Executive Compensation
Management Development and Compensation Committee Report
The Management Development and Compensation Committee of the Board of Directors has reviewed and discussed the following “Compensation Discussion and Analysis” with KB Home management. Based on this review and discussion, the Management Development and Compensation Committee recommended to the Board of Directors that the “CompensationCompensation Discussion and Analysis”Analysis be included in this Proxy Statement.
Management Development and Compensation Committee
Michael G. McCaffery, Chair
Stephen F. Bollenbach
Timothy W. Finchem
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Michael G. McCaffery, Chair | | Stephen F. Bollenbach | | |
Timothy W. Finchem | | Luis G. Nogales | | |
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Compensation Discussion and Analysis
Overview of Executive Compensation and Benefit Programs and Decision-Making Process
The primary objectives of ourOur executive compensation and benefit programs are to attract, motivatefocused on attracting, motivating and retainretaining a talented management team to execute our KBnxt operational business model. We believe our dedicated implementation of the coreBuilt-to-Ordertm principles of our KBnxt operational business model and our related strategic initiatives provideprovides us with a distinct competitive advantage over other homebuilders. Within this framework, weWe therefore design, with the Compensation Committee’s oversight, the compensation and benefits for our named executive officer (“NEO”officers (each, an “NEO”) and other senior executive compensation and benefitsexecutives to reward individual contributions to the achievement of our KBnxt strategic goals, while taking into account our recent and sustainable enterprise value.expected financial performance and broader industry and economic conditions. We believe this approach establishespromotes a clear alignment of executive and stockholder interests. In addition, the Compensation Committee will adjust NEO and other senior executive compensation and benefits to the extent it believes is appropriate to take into account recent and expected overall company performance, and broader industry and economic conditions.
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Executive Compensation Decisions – Participants, Factors, Component Mix, and Data Sources |
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Participants
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Roles | | Compensation Committee:
• With support from our management and outside advisors, oversees our executive compensation and benefit programs, including our arrangements with our CEO, other NEOs and other senior executives.
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| | • Annually reviews and approves the compensation of our CEO, other NEOs and other senior executives based on an evaluation of their performance against pre-approved goals and other factors.
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| | Independent Compensation Committee Consultant – Semler Brossy: |
| | • Provides advice and perspective to the Compensation Committee on executive and non-employee director compensation and benefits.
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| | • To maintain its independence and avoid any conflict of interests, may not work directly for our management unless the Compensation Committee pre-approves the work, including fees.
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| | CEO and Senior Human Resources and Legal Management: |
| | • At the Compensation Committee’s request, provides recommendations, input and support on compensation and benefit program design and implementation, and compliance and disclosure requirements. At least annually, our CEO reviews and discusses with the Compensation Committee the overall performance of our senior executive management, excluding himself, and makes recommendations as to their compensation and benefits.
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| | • Has retained a compensation consultant, Towers Perrin, for the purpose of providing compensation and benefits related information, analysis and support. |
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Executive Compensation Decisions – Participants, Factors, Component Mix, and Data Sources (continued) |
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Key
Factors | | These factors are considered subjectively and no one factor is specifically given more weight than another. |
| | • Each executive’s specific roles, responsibilities, performance, experience, and skill set.
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| | • The market for comparable jobs.
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| | • The existing and expected business environment.
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| | • Our overall financial and operational results. |
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Component
Mix | | The Compensation Committee uses its own judgment in approving compensation and benefit components and levels for each of our NEOs and other senior executives, and does not follow any set formula or set a specific allocation as to any one component. Through this subjective approach, the Compensation Committee generally takes into account (a) the key factors described above; (b) the data sources described below; and (c) the totality of compensation that may be paid through base salary and annual and long-term incentives.
