Meritage Homes (NYSE:MTH) on April 14 announced it had settled favorably an attempt to recoup payments associated with the termination agreement with its former co-CEO and chairman, John Landon.

Under the settlement agreement, Meritage will recoup the cost plus interest of $10 million in non-compete payments made under its exit package agreement with Landon, who resigned in May of 2006 and subsequently started Landon Development Company.

Under the separation agreement, according to Meritage, "Landon was entitled to a payment of $10 million, payable in equal monthly installments over 24 months, in connection with the termination of his employment and adherence to his non-compete obligations. In December 2006, the company disputed these payments, asserting non-compliance with the terms of the employment agreement after Mr. Landon left the Company."

Meritage took the issue to arbitration in February 2007.

In an 8K filing by Meritage with the Securities and Exchange Commission on April 14, it was specifically noted that Landon was accused of four types of violations. "(1) Engaging in production homebuilding or home sales within 100 miles of a Meritage project; (2) engaging in the sale of finished lots within the restricted area without first offering those lots to Meritage or providing Meritage a right of first refusal to purchase the lots; (3) hiring one or more persons who were employees of or consultants to Meritage; and (4) soliciting one or more customers or suppliers of Meritage for a production homebuilding business or otherwise attempting to induce such customers or suppliers to discontinue or materially modify their relationship with Meritage."

Shortly after Landon left, he formed the development company to acquire land. At the time, three Meritage division presidents in Texas left the company to set up their own home building businesses.

In addition to the financial settlement, Landon agreed to other terms and conditions, including certain restrictive covenants for a period of two additional years. The SEC document stated, "Through April 9, 2010, neither Executive [Landon], either personally or as an officer, director, partner, member, manager, employee, agent, or consultant of any entity, nor any 'Landon company''...or any 'affiliate'... of a Landon company will 'hire''...any 'Meritage employee'." Each of the quoted words in the above was accompanied by an exact definition. The penalty for violating the new mandate varies depending on the title of the employee. Landon would face fines of anywhere from $100,000 to $2.5 million.

Meritage said it will be reimbursed $9,368,280 in non-compete payments it has paid to date and will not be required to make the final $631,720 in payments. It also said it received $9,559,940 on April 10, $2,701,613 from Landon and $6,858,327 from an escrow account holding the disputed payments and interest. Under the agreement, Landon is to pay another $875,000 to Meritage by January 5, 2009.

At the time of his departure from Meritage in 2006, Landon also entered into a stock purchase agreement with the company. Meritage agreed to repurchase 1 million shares of its common stock from Landon at a price of $52.19 per share or a total of $52.19 million. He also retained an additional million shares at that time.

Meritage expects the financial results of the settlement to show up in second-quarter operations.