Exhibit 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is effective as of April
15, 2003 by and between MERITAGE CORPORATION, a Maryland corporation (the
"COMPANY") and Xxxxxx X. Xxxxxx, an individual ("EXECUTIVE").
RECITALS
WHEREAS, Executive is currently the Co-Chief Executive Officer and
Co-Chairman of the Company;
WHEREAS, the Company desire to continue to obtain the services of
Executive, and Executive desires to provide services to the Company, in
accordance with the terms, conditions and provisions of this Agreement;
NOW THEREFORE, 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, covenants and mutual agreements contained herein, the Company
and Executive agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions of this
Agreement, the Company agrees to employ Executive as Co-Chief Executive Officer
of the Company, and Executive agrees to diligently perform the duties associated
with such position. Executive will report directly to the Board of Directors.
Executive will devote substantially all of his business time, attention and
energies to the business of the Company and will comply with the policies and
guidelines established by the Company from time to time applicable to its senior
management executives.
2. TERM. Executive will be employed under this Agreement for a
term of three (3) years beginning as of the date hereof and ending on the third
anniversary of the date hereof, unless Executive's employment is terminated
earlier pursuant to Section 7. This Agreement may be extended by a written
agreement between Executive and the Company. If no written agreement is entered
into on or before the end of the term, all obligations under this Agreement
shall terminate, and Executive will continue his employment on an at-will basis.
3. DIRECTOR STATUS. For so long as Executive is Co-Chief
Executive Officer, the Company shall use commercially reasonable efforts,
subject to applicable law and regulation of the New York Stock Exchange
("NYSE"), to cause Executive to be nominated for election as a director and to
be recommended to the stockholders for election as a director. Upon any
termination of employment as Co-Chief Executive Officer, Employee will be deemed
to have resigned from the Board of Directors, unless (a) the Executive is not
terminated for Cause (as defined below) and owns 5% or more of the Company's
common stock outstanding, or (b) within 30 days thereof a majority of the
independent directors of the Board (as defined by rules of the NYSE) vote to
enable Executive to continue on the Board through the balance of his term.
4. SALARY. The Company will pay Executive a base salary equal to
$500,000 per year (the "BASE SALARY"). The salary increase will be retroactive
to July 1, 2002. The Base
Salary will be payable in accordance with the payroll practices of the Company
in effect from time to time. The Base Salary may be raised, but not lowered,
without Executive's consent.
5. INCENTIVE COMPENSATION. Executive will be entitled to
incentive compensation based on the achievement of certain performance targets
pursuant to the plan specified in Exhibit A hereto, pro rated as appropriate
(the "BONUS"). The targets and plan will be adjusted annually and mutually
agreed upon. The Bonus will be due and payable in accordance with Exhibit A.
6. EXECUTIVE BENEFITS. During the term of this Agreement,
Executive will be entitled to reimbursement of reasonable and customary business
expenses. The Company will provide to Executive such fringe benefits and other
Executive benefits as are regularly provided by the Company to its senior
management (e.g., health and long-term disability insurance, paid vacation,
etc.); provided, however, that nothing herein shall preclude the Company from
amending or terminating any employee or general executive benefit plans or
programs. In addition, the Company shall provide the Executive with the benefits
set forth on Exhibit B, which benefits may not be terminated or reduced during
the term hereof.
7. TERMINATION.
A. Voluntary Resignation by Executive (other than for Good
Reason).
(1) If Executive voluntarily terminates his employment
with the Company (for reasons other than Good Reason), then the Company
will be obligated to pay Executive's Base Salary through the Date of
Termination. No Bonus shall be payable.
(2) Upon a voluntary resignation without Good Reason, if
the Company chooses to have the provisions of Section 8 (Restrictive
Covenant) apply, it shall provide written notice to Executive of this
decision within 30 days of the Date of Termination, and shall pay (i)
Executive's Base Salary for, depending on its election of the length of
the Restriction Period, either one or two years, (ii) an amount equal
to, depending on the Company's election of the length of the
Restriction Period, either one or two times the average of Executive's
Bonus of the preceding two years, and (iii) COBRA premiums to pay for
health and dental benefits for the lesser of two years or the period
that the Company is required to offer COBRA coverage as a matter of
law. Items (i) and (ii) shall be payable in accordance with normal
payroll practices over the term of the covenant (the "Termination
Payments"). The written notice of the Company shall identify whether it
is establishing a one or two year Restriction Period.
