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Dear Stockholders:

You are cordially invited to join us for our 2009 annual meeting of stockholders, which will be held on Thursday, May 21, 2009, at 10:00 a.m. local time at the Scottsdale Marriott at McDowell Mountains, 16770 North Perimeter Drive, Scottsdale, Arizona 85260. Holders of record of our common stock as of March 31, 2009, are entitled to notice of and to vote at the 2009 annual meeting.

The Notice of Annual Meeting of Stockholders and the proxy statement that follow describe the business to be conducted at the meeting. We may also report on matters of current interest to our stockholders.

For the first time, this year we are pleased to be furnishing these materials to our stockholders via the Internet.  We believe this approach will allow us to continue to provide you with the information that you need while expediting your receipt of these materials, lowering our costs of delivery, and reducing the environmental impact of our annual meeting.  If you would like us to send you printed copies of our proxy statement and accompanying materials, we will be happy to do so at no charge upon your request.  For more information, please refer to the Notice of Internet Availability of Proxy Materials that we previously mailed to you on or about April 8, 2009.

You are welcome to attend the meeting. However, even if you plan to attend, please vote your shares promptly to ensure they are represented at the meeting. You may submit your proxy by Internet or telephone, as described in the following materials, or if you request printed copies of these materials, by completing and signing the proxy card enclosed therein and returning it in the envelope provided. If you decide to attend the meeting and wish to change your proxy, you may do so automatically by voting in person at the meeting.

If your shares are held in the name of a broker, bank, trust or other nominee, you may be asked for proof of ownership to be admitted to the meeting.

We look forward to seeing you at the annual meeting.

17851 North 85th Street  Suite 300  Scottsdale, Arizona  85255  Phone 480-515-8100

Listed on the New York Stock Exchange — MTH

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Date: Thursday, May 21, 2009

Time: 10:00 a.m. local time

Scottsdale Marriott at McDowell Mountains

16770 North Perimeter Drive

Scottsdale, Arizona 85260

To Our Stockholders:

You are invited to attend the Meritage Homes Corporation 2009 annual meeting of stockholders for the following purposes:

1.                                       To elect three Class II Directors, each to hold office until our 2011 annual meeting,

2.                                       To ratify the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the 2009 fiscal year, and

3.                                       To conduct any other business that may properly come before the meeting or any adjournment or postponement thereof.

These items are more fully described in the accompanying proxy.

Only stockholders of record at the close of business on March 31, 2009 are entitled to notice of, and to vote at, the annual meeting or any adjournment or postponement thereof.

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE SUBMIT YOUR PROXY BY FOLLOWING THE INSTRUCTIONS SET FORTH IN THE FOLLOWING MATERIALS. YOU MAY VOTE YOUR SHARES AND SUBMIT A PROXY BY USING THE INTERNET OR TELEPHONE AS DESCRIBED HEREIN OR ON YOUR PROXY CARD.

Scottsdale, Arizona

April 8, 2009

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 21, 2009:

THIS PROXY STATEMENT AND MERITAGE’S 2008 ANNUAL REPORT TO STOCKHOLDERS ARE AVAILABLE AT WWW.INVESTORS.MERITAGEHOMES.COM.  ADDITIONALLY, AND IN ACCORDANCE WITH SEC RULES, YOU MAY ACCESS THESE MATERIALS ON THE COOKIES-FREE WEBSITES INDICATED IN THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS THAT YOU MAY RECEIVE EITHER FROM OUR TRANSFER AGENT, BNY MELLON SHAREOWNER SERVICES, OR BROADRIDGE FINANCIAL SOLUTIONS, INC.

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MERITAGE HOMES CORPORATION

17851 NORTH 85TH STREET

SUITE 300

SCOTTSDALE, ARIZONA 85255

(480) 515-8100

www.meritagehomes.com

PROXY STATEMENT

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Meritage Homes Corporation to be used in voting at our annual meeting of stockholders on Thursday, May 21, 2009. The meeting will be held at 10:00 a.m. local time at the Scottsdale Marriott at McDowell Mountains, 16770 North Perimeter Drive, Scottsdale, Arizona 85260.

On or about April 8, 2009, a Notice of Internet Availability of Proxy Materials (the “Notice”) was mailed to stockholders of record at the close of business on March 31, 2009 (the “record date”).  We are furnishing our proxy materials to our stockholders on the Internet in lieu of mailing a printed copy of our proxy materials to each stockholder of record.  You will not receive a printed copy of our proxy materials unless you request one.  The Notice instructs you as to how you may access and review on the Internet all of the important information contained in the proxy materials or request a printed copy of those materials.  The Notice also instructs you as to how you may vote your proxy.

If you submit a proxy, you are entitled to revoke your proxy at any time before it is exercised by attending the annual meeting and voting in person, duly executing and delivering a proxy bearing a later date, or sending written notice of revocation to our Corporate Secretary at the Company’s address located at the top of this page. Whether or not you plan to be present at the annual meeting, we encourage you to vote your proxy by telephone or via the Internet by following the instructions provided in this proxy statement or on the proxy card.  If you request a printed copy of these materials, you may also provide your proxy by signing the proxy card enclosed therein and returning it in the envelope that will be provided with the printed materials.

The Meritage Board of Directors is soliciting proxies.  We will bear the entire cost of proxy solicitation, including charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock.

The following information should be reviewed along with the audited consolidated financial statements, notes to consolidated financial statements, report of independent registered public accounting firm and other information included in our 2008 Annual Report to Stockholders that is available on our website at www.meritagehomes.com.

Information about our company and communities is provided on our Internet website at www.meritagehomes.com. Our periodic and current reports, including any amendments, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”), are available, free of charge, on our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information contained on our website is not considered part of our Annual Report on Form 10-K or this proxy statement.

Meritage operates within a comprehensive plan of corporate governance for the purpose of defining responsibilities and setting high standards for ethical conduct. Our Board of Directors has established an audit committee, executive compensation committee and nominating/governance committee. The charter of each of these committees is available on our website, along with our Code of Ethics and our Corporate Governance Principles and Practices. Our committee charters, Code of Ethics and Corporate Governance Principles and Practices are also available in print, free of charge, to any stockholder who requests them by calling us or by writing to us at our principal executive offices at the address listed above, Attention: Corporate Secretary.

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VOTING SECURITIES OUTSTANDING

On the record date, there were 30,975,731 shares of Meritage common stock outstanding. The common stock is our only outstanding class of voting securities. Each share is entitled to one vote on each proposal to be voted on at the annual meeting. Only holders of record of common stock at the close of business on the record date will be permitted to vote at the meeting, either in person or by valid proxy.

VOTING PROXIES

Shares of common stock represented by properly executed proxy cards received by the Company in time for the meeting will be voted in accordance with the instructions specified in the proxies. If you submit a proxy but do not indicate any voting instructions, your shares will be voted FOR the election as directors of the nominees named in this proxy statement and FOR the ratification of the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm.

If your shares are held in a brokerage account or by another nominee, you are considered the “beneficial owner” of shares held in “street name”, and the Notice is being forwarded to you by your broker or nominee (the “record holder”) along with a voting instruction card. As the beneficial owner, you have the right to direct your record holder regarding how to vote your shares, and the record holder is required to vote your shares in accordance with your instructions. If you do not give instructions to your record holder prior to the meeting, the record holder will be entitled to vote your shares in its discretion on Proposal 1 (Election of Directors) and Proposal 2 (Ratification of Independent Registered Public Accounting Firm).

As the beneficial owner of shares, you are invited to attend the annual meeting. Please note, however, that if you are a beneficial owner, you may not vote your shares in person at the meeting unless you obtain a “legal proxy” from the record holder that holds your shares.

Rules of the New York Stock Exchange (the “NYSE”) determine whether proposals presented at stockholder meetings are “routine” or “non-routine.” If a proposal is routine, a broker or other entity holding shares for an owner in street name may vote on the proposal without voting instructions from the owner. If a proposal is non-routine, the broker or other entity may vote on the proposal only if the owner has provided voting instructions. A “broker non-vote” occurs when the broker or other entity is unable to vote on a proposal because the proposal is non-routine and the owner does not provide instructions. As a result, brokers or other entities holding shares for an owner in street name may vote on routine proposals even if no voting instructions are provided by the owner.

The management and Board of Directors of the Company know of no other matters to be brought before the meeting. If other matters are properly presented to the stockholders for action at the meeting or any adjournments or postponements thereof, it is the intention of the proxy holders named in this proxy to vote in their discretion on all matters on which the shares of common stock represented by such proxy are entitled to vote.

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SUMMARY

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To understand the proposals fully, you should carefully read this entire proxy statement and the other proxy materials identified in the Notice.

General Information

The Proposals

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ELECTION OF DIRECTORS

(PROPOSAL NO. 1)

Our Board of Directors currently has six members. The directors are divided into two classes serving staggered two-year terms. This year our Class II Directors are up for election. The Board, upon the recommendation of its Nominating/Governance Committee, has nominated Peter L. Ax, Robert G. Sarver and Gerald W. Haddock, who are presently serving as Class II Directors, for re-election.

Biographical information for each of our director nominees is set forth below:

Peter L. Ax, 50, has been a director since September 2000 and is the managing partner of Phoenix Capital Management, a venture capital firm.  Mr. Ax is the former chairman and chief executive officer of SpinCycle, Inc., a publicly held consolidator and developer of coin-operated Laundromats.  Previously, Mr. Ax served as head of the Private Equity Division and senior vice president of Lehman Brothers in New York.  Mr. Ax is also on the board of directors of iGo, Inc. (NASDAQ: IGOI) and serves on the Advisory Board of Directors of Cascadia Capital, a Seattle based investment banking and merchant banking firm.  Mr. Ax holds an M.B.A. from the Wharton School at the University of Pennsylvania and a law degree from the University of Arizona, and has been a certified public accountant.  He has also been an accounting instructor at the Wharton School and is regularly a judge in the annual Wharton Business Plan competition.