The Compensation Committee’s intent is to calibrate compensation and benefit components so that the overall compensation they may provide to an executive is in line with what the Compensation Committee believes is appropriate. As a result, and because the Compensation Committee has generally weighted NEO and senior executive compensation significantly toward variable, performance-based annual and long-term incentives to align it with stockholder interests, each such executive’s compensation can vary from year-to-year and from other executives’ compensation in any year. To reflect the CEO’s key role in setting and executing long-term business strategies, the Compensation Committee has awarded the CEO a greater proportion of long-term incentives and greater overall compensation compared to our other senior executives. |
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Data
Sources | | Semler Brossy, our CEO and our senior human resources management provide the Compensation Committee with data to consider when making compensation decisions. Each data source assists the Compensation Committee in making compensation decisions, and no one source is specifically given more weight than another. The Compensation Committee, however, considers individual performance evaluations as a more important input than tally sheet and survey data. |
| | • Tally Sheets. Our management typically provides the Compensation Committee with a tally sheet for each member of our senior executive management at the beginning of each fiscal year, and may do so at other times in connection with senior executive management compensation decisions. Depending on when they are provided, the tally sheets may contain up to five years of data on various compensation and benefit components, including base salary and annual and long-term incentives. |
| | • General Market and Peer Group Data. Our peer group – which is listed below – consists of other high production home building companies. The Compensation Committee uses peer group and general industry market survey data to get a general sense of whether our executive compensation is reasonable and competitive with the compensation paid to executives with similar responsibilities at companies both within and outside the homebuilding industry that we consider to be similar to us based on revenues and nature of operations. The Compensation Committee does not, however, benchmark or target executive compensation and benefits at any specific level within a general industry or our peer group. |
| | • CEO Employment Agreement. The terms of our CEO’s compensation are governed by his Employment Agreement. Under the Employment Agreements, our CEO is to be paid an annual salary of no less than $1 million. He is also eligible to receive an annual incentive and entitled to participate in our long-term incentive compensation arrangements on terms and conditions that are no less favorable than those that apply to our other senior executives. The Board believes the Employment Agreement provides compensation that is in line with CEO compensation practices in the homebuilding industry. Our CEO is the only NEO with whom we have an employment agreement. |
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Peer Group |
Like us, our peers are engaged in high production home building. Our annual revenues approximate the group median. | | | • Beazer Homes• D.R. Horton• Hovnanian Enterprises• Lennar Corporation | | • MDC Holdings• NVR Incorporated• Pulte Homes• Ryland Group | | • Standard Pacific• Toll Brothers |
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Compensation in Context: Fiscal Year 20092010
In our 20092010 fiscal year, general economic conditions remained weak and we continued to face challenginga difficult operating environment amid the prolonged housing market downturn that began in mid-2006. With a persistent oversupply of homes available for sale and volatile business conditions. Amid significant uncertainty regarding the timingsoft demand for new homes, a generally poor economic and extent of any meaningful rebound in many housingemployment environment, turbulent financial and credit markets, tightened consumer mortgage lending standards, and the overall economy,mixed impact of government programs and actions directed at supporting homeownership, we and other homebuilders have experienced a severe drop in net orders, revenues and profitability over the last five years and up to the present time.
To manage our business through these difficult circumstances, we have focused on the following three primary strategic goals forgoals: restoring and maintaining the year wereprofitability of our homebuilding operations; generating cash and maintaining a strong balance sheet; restoring the profitability of our homebuilding operations; and positioning our business to capitalize on future growth opportunities. In pursuing these goals during the mid-2006 to 2009 period, we significantly reduced our overhead, inventory and community count to better align our operations with diminished home sales activity, improved our construction cycle times and operating efficiencies, and redesigned and re-engineered our product line to improve its affordability for homebuyers and to improve our margins. As a result of our strategic actions over this period, we began our 2010 fiscal year with a strong and liquid balance sheet, holding over $1 billion in cash, and an operational footprint better positioned in housing markets with perceived strong long-term growth prospects.
Based on the operational transformations we made through our 2009 fiscal year, we entered 2010 with restoring and maintaining the profitability of our homebuilding operations as our highest priority, notwithstanding a cautious outlook for the year stemming from continued uncertainty as to when a meaningful housing market recovery when it occurs. would take hold. We determined that future profitability would require greater revenue growth driven by a larger inventory base from which additional sales and deliveries of our higher-margin and well-received new products could be made. Accordingly, with our financial strength and seeing a number of attractive opportunities, in 2010 we implemented a targeted land acquisition initiative to acquire ownership or control of well-priced land parcels that met our investment standards and were located in our existing markets having the best perceived growth prospects.
We believe we made substantialsignificant progress during our 2010 fiscal year in strengthening a solid foundation to achieve long-term future growth and profitability. We generated in the second half of the year homebuilding operating income of $37.5 million and net income on a cumulative basis, compared to a homebuilding
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operating loss of $123.6 million for the corresponding year-earlier period. We reduced our pretax loss from $311.2 million in 2009 towards achieving each of these goals.
