EXHIBIT 10.4
AMENDED AND RESTATED
Effective April 15, 2003
(Original Date: February 1, 2000)
CHANGE OF CONTROL AGREEMENT
Dear ▇▇▇▇▇:
The Board of Directors believes that it is in the best interests of
Meritage Corporation ("Meritage"), and its shareholders to take appropriate
steps to allay any concerns you (sometimes referred to herein as "Executive")
may have about your future employment opportunities with Meritage and its
subsidiaries (Meritage and its subsidiaries are collectively referred to as the
"Company"). As a result, the Board has decided to offer to you the benefits
described below.
1. TERM OF AGREEMENT.
This Agreement is effective immediately and will continue in effect as
long as you are employed by Meritage, unless you and Meritage agree in writing
to its termination.
2. SEVERANCE PAYMENT.
If your employment with the Company is terminated without "Cause" (as
defined in Section 8) at any time within 90 days prior to or within two years
following a "Change of Control" (as defined in Section 6), you will receive the
"Severance Payment" described below. You will also receive the Severance Payment
if you terminate your employment for "Good Reason" (as defined in Section 7) at
any time within two years following a Change of Control.
The Severance Payment equals the sum of (i) three times the higher of
(x) your annual base salary on the date of termination of your employment, or
(y) your annual base salary on the date preceding the Change of Control, and
(ii) three times the highest of the following: (x) your average incentive
compensation for the two years prior to termination of your employment, (y) your
incentive compensation for the year preceding the year in which the Change of
Control occurred, or (z) your "Minimum Incentive Compensation Amount" (as
defined below in Section 4).
The Severance Payment will be paid in one lump sum as soon as
administratively feasible following termination of your employment, but in no
event more than 30 days following termination of your employment.
You are not entitled to receive the Severance Payment if your
employment is terminated for Cause, if you terminate your employment without
Good Reason, or if your employment is terminated by reason of your "Disability"
(as defined in Section 10(d)) or your death (unless death or disability occurs
after a notice of termination). In addition, you are not entitled to receive the
Severance Payment if your employment is terminated by you or the Company for any
or no reason prior to 90 days before a Change of Control occurs or more than two
years after a Change of Control has occurred.
In order to receive the Severance Payment, you must execute any release
reasonably requested by the Company.
The Severance Payment will be paid to you without regard to whether you
look for or obtain alternative employment following termination of your
employment with the Company.
3. BENEFITS CONTINUATION.
If you are entitled to severance under Section 2, you will continue to
receive life, disability, accident and group health insurance benefits
substantially similar to those which you were receiving immediately prior to
termination of your employment for a period of 24 months following termination
of your employment. Such benefits shall be provided on substantially the same
terms and conditions as they were provided prior to the Change of Control,
provided that, if coverage for such benefits is not available under the plans of
the Company, the Company shall pay Executive an amount in cash equal to the cost
of your obtaining such alternative coverage.
Benefits otherwise receivable pursuant to this Section also shall be
reduced or eliminated if and to the extent that you receive comparable benefits
from any other source (for example, another employer); provided, however, you
shall have no obligation to seek, solicit or accept employment from another
employer in order to receive such benefits.
4. INCENTIVE COMPENSATION.
If you are employed by the Company on the day on which a Change of
Control occurs, the incentive compensation to which you will be entitled
(pursuant to any performance-based incentive compensation program established by
the Company) for the calendar year in which the Change of Control occurs will
equal at least the "Minimum Incentive Compensation Amount." The "Minimum
Incentive Compensation Amount" will equal the incentive compensation to which
you would have been entitled if the year were to end on the day on which the
Change of Control occurs, based upon performance up to that date. In measuring
financial performance, financial results through the date of the Change of
Control will be annualized.
5. STOCK OPTION ACCELERATION.
Notwithstanding anything in this Agreement or in any option agreement
to the contrary, upon a Change of Control, any stock options granted to you
after the date hereof (previous options being governed by Executive's prior
agreements) shall accelerate and become vested without further action and, to
the extent permitted under the plan's governing documents, Executive shall have
a period of one year from the date of termination to exercise such options.