Robert G. Sarver, 47, has been a director since December 1996, and is the chairman and chief executive officer of Western Alliance Bancorporation, a director of Skywest Airlines, and the managing partner of the Phoenix Suns basketball team.  He was the chairman and chief executive officer of California Bank & Trust from 1998 to 2001.  From 1995 to 1998, he served as chairman of Grossmont Bank.  In 1990, Mr. Sarver co-founded and currently serves as the executive director of Southwest Value Partners and Affiliates, a real estate investment company.  Mr. Sarver founded the National Bank of Arizona and was its President until its acquisition by Zions Bancorporation in 1994.  Mr. Sarver has been a certified public accountant.

Gerald W. Haddock, 61, has been a director since January 2005.  Mr. Haddock is the founder of Haddock Enterprises, LLC and formerly served as President and CEO of Crescent Real Estate Equities, a diversified real estate investment trust.  He is currently a Director and Audit Committee Chairman of ENSCO International, Inc., a leading global offshore oil and gas drilling service company.  He also serves on the Board of Directors of the Baylor Foundation of Baylor University and on the Board of Trustees of the M.D. Anderson Proton Therapy Education and Research Foundation.  Mr. Haddock received his Bachelor of Business Administration and Juris Doctorate degrees from Baylor University.  He also received a Master of Laws in Taxation degree from New York University and a Master of Business Administration degree from Dallas Baptist University.

All nominees have consented to serve as directors. The Board of Directors has no reason to believe that any of the nominees will be unable to act as a director. However, should a nominee become unable to serve or should a vacancy on the Board occur before the annual meeting, the Board may either reduce its size or designate a substitute nominee. If a substitute nominee is named, your shares will be voted for the election of the substitute nominee designated by the Board. In the vote on the election of the director nominees, stockholders may:

·                  vote FOR all nominees;

·                  WITHHOLD votes for all nominees; or

·                  WITHHOLD votes as to specific nominees.

Unless you tell us by your proxy to vote differently, your shares will be voted FOR the Board’s nominees. If a quorum is present, the three nominees who receive the most votes will be elected. Votes that are withheld will not count as either votes for or against the nominee.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE

ELECTION OF THE ABOVE-NAMED NOMINEES AS DIRECTORS.

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RATIFICATION OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

(PROPOSAL NO. 2)

The Board of Directors seeks an indication from stockholders of their approval or disapproval of the Audit Committee’s appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2009.

Deloitte & Touche LLP was appointed our auditor in 2005 and no relationship exists other than the usual relationship between auditors and clients.

An affirmative vote of the majority of the votes cast at the annual meeting is required to ratify the selection of Deloitte & Touche LLP as the Company’s independent auditor.  Abstentions will not be counted either as for or against this proposal. If the appointment of Deloitte & Touche LLP as auditors for 2009 is not approved by stockholders, the adverse vote will be considered a direction to the Audit Committee to consider other auditors for next year. However, because of the difficulty in making any substitution of auditors so long after the beginning of the current year, the appointment in 2008 will stand, unless the Audit Committee determines there is a reason for making a change.

THE BOARD OF DIRECTORS HAS APPROVED THIS PROPOSAL NO. 2 AND

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”

PROPOSAL NO. 2.

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SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS

Management.  The following table summarizes, as of March 16, 2009, the number and percentage of outstanding shares of our common stock beneficially owned by the following:

·                  each Meritage director and nominee for director;

·                  each executive officer named in the summary compensation table; and

·                  all Meritage directors and executive officers as a group.

*              Less than 1%.

(1)                                  The address for our directors and executive officers is c/o Meritage Homes Corporation, 17851 North 85th Street, Suite 300, Scottsdale, Arizona 85255.

(2)                                  The amounts shown include the shares of common stock actually owned as of March 16, 2009, and the shares that the person or group had the right to acquire within 60 days of that date. The number of shares includes shares of common stock owned of record by such person’s spouse and minor children and by other related individuals and entities over whose shares of common stock such person has custody, voting control or the power of disposition. In calculating the percentage of ownership, all shares of common stock which the identified person had the right to acquire within 60 days of March 16, 2009 upon exercise of options are considered as outstanding for computing the percentage of the shares owned by that person or group, but are not considered as outstanding for computing the percentage of the shares of stock owned by any other person. The shares also include any non-performance-based unvested restricted stock but exclude 67,500, 45,000, 45,000 and 45,000 shares of restricted stock with performance criteria for Messrs. Hilton, Seay, White and Davis, respectively.

(3)                                  Based on 30,875,724 shares outstanding as of March 16, 2009.

(4)                                  Shares are held by family trusts.  800,000 of these shares were pledged to a third-party lending institution.

(5)                                  Mr. Sarver is deemed to indirectly own an additional 8,000 shares through his family members, and 1,000,000 shares are owned by Southwest Value Partners Fund XIV, LP, an entity in which Mr. Sarver indirectly shares control over voting, purchase and disposition of these shares. Additionally, an entity of which Mr. Sarver is a member owns 1,185,920 shares of our common stock. Mr. Sarver has expressly disclaimed any beneficial ownership of these shares.

(6)                                  6,000 shares are owned indirectly by family trusts.

(7)                                  All shares pledged to a third-party lending institution to secure a loan.

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Certain Other Beneficial Owners.  Based on filings made under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 16, 2009, the only other known beneficial owners of more than 5% of Meritage common stock are shown in the following table:

(1)                                  Based solely on a Schedule 13G/A, filed with the Securities and Exchange Commission (“SEC”) on February 17, 2009 Fidelity Management and Research, LLC has sole voting power with respect to 358,467 shares and sole dispositive power with respect to 3,990,191 shares.

(2)                                  Based solely on a Schedule 13G/A, filed with the SEC on February 12, 2009, T. Rowe Price Associates, Inc. has sole voting power with respect to 872,000 shares and sole dispositive power with respect to 2,706,200 shares.

(3)                                  Based solely on a Schedule 13G, filed with the SEC on February 5, 2009, Barclays Global Investors, NA and certain affiliated entities have sole voting power with respect to 2,096,945 shares and sole dispositive power with respect to 2,578,657 shares.

(4)                                  Based solely on a Schedule 13G, filed with the SEC on February 13, 2009, State Street Bank & Trust Co. has sole voting and shared dispositive power with respect to 2,487,558 shares.

(5)                                  Based solely on a Schedule 13G, filed with the SEC on February 9, 2009, Dimensional Fund Advisors LP has sole voting power with respect to 1,699,299 shares and sole dispositive power with respect to 1,761,208 shares.

(6)                                  Based solely on a Schedule 13G/A, filed with the SEC on February 13, 2009, Earnest Partners, LLC has sole voting power with respect to 559,974 shares, shared voting power with respect to 416,996 shares and sole dispositive power with respect to 1,746,770 shares.

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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

The Board of Directors is elected by the stockholders to oversee the stockholders’ interests in the operation and overall success of our business. The Board serves as our ultimate decision-making body, except for those matters reserved to or that require a vote of our stockholders. The Board selects and oversees the members of senior management who are charged by the Board with conducting our business. We have established and operate in accordance with a comprehensive plan of corporate governance that defines and sets ethical standards for the conduct of our directors, officers and employees. This plan provides an important framework within which the Board of Directors can pursue our strategic objectives and ensure long-term stockholder value.

Corporate Governance Principles and Practices

We have adopted Corporate Governance Principles and Practices that define the key elements of our corporate governance framework and philosophy, including:

·                  director qualifications,

·                  independence criteria,

·                  director responsibilities,

·                  our committee structure,

·                  officer and director stock ownership requirements,

·                  director resignation policy,

·                  director access to officers and employees,

·                  our philosophy with respect to director compensation,

·                  requirements regarding director orientation and continuing education, and

·                  our plans with respect to management succession.

Our Corporate Governance Principles and Practices are available on our website at www.investors.meritagehomes.com and we will provide a printed copy to any stockholder upon request. These principles are reviewed regularly by the Nominating/Governance Committee and changes are made as the Committee deems appropriate.

Director Qualification and Independence

Determinations regarding the eligibility of director candidates are made by the Nominating/Governance Committee, which considers the candidate’s qualifications as to skills and experience in the context of the needs of the Board of Directors and our stockholders. The Nominating/Governance Committee also evaluates and reports to the Board of Directors regarding the independence of each candidate. Consistent with the rules and regulations of the NYSE, at least a majority of the Board of Directors must be independent.

No director will be deemed to be independent unless the Board of Directors affirmatively determines that the director has no material relationship with the Company, either directly or as an officer, shareowner, member, partner or trustee of an organization that has a relationship with the Company. The Board observes all criteria established by the NYSE and other governing laws and regulations. In its review of director independence, the Board of Directors considers all commercial, banking, consulting, legal, accounting, charitable or other business relationships the director may have with the Company.

As a result of its review, the Board of Directors has determined that a majority of Meritage’s Board members are independent. Our independent directors are Peter Ax, Raymond Oppel, Richard Burke and Gerald Haddock.