to $76.4 million in 2010. We sustainednarrowed our net loss from $101.8 million in 2009 to $69.4 million in 2010, reflecting a higher housing gross margin and lower overhead expenses. Our housing gross margin increased due to, among other factors, improved operating efficiencies and reduced direct construction costs achieved through the financial strengthvalue-engineering innovations we developed for our new product designs, includingThe Open Series. We reduced ouryear-over-year debt balance by $44.8 million and flexibility we had entering 2009, endingended the year with $1.29 billion of cash, cash equivalents and restricted cash and a lower overall debt level compared to year-end 2008. With regard to profitability, we significantly narrowed our net loss to $101.8above $1 billion,while investing approximately $560 million in 2009 from $976.1 millionland and land development to help expand our inventory of lots owned or controlled on ayear-over-year basis and to establish a strong operational platform in 2008, despite30 major markets that positions us to increase our active community count for the difficult market conditions. With regardfirst time in many years and to positioninggenerate potential future revenues. We garnered continued recognition as an industry leader on sustainable building practices, and record customer satisfaction levels based on J.D. Power and Associates and our business for future growth, we continued our nationwide roll-out of affordable, value-engineered new product designs, particularly ourThe Open Seriesline, which helped us generate a year-over-year increase in net orders compared to our 2008 results. We also strategically re-entered the Washington, D.C. metropolitan market and continued to adjust our operational infrastructure to focus resources on the markets we see as having strong long-term growth prospects.internal surveys. Our Annual Report provides further details on our 20092010 fiscal year performance. Given
Our executive compensation decisions in our 2010 fiscal year sought a balance between our financial and operational achievements and the prevailing tough and uncertain business conditions we structuredin the general economy and in the homebuilding industry. Below is a summary of our 2009key executive compensation objectives and benefit programsour approach to retain and motivate, in a cost-effective manner, our senior executive management team to promote optimal execution on our primary strategic goals. Below is additional information and analysis regarding our 2009 programs andaddressing them during the specific arrangements we have with our NEOs.
NEO Compensation for the 2009 Fiscal Yearyear.
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NEO Compensation and
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Benefit Components• Promote/reward achievement of strategic goals | | | Description/Purpose |
To support our profitability, operational repositioning and inventory growth strategic goals, annual incentives in 2010 were aligned with meaningful targets for pretax results, home deliveries and land pipeline levels. To further support our profitability goal, notwithstanding that significant achievements were made in the year, compensation levels in 2010 were at or in most cases below those in prior years. Base Salary | | | Semi-monthly cash payments that provide competitive fixed incomesalaries were generally held at 2008 or earlier levels, long-term incentive grant values were down even as the value of past awards continue to decrease, and annual incentive award values were reduced below amounts earned in previous years for performance of day-to-day position responsibilities.most participants |
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Annual Incentives • Attract and grow senior management bench | | | Lump sum cash payments made afterHired Mr. Kaminski as chief financial officer and Mr. Woram as general counsel. Both have significant experience in strategic leadership positions with public companies. Mr. Woram also has a relevant fiscal year to build accountabilitydeep background in the real estate and reward achievement of annual business goals.homebuilding industries |
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Long-Term Incentives • Minimize variable compensation expense | | | Stock- orEliminated virtually all outstanding cash-settled common stock options/SARs/restricted stock/phantom shares that are designed to promote retention and align executive compensation and stockholder value creation over a multi-year time period.SARs through the Exchange Offers, as discussed below under the heading “SAR Exchange Offers” |
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Executive Health Benefits • Enhance retention of key executives | | | Provide 100% reimbursementTo foster executive retention while maintaining an appropriate relationship between executive compensation and performance, in 2010, we granted long-term incentives consisting of qualified out-of-pocket medical, dentala combination of awards of restricted cash and vision expenses.common stock options. The value of previous years’ incentive awards reflects our philosophy of aligning pay with operational and financial performance, and stockholder return, as well as incentive and retention needs. Historically, this has led us to use stock options as a primary long-term incentive, as they only have value to the extent the market price of our common stock rises after grant. Due to a declining stock price amid the broad economic and housing downturn, however, the retention value of prior equity compensation has declined significantly from grant date values |
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Executive Death Benefits • Optimize 2011 fiscal year long-term incentives with a limited equity compensation share capacity | | | Provide a death benefitWe granted stock options to an executive’s beneficiary through a Death Benefit Only Plan through company-owned life insurance policies. That plan was closedour top executive talent at quantities close to prior year levels (excluding grants to new participantshires), with grant-date fair values that were lower than those granted last year, in 2004combination with awards of restricted cash that vest in three years (in lieu of grants of restricted stock). Though the total grant-date fair values of the 2011 fiscal year long-term incentives were generally lower, we believe these incentives provided meaningful motivational and now the benefit is provided through company-paid term life insurance. |