6. CHANGE OF CONTROL DEFINED.
For purposes of this Agreement, the term "Change of Control" shall mean
and include the following transactions or situations:
(a) The acquisition of beneficial ownership, directly or
indirectly, of securities having 33% or more of the combined voting power of
Meritage's then outstanding securities by any "Unrelated Person" or "Unrelated
Persons" acting in concert with one another. For purposes
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of this Section, the term "Person" shall mean and include any individual,
partnership, joint venture, association, trust, corporation, or other entity
(including a "group" as referred to in Section 13(d)(3) of the Securities
Exchange Act of 1934 (the "Act"). For purposes of this Section, the term
"Unrelated Person" shall mean and include any Person other than the Company, or
an employee benefit plan of the Company, or any officer, director, or 10% or
more shareholder of the Company as of the date of this Agreement.
(b) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of Meritage to an Unrelated Person or Unrelated Persons acting in concert
with one another.
(c) Any consolidation or merger of Meritage with or into an
Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of Meritage immediately prior to the consolidation
or merger are the Beneficial Owners of securities of the surviving corporation
representing at least 50% of the combined voting power of the surviving
corporation's then outstanding securities
(d) A change during any period of two consecutive years of a
majority of the members of the Board of Directors of Meritage for any reason,
unless the election, or the nomination for election by the Company's
shareholders, of each director was approved by the vote of a majority of the
directors then still in office who were directors at the beginning of the
period.
7. GOOD REASON DEFINED.
For purposes of this Agreement, the term "Good Reason" shall include
the following circumstances: (a) if the Company assigns you duties that are
materially inconsistent with, or constitute a material reduction of powers or
functions associated with, your position, duties, or responsibilities with the
Company, or a material adverse change in your titles, authority, or reporting
responsibilities, or in conditions of your employment, (b) if your base salary
is reduced or the potential incentive compensation (or bonus) to which you may
become entitled to at any level of performance by you or the Company is reduced,
(c) if the Company fails to cause any successor to expressly assume and agree to
be bound by the terms of this Agreement, (d) any purported termination by the
Company of your employment for grounds other than for "Cause," (e) if the
Company relieves you of your duties other than for "Cause," or (f) if you are
required to relocate to an employment location that is more than fifty (50)
miles from Scottsdale, Arizona. The Company and you further acknowledge and
agree that, if following a Change of Control, you do not serve or are not
serving as Co-Chairman and Chief Executive Officer (or sole Chairman and Chief
Executive Officer) of the parent corporation of the surviving organization, you
have experienced a material reduction of powers or functions associated with
your position, duties or responsibilities with the Company such that Good Reason
shall be deemed to exist.
8. CAUSE DEFINED.
For purposes of this Agreement, the term "Cause" will exist if you have
engaged in malfeasance that materially ▇▇▇▇▇ the Company or its stockholders, or
if you are convicted of a felony that is materially detrimental to the Company
or its stockholders.
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9. CEILING ON BENEFITS.
The Internal Revenue Code (the "Code") places significant tax burdens
on you and the Company if the total payments made to you due to a Change of
Control exceed prescribed limits. For example, if your limit is $749,999
(because your "Base Period Income" (as defined below) is $250,000) and the
"Total Payments" (as defined below) exceed the limit by even $1.00, you are
subject to an excise tax under Section 4999 of the Code of 20% of all amounts
paid to you in excess of $250,000. If your limit is $749,999, you will not be
subject to an excise tax if you receive exactly $749,999. If you receive
$750,000, you will be subject to an excise tax of $100,000 (20% of $500,000).
In order to avoid this excise tax and the related adverse tax
consequences for the Company, by signing this Agreement, you agree that the
present value of your Total Payments will not exceed an amount equal to 2.99
times your Base Period Income. This is the maximum amount which you may receive
without becoming subject to the excise tax imposed by Section 4999 of the Code
or which the Company may pay without loss of deduction under Section 280G of the
Code.
"Base Period Income" is an amount equal to your "annualized includible
compensation" for the "base period" as defined in Sections 280G(d) (1) and (2)
of the Code and the regulations adopted thereunder. Generally, your "annualized
includible compensation" is the average of your annual taxable income from the
Company for the "base period," which is the five calendar years prior to the
year in which the Change of Control occurs. These concepts are complicated and
technical and all of the rules set forth in the applicable regulations apply for
purposes of this Agreement.
Your "Total Payments" include the sum of the Severance Payment and any
other "payments in the nature of compensation" (as defined in Section 280G of
the Code and the regulations adopted thereunder).
