in compliance with all
         Applicable Laws and do not violate, in any respect, (i) any set-back,
         (ii) zoning law, ordinance, regulation, or statute, or other
         governmental restriction in the nature thereof, or (iii) any
         restrictive covenant affecting any such Real Property.

                  F. There are no parties in possession of any portion of the
         Real Property as lessees, tenants at sufferance, or trespassers.

                  G. Except as incurred in the ordinary course of business after
         the date of the Financial Statements, there are no unpaid charges,
         debts, liabilities, claims, or obligations arising from the
         construction, occupancy, ownership, use, or operation of the Real
         Property. No Real Property is subject to any condition or obligation to
         any Governmental Authority or other person requiring the owner or any
         transferee thereof to donate land, money or other property or to make
         off-site public improvements.

                  H. Except as set forth on SCHEDULE 4.7 or 4.12, no
         developer-related fees, charges or assessments for public improvements
         or otherwise made against the Real Property or any lots included
         therein are due and unpaid, including without limitation those for
         construction of sewer lines, water lines, storm drainage systems,
         electric lines, natural gas lines, streets (including perimeter
         streets), roads and curbs other than as may be required in the ordinary
         course of completing such project from its current (incomplete) status
         or as may be contemplated in the conditions of approval and contained
         in the Land Use Entitlements for such projects.

                                      -17-
<PAGE>
                  I. There is no moratorium applicable to any of the Real
         Property on (1) the issuance of building permits for the construction
         of houses, or certificates of occupancy therefor, or (2) the purchase
         of sewer or water taps.

                  J. Each of the lots included in the Real Property is stable
         and otherwise suitable for the construction of a residential structure
         suitable to the soil conditions thereon, as set forth in the soil
         report related to each such subdivision.

                  K. Except as set forth in the Title Binders, Surveys or plats,
         the Real Property does not contain "wetlands," as defined, or subject
         to regulation by, the Army Corps of Engineers or the Environmental
         Protection Agency, or, to the Knowledge of Selling Parties, a level of
         radon above action levels of the U.S. Environmental Protection Agency
         and is not located within a "critical", "preservation", "conservation,"
         "habitat conservation area," or similar type of area subject to
         regulation under any Environmental Laws. No portion of the Real
         Property is situated within a "noise cone" such that the Federal
         Housing Administration will not approve mortgages due to the noise
         level classification of such real property.

                  L. The Real Property has not been used as a gravesite,
         landfill, or waste disposal area.

                  M. No Proceeding is pending or, to the Knowledge of Selling
         Parties, threatened which involves any of the Real Property, or against
         Seller with respect to any of the Real Property; all of the developed
         Real Property and the lots included therein are in compliance with all
         Applicable Laws, including without limitation, zoning and subdivision
         laws and ordinances and the Real Property is zoned to permit single
         family home construction; none of the development-site preparation and
         construction work performed on the Real Property has concentrated or
         diverted surface water or percolating water improperly onto or from the
         Real Property or caused or resulted in a release of any Hazardous
         Substance in violation of any Environmental Law.

                  N. Seller has not granted to any person any contract or other
         right to the use of any portion of the Real Property or to the
         furnishing or use of any facility or amenity on or relating to the Real
         Property.

                  O. Seller is not a "foreign person" within the meaning of
         Sections 1445 and 7701 of the Code.

                  P. Subject to the Reserves, to the extent installed or
         constructed by Seller or its agents or affiliates, all of the Housing
         Units, improvements and buildings on the Real Property were constructed
         in a good and workmanlike manner, substantially comply with Applicable
         Laws, are structurally sound, are in good and proper working condition
         and repair, normal wear and tear, normal maintenance and normal
         warranty and customer services matters excepted, and are useful for
         their intended purposes.

                  Q. Any improvements and buildings included within the Real
         Property are located within the boundary lines of the Real Property and
         do not encroach upon the land of any adjacent owner; no improvements of
         any third Person encroach upon the Real

                                      -18-
<PAGE>
         Property; and no Person has any unrecorded right, title or interest in
         the real property constituting the Real Property, whether by right of
         adverse possession, prescriptive easement or otherwise.

                  R. The recorded easements, rights-of-way, covenants, and other
         title exceptions and survey matters do not adversely affect the current
         beneficial use of the Real Property. The Real Property is being
         developed and used in compliance with all covenants, easements, and
         restrictions affecting the Real Property, and all obligations of Seller
         on the Real Property with regard to such covenants, easements, and
         restrictions have been and are being performed in a proper and timely
         manner.

                  S. Except as set forth on SCHEDULE 4.16:

                           (1) To the Knowledge of Selling Parties, all property
                  adjacent to the Real Property is free from Hazardous
                  Substances (other than Permitted Materials), and is not in
                  violation of any Environmental Law.

                           (2) No environmental lien in favor of any
                  Governmental Authority has attached to any of the Real
                  Property.

                  T. There are no historical or archeological materials or
         artifacts of any kind or any Indian ruins of any kind located on the
         Real Property.

                  U. No part of the Real Property is "critical habitat" as
         defined in the Federal Endangered Species Act, 16 U.S.C. Sections 1531
         et seq., as amended, or in regulations promulgated thereunder, nor are
         any "endangered species" or "threatened species" located on the Real
         Property, as defined therein, or under any similar state or local
         Environmental Law.

                  V. The Real Property is not within a flood plain, flood way or
         flood control district as reflected in the currently adopted 100-year
         flood plain of the Federal Emergency Management Agency.

                  W. Selling Parties do not have any liability for any Taxes, or
         any interest or penalty in respect thereof, of any nature that may be
         assessed against Parent or Buyer or that are or may become a lien
         against the Real Property, other than the lien for current real
         property taxes, special taxes and assessments paid with taxes not yet
         delinquent.

                  X. All work performed on or about the Real Property or to any
         improvements located thereon within six months prior to the date of
         this Agreement has been paid for or will be reflected in the Closing
         Balance Sheet.

         4.14 Acquired Contracts.

                  A. SCHEDULE 1.2 of the Real Property Agreement lists as of the
         date hereof all of the Acquired Contracts. The provisions of this
         Section 4.14 will also apply to all Acquired Contracts entered into
         following the date of this Agreement.

                                      -19-
<PAGE>
                  B. Each of the Acquired Contracts is valid, binding, and in
         full force and effect on Seller and, to the Knowledge of Selling
         Parties, is valid, binding, and in full force and effect on the other
         parties to the Acquired Contracts. Except as set forth on SCHEDULE 4.14
         to this Agreement, if applicable, no Acquired Contract has been amended
         or supplemented in any way and Seller has not and no party thereto has,
         assigned any of its rights or delegated any of its duties thereunder.
         True and complete copies of the Acquired Contracts have been delivered
         to Parent.

                  C. Except as set forth on SCHEDULE 4.14, no breach or default
         exists under any Acquired Contract and no event has occurred with
         respect thereto that with the lapse of time or action or inaction by
         Seller or, to the Knowledge of Selling Parties, any other party
         thereto, would result in a breach thereof or a default thereunder.

                  D. Except as specifically disclosed in SCHEDULE 4.14, (1)
         since the date of the Financial Statements, no supplier or materialman
         has indicated that it will stop or decrease the rate of business done
         with Seller, except for changes in the ordinary course of the Hammonds
         Business; (2) Seller has performed in all respects the obligations
         which were or are now required to be performed by each in connection
         with the Acquired Contracts and Seller has not been advised of or
         received any claim of default under any Acquired Contract; (3) Seller
         has no present expectation or intention of not fully performing any
         obligation pursuant to any Acquired Contract; and (4) there has been no
         breach and, to the Knowledge of Selling Parties, there is no
         anticipated breach by any other party to any Acquired Contract.

                  E. Upon the assignment of each Acquired Contract to Buyer
         pursuant hereto, and subject to any consent requirements contained
         therein, all rights of Seller with respect to each Acquired Contract
         will inure to Buyer and each Acquired Contract will be enforceable by
         Buyer in the same manner as such Acquired Contract is enforceable by
         Seller.

                  F. The assignment to Buyer of all of Seller's right, title,
         and interest in, to and under each Acquired Contract pursuant hereto
         will be free and clear of any lien except for Permitted Liens.

                  G. Except as set forth in SCHEDULE 4.14, as of the Closing
         Date, Seller will not owe any amount (whether absolute, contingent, or
         otherwise) with respect to any Acquired Contract other than amounts
         properly recorded in the Closing Balance Sheet in accordance with GAAP.

                  H. Except as disclosed on SCHEDULE 4.14, no Acquired Contract
         (1) requires any Seller to make purchases or pay for services in excess
         of the requirements of the Hammonds Business, or (2) guarantees any
         obligation of another person.

                  I. Seller has paid all rental and other payments due under
         each personal property lease and real property lease (collectively, the
         "PROPERTY LEASES") under which Seller is the lessee in accordance with
         its terms. With respect to each such Property Lease, Seller has been in
         peaceable possession of the buildings, equipment, machinery,

                                      -20-
<PAGE>
         Real Property, vehicles, or other tangible property covered thereby
         since the commencement of the original term of such Property Lease. No
         indulgence, postponement, or waiver of Seller's obligations under any
         such Property Lease has been granted by the lessor. Subject to the
         terms of the Property Leases, Seller possesses full right and power to
         occupy or possess, as the case may be, all of the buildings, equipment,
         machinery, real property, vehicles, and other tangible property covered
         by such Property Leases.

                  J. With respect to any written or oral agreement, arrangement,
         commitment, contract, or lease that either Seller entered into, after
         the date hereof, such agreement, arrangement, commitment, contract, or
         lease will satisfy all the representations and warranties set forth in
         this Section 4.14.

         4.15 Warranties. Except as set forth on SCHEDULE 4.15, Seller has not
given or made any other express warranties to third parties with respect to any
property or products sold or services performed by Seller and there are no facts
or the occurrence of any event forming the basis of any present claim against
Seller for liabilities due to any express or implied warranty. SCHEDULE 4.15
includes forms of Seller's residential sales contracts containing applicable
guaranty, warranty, and indemnity provisions.

         4.16 Environmental Matters.

                  A. Seller has at all times been in compliance with all
         Environmental Laws governing the Hammonds Business, properties, and
         assets, including, without limitation: (1) all requirements relating to
         the Discharge and Handling of Hazardous Substances; (2) all
         requirements relating to notice, record keeping, and reporting; (3) all
         requirements relating to obtaining and maintaining Permits for the
         ownership of its properties and assets and the operation of its
         business, including Permits relating to the Handling and Discharge of
         Hazardous Substances; or (4) all applicable writs, orders, judgments,
         injunctions, governmental communications, decrees, informational
         requests, or demands issued pursuant to, or arising under, any
         Environmental Laws.

                  B. Except as set forth on SCHEDULE 4.16, there are no, and, to
         the Knowledge of Selling Parties, there is no basis for, any orders,
         warning letters, notices of violation (collectively "NOTICES") or
         Proceedings against or involving the Seller, the Hammonds Business or
         the Acquired Assets issued by any Governmental Authority or third party
         with respect to any Environmental Laws or Permits issued to a Seller
         thereunder in connection with, related to, or arising out of the
         ownership by Seller of their properties or assets or the operation of
         their business which have not been resolved to the satisfaction of the
         issuing Governmental Authority or third party in a manner that would
         not impose any obligation, burden, or continuing liability on Buyer in
         the event that the transactions contemplated by this Agreement are
         consummated, or which could have an adverse effect on the Hammonds
         Business, the Acquired Assets or Seller's financial condition, or
         results of operations including, without limitation: (i) Notices or
         Proceedings related to Seller being potentially responsible parties for
         a federal or state environmental cleanup site or for corrective action
         under any applicable Environmental Laws; (ii) Notices or Proceedings in
         connection with any federal or state environmental cleanup site, or in

                                      -21-
<PAGE>
         connection with any of the real property or premises where Seller has
         transported, transferred, or disposed of Hazardous Substances; (iii)
         Notices or Proceedings relating to Seller being responsible to
         undertake any response or remedial actions or clean-up actions of any
         kind; or (iv) Notices or Proceedings related to Seller being liable
         under any Environmental Laws for personal injury, property damage,
         natural resource damage, or clean up obligations.

                  C. Except for the Permitted Materials and except as set forth
         on SCHEDULE 4.16, Seller has not Handled or Discharged, nor allowed or
         arranged for any third party to Handle or Discharge, Hazardous
         Substances to, at, or upon: (1) any location other than a site lawfully
         permitted to receive such Hazardous Substances; (2) any of the Real
         Property; or (3) any site which: (a) pursuant to CERCLA or any similar
         state law has been placed on the National Priorities List or its state
         equivalent; or (b) with respect to which the Environmental Protection
         Agency or the relevant state agency or other Governmental Authority has
         notified Seller that such governmental authority has proposed or is
         proposing to place on the National Priorities List or its state
         equivalent. There has not occurred, nor is there presently occurring, a
         Discharge, or, to the Knowledge of Selling Parties, threatened
         Discharge, of any Hazardous Substance on, into, or beneath the surface
         of, or adjacent to, any of the Real Property in an amount or otherwise
         requiring a Notice or report to be made to a Governmental Authority or
         in violation of any applicable Environmental Laws.

                  D. SCHEDULE 4.16 identifies the operations and activities, and
         locations thereof, if any, which have been conducted and are being
         conducted by Seller on any of the Real Property which have involved the
         Handling or Discharge of Hazardous Substances, other than Permitted
         Materials.

                  E. Except as set forth on SCHEDULE 4.16, Seller does not use,
         and has never used, any Aboveground Storage Tanks or Underground
         Storage Tanks, and there are not now nor, to the Knowledge of Selling
         Parties, have there ever been any Underground Storage Tanks beneath any
         of the Real Property that are required to be registered and/or upgraded
         under applicable Environmental Laws.

                  F. SCHEDULE 4.16 identifies (i) all environmental audits,
         assessments, or occupational health studies undertaken by Seller or
         their agents or, to the Knowledge of Selling Parties, undertaken by any
         Governmental Authority or any third party, relating to or affecting
         Seller or any of the Real Property; (ii) the results of any ground,
         water, soil, air, or asbestos monitoring undertaken by Seller or their
         agents or, and to the extent available or made known to Seller,
         undertaken by any Governmental Authority or any third party, relating
         to or affecting Seller or any of the Real Property, which indicate the
         presence of Hazardous Substances at levels requiring a notice or report
         to be made to a governmental authority or in violation of any
         applicable Environmental Laws; (iii) all material written
         communications between Seller and any Governmental Authority arising
         under or related to Environmental Laws; and (iv) all outstanding
         citations issued under OSHA, or similar state or local statutes, laws,
         ordinances, codes, rules, regulations, orders, rulings, or decrees,
         relating to or affecting either Seller or any of the Real Property.

                                      -22-

<PAGE>
4.17     Tax Matters.

                  A. Except for current filings, which are the subject of
         extensions under applicable procedures and which are identified in
         SCHEDULE 4.17, Seller has filed all Tax Returns that Seller was
         required to file prior to the date hereof. All such Tax Returns were
         correct and complete in all respects. Except as set forth in SCHEDULE
         4.17, all Taxes owed by Seller or owed by Selling Parties in respect of
         Seller (whether or not shown on any Tax Return), the due date of which
         preceded the date hereof, have been paid. Except as set forth in
         SCHEDULE 4.17, all other Taxes due and payable by Seller or owed by
         Selling Parties in respect of Seller, with respect to periods ending on
         or as of the date of the Closing (whether or not a Tax Return is due on
         such date) have been paid or are accrued on the applicable Financial
         Statements or will be accrued on the Closing Balance Sheet.

                  B. Except as set forth on SCHEDULE 4.17, with respect to each
         taxable period for Seller ending prior to the date hereof or prior to
         the date of the Closing, (1) except for taxable periods which are open
         either such taxable period has been audited by the relevant taxing
         authority or the time for assessing or collecting Taxes with respect to
         each such taxable period has closed and each taxable period is not
         subject to review by any relevant taxing authority; (2) no deficiency
         or proposed adjustment which has not been settled or otherwise resolved
         for any amount of Taxes has been asserted or assessed by any taxing
         authority against Seller; (3) Seller has not consented to extend the
         time in which any Taxes may be assessed or collected by any taxing
         authority; (4) Seller has not requested or been granted an extension of
         the time for filing any Tax Return to a date later than the Closing;
         (5) there is no action, suit, taxing authority proceeding, or audit or
         claim for refund now in progress, pending or, to the Knowledge of the
         Selling Parties, threatened against or with respect to Seller regarding
         Taxes; (6) Seller has not made an election or filed a consent under
         Section 341(f) of the Code (or any corresponding provision of state,
         local or foreign law); (7) there are no liens on the assets of Seller
         relating or attributable to Taxes (other than liens for sales and
         payroll Taxes not yet due and payable and liens for non-delinquent
         current real property taxes, special taxes, and assessments paid with
         real property taxes), and, to the Knowledge of the Selling Parties,
         there is no reasonable basis for the assertion of any claim relating or
         attributable to Taxes which, if adversely determined, would result in
         any such lien (other than those noted in the preceding parenthetical)
         on the assets of Seller; (8) to the Knowledge of Selling Parties,
         Seller will not be required (a) as a result of a change in method of
         accounting for a taxable period ending on or prior to the date of the
         Closing, to include any adjustment under Section 481 of the Code (or
         any corresponding provision of state, local or foreign law) in taxable
         income for any taxable period (or portion thereof) beginning after the
         date of the Closing or (b) as a result of any "closing agreement," as
         described in Section 7121 of the Code (or any corresponding provision
         of state, local or foreign law), to include any item of income or
         exclude any item of deduction from any taxable period (or portion
         thereof) beginning after the date of the Closing; (9) Seller has not
         been members of an affiliated group (as defined in Section 1504 of the
         Code) or filed or been included in a combined, consolidated or unitary
         income Tax Return; (10) Seller is not a party to or bound by any tax
         allocation or tax sharing agreement and has no current or potential
         contractual or other obligation to indemnify any other person with
         respect to Taxes; (11)

                                      -23-
<PAGE>
         to the Knowledge of Selling Parties, no taxing authority will claim or
         assess any additional Taxes against Seller for any period for which Tax
         Returns have been filed; (12) no claim has ever been made by a taxing
         authority in a jurisdiction where Seller does not file Tax Returns that
         Seller is or may be subject to Taxes assessed by such jurisdiction;
         (13) Seller does not have a permanent establishment in any foreign
         country, as defined in the relevant tax treaty between the United
         States of America and such foreign country; (14) true, correct and
         complete copies of all income and sales Tax Returns filed by or with
         respect to Seller for the past three years have been furnished or made
         available to Parent; (15) Seller has disclosed on each Tax Return filed
         by Seller all positions taken thereon that could give rise to a
         substantial understatement of penalty of federal income Taxes within
         the meaning of Code Section 6662; and (16) except as set forth on
         SCHEDULE 4.17, no sales or use Tax will be payable by Seller as a
         result of this transaction, and there will be no non-recurring
         intangible tax, documentary stamp tax, or other excise tax (or
         comparable tax imposed by an Governmental Authority) as a result of
         this transaction.

                  C. Except as set forth on SCHEDULE 4.17, there is no
         "roll-back" Tax pertaining to or affecting the Real Property that is
         being conveyed to Buyer that would be owed by, or become an obligation
         of, Buyer or Parent.

         4.18 Restrictions on Business Activities. With respect to the Acquired
Assets, there are no agreements (non-compete or otherwise), arrangements,
commitments, judgments, injunctions, orders, or decrees to which Seller is party
or otherwise binding on Seller, the Hammonds Business or the Acquired Assets
that has or reasonably could be expected to have the effect of prohibiting or
impairing the conduct necessary or required by Buyer to continue to operate the
Hammonds Business as conducted prior to the Closing.

         4.19 Intellectual Property. SCHEDULE 4.19 sets forth a description of
the Intellectual Property for which Seller has rights to use in the conduct of
the Hammonds Business. The conduct of the Hammonds Business as presently
conducted and the conduct and the use and exploitation of the Intellectual
Property do not infringe or misappropriate any rights held or asserted by any
person, and no person is infringing on the Intellectual Property. Except as set
forth in the Acquired Contracts, no payments are required for the continued use
of the Intellectual Property. None of the Intellectual Property has ever been
declared invalid or unenforceable, or is the subject of any pending or
threatened action for opposition, cancellation, declaration, infringement,
invalidity, unenforceability, or misappropriation or like claim, action, or
proceeding. Except as set forth on SCHEDULE 4.19, all house plans used by the
Hammonds Business are owned outright by Seller or are licensed to Seller without
payment of any fee, and may be assigned without cost to Buyer.

         4.20 Litigation. Except as set forth on SCHEDULE 4.20, there are no
suits, claims, actions, arbitrations, investigations, or proceedings entered
against, now pending, or, to the Knowledge of Selling Parties, threatened
against Seller, the Hammonds Business or the Acquired Assets or any other party
before any court, arbitration, administrative or regulatory body, or any
governmental agency which may result in any judgment, order, award, decree,
liability, or other determination which will or could reasonably be expected to
have any effect upon Seller, the Acquired Assets, or the Hammonds Business.
Except as set forth on SCHEDULE 4.20, neither

                                      -24-
<PAGE>
Seller nor any other party is subject to any continuing court or administrative
order, writ, injunction, or decree applicable to the Hammonds Business, the
Acquired Assets, or to their property or employees, and neither Seller nor any
other party is in default with respect to any order, writ, injunction, or decree
of any court or federal, state, municipal, or other governmental department,
commission, board, agency, or instrumentality applicable to the Hammonds
Business.