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Deferred Compensation Plan
| | | Permits deferred receipt of earned compensation into a non-qualified savings plan similar to our 401(k) Savings Plan; we match dollar-for-dollar deferrals under this plan and our 401(k) Savings Plan up to a total of six percent of base salary. |
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Retirement Plan (closed)
| | | Provides an annuity benefit after retirement; not all NEOs participate in the plan and no participants have been added to the plan since 2004.retention benefits together with alignment with stockholder interests |
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Mix and Levels of NEO Compensation Componentsfor the 2010 Fiscal Year
Base Salaries. Base salary is a fixed elementOther than for new hires, the Compensation Committee annually reviews and approves the base salaries of compensation for our CEO and our other NEOs. Base salaries for new hires are usually determined as part of the hiring process. The Compensation Committee annually reviews and may approveapproves NEO base salary adjustmentssalaries based on a number ofseveral factors, including eachan NEO’s experience, and specific responsibilities; individualresponsibilities, performance and expectations;expected future contributions; our current and expected financial and operational results; equity of salary relative to our executives who are at the same internal management level; market rates to ensure competitiveness; and our general budgetary guidelines for base salary increasessalaries as set by the Compensation Committee; and our overall financial and operational results. Based on its subjectiveCommittee. In subjectively weighing of these considerations,factors, the Compensation Committee maintained our salary2010 base salaries for Messrs. Mezger, Barnard and Hollinger at 2008 or earlier levels, and approved the starting base salaries for Messrs. Kaminski and Woram at the 2008 ratestime each joined us in 2010.
Reflecting our philosophy of aligning pay with operational and financial performance and stockholder return, base salaries make up a relatively small portion of NEO compensation. The majority of NEO compensation, particularly the compensation for all NEOs as well as other senior management. Theour CEO, recommended,consists of performance-based annual and the Compensation Committee agreed, that salary increases for 2009 would be made only to retain non-executive employees and consist only of market-level merit increases or adjustments to address below-market salaries.long-term incentives.
2010 Annual Incentives. For 2009,As shown in the table below, each of our NEOs, except Mr. Silcock,Messrs. Mezger, Kaminski and Hollinger was eligible for an annual incentive if at least one of twothree objective performance goals was achieved. Theachieved in 2010, subject to the Compensation Committee, however, had theCommittee’s discretion to reduce or eliminate the actual payout of any annual incentivesincentive based on its subjective evaluation of our overall performance an NEO’sand these NEOs’ individual performance, or other factors, including the factors described above under the heading “Executive Compensation Decisions – Participants, Factors, Component Mix, and Data Sources.” In approving the terms of the annual incentives for our NEOs, which was done at the beginning of 2009, the Compensation Committee sought to balance the need to retain and appropriately motivate our NEOs with the objective of containing overall compensation expense given the business environment. These annual incentives are described below. Mr. Silcock, who joined us in September, was eligible for a guaranteed bonus, as described below under the heading “Guaranteed Bonus.”performance.
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NEO | | | Threshold | | | | Target | | | | Maximum | |
Mr. Mezger | | | $ | 687,500 | | | | $ | 2,750,000 | | | | $ | 5,000,000 | |
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Mr. Kaminski | | | $ | 82,500 | | | | $ | 330,000 | | | | $ | 660,000 | |
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Mr. Hollinger | | | $ | 97,500 | | | | $ | 390,000 | | | | $ | 780,000 | |
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Each NEO was eligible to receive an annual incentive only ifThe three objective performance goals were the following: (a) our2010 fiscal year pretax loss did not exceed $350exceeding $200 million, for 2009, excluding inventory impairments and other non-recurring items,items; or (b) our operating cash flow for 2009 was2010 fiscal year home deliveries equal to or above negative $100 million, withgreater than 7,500; or (c) lot pipeline for 2011 home deliveries equal to 10,000 lots by our 2010 fiscal year end. If any of the achievement of each of these independent performance goals determined in accordance with U.S. generally accepted accounting principles. If neither goal was achieved, our NEOs were not eligible to receive any annual incentive payout. If either performance goal was achieved, each NEO except for Ms. Marlett, was eligible to receive their respective maximum annual incentive payout, subject to the Compensation Committee exercising downwardits discretion (as described above under the heading “Annual Incentives”) in determiningto reduce the actual payout relative to each NEO’susing the respective threshold target and maximum payout levels, which are described below. For Ms. Marlett, if either performance goal was achieved, she was eligible to receive an annual incentive payout in relation to her threshold, target and maximum payout levels described below based primarily on our actual pretax earnings and cash flow results and in part on her personal performance, subjectabove as an informal framework to the Compensation Committee exercising downward discretion in determining the actual payout. Ms. Marlett’s annual incentive was structured differently from the other NEOs’ because she was not a designated executive officer at the time the Compensation Committee approved annual incentives for 2009.guide its decision-making. The structure of Ms. Marlett’s annual incentive was consistent with those the Compensation Committee approved for executives at her internal management level.