If Meritage believes that these rules will result in a reduction of the
payments to which you are entitled under this Agreement, it will so notify you
within 60 days following delivery of the "Notice of Termination" described in
Section 10. You and Meritage will then, at Meritage's expense, retain legal
counsel, certified public accountants, and/or a firm of recognized executive
compensation consultants to provide an opinion or opinions concerning whether
your Total Payments exceed the limit discussed above.
Meritage will select the legal counsel, certified public accountants
and executive compensation consultants. If you do not accept one or more of the
parties selected by Meritage, you may provide Meritage with the names of legal
counsel, certified public accountants and/or executive compensation consultants
acceptable to you. If Meritage does not accept the party or parties selected by
you, the legal counsel, certified public accountants and/or executive
compensation consultants selected by you and Meritage, respectively, will select
the legal counsel, certified public accountants and/or executive compensation
consultants to provide the opinions required.
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At a minimum, the opinions required by this Section must set forth (a)
the amount of your Base Period Income, (b) the present value of the Total
Payments, and (c) the amount and present value of any excess parachute payments.
If the opinions state that there would be an excess parachute payment,
your payments under this Agreement will be reduced to the extent necessary to
eliminate the excess.
You will be allowed to choose which payment should be reduced or
eliminated, but the payment you choose to reduce or eliminate must be a payment
determined by such legal counsel, certified public accountants, and/or executive
compensation consultants to be includible in Total Payments. You will make your
decision in writing and deliver it to Meritage within 30 days of your receipt of
such opinions. If you fail to so notify Meritage, it will decide which payments
to reduce or eliminate.
If the legal counsel, certified public accountants, and/or executive
compensation consultants selected to provide the opinions referred to above so
requests, in connection with the opinion required by this Section, a firm of
recognized executive compensation consultants, selected by you and Meritage
pursuant to the procedures set forth above, shall provide an opinion, upon which
such legal counsel, certified public accountants, and/or executive compensation
consultants may rely, as to the reasonableness of any item of compensation as
reasonable compensation for services rendered before or after the Change of
Control.
If Meritage believes that your Total Payments will exceed the
limitations of this Section, it will nonetheless make payments to you, at the
times stated above, in the maximum amount that it believes may be paid without
exceeding such limitations. The balance, if any, will then be paid after the
opinions called for above have been received.
If the amount paid to you by Meritage is ultimately determined,
pursuant to the opinion referred to above or by the Internal Revenue Service, to
have exceeded the limitation of this Section, the excess will be treated as a
loan to you by Meritage and shall be repayable on the 90th day following demand
by Meritage, together with interest at the "applicable federal rate" provided in
Section 1274(d) of the Code.
In the event that the provisions of Sections 280G and 4999 of the Code
are repealed without succession, this Section shall be of no further force or
effect.
The Company does not intend to provide duplicative benefits. As a
result, benefits otherwise receivable pursuant to this Agreement shall be
reduced or eliminated if and to the extent that you receive such benefits
pursuant to any employment agreement you may have with the Company.
10. TERMINATION NOTICE AND PROCEDURE.
Any termination by the Company or you of your employment shall be
communicated by written Notice of Termination to you if such Notice of
Termination is delivered by the Company and to the Company if such Notice of
Termination is delivered by you, all in accordance with the following
procedures:
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(a) The Notice of Termination shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances alleged to provide a basis for
termination.
(b) Any Notice of Termination by the Company shall be in
writing signed by the Co-Chairman of the Board of Meritage (other than you)
specifying in detail the basis for such termination.
(c) If the Company shall furnish a Notice of Termination for
Cause and you in good faith notify the Company that a dispute exists concerning
such termination within the 30-day period following your receipt of such notice,
you may elect to continue your employment during such dispute. If it is
thereafter determined that (i) Cause did exist, your "Termination Date" shall be
the earlier of (A) the date on which the dispute is finally determined, either
by mutual written agreement of the parties or pursuant to the alternative
dispute resolution provisions of Section 17, or (B) the date of your death; or
(ii) Cause did not exist, your employment shall continue as if the Company had
not delivered its Notice of Termination and there shall be no Termination Date
arising out of such notice.