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In making this determination, the Board of Directors evaluated whether there exists any relationships between these individuals and Meritage. Except as noted below, the Board of Directors determined no relationship exists between Meritage and any independent director:

·                  In 2006, Peter Ax, an independent and our lead director, acquired from Meritage a used sports utility vehicle. The purchase price for the vehicle was $35,000, which was the fair market value of the vehicle based on well-known and reliable published sources. The Board considered this relationship and determined that it does not impair Mr. Ax’s independence because the transaction was based on reliable market data and the value of the transaction was immaterial in relation to Mr. Ax’s net worth.

·                  Steven J. Hilton is not considered independent because he is employed by the Company.

·                  Prior to 2004, Robert Sarver was deemed an independent director. The Nominating/Governance Committee has continually monitored certain relationships between Mr. Sarver and Meritage along with relationships between Mr. Sarver and Mr. Hilton. Mr. Sarver and Mr. Hilton have certain business relationships unrelated to Meritage. The Nominating/Governance Committee evaluated these relationships and determined that they do not impair Mr. Sarver’s independence because they do not involve Meritage and are insignificant in relation to Mr. Sarver’s net worth. During 2004, Mr. Sarver became the controlling owner of the Phoenix Suns basketball team, in which Mr. Hilton purchased a minority ownership interest. This relationship was closely evaluated by the Nominating/Governance Committee because of its significance to Messrs. Sarver and Hilton and because Meritage has purchased advertising with the Phoenix Suns, although the existing advertising contract between the Phoenix Suns and Meritage expired in 2008. The Nominating/ Governance Committee and the Board of Directors believe Mr. Sarver is a valuable member of the Board and that the Company benefits from his extensive business experience.  Nevertheless, the Nominating/Governance Committee concluded it is in the best interest of Meritage’s stockholders that Mr. Sarver not be deemed an independent director.

The Board has also determined that all governance committees of the Board are composed entirely of independent directors.

CEO and Management Succession

Under the charter of the Nominating/Governance Committee, it is the role of the Nominating/Governance Committee to develop and recommend to the Board of Directors a set of corporate governance principles and practices applicable to the Company, including items such as management succession, policies and principles for CEO selection and performance review, and policies regarding succession in the event of an emergency or retirement of the CEO.  The development of these policies has resulted in our Corporate Governance Principles and Practices, which provides, among other things, that our Executive Compensation Committee is to conduct an annual review of the performance of the CEO.

The Board of Directors considers management evaluation and CEO succession planning an important responsibility of the Board. Under our Corporate Governance Principles and Practices, the Board of Directors is responsible for approving a succession plan for our CEO and other senior officers. Issues relating to CEO succession planning are addressed regularly (and at least annually) by the Board.

The Board and Board Committees

We currently have six incumbent directors and the following committees: Audit Committee, Executive Compensation Committee and Nominating/Governance Committee.

During 2008, the Board of Directors held 13 meetings. Each director attended all of these meetings and the committee meetings of which he is a member, except for Mr. Burke, who was not in attendance for three Audit Committee meetings.  Directors are expected to attend our annual meetings of stockholders. All directors attended our 2008 annual meeting, which was held on May 15, 2008.

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The following table summarizes the current members of our Board of Directors, and describes the current members of each of the committees and the number of meetings held during 2008:

Audit Committee

The Board of Directors has established an Audit Committee in accordance with Section 3(a)(58)(A) of the Exchange Act, and the rules and regulations of the NYSE. The Audit Committee assists the Board of Directors in:

·                  fulfilling its oversight of the integrity of our financial statements,

·                  reviewing and approving any related party transaction between us and senior executive officers and directors,

·                  determining our compliance with legal and regulatory requirements,

·                  determining the independent registered public accounting firm’s qualifications and independence, and

·                  evaluating the performance of our internal audit function and independent registered public accounting firm.

The Audit Committee has the sole authority to appoint or replace the independent registered public accounting firm and approves all audit engagement fees and terms of all significant non-audit engagements with the independent registered public accounting firm in accordance with the pre-approval policies set forth in our Audit Committee charter. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from us for, outside legal, accounting or other advisors as it deems necessary to carry out its duties.

The Audit Committee operates under a written charter established by the Board. The charter is available on our website at www.meritagehomes.com and we will provide a printed copy to any stockholder upon request. Each member of the Audit Committee meets the independence requirements of the NYSE and the Exchange Act, and is financially literate, knowledgeable and qualified to review our financial statements. The Board of Directors has determined that Peter Ax, an independent director as defined by the NYSE’s listing standards, is an “audit committee financial expert.” Information about Mr. Ax’s past business and educational experience is included in his biography in this proxy statement under the caption “Election of Directors (Proposal No. 1).”

The report of the Audit Committee is included in this proxy statement on page 33.

Executive Compensation Committee

Responsibilities.  The Board of Directors has established our Executive Compensation Committee (the “Compensation Committee”) in accordance with the NYSE’s rules and regulations. The Compensation Committee regularly reports to the Board of Directors and its responsibilities include:

·                  reviewing and approving goals and objectives relative to the compensation of our CEO and CFO, evaluating our CEO’s and CFO’s performance in light of these goals and approving the compensation of our CEO and CFO,

·                  overseeing all equity-based award grants,

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·                  making recommendations to the Board of Directors with regard to non-CEO/CFO compensation and equity-based awards, and

·                  producing a report on executive compensation to be included in our annual proxy statement.

Composition and Independence.  The Compensation Committee is currently comprised of three members of the Board, each of whom is designated to be “independent” under the Corporate Governance Standards of the NYSE, a “non-employee director” under Section 16 of the Exchange Act, and an “outside director” for purposes of Section 162(m) of the Code. Generally the Compensation Committee chairman is in charge of setting the schedule for the Compensation Committee’s meetings, as well as the agenda of each meeting.

Charter.  The Compensation Committee operates under a written charter, which is available on our website at www.meritagehomes.com.  We will provide a printed copy of the charter to any stockholder upon request.

Outside Consultants.  The Compensation Committee has the specific authority to hire outside advisors and consultants. In 2006, the Compensation Committee retained Pearl Meyer & Partners, a compensation consulting firm, to reevaluate the compensation programs for our CEO and CFO. The Compensation Committee provided direction to Pearl Meyer & Partners concerning the nature of the engagement, the Compensation Committee’s philosophy with respect to executive compensation and key terms and conditions that the Compensation Committee believed should be addressed in connection with the negotiation process with our CEO and CFO. The scope of the Pearl Meyer & Partners’ work was to (i) assist the Compensation Committee in understanding the nature and level of executive compensation at comparable public companies, both within the homebuilding industry and companies of comparable size as Meritage, but outside the homebuilding industry, (ii) assist the Compensation Committee in developing a compensation structure for our CEO and CFO based on this analysis and the Compensation Committee’s instructions and (iii) refine the proposed structure based on the negotiation process between the Company and the executives. As part of this process, the Compensation Committee met 13 times with Pearl Meyer & Partners without management present. With the assistance of Pearl Meyer & Partners, we negotiated and entered into amended and restated employment and change of control agreements with Steven J. Hilton, our Chief Executive Officer and Larry W. Seay, our Chief Financial Officer. These employment and change of control agreements were entered into effective January 1, 2007 and are discussed in more detail later in this proxy under the heading “Compensation Discussion and Analysis—Employment Agreements.” As part of its annual review process in 2006, the Compensation Committee also retained Pearl Meyer & Partners to assist the Compensation Committee in understanding the nature and level of non-employee director compensation at comparable public companies.

During 2006, management of the Company had also retained Pearl Meyer & Partners to assist the Company in understanding the current environment and trends relating to compensation within the homebuilding industry in general. The Compensation Committee was advised of this engagement and had an opportunity to review the scope of this assignment, which was more limited than the work Pearl Meyer & Partners performed for the Compensation Committee with respect to the CEO and CFO employment agreements. The specific purpose of this study was to understand the nature and levels of compensation paid to senior management with day-to-day responsibility for homebuilding operations (for example, regional and division presidents).

No consultants were hired during 2007 or 2008 to assist in any compensation-related matters, as there were no modifications to existing named executive officers (“NEO”) employment agreements.

Role of Executives in the Compensation Setting Process.  The Compensation Committee determines executive compensation with respect to our NEOs independent of management.  With respect to compensation of non-NEOs, the Compensation Committee functions in an oversight role as these decisions are considered the responsibility of management. For example, the Compensation Committee reviews the compensation for various non-NEOs to evaluate reasonableness in comparison to industry standards and may make recommendations to the CEO regarding changes in compensation. The Compensation Committee approves all grants of equity-based awards. For the NEOs, the number and type of equity award grants in most cases are determined based on an employment agreement between the Company and the NEO; however, they may be adjusted based on the Compensation Committee’s review of the NEO’s performance and competitive market factors. For non-NEOs, management is responsible for recommending to the Compensation Committee the persons to receive grants and the nature and size of the proposed award. Because management is responsible for the day-to-day operation of the Company, the Compensation Committee believes that management is in the best position to make this recommendation.

Compensation Committee Interlocks and Insider Participation.  None of the members of the Compensation Committee is, or has been, an employee of Meritage or any of its subsidiaries. There were no interlocking relationships between Meritage and other entities that might affect the determination of the compensation of Meritage’s executive officers.

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Nominating/Governance Committee

The Board of Directors has established a Nominating/Governance Committee, which directly reports to the Board of Directors and is responsible for:

·                  identifying individuals qualified to become Board members and recommending director nominees for the next annual meeting of stockholders,

·                  developing and recommending Corporate Governance Principles and Practices applicable to us,

·                  and addressing such items as management succession, including policies and principles for our CEO selection and performance review and succession in the event of an emergency or retirement of the CEO,

·                  leading the Board of Directors in its annual review of the Board’s performance, and

·                  recommending nominees for the Compensation Committee and Audit Committee.