         4.21 Employees. Attached as SCHEDULE 4.21 is a list of names, current
annual rates of salary, bonus, employee benefits, accrued vacation and sick
time, sick pay, and other compensation and benefits and perquisites, including
the provision of company owned automobiles, of all the employees and agents of
Seller whose work relates, directly or indirectly, to the Hammonds Business. To
the Knowledge of Selling Parties, no key employee of Seller, and no group of
Seller's employees, has any plans to terminate his, her, or its employment.
Seller is not a party to any collective bargaining agreement with any labor
union or association. There are no discussions, negotiations, demands, or
proposals that are pending or that have been conducted or made with or by any
labor union or association, and there are no pending or, to the Knowledge of
Selling Parties, threatened labor disputes, strikes, or work stoppages that may
affect Seller, the Acquired Assets, or the Hammonds Business. Seller is in
compliance with all federal and state laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours, and are not
engaged in any unfair labor practices. Except as accrued on the Closing Balance
Sheet or as set forth in SCHEDULE 4.21, Seller may terminate any employee, with
or without cause, without liability or obligation, other than for salary and
bonuses accrued through the date of any such termination and for the obligations
of Seller referred to in Section 4.22 below.

         4.22 Employee Benefit Plans.

                  A. With respect to all employees and former employees of
         Seller, except as set forth in SCHEDULE 4.22, Seller does not presently
         maintain, contribute to, or have any liability (including current or
         potential multi-employer plan withdrawal liability under ERISA) under
         any: (1) non-qualified deferred compensation or retirement plan or
         arrangement which is an "employee pension benefit plan" as such term is
         defined in Section 3(2) of ERISA; (2) defined contribution retirement
         plan or arrangement designed to satisfy the requirements of section
         401(a) of the Code, which is an employee pension benefit plan, (3)
         defined benefit pension plan or arrangement designed to satisfy the
         requirements of Section 401(a) of the Code, which is an employee
         pension benefit plan; (4) "multi-employer plan" as such term is defined
         in Section 3(37) of ERISA; (5) unfunded or funded medical, health, or
         life insurance plan or arrangement for present or future retirees or
         present or future terminated employees which is an "employee welfare
         benefit plan" as such term is defined in Section 3(1) of ERISA, except
         as required by Section 4980B of the Code or Sections 601 through 609 of
         ERISA; or (6) any other employee welfare benefit plan.

                  B. With respect to each of the employee benefit plans listed
         in SCHEDULE 4.22, Seller has furnished to Buyer true and complete
         copies of: (1) the plan documents (including any related trust
         agreements); (2) the most recent determination letter received from the
         Internal Revenue Service; (3) the latest actuarial valuation; (4) the
         latest

                                      -25-
<PAGE>
         financial statement; (5) the last Form 5500 Annual Report; and (6) all
         related trust agreements, insurance contracts, or other funding
         agreements which implement such employee benefit plan. Neither Seller,
         nor any of their respective officers, partners, employees or any other
         "fiduciary", as such term is defined in Section 3(21) of ERISA, has any
         liability for failure to comply with ERISA or the Code for any action
         or failure to act in connection with the administration or investment
         of such plans.

                  C. With respect to each plan listed in SCHEDULE 4.22: (1)
         Seller has performed all obligations required to be performed by it
         under each such plan and each such plan has been established and
         maintained in accordance with its terms and in compliance with all
         applicable laws, statutes, rules, and regulations, including but not
         limited to the Code and ERISA; (2) there are no actions, suits, or
         claims pending or threatened or anticipated (other than routine claims
         for benefits) against any such plan; (3) each such plan can be amended
         or terminated after the Closing in accordance with its terms, without
         liability to Seller, Parent, or Buyer; and (4) there are no inquiries
         or proceedings pending or threatened by the Internal Revenue Service or
         the Department of Labor with respect to any such plan.

                  D. With respect to the insurance contracts or funding
         agreements which implement any of the employee benefit plans listed in
         SCHEDULE 4.22, such insurance contracts or funding agreements are fully
         insured or the reserves under such contracts are sufficient to pay
         claims incurred.

                  E. Each plan listed in SCHEDULE 4.22 that is intended to be
         qualified under Section 401(a) of the Code has been determined by the
         Internal Revenue Service to so qualify and each trust created
         thereunder has been determined by the Internal Revenue Service to be
         exempt from tax under Section 501(a) of the Code and nothing has
         occurred since the date of the most recent determination that would be
         reasonably likely to cause any such plan or trust to fail to qualify
         under Section 401(a) of the Code.

         4.23 Insurance. SCHEDULE 4.23 lists and briefly describes each
insurance policy and fidelity bond, including performance improvement bonds,
maintenance bonds, labor and material bonds and other bonds related to the Real
Property (collectively, the "BONDS"), maintained by Seller with respect to their
properties or business, and sets forth the date of expiration of each such
insurance policy. All of such insurance policies and Bonds are in full force and
effect and Seller is not in default with respect to its obligations under any of
such insurance policies or Bonds. Except as set forth on SCHEDULE 4.23, there is
no claim of Seller pending under any of such policies or Bonds as to which
coverage has been questioned, denied, or disputed by the underwriters of such
policies or Bonds and there has been no threatened termination of, or material
premium increase with respect to, any of such policies. The insurance coverage
of Seller is customary for entities of similar size engaged in similar lines of
business.

         4.24 Affiliate Transactions. Except as set forth on SCHEDULE 4.24,
neither Seller nor any employee, officer, member, shareholder or affiliate
thereof, or any member of their immediate family, or any entity in which any of
such persons owns any beneficial interest (other than a publicly held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market and less than 1% of the stock of which is beneficially
owned by any of

                                      -26-
<PAGE>
such persons) has any agreement with Seller or any interest in any property
(real, personal, or mixed, tangible or intangible) used in or pertaining to the
Hammonds Business. For purposes of the preceding sentence, the members of the
immediate family of a person will consist of the spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law of such person.

         4.25 Compliance with Laws. Selling Parties and their respective
officers, agents, employees, members, shareholders and affiliates have complied
with all Applicable Laws, which affect the Hammonds Business or the Acquired
Assets. No claims have been filed against Seller alleging a violation of any
Applicable Laws, except as set forth in SCHEDULE 4.25. Without limiting the
generality of the foregoing, Seller has not violated, or received a notice or
charge asserting any violation of, OSHA, or any other state or federal acts
(including rules and regulations thereunder) regulating or otherwise affecting
employee health and safety. Seller has not given or agreed to give any money,
gift, or similar benefit (other than incidental gifts of articles of nominal
value) to any actual or potential customer, supplier, governmental employee, or
any other person in a position to assist or hinder Seller in connection with any
actual or proposed transaction.

         4.26 Permits.

                  A. Seller possesses all approvals, authorizations,
         certificates, consents, franchises, licenses, and permits necessary for
         the lawful conduct of their business (collectively, the "PERMITS").
         SCHEDULE 4.26 sets forth a list of Permits (including the expiration
         dates of the Permits for Parent's review). Such Permits are in full
         force and effect, no violations have occurred with respect thereto, and
         to the Knowledge of Selling Parties, no basis exists for any
         limitation, revocation or withdrawal thereof.

                  B. Seller also possesses (or there have been granted by the
         applicable governmental authorities with respect to the Real Property)
         the subdivision, development, construction and sale permits, and other
         authorizations, approvals, and entitlements set forth in SCHEDULE 4.26
         (collectively "LAND USE ENTITLEMENTS"). With respect to the Real
         Property, no approvals are required as of the Closing from any
         Governmental Authority to complete the development and construction of
         homes and the sale thereof in the respective Real Property, there are
         in full force and effect validly issued building permits for each home
         under construction or completed and Seller has no notice of any pending
         or threatened moratorium or other restriction that would preclude the
         obtaining of building permits for any homes on such Real Property not
         yet under construction or for which building permits have not been
         obtained. No decision-making body has denied or withheld any Land Use
         Entitlements.

         4.27 Membership Records; Minute Books. The minute books of Seller made
available to Parent are the only minute books of Seller and contain an accurate
summary of all meetings of directors (or committees thereof) and members or
shareholders or actions by written consent since the time of incorporation of
Seller.

         4.28 Disclosure. Neither this Agreement nor any of the Schedules or
Exhibits hereto contains any untrue statement of a material fact or, to the
Knowledge of Selling Parties, omits to

                                      -27-
<PAGE>
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading,
and there is no fact which has not been disclosed to Parent or Buyer which
materially adversely affects or could reasonably be anticipated to materially
adversely affect the financial condition, results of operations, customer,
employee or supplier relations, business condition, or prospects of Seller, the
Hammonds Business or the Acquired Assets.

                                   ARTICLE V

                      CONDUCT OF SELLER PENDING THE CLOSING

         Seller hereby covenants and agrees that from the date hereof to the
Closing Date:

         5.1 Conduct of Business Pending the Closing. Except as specifically
contemplated in SCHEDULE 5.1, Seller will take no action except in, the ordinary
course, on an arm's length basis, and in accordance with all Applicable Laws and
past custom and practice, and Seller will not, directly or indirectly, do and
Selling Parties will not permit to occur any of the following, without the prior
written consent of Parent:

                  A. Cancel or terminate or permit to be canceled or terminated
         Seller's current insurance (or reinsurance) policies or permit any of
         the coverage thereunder to lapse, unless simultaneous with such
         termination, cancellation, or lapse, replacement policies providing
         coverage equal to or greater than the coverage under the canceled,
         terminated, or lapsed policies for substantially similar premiums are
         in full force and effect;

                  B. Sell, lease, encumber, or otherwise dispose of any of the
         Acquired Assets other than, in the case of lots and homes held for sale
         in the ordinary course, the sale of such lots or homes in the ordinary
         course of Hammonds Business as previously conducted;

                  C. Acquire or enter into any option or other agreement to
         acquire any Real Property or other Acquired Assets (except, after any
         extension under Section 7.2I(4), in the ordinary course of business) or
         exercise its right to the purchase of the Fry and West Little York
         property;

                  D. Default under any material contract, agreement, commitment,
         or undertaking;

                  E. Violate or fail to comply with any Applicable Laws;

                  F. Fail to maintain and repair the Acquired Assets in
         accordance with good standards of maintenance and as required in any
         leases or other agreements pertaining thereto;

                  G. Enter into or modify any employment, severance, or similar
         agreements or arrangements with, or adopt or amend any bonus, profit
         sharing, compensation, stock option, pension, retirement, deferred
         compensation, employment, or other benefit plan, trust, fund, or group
         arrangement for the benefit or welfare of any officers, directors,
         employees, or consultants.

                                      -28-
<PAGE>
                  H. Except in the ordinary course of business, consistent with
         historical practices, modify or terminate any of the Acquired Contracts
         or enter into any new contracts that would become Acquired Contracts;

                  I. Acquire (by merger, exchange, consolidation, acquisition of
         stock or assets, or otherwise) any corporation, partnership, joint
         venture, or other business organization or division or material assets
         thereof;

                  J. Issue or create any additional shares, membership units, or
         partnership or other ownership interests in Seller or issue or create
         any warrants, obligations, subscriptions, options, or other commitments
         under which any additional shares, membership units, or partnership or
         other ownership interests in Seller might be authorized, issued, or
         transferred;

                  K. Incur any indebtedness for borrowed money or issue any debt
         securities except the borrowing of working capital in the ordinary
         course of business and consistent with past practice;

                  L. Except in the ordinary course of business, consistent with
         historical practices, pay any obligation or liability, fixed or
         contingent, other than current liabilities;

                  M. Waive or compromise any right or claim (other than as
         required to resolve any pending or threatened litigation disclosed in
         the Schedules attached hereto) or warranty claims (except, after any
         extension under Section 7.2I(4), in the ordinary course of business);

                  N. Start more than 45 "spec" homes in any single month;

                  O. Commit any act or permit the occurrence of any event or the
         existence of any condition of the type described in Section 4.10;

                  P. Except for distributions necessary for Seller or its
         ultimate owners to pay Taxes in respect of the Hammonds Business, pay
         any dividends or make any distributions; or

                  Q. Agree to do any of the actions described in the preceding
         clauses A through O.

         5.2 Business Relationships. Selling Parties will exercise their best
efforts to:

                  A. Preserve intact the Acquired Assets and any assets
         associated with the Hammonds Business;

                  B. Maintain all facilities and equipment in good condition,
         ordinary wear and tear excepted;

                  C. Keep available the services of Seller's officers and
         employees as a group; and

                                      -29-
<PAGE>
                  D. Maintain satisfactory relationships with suppliers,
         distributors, customers, and others having business relationships with
         Seller.

         5.3 Notification of Certain Matters. Selling Parties will:

                  A. Confer on a regular basis with representatives of Parent
         and Buyer and report operational matters and the general status of
         ongoing operations;

                  B. Notify Parent of any material adverse change in the normal
         course of its business or in the operation of its properties and of any
         governmental or third party complaints, investigations, or hearings (or
         communications indicating that the same may be contemplated);

                  C. Not take any action which would render, or which reasonably
         may be expected to render, any representation or warranty made by it in
         this Agreement untrue at, or at any time prior to, the Closing; and

                  D. Promptly notify Parent if Selling Parties will discover
         that any representation or warranty made by such party in this
         Agreement was when made, or has subsequently become, untrue.

         5.4 Required Approvals. As promptly as practicable after the date of
this Agreement, Parent, Buyer, and Seller will cooperate in making all filings
required by Applicable Laws in order to consummate the transactions contemplated
by this Agreement. The parties also will cooperate with each other in obtaining
all material consents in accordance with Section 7.2C.

                                   ARTICLE VI

                              ADDITIONAL AGREEMENTS

         6.1 Employment. Seller will be responsible for any severance and/or
other payments, including, but not limited to, other compensation, benefits, and
perquisites, incurred in connection therewith and during the period prior to the
Closing Date. Subject to Section 7.2, immediately after the Closing, Buyer will
agree to hire such employees of Seller on an "at will" basis as it determines
are necessary after consultation with Parent and in its sole discretion, and
Seller will cooperate with Buyer to that end.

         6.2 Break-Up Fee.

                  A. If the transactions contemplated by this Agreement are not
         consummated due to the following: (x) a material breach of any
         representation, warranty, or covenant of the Selling Parties as
         contained herein, (y) the Seller fails to close the transaction without
         cause, or (z) a Selling Party breaches Section 6.3 and, with respect to
         clause (z) only, prior to June 30, 2003, agrees to a term sheet, letter
         of intent or definitive agreement, whether oral or in writing, relating
         to the acquisition of the Acquired Assets, or any assets associated
         with the Hammonds Business, in whole or in part, whether through
         purchase, merger, consolidation, or other business combination (other
         than sales of inventory or immaterial portions of Seller's assets in
         the ordinary course) and such transaction is ultimately consummated,
         then immediately upon the occurrence of any such event,

                                      -30-
<PAGE>
         subject to Section 10.3, Selling Parties will pay to Parent the sum of
         [*] (the "BREAK-UP FEE").

                  B. If the transactions contemplated by this Agreement are not
         consummated due to the following: (x) a material breach of any
         representation, warranty, or covenant of the Parent or Buyer as
         contained herein or (y) the Parent or Buyer fails to close the
         transaction without cause then immediately upon the occurrence of any
         such event, subject to Section 10.3, Parent will pay to Seller the
         Break-Up Fee.

         6.3 No Negotiations. Selling Parties will not, directly or indirectly,
through any officer, director, agent, member, shareholder, affiliate or
otherwise, solicit, initiate, or encourage submission of any proposal or offer
from any person or entity (including any of its officers, directors, partners,
employees, or agents) relating to any liquidation, dissolution,
recapitalization, merger, consolidation, or acquisition or purchase of all or
part of the Acquired Assets, or any assets associated with the Hammonds
Business, or any equity interest in Seller, or other similar transaction or
business combination involving Selling Parties or such assets or business, or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist,
participate in, facilitate, or encourage, any effort or attempt by any other
person or entity to do or seek any of the foregoing. Selling Parties will
promptly notify Parent if any such proposal or offer, or any inquiry from or
contact with any person with respect thereto, is made and will promptly provide
Parent with such information regarding such proposal, offer, inquiry, or contact
as Parent may request.

         6.4 Public Announcements. The parties hereto will not issue any press
release or public announcement, including announcements by any party for general
reception by or dissemination to employees, agents, or customers, with respect
to this Agreement and the other transactions contemplated by this Agreement
without the prior written consent of the other parties hereto (which consent
will not be withheld unreasonably); PROVIDED, HOWEVER, that Parent may make any
disclosure or announcement that, in the opinion of its counsel, it is obligated
to make pursuant to applicable law or regulation of the New York Stock Exchange
or any national securities exchange, as applicable; PROVIDED FURTHER, that, upon
execution of this Agreement, Parent may make a public announcement of such
occurrence in a press release.

         6.5 Confidentiality. Except as otherwise required by law or the rules
of any exchange on which any securities of a party will be listed, all
information marked confidential concerning a party provided to the other party
(oral, written or otherwise) in connection with this Agreement and the
transactions contemplated hereby, including all documents and copies of
documents or papers containing proprietary information ("EVALUATION
INFORMATION") will be kept in confidence by the receiving party. The party
receiving such Evaluation Information will take reasonable steps necessary to
ensure the confidentiality of the Evaluation Information by itself, its
employees, agents, consultants, advisors, members, shareholders and affiliates.
Evaluation Information does not include information that (i) is or becomes
generally available to the public other than as a result of an unauthorized
disclosure by the receiving party or its affiliates or representatives; (ii) was
within or comes into the receiving party's possession, provided that the source
of such information was not known by the receiving party to be bound by a
confidentiality agreement with, or other contractual, legal, or fiduciary
obligation of confidentiality to the party providing the information; (iii) is
disclosed by the receiving party to

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                      -31-
<PAGE>
others with the consent of the other party; (iv) is required to be disclosed to
any lender under existing credit facilities, or (v) is independently developed
by the receiving party. All Evaluation Information will be returned to the
appropriate party or destroyed if the Closing does not occur. Nothing in this
Section 6.5 will preclude either party from competing with the other party.

         6.6 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper, or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, the Asset Agreement and the Real
Property Agreement, including obtaining all necessary waivers, consents, and
approvals and effecting all necessary registrations and filings and submissions
of information requested by governmental authorities. Selling Parties agree that
they, at any time before or after the Closing, will execute, acknowledge, and
deliver any further consents, deeds, assignments, conveyances, other assurances,
documents, and instruments of transfer either necessary to consummating the
sale, transfer, assignment, grant, and conveyance of the Acquired Assets as
contemplated in this Agreement, the Asset Agreement and the Real Property
Agreement or as reasonably requested by Parent, and will take any other action
consistent with the terms of this Agreement, the Asset Agreement or the Real
Property Agreement that may reasonably be requested by Parent, for the purpose
of assigning, transferring, granting, conveying, and confirming to Buyer, or
reducing to possession, any or all property to be conveyed and transferred by
this Agreement, the Asset Agreement or the Real Property Agreement. If requested
by Parent or Buyer, Selling Parties further agree to prosecute or otherwise
enforce in their name for the benefit of Parent or Buyer, any claims, rights, or
benefits that are transferred to Buyer by this Agreement and that require
prosecution or enforcement in their name. Any prosecution or enforcement of
claims, rights, or benefits under this Section will be solely at Selling
Parties' expense. After the Closing and for a period of six months, the parties
will cooperate in good faith and use commercially reasonable efforts to resolve
any issues which may arise in the transition of the Hammonds Business.

         6.7 Right to Enter and Inspect. From time to time prior to the Closing,
Parent or Buyer may enter the Real Property and other property of Seller with
Parent's or Buyer's representatives, contractors, and agents to examine the Real
Property and the Acquired Assets, conduct soil tests, environmental studies,
engineering feasibility studies, and other tests and studies, and otherwise to
evaluate, inspect and examine the Acquired Assets and the Hammonds Business and
affairs of Seller. Selling Parties will make available to Parent or Buyer, at
Parent's or Buyer's request and expense for copying by Parent or Buyer at any
reasonable time after the Closing Date, any and all books and records of Selling
Parties relating, directly or indirectly, to the Hammonds Business or the
Acquired Assets which are reasonably necessary with respect to Parent's or
Buyer's ongoing operations for inspection. Nothing herein will be construed as
imposing upon Parent or Buyer any obligation or liability for the fact of its
discovery or required disclosure of any defect or problem with any of the
Acquired Assets or Real Property.

         6.8 Tax on Prior Sales. To the extent such certificates are prepared by
the applicable state taxing authority, if applicable, Selling Parties agree to
furnish to Buyer certificates from the state taxing authorities and any related
certificates that Buyer may reasonably request as evidence that all sales and
use tax liabilities of Seller accruing before the Closing Date have been fully
satisfied or provided for.

                                      -32-
<PAGE>
         6.9 Transfer of Permits. Selling Parties will use their best efforts to
assist Buyer to effect the assignment or other transfer of Permits and Bonds, to
the extent such Permits are transferable, from Seller to Buyer as of or as soon
as practicable after the Closing Date.

         6.10 Landbanking. Seller will use its best efforts to sell to such
landbankers or property investors, approved by Parent, any real property or
model homes designated by Parent on terms and conditions acceptable to Parent.

                                  ARTICLE VII

                                   CONDITIONS

         7.1 Conditions to Obligation of Selling Parties. The obligations of
Selling Parties to close this transaction are subject to the satisfaction, in
their sole and absolute discretion (or waiver by them in writing), of the
following conditions on and as of the Closing:

                  A. Absence of Certain Actions and Events. There will not be
         threatened, instituted, or pending any action or proceeding, before any
         court or Governmental Authority or agency, domestic or foreign: (1)
         challenging or seeking to make illegal, or to delay or otherwise
         directly or indirectly to restrain or prohibit, the consummation of the
         transactions contemplated hereby, or seeking to obtain damages in
         connection therewith; or (2) invalidating or rendering unenforceable
         any material provision of this Agreement (including without limitation
         any of the Exhibits or Schedules hereto); and there will not be any
         action taken, or any statute, rule, regulation, judgment, order, or
         injunction proposed, enacted, entered, enforced, promulgated, issued,
         or deemed applicable to the transactions contemplated hereby by any
         federal, state, or foreign court, government, or Governmental Authority
         or agency, which may, directly or indirectly, result in any of the
         consequences referred to in clauses (1) and (2) or otherwise prohibit
         consummation of the transactions contemplated hereby.

                  B. Truthfulness of Representations and Warranties. The
         representations and warranties of Parent and Buyer set forth in Article
         3 will be true and correct in all material respects as of the Closing
         Date as if made at and as of the Closing Date.