(d) If the Company shall furnish a Notice of Termination by
reason of Disability and you in good faith notify the Company that a dispute
exists concerning such termination within the 30-day period following your
receipt of such notice, you may elect to continue your employment during such
dispute. The dispute relating to the existence of a Disability shall be resolved
by the opinion of the licensed physician selected by Meritage, provided,
however, that if you do not accept the opinion of the licensed physician
selected by Meritage, the dispute shall be resolved by the opinion of a licensed
physician who shall be selected by you; provided further, however, that if
Meritage does not accept the opinion of the licensed physician selected by you,
the dispute shall be finally resolved by the opinion of a licensed physician
selected by the licensed physicians selected by Meritage and you, respectively.
If it is thereafter determined that (i) a Disability did exist, your Termination
Date shall be the earlier of (A) the date on which the dispute is resolved, or
(B) the date of your death, or (ii) a Disability did not exist, your employment
shall continue as if the Company had not delivered its Notice of Termination and
there shall be no Termination Date arising out of such notice. For purposes of
this Agreement, "Disability" shall be given the meaning ascribed to such term in
your Employment Agreement at the time the Disability determination is being
made.
(e) If you in good faith furnish a Notice of Termination for
Good Reason and the Company notifies you that a dispute exists concerning the
termination within the 30-day period following the Company's receipt of such
notice, you may elect to continue your employment during such dispute. If it is
thereafter determined that (i) Good Reason did exist, your Termination Date
shall be the earlier of (A) the date on which the dispute is finally determined,
either by mutual written agreement of the parties or pursuant to the alternative
dispute resolution provisions of Section 17, (B) the date of your death, or (C)
one day prior to the second anniversary of a Change of Control, and your
payments hereunder shall reflect events occurring after you delivered Notice of
Termination; or (ii) Good Reason did not exist, your employment shall continue
after such determination as if you had not delivered the Notice of Termination
asserting Good Reason.
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(f) If you do not elect to continue employment pending
resolution of a dispute regarding a Notice of Termination, and it is finally
determined that the reason for termination set forth in such Notice of
Termination did not exist, if such notice was delivered by you, you shall be
deemed to have voluntarily terminated your employment other than for Good Reason
and if delivered by the Company, the Company will be deemed to have terminated
you other than by reason of Disability or Cause.
11. SUCCESSORS.
Meritage will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Meritage or any of its subsidiaries to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Meritage or any subsidiary would be required to perform it if no
such succession had taken place. Failure of Meritage to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation in the same
amount and on the same terms to which you would be entitled hereunder if you
terminate your employment for Good Reason following a Change of Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination Date. As used in
this agreement "Company" shall mean Company, as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
12. BINDING AGREEMENT.
This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder had you continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there is no such designee, to your estate.
13. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as shown
in the Employment Agreement, provided that all notices to Meritage shall be
directed to the attention of the Chairman of the Board of Meritage with a copy
to the Secretary of Meritage, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
14. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by you and the Chairman of the Board of Meritage. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be
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performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Arizona without regard to its conflicts of law principles. All
references to sections of the Act or the Code shall be deemed also to refer to
any successor provisions to such sections. Any payments provided for hereunder
shall be paid net of any applicable withholding required under federal, state or
local law. The obligations of Meritage that arise prior to the expiration of
this Agreement shall survive the expiration of the term of this Agreement.
15. VALIDITY.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
shall he deemed to be an original but all of which together will constitute one
and the same instrument.
17. ALTERNATIVE DISPUTE RESOLUTION.
All claims, disputes and other matters in question between the parties
arising under this Agreement shall, unless otherwise provided herein (such as in
Sections 9 and 10(d)), be resolved in accordance with the arbitration or
alternative dispute resolution provisions included in your Employment Agreement.
18. EXPENSES AND INTEREST.
If a good faith dispute shall arise with respect to the enforcement of
your rights under this Agreement or if any arbitration or legal proceeding shall
be brought in good faith to enforce or interpret any provision contained herein,
or to recover damages for breach hereof, and you are the prevailing party, you
shall recover from the Company any reasonable attorneys' fees and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and prejudgment interest on any money judgment obtained by you
calculated at the rate of interest announced by Bank of America, Arizona from
time to time as its prime rate from the date that payments to you should have
been made under this Agreement, provided that such interest rate shall not be
less than eight percent. It is expressly provided that the Company shall in no
event recover from you any attorneys' fees, costs, disbursements or interest as
a result of any dispute or legal proceeding involving the Company and you.