The Nominating/Governance Committee has the sole authority to retain and terminate any search firm used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms. The Nominating/Governance Committee operates under a written charter, which is available on our website at www.meritagehomes.com. We will provide a printed copy of the charter to any stockholder upon request. Each member of the Nominating/Governance Committee meets the independence requirements of the NYSE.

Director Nomination Process

Stockholder Nominees.  The policy of the Nominating/Governance Committee is to consider properly submitted stockholder nominations for candidates for membership on the Board of Directors as described below. In evaluating such nominations, the Nominating/Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership qualifications and criteria described below. Any stockholder nominations proposed for consideration by the Nominating/Governance Committee must include the nominee’s name and qualifications for Board membership and should be submitted to:

Meritage Homes Corporation
17851 North 85th Street
Suite 300
Scottsdale, Arizona 85255
Attn: Corporate Secretary

The Secretary will forward all nominations to the Nominating/Governance Committee. In addition, our bylaws permit stockholders to nominate directors for consideration at an annual stockholder meeting. For a description of the process for submitting such nominations, and the deadline to propose actions for consideration at next year’s annual meeting, please see “Stockholder Proposals” on page 33 of this proxy statement.

Director Qualifications.  The Nominating/Governance Committee will evaluate prospective nominees using the standards and qualifications set forth in our Corporate Governance Principles and Practices. Prospective nominees should have the highest professional and personal ethics and values, as well as broad experience at the policy-making level in business, government, education or public interest. They should be committed to enhancing stockholder value and should have sufficient time to devote to carrying out their duties and to provide insight based upon experience, talent, skill and expertise appropriate for the Board. Each prospective nominee must be willing and able to represent the interests of our stockholders.

Identifying and Evaluating Nominees for Directors.  The Nominating/Governance Committee utilizes a variety of methods for identifying and evaluating nominees to serve as directors. The Nominating/Governance Committee assesses the current composition of the Board of Directors, the balance of management and independent directors and the need for Audit Committee expertise in its evaluation of prospective nominees. In the event that vacancies are anticipated, or otherwise arise, the Nominating/Governance Committee may seek recommendations from current Board members, professional search firms, outside legal, accounting and other advisors, or stockholders in order to locate qualified nominees. After completing its evaluation, the Nominating/Governance Committee will make a recommendation to the full Board of Directors as to the persons who should be nominated by the Board of Directors, and the Board will determine the nominees after considering such recommendations.

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Executive Sessions of Independent Directors

Our Corporate Governance Principles and Practices dictate that the non-management members of the Board of Directors will meet in executive session at least quarterly outside the presence of directors that are employees or officers of the Company. The non-management directors met in executive session four times during 2008. Peter Ax is our Lead Independent Director and presides over these executive session meetings.

Code of Ethics

We are committed to conducting business consistent with the highest ethical and legal standards. The Board of Directors has adopted a Code of Ethics, which is applicable to all employees, including our CEO and our CFO and our directors. The Code is available on our website at www.meritagehomes.com and we will provide a print copy to any stockholder upon request.

Communications with the Board of Directors

Interested persons may communicate with the Board of Directors by writing to our Lead Independent Director at the address set forth on page 11.

CONTINUING DIRECTOR INFORMATION

Meritage divides its Board of Directors into two classes, one of which is up for election this year, as set forth under “Election of Directors (Proposal No. 1).” The following sets forth biographical information regarding each member of the class of directors whose term will continue until our 2010 Annual Meeting of Stockholders.

Steven J. Hilton, 47, was co-chairman and co-chief executive officer of Meritage Homes Corporation from 1997 to May 2006. In May 2006, Mr. Hilton was named the Company’s chairman and chief executive officer. Mr. Hilton co-founded Arizona-based Monterey Homes in 1985. Under Mr. Hilton’s leadership, Monterey became publicly traded and combined with Legacy Homes in 1997, which thereafter became Meritage. Mr. Hilton received his Bachelor of Science degree in accounting from the University of Arizona and is a director of Western Alliance Bancorporation, a $5.5 billion community bank based in Las Vegas, Nevada.

Raymond Oppel, 52, has been a director since December 1997. He was the co-founder, chairman and chief executive officer of the Oppel Jenkins Group, a regional homebuilder in Texas and New Mexico, which was sold in 1995 to the public homebuilder KB Home. Mr. Oppel is a licensed real estate broker and currently is active as a private investor in real estate development and land banking. Mr. Oppel has almost 20 years of experience in the homebuilding business.

Richard T. Burke, Sr., 65, has been a director since September 2004. Mr. Burke is the Chairman of the Board of Directors of UnitedHealth Group, which he founded, took public in 1984 and served as chairman and chief executive officer until 1988. From 1995 until 2001, Mr. Burke was the owner and chief executive officer of the Phoenix Coyotes, a National Hockey League team. Mr. Burke is also a director of First Cash Financial Services, Inc.

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COMPENSATION DISCUSSION AND ANALYSIS

The following discussion and analysis should be read in conjunction with the “Summary Compensation Table” and related tables that are presented immediately below.

Introduction and Summary

The purpose of this compensation discussion and analysis (“CD&A”) is to provide information about each material element of compensation that we pay or award to, or that is earned by, our NEOs. For our 2008 fiscal year, our NEOs were:

·                  Steven J. Hilton, Chairman and Chief Executive Officer;

·                  Larry W. Seay, Executive Vice President, Chief Financial Officer;

·                  C. Timothy White, Executive Vice President, General Counsel and Secretary; and

·                  Steven Davis, Executive Vice President, Chief Operating Officer.

This CD&A addresses and explains the numerical and related information contained in the summary compensation tables and includes actions regarding executive compensation that occurred after the end of our 2008 fiscal year, including the award of bonuses related to 2008 performance, and the adoption of any new, or the modification of any existing, compensation programs, if applicable.

Overview

Compensation Philosophy and Objectives

Our executive compensation program is designed to drive and reward superior corporate performance both annually and over the long term while simultaneously striving to be externally competitive. We continually review our executive compensation program to ensure it reflects good governance practices and is in the best interests of stockholders, while meeting the following core objectives:

·                  Pay for Performance—A substantial portion of the total compensation for each NEO is intended to be variable on a pay-for-performance basis. The terms of the performance-based compensation contemplated in each NEO’s employment agreement is first based upon an assessment of external market data to ensure that the compensation formula is competitive relative to the compensation paid by companies with which we compete for executive talent. This compensation is derived based on (i) the performance of the Company as a whole, as measured against our peer group and (ii) the officer’s role in the attainment of the Company’s performance.  Due to the recent economic recession and severe downturn in the homebuilding industry, the Compensation Committee has approved a greater percentage of long-term pay for performance awards to our NEOs - in lieu of annual cash compensation - to more closely align the goals of management with those of our shareholders.

·                  Stock Ownership—We are committed to utilizing our compensation program to increase executive stock ownership over time. We believe that equity ownership directly aligns the interests of our executives with those of our stockholders and helps to focus our executives on long-term stockholder value creation. Commencing in 2007, we began to award restricted stock to our NEOs as we believe such awards provide our NEOs with an incentive to continue to increase long-term stockholder value, even during periods of declining stock prices. We believe the granting of both options and restricted stock are important retention tools and are widely used in our industry.

·                  Recruiting and Retention—Due to the competitive nature of our industry, we are committed to providing total compensation opportunities that are competitive with, though not identical to, the practices of other large public homebuilders in our industry. We intend for our compensation program to be sufficiently aligned with industry practices so that we can continue to attract and retain outstanding executives who are motivated to help us achieve our mission.

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Compensation Peer Group

We compete with homebuilding companies of various sizes for executive talent, and therefore the Compensation Committee generally reviews composite market data reflecting the market median compensation paid to similarly situated executives. While market data is an important factor considered by the Compensation Committee when setting compensation, it is only one of multiple factors, and the amount paid to each executive may be more or less than the composite market median based on the performance of the Company and the executive, the roles and responsibilities of the executive, experience level of the individual, internal equity and other factors that the Compensation Committee deems important. As collectively determined by the Compensation Committee and Pearl Meyer & Partners, for 2006, our compensation peer group for benchmarking the CEO and CFO compensation consisted of the following companies (certain of these companies have subsequently filed for bankruptcy or have significantly diminished operations since our 2006 assessment and therefore during 2009, we intend to re-assess the viability and continuing comparability of this peer group):

In addition, in 2006 we considered the CEO’s and CFO’s compensation when compared against the compensation of CEOs and CFOs across all industries for companies with annual revenues between $2.5 billion and $3.5 billion, which resulted in 135 companies for CEO data and 119 companies for CFO data. We also used market data and other available information for the benchmarking of our other NEOs. Although the employment agreements entered into with our NEOs in 2007 remain in place and we have not revised the annual incentive compensation component of the compensation package, we have made important changes to the overall compensation packages for our NEOs in light of current market conditions.  These changes are discussed in more detail below and include voluntary decisions by our NEOs to forfeit salary increases and beginning in 2009, in the case of our CEO, to a voluntary reduction in salary, and the granting of performance-based equity awards compared to equity award grants with only time-based vesting criteria.

Compensation Update for Fiscal Year 2008

In light of the recent turmoil in the general economy as well as the steep downturn in the homebuilding industry in particular, we have re-assessed our historical compensation strategy to better align ourselves with current market conditions.  Management and our Compensation Committee continuously review our compensation practices to ensure they are prudent and reasonable in comparison to our peers, while still robust enough to attract and maintain key talent. Highlights of our significant events and changes are as follows:

·                  NEOs elected to forgo annual salary increases even though they were contemplated in certain of their respective employment agreements.  Additionally, several of our NEOs also assumed additional responsibility as a result of our reductions in force.

