Change of Control Agreement

your relocation payments or reimbursements upon such termination of employment.  The Severance Payment will be paid in one lump sum within 15 business days of your termination of employment.

You are not entitled to receive the Severance Payment if your employment is terminated for Cause, if you terminate your employment without Good Reason, or if your employment is terminated by reason of your “Disability” (as defined in Section 8(d)) or your death.  In addition, you are not entitled to receive the Severance Payment if your employment is terminated by you or the Company for any or no reason before a Change of Control occurs or more than two years after a Change of Control has occurred.

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

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

Notwithstanding anything in this Agreement or in any option agreement to the contrary, upon a Change of Control, without further action (i) any stock option granted to you shall accelerate and become vested and (ii) any restrictions on restricted stock awards shall lapse.  You will have a period of one year from the date of termination to exercise such options.

3.             BENEFITS CONTINUATION.

If you are entitled to severance under Section 2, you will continue to receive life, disability, accident and group health insurance benefits substantially similar to those which you were receiving immediately prior to your termination of employment for a period of 18 months following your termination of employment.  Such benefits shall be provided on substantially the same terms and conditions as they were provided prior to the Change of Control.

The Company does not intend to provide duplicative benefits.  As a result, benefits otherwise receivable pursuant to this 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.

Benefits otherwise receivable pursuant to this Section 3 shall also 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 the benefits provided by this Agreement.

4.             CHANGE OF CONTROL DEFINED.

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

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(a)           A sale, transfer, or other disposition by Meritage through a single transaction or a series of transactions of securities of Meritage representing 33% or more of the combined voting power of Meritage’s then outstanding securities to any “Unrelated Person” or “Unrelated Persons” acting in concert with one another.  For purposes of this Section 4, 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 4, the term “Unrelated Person” shall mean and include any Person other than the Company, or an employee benefit plan of the Company.

(b)           A sale, transfer, or other disposition through a single transaction or a series of related transactions of all or substantially all of the assets of 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.

5.             GOOD REASON DEFINED.

For purposes of this Agreement, the term “Good Reason” shall mean if following a Change of Control you are either (i) not offered a comparable position in the surviving corporation or (ii) required to relocate to any employment location that is more than thirty (30) miles from the Company’s Scottsdale, Arizona headquarters.

6.             CAUSE DEFINED.

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

7.             CEILING ON BENEFITS.

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

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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 (or the number of years worked if less than five).  For example, if a Change of Control occurs in 2009, your base period compensation would be the average of the compensation includible in your income for years 2006, 2007, 2008 and because you were first employed in 2005, your annualized compensation for that partial year.  Any compensation includible in your income for 2009 is disregarded for these purposes.  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 8.  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 a