(3) For a period of two years of any voluntary
resignation without Good Reason, the Executive shall be required to
advise the Company, within ten days thereof, when and if Executive's
beneficial ownership of the Company's common stock falls below 800,000
shares (subject to adjustment for any stock split, reverse stock split
or recapitalization). Within 30 days of such notice, the Company shall
have the right, by written notice to the Executive, to cause the
provisions of Section 8 (Restrictive Covenant) to become effective,
provided the Company makes monthly Termination Payments for the balance
of the two-year term. For purposes of this paragraph, Executive's
beneficial ownership shall include all shares held by his wife, his
children,
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and any family limited partnership or trust established for the benefit
of Executive, his wife, or children, as well as any entity controlled
by Executive, his wife, or children.
B. Termination without Cause or Resignation for Good Reason. If
Executive's employment with the Company is terminated by the Company without
Cause or Executive resigns for Good Reason, then Company will be obligated to
pay (i) Executive's Base Salary for two years, payable in accordance with normal
payroll practices, (ii) an amount equal to two times the average of Executive's
Bonus of the preceding two years, which will be payable in a lump sum within 30
days of the Date of Termination, and (iii) COBRA premiums to pay for health and
dental benefits for Executive and his family for the lesser of two years or the
period that the Company is required to offer COBRA coverage as a matter of law;
provided that (i) and (ii) shall apply only if Executive sends written notice
tno the Company within 30 days of the Date of Termination that he agrees that
the non-compete provisions of Section 8 shall apply. If Executive elects not to
send such notice, the payments in (i) and (ii) shall not be made, and the
provisions of Section 8 shall not apply. In addition, upon such a termination,
all of Executive's options granted 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.
C. Termination upon Death or Disability. If Executive's
employment is terminated as a result of Executive's death or Disability, then
the Company will be obligated to pay (i) Executive's then current Base Salary
through the Date of Termination, (ii) a pro rated amount of Executive's Bonus
for the year, payable at the time set forth in Section 5, and (iii) Executive's
COBRA premiums for the lesser of two years or the period that the Company is
required to offer COBRA coverage as a matter of law. In addition, upon such a
termination, the Executive's options granted 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. If Executive dies or becomes disabled
during any period that the Company is obliged to make payments under Section
7(A) or Section 7(B), the Company shall make a lump sum payment to Executive (or
his estate) of any unpaid amount within thirty (30) days of such death or
disability.
D. Termination for Cause by the Company.
(1) If the Company discharges Executive for Cause, then
the Company will be obligated to pay Executive's Base Salary through
the Date of Termination. No bonus shall be payable.
(2) Upon a termination for Cause, the provisions of
Section 8 (Restrictive Covenant) shall automatically become applicable
for the two-year period set forth therein, without any further payment
due Executive.
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E. Definitions. For purposes of this Agreement:
(1) "CAUSE" and "GOOD REASON" shall have the meanings
ascribed to them in the Amended and Restated Change of Control
Agreement (the "Change of Control Agreement"), effective as of July 1,
2002,
(2) "DATE OF TERMINATION" shall mean (i) if this
Agreement is terminated as a result of Executive's death, the date of
Executive's death, (ii) if this Agreement is terminated by Executive,
the date on which he notifies the Company in writing, (iii) if this
Agreement is terminated by the Company for Disability, the date a
notice of termination is given, (iv) if this Agreement is terminated by
the Company for Cause, the date a notice of termination is given to
Executive by the Company, or (v) if this Agreement is terminated by the
Company without Cause, 30 days after a date of notice of termination is
given to Executive by the Company, and
(3) "DISABILITY" shall mean a disability that results in
Executive being medically unable to fulfill his duties under this
Agreement for six consecutive months.