·                  Effective for 2009, our CEO has also voluntarily reduced his base salary by $217,500.

·                  No cash bonuses were earned by the NEOs under each of their respective employment agreements and none were approved at the discretion of our Compensation Committee for any NEO for 2008.

·                  We have shifted the mix of the compensation to our NEOs to be more heavily-weighted towards long-term incentives, particularly via the use of equity-based compensation while maintaining a total compensation package that we believe is in line with our peer group.

·                  As part of this shift towards increased use of equity compensation, the equity awards granted for our NEOs for 2008 and 2009 exceeded the amounts contemplated under each of their respective employment agreements.

·                  Additionally, beginning in 2009, equity-based compensation is also partially contingent upon the successful attainment of certain financial and operational goals.

·                  We have eliminated nearly all perquisites that were previously provided to our NEOs.  For a detail of the perquisites paid in 2008, refer to the “All Other Compensation Table”.

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We believe these changes more closely align the compensation of our NEOs with the interests of our stockholders and the success of the Company.  We will continue to monitor current events and trends in our industry and adjust our strategy accordingly.

Compensation Program and Payments

The key components of our executive compensation program are base salary, annual incentive compensation and long-term incentive compensation. In addition, our NEOs have the opportunity to participate in our company-wide 401(k) plan and to receive certain personal benefits, as described below.

Base Salary

The purpose of the base salary is to provide a fixed amount of cash compensation that is not variable and is generally competitive with market practices. Consistent with industry practice and our pay-for-performance objective, the base salary for each of our NEOs is designed to account for a relatively small portion of their overall compensation. As compared to our compensation peer group, we target our NEO salaries to be in the 40th - 60th percentile. We believe the NEO base salaries are appropriate based on the officers’ roles, responsibilities, experience and contributions to the company, as well as market data.

Because no annual incentive compensation was earned by our NEOs in 2008 (as we did not generate net income or EBITDA), base salaries accounted for a more significant portion of our NEOs’ total compensation in 2008.  The Compensation Committee believes this demonstrates the merits of the design of our overall compensation package because the Company’s lower financial performance resulted in a significantly lower level of compensation for our NEOs, particularly cash-based compensation.

The employment agreements we have previously entered into with our NEOs remain in place and contemplate a fixed base salary that can be increased at the discretion of the Compensation Committee.  In 2008, our NEOs agreed to no base salary increases for 2008 and 2009.  In addition, our CEO agreed to voluntarily reduce his 2009 base salary by $217,500.

Annual Incentive Compensation

In accordance with the terms of each NEO’s employment agreement, each NEO is eligible for additional annual incentive compensation. As compared to our peer group, we target our NEO incentive compensation to be in the 60th - 75th percentile. The incentive compensation is designed to comply with the requirements of Section 162(m) of the Code to ensure the tax deductibility of incentive compensation paid to our named executive officers. Under Section 162(m), we cannot deduct compensation in excess of $1 million that is paid to an NEO in any year unless the compensation qualifies as “performance-based” compensation under Section 162(m).

We believe investors within the public homebuilder industry look to several key financial metrics when valuing companies. These metrics include EBITDA, return on assets and return on equity. For our CEO and CFO, we have structured the cash incentive component of their compensation to result in the possible award of a percentage of EBITDA, as defined below. The level of the cash incentive award is based upon our financial performance compared to other public homebuilders in multiple metrics. If the Company compares favorably (e.g., the top half) in each metric (i.e., return on assets and return on equity), the executive is eligible for the maximum award, subject to formal Compensation Committee approval. Where the Company’s performance falls in the lower levels of the metric, the executive is entitled to a lower, or no, bonus, also subject to formal Compensation Committee approval.

For our other NEOs, we have structured the cash incentive component of the executive’s compensation to provide for a bonus generally based on our financial performance and the executive’s achievement of selected function area/individual performance goals.

The specific details of each NEO’s 2008 incentive compensation are further described in this proxy under the section “Compensation Discussion and Analysis—Employment Agreements.”

As Meritage did not generate net income or EBITDA as defined for compensation calculation purposes during 2008, the Compensation Committee concluded that no annual incentive payments should be made to Messrs. Hilton, Seay, White or Davis in accordance with the terms of their respective employment agreements.  Because the Company also did not generate net income or EBITDA in 2007, no annual incentive payments were made to Messrs. Hilton and Seay in the prior year.  Messrs. White and Davis received discretionary bonuses in 2007 upon the approval of the Compensation Committee in the amounts of $450,000 and $250,000, respectively.

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Compensation Determinations and Relevant Factors

When determining the amount (or exclusion of) bonus and incentive compensation to be paid for 2008, the Compensation Committee reviewed and considered the following information:

·                  Feedback from the full Board of Directors (excluding the CEO) regarding the performance of the CEO for 2008;

·                  The financial and stock performance of the Company, comparable public companies and other companies in our industry with which we compete, including the total relative stockholder return of our Company and our competitors; and

·                  The recommendation of the CEO regarding the bonus and incentive compensation to be paid to each NEO, which the Compensation Committee discussed with the CEO.

Long-Term Incentive Awards

Long-term incentives are intended to provide compensation opportunities based on the creation of stockholder value and an increase in our stock price. The upside potential of stock option awards will be realized by the NEOs only if our stock price performance improves over the vesting period and/or the term of the awards. Stock options granted to our NEOs generally have a five-year pro-rata vesting schedule and a seven-year term. Commencing in 2007, we also began awarding our NEOs restricted stock, which have a either a three-year pro-rata or cliff vesting schedule.  As further discussed below, commencing in 2009, we also awarded our NEOs restricted stock that vest on a three-year pro-rata basis contingent upon the achievement of certain pre-specified performance criteria.

In connection with our equity awards, we have also adopted equity ownership requirements as further discussed below in the section “Compensation Discussion and Analysis—Compensation Program and Payments—Security Ownership Requirements.”

The Compensation Committee believes that stock options and/or restricted stock awards provide a strong long-term incentive for our NEOs (and other officers and employees) that, along with their security ownership, help to align the interests of management with our investors. The Compensation Committee believes that these equity-based awards provide the opportunity for our executives to benefit from strong equity performance and, particularly in the case of stock options, subjects the executives to downside risk from weak equity performance as compensation provided in the form of stock options will have no value if the market price of our stock is not in excess of the strike price of the stock options. The Company and the Compensation Committee also believe that an appropriate mix of cash compensation and non-cash compensation in the form of stock options and restricted stock awards benefits us because these non-cash compensation awards do not require the use of our working capital. The Compensation Committee is mindful of the fact that stock options and restricted stock awards represent an expense under generally accepted accounting principles and a cost to the Company and its stockholders in the form of dilution. Accordingly, we seek to achieve an appropriate balance between cash and non-cash compensation such that management is appropriately incentivized, our working capital and financial results are minimally affected and our stockholders do not experience undue dilution.

Other Compensation

The Compensation Committee does not believe in the extensive use of perquisites as a component of executive compensation. Under the CEO’s existing employment agreement, the Company eliminated all benefits relating to personal use of charter aircraft. The Compensation Committee believes that the perquisites provided to our NEOs (above those received by all employees or officers in general) are limited, but help maintain the competitiveness of our compensation package as compared to our peer companies. The types of perquisites we provide to our NEOs generally consist of car allowances, enhanced life and disability insurance and annual physicals.

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Tax Considerations

Section 162(m) of the Code limits the deductibility of executive compensation paid by publicly held corporations to $1 million for each NEO named in this proxy statement. The $1 million limitation generally does not apply to compensation that is pursuant to a performance-based plan approved by stockholders. Our policy is to comply with the requirements of Section 162(m) and generally maintain deductibility for all executive compensation, although we reserve the right, as do most public companies, to make non-deductible payments where we determine it is in the best interests of Meritage and its stockholders.

At the 2006 Annual Meeting of Stockholders, our stockholders approved the 2006 Stock Incentive Plan (as subsequently amended). The purpose of the 2006 Incentive Plan is to provide for annual incentive awards to the Company’s key executives, including the NEOs, and it is the vehicle through which we pay our cash performance bonuses. The 2006 Stock Incentive Plan is administered by the Compensation Committee and provides for cash awards payable to executives upon the attainment of certain predetermined performance goals for the Company. It is our intent that options and performance-based awards made pursuant to the 2006 Stock Incentive Plan qualify as deductible compensation under Section 162(m) of the Code.

The current employment agreement for our CEO contemplates the payment of a base salary and benefits that will likely slightly exceed the limitations provided for under Section 162(m). The Compensation Committee believes that the excess non-deductible amounts that will be paid to our CEO over the $1 million limitation will primarily be due to the value assigned to perquisites, and not due to the granting of additional awards at the Compensation Committee’s discretion. It is expected that the Section 162(m) excess will be less than $67,000 for 2008 for all NEOs, resulting in a lost tax deduction that is not material.

Security Ownership Requirements

In 2006, we adopted security ownership requirements for our directors and certain executive officers. The Board of Directors believes that these guidelines align the interests of our directors and executive officers with those of stockholders. Our directors and executive officers are required to comply with the following ownership guidelines:

·                  Directors, two times annual director fees (exclusive of committee or lead director fees);

·                  CEO, four times base salary; and

·                  CFO and General Counsel, two times base salary.

In the case of the appointment of a new officer or director, such person is expected to comply with the requirements within three years of the date of appointment. In order to enable our directors and officers to prudently manage their personal financial affairs, our policy provides that once compliance is obtained, subsequent changes in stock price will not affect the person’s compliance with the guidelines. For purposes of the security ownership requirement, stock options and non-vested restricted stock are not considered owned.  As of December 31, 2008, all officers and directors were in compliance with their respective security ownership requirements.