                  C. Compliance. Parent and Buyer will in all material respects
         have performed each obligation and agreement and complied with each
         covenant to be performed and complied with by it hereunder at or prior
         to the Closing.

                  D. Asset Agreement and Real Property Agreement. The Asset
         Agreement and the Real Property Agreement will have been executed and
         performed by each of the parties thereto.

         7.2 Conditions to Obligations of Parent and Buyer. Parent's and Buyer's
obligations to close this transaction are subject to the satisfaction, in
Parent's sole and absolute discretion (or waiver by Parent in writing), of the
following conditions on and as of the Closing:

                  A. Financial Statements; Auditors Cooperation. Seller will
         have delivered to Parent the financial statements of the Hammonds
         Business, required to be included by Parent in its filings with the
         Securities Exchange Commission (the "SEC"), which

                                      -33-
<PAGE>
         financial statements will comply with GAAP and Regulation S-X
         promulgated by the SEC, and Seller's auditors shall have agreed to (1)
         include consents to their reports in Parent's filings with the SEC, and
         (2) agreed to provide any necessary comfort letters in respect of
         financings by Parent or Buyer.

                  B. Schedules. Seller will have delivered updated Schedules to
         Parent immediately prior to Closing.

                  C. Consents and Approvals. Seller will have obtained all
         consents and approvals set forth in SCHEDULE 4.5 hereto, provided,
         however, that (a) it need not obtain consents to the transfers of the
         loans identified thereon as not being owed (and being paid off) by
         Buyer or Parent, and (b) it need only obtain consents of 75% of lots
         under its option contracts as of the Closing Date, provided that in all
         events consents in respect of the transfer of rights to all lots in the
         projects set forth in SCHEDULE 7.2C must be obtained and all such
         consents must include an estoppel certificate acceptable to Parent.

                  D. Absence of Material Adverse Developments. After the date
         hereof, neither Parent nor Buyer will have discovered any fact or
         circumstance not disclosed herein regarding the Hammonds Business, the
         Acquired Assets, or the properties, condition (financial or otherwise),
         results of operations, or prospects of Seller which is or could be,
         individually or in the aggregate with other such facts and
         circumstances, materially adverse to the Hammonds Business or the
         Acquired Assets.

                  E. No Damage or Destruction. After the date hereof, there will
         have been no damage, destruction, or loss of or to any property or
         properties owned or used by Seller, whether or not covered by
         insurance, which in the aggregate may have a material adverse effect on
         the Hammonds Business, the Acquired Assets or the financial condition,
         or results of operations of Seller.

                  F. Environmental Matters. Parent will be satisfied with the
         results of all environmental assessments made under the Real Property
         Agreement.

                  G. Title Insurance or Title Binders. Title Company will have
         delivered all Title Binders and will be prepared to issue each Title
         Policy (and an endorsement thereto) as required by Section 5.2 of the
         Real Property Agreement.

                  H. Closing Balance Sheet. Parent will have received, at least
         five days prior to the Closing, the Closing Balance Sheet, which will
         comply with Section 2.5.

                  I. Absence of Certain Actions and Events.

                           (1) There will not be threatened, instituted, or
                  pending any action or proceeding, before any court or
                  Governmental Authority or agency, domestic or foreign: (a)
                  challenging or seeking to make illegal, or to delay or
                  otherwise directly or indirectly to restrain or prohibit, the
                  consummation of the transactions contemplated hereby, or
                  seeking to obtain damages in connection therewith; (b) seeking
                  to prohibit direct or indirect ownership or operation by Buyer
                  of all or a material portion of the Hammonds Business or the
                  Acquired Assets, or to compel

                                      -34-
<PAGE>
                  Parent or Buyer or any of their subsidiaries to divest of or
                  to hold separately all or a material portion of the business
                  or the Acquired Assets as a result of the transactions
                  contemplated hereby; (c) seeking to impose or confirm
                  limitations on the ability of Parent or Buyer effectively to
                  exercise directly or indirectly full rights of ownership of
                  any of the Acquired Assets; (d) seeking or causing any
                  material diminution in the direct or indirect benefits
                  expected to be derived by Parent or Buyer as a result of the
                  transactions contemplated by this Agreement; (e) invalidating
                  or rendering unenforceable any material provision of this
                  Agreement (including without limitation any of the Exhibits or
                  Schedules hereto); or (f) which otherwise might materially
                  adversely affect Parent or Buyer or any of their subsidiaries
                  as determined by Parent;

                           (2) There will not be any action taken, or any
                  statute, rule, regulation, judgment, order, or injunction
                  proposed, enacted, entered, enforced, promulgated, issued, or
                  deemed applicable to the transactions contemplated hereby by
                  any federal, state, or foreign court, government, or
                  Governmental Authority or agency, which may, directly or
                  indirectly, prohibit consummation of the transactions
                  contemplated hereby;

                           (3) There will not have occurred any of the following
                  events having a material adverse effect on Parent or Buyer:
                  (a) a declaration of a banking moratorium or any suspension of
                  payments in respect of banks in the United States or any
                  limitation by United States authorities on the extension of
                  credit by lending institutions; (b) a commencement of war,
                  armed hostilities, terrorist attack, or other international or
                  national calamity directly or indirectly involving the United
                  States; or (c) in the case of any of the foregoing existing at
                  the date hereof, a material acceleration or worsening thereof;
                  and

                           (4) There will not have occurred any suspension of
                  trading of Parent's common stock or a 15% or greater drop in
                  the Dow Jones Industrial Average (1,428 points). In such
                  event, Buyer may: (x) terminate this Agreement without
                  liability to Parent or Buyer or (y) extend the anticipated
                  Closing Date for up to 60 days, upon the payment of [*] and
                  the consent of Seller. If the Closing is extended pursuant to
                  this Section, then within such 60-day extension period, Buyer
                  may: (a) terminate this Agreement without liability (except
                  for the payment already made) to Parent or Buyer; (b) close on
                  this Agreement; or (c) extend the Closing for an additional 30
                  days upon payment of [*] and consent of the Seller. If Seller
                  does not agree to either of the extensions, then this
                  Agreement will terminate without any liability to any party.
                  If the Closing is extended and a Closing subsequently occurs,
                  the Effective Date will be deemed to be the end of the month
                  in which the Closing actually occurs; the Closing Balance
                  Sheet will be a balance sheet prepared in accordance with
                  Adjusted GAAP as of the end of the month preceding the Closing
                  Date; and the Final Balance Sheet will be a balance sheet
                  prepared in accordance with Adjusted GAAP as of the Effective
                  Date. Any payment made by Buyer or Parent under this Section
                  will, if the transaction closes, be credited against the
                  Purchase Price.

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                      -35-
<PAGE>
                  J. Truthfulness of Representations and Warranties. The
         representations and warranties of Selling Parties in this Agreement and
         in any certificate or other instrument delivered pursuant to the
         provisions hereof or in connection with the transactions contemplated
         hereby will be true and correct in all material respects as of the
         Closing Date as if made at and as of the Closing Date.

                  K. Compliance. Selling Parties will in all material respects
         have performed each obligation and agreement and complied with each
         covenant to be performed and complied with them hereunder at or prior
         to the Closing.

                  L. Non-Compete Agreement. Parent will have received a
         Non-Disclosure and Non-Compete Agreement executed by Ronnie D. Hammonds
         and Seller in the form of EXHIBIT F attached hereto (the
         "NON-DISCLOSURE AND NON-COMPETE AGREEMENT").

                  M. Releases. Parent will have received releases of all loans
         paid off in form and substance acceptable to Parent.

                  N. Asset Agreement. Parent will have received the Asset
         Agreement executed by all parties thereto and all conditions to Closing
         and closing deliveries thereto will be satisfied or made as the case
         may be.

                  O. Real Property Agreement. Parent will have received the Real
         Property Agreement executed by all parties thereto and all conditions
         to Closing and closing deliveries thereto will be satisfied or made as
         the case may be.

                  P. Opinion of Counsel. Parent will have received a legal
         opinion from Seller's counsel, in form and substance satisfactory to
         Parent and Parent's counsel to the effect that Section 9 of the
         Indemnification Agreement, with respect to the availability of the
         assets of Hammonds' Wife and the Hammonds Management Trust to satisfy
         the indemnification obligations identified therein, is enforceable
         under Texas law.

                                  ARTICLE VIII
                                     CLOSING

         8.1 Selling Parties' Obligations. In addition to any other documents
required to be delivered by Selling Parties at Closing, Selling Parties will
deliver to Parent at Closing the following documents, all in form and substance
reasonably satisfactory in all respects to Parent and its counsel:

                  A. Deed. A Special Warranty Deed ("DEED") for each parcel
         comprising the Real Property owned by Seller in fee, in form
         substantially similar to EXHIBIT G hereto, and an Assignment and
         Assumption Agreement ("ASSUMPTION AGREEMENT") for each parcel
         comprising the Real Property in which Seller has an optionee's
         interest, in form substantially similar to EXHIBIT H hereto, subject to
         no defects, exceptions, easements, encumbrances, covenants, conditions,
         restrictions, mining claims or liens, except the Approved Title
         Exceptions.

                                      -36-
<PAGE>
                  B. FIRPTA Affidavit. An Affidavit, signed and acknowledged by
         Seller under penalties of perjury, certifying that Seller is not a
         nonresident alien, foreign corporation, foreign partnership, foreign
         trust, foreign estate, or other foreign person within the meaning of
         Section 1445 and 7701 of the Internal Revenue Code of 1986, as amended,
         and the associated Treasury Regulations.

                  C. Bill of Sale. An executed Bill of Sale and Assumption
         Agreement ("BILL OF SALE") dated as of the Closing Date, conveying to
         Buyer all of Selling Parties' right, title, and interest in and to the
         Acquired Assets in the form attached hereto as EXHIBIT I will have been
         delivered by each Selling Party.

                  D. Acquired Contracts. Executed assignments of all Acquired
         Contracts (with consents if required) (the "CONTRACT ASSIGNMENTS").

                  E. Lease Assignments. Lease assignments (the "LEASE
         ASSIGNMENTS") with respect to each parcel of real estate or any item of
         personal property which is leased by Seller and which is to be assumed
         by Buyer hereunder, properly executed and acknowledged by Seller, and
         accompanied by all consents and estoppels of lessors required by this
         Agreement and the Property Leases and other leases being assigned.

                  F. Permits. Executed assignments of all assignable Permits
         issued to Seller by any Governmental Authority or vendor, to the extent
         assignable.

                  G. Books and Records. All books, records, and other data
         relating to the Hammonds Business and/or Acquired Assets.

                  H. Resolutions. Copies of the texts of the resolutions by
         which the corporate action on the part of Seller and its partners
         necessary to approve this Agreement and the transactions contemplated
         hereby were taken and certificates executed on behalf of Seller by its
         corporate secretary certifying to Parent and Buyer that such copies are
         true, correct and complete copies of such corporate action or
         resolutions and that such corporate action and resolutions were duly
         adopted and have not been amended or rescinded.

                  I. Legal Opinion. Parent and Buyer will have received an
         opinion from Sack & Harris, P.C., addressed to Parent and Buyer, in a
         form reasonably acceptable to Parent and its counsel.

                  J. Consents. The consents contemplated by Section 7.2.

                  K. Title Policies and Title Binders. The Title Policies and
         Title Binders contemplated by the Real Property Agreement.

                  L. Other Documents. Such other documents as Parent or Buyer or
         its counsel or any lender of Parent or Buyer may reasonably request in
         order to effectuate the transactions contemplated under this Agreement.

                                      -37-
<PAGE>
         8.2 Parent's or Buyer's Obligations. Parent or Buyer will deliver to
Seller at Closing the following, all in form and substance reasonably
satisfactory in all respects to Seller and Seller's counsel:

                  A. Purchase Price. The Purchase Price contemplated by Section
         2.5, to the extent payable at Closing.

                  B. Other Documents. Such other documents as Seller or Seller's
         counsel may reasonably request in order to effectuate the transactions
         contemplated under this Agreement.

         8.3 Transfer Fees, Title Costs, and Closing Costs and Other Fees;
Prorations.

                  A. Title Policy Fees. Seller will pay the standard form
         premium for each Title Policy and Parent and Buyer will pay the costs
         of extended coverage and special endorsements as set forth in Section
         5.2 of the Real Property Agreement.

                  B. Documentary Taxes and Transfer Taxes. Selling Parties will
         pay any documentary transfer tax, stamp tax, real estate conveyance tax
         or similar tax or fee due and payable in connection with this
         transaction.

                  C. Recording and Other Fees. Recording fees for each Deed,
         rollup or catch up tax, if any, will be paid by Selling Parties.
         Selling Parties will also pay all fees and expenses, including
         assumption and transfer fees actually incurred by Selling Parties in
         obtaining any consents and approvals required to be obtained by Selling
         Parties under this Agreement or otherwise in consummating the
         transactions contemplated by this Agreement.

                  D. Prorations.

                           (1) Taxes and Assessments. Real estate ad valorem
                  taxes and general and special assessments, utilities, rents,
                  and payments on Acquired Contracts will be prorated as of the
                  Closing Date, based upon the most current information then
                  available. If, at the Closing, actual tax or assessment
                  information is not available, then, following the Closing and
                  within 20 days of receipt by either Parent, Buyer or Selling
                  Parties of the actual tax or assessment information, Parent,
                  Buyer and Selling Parties will re-prorate real estate taxes
                  and assessments among themselves and make any necessary
                  adjusting payments.

                           (2) Basis of Prorations. All prorations and/or
                  adjustments called for in this Agreement will be made on the
                  basis of a 30-day month unless otherwise specifically
                  instructed in writing by Seller and Parent.

                  E. Taxes. Selling Parties will pay any sales or similar taxes
         or assessments relating to the sale of the Acquired Assets by Seller to
         Buyer.

                                      -38-
<PAGE>
                  F. Other Fees. Subject to Section 6.2 and except as otherwise
         specifically provided in this Agreement, each party will bear its own
         legal and accounting fees and other expenses relating to the
         transactions contemplated by this Agreement.

                                   ARTICLE IX
                            SURVIVAL AND INDEMNITIES

         9.1 Survival of Representations and Warranties. Regardless of any
investigation at any time made by or on behalf of any party hereto, or of any
information any party may have in respect thereof, all representations, and
warranties made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby will survive the Closing and execution,
delivery, and recordation of the Special Warranty Deed for a period of [*].
Notwithstanding the foregoing, any claims based upon or arising out of fraud or
intentional misstatement will survive until [*].

         9.2 Nature of Statements. All statements contained herein, in any
Schedule or Exhibit hereto, or in any certificate or other written instrument
delivered by or on behalf of Seller, Parent or Buyer pursuant to this Agreement,
or in connection with the transactions contemplated hereby, will be deemed
representations and warranties by Seller, Parent or Buyer, as the case may be.

         9.3 Arbitration. Except as provided in Section 2.5, any other dispute,
controversy or claim, whether contractual or non-contractual, between Parent,
Buyer and Seller arising directly or indirectly out of or connected with this
Agreement, relating to the breach or alleged breach of any representation,
warranty, agreement, or covenant under this Agreement or otherwise relating to
this Agreement, unless mutually settled by Parent, Buyer and Seller, will be
resolved in accordance with the Dispute Resolution Procedures attached as
EXHIBIT D.

         9.4 Indemnification Agreement. Except as provided in Article X, the
sole remedies for breach of this Agreement, the Real Property Agreement, or the
Asset Agreement are specified in the Indemnification Agreement.

                                   ARTICLE X
                              TERMINATION/REMEDIES

         10.1 Termination. This Agreement will be considered terminated at any
time:

                  A. By mutual written consent of duly authorized officers of
         Parent and Buyer and Seller;

                  B. By Buyer, pursuant to Section 5.2 of the Real Property
         Agreement; or

                  C. By either Parent and Buyer or Seller if the other party
         breaches any of its material representations, warranties, or covenants
         contained herein.

                  D. After June 30, 2002, if not closed by then, unless extended
         pursuant to Section 7.2I(4) or by either party in the event of a breach
         by the other party, to give such party an opportunity to cure.

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                      -39-
<PAGE>
         10.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.1, this Agreement will become void and there
will be no liability or further obligation hereunder on the part of Parent,
Buyer or Seller or their respective shareholders, members, officers, or
directors, except (i) each party will remain obligated for its obligations under
Section 6.5 for a period of one year, and (ii) each party will remain obligated
for its obligations set forth in Section 6.2, to the extent applicable.

         10.3 Specific Performance.

                  A. Subject to Section 10.3B, the parties to this Agreement
         will have the right to obtain specific performance of the other
         parties' obligations to close in the event that such parties fail to
         close this Agreement in accordance with the provisions of Section 2.1.
         The party who is entitled to specific performance must file and serve
         an action within 10 business days of the Closing Date or waive any
         right to seek specific performance.

                  B. The right to the Break-Up Fee under Section 6.2 and the
         right to specific performance under Section 10.3A will be mutually
         exclusive, and a party may seek to enforce only one such right or
         remedy, all others being waived upon such election.

                                   ARTICLE XI
                               GENERAL PROVISIONS

         11.1 Notices. All notices, consents, and other communications hereunder
will be in writing and deemed to have been duly given when (a) delivered by
hand, (b) sent by telecopier (with receipt confirmed), provided that a copy is
mailed by registered mail, postage pre-paid return receipt requested, or (c)
when received by the addressee, if sent by Express Mail, Federal Express, or
other express delivery service (postage pre-paid return receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate as
to itself by notice to the other):

                                      -40-
<PAGE>
                  If to Buyer:              Meritage Corporation
                                            6613 North Scottsdale Road,
                                            Suite 200
                                            Scottsdale, Arizona 85250
                                            Phone: (602) 998-8700
                                            FAX:  (602) 998-9162
                                            Attn: Chief Financial Officer

                  With a copy to:           Snell & Wilmer L.L.P.
                                            One Arizona Center
                                            Phoenix, Arizona 85004-0001
                                            Phone: (602) 382-6252
                                            FAX:  (602) 382-6070
                                            Attn: Steven D. Pidgeon, Esq.

                  If to Selling Parties     Hammonds Homes, Ltd.
                                            7171 Highway 6 North
                                            Suite 201
                                            Houston, TX 77095
                                            Attn:  Ronnie D. Hammonds

                  With a copy to:           Sack & Harris, P.C.
                                            8270 Greensboro Drive, Suite 630
                                            McLean, Virginia 22101
                                            Attn: James Sack, Esq.

         11.2 Counterparts. The Agreements, as defined in Section 11.17, may be
executed in any number of counterparts, and each counterpart will constitute an
original instrument, but all such separate counterparts will constitute one and
the same agreement.

         11.3 Governing Law. The validity, construction, and enforceability of
this Agreement will be governed in all respects by the laws of the State of
Texas, without regard to its conflict of laws rules.

         11.4 Assignment. This Agreement will not be assigned by operation of
law or otherwise, except that Buyer may assign all or any portion of its rights
under this Agreement to any wholly owned subsidiary, but no such assignment will
relieve Parent or Buyer or their successors of their primary liability for all
obligations of Parent or Buyer hereunder, and except that this Agreement may be
assigned by operation of law to any corporation or entity with or into which
Parent or Buyer may be merged or consolidated or to which Parent or Buyer
transfer all or substantially all of their assets, and such corporation or
entity assumes this Agreement and all obligations and undertakings of Parent or
Buyer, as the case may be, hereunder. Any assignment in violation of the
provisions of this Agreement will be null and void.

         11.5 Gender and Number. The masculine, feminine, or neuter pronouns
used herein will be interpreted without regard to gender, and the use of the
singular or plural will be deemed to include the other whenever the context so
requires.

                                      -41-
<PAGE>
         11.6 Schedules and Exhibits. The Schedules and Exhibits referred to in
this Agreement and attached to this Agreement are incorporated in this Agreement
by such reference as if fully set forth in the text of this Agreement.

         11.7 Waiver of Provisions. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof will, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.

         11.8 Costs. If any legal action or any arbitration or other proceeding
is brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party or parties will
be entitled to recover reasonable attorneys' fees, accounting fees, and other
costs incurred in that action or proceeding, in addition to any other relief to
which it or they may be entitled.

         11.9 Amendment. This Agreement may not be amended except by an
instrument in writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto.

         11.10 Severability. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement will remain in full force and effect and will in
no way be affected, impaired, or invalidated and the court will modify this
Agreement or, in the absence thereof, the parties will negotiate in good faith
to modify this Agreement to preserve each party's anticipated benefits under
this Agreement.

         11.11 Binding Effect. Subject to the provisions and restrictions of
Section 11.4, the provisions of this Agreement are binding upon and will inure
to the benefit of the parties and their respective heirs, personal
representatives, successors and assigns. No person shall become a third party
beneficiary of this Agreement.

         11.12 Construction. References in this Agreement to "Sections",
"Articles", "Exhibits", and "Schedules" are to the Sections and Articles in, and
the Exhibits and Schedules to, this Agreement, unless otherwise noted.

         11.13 Time Periods. Except as expressly provided for in this Agreement,
the time for performance of any obligation or taking any action under this
Agreement will be deemed to expire at 5:00 o'clock p.m. (Phoenix, Arizona time)
on the last day of the applicable time period provided for in this Agreement. If
the time for the performance of any obligation or taking any action under this
Agreement expires on a Saturday, Sunday or legal holiday, the time for

                                      -42-
<PAGE>
performance or taking such action will be extended to the next succeeding day
which is not a Saturday, Sunday or legal holiday.

         11.14 Headings. The headings of this Agreement are for purposes of
reference only and will not limit or define the meaning of any provision of this
Agreement.

         11.15 Commission. Upon the Closing of the transactions contemplated
hereby, Seller will pay a commission to Michael P. Kahn & Associates, LLC in the
amount due.