F. Procedures for Determining Cause. The procedures set forth in
Section 10 of the Change of Control Agreement shall apply in connection with any
notice of termination under this Agreement.
8. RESTRICTIVE COVENANT. In consideration of Executive's
employment, but subject to Section 7, Executive agrees to the following:
A. During the Restriction Period (as defined below), Executive
will not, directly or indirectly, either as an Executive, partner, owner,
lender, director, adviser or consultant or in any other capacity or through any
entity:
(1) engage in any production homebuilding or home sales
or within 100 miles of any Company project, provided, that Executive
(a) may own stock in the Company and less than 1% of any other publicly
traded homebuilder, and (b) may engage in custom homebuilding, land
banking or lot or land development; provided, however, that Executive
may not directly or indirectly engage in the sale of finished lots
within the restricted area described above, unless at least 10 business
days prior to any offer to a third party, the lots are offered to the
Company, and if the Company (or its nominee) 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 materially different than the offer made to the Company, the
Company (or its nominee) 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 the Company (or a
nominee) does not respond to the right of first offer within 10 days or
the right of first refusal within three days, the Company will be
deemed to have waived the applicable right. The Company or nominee 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
materially modified or amended.
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(2) hire any person who is, or within the six month
period preceding the date of such activity was, an employee of or
consultant to the Company (other than as a result of a general
solicitation for employment); or
(3) solicit any customer or supplier of the Company for a
production homebuilding business or otherwise attempt to induce any
such customer or supplier to discontinue or materially modify its
relationship with the Company.
B. The provisions of this Section 8 shall begin as of the date
hereof, will survive the termination of this agreement under Section 7 and will
expire either one or two years from the Date of Termination, at the Company's
election, provided that, to the extent required, the notices under Section 7(A)
or 7(B) are given and the payments made as provided therein (the "RESTRICTION
PERIOD").
C. Executive represents to the Company that he is willing and
able to engage in businesses that are not competing businesses hereunder and
that enforcement of the restrictions set forth in this Section 8 would not be
unduly burdensome to Executive. Executive hereby agrees that the period of time
provided for in this Section 8 and other provisions and restrictions set forth
herein are reasonable and necessary to protect the Company and its successors
and assigns in the use and employment of the goodwill of the business conducted
by Executive. Executive further agrees that damages cannot compensate the
Company in the event of a violation of this Section 8 and that, if such
violation should occur, injunctive relief shall be essential for the protection
of the Company and its successors and assigns. Accordingly, Executive hereby
covenants and agrees that, in the event any of the provisions of this Section 8
shall be violated or breached, the Company shall be entitled to obtain
injunctive relief against the party or parties violating such covenants without
bond but upon due notice, in addition to such further or other relief as may be
available at equity or law. Obtainment of such an injunction by the Company
shall not be considered an election of remedies or a waiver of any right to
assert any other remedies which the Company has at law or in equity. No waiver
of any breach or violation hereof shall be implied from forbearance or failure
by the Company to take action thereof. The prevailing party in any litigation,
arbitration or similar dispute resolution proceeding to enforce this provision
will recover any and all reasonable costs and expenses, including attorneys'
fees.
D. Executive agrees that the period of time in which this Section
8 is in effect shall be extended for a period equal to the duration of any
breach of this Section 8 by Executive.
E. For purposes of Sections 8 and 9, the term "COMPANY" includes
Meritage Corporation and its subsidiaries and affiliates.
9. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
A. It is understood that in the course of Executive's employment
with Company, Executive will become acquainted with Company Confidential
Information (as defined below). Executive recognizes that Company Confidential
Information has been developed or acquired at great expense, is proprietary to
the Company, and is and shall remain the exclusive property of the Company.
Accordingly, Executive agrees that he will not, disclose to others, copy, make
any
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use of, or remove from Company's premises any Company Confidential Information,
except as Executive's duties may specifically require, without the express
written consent of the Company, during Executive's employment with the Company
and thereafter until such time as Company Confidential Information becomes
generally known, or readily ascertainable by proper means by persons unrelated
to the Company.