19. PAYMENT OBLIGATIONS ABSOLUTE.
Meritage's obligation to pay you the compensation and to make the
arrangements in accordance with the provisions herein shall be absolute and
unconditional and shall not be affected by any circumstances. All amounts
payable by Meritage in accordance with this
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Agreement shall be paid without notice or demand. If Meritage has paid you more
than the amount to which you are entitled under this Agreement, Meritage shall
have the right to recover all or any part of such overpayment from you or from
whomsoever has received such amount.
20. EFFECT ON EMPLOYMENT AGREEMENT.
This Agreement supplements, and does not replace, your Employment
Agreement, as it may be amended or replaced from time to time (the "Employment
Agreement"). You will be entitled to receive all amounts due to you pursuant to
your Employment Agreement; but some payments under your Employment Agreement may
reduce your Severance Payments as provided in Section 2 and benefits due
pursuant to your Employment Agreement may reduce the benefits due pursuant to
Section 3. In addition, payments under your Employment Agreement may be
considered as part of your Total Payment and result in a reduction in payments
as provided in Section 9. If there is any conflict between the provisions of
this Agreement and your Employment Agreement, such conflict shall be resolved so
as to provide the greater benefit to you.
21. ENTIRE AGREEMENT.
This Agreement, your Employment Agreement and your option grant
documents set forth the entire agreement between you and the Company concerning
the subject matter discussed in this Agreement and supersede all prior
agreements, promises, covenants, arrangements, communications, representations,
or warranties, whether written or oral, by any officer, employee or
representative of the Company. Any prior agreements or understandings with
respect to the subject matter set forth in this Agreement are hereby terminated
and canceled. Notwithstanding the foregoing, nothing in this Agreement is
intended to affect any previous agreements pertaining to the grant of options to
the Executive, including without limitation, provisions set forth in Executive's
prior Change of Control Agreement providing for acceleration upon a
change-in-control.
22. DEFERRAL OF PAYMENTS.
To the extent that any payment under this Agreement, when combined with
all other payments received during the year that are subject to the limitations
on deductibility under Code Section 162(m), exceeds the limitations on
deductibility under Code Section 162(m), such payment shall, in the discretion
of Meritage, be deferred to the next calendar year. The determination of
deductibility under the preceding sentence shall be made by legal counsel,
certified public accountants, and/or executive compensation consultants selected
by Meritage but who shall be reasonably acceptable to you. Meritage will notify
you as soon as it becomes aware of specific information that may cause it to
exercise its discretion to require deferral and shall provide you with access to
all information on which its decision is based. If the date for payment of any
amount is deferred pursuant to this Section 22, then Meritage will transfer an
amount in cash equal to the deferred amount to a trust which shall be in
substantially the same form as is set forth in Revenue Procedure 92-64, 1992-2
C.B. 422. The terms of the trust, including the designation of trustee, shall be
determined by Meritage but shall be reasonably acceptable to you. All deferred
amounts held in the trust shall bear interest at the greater of the rate of
interest announced by Bank of America, Arizona from time to time as its prime
rate or 8%, from the date
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that the payment would have been made to you but for this Section 22 to the date
that such payment is actually made to you. Payment of the deferred amounts shall
be made no later than the 30th day after the end of the calendar year in which
the deferral occurs, provided that such payment, when combined with any other
payments subject to the Section 162(m) limitations received during the year,
does not exceed the limitations on deductibility under Code Section 162(m).
23. PARTIES.
This Agreement is an agreement between you and Meritage and all
successors and assigns of Meritage. In certain cases, though, obligations
imposed upon Meritage may be satisfied by a subsidiary of Meritage. Any payment
made or action taken by a subsidiary of Meritage shall be considered to be a
payment made or action taken by Meritage for purposes of determining whether
Meritage has satisfied its obligations under this Agreement.
If you would like to participate in this special benefits
program, please sign and return the extra copy of this letter which is enclosed.
Sincerely,
MERITAGE CORPORATION
By /s/ ▇▇▇▇▇ Ax
-------------------------------
Name: ▇▇▇▇▇ Ax
----------------------------
Its: Director
----------------------------
Enclosure
ACCEPTANCE
I hereby accept the offer to participate in this special benefits
program and I agree to be bound by all of the provisions noted above.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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