         11.16 Access to Records. Buyer will provide Seller with reasonable
access to books, records, and documents transferred to Buyer pursuant to Section
1.2 of the Asset Agreement for a period of three years or such longer period of
time as Seller may need for tax purposes from the Closing Date, provided Seller
notifies Buyer of such extended requirement within 90 days of the end of the
three-year period, at which time Seller will have the opportunity to reclaim
such books, records, and documents (or copies thereof if still used by Buyer)
with the assistance of Buyer. Buyer will use reasonable efforts to assist Seller
in locating requested documents but will not be responsible for the failure to
locate such documents.

         11.17 Entire Agreement. This Agreement, the Asset Agreement, the Real
Property Agreement and the Indemnification Agreement, and all certificates,
schedules and other documents attached to or deliverable under such agreements
(collectively, the "AGREEMENTS") constitute the entire agreement, including with
respect to representations and warranties, between the parties pertaining to the
subject matter contained in the Agreements. All prior and contemporaneous
agreements, representations and understandings of the parties, oral or written,
are superseded by and merged in the Agreements. No supplement, modification or
amendment of the Agreements will be binding unless in writing and executed by
the parties to the Agreements.

         11.18 Enforcement of Rights. Parent's and Buyer's rights under, and the
remedies to enforce, this Agreement are joint and several as to the Selling
Parties. Parent and Buyer are completely free to enforce any or all of their
rights under this Agreement against any of the Selling Parties with or without
the concurrence or joinder of any other Selling Party.

                                      -43-
<PAGE>
         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above by their respective officers thereunder
duly authorized.

                            MERITAGE CORPORATION,
                            a Maryland corporation

                            /s/ John R. Landon
                            ---------------------------------
                            By:   John R. Landon
                            Its:  Co-Chief Executive Officer

                            MTH HOMES-TEXAS, L.P.,
                            a Texas limited partnership

                            By:   MTH-Texas GP II, Inc., an Arizona corporation
                            Its:  General Partner

                            /s/ John R. Landon
                            ---------------------------------
                            By:   John R. Landon
                            Its:  President

                            HAMMONDS HOMES, LTD.,
                            a Texas limited partnership

                            By:   Hammonds Homes I, LLC, a Texas limited
                                  liability company
                            Its:  General Partner

                            By:   Hammonds Management Trust
                            Its:  sole Member

                            /s/ Ronnie D. Hammonds
                            ---------------------------------
                            By:   Ronnie D. Hammonds
                            Its:  Trustee

                      [SIGNATURE PAGE TO MASTER AGREEMENT]

                                      -44-
<PAGE>
         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above by their respective officers thereunder
duly authorized.

                            HAMMONDS HOMES I, LLC,
                            a Texas limited liability company

                            By:   Hammonds Management Trust
                            Its:  sole Member

                            /s/  Ronnie D. Hammonds
                            ---------------------------------
                            By:   Ronnie D. Hammonds
                            Its:  Trustee

                            CRYSTAL CITY LAND & CATTLE, LTD.,
                            a Texas limited partnership

                            By:   Crystal City I, LLC, a Texas limited
                                  liability company
                            Its:  General Partner

                            By:   Hammonds Management Trust
                            Its:  sole Member

                            /s/  Ronnie D. Hammonds
                            ---------------------------------
                            By:   Ronnie D. Hammonds
                            Its:  Trustee

                            CRYSTAL CITY I, LLC,
                            a Texas limited liability company

                            By:   Hammonds Management Trust
                            Its:  sole Member

                            /s/  Ronnie D. Hammonds
                            ---------------------------------
                            By:   Ronnie D. Hammonds
                            Its:  Trustee

                            RONNIE D. HAMMONDS

                            /s/  Ronnie D. Hammonds
                            ---------------------------------

                      [SIGNATURE PAGE TO MASTER AGREEMENT]

                                      -45-
<PAGE>
EXHIBIT A

                                 ASSET AGREEMENT

                                      -46-
<PAGE>
                    AGREEMENT OF PURCHASE AND SALE OF ASSETS

                                  BY AND AMONG

                              MERITAGE CORPORATION,

                             MTH HOMES-TEXAS, L.P.,

                              HAMMONDS HOMES, LTD.,

                        CRYSTAL CITY LAND & CATTLE, LTD.,

                             HAMMONDS HOMES I, LLC,

                              CRYSTAL CITY I, LLC,

                                       AND

                               RONNIE D. HAMMONDS

                               Dated June 12, 2002

                                      -47-
<PAGE>
                    AGREEMENT OF PURCHASE AND SALE OF ASSETS

         This AGREEMENT OF PURCHASE AND SALE OF ASSETS (the "AGREEMENT") is made
as of June 12, 2002, by and among MERITAGE CORPORATION, a Maryland corporation
("MERITAGE or PARENT"); MTH HOMES-TEXAS, L.P., a Texas limited partnership
("BUYER"); CRYSTAL CITY LAND & CATTLE, LTD., a Texas limited partnership
("CRYSTAL CITY"); HAMMONDS HOMES, LTD., a Texas limited partnership ("HAMMONDS
HOMES," and collectively with Crystal City, the "SELLER"); HAMMONDS HOMES I,
LLC, a Texas limited liability company ("HAMMONDS GP"); CRYSTAL CITY I, LLC, a
Texas limited liability company ("CRYSTAL GP," and collectively with Hammonds
GP, the "GENERAL PARTNERS"); and RONNIE D. HAMMONDS, an individual ("HAMMONDS").
Collectively, Seller, General Partners, and Hammonds will be referred to herein
as "SELLING PARTIES."

                                    RECITALS

         1. Pursuant to this Agreement, Buyer will acquire all or substantially
all of the non-real property assets of the Hammonds Business.

         2. Although not a condition to Closing, Parent and Buyer anticipate
financing the acquisition of the non-real property assets of the Hammonds
Business using the proceeds of a public offering of Parent's common stock under
its recently filed Form S-3 Registration Statement.

         3. The parties to this Agreement have concurrently entered into a
Master Transaction Agreement ("MASTER AGREEMENT"), Agreement of Purchase and
Sale of Real Property ("REAL PROPERTY AGREEMENT"), and Indemnification
Agreement, all described in the Master Agreement. All capitalized terms
contained herein but not otherwise defined will have the meaning ascribed to it
in the Master Agreement.

         In consideration of the covenants and mutual agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in reliance upon the representations and
warranties contained herein, the parties agree as follows:

                                    ARTICLE I

                           PURCHASE AND SALE OF ASSETS

         1.1 Agreement. This Agreement, together with the Master Agreement and
Indemnification Agreement, each incorporated herein by reference, will
constitute a binding contract on the part of Seller to sell and Buyer to
purchase certain assets of the Hammonds Business unrelated to real property.

         1.2 Assets to be Purchased. Upon the terms and subject to the
conditions set forth herein and in the Master Agreement, and in reliance on the
respective representations and warranties of the parties contained herein and in
the Master Agreement, at the Closing, Seller agrees to sell, convey, grant,
assign, and transfer to Buyer and Buyer agrees to purchase and acquire from
Seller all of the Assets, held by Seller. The term "ASSETS" will mean:

                                      -48-
<PAGE>
         A. All assets disclosed on the Closing Balance Sheet, except for the
Real Property Assets (as defined in the Real Property Agreement);

         B. Any cash and cash equivalents (subject to Section 2.5A of the Master
Agreement), current assets, accounts receivable and notes receivable;

         C. All prepaid expenses, the right to refunds, buyins or deposits
relating to utilities and infrastructure improvements, deposits or assets
relating to performance bonds, a list and description of which is set forth on
SCHEDULE 1.2;

         D. All equipment, furniture, furnishings, inventory, machinery,
software, supplies, tools, vehicles, and other personal property owned or leased
by Seller, in connection with the Hammonds Business and as listed and described
on SCHEDULE 1.2;

         E. All rights and benefits in all (1) processes, know-how, technical
data, and other trade secrets; (2) sales forms and promotional and advertising
materials; (3) copyrights, patents, trademarks, and applications, registrations,
and renewals with respect thereto; (4) customer, supplier and contractor lists,
(5) software licensing and equipment rental agreements associated with computers
or data processing, and (6) goodwill associated therewith. Additionally, Seller
hereby grants to Buyer an exclusive perpetual license to use the names "Hammonds
Homes," "Hammonds Homes and Design," "Texas Big and Design," and "Texas Big" and
all variations of or derivations from such names and any and all logos used in
connection therewith; PROVIDED, HOWEVER, that the license will terminate if
Parent and Buyer do not use the name for at least two years. The foregoing is
hereinafter referred to as the "INTELLECTUAL PROPERTY;"

         F. All of the books, instruments, papers, and records of whatever
nature and wherever located, whether in written form or another storage medium,
including without limitation (1) accounting and financial records; (2) property
records and reports; (3) environmental records and reports; (4) personnel and
labor relations records; and (5) property, sales, or transfer tax records and
returns; PROVIDED, HOWEVER, that such books, instruments, papers, and records
will exclude any documents relating exclusively to the Excluded Assets;

         G. To the extent transferable, all the right, title, and interest in
all approvals, authorizations, certificates, consents, franchises, licenses,
permits, rights, variances, subdivision maps, plans, entitlements, and waivers
acquired, being acquired, applied for, or used, and all agreements with, and any
waivers, licenses, permits, and approvals from or to any governmental or
quasi-governmental agency, department, board, commission, bureau or any other
entity or instrumentality, and other authorities in the nature thereof, all as
related to the Assets, a list and description of which is set forth on SCHEDULE
1.2;

         H. All rights and benefits in, to and under all vendor, supplier and
equipment lessor agreements concerning any supplies, services, equipment and
furniture utilized for office purposes; and

         I. The interests in the projects (and related joint venture,
partnership, or other interests).

                                      -49-
<PAGE>
         1.3 Purchase Price. The Purchase Price to be paid by Buyer for the
Assets will be as provided in Section 2.5 of the Master Agreement.

         1.4 Closing. Articles VII and VIII of the Master Agreement are
incorporated herein by reference as applicable.

                                   ARTICLE II

               REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER

         2.1 Incorporation by Reference. The representations and warranties
contained in Article III of the Master Agreement are incorporated herein by
reference.

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

                               OF SELLING PARTIES

         3.1 Incorporation by Reference. The representations and warranties
contained in Article IV of the Master Agreement are incorporated herein by
reference.

                                   ARTICLE IV

                              ADDITIONAL AGREEMENTS

         4.1 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper, or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including obtaining all necessary
waivers, consents, and approvals and effecting all necessary registrations and
filings and submissions of information requested by governmental authorities.
Seller agrees that it, at any time before or after the Closing, will execute,
acknowledge, and deliver any further deeds, assignments, conveyances, and other
assurances, documents, and instruments of transfer reasonably requested by
Parent, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Parent, for the purpose of
assigning, transferring, granting, conveying, and confirming to Buyer, or
reducing to possession, any or all property to be conveyed and transferred by
this Agreement. If requested by Parent or Buyer, Seller further agrees to
prosecute or otherwise enforce in its name for the benefit of Parent or Buyer,
any claims, rights, or benefits that are transferred to Buyer by this Agreement
and that require prosecution or enforcement in its name. After the Closing and
for a period of six months, the parties will cooperate in good faith and use
commercially reasonable efforts to resolve any issues that may arise in the
transition of the Hammonds Business.

                                    ARTICLE V

                               GENERAL PROVISIONS

         5.1 Notices. All notices, consents, and other communications hereunder
will be in writing and deemed to have been duly given when (a) delivered by
hand, (b) sent by telecopier (with receipt confirmed), provided that a copy is
mailed by registered mail, postage pre-paid return receipt requested, or (c)
when received by the addressee, if sent by Express Mail, Federal Express, or
other express delivery service (postage pre-paid return receipt requested), in
each

                                      -50-
<PAGE>
case to the appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a party may designate as to
itself by notice to the other):

                  If to Buyer:           Meritage Corporation
                                         6613 North Scottsdale Road,
                                         Suite 200
                                         Scottsdale, Arizona 85250
                                         Phone: (602) 998-8700
                                         FAX:  (602) 998-9162
                                         Attn: Chief Financial Officer

                  With a copy to:        Snell & Wilmer L.L.P.
                                         One Arizona Center
                                         Phoenix, Arizona 85004-0001
                                         Phone: (602) 382-6252
                                         FAX:  (602) 382-6070
                                         Attn: Steven D. Pidgeon, Esq.

                  If to Seller:          Hammonds Homes, Ltd.
                                         7171 Highway 6 North
                                         Suite 201
                                         Houston, TX 77095
                                         Attn:  Ronnie D. Hammonds

                  With a copy to:        Sack & Harris, P.C.
                                         8270 Greensboro Drive, Suite 630
                                         McLean, Virginia 22101
                                         Attn: James Sack, Esq.

         5.2 Counterparts. This Agreement may be executed in any number of
counterparts, and each counterpart will constitute an original instrument, but
all such separate counterparts will constitute one and the same agreement.

         5.3 Governing Law. The validity, construction, and enforceability of
this Agreement will be governed in all respects by the laws of the State of
Texas, without regard to its conflict of laws rules.

         5.4 Assignment. This Agreement will not be assigned by operation of law
or otherwise, except that Parent or Buyer may assign all or any portion of their
rights under this Agreement to any wholly owned subsidiary, parent, or sister
entity, but no such assignment will relieve Buyer or its successor of its
primary liability for all obligations of Buyer hereunder, and except that this
Agreement may be assigned by operation of law to any corporation or entity with
or into which Buyer may be merged or consolidated or to which Buyer transfer all
or substantially all of their assets, and such corporation or entity assumes
this Agreement and all obligations and undertakings of Buyer hereunder. Any
assignment in violation of the provisions of this Agreement will be null and
void.

                                      -51-
<PAGE>
         5.5 Gender and Number. The masculine, feminine, or neuter pronouns used
herein will be interpreted without regard to gender, and the use of the singular
or plural will be deemed to include the other whenever the context so requires.

         5.6 Schedules and Exhibits. The Schedules and Exhibits referred to in
this Agreement and attached to this Agreement are incorporated in this Agreement
by such reference as if fully set forth in the text of this Agreement.

         5.7 Waiver of Provisions. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof will, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.

         5.8 Costs. If any legal action or any arbitration or other proceeding
is brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party or parties will
be entitled to recover reasonable attorneys' fees, accounting fees, and other
costs incurred in that action or proceeding, in addition to any other relief to
which it or they may be entitled.

         5.9 Amendment. This Agreement may not be amended except by an
instrument in writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto.

         5.10 Severability. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement will remain in full force and effect and will in
no way be affected, impaired, or invalidated and the court will modify this
Agreement or, in the absence thereof, the parties will negotiate in good faith
to modify this Agreement to preserve each party's anticipated benefits under
this Agreement.

         5.11 Binding Effect. Subject to the provisions and restrictions of
Section 5.4, the provisions of this Agreement are binding upon and will inure to
the benefit of the parties and their respective heirs, personal representatives,
successors and assigns.

         5.12 Construction. References in this Agreement to "Sections,"
"Articles," "Exhibits," and "Schedules" are to the Sections and Articles in, and
the Exhibits and Schedules to, this Agreement, unless otherwise noted.

         5.13 Time Periods. Except as expressly provided for in this Agreement,
the time for performance of any obligation or taking any action under this
Agreement will be deemed to expire at 5:00 o'clock p.m. (Phoenix, Arizona time)
on the last day of the applicable time period provided for in this Agreement. If
the time for the performance of any obligation or taking any

                                      -52-
<PAGE>
action under this Agreement expires on a Saturday, Sunday or legal holiday, the
time for performance or taking such action will be extended to the next
succeeding day which is not a Saturday, Sunday or legal holiday.

         5.14 Headings. The headings of this Agreement are for purposes of
reference only and will not limit or define the meaning of any provision of this
Agreement.

         5.15 Entire Agreement. This Agreement, the Real Property Agreement, the
Master Agreement, and the Indemnification Agreement and all certificates,
schedules and other documents attached to or deliverable under such agreements
(collectively, the "AGREEMENTS") constitute the entire agreement, including with
respect to representations and warranties, between the parties pertaining to the
subject matter contained in the Agreements. All prior and contemporaneous
agreements, representations and understandings of the parties, oral or written,
are superseded by and merged in the Agreements. No supplement, modification or
amendment of the Agreements will be binding unless in writing and executed by
the parties to the Agreements.

         5.16 Arbitration. Any disputes arising hereunder will be resolved
pursuant to the dispute resolution provisions of EXHIBIT D to the Master
Agreement.

                                      -53-
<PAGE>
         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above by their respective officers thereunder
duly authorized.

                            MERITAGE CORPORATION,
                            a Maryland corporation

                            --------------------------------
                            By:   John R. Landon
                            Its:  Co-Chief Executive Officer

                            MTH HOMES-TEXAS, L.P.,
                            a Texas limited partnership

                            By:   MTH-Texas GP II, Inc., an Arizona corporation
                            Its:  General Partner

                            --------------------------------
                            By:   John R. Landon
                            Its:  President

                            HAMMONDS HOMES, LTD.,
                            a Texas limited partnership

                            By:   Hammonds Homes I, LLC, a Texas limited
                                  liability company
                            Its:  General Partner

                            By:   Hammonds Management Trust
                            Its:  sole Member

                            --------------------------------
                            By:   Ronnie D. Hammonds
                            Its:  Trustee

                       [SIGNATURE PAGE TO ASSET AGREEMENT]

                                      -54-

<PAGE>
         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above by their respective officers thereunder
duly authorized.

                              HAMMONDS HOMES I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              ___________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY LAND & CATTLE, LTD.,
                              a Texas limited partnership

                              By: Crystal City I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              ___________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              ___________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              RONNIE D. HAMMONDS

                              ___________________________________________

                      [SIGNATURE PAGE TO ASSET AGREEMENT]

                                       55
<PAGE>
EXHIBIT B

                             REAL PROPERTY AGREEMENT

                                       56
<PAGE>
                 AGREEMENT OF PURCHASE AND SALE OF REAL PROPERTY

                                  BY AND AMONG

                              MERITAGE CORPORATION,

                             MTH HOMES-TEXAS, L.P.,

                              HAMMONDS HOMES, LTD.,

                        CRYSTAL CITY LAND & CATTLE, LTD.,

                             HAMMONDS HOMES I, LLC,

                              CRYSTAL CITY I, LLC,

                                       AND

                               RONNIE D. HAMMONDS

                               Dated June 12, 2002

                                       57
<PAGE>
                 AGREEMENT OF PURCHASE AND SALE OF REAL PROPERTY

         This AGREEMENT OF PURCHASE AND SALE OF REAL PROPERTY (the "AGREEMENT")
is made as of June 12, 2002, by and among MERITAGE CORPORATION, a Maryland
corporation ("MERITAGE or PARENT"); MTH HOMES-TEXAS, L.P., a Texas limited
partnership ("BUYER"); CRYSTAL CITY LAND & CATTLE, LTD., a Texas limited
partnership ("CRYSTAL CITY"); HAMMONDS HOMES, LTD., a Texas limited partnership
("HAMMONDS HOMES," and collectively with Crystal City, the "SELLER"); HAMMONDS
HOMES I, LLC, a Texas limited liability company ("HAMMONDS GP"); CRYSTAL CITY I,
LLC, a Texas limited liability company ("CRYSTAL GP," and collectively with
Hammonds GP, the "GENERAL PARTNERS"); and RONNIE D. HAMMONDS, an individual
("HAMMONDS"). Collectively, Seller, General Partners, and Hammonds will be
referred to herein as "SELLING PARTIES."

                                    RECITALS

         1.       Pursuant to this Agreement, Buyer will acquire all or
substantially all of the real property assets of the Hammonds Business.

         2.       Although not a condition to Closing, Parent and Buyer
anticipate financing the acquisition of the real property assets of the Hammonds
Business using the proceeds of a public offering of Parent's common stock under
its recently filed Form S-3 Registration Statement.

         3.       The parties to this Agreement have concurrently entered into a
Master Transaction Agreement ("MASTER AGREEMENT"), Agreement of Purchase and
Sale of Assets ("ASSET AGREEMENT"), and Indemnification Agreement, all described
in the Master Agreement. All capitalized terms contained herein but not
otherwise defined will have the meaning ascribed to them in the Master
Agreement.

         In consideration of the covenants and mutual agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in reliance upon the representations and
warranties contained herein, the parties agree as follows:

                                    ARTICLE I
                       PURCHASE AND SALE OF REAL PROPERTY

         1.1      Agreement. This Agreement, together with the Master Agreement
and Indemnification Agreement, each incorporated herein by reference, will
constitute a binding contract on the part of Seller to sell and Buyer to
purchase certain real property assets of the Hammonds Business.