B. Upon any termination of employment, Executive shall promptly
deliver to the Company the originals and all copies of any and all materials,
documents, notes, manuals, or lists containing or embodying Company Confidential
Information, or relating directly or indirectly to the business of the Company,
in the possession or control of Executive.
C. Executive hereby agrees that the period of time provided for
in this Section 9 and other provisions and restrictions set forth herein are
reasonable and necessary to protect the Company and its successors and assigns
in the use and employment of the goodwill of the business conducted by
Executive. Executive further agrees that damages cannot compensate the Company
in the event of a violation of this Section 9 and that, if such violation should
occur, injunctive relief shall be essential for the protection of the Company
and its successors and assigns. Accordingly, Executive hereby covenants and
agrees that, in the event any of the provisions of this Section 9 shall be
violated or breached, the Company shall be entitled to obtain injunctive relief
against the party or parties violating such covenants, without bond but upon due
notice, in addition to such further or other relief as may be available at
equity or law. Obtainment of such an injunction by the Company shall not be
considered an election of remedies or a waiver of any right to assert any other
remedies which the Company has at law or in equity. No waiver of any breach or
violation hereof shall be implied from forbearance or failure by the Company to
take action thereof. The prevailing party in any litigation, arbitration or
similar dispute resolution proceeding to enforce this provision will recover any
and all reasonable costs and expenses, including attorneys' fees.
D. "COMPANY CONFIDENTIAL INFORMATION" shall mean confidential,
proprietary information or trade secrets of Company and its subsidiaries and
affiliates including without limitation the following: (1) customer lists and
customer information as compiled by Company; (2) Company's internal practices
and procedures; (3) Company's financial condition and financial results of
operation; (4) supply of materials information, including sources and costs,
designs, information on land and lot inventories, and current and prospective
projects; (5) strategic planning, manufacturing, engineering, purchasing,
finance, marketing, promotion, distribution, and selling activities; (6) all
other information which Executive has a reasonable basis to consider
confidential or which is treated by Company as confidential; and (7) all
information having independent economic value to Company that is not generally
known to, and not readily ascertainable by proper means by, persons who can
obtain economic value from its disclosure or use. Notwithstanding the foregoing
provisions, the following shall not be considered "Company Confidential
Information": (i) the general skills of the Executive as an experienced real
estate and homebuilding entrepreneur and senior management level employee; (ii)
information generally known by senior management executives within the
homebuilding and/or land development industry; (iii) persons, entities, contacts
or relationships of Executive that are also generally known in the industry; and
(iv) information which becomes available on a
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non-confidential basis from a source other than Executive which source is not
prohibited from disclosing such confidential information by legal, contractual
or other obligation.
10. SEVERABILITY. If any 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 extent necessary to render it legal, valid
and enforceable, and if no such modification will make the provision 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.
11. ASSIGNMENT BY COMPANY. Nothing in this Agreement shall
preclude the Company from consolidating or merging into or with, or transferring
all or substantially all of its 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.
12. ENTIRE AGREEMENT. This Agreement, the Change of Control
Agreement with Executive, and any agreements concerning stock options or other
benefits, embody the complete agreement of the parties hereto with respect to
the subject matter hereof and supersede 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 the Company and Executive. 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 in Executive's prior Change of Control Agreement,
providing for acceleration upon a change-in-control.
13. 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 Arizona.
14. 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 Parent or Company: Meritage Corporation
0000 X. Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
Attention: Chief Financial Officer
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with a copy to: Xxxxx & Xxxxxx L.L.P.
One Arizona Center
000 X. Xxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx, Esq.
if to Executive: Xxxxxx X. Xxxxxx
9586 Havasupai
Xxxxxxxxxx, Xxxxxxx 00000
Phone: (000) 000-0000
with a copy to: Xxxxxxxxx & Xxxxxxx, P.A.
0000 X. Xxxxxxxxx Xxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000-0000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxx X. Xxxxx, Esq.