Stock Options and Other Equity-Based Awards

Meritage has traditionally granted stock options to directors, senior executive officers and other employees to provide a means for incentive compensation and to align the interests of management with the interest of Meritage’s stockholders. At the 2006 Annual Meeting of Stockholders, the Company’s stockholders approved the 2006 Stock Incentive Plan (as subsequently amended). The 2006 Stock Incentive Plan contemplates and allows for a variety of equity-based awards, including stock options, restricted stock, stock appreciation rights and other performance-based awards that were not previously authorized. Since the approval of the 2006 Stock Incentive Plan, the Company has begun to grant restricted stock awards as a means of providing incentive compensation and reduce the Company’s sole reliance on stock options, bringing it more in line with industry trends.

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In response to the new executive compensation disclosure rules adopted by the SEC and other well-publicized stock option dating concerns, the Board of Directors of Meritage in 2006 approved comprehensive policies relating to the granting of stock options and other equity-based awards. Following is a summary of key aspects of our policies:

·                  All stock option grants, restricted stock awards and other equity based awards (“stock-based grants”) must be approved by the Compensation Committee.

·                  All stock-based grants will be approved at formal meetings (including telephonic) of the Compensation Committee.

·                  The date for determining the strike price and similar measurements will be the date of the meeting (or a date shortly after the meeting) or, in the case of an employee, director or consultant not yet hired, appointed or retained, respectively, the subsequent date of hire, appointment or retention, as the case may be.

·                  The annual stock-based grant shall be approved at a regularly scheduled meeting of the Compensation Committee during the first part of the year, but after the annual earnings release. We believe that coordinating the main annual award grant after our annual earnings release will generally result in this grant being made at a time when the public is in possession of all material information about us.

·                  The customary annual grant to executive officers and directors shall occur at the same time as the customary annual grant to other employees.

·                  The Company shall not intentionally grant stock-based awards before the anticipated announcement of materially favorable news or delay the grant of stock-based awards until after the announcement of materially unfavorable news.

·                  The Compensation Committee will approve stock-based grants only for persons specifically identified at the meeting by management.

Our 2009 annual grant was finalized in February 2009.  We elected to accelerate our 2008 annual grant to December 2007 to provide additional long term incentives to our employees and management team in anticipation of lower cash bonus payments.

Employment Agreements

We have entered into an employment agreement with the CEO and each NEO, and the Compensation Committee reviewed and approved the terms of each agreement. The key compensation elements within each agreement are discussed below. In addition to these compensation elements, these employment agreements also provide severance benefits to each executive upon certain termination events. These severance provisions are discussed later in this proxy statement under the heading “Compensation Discussion and Analysis—Potential Payments Upon Termination or Change-of-Control.”

Steven J. Hilton, CEO

In 2007, the Company and Steven J. Hilton entered into an amended and restated employment agreement, which was scheduled to expire on December 31, 2008 but was automatically extended to December 31, 2009 pursuant to the agreement’s automatic one year renewal provisions.  The agreement automatically renews each year unless, on or before September 15th prior to any expiration, either Mr. Hilton or the Company notifies the other that it wishes to terminate the agreement. The employment agreement provides Mr. Hilton with a base salary of $1,017,500 per year, which may be adjusted from time to time, provided that it may not be reduced without Mr. Hilton’s consent. In 2009, Mr. Hilton voluntarily reduced his base pay to $800,000.  The employment agreement also provides that Mr. Hilton is entitled to reimbursement of reasonable and customary business expenses, payments to purchase a $5 million term life insurance policy, payments to purchase disability insurance providing for monthly benefit payments of approximately $20,000, participation in our Executive Supplemental Savings Plan (which enables deferred compensation in excess of 401(k) limitations), and use of a Company-provided automobile. Although Mr. Hilton’s prior employment agreement provided that he is entitled to use of charter aircraft for business purposes, his current amended agreement does not provide any benefits related to personal use of charter aircraft that were contained in his prior agreement.  Mr. Hilton’s employment agreement contemplates that any long-term incentive awards for periods beginning after 2007 will be made in the sole and absolute discretion of the Compensation Committee.

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Mr. Hilton’s employment agreement also provides for an annual cash incentive bonus based on the Company’s attainment of defined performance objectives.  Mr. Hilton is entitled to an annual bonus equal to 0.825% of EBITDA if the Company’s return on assets is in the top half of public homebuilders having revenues of $500 million or more, and an additional 0.825% of EBITDA if the Company’s return on equity is in the top half of these public homebuilders. If either measurement falls within the 33rd to 49th percentile, the bonus shall be 0.5363% of EBITDA for the applicable measurement, and if either measurement falls below the 33% threshold, then there will not be any formula bonus paid with respect to such measurement. The Compensation Committee has complete discretion to act reasonably to increase or reduce the amount of this bonus component (including reducing the bonus to zero) or provide separate supplemental awards, regardless if the Company meets the goals discussed above. The cash incentive bonus component is to be paid no later than March 15 of the following year, and it shall be paid pursuant to the 2006 Stock Incentive Plan to the extent possible.

The employment agreement also includes a claw-back provision requiring the recovery by the Company of all or part of prior bonuses in the event the performance measure used to calculate the bonus is restated downward as a result of Mr. Hilton’s willful misconduct or gross negligence. We may recover any such claw-backs through an offset to future awards payable under the employment agreement, or from Mr. Hilton directly. The agreement also includes non-compete and non-solicit covenants as well as a requirement for Mr. Hilton to provide post-termination consulting services to us at our request.

Larry W. Seay, Executive Vice President and Chief Financial Officer

In 2007, the Company and Larry W. Seay entered into an amended and restated employment agreement, which was scheduled to expire on December 31, 2008 but was automatically extended to December 31, 2009 pursuant to the agreement’s automatic one year renewal provisions.  The agreement automatically renews each year unless, on or before September 15th prior to any expiration, either Mr. Seay or the Company notifies the other that it wishes to terminate the agreement. The employment agreement initially provided Mr. Seay with a base salary of $450,000 per year, which may be adjusted from time to time, provided that it may not be reduced without Mr. Seay’s consent.  In order to keep Mr. Seay’s compensation in line with other CFOs in our peer group, the Compensation Committee recommended to increase Mr. Seay’s base salary to $500,000 for 2008; however, Mr. Seay voluntarily agreed to forfeit the increase and maintained his 2007 base salary of $450,000.  The employment agreement also provides that Mr. Seay is entitled to reimbursement of reasonable and customary business expenses, a $1,200 per month automobile allowance and an annual benefit of up to $20,000 to provide Mr. Seay with a $3 million term life insurance policy, consistent with our practice for other NEOs.  Mr. Seay’s employment agreement contemplates that any long-term incentive awards for periods beginning after 2007 will be made in the sole and absolute discretion of the Compensation Committee.

Mr. Seay’s employment agreement also provides for an annual cash incentive bonus based on the Company’s attainment of defined performance objectives. Mr. Seay is entitled to a bonus equal to 0.20% of EBITDA is the Company’s return on assets is in the top half of public homebuilders having revenues of $500 million or more, and an additional 0.20% of EBITDA if the Company’s return on equity is in the top half of these public homebuilders. If either measurement falls within the 33rd to 49th percentile, the bonus shall be 0.13% of EBITDA for the applicable measurement, and if either measurement falls below the 33% threshold, then there will not be any formula bonus paid with respect to such measurement. The Compensation Committee has complete discretion to act reasonably to increase or reduce the amount of this bonus component (including reducing the bonus to zero) or provide separate supplemental awards, regardless if the Company meets the goals discussed above. The cash incentive bonus component shall be paid no later than March 15 of the following year, and it is to be paid pursuant to the 2006 Stock Incentive Plan to the extent possible.

The employment agreement also includes a claw-back provision requiring the recovery by the Company of all or part of prior bonuses in the event the performance measure used to calculate the bonus is restated downward as a result of Mr. Seay’s willful misconduct or gross negligence. The Company may recover any such claw-backs through an offset to future awards payable under the employment agreement, or from Mr. Seay directly. The agreement also includes non-compete and non-solicit covenants as well as a requirement for Mr. Seay to provide post-termination consulting services to us at our request.

C. Timothy White, Executive Vice President, General Counsel and Secretary

The Company has an employment agreement with C. Timothy White that was scheduled to expire on December 31, 2008 but was renewed through December 31, 2009 under an automatic one year renewal option. The agreement provides for a base salary for 2008 of $551,250 with an increase of 5% on January 1 of any renewal term; however, Mr. White voluntarily forfeited his base pay increase and maintained his 2008 base pay at $525,000, consistent with 2007.  Mr. White is entitled to an annual cash incentive bonus equal to 0.1125% of EBITDA.  Mr. White’s employment agreement also contemplates that he will receive an annual option grant to acquire 15,000 shares of common stock at an exercise price equal to the fair market value on the date of grant.  In addition, Mr. White is entitled to a $1,200 per month automobile allowance, $3 million of term life insurance coverage and such other benefits as are regularly provided by the Company to its senior management.