         1.2      Real Property Assets to be Purchased. Upon the terms and
subject to the conditions set forth herein and in the Master Agreement, and in
reliance on the respective representations and warranties of the parties
contained herein and in the Master Agreement, at the Closing, Seller agrees to
sell, convey, grant, assign, and transfer to Buyer and Buyer agrees to purchase
and acquire from Seller all of the Real Property Assets. The "REAL PROPERTY
ASSETS" will include, but are not limited to the following:

                                       58
<PAGE>
                  A.       All real property assets, whether or not disclosed on
         the Closing Balance Sheet, including all (1) land and buildings,
         fixtures, and improvements located thereon or attached thereto; (2)
         lots under development and finished lots, and all houses under
         development, completed homes, and model homes (collectively, those
         assets under Clauses (1) and (2) are the "OWNED REAL PROPERTY"); (3)
         leases, purchase contracts, and option agreements for the purchase of
         lots or land for development and related escrow instructions and
         deposits (the "OPTIONED REAL PROPERTY"); and (4) easements, franchises,
         licenses, permits, and rights-of-way appurtenant to or otherwise
         benefiting, and all development rights, mineral rights, water rights,
         utility capacity reservations, and other rights and appurtenances
         affecting or pertaining to, the items described in Clauses (1), (2) and
         (3) (collectively, with the Owned Real Property and the Optioned Real
         Property, the "REAL PROPERTY"). SCHEDULE 5.2 as referenced in Section
         5.2 sets forth the Title Binder or a listing of the Title Binders in
         respect of the Real Property;

                  B.       All rights and benefits in, to and under all (1) the
         contracts referred to in A(3) above (2) sale agreements or other
         contracts and related escrow instructions and escrow deposits relating
         to the sale of lots, homes or other aspects of the Real Property; (3)
         contracts with suppliers, materialmen, contractors, subcontractors and
         others furnishing any work or materials to or for any of the Real
         Property; (4) reimbursement and indemnity agreements pertaining to or
         of any improvement, performance, payment, maintenance, fidelity, lien
         release, or other bonds, undertakings or similar sureties; (5)
         contracts with architects, designers, engineers, planners,
         environmental consultants, surveyors, and other consultants; (6)
         commission, listing and brokerage agreements; (7) office and storage
         leases; (8) management service and construction supervisor contracts or
         agreements; and (9) model home furniture, fixtures and equipment leases
         and any model home lease or sale agreements (collectively, the
         "ACQUIRED CONTRACTS"). SCHEDULE 1.2 sets forth a listing of the
         Acquired Contracts;

                  C.       All rights and benefits in all (1) architectural,
         building, and engineering designs, drawings, specifications, and plans;
         (2) all proprietary information or rights including any and all plans,
         and other project related information of prior and currently active
         real estate projects; (3) copyrights, patents, trademarks, and
         applications, registrations, and renewals with respect thereto; and (4)
         goodwill associated therewith. The foregoing is hereinafter referred to
         as the "INTELLECTUAL PROPERTY;"

                  D.       To the extent transferable, all the right, title, and
         interest in all approvals, authorizations, certificates, consents,
         franchises, licenses, permits, rights, variances, subdivision maps,
         plans, entitlements, and waivers acquired, being acquired, applied for,
         or used, and all agreements with, all environmental, feasibility,
         archeological, engineering, soils and other reports of tests or
         inspections in respect of the Real Property and any waivers, licenses,
         permits, and approvals from or to any governmental or
         quasi-governmental agency, department, board, commission, bureau or any
         other entity or instrumentality, and other authorities in the nature
         thereof, all as related to the Real Property, a list and description of
         which is set forth on SCHEDULE 1.2; and

                                       59
<PAGE>
                  E.       All rights and benefits under any manufacturer's,
         subcontractor's, supplier's, merchant's, repairmen's, or other
         third-party warranties, guarantees, and service or replacement programs
         relating to Assumed Construction Claims.

         1.3      Purchase Price. The purchase price to be paid by Buyer for the
Real Property Assets will be as provided in Section 2.5 of the Master Agreement.

         1.4      Closing. Articles VII and VIII of the Master Agreement are
incorporated herein by reference as applicable.

                                   ARTICLE II
               REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER

         2.1      Incorporation by Reference. The representations and warranties
contained in Article III of the Master Agreement are incorporated herein by
reference.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES
                               OF SELLING PARTIES

         3.1      Incorporation by Reference. The representations and warranties
contained in Article IV of the Master Agreement are incorporated herein by
reference.

                                   ARTICLE IV
                      CONDUCT OF SELLER PENDING THE CLOSING

         4.1      Section 5.1 of the Master Agreement is incorporated herein by
reference as applicable.

                                    ARTICLE V
                              ADDITIONAL AGREEMENTS

         5.1      Escrow. An escrow for the Real Property portion of this
transaction (the "ESCROW") will be established with Stewart Title in Houston and
Dallas and Alamo Title in Austin (the "ESCROW AGENT" or "TITLE COMPANY"). The
date that the executed copies of this Agreement and Master Agreement are
delivered to Escrow Agent is referred to in this Agreement as the "OPENING
DATE." This Agreement and the provisions of the Master Agreement referenced
herein constitute escrow instructions to Escrow Agent. If Escrow Agent requires
the execution of its standard form printed escrow instructions, Seller and Buyer
agree to execute those instructions; HOWEVER, those instructions will be
construed as applying only to Escrow Agent's engagement. If there are conflicts
between the terms of this Agreement or the Master Agreement and the terms of the
printed escrow instructions, the terms of this Agreement or the Master Agreement
will control.

         5.2      Title Matters.

                  A.       Title Binders. SCHEDULE 5.2 sets forth the current
         preliminary title commitment (Form No. T-7) (a "TITLE BINDER") prepared
         by Escrow Agent or its title

                                       60
<PAGE>
         insurer for the status of title to each parcel or parcels of Real
         Property. SCHEDULE 5.2 also lists each survey (the "SURVEY") of any
         unsubdivided Real Property, which is acceptable to the Title Company or
         its title insurer for the issuance of the extended coverage Title
         Policy for such unsubdivided Real Property in accordance with Section
         5.2D of this Agreement.

                  B.       Title Supplements. If, prior to Closing, Escrow Agent
         or its title insurer issues a supplemental Title Binder showing
         additional exceptions to title, other than exceptions arising due to
         acts or omissions of Parent or Buyer or as set forth on any prior Title
         Binder (a "TITLE BINDER SUPPLEMENT"), Parent will have 10 days (a
         "SUPPLEMENTAL TITLE REVIEW PERIOD") from the date of receipt of the
         Title Binder Supplement and a copy of each document referred to in the
         Title Binder Supplement in which to give notice of dissatisfaction as
         to any additional exceptions to Seller. If Parent is dissatisfied with
         any additional exceptions shown in the Title Binder Supplement, then
         Parent may either (i) terminate this Agreement, the Asset Agreement and
         the Master Agreement, (ii) accept title subject to such additional
         exceptions or (iii) exclude the Real Property subject to the Title
         Binder Supplement, in which case the Purchase Price will be adjusted
         accordingly. If Parent has not notified Seller of its election prior to
         the close of business on the 10th day following Parent's receipt of the
         Title Binder Supplement, Parent and Buyer will be deemed to have
         accepted title subject to such additional exceptions.

                  C.       Approved Title Exceptions. Except for the list of
         title or survey objections shown by Parent or Buyer on SCHEDULE 5.2
         (the "DISAPPROVED TITLE EXCEPTIONS"), the exceptions to title disclosed
         by Schedule B in each Title Binder, and in any Title Binder Supplement
         accepted by Parent pursuant to Section 5.2B, are referred to in this
         Agreement as the "APPROVED TITLE EXCEPTIONS." In any event the
         Disapproved Title Exceptions, whether or not specifically listed on
         SCHEDULE 5.2, will include all monetary liens or encumbrances (other
         than liens for year 2002 property taxes, existing improvement district
         liens, specific assessments not due and payable when the Closing occurs
         or liens relating to debt to be assumed by Buyer as determined by
         Parent). If, prior to Closing, any of the Disapproved Title Exceptions
         are not cured by Seller to the reasonable satisfaction of Parent, then
         Parent may either (i) terminate this Agreement, the Asset Agreement and
         the Master Agreement, (ii) accept title subject to the Disapproved
         Title Exceptions, or (iii) exclude the Real Property subject to the
         Disapproved Title Exceptions, in which case the Purchase Price will be
         adjusted accordingly. If Parent has not notified Seller of its election
         prior to the Closing, Parent and Buyer will be deemed to have accepted
         title subject to the Disapproved Title Exceptions.

                  D.       Title Policies. At Closing, Seller will cause the
         Title Company or its title insurer to provide Parent and Buyer with a
         standard coverage owner's title policy (a "TITLE POLICY") for
         subdivided Owned Real Property, and with an extended coverage owner's
         title insurance policy (also a "TITLE POLICY") for any unsubdivided
         Owned Real Property, issued by the Title Company or its title insurer
         effective as of the Closing, naming Buyer as insured in the amount of
         that portion of the Purchase Price allocated to the Real Property,
         insuring that the estate or interest described by Schedule A, Section
         2, of each Title Binder (or of each Title Binder Supplement acceptable
         to Parent) to the Real Property is vested in Buyer, subject only to the
         Approved Title Exceptions, and to any

                                       61
<PAGE>
         other matters approved in writing by Parent. The cost of a standard
         form title policy, as well as the costs of the endorsements listed in
         the following sentence will be paid 50% by Seller and 50% by Buyer or
         Parent up to an aggregate cost of $150,000 and 100% by Buyer or Parent
         for costs in excess of $150,000. The Title Policy will include such
         endorsements issued by the Title Company as Parent may reasonably
         require, including without limitation a survey endorsement, a patent
         endorsement, access endorsement, surface water right endorsement and
         successor interest endorsement, the cost of which endorsements will be
         borne by Seller. The costs of any other endorsements will be borne by
         Buyer. Seller, at its expense, will use reasonable good faith efforts
         to satisfy all of the Title Company's customary requirements for the
         issuance of such Title Policy and endorsements, other than those, if
         any, within Buyer's control.

                  E.       Title Binders. At Closing, Seller will cause the
         Title Company or its title insurer to provide Parent and Buyer with
         Title Binders for all Optioned Real Property, which will include a
         commitment to issue an owners title policy naming Buyer as the insured
         in the amount of the purchase price for the Optioned Real Property
         under its respective contract, insuring that the estate or interest
         described by Schedule A, Part II, of each Binder (or of each Title
         Binder Supplement acceptable to the Parent) to the Optioned Real
         Property will become vested in Buyer, subject only to the Approved
         Title Exceptions, and to any other matters approved in writing by
         Parent.

         5.3      Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper,
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including obtaining all necessary
waivers, consents, and approvals and effecting all necessary registrations and
filings and submissions of information requested by governmental authorities.
Seller agrees that they, at any time before or after the Closing, will execute,
acknowledge, and deliver any further deeds, assignments, conveyances, and other
assurances, documents, and instruments of transfer reasonably requested by
Parent, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Parent, for the purpose of
conveying, assigning, transferring, granting, conveying, and confirming to
Buyer, or reducing to possession, any or all property to be conveyed and
transferred by this Agreement. If requested by Parent or Buyer, Seller further
agrees to prosecute or otherwise enforce in their name for the benefit of Parent
or Buyer, any claims, rights, or benefits that are transferred to Buyer by this
Agreement and that require prosecution or enforcement in its name. After the
Closing and for a period of six months, the parties will cooperate in good faith
and use commercially reasonable efforts to resolve any issues that may arise in
the transition of the Hammonds Business.

                                   ARTICLE VI
                               GENERAL PROVISIONS

         6.1      Notices. All notices, consents, and other communications
hereunder will be in writing and deemed to have been duly given when (a)
delivered by hand, (b) sent by telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, postage pre-paid return receipt
requested, or (c) when received by the addressee, if sent by Express Mail,
Federal Express, or other express delivery service (postage pre-paid return
receipt requested), in each

                                       62
<PAGE>
case to the appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a party may designate as to
itself by notice to the other):

            If to Buyer:                        Meritage Corporation
                                                6613 North Scottsdale Road,
                                                Suite 200
                                                Scottsdale, Arizona 85250
                                                Phone: (602) 998-8700
                                                FAX:  (602) 998-9162
                                                Attn: Chief Financial Officer

            With a copy to:                     Snell & Wilmer L.L.P.
                                                One Arizona Center
                                                Phoenix, Arizona 85004-0001
                                                Phone: (602) 382-6252
                                                FAX:  (602) 382-6070
                                                Attn: Steven D. Pidgeon, Esq.

            If to Seller                        Hammonds Homes, Ltd.
                                                7171 Highway 6 North
                                                Suite 201
                                                Houston, TX 77095
                                                Attn:  Ronnie D. Hammonds

            With a copy to:                     Sack & Harris, P.C.
                                                8270 Greensboro Drive, Suite 630
                                                McLean, Virginia 22101
                                                Attn: James Sack, Esq.

         6.2      Counterparts. This Agreement may be executed in any number of
counterparts, and each counterpart will constitute an original instrument, but
all such separate counterparts will constitute one and the same agreement.

         6.3      Governing Law. The validity, construction, and enforceability
of this Agreement will be governed in all respects by the laws of the State of
Texas, without regard to its conflict of laws rules.

         6.4      Assignment. This Agreement will not be assigned by operation
of law or otherwise, except that Parent or Buyer may assign all or any portion
of their rights under this Agreement to any wholly owned subsidiary, parent or
sister entities, but no such assignment will relieve Buyer or its successor of
its primary liability for all obligations of Buyer hereunder, and except that
this Agreement may be assigned by operation of law to any corporation or entity
with or into which Buyer may be merged or consolidated or to which Buyer
transfers all or substantially all of its assets, and such corporation or entity
assumes this Agreement and all obligations and undertakings of Buyer hereunder.
Any assignment in violation of the provisions of this Agreement will be null and
void.

                                       63
<PAGE>
         6.5      Gender and Number. The masculine, feminine, or neuter pronouns
used herein will be interpreted without regard to gender, and the use of the
singular or plural will be deemed to include the other whenever the context so
requires.

         6.6      Schedules and Exhibits. The Schedules and Exhibits referred to
in this Agreement and attached to this Agreement are incorporated in this
Agreement by such reference as if fully set forth in the text of this Agreement.

         6.7      Waiver of Provisions. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof will, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.

         6.8      Costs. If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
will be entitled to recover reasonable attorneys' fees, accounting fees, and
other costs incurred in that action or proceeding, in addition to any other
relief to which it or they may be entitled.

         6.9      Amendment. This Agreement may not be amended except by an
instrument in writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto.

         6.10     Severability. If any term, provision, covenant, or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement will remain in full force and effect and will in
no way be affected, impaired, or invalidated and the court will modify this
Agreement or, in the absence thereof, the parties will negotiate in good faith
to modify this Agreement to preserve each party's anticipated benefits under
this Agreement.

         6.11     Binding Effect. Subject to the provisions and restrictions of
Section 6.4, the provisions of this Agreement are binding upon and will inure to
the benefit of the parties and their respective heirs, personal representatives,
successors and assigns.

         6.12     Construction. References in this Agreement to "Sections,"
"Articles," "Exhibits," and "Schedules" are to the Sections and Articles in, and
the Exhibits and Schedules to, this Agreement, unless otherwise noted.

         6.13     Time Periods. Except as expressly provided for in this
Agreement, the time for performance of any obligation or taking any action under
this Agreement will be deemed to expire at 5:00 o'clock p.m. (Phoenix, Arizona
time) on the last day of the applicable time period provided for in this
Agreement. If the time for the performance of any obligation or taking any

                                       64
<PAGE>
action under this Agreement expires on a Saturday, Sunday or legal holiday, the
time for performance or taking such action will be extended to the next
succeeding day which is not a Saturday, Sunday or legal holiday.

         6.14     Headings. The headings of this Agreement are for purposes of
reference only and will not limit or define the meaning of any provision of this
Agreement.

         6.15     Entire Agreement. This Agreement, the Asset Agreement, the
Master Agreement and the Indemnification Agreement and all certificates,
schedules and other documents attached to or deliverable under such agreements
(collectively, the "AGREEMENTS") constitute the entire agreement, including with
respect to representations and warranties, between the parties pertaining to the
subject matter contained in the Agreements. All prior and contemporaneous
agreements, representations and understandings of the parties, oral or written,
are superseded by and merged in the Agreements. No supplement, modification or
amendment of the Agreements will be binding unless in writing and executed by
the parties to the Agreements.

         6.16     Arbitration. Any disputes arising hereunder will be resolved
pursuant to the dispute resolution provisions of EXHIBIT D to the Master
Agreement.

                                       65
<PAGE>
         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above by their respective officers thereunder
duly authorized.

                             MERITAGE CORPORATION,
                             a Maryland corporation

                             ________________________________________
                             By: John R. Landon
                             Its: Co-Chief Executive Officer

                             MTH HOMES-TEXAS, L.P.,
                             a Texas limited partnership

                             By: MTH-Texas GP II, Inc., an Arizona corporation
                             Its: General Partner

                             ________________________________________
                             By: John R. Landon
                             Its: President

                             HAMMONDS HOMES, LTD.,
                             a Texas limited partnership

                             By: Hammonds Homes I, LLC, a Texas limited
                                 liability company
                             Its: General Partner

                             By: Hammonds Management Trust
                             Its: sole Member

                             ________________________________________
                             By: Ronnie D. Hammonds
                             Its: Trustee

                   [SIGNATURE PAGE TO REAL PROPERTY AGREEMENT]

                                       66
<PAGE>
         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above by their respective officers thereunder
duly authorized.

                              HAMMONDS HOMES I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              ________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY LAND & CATTLE, LTD.,
                              a Texas limited partnership

                              By: Crystal City I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              ________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              ________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              RONNIE D. HAMMONDS

                              ________________________________________

                   [SIGNATURE PAGE TO REAL PROPERTY AGREEMENT]

                                       67
<PAGE>
EXHIBIT C

                           INDEMNIFICATION AGREEMENT

                                       68
<PAGE>
                            INDEMNIFICATION AGREEMENT

         THIS AGREEMENT is made as of June 12, 2002, by and among MERITAGE
CORPORATION, a Maryland corporation ("MERITAGE or PARENT"); MTH HOMES-TEXAS,
L.P., a Texas limited partnership ("BUYER"); CRYSTAL CITY LAND & CATTLE, LTD., a
Texas limited partnership ("CRYSTAL CITY"); HAMMONDS HOMES, LTD., a Texas
limited partnership ("HAMMONDS HOMES," and collectively with Crystal City, the
"SELLER"); HAMMONDS HOMES I, LLC, a Texas limited liability company ("HAMMONDS
GP"); CRYSTAL CITY I, LLC, a Texas limited liability company ("CRYSTAL GP," and
collectively with Hammonds GP, the "GENERAL PARTNERS"); and RONNIE D. HAMMONDS,
an individual (the "HAMMONDS"). Collectively, Seller, General Partners, and
Hammonds will be referred to herein as "SELLING PARTIES."

                                    RECITALS:

         A.       As of the date hereof, Parent, Buyer and Selling Parties
entered into a Master Transaction Agreement (the "MASTER AGREEMENT"), pursuant
to which Buyer has agreed to purchase from Seller and Seller has agreed to sell
to Buyer the assets of the Hammonds Business. Capitalized terms not otherwise
defined shall have the meanings ascribed to them in the Master Agreement.

         B.       As a material condition to the consummation of the Master
Agreement, Selling Parties, Buyer and Parent are willing to enter into this
Indemnification Agreement.

                                   AGREEMENT:

         NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Selling Parties, Parent and Buyer agree as
follows:

         1.       INDEMNIFICATION OF PARENT AND BUYER BY SELLING PARTIES.
Subject to the limitations set forth in Section 4 of this Agreement, and without
giving effect to materiality, Selling Parties will indemnify and defend Parent
and Buyer and their direct and indirect parent companies, subsidiaries, and
affiliates, and their respective officers, directors, shareholders, successors
and assigns, from and against any and all costs, expenses, losses, damages,
fines, penalties, or liabilities (including, without limitation, interest which
may be imposed in connection therewith, court costs, litigation expenses, and
reasonable attorneys' and accounting fees) (collectively, "Losses") incurred by
them, directly or indirectly, with respect to, in connection with, arising from,
or alleged to result from, arise out of, or be in connection with:

                  A.       A breach by any Selling Party of any representation,
         warranty, covenant, restriction or agreement made by any Selling Party
         and contained in the Master Agreement or in any certificate or other
         document delivered by such parties to Parent or Buyer thereunder;

                  B.       Any Excluded Liabilities; or

                  C.       Any other claim, contingency, debt, suit, cause of
         action, investigation, or proceeding of any kind whatsoever, including
         those listed on any disclosure schedule

                                       69
<PAGE>
         pursuant to the Master Agreement other than Assumed Liabilities,
         whether instituted or commenced prior to or after the Closing Date and
         which relates to or arises from the Hammonds Business or Acquired
         Assets on or before the Closing Date.

         2.       INDEMNIFICATION OF SELLING PARTIES BY BUYER AND PARENT. Buyer
and Parent each, jointly and severally, will indemnify and defend Selling
Parties and their direct and indirect parent companies, subsidiaries and
affiliates, and their respective officers, directors, shareholders, successors
and assigns from and against any Losses incurred by them, directly or
indirectly, with respect to, in connection with, arising from, or alleged to
result from, arise out of, or be in connection with:

                  A.       A breach by the Buyer of any representation,
         warranty, covenant, restriction or agreement made by Buyer and
         contained in the Master Agreement or in any certificate or other
         document delivered by Buyer to the Selling Parties thereunder;

                  B.       Any Assumed Liabilities;

                  C.       Any other claim, contingency, debt, suit, cause of
         action, investigation, or proceeding of any kind whatsoever instituted
         or commenced after the Closing Date which relates to or arises from
         Buyer's operation of the Hammonds Business after the Closing Date
         (except for any claims arising out of Selling Parties' liabilities to
         Buyer or obligations to Buyer under the Master Agreement, Asset
         Agreement or Real Property Agreement).

         3.       PROCEDURE FOR INDEMNIFICATION.

                  A.       The party which is entitled to be indemnified
         hereunder (the "Indemnified Party") shall promptly give notice
         hereunder to the party required to indemnify (the "Indemnifying Party")
         after obtaining written notice of any claim as to which recovery may be
         sought against the indemnifying party because of the indemnity in
         Section 1 and Section 2 hereof and, if such indemnity shall arise from
         the claim of a third party, shall permit the Indemnifying Party to
         assume the defense of any such claim and any litigation resulting from
         such claim, provided that, Parent or Buyer may, in their discretion,
         undertake, at Seller's cost and expense, the defense of any claim for
         which Seller is responsible hereunder with respect to any lots, land,
         rights to purchase lots or land, project or subdivision purchased by
         Buyer from Seller. Notwithstanding the foregoing, the right to
         indemnification hereunder shall not be affected by any failure of an
         Indemnified Party to give such notice, or delay by an Indemnified Party
         in giving such notice, unless, and then only to the extent that, the
         rights and remedies of the Indemnifying Party shall have been
         prejudiced as a result of the failure to give, or delay in giving, such
         notice. Failure by an Indemnifying Party to notify an Indemnified Party
         of its election to defend any such claim or action by a third party
         within 10 days after notice thereof shall have been given to the
         Indemnifying Party shall be deemed a waiver by the Indemnifying Party
         of its right to defend such claim or action.