15. ARBITRATION. Any dispute, controversy, or claim, whether
contractual or non-contractual, between the parties hereto 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, unless mutually settled by the parties hereto, shall be resolved
by binding arbitration in accordance with the Employment Arbitration Rules of
the American Arbitration Association (the "AAA"). Any arbitration shall be
conducted by arbitrators approved by the AAA and mutually acceptable to Company
and Executive. All such disputes, controversies, or claims shall be conducted by
a single arbitrator, unless the dispute involves more than $50,000 in the
aggregate in which case the arbitration shall be conducted by a panel of three
arbitrators. If the parties hereto are unable to agree on the arbitrator(s),
then the AAA shall select the arbitrator(s). The resolution of the dispute by
the arbitrator(s) shall be final, binding, nonappealable, and fully enforceable
by a court of competent jurisdiction under the Federal Arbitration Act. The
arbitrator(s) shall award damages to the prevailing party. The arbitration award
shall be in writing and shall include a statement of the reasons for the award.
The arbitration shall be held in Phoenix, Arizona. The arbitrator(s) shall award
reasonable attorneys' fees and costs to the prevailing party.
16. WITHHOLDING; RELEASE; NO DUPLICATION OF BENEFITS. All of
Executive's compensation under this Agreement will be subject to deduction and
withholding authorized or required by applicable law. The Company's obligation
to make any post-termination payments hereunder (other than salary payments and
expense reimbursements through a date of termination), shall be subject to
receipt by the Company from Executive of a mutually agreeable release, and
compliance by Executive with the covenants set forth in Sections 8 and 9 hereof.
In order to avoid duplication, any payments or benefits due under Executive's
Change of Control Agreement dated February 1, 2000, as amended and restated,
will be reduced by any payments or benefits provided hereunder.
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17. SUCCESSORS AND ASSIGNS. This Agreement is solely for the
benefit of the parties and their respective successors, assigns, heirs and
legatees. Nothing herein shall be construed to provide any right to any other
entity or individual.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
MERITAGE CORPORATION, a
Maryland corporation
By: /s/ Xxxxx Ax
------------------------------
Name: Xxxxx Ax
----------------------------
Title: Director
---------------------------
EXECUTIVE: XXXXXX X. XXXXXX
/s/ Xxxxxx X. Xxxxxx
---------------------------------
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EXHIBIT A
INCENTIVE COMPENSATION SCHEDULE
2003 CEO BONUS COMPENSATION
BASE SALARY $500,000 (effective July 1, 2002)
PART I - BONUS SUMMARY - BUDGET BASED PORTION
Bonus 100% or more 1.2% of pre-tax net income before bonus
95% - 100% 0.9% of pre-tax net income before bonus
90% - 95% 0.6% of pre-tax net income before bonus
<90% No budget-based bonus earned
PART II - BONUS SUMMARY - ROA/XXX-BASED PORTION
If the Company's 2003 return on assets and return on equity meets or exceeds the
top 1/3 of the below list of publicly traded homebuilders, an additional 0.45%
of pre-tax net income will be earned.
Bonus shall be paid in a reasonable time frame after year-end, but, in any
event, no later than February 15 of each year. Co-CEOs do not have to wait until
the Form 10-K is filed with the SEC.
List of homebuilders for purposes of ROA/XXX calculation:
Toll Brothers M/I Schottenstein
Hovnanian WCI Communities
Xxxxxx Group Technical Olympics USA
MDC Holdings Xx Xxxx Homes
Standard Pacific Dominion Homes
Beazer Homes
EXHIBIT B
SPECIFIED BENEFITS
1. Payments (including a tax gross up) of up to annually for
Executive to purchase life insurance in the amount of $5,000,000.
2. Payments (including a tax gross up) of up annually for
Executive to purchase disability insurance providing for monthly payments of an
estimated $20,000 per month.
3. Executive Supplemental Savings Plan enabling deferred
compensation in excess of 401(k) limitations.
4. Supplemental Retirement Benefits Program to provide the
Executive retirement payments equal to 60% of his final five years average base
salary beginning at age 65 and continuing through death.