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Steven M. Davis, Executive Vice President and Chief Operating Officer

In 2006, the Company entered into an employment agreement with Steven M. Davis. This agreement has a two-year term and was scheduled to expire on October 16, 2008 but was automatically extended to October 16, 2009 pursuant to the agreement’s automatic one-year renewal provisions. The agreement provides for a base salary of $400,000 with an increase of 5% on November 1, 2008 and November 1 of any renewal term; however, Mr. Davis voluntarily forfeited his base pay increase on November 1, 2008 and maintained his base pay at $400,000.  Mr. Davis is also entitled to a performance-based incentive bonus, which is targeted to be between 0.25% and 0.33% of EBITDA. Mr. Davis did not earn any cash bonus under the terms of his employment agreement for 2008 and, at the Compensation Committee’s discretion, no such bonus was paid for 2008.  The payout range for future bonuses will be based on Mr. Davis’ achievement of specific goals to be mutually agreed upon between Mr. Davis and the Company’s CEO, subject to approval by the Compensation Committee. Mr. Davis’ employment agreement also contemplates that he will receive an annual option grant to acquire 15,000 shares of common stock at an exercise price equal to the fair market value on the date of grant. In addition, Mr. Davis is entitled to a $1,250 per month automobile allowance and a Company-paid annual physical at a first class facility.

Discussion of CEO and NEO Compensation

Following is a discussion of the compensation paid, awarded or earned in 2008 to the Company’s CEO and NEOs.

CEO Compensation

Meritage’s CEO, Steven J. Hilton, was compensated in 2008 pursuant to the terms of his employment agreement, which provides for a base salary, a bonus based on Company performance and, if earned, other customary executive benefits. Under this agreement, a substantial portion of Mr. Hilton’s potential compensation is performance-based to align his goals and efforts with the interests of our stockholders.

Salary.  Mr. Hilton was paid a base salary of $1,017,500 in 2008.

Options.  In 2008, Mr. Hilton was granted options to acquire 239,840 shares of our common stock at an exercise price equal to the closing price of our common stock on the date of grant.  These options have a seven-year life and vest ratably over a five-year period from the date of grant.  The volume of the 2008 grant was determined by the Compensation Committee and was deemed commensurate with compensation packages of other CEOs of public homebuilders when evaluated in connection with Mr. Hilton’s total cash and equity compensation.

Restricted Stock.  Mr. Hilton did not receive any restricted stock awards in 2008.

Performance-Based Bonus.  For 2008, Mr. Hilton was entitled to a cash performance-based bonus pursuant to the terms set forth in his employment agreement.  Because the Company did not generate net income or EBITDA and the Compensation Committee did not approve any discretionary bonuses, Mr. Hilton received no cash incentive bonus for 2008.

Other Benefits.  The Company also provided to Mr. Hilton other benefits consistent with our normal executive employment arrangements. These benefits are detailed in the All Other Compensation Table included in this proxy statement and in 2008 totaled less than $49,000.

Other NEO Compensation

Following is a discussion of compensation paid during 2008 to the other NEOs named in this proxy statement.

Larry W. Seay, Executive Vice President and Chief Financial Officer.  Mr. Seay was compensated in 2008 pursuant to the terms of his employment agreement, which provides for a base salary, a bonus based on Company performance and, if earned, other customary executive benefits. Under this agreement, a substantial portion of Mr. Seay’s potential compensation is performance-based to align his goals and efforts with the interests of our stockholders.

Salary.  Mr. Seay was paid a base salary of $450,000 in 2008.  Although Mr. Seay was awarded a $50,000 base pay increase by the Compensation Committee for 2008, Mr. Seay voluntarily agreed to forfeit this increase.

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Options.  In 2008, Mr. Seay was granted options to acquire 36,786 shares of our common stock at an exercise price equal to the closing price of our common stock on the date of grant. These options have a seven-year life and vest ratably over a five-year period from the date of grant.  The options represent the portion of Mr. Seay’s total 2008 grant that could not be accelerated into 2007, as previously discussed, as they were in excess of the total annual granting limits in 2007 and were therefore awarded in early 2008.  The volume of the 2008 grant was determined by the Compensation Committee and was deemed commensurate with compensation packages of other CFOs of public homebuilders when evaluated in connection with Mr. Seay’s total cash and equity compensation.

Restricted Stock.  Mr. Seay did not receive any restricted stock awards in 2008.

Performance-Based Bonus.  For 2008, Mr. Seay was entitled to a cash performance-based bonus pursuant to the terms set forth in his employment agreement.  Because the Company did not generate net income or EBITDA, Mr. Seay received no cash incentive bonus for 2008.

Other Benefits.  We also provided to Mr. Seay other benefits consistent with our normal executive employment arrangements and his employment agreement. These benefits are detailed in the All Other Compensation Table included in this proxy statement and in 2008 totaled less than $44,000.

C. Timothy White, Executive Vice President, General Counsel and Secretary.  Mr. White was compensated in 2008 pursuant to the terms of his employment agreement, which provides for a base salary, a bonus based on Company performance and, if earned, stock options and other customary executive benefits. Under this agreement, a portion of Mr. White’s compensation was performance-based to align his goals and efforts with the interests of our stockholders.

Salary.  Mr. White was paid a base salary of $525,000 in 2008, which is consistent with the amount Mr. White received in 2007.  Although Mr. White’s employment agreement contemplated an annual increase in his base salary in 2008 to $551,250, Mr. White voluntarily agreed to forfeit this increase.

Options and Restricted Stock.  Mr. White did not receive any equity awards in 2008, as his annual 2008 grant was accelerated in late 2007.

Performance-Based Bonus.  For 2008, Mr. White was entitled to a cash performance-based bonus pursuant to the terms set forth in his employment agreement.  Because the Company did not generate net income or EBITDA and the Compensation Committee did not approve a discretionary bonus, Mr. White received no cash incentive bonus for 2008.

Other Benefits.  The Company also provided to Mr. White other benefits consistent with our normal executive employment arrangements and his employment agreement. These benefits are detailed in the All Other Compensation Table included in this proxy statement and in 2008 totaled less than $53,000.

Steven M. Davis, Executive Vice President and Chief Operating Officer.  Mr. Davis was compensated in 2008 pursuant to the terms of his employment agreement, which provides for a base salary, a bonus based on Company performance and, if earned, stock options and other customary executive benefits. Under this agreement, a portion of Mr. Davis’s compensation was performance-based to align his goals and efforts with the interests of our stockholders.

Salary.  Mr. Davis was paid a base salary of $400,000 in 2008, which is consistent with the amount Mr. Davis received in 2007.  Although Mr. Davis’ employment agreement contemplated an annual increase in his base salary in 2008 to $420,000, Mr. Davis voluntarily agreed to forfeit this increase.

Options and Restricted Stock.  Mr. Davis did not receive any equity awards in 2008, as his annual 2008 grant was accelerated in late 2007.

Performance-Based Bonus.  For 2008, the Compensation Committee determined that no performance-based bonus for Mr. Davis should be paid based on the parameters and formula reflected in his employment agreement.

Other Benefits.  The Company also provided to Mr. Davis other benefits consistent with our normal executive employment arrangements. These benefits are detailed in the All Other Compensation Table included in this proxy statement and in 2008 totaled less than $29,000.

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2009 Developments

                In February 2009, the Compensation Committee approved the key components of the compensation packages for our NEOs, taking into account the NEOs’ existing employment agreements, current economic conditions both in the homebuilding industry and in the economy in general, and our guiding compensation philosophy discussed in this proxy statement.

                As discussed, all of our NEOs agreed to no base salary increases over 2008 levels.  In addition, Steve Hilton, our Chairman and CEO, voluntarily agreed to reduce his 2009 base salary by $217,500.

                To further our goal of ensuring a substantial portion of total compensation is variable upon a pay-for-performance basis, the Compensation Committee awarded restricted stock to our NEOs, a significant portion of which is contingent upon achieving defined performance measures over a three-year period.  The Compensation Committee reviewed analyses of each NEO’s cash, equity and total compensation package as compared to similar NEO positions from various other non-distressed public homebuilders.  The Committee’s awards were in line with these other peer companies when adjusted for Meritage’s relative size to ensure the total compensation of our NEOs is sufficient to attract and retain the Company’s top talent while balancing our financial goals of cash conservation and alignment of management goals with those of our shareholders.  In February 2009, our NEOs were granted the following equity awards:

                Steven J. Hilton, Chairman and CEO, was granted 45,000 shares of restricted stock that vest on a pro-rata basis over three years commencing with the first anniversary of the date of grant.  Additionally, Mr. Hilton was also granted 67,500 shares of restricted stock that vest in equal increments over three years beginning with the first anniversary from the date of grant; however, these 67,500 restricted shares only vest if certain performance criteria are met.  The criteria for these shares is based on the Company meeting pre-specified (i) net income, (ii) general and administrative costs and (iii) customer satisfaction rating targets in each of the three years.  Portions of any year’s vesting shares will be awarded if some, but not all, of the criteria are met.

                Larry W. Seay, C. Timothy White and Steven M. Davis were each granted 30,000 shares of restricted stock that vest on a pro-rata basis over three years commencing with the first anniversary of the date of grant.  Additionally, Messrs. Seay, White and Davis were each also granted 45,000 shares of restricted stock that vest in equal increments over three years beginning with the first anniversary from the date of grant; however, these 45,000 restricted shares only vest if certain performance criteria are met.  The criteria for these shares is based on the Company meeting pre-specified (i) net income, (ii) general and administrative costs and (iii) customer satisfaction rating targets in each of the three years.  Portions of any year’s vesting shares will be awarded if some, but not all, of the criteria are met.

                Steven J. Hilton, Larry W. Seay, C. Timothy White and Steven M. Davis remain eligible for annual cash performance-based bonuses under the parameters set forth in their respective employment agreement, or at the discretion of the Compensation Committee.