                  B.       If the Indemnifying Party assumes the defense of such
         claim or litigation, the Indemnifying Party shall take all steps
         necessary in the defense or settlement of such

                                       70
<PAGE>
         claim or litigation, and will hold the Indemnified Party harmless from
         and against any and all damages caused by or arising out of any
         settlement approved by the Indemnifying Party or any judgment in
         connection with such claim or litigation. The Indemnifying Party shall
         not, in the defense of such claim or any litigation resulting
         therefrom, consent to entry of any judgment (other than a judgment of
         dismissal on the merits without costs) except with the written consent
         of the Indemnified Party, or enter into any settlement (except with the
         written consent of the Indemnified Party) which does not include as an
         unconditional term thereof the giving by the claimant or the plaintiff
         to the Indemnified Party of a release from all liability in respect of
         such claim or litigation.

                  C.       If the Indemnifying Party does not assume the defense
         of any such claim by a third party or litigation after receipt of
         notice from the Indemnified Party to do so, the Indemnified Party may
         defend against such claim or litigation in such manner as it deems
         appropriate, and unless the Indemnifying Party shall deposit with the
         Indemnified Party a sum equivalent to the total amount demanded in such
         claim or litigation plus the Indemnified Party's estimate of the costs
         of defending the same, the Indemnified Party may settle such claim or
         litigation on such terms as it may deem appropriate and the
         Indemnifying Party shall promptly reimburse the Indemnified Party for
         the amount of such settlement and for all damages incurred by the
         Indemnified Party in connection with the defense against or settlement
         of such claim or litigation.

                  D.       The Indemnifying Party shall promptly reimburse the
         Indemnified Party for the amount of any judgment rendered with respect
         to any claim or litigation by a third party in such litigation and for
         all damage incurred by the Indemnified Party in connection with the
         defense against such claim or litigation, whether or not resulting
         from, arising out of, or incurred with respect to, the act of a third
         party.

                  E.       Anything in this Section 3 to the contrary
         notwithstanding, the party not primarily responsible for the defense of
         a claim or litigation may, with counsel of its choice and at its
         expense, participate in the defense of any such claim or litigation.

         4.       LIMITS ON INDEMNITY; CERTAIN PROCEDURES AND PROVISIONS.

                  A.       For purposes of the indemnification pursuant to
         Section 1, any qualifications relating to materiality, material adverse
         changes or the like will be disregarded.

                  B.       The parties agree that the indemnification obligation
         of the Selling Parties under Section 1 will be capped at a total amount
         of [*]; provided, however, that notwithstanding anything in this
         paragraph to the contrary, the [*] cap will not apply (i) in the event
         of fraud or intentional misstatement, or (ii) to breach of the
         Non-Disclosure and Non-Compete Agreement.

                  C.       Selling Parties will have no obligation to indemnify
         Parent or Buyer from and against any Losses resulting from, arising out
         of, relating to or caused by breach of any representation, warranty,
         covenant, restriction or agreement of the other party until the
         aggregate Losses suffered by reason of all such breaches is in excess
         of [*], and

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                       71
<PAGE>
         then only for such loss in excess of [*]. Notwithstanding anything in
         this paragraph to the contrary, the [*] deductible will not apply to
         (i) Construction Claims brought by home owners of Housing Units for
         which Seller remains liable, (ii) any Excluded Liability, (iii) any
         indemnification obligation arising as a result of a breach of any
         warranty regarding title to the Acquired Assets, including Intellectual
         Property; or (iv) any indemnification obligation arising as the result
         of fraud or intentional misstatement.

                  D.       Any amounts due hereunder may be satisfied from the
         Holdback Fund; provided, however, that, subject to Section 2.5D of the
         Master Agreement, Parent or Buyer shall notify the Selling Parties of
         any single settlement in excess of [*] made by Parent or Buyer for the
         account of Selling Parties, and Selling Parties may contest such
         settlement within 10 days of such notice pursuant to the procedures set
         forth in Section 6.

                  E.       Nothing herein shall modify or change the Seller's
         obligation to discharge the Excluded Liabilities.

         5.       AGREEMENT TO BE BOUND. Selling Parties will use reasonable
best efforts to ensure that the Seller comply with all representations and
warranties, covenants and agreements contained in or contemplated by the Master
Agreement and satisfy all conditions to the Closing, and they further agree that
Selling Parties shall be bound by the covenants and agreements contained in
Sections 2.5, 2.6, 6.3, 6.4, 6.5, 6.6, and Article 11 of the Master Agreement,
as if a signatory thereto.

         6.       ARBITRATION. Any dispute, controversy or claim, whether
contractual or non-contractual, between Parent, Buyer and Selling Parties
arising directly or indirectly out of or connected with the Master Agreement,
relating to the breach or alleged breach of any representation, warranty,
agreement, or covenant under the Master Agreement, Asset Agreement or Real
Property Agreement or otherwise relating to the indemnification obligations set
forth under this Agreement, unless mutually settled by Parent and Selling
Parties, shall be resolved in accordance with the dispute resolution procedures
attached as EXHIBIT D to the Master Agreement, incorporated herein by this
reference.

         7.       NOTICES. All notices, consents, and other communications
hereunder shall be in writing and deemed to have been duly given when (a)
delivered by hand, (b) sent by telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, postage pre-paid return receipt
requested, or (c) when received by the addressee, if sent by Express Mail,
Federal Express, or other express delivery service (postage pre-paid return
receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate as to itself by notice to the other):

            If to Parent or Buyer:              Meritage Corporation
                                                6613 North Scottsdale Road,
                                                Suite 200
                                                Scottsdale, Arizona 85250
                                                Phone: (602) 998-8700

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                       72
<PAGE>
                                                FAX:  (602) 998-9162
                                                Attn: Chief Financial Officer

            With a copy to:                     Snell & Wilmer L.L.P.
                                                One Arizona Center
                                                Phoenix, Arizona 85004-0001
                                                Phone: (602) 382-6252
                                                FAX:  (602) 382-6070
                                                Attn: Steven D. Pidgeon, Esq.

            If to Selling Parties               Hammonds Homes, Ltd.
                                                7171 Highway 6 North
                                                Suite 201
                                                Houston, Texas  77995
                                                Attn:  Ronnie D. Hammond

            With a copy to:                     Sack & Harris, P.C.
                                                8270 Greensboro Drive, Suite 630
                                                McLean, Virginia 22101
                                                Attn: James Sack, Esq.

         8.       ENFORCEMENT OF RIGHTS. Parent's and Buyer's rights under, and
the remedies to enforce, this Agreement are joint and several as to the Selling
Parties. Parent and Buyer are completely free to enforce any or all of their
rights under this Agreement against any of the Selling Parties with or without
the concurrence or joinder of any other Selling Party. Selling Parties
acknowledge and agree that all assets of Ronnie D. Hammonds, Nancy Lee Hammonds,
wife of Ronnie D. Hammonds, and the Hammonds Management Trust, or their
successors or assignees, will be available to support the indemnification
obligations set forth in Section 4B of this Agreement (except as to Nancy Lee
Hammonds' sole and separate property to the extent that such property does not
relate to the Hammonds Business or the cash proceeds from the sale of the
Hammonds business) in the event that the Holdback Fund is insufficient. Parent
and Buyer will seek any monetary recourse first against such fund before
pursuing other monetary remedies. Further, nothing in this Agreement will
preclude Parent or Buyer from seeking injunctive or other equitable relief to
enforce any covenant not to compete, confidentiality provision, or other breach;
including without limitation, the right to seek specific performance under the
Master Agreement or the Non-Compete Agreement.

         9.       ASSIGNMENT. This Agreement will not be assigned by operation
of law or otherwise, except that Buyer may assign all or any portion of its
rights under this Agreement to any wholly owned subsidiary, but no such
assignment will relieve Buyer or their successor of their primary liability for
all obligations of Buyer hereunder, and except that this Agreement may be
assigned by operation of law to any corporation or entity with or into which
Buyer may be merged or consolidated or to which Buyer transfer all or
substantially all of their assets, and such corporation or entity assumes this
Agreement and all obligations and undertakings of Buyer hereunder. Any
assignment in violation of the provisions of this Agreement will be null and
void.

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<PAGE>
         10.      CONSTRUCTION. Captions and References in this Agreement to
"Sections," "Exhibits," and "Schedules" are to the Sections and Articles in, and
the Exhibits and Schedules to, this Agreement, unless otherwise noted.

         11.      GENDER AND NUMBER. The masculine, feminine, or neuter pronouns
used herein will be interpreted without regard to gender, and the use of the
singular or plural will be deemed to include the other whenever the context so
requires.

         12.      ENTIRE AGREEMENT. This Agreement, the Asset Agreement, the
Real Property Agreement and the Master Agreement, and all certificates,
schedules and other documents attached to or deliverable under such agreements
(collectively, the "AGREEMENTS") constitute the entire agreement, including with
respect to representations and warranties, between the parties pertaining to the
subject matter contained in the Agreements. All prior and contemporaneous
agreements, representations and understandings of the parties, oral or written,
are superseded by and merged in the Agreements. No supplement, modification or
amendment of the Agreements will be binding unless in writing and executed by
the parties to the Agreements.

         13.      COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each counterpart will constitute an original instrument, but
all such separate counterparts will constitute one and the same agreement.

         14.      GOVERNING LAW. The validity, construction, and enforceability
of this Agreement will be governed in all respects by the laws of the State of
Texas, without regard to its conflict of laws rules.

         15.      WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof will, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.

         16.      COSTS. If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
will be entitled to recover reasonable attorneys' fees, accounting fees, and
other costs incurred in that action or proceeding, in addition to any other
relief to which it or they may be entitled.

         17.      AMENDMENT. This Agreement may not be amended except by an
instrument in writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto.

         18.      SEVERABILITY. If any term, provision, covenant, or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of

                                       74
<PAGE>
the terms, provisions, covenants, and restrictions of this Agreement will remain
in full force and effect and will in no way be affected, impaired, or
invalidated and the court will modify this Agreement or, in the absence thereof,
the parties will negotiate in good faith to modify this Agreement to preserve
each party's anticipated benefits under this Agreement.

         19.      BINDING EFFECT. Subject to the provisions and restrictions of
Section 10, the provisions of this Agreement are binding upon and will inure to
the benefit of the parties and their respective heirs, personal representatives,
successors and assigns.

         20.      HEADINGS. The headings of this Agreement are for purposes of
reference only and will not limit or define the meaning of any provision of this
Agreement.

                                       75
<PAGE>
         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above by their respective officers thereunder
duly authorized.

                              MERITAGE CORPORATION,
                              a Maryland corporation

                              _________________________________________
                              By: John R. Landon
                              Its: Co-Chief Executive Officer

                              MTH HOMES-TEXAS, L.P.,
                              a Texas limited partnership

                              By: MTH-Texas GP II, Inc., an Arizona corporation
                              Its: General Partner

                              _________________________________________
                              By: John R. Landon
                              Its: President

                              HAMMONDS HOMES, LTD.,
                              a Texas limited partnership

                              By: Hammonds Homes I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                  [SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]

                                       76
<PAGE>
         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above by their respective officers thereunder
duly authorized.

                              HAMMONDS HOMES I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              _________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY LAND & CATTLE, LTD.,
                              a Texas limited partnership

                              By: Crystal City I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              _________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                  [SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]

                                       77
<PAGE>
                              WITH RESPECT TO SECTION 9 ONLY RONNIE D. HAMMONDS
                              AND NANCY LEE HAMMONDS, AS INDIVIDUALS, AND RONNIE
                              D. HAMMONDS, AS TRUSTEE OF THE HAMMONDS MANAGEMENT
                              TRUST, SET FORTH THERE SIGNATURES BELOW TO SIGNIFY
                              AGREEMENT THERETO:

                              RONNIE D. HAMMONDS

                              _________________________________________

                              NANCY LEE HAMMONDS

                              _________________________________________

                              HAMMONDS MANAGEMENT TRUST

                              _________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                      [SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]

                                       78
<PAGE>
EXHIBIT D

                          DISPUTE RESOLUTION PROCEDURES

         All claims, disputes and other matters in controversy (herein called
"DISPUTE") arising directly or indirectly out of or related to this Agreement,
or the breach thereof, whether contractual or noncontractual, and whether during
the term or after the termination of such Agreement, will be resolved
exclusively according to the procedures set forth in this EXHIBIT D.

         A.       Negotiation. The parties will attempt to settle disputes
arising out of or relating to the Agreement or the breach thereof by a meeting
of two designated representatives of each party within five days after a request
by either of the parties to the other party asking for the same.

         B.       Mediation. If such dispute cannot be settled at such meeting
either party within five (5) days of such meeting may give a written notice (a
"DISPUTE NOTICE") to the other party setting forth the nature of the dispute.
The parties will attempt in good faith to resolve the dispute by mediation in
Dallas, Texas under the Commercial Mediation Rules of the American Arbitration
Association ("AAA") in effect on the date of the Dispute Notice. The parties
will select a person who will act as the mediator under this Paragraph B within
60 days of the date of the Agreement. If the dispute has not been resolved by
mediation as provided above within thirty (30) days after delivery of the
Dispute Notice, then the dispute will be determined by arbitration in accordance
with the provisions of Paragraph C hereof.

         C.       Arbitration. Any dispute that is not settled through mediation
as provided in Paragraph B above will be resolved by arbitration in Dallas,
Texas, governed by the Federal Arbitration Act, 9 U.S.C. Section 1 et seq., and
administered by the AAA under its Commercial Arbitration Rules in effect on the
date of the Dispute Notice, as modified by the provisions of this Section C, by
a single arbitrator. The arbitrator selected, in order to be eligible to serve,
will be a lawyer with at least 15 years experience specializing in business
matters. In the event the parties cannot agree on a mutually acceptable single
arbitrator from the list submitted by the AAA, the AAA will appoint the
arbitrator who will meet the foregoing criteria. The arbitrator will base the
award on applicable law and judicial precedent and, unless both parties agree
otherwise, will include in such award the findings of fact and conclusions of
law upon which the award is based. Judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.

         Notwithstanding the foregoing:

                  (a)      Upon the application by either party to a court for
an order confirming, modifying or vacating the award, the court will have the
power to review whether, as a matter of law based on the findings of fact
determined by the arbitrator, the award should be confirmed, modified or vacated
in order to correct any errors of law made by the arbitrator. In order to
effectuate such judicial review limited to issues of law, the parties agree (and
will stipulate to the court) that the findings of fact made by the arbitrator
will be final and binding on the parties and

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<PAGE>
will serve as the facts to be submitted to and relied on by the court in
determining the extent to which the award should be confirmed, modified or
vacated.

                  (b)      Either party will have the right to apply to any
court for an order to enforce any of the ownership and confidentiality
provisions contained in the Agreement.

         D.       Costs and Attorneys' Fees. If either party fails to proceed
with mediation or arbitration as provided herein or unsuccessfully seeks to stay
such mediation or arbitration, or fails to comply with any arbitration award, or
is unsuccessful in vacating or modifying the award pursuant to a petition or
application for judicial review, the other party will be entitled to be awarded
costs, including reasonable attorneys' fees, paid or incurred by such other
party in successfully compelling such arbitration or defending against the
attempt to stay, vacate or modify such arbitration award and/or successfully
defending or enforcing the award.

         E.       Tolling of Statute of Limitations. All applicable statutes of
limitations and defenses based upon the passage of time will be tolled while the
procedures specified in this EXHIBIT D are pending. The parties will take such
action, if any, required to effectuate such tolling.

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<PAGE>
EXHIBIT E

                                ESCROW AGREEMENT

                                       81
<PAGE>
                                ESCROW AGREEMENT

      This ESCROW AGREEMENT (this "ESCROW AGREEMENT") dated as of July 1, 2002
(the "EFFECTIVE DATE") by and among Meritage Corporation, a Maryland corporation
("PARENT"), MTH Homes-Texas, L.P., a Texas limited partnership (the "BUYER")
Hammonds Homes, Ltd., a Texas limited partnership and Crystal City Land & Cattle
Ltd., a Texas limited partnership (collectively "SELLER"), and Compass Bank, as
escrow agent only (along with any and all successor escrow agents, the "ESCROW
AGENT").

      WHEREAS, pursuant to (i) the Master Transaction Agreement, dated June 12,
2002 (the "MASTER AGREEMENT"), by and among Parent, the Buyer, and Seller; (ii)
the Agreement of Purchase and Sale of Real Property, dated June 12, 2002, by and
among Parent, the Buyer, and the Seller; (iii) the Agreement of Purchase and
Sale of Assets, dated June 12, 2002, by and among Parent, the Buyer and the
Seller; and (iv) the Indemnification Agreement, dated June 12, 2002 (the
"INDEMNIFICATION AGREEMENT"), by and among Parent, the Buyer and the Seller, the
Buyer has purchased and the Seller has sold certain assets of the Seller;

      WHEREAS, the Buyer has delivered to the Seller all of the Purchase Price
(as defined in the Master Agreement) pursuant to the terms of Section 2.5 of the
Master Agreement, other than the sum of [*] (the "ESCROW AMOUNT");

      WHEREAS, under the terms of the Master Agreement and the Indemnification
Agreement, the Seller has agreed to protect Parent and the Buyer against certain
matters including, but not limited to, breaches of representations, warranties,
covenants and agreements made by them thereunder;

      WHEREAS, the Buyer has agreed to deliver the Escrow Amount to the Escrow
Agent to be held, subject to the terms and conditions hereinafter set forth, to
satisfy claims against the Seller;

      WHEREAS, the parties have agreed that, to the extent that the Escrow
Amount is not required to satisfy such claims, any balance of the Escrow Amount
will be paid to the Seller as part of the Purchase Price subject to and in
accordance with the terms and conditions hereinafter set forth; and

      WHEREAS, the Escrow Agent has agreed to act as Escrow Agent hereunder in
accordance with the terms and conditions hereinafter set forth.

      NOW, THEREFORE, in consideration of the mutual promises of the parties and
other good and valuable consideration, the parties agree as follows:

      Section 1. Appointment of Escrow Agent. Parent and the Buyer hereby
appoint and designate the Escrow Agent as escrow agent to receive, hold and
disburse the Escrow Fund (as such term is defined in Section 2), and the Escrow
Agent hereby accepts such appointment and designation.

      Section 2. Establishment of Escrow Fund. The Buyer will deposit with the
Escrow Agent and, upon receipt, the Escrow Agent will acknowledge receipt of the
Escrow Amount

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

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<PAGE>
(such amount, together with investment income earned thereon pursuant to the
terms hereof, collectively, the "ESCROW FUND"). The Escrow Fund will be
segregated from other assets of the Escrow Agent. The Escrow Agent agrees to
hold and administer the Escrow Fund subject to the terms of this Escrow
Agreement.

      Section 3. Investment of Escrow Fund. The Escrow Agent will invest the
Escrow Fund, as directed in writing by the Seller received by the Escrow Agent
from time to time, only in one or more of the following: (a) direct, short-term
obligations of the United States Government or its instrumentalities; (b) mutual
funds which invest all or substantially all of their assets in direct,
short-term obligations of the United States Government (including those offered
by the Escrow Agent); (c) variable rate certificates of deposit (including those
of the Escrow Agent); (d) short-term investments in money market accounts of one
or more United States banks (which may include the Escrow Agent if it is a bank)
having total assets in excess of $100,000,000, in each case having maturities of
not more than 90 days; or (e) municipal or corporate bonds having a credit
rating of A (Moody's or Standard & Poors) or better. The maximum maturity of any
single issue will not exceed 90 days. The total amount of income that is
credited to the Escrow Fund from the date of the establishment of the Escrow
Fund will be referred to as the "ACCUMULATED INCOME." The Escrow Agent will have
no liability for any investment losses on investments permitted under this
Section 3, including any losses on any investment required to be liquidated
prior to maturity in order to make a payment required hereunder. Investments
pursuant to such investment instructions described above will in all instances
be subject to availability (including any time-of-day requirements). In no
instance will the Escrow Agent have any obligation to provide investment advice
of any kind. All Accumulated Income will be credited to, and will become a part
of the Escrow Fund (and any losses on such investments will be debited to the
Escrow Fund).

      Section 4. Payments from Escrow Fund; Actions on Escrow Assets.

      (a) At any time or times subsequent to the Closing Date (as defined in the
Master Agreement) and prior to the Termination Date (as defined in Section 5
hereof), an Indemnified Party (as defined in the Indemnification Agreement) may
make claims against the Escrow Fund for reimbursement for claims pursuant to the
Master Agreement and the Indemnification Agreement. Such claims will be made by
an Indemnified Party by giving written notice to the Seller and the Escrow Agent
of each such claim, specifying in reasonable detail the amount and basis
thereof, which may be updated at a later time (a "NOTICE OF CLAIM") and causing
joint written instructions to be sent to Escrow Agent by the Indemnified Party
and Seller.

      (b) If the Seller will dispute such claim (or a portion thereof) (a
"DISPUTED CLAIM"), it will give written notice of such objection to the Escrow
Agent and the Indemnified Party at any time within 10 business days after the
Indemnified Party's provision of the Notice of Claim (a "DISPUTE NOTICE"). All
such notices will be delivered as provided in Section 13 hereof. Absent the
Seller giving a Dispute Notice to a Disputed Claim and the receipt by the Escrow
Agent thereof within such time period, such claim will be deemed to have been
approved as a valid claim in the full amount thereof (an "ACCEPTED CLAIM").

      (c) If the Seller will dispute a claim (or portion thereof) of the
Indemnified Party as above provided, then the Escrow Agent will retain a portion
of the Escrow Fund sufficient to pay

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<PAGE>
said Disputed Claim in full, together with the Allocable Income Amount (as that
term is hereinafter defined) and will make no distribution thereof (except for
the amount of any Accepted Claim as set forth above) unless and until the Escrow
Agent receives joint written instructions from the Indemnified Party and the
Seller or a notice of dispute resolution rendered pursuant to the Dispute
Resolution Procedures attached to the Master Agreement as Exhibit D (the
"DISPUTE RESOLUTION PROCEDURES") indicating the amount and recipient of such
distribution, at which point such Disputed Claim will be deemed an "ACCEPTED
CLAIM" for purposes of this Escrow Agreement.

      (d) All Accepted Claims will be paid promptly from the Escrow Fund upon
receipt by the Escrow Agent of joint written instructions from the Indemnified
Party and the Seller; provided, however, that the Escrow Agent will not be
obligated to release or distribute amounts sooner than two business days after
the Escrow Agent has received the requisite notice or paperwork in good form.
All payments will be made by the Escrow Agent to the Indemnified Party by
delivery of an amount equal to the sum of: (i) the amount of the applicable
Accepted Claim (the "SUBJECT AMOUNT"); plus (ii) the Allocable Income Amount
earned to the last day of the month preceding the month in which payment is
made. However, in no event will the total amount of payments (the aggregate of
the Subject Amounts and the Allocable Income Amounts) to the Indemnified Party
on all Accepted Claims exceed the amount originally deposited in the Escrow Fund
and the Accumulated Income at the date of such release or distribution. For
purposes of this Escrow Agreement, the term "ALLOCABLE INCOME AMOUNT" with
respect to a claim, distribution, or any amounts to be retained in escrow
pursuant to Section 4(c) will mean the amount of income (including reinvestment
income), if any, that has been earned on the amount of any such payment (equal
to the Subject Amount) from the date of the commencement of the Escrow Fund.

      Section 5. Release and Termination of Escrow Fund.

      (a) This Escrow Agreement will terminate 36 months following the Closing
Date (as defined in the Master Agreement) with such Closing Date certified in
writing to the Escrow Agent by Parent (the "TERMINATION DATE"); provided,
however, that if there are otherwise outstanding claims on the Termination Date
made pursuant to the terms of the Master Agreement and the Indemnification
Agreement and as to which the Escrow Agent has before such date received a
Notice of Claim pursuant to Section 4 of this Escrow Agreement, this Escrow
Agreement will continue in effect until all such claims are resolved.

      (b) The Escrow Fund will be delivered by the Escrow Agent to the Seller as
the Seller will direct in writing as follows:

                  (i) On the first anniversary of the Closing Date (the "FIRST
ANNIVERSARY"), an initial distribution, in an amount equal to [*], less an
amount adequate to cover the sum of amounts specified in all Notices of Claim
received by the Escrow Agent prior to the First Anniversary and which remain
outstanding without having been paid or otherwise resolved will be held by the
Escrow Agent together with the Allocable Income Amount with respect thereto to
the extent such amount remains available;

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                       84
<PAGE>
                  (ii) On the second anniversary of the Closing Date (the
"SECOND ANNIVERSARY"), an additional distribution, in an amount equal to [*],
less an amount adequate to cover the sum of amounts specified in all Notices of
Claim received by the Escrow Agent prior to the Second Anniversary and which
remain outstanding without having been paid or otherwise resolved will be held
by the Escrow Agent together with the Allocable Income Amount with respect
thereto to the extent such amount remains available; and

                  (iii) On the third anniversary of the Closing Date (the "THIRD
ANNIVERSARY"), the remaining balance of the Escrow Fund less an amount adequate
to cover the sum of amounts specified in all Notices of Claim received by the
Escrow Agent prior to the Third Anniversary and which remain outstanding without
having been paid or otherwise resolved will be held by the Escrow Agent together
with the Allocable Income Amount with respect thereto (the "HOLDBACK") to the
extent such amount remains available. At such time as all such remaining claims
hereunder have been paid or otherwise resolved pursuant to Section 4 (unless the
Aggregate Amount of such pending claims not paid or otherwise resolved exceeds
the Holdback), the Escrow Agent will distribute the remaining Escrow Fund, if
any, (or such excess portion of the Holdback, as the case may be) to the Seller.

      (c) Notwithstanding anything herein to the contrary, the Escrow Agent will
promptly dispose of all or any part of the Escrow Fund as directed by a writing
signed jointly by the Seller and Parent. The Escrow Agent will be entitled to
rely on the instructions received from the Seller and Parent, jointly, and will
have no liability to the Seller, Parent or the Buyer for any and all payments
made in accordance with such instructions.

      Section 6. Duties and Responsibilities of Escrow Agent.

      (a) Parent and the Buyer acknowledge and agree that the Escrow Agent: (i)
will not be responsible for any of the agreements (other than those agreements
made by Escrow Agent) referred to herein but will be obligated only for the
performance of such duties as are specifically set forth in this Escrow
Agreement on its part to be performed, each of which are ministerial (and will
not be construed to be fiduciary) in nature, and no implied duties or
obligations will be read into this Agreement against or on the part of the
Escrow Agent; (ii) will not be obligated to take any legal or other action
hereunder which might in its judgment involve any expense or liability unless it
will have been furnished with indemnification acceptable to it in its sole
discretion; (iii) may rely on and will be protected in acting or refraining from
acting upon any written notice, instruction (including, without limitation, wire
transfer instructions, whether incorporated herein or provided in a separate
written instruction), instrument, statement, request or document furnished to it
hereunder and believed by it to be genuine and to have been signed or presented
by the proper person, and will have no responsibility for determining the
accuracy thereof; and (iv) may consult counsel satisfactory to it, including
in-house counsel, if it reasonably determines that such consultation is
necessary and the opinion or advice of such counsel in any instance will be full
authorization and protection in respect of any action taken, suffered or omitted
by the Escrow Agent in good faith and in accordance with the opinion or advice
of such counsel.

      (b) Neither the Escrow Agent nor any of its directors, officers or
employees will be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers, or employees hereunder except in the
case of gross negligence, bad faith or willful misconduct.

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                       85
<PAGE>
Parent and the Buyer, jointly and severally, covenant and agree to indemnify the
Escrow Agent (and its directors, officers and employees) and hold it (and its
directors, officers and employees) harmless without limitation from and against
any claim, loss, liability or expense of any nature incurred by the Escrow Agent
arising out of or in connection with this Agreement or with the administration
of its duties hereunder, including but not limited to reasonable legal fees and
other costs and expenses of defending or preparing to defend against any claim
or liability hereunder, and payment of any legal fees and expenses incurred by
the Escrow Agent in connection with resolution of any claim by any party
hereunder, unless such loss, liability or expense will be caused by the Escrow
Agent's gross negligence, bad faith, or willful misconduct. In no event will the
Escrow Agent be liable for indirect, punitive, special or consequential damages.

      (c) The Escrow Agent will have no responsibility or liability on account
of any action or omission of any book-entry depository or subescrow agent
employed by the Escrow Agent, except to the extent that such action or omission
of any book-entry depository or subescrow agent was caused by the Escrow Agent's
own gross negligence, bad faith or willful misconduct.

      (d) Parent and the Buyer each agree, jointly and severally, to pay or
reimburse the Escrow Agent for legal fees incurred in connection with the
preparation of this Escrow Agreement and to pay the Escrow Agent's reasonable
compensation for its normal services hereunder in accordance with the fee
schedule attached hereto as SCHEDULE A. The Escrow Agent will be entitled to
reimbursement by Parent and the Buyer (and Parent and the Buyer hereby agree,
jointly and severally to pay) on demand for all reasonable costs and expenses
incurred in connection with the administration of this Escrow Agreement or the
Escrow Fund created hereby which are in excess of its compensation for normal
services.

      (e) The provisions of this Section 6 will survive termination of this
Escrow Agreement as well as resignation or removal of the Escrow Agent.

      Section 7. Resignation of Escrow Agent. The Escrow Agent may resign at any
time upon giving 60 days written notice to the other parties hereto. Parent
agrees that it will appoint a successor escrow agent within 30 days after
receipt of such notice, and the Escrow Agent hereby agrees that, upon receiving
written instructions from Parent, it will turn over and deliver to such
successor Escrow Agent the Escrow Fund and other amounts held by it pursuant to
this Escrow Agreement in accordance with the terms of such written instructions
(as well as all applicable records and a list of disbursements) and render an
accounting as required by Section 10 hereof.

      Section 8. Removal of Escrow Agent. The parties will have the right to
remove the Escrow Agent hereunder by giving notice in writing to the Escrow
Agent, specifying the date upon which such removal will take effect. In the
event of such removal, the parties agree that they will appoint a successor
Escrow Agent within 30 days after the giving of such notice, and the Escrow
Agent hereby agrees that, upon receiving written instructions from the parties
it will turn over and deliver to such successor Escrow Agent the Escrow Fund and
other amounts held by it pursuant to this Escrow Agreement in accordance with
the terms of such written instructions (as well as all applicable records and a
list of disbursements) and render an accounting as required by Section 10
hereof.

                                       86
<PAGE>
      Section 9. Successor Escrow Agent. Upon receipt of the Escrow Fund
pursuant to this Escrow Agreement, the successor Escrow Agent will thereupon be
bound by all of the provisions hereof and the term "ESCROW AGENT" as used herein
will mean such a successor Escrow Agent.

      Section 10. Accounting. In the event of the resignation or removal of the
Escrow Agent, upon the termination of the Escrow Fund or the termination of this
Escrow Agreement or upon written request by Parent under reasonable
circumstances, the Escrow Agent will render to Parent and to the successor
Escrow Agent, if any, a written accounting of its management of the Escrow Fund
and all distributions thereof.

      Section 11. Assignability. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective representatives,
successors and assigns. Neither this Agreement nor any rights, duties or
obligations hereunder will be assigned by any party hereto without the prior
written consent of the parties hereto, except that the Buyer may assign its
rights and obligations under this Agreement to the same extent it is permitted
to assign its rights and obligations under the Master Agreement.

      Section 12. Law Governing.  This Escrow Agreement will be governed by and
construed in accordance with the laws of the State of Texas (other than choice
of law provisions thereof).

      Section 13. Notices.

      (a) Any notice or other communication in connection with this Escrow
Agreement will be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission, receipt telephonically communicated)
addressed as provided below and if either: (i) actually delivered electronically
or physically at said address (provided that if said address is a business,
delivery is made during normal business hours); or (ii) in the case of a letter,
three (3) business days will have elapsed after the same will have been
deposited in the United States mail, postage prepaid and registered or
certified, return receipt requested; or (iii) 48 hours will have elapsed after
the same will have been sent by nationally recognized overnight receipted
courier:

            If to the Escrow Agent:

                  Compass Bank
                  P.O. Box 4886
                  Houston, TX 77210-4886
                  Telephone: (713) 831-5791
                  Facsimile: (713) 831-5746
                  Attn: John J. Kutac

            If to Parent or the Buyer:

                  Meritage Corporation
                  6613 North Scottsdale Road, Suite 200
                  Scottsdale, Arizona 85250
                  Telephone: (480) 998-8700

                                       87
<PAGE>
                  Facsimile: (480) 998-9162
                  Attn: Chief Financial Officer

            with a copy to:

                  Snell & Wilmer L.L.P.
                  One Arizona Center
                  Phoenix, Arizona 85004
                  Telephone: (602) 382-6000
                  Facsimile: (602) 382-6070
                  Attn:  Steven D. Pidgeon, Esq.

            If to Selling Parties

                  Hammonds Homes, Ltd.
                  7171 Highway 6 North
                  Suite 201
                  Houston, TX 77095
                  Attn:  Ronnie D. Hammonds

            with a copy to:

                  Sack & Harris, P.C.
                  8270 Greensboro Drive, Suite 630
                  McLean, Virginia 22101
                  Attn: James Sack, Esq.

or to such other address, which any party may be certified or registered mail
notify the other.

      (b) Wiring Instructions. Any funds to be paid to or by the Escrow Agent
hereunder will be sent pursuant to such method of payment and pursuant to such
instruction as may be given in writing to the Escrow Agent, as the case may be,
in accordance with Section 13(a) above.

      Section 14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same agreement.

      Section 15. Dispute Resolution. It is understood and agreed that should
any dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Escrow Fund, or should any claim be made upon the
Escrow Agent or the Escrow Fund by a third party, the Escrow Agent upon receipt
of notice of such dispute or claim is authorized and will be entitled (at its
sole option and election) to retain in its possession, without liability to
anyone, all or any of said Escrow Fund until such dispute will have been settled
in accordance with the Dispute Resolution Procedures either by the mutual
written agreement of the parties involved or by a final order, decree or
judgment of a court in the United States of America, the time for perfection of
an appeal of such order, decree or judgment having expired. The Escrow Agent

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<PAGE>
may, but will be under no duty whatsoever to, institute or defend any legal
proceedings, which relate to the Escrow Fund.

      Section 16. Force Majeure. Neither Parent nor the Buyer nor the Escrow
Agent will be responsible for delays or failures in performance resulting from
acts beyond its control. Such acts will include but not be limited to acts of
God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations
superimposed after the fact, fire, communication line failures, computer
viruses, power failures, earthquakes or other disasters.

      Section 17. Modifications. This Agreement may not be altered or modified
without the express written consent of the parties hereto. No course of conduct
will constitute a waiver of any of the terms and conditions of this Escrow
Agreement, unless such waiver is specified in writing, and then only to the
extent so specified. A waiver of any of the terms and conditions of this Escrow
Agreement on one occasion will not constitute a waiver of the other terms of
this Escrow Agreement, or of such terms and conditions on any other occasion.

      Section 18. Entire Agreement, Severability and Further Assurances. This
Escrow Agreement together with all schedules hereto constitutes the entire
agreement among the parties, and all promises, representations, undertakings,
warranties and agreements with reference to the subject matter hereof and
inducements to the making of this Escrow Agreement relied upon by any party
hereto, have been expressed herein or in the documents incorporated herein by
reference. The invalidity or unenforceability of any provision of this Escrow
Agreement will not affect the validity or enforceability of any other provision
hereof. Each of the parties will, at the reasonable request of another party,
deliver to the requesting party all further documents or other assurances as may
reasonably be necessary or desirable in connection with this Escrow Agreement.

                            [SIGNATURE PAGE FOLLOWS]

                                       89
<PAGE>
      IN WITNESS WHEREOF, the parties have executed this Escrow Agreement or
caused the same to be executed by their duly authorized representatives, as of
the date first stated hereinabove.

                                  COMPASS BANK

                              By:   __________________________________
                              Name: __________________________________
                              Title:__________________________________

                              MERITAGE CORPORATION,
                              a Maryland corporation

                              ________________________________________
                              By: Larry W. Seay
                              Its: Chief Financial Officer

                              MTH HOMES-TEXAS, L.P.,
                              a Texas limited partnership

                              By: MTH-Texas GP II, Inc., an Arizona
                                   corporation
                              Its: General Partner

                              ________________________________________
                              By: Larry W. Seay
                              Its: Vice President

                              HAMMONDS HOMES, LTD.,
                              a Texas limited partnership

                              By: Hammonds Homes I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              ________________________________________
                              By: Ronnie D. Hammonds
                                  Its: Trustee

                      [SIGNATURE PAGE TO ESCROW AGREEMENT]

                                       90
<PAGE>
      IN WITNESS WHEREOF, the parties have executed this Escrow Agreement or
caused the same to be executed by their duly authorized representatives, as of
the date first stated hereinabove.

                              HAMMONDS HOMES I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              ________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY LAND & CATTLE, LTD.,
                              a Texas limited partnership

                              By: Crystal City I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              ________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              ________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                      [SIGNATURE PAGE TO ESCROW AGREEMENT]

                                       91
<PAGE>
                                   SCHEDULE A

                               ESCROW AGENT FEES

$3,000 at initial funding
$3,000 on first anniversary date of closing
$3,000 on second anniversary date of closing
Plus-
$25.00 for handling each undisputed claim.
$50.00 for handling each disputed claim.

                                       92
<PAGE>
EXHIBIT F

                    NON-DISCLOSURE AND NON-COMPETE AGREEMENT

                                       93
<PAGE>
                    NON-DISCLOSURE AND NON-COMPETE AGREEMENT

      This AGREEMENT (the "AGREEMENT"), is made as of July 1, 2002, by and among
MERITAGE CORPORATION, a Maryland corporation ("MERITAGE or PARENT"); MTH
HOMES-TEXAS, L.P., a Texas limited partnership ("BUYER"); CRYSTAL CITY LAND &
CATTLE, LTD., a Texas limited partnership ("CRYSTAL CITY"); HAMMONDS HOMES,
LTD., a Texas limited partnership ("HAMMONDS HOMES," and collectively with
Crystal City, the "SELLER"); HAMMONDS HOMES I, LLC, a Texas limited liability
company ("HAMMONDS GP"); CRYSTAL CITY I, LLC, a Texas limited liability company
("CRYSTAL GP," and collectively with Hammonds GP, the "GENERAL PARTNERS"); and
RONNIE D. HAMMONDS, an individual (the "HAMMONDS"). Collectively, Seller,
General Partners, and Hammonds will be referred to herein as "SELLING PARTIES."

                                 R E C I T A L S

      1. Seller owns and operates a homebuilding and home sales business (the
"HAMMONDS BUSINESS").

      2. The assets of the Hammonds Business will be acquired by Buyer pursuant
to a certain Master Transaction Agreement dated as of June 12, 2002 (the "MASTER
AGREEMENT"). Capitalized terms not otherwise defined shall have the meanings
ascribed to them in the Master Agreement.

      3. To induce Meritage and the Buyer to enter into the Master Agreement,
the Selling Parties have agreed to execute this Agreement.

      4. For purposes of Sections 1 and 2 hereof, the term "COMPANY" shall mean
all joint ventures (50% or more owned directly or indirectly), subsidiaries and
parent companies of Meritage (whether corporate, partnership or in other form).

      In consideration of the premises, the mutual promises and covenants of the
parties set forth herein, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Selling Parties, intending
to be legally bound, agree as follows:

      1. NONCOMPETITION. For the period beginning on the Effective Date and
ending on the [*] anniversary thereof (the "RESTRICTION PERIOD"), the Selling
Parties, their affiliates, subsidiaries and parent companies, and their
respective owners, partners, members, officers, directors, employees, agents, or
family members will not, directly or indirectly, either as a joint venturer,
partner, member, shareholder, owner, lender, director, advisor or consultant or
in any similar capacity:

            (i) engage in the homebuilding or home sales business in any county
currently served by the Company (a "COMPETING BUSINESS");

            (ii) except as set forth on SCHEDULE 1(ii), recruit, hire or discuss
employment with any person who is, or within the six month period preceding the
date of such

[*] Confidential information on this page has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request.

                                       94
<PAGE>
activity was, an employee of the Company (other than as a result of a general
solicitation for employment); or

            (iii) subject to the proviso below, solicit any customer or supplier
of the Company for a Competing Business or otherwise attempt to induce any such
customer or supplier to discontinue its relationship with the Company.

            (iv) Nothing herein will preclude Selling Parties from engaging in
land banking activities or lot development activities, provided that neither
they nor any of their affiliates, subsidiaries and parent companies, and their
respective owners, partners, members, officers, directors, or then current
employees or agents, or family members will engage in the sale of finished lots
unless, at least 10 business days prior to any offer to a third party, the lots
are offered to Buyer, and if the Buyer determines to purchase the property, the
applicable selling party negotiates a sale in good faith. If no such sale is
then consummated, then the applicable selling party may pursue a sale with a
third party. If the terms of such third-party sale are different than the offer
made to Buyer, Buyer will have the right of first refusal to purchase the lots
within three business days of notice of the proposed sale to such a third party.
This notice must contain the specific terms and conditions thereof and the
proposed buyer. If Buyer does not respond to the right of first offer within 10
days or the right of first refusal within three days, Buyer will be deemed to
have waived the applicable right. Buyer can substitute cash for any non-cash
consideration (at the fair market value thereof). This right will arise again if
the third party offer is modified or amended.

            (v) Notwithstanding any other provision of this Agreement, nothing
herein will be construed to limit the ability of Ronnie D. Hammonds' adult
children to engage in a Competing Business provided that the Selling Parties do
not directly or indirectly provide support in any capacity for such Competing
Business during the Restriction Period or solicit employees, agents. customers
or suppliers on their behalf during such period.

      2. PROTECTION OF INFORMATION. Selling Parties recognize and acknowledge
that the Company's trade secrets and all other confidential and proprietary
information of a business, financial or other nature, including without
limitation, proprietary information of the Company, as it exists from time to
time (collectively, "CONFIDENTIAL INFORMATION"), are valuable and unique assets
of the Company and therefore agrees that, during the Restriction Period, it will
not, and will use its best efforts to ensure that its directors, officers,
employees, advisers, agents and consultants do not, disclose any Confidential
Information concerning the Company, to any person, firm, corporation,
association or other entity, for any reason whatsoever, unless previously
authorized in writing to do so by the Company. It is understood that
Confidential Information shall not include any information that is or becomes
generally available to the public other than as a result of an unauthorized
disclosure by Selling Parties, that is disclosed by Selling Parties in
accordance with the terms of a prior written consent of Meritage, or that is
owned jointly with the Company. For the purpose of enforcing this provision, the
Company may resort to any remedy available to it under the law.

      3. SEVERABILITY. In the event that a court of competent jurisdiction
determines that the Restriction Period is unenforceable, the Restriction Period
shall mean the period ending [*]

[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidential Treatment
Request.

                                       95
<PAGE>
[*] after the Effective Date of this Agreement, whichever longest period is
enforceable. Additionally, if any other provision of this Agreement is held to
be illegal, invalid or unenforceable under any applicable law, then such
provision will be deemed to be modified to the minimum extent necessary to
render it legal, valid and enforceable, and if no such modification will render
it legal, valid and enforceable, then this Agreement will be construed as if not
containing the provision held to be invalid, and the rights and obligations of
the parties will be construed and enforced accordingly.

      4. WAIVER. The waiver by either party of a breach of any provision of this
Agreement by the other shall not operate or be construed as a waiver of any
subsequent breach.

      5. INJUNCTIVE RELIEF. The Selling Parties acknowledge and agree that the
Company would be irreparably harmed by any violation of the Selling Parties'
obligations under Sections 1 and 2 hereof and that, in addition to all other
rights or remedies available at law or in equity, the Company will be entitled
to injunctive and other equitable relief to prevent or enjoin any such
violation. The prevailing party in any litigation hereunder agrees to pay any
and all reasonable costs and expenses, including attorneys' fees, incurred by
the other party.