Summary Compensation Table

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(1)                                  All compensation is for Mr. Hilton’s services in his capacity as the Chairman and Chief Executive Officer of the Company. Mr. Hilton did not receive any separate compensation for his services as a director.

(2)                                  The non-vested shares (restricted stock) grants have a fair value equal to the closing price of our stock on the date of the grant, in accordance with the requirements of Statement of Financial Accounting Standard No. 123(R), Share-Based Payment (“SFAS No. 123R”). See additional detail “Grant of Plan-Based Awards” table.

(3)                                  See Note 10 “Incentive Awards and Retirement Plan” of our consolidated financial statements included in our 2008 Annual Report on Form 10-K for a discussion of the Black-Scholes assumptions used for computing the fair value of options granted.  In 2007, we announced a Company-wide stock option tender offer to purchase, for a one-time cash payment of $1.50 per option, all stock options granted to employees and directors between January 1, 2005 and December 31, 2006 with a strike price in excess of $45.00. The 2007 Option Awards compensation for our NEOs includes the following non-cash charges related to the 2007 stock option tender offer program:

Stock Option Tender Offer

(4)                                  Amount represents above-market earnings on deferred compensation that is not tax-qualified. See Nonqualified Deferred Compensation table below for more detail on Mr. Seay’s deferred compensation earnings.

(5)                                  See following table for more detail:

All Other Compensation Table
Year Ended December 31, 2008

(1)                                  Includes: (i) employer portion of benefits provided to all employees and (ii) life and disability insurance premiums and healthcare check-up as contemplated in each NEO’s employment agreement if such elections were made.

(2)                                  In accordance with Mr. Hilton’s employment agreement in effect during 2006, he was granted the right to personal use of a chartered aircraft for a pre-determined number of annual flight hours. The amounts in the table above reflect these travel benefits, which were computed as out-of-pocket costs paid to the respective aircraft charter companies for these personal-use flights. The balance also reflects any tax gross-up paid to Mr. Hilton in connection with the taxable income associated with these flights. As noted elsewhere in this proxy statement, Mr. Hilton’s amended and restated employment agreement removed the benefit for reimbursement for the right to personal use of a charter aircraft as of its effective date.

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(3)                                  Other includes the following for 2008:  income gross-up to reflect tax consequences, as applicable, of $9,632, $3,329 and $6,385 for Messrs. Hilton, Seay and White, respectively.

(4)                                  Other includes the following for 2007: (i) spousal travel of $6,217, $1,182, $1,182 and $1,182 for Messrs. Hilton, Seay, White and Davis, respectively; (ii) relocation costs of $119,012 for Mr. Davis; (iii) stock option tender offer payment of $1.50 per option totaling $150,000, $60,000, $52,500 and $22,500 for Messrs. Hilton, Seay, White and Davis, respectively; and (iv) income gross-up to reflect tax consequences, as applicable, of $11,087, $13,113, $3,000 and $47,883 for Messrs. Hilton, Seay, White and Davis, respectively. Spousal travel is determined as either the actual ticket price for commercial airline travel or the equivalent of a first-class comparable ticket on a major air travel carrier for private plane travel.

(5)                                  Other includes the following for 2006: (i) spousal travel of $7,700, $1,550, $2,100 and $1,000 for Mr. Hilton, Mr. Seay, Mr. White and Mr. Davis, respectively; (ii) gift certificates of $1,000 each to Messrs. Hilton, Seay and White; (iii) income gross-up to reflect tax consequences, as applicable, of $37,457, $10,352, $2,496 and $0 for Mr. Hilton, Mr. Seay, Mr. White and Mr. Davis, respectively. Spousal travel is determined as either the actual ticket price for commercial airline travel or the equivalent of a first-class comparable ticket on a major air travel carrier for private plane travel.

2008 Grants of Plan-Based Awards

(1)                                  Fair value is computed as the Black-Scholes option value calculated in accordance with the provisions of SFAS No. 123R multiplied by the number of options/restricted stock granted for all grants. See Note 10 “Incentive Awards and Retirement Plan” of our consolidated financial statements included in our 2008 Annual Report on Form 10-K for a discussion of the Black-Scholes assumptions used for computing the fair value of options granted.

(2)                                  As discussed in this proxy statement under the heading “Compensation Discussion and Analysis—Employment Agreements—Steven J. Hilton, CEO”, pursuant to the terms of his employment agreement, Mr. Hilton is entitled to a performance-based bonus equal to 0.825% of EBITDA if the Company’s return on assets is in the top half of public homebuilders having revenues of $500 million or more per year, and an additional 0.825% of EBITDA if the Company’s return on equity is in the top half of these public builders. If either measurement falls within the 33rd to 49th percentile, the bonus is 0.5363% of EBITDA for the applicable measurement. If either measurement falls below the 33% threshold, then there would not be any formula bonus paid with respect to such measurement. There is no target award and there is no dollar maximum bonus that can be earned. As discussed above under the heading “Compensation Discussion and Analysis—Discussion of CEO and NEO Compensation—CEO Compensation,” the Compensation Committee determined that no performance-based bonus would be paid to Mr. Hilton for 2008, because the Company did not generate net income or EBITDA in accordance with the terms of his employment agreement.

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(3)                                  As discussed in this proxy statement under the heading “Compensation Discussion and Analysis—Employment Agreements—Larry W. Seay, Executive Vice President and Chief Financial Officer”, pursuant to the terms of his employment agreement, Mr. Seay is entitled to a performance-based bonus equal to 0.20% of EBITDA if the Company’s return on assets is in the top half of public homebuilders having revenues of $500 million or more per year, and an additional 0.20% of EBITDA if the Company’s return on equity is in the top half of these public builders. If either measurement falls within the 33rd to 49th percentile, the bonus is 0.13% of EBITDA for the applicable measurement. If either measurement falls below the 33% threshold, then there would not be any formula bonus paid with respect to such measurement. There is no target award and there is no dollar maximum bonus that can be earned. As discussed above under the heading “Compensation Discussion and Analysis—Discussion of CEO and NEO Compensation—Other NEO Compensation—Larry W. Seay, Executive Vice President and Chief Financial Officer,” the Compensation Committee determined that no performance-based bonus should be paid to Mr. Seay for 2008, because the Company did not generate net income or EBITDA in accordance with the terms of his employment agreement.

(4)                                  As discussed in this proxy statement under the heading “Compensation Discussion and Analysis—Employment Agreements—C. Timothy White—Executive Vice President, General Counsel and Secretary”, pursuant to the terms of his employment agreement, Mr. White is entitled to a performance-based bonus equal to 0.1125% of EBITDA. There is no target award and there is no dollar maximum bonus that can be earned.  As discussed above under the heading “Compensation Discussion and Analysis—Discussion of CEO and NEO Compensation—Other NEO Compensation,” the Compensation Committee determined that no performance-based bonus should be paid to Mr. White for 2008, because the Company did not generate net income or EBITDA in accordance with the terms of his employment agreement.

(5)                                  As discussed in this proxy statement under the heading “Compensation Discussion and Analysis—Employment Agreements—Steven M. Davis—Executive Vice President, Chief Operations Officer”, pursuant to the terms of his employment agreement, Mr. Davis is entitled to a performance-based bonus targeted to be between 0.25% and 0.33% of EBITDA. The payout will be based on Mr. Davis achieving specific goals mutually agreed upon between Mr. Davis and the Company. There is no target award and there is no dollar maximum bonus that can be earned. As discussed above under the heading “Compensation Discussion and Analysis—Discussion of CEO and NEO Compensation—Other NEO Compensation,” the Compensation Committee determined that no performance-based bonus should be paid to Mr. Davis for 2008, because the Company did not generate net income or EBITDA in accordance with the terms of his employment agreement.

Outstanding Equity Awards at 2008 Fiscal Year-End

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(1)                                  Remaining unvested options vest on May 13, 2009.

(2)                                  Remaining unvested options vest in equal increments on January 29, 2009, 2010, 2011 and 2012.

(3)                                  Remaining unvested options vest in equal increments on January 2, 2009, 2010, 2011, 2012 and 2013.

(4)                                  Remaining unvested options vest in equal increments on May 19, 2009, 2010, 2011, 2012 and 2013.

(5)                                  Remaining unvested shares vest in equal increments on January 29, 2009 and 2010.

(6)                                  Remaining unvested options vest in equal increments on December 11, 2009, 2010, 2011 and 2012.

(7)                                  Remaining unvested shares vest on January 29, 2010.

(8)                                  Remaining unvested shares vest in equal increments on October 16, 2009, 2010 and 2011.

(9)                                  Computed as the number of shares or units of stock that have not yet vested multiplied by the closing price of the Company’s stock on December 31, 2008 of $12.17.

Option Exercises and Stock Vested

2008 Nonqualified Deferred Compensation

(1)                                  The original amount of this award ($47,000) was reported as compensation to Mr. Seay in 2004. The award was made under a previous bonus program that has since been discontinued. In 2008, Mr. Seay was paid the full balance of his deferred bonus agreement—2004 Award Year. Mr. Seay became fully vested in such amount on December 31, 2007.

Potential Payments Upon Termination or Change-of-Control

Summary

We have entered into an employment agreement and change of control agreement with our CEO and each of our other NEOs. Under the terms of these agreements, our CEO and other NEOs are entitled to severance payments and other benefits in the event of certain types of terminations. These benefits can include cash payments, continuation of insurance benefits and the acceleration of outstanding stock options and restricted shares.

Following is a summary of the severance provisions contained in the employment agreements and change of control agreements between the Company and its NEOs. The table includes an estimate of the benefits that would accrue for each executive if the triggering event occurred on December 31, 2008 and is based on each executive’s compensation on that date.

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