      6. ASSIGNMENT BY MERITAGE OR THE COMPANY. Nothing in this Agreement shall
preclude Meritage, Buyer or the Company from consolidating or merging into or
with, or transferring all or substantially all of their assets to, another
corporation or entity that assumes this Agreement and all obligations and
undertakings hereunder. Upon such consolidation, merger or transfer of assets
and assumption, the term "Company" as used herein shall mean such other
corporation or entity, as appropriate, and this Agreement shall continue in full
force and effect.

      7. ENTIRE AGREEMENT. This Agreement embodies the complete agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior written, or prior or contemporaneous oral, understandings or agreements
between the parties that may have related in any way to the subject matter
hereof. This Agreement may be amended only in writing executed by Meritage and
the Selling Parties.

      8. GOVERNING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by and
construed in accordance with the internal laws, and not the law of conflicts, of
the State of Texas.

      9. NOTICE. Any notice required or permitted under this Agreement must be
in writing and will be deemed to have been given when delivered personally or by
overnight courier service or three days after being sent by mail, postage
prepaid, at the address indicated below or to such changed address as such
person may subsequently give such notice of:

            if to Meritage or the Company:    Meritage Corporation
                                              6613 North Scottsdale Road,
                                              Suite 200
                                              Scottsdale, Arizona 85250
                                              Attention: Chief Financial Officer

[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidential Treatment
Request.

                                       96
<PAGE>
            if to Hammonds,
            Hammonds Homes or Crystal City:   Hammonds Homes, Ltd.
                                              7171 Highway 6 South
                                              Suite 201
                                              Houston, Texas  77095
                                              Attention: Ronnie D. Hammonds

                [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       97
<PAGE>
      IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first written above by their respective officers thereunder duly
authorized.

                              MERITAGE CORPORATION,
                              a Maryland corporation

                              __________________________________________
                              By: Larry W. Seay
                              Its: Chief Financial Officer

                              MTH HOMES-TEXAS, L.P.,
                              a Texas limited partnership

                              By: MTH-Texas GP II, Inc., an Arizona
                                   corporation
                              Its: General Partner

                              __________________________________________
                              By: Larry W. Seay
                              Its: Vice President

                              HAMMONDS HOMES, LTD.,
                              a Texas limited partnership

                              By: Hammonds Homes I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its:  sole Member

                              __________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

        [SIGNATURE PAGE TO NON-DISCLOSURE AND NON-COMPETE AGREEMENT]

                                       98
<PAGE>
      IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first written above by their respective officers thereunder duly
authorized.

                              HAMMONDS HOMES I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              __________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY LAND & CATTLE, LTD.,
                              a Texas limited partnership

                              By: Crystal City I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              __________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              __________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              RONNIE D. HAMMONDS

                              __________________________________________

        [SIGNATURE PAGE TO NON-DISCLOSURE AND NON-COMPETE AGREEMENT]

                                       99
<PAGE>
EXHIBIT G

When Recorded Return to:

________________________________________

________________________________________

________________________________________

________________________________________________________________________________

                           SPECIAL WARRANTY DEED

STATE OF TEXAS     }
                   }     KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF _______  }

FOR THE CONSIDERATION of Ten Dollars ($10.00), and other valuable consideration,
Hammonds Homes, Ltd., a Texas limited partnership, Crystal City Land & Cattle,
Ltd., a Texas limited partnership, CCLC Development, LLC, a Texas limited
liability company, RH Development/Park West CC, Ltd., a Texas limited
partnership, RH Development Company, Ltd., a Texas limited partnership, Avery R.
Development, Ltd., a Texas limited partnership, Gleannloch Lot Ltd., a Texas
limited partnership and Ashford Lot Development, Ltd., a Texas limited
partnership (each a "Grantor," and collectively "Grantors"), hereby grant, sell,
and, convey to MTH Homes-Texas, L.P., a Texas limited partnership ("Grantee"),
the real property ("Land") situated in ________________ Counties, Texas, and
more particularly described on Exhibit "A" attached hereto and made a part
hereof, together with any and all improvements situated thereon and all rights
and appurtenances pertaining or appertaining thereto, including, without
limitation, any and all rights, title and interests of Grantors in and to (a)
any easements, leases, rights-of-way, rights of ingress or egress or other
interests in, on or to any land, highway, street, road or avenue, open or
proposed, in, on, in front of, abutting, adjoining, or benefiting the Land (b)
oil, gas and other mineral rights and interest pertaining to the Land, and (c)
any utilities, sewage treatment capacity and water capacity serving or which
will serve the Land, including, without limitation, all reservations, credit
commitments or letters covering any such use in the future (the Land,
improvements, appurtenances and all of the foregoing set forth in clauses (a)
through (c) are hereinafter collectively referred to as the "Property").

      This conveyance and the warranties of title herein are expressly made
subject only to the Approved Title Exceptions as shown on Exhibit "B" attached
hereto.

      TO HAVE AND TO HOLD the Property (subject as aforesaid) unto Grantee and
Grantee's successors and assigns forever, and Grantors do hereby bind Grantors
and Grantors' successors and assigns to WARRANT and FOREVER DEFEND, all and
singular, the Property

                                      100
<PAGE>
(subject as aforesaid) unto Grantee and Grantee's successors and assigns,
against every person whomsoever lawfully claiming or to claim the same or any
part thereof, by through or under Grantors, but not otherwise.

      Dated this 1st day of July, 2002.

                              HAMMONDS HOMES, LTD.,
                              a Texas limited partnership

                              By: Hammonds Homes I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY LAND & CATTLE, LTD.,
                              a Texas limited partnership

                              By: Crystal City I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                 [SIGNATURE PAGE TO SPECIAL WARRANTY DEED]

                                      101
<PAGE>
                              HAMMONDS HOMES I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CCLC DEVELOPMENT, LLC,
                              a Texas limited liability company

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                 [SIGNATURE PAGE TO SPECIAL WARRANTY DEED]

                                      102
<PAGE>
                              RH DEVELOPMENT/PARK WEST CC, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              RH DEVELOPMENT COMPANY, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                 [SIGNATURE PAGE TO SPECIAL WARRANTY DEED]

                                      103
<PAGE>
                              AVERY R. DEVELOPMENT, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                 [SIGNATURE PAGE TO SPECIAL WARRANTY DEED]

                                      104
<PAGE>
                              GLEANNLOCH LOT, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              ASHFORD LOT DEVELOPMENT, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _____________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                 [SIGNATURE PAGE TO SPECIAL WARRANTY DEED]

                                      105
<PAGE>
STATE OF TEXAS        )
                      ) ss.
County of _________   )

            On this, the _______ day of __________, 2002, before me, the
undersigned Notary Public, personally appeared Ronnie D. Hammonds, who
acknowledges himself to be the authorized signatory and Trustee on behalf of
Hammonds Management Trust, the sole Member of Hammonds Homes I, LLC, and Crystal
City I, LLC, each a Texas limited liability company, and that he, being
authorized so to do, and with the ability and intention to bind these entities
and their respective partnerships, corporations, and joint ventures executed the
forgoing instrument for the purposes therein contained by signing by himself as
such authorized Trustee and signatory.

      IN WITNESS WHEREOF, I hereunto set my hand and official seal.

                                          _____________________________________
                                          Notary Public

My Commission Expires:

_____________________________

                                      106
<PAGE>
                                   EXHIBIT "A"

                          LEGAL DESCRIPTION OF THE LAND

                                      107
<PAGE>
                                   EXHIBIT "B"

                            APPROVED TITLE EXCEPTIONS

                                       108
<PAGE>
EXHIBIT H

                    ASSIGNMENT AND ASSUMPTION AGREEMENT

DATE:          July 1, 2002

ASSIGNOR:     Hammonds Homes, Ltd.,           Crystal City Land & Cattle, Ltd.,
              CCLC Development, LLC,          RH Development/Park West CC, Ltd.,
              RH Development Company, Ltd.,   Avery R. Development, Ltd.,
              Gleannloch Lot, Ltd.,           Ashford Lot Development, Ltd.,

                                    each, c/o
                              Hammonds Homes, Ltd.
                              7171 Highway 6 North
                                    Suite 201
                              Houston, Texas 77095

ASSIGNEE:      MTH Homes-Texas, L.P.,
               c/o Meritage Corporation
               6613 North Scottsdale Road, Suite 200
               Scottsdale, AZ  85250

                                    RECITALS:

      A. Assignor, as optionee, is party to those certain agreements, (the
"Option Agreements"), with the optionors ("Optionors") and as of the dates set
forth on Exhibit "A" attached hereto concerning such matters as, among other
matters, Assignor's option to purchase certain real property described on
Exhibit "B" attached hereto and made a part hereof (the "Property").

      B. Assignor desires to assign all of its right, title and interest in, to
and under the Option Agreements and the Property to Assignee, and Assignee
desires to acquire the same and to assume the remaining obligations thereunder,
in accordance with the terms and conditions of this Assignment and Assumption
Agreement (the "Assignment").

                                       109
<PAGE>
                                 COVENANTS:

      FOR VALUABLE CONSIDERATION, it is agreed as follows:

      1.    Assignment. Effective as of July 1, 2002 (the "Effective Date"),
            Assignor hereby assigns and conveys to Assignee, subject to the
            other terms and conditions of this Assignment, all of Assignor's
            right, title and interest in, to and under the Option Agreements and
            the Property.

      2.    Assumption. Assignee hereby assumes and agrees to be bound by all of
            Assignor's obligations under the Option Agreements, subject to the
            terms and conditions of this Assignment, arising after the Effective
            Date.

      3.    Consent of Optionor. The validity and enforceability of this
            Assignment is contingent upon the execution by the Optionors, on or
            before the Effective Date, of the Consent of Optionor, in the form
            attached hereto and made a part hereof, or other form acceptable to
            Assignee and its counsel.

      4.    Representations and Warranties of Assignor. Assignor represents and
            warrants to Assignee, as of the Effective Date, as follows:

            (a)   The copies of the Option Agreements attached to this
                  Assignment are true and complete copies of the only agreements
                  between Assignor and the Optionors pertaining to the Property,
                  or the subject matter thereof.

            (b)   Assignor is the holder of the entire optionee's right, title
                  and interest under the Option Agreements ("Optionee's
                  Interests"), and Optionee's Interests have not been and will
                  not be assigned, encumbered, pledged or otherwise transferred
                  in any manner whatsoever, nor be subject to the interest of
                  any third person or entity, except to Assignee pursuant to
                  this Assignment.

            (c)   To the knowledge of Assignor (and with no duty of Assignor to
                  investigate or make inquiries), neither the Optionors nor
                  Assignor are in default under the Option Agreements nor has
                  any event occurred which would result in a default by the
                  Optionors or Assignor under the Option Agreements, nor has any
                  notice of default under the Option Agreements been given by
                  Optionors or Assignor to the other.

      5.    Further Instruments and Documents. Each party hereto will, promptly
            upon the request of the other party, or Optionors, acknowledge and
            deliver to the other party or Optionors, any and all further
            instruments, deeds, and assurances reasonably requested or
            appropriate to evidence or give effect to the provisions of this
            Assignment or to satisfy Optionors' requirements in connection with
            this Assignment.

                                       110
<PAGE>
      6.    Recordation. In lieu of recording this Assignment in any public
            records, a Memorandum of Assignment in substantially the same form
            attached hereto shall be executed before a notary public by Assignor
            and Assignee, and recorded on the Effective Date in the
            ___________________________.

      7.    Successors and Assigns. This Assignment shall be binding upon and
            inure to the benefit of the parties hereto and their respective
            successors and assigns.

                                      111
<PAGE>
      IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of
the day and year first above set forth.

ASSIGNOR:                                ASSIGNEE:

HAMMONDS HOMES, LTD.,                    MTH HOMES-TEXAS, L.P.,
A TEXAS LIMITED PARTNERSHIP              A TEXAS LIMITED PARTNERSHIP

By:  Hammonds Homes I, LLC               By:  MTH-Texas GP II, Inc.
Its:  General Partner                    Its:  General Partner

By:  Hammonds Management Trust
Its:  sole Member                        By:  John R. Landon
                                         Its:  President

By:  Ronnie D. Hammonds
Its:  Trustee

ASSIGNOR:

CRYSTAL CITY LAND & CATTLE, LTD.,
a Texas limited partnership

By:   Crystal City I, LLC, a Texas
limited
      liability company
Its:  General Partner

By:   Hammonds Management Trust
Its:  sole Member

By:   Ronnie D. Hammonds
Its:  Trustee

          [SIGNATURE PAGE TO ASSIGNMENT AND ASSUMPTION AGREEMENT]

                                       112
<PAGE>
ASSIGNOR:

HAMMONDS HOMES I, LLC,
a Texas limited liability company

By:   Hammonds Management Trust
Its:  sole Member

_____________________________________
By:   Ronnie D. Hammonds
Its:  Trustee

ASSIGNOR:

CRYSTAL CITY I, LLC,
a Texas limited liability company

By:   Hammonds Management Trust
Its:  sole Member

_____________________________________
By:   Ronnie D. Hammonds
Its:  Trustee

          [SIGNATURE PAGE TO ASSIGNMENT AND ASSUMPTION AGREEMENT]

                                       113
<PAGE>
ASSIGNOR:

CCLC DEVELOPMENT, LLC,
a Texas limited liability company

By:  Crystal City Land & Cattle, Ltd.,
a Texas limited partnership
Its:   sole Member

By:  Crystal City I, LLC, a Texas
limited liability company
Its:  General Partner

By:  Hammonds Management Trust
Its:  sole Member

_____________________________________
By:  Ronnie D. Hammonds
Its:  Trustee

ASSIGNOR:

RH DEVELOPMENT/PARK WEST CC, LTD.,
a Texas limited partnership

By:  CCLC Development, LLC,
a Texas limited liability company
Its:  General Partner

By:  Crystal City Land & Cattle, Ltd.,
a Texas limited partnership
Its:   sole Member

By:  Crystal City I, LLC, a Texas
limited liability company
Its:  General Partner

By:  Hammonds Management Rust
Its:  sole Member

_____________________________________
By:  Ronnie D. Hammonds
Its:  Trustee

          [SIGNATURE PAGE TO ASSIGNMENT AND ASSUMPTION AGREEMENT]

                                       114
<PAGE>
ASSIGNOR:

RH DEVELOPMENT COMPANY, LTD.,
a Texas limited partnership

By:  CCLC Development, LLC,
a Texas limited liability company
Its:  General Partner

By:  Crystal City Land & Cattle, Ltd.,
a Texas limited partnership
Its:   sole Member

By:  Crystal City I, LLC, a Texas
limited liability company
Its:  General Partner

By:  Hammonds Management Trust
Its:  sole Member

_____________________________________
By:  Ronnie D. Hammonds
Its:  Trustee
ASSIGNOR:

AVERY R. DEVELOPMENT, LTD.,
a Texas limited partnership

By:  CCLC Development, LLC,
a Texas limited liability company
Its:  General Partner

By:  Crystal City Land & Cattle, Ltd.,
a Texas limited partnership
Its:   sole Member

By:  Crystal City I, LLC, a Texas
limited liability company
Its:  General Partner

By:  Hammonds Management Trust
Its:   sole Member

_____________________________________
By:  Ronnie D. Hammonds
Its:  Trustee

          [SIGNATURE PAGE TO ASSIGNMENT AND ASSUMPTION AGREEMENT]

                                       115
<PAGE>
ASSIGNOR:

GLEANNLOCH LOT, LTD.,
a Texas limited partnership

By:  CCLC Development, LLC,
a Texas limited liability company
Its:  General Partner

By:  Crystal City Land & Cattle, Ltd.,
a Texas limited partnership
Its:   sole Member

By:  Crystal City I, LLC, a Texas
limited liability company
Its:  General Partner

By:  Hammonds Management Trust
Its:  sole Member

_____________________________________
By:  Ronnie D. Hammonds
Its:  Trustee

ASSIGNOR:

ASHFORD LOT DEVELOPMENT, LTD.,
a Texas limited partnership

By:  CCLC Development, LLC,
a Texas limited liability company
Its:  General Partner

By:  Crystal City Land & Cattle, Ltd.,
a Texas limited partnership
Its:   sole Member

By:  Crystal City I, LLC, a Texas
limited liability company
Its:  General Partner

_____________________________________
By:  Ronnie D. Hammonds
Its:  Trustee

          [SIGNATURE PAGE TO ASSIGNMENT AND ASSUMPTION AGREEMENT]

                                       116
<PAGE>
                                   EXHIBIT "A"

                               ASSIGNED CONTRACTS

                                      117
<PAGE>
                                   EXHIBIT "B"

                                  REAL PROPERTY

                                       118
<PAGE>
                               CONSENT OF OPTIONOR

                                       119
<PAGE>
EXHIBIT I
                   BILL OF SALE AND ASSUMPTION AGREEMENT

      KNOW ALL MEN BY THESE PRESENTS, that Hammonds Homes, Ltd., a Texas limited
partnership, Crystal City Land & Cattle, Ltd., a Texas limited partnership, CCLC
Development, LLC, a Texas limited liability company, RH Development/Park West
CC, Ltd., a Texas limited partnership, RH Development Company, Ltd., a Texas
limited partnership, Avery R. Development, Ltd., a Texas limited partnership,
Gleannloch Lot, Ltd., a Texas limited partnership and Ashford Lot Development,
Ltd., a Texas limited partnership (collectively, "Seller") do hereby sell,
convey, transfer, assign and set over unto MTH Homes-Texas, L.P., a Texas
limited partnership ("Buyer"), and its successors and assigns, all of Seller's
rights, title, and interest in and to the Acquired Assets as that term is
defined in that certain Master Transaction Agreement by and among Meritage
Corporation, a Maryland corporation ("Parent"), Buyer, Hammonds GP's, Hammonds,
and Seller dated June 12, 2002 ("Master Agreement"). Capitalized terms used
herein and not otherwise defined will have the same meaning as set forth in the
Master Agreement.

      As provided in the Master Agreement, Seller represents, warrants and
covenants that it is the lawful owner of the Acquired Assets, free from all
liens, claims and encumbrances except as provided in the Master Agreement and
the schedules thereto. Seller will warrant and defend the same to Parent and
Buyer and their successors and assigns in accordance with the terms and
provisions of the Master Agreement and the Indemnification Agreement.

      Seller hereby constitutes and appoints Buyer, its successors and assigns,
the true and lawful attorneys of Seller, with full power of substitution, for
Seller and in its name and stead or otherwise, by and on behalf and for the
benefit of Buyer, its successors and assigns, to demand and receive from time to
time any and all of the Acquired Assets and to give receipts and releases for or
in respect of the same and any part thereof, and from time to time to institute
and prosecute in the name of Seller or otherwise, but at the expense and for the
benefit of Parent and Buyer, their successors and assigns, any and all
proceedings at law, in equity, or otherwise which Parent or Buyer, their
successors and assigns, may deem proper in order to collect, assert, or enforce
any claim, right, or title of any kind in or to the Acquired Assets and to
defend or compromise any and all actions, suits, or proceedings in respect of
any of the Acquired Assets and to do all such acts and things in relation
thereto as Buyer, its successors or assigns, deem desirable. Seller hereby
declares that the appointment made and the powers hereby granted are coupled
with an interest and are and will be irrevocable by Seller in any manner or for
any reason.

      Seller covenants with Parent and Buyer that it will do, execute, and
deliver or cause to be done, executed, and delivered all such further acts,
documents, or things, including without limitation, transfers, assignments,
conveyances, powers of attorney, and assurances for better assuring, conveying,
and confirming unto Parent and Buyer, their successors and assigns, all and
singular, the entire right, title, and interest of Seller throughout the world
in, to, and under the Acquired Assets as Parent and Buyer, their successors and
assigns, reasonably require.

                                       120
<PAGE>
      This Bill of Sale and Assumption Agreement will inure to the benefit of,
and will bind Seller and Buyer and their respective successors and assigns.

      IN WITNESS WHEREOF, the undersigned parties have executed this Bill of
Sale and Assumption Agreement to be effective as of the 1st of July, 2002.

                              HAMMONDS HOMES, LTD.,
                              a Texas limited partnership

                              By: Hammonds Homes I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _______________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CRYSTAL CITY LAND & CATTLE, LTD.,
                              a Texas limited partnership

                              By: Crystal City I, LLC, a Texas limited
                                  liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _______________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              HAMMONDS HOMES I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              _______________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

            [SIGNATURE PAGE TO BILL OF SALE AND ASSUMPTION AGREEMENT]

                                      121
<PAGE>
                              CRYSTAL CITY I, LLC,
                              a Texas limited liability company

                              By: Hammonds Management Trust
                              Its: sole Member

                              _______________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              CCLC DEVELOPMENT, LLC,
                              a Texas limited liability company

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _______________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

         [SIGNATURE PAGE TO BILL OF SALE AND ASSUMPTION AGREEMENT]

                                       122
<PAGE>
                              RH DEVELOPMENT/PARK WEST CC, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              RH DEVELOPMENT COMPANY, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _______________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

         [SIGNATURE PAGE TO BILL OF SALE AND ASSUMPTION AGREEMENT]

                                       123
<PAGE>
                              AVERY R. DEVELOPMENT, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _______________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

                              GLEANNLOCH LOT, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _______________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

         [SIGNATURE PAGE TO BILL OF SALE AND ASSUMPTION AGREEMENT]

                                       124
<PAGE>
                              ASHFORD LOT DEVELOPMENT, LTD.,
                              a Texas limited partnership

                              By: CCLC Development, LLC,
                              a Texas limited liability company
                              Its: General Partner

                              By: Crystal City Land & Cattle, Ltd.,
                              a Texas limited partnership
                              Its: sole Member

                              By: Crystal City I, LLC, a Texas
                              limited liability company
                              Its: General Partner

                              By: Hammonds Management Trust
                              Its: sole Member

                              _______________________________________________
                              By: Ronnie D. Hammonds
                              Its: Trustee

         [SIGNATURE PAGE TO BILL OF SALE AND ASSUMPTION AGREEMENT]

125

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