The Compensation Committee approved the performance goals were designed to match the NEOs’ annual incentives toalign with our 2009primary strategic goalsgoal for 2010 of generating cashrestoring and maintaining a strong balance sheet and restoring the profitability of our homebuilding operations. The specific parametersoperations, with a focus on increasing our ownership or control of each performance goal were based on our outlook at the time the annual incentives were approved, whichwell-priced land parcels to promote future growth in revenues and home deliveries. They also reflected our expectations of an extremely difficult and volatile housing market conditions and recessionaryan uncertain and generally weak economic conditions throughout 2009. In addition, our corresponding strategic initiatives contemplated lower overall homes delivered and revenues compared to prior years as a result of repositioning and streamlining our operations and our nationwide roll-out of new product designs. Based on this outlook,environment in 2010; accordingly, the Compensation Committee determined that each of the performance goalsgoal was substantially uncertain to be met and would, to the extent achieved, represent a strong performance result for the year.
For the 20092010 NEO annual incentives, each respective target payout level was the amount each NEO received as an annual incentive in 2009 or, for Mr. Kaminski, an amount established in connection with his hiring and reflecting a partial year basis; each respective maximum payout level was set at or near 200% of the relevant target level; and each respective threshold payout level was set at 25% of the relevant target level. In approving the annual incentive payout levels, the Compensation Committee approved potential threshold, targetdetermined that they were appropriate to motivate and maximum payoutretain the eligible NEOs given the challenging homebuilding business environment, and that the relatively higher levels for our CEO and for each of our NEOs equal in each case to a specified percentage of their annual base salary. For our CEO, the payout levels were 50%, 200% and 400%, respectively. For
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Ms. Shiba, the payout levels were 23%, 90% and 180%, respectively. For Messrs. Hollinger and Masuda, the payout levels were 20%, 80% and 160%, respectively. For Ms. Marlett, the payout levels were 20%, 80% and 148%, respectively. The annual incentive payout levels for our NEOs corresponded to each executive’s respective internal management level. The Compensation Committee believes the relatively higher potential payouts that it approved for our CEO’s annual incentive compared to the annual incentives it approved for our other NEOs appropriately reflectreflected Mr. Mezger’s unique and critical role in setting and directly overseeingdriving the implementation of our overall operating strategyKBnxt operational business model and significant relatedour primary strategic initiatives,goals across all facets of our business, his broader responsibilities for drivingefforts to transform and position our overall financialoperations to achieve long-term profitability in this difficult and operational performance,turbulent environment, and his wide-ranging internal and external duties across all areas ofoverall responsibility for our business.performance.
The Compensation Committee determined that both objectivewe achieved the pretax loss performance metrics for the 2009 NEO annual incentives were achieved, with a 2009goal, as our 2010 fiscal year pretax loss, excluding inventory impairments and other non-recurring items, of $67.2 million and 2009 operating cash flow of $349.9was $56.4 million. Based on these results,
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Accordingly, each NEO was eligible for an annual incentive payout at the NEO’s respective maximum payout level as follows: Mr. Mezger $4.0 million; Ms. Shiba $822,600; Mr. Hollinger $584,000; Ms. Marlett $481,000; and Mr. Masuda $496,000. The maximum payout amount for Ms. Marlett also includes her achieving the personal performance component of her annual incentive, as further discussedset forth in the paragraph below.table above.
In evaluating and approving thethese NEOs’ actual annual incentive payouts, the Compensation Committee on a subjective basis also took into account a broad range of factors encompassing our overall financial and operational performance and individual performance. In particular, the strong performance we achieved relativeCompensation Committee considered the significant narrowing of our net loss for the year compared to our 2009 fiscal year, the goals set at the beginninggeneration of homebuilding operating income in each of the last two quarters of our 2010 fiscal year, the maintenance of a total cash balance above $1 billion, and also determined that each NEO delivered strong individual performancethe positioning of our operations through organizational restructuring and land acquisition and development activities (including theyear-over-year expansion in our inventory of lots owned or controlled) to provide a challenging business environment. With respect tosolid platform for future growth as housing markets recover. For Mr. Mezger, the Compensation Committee withand the Board’s approval, considered the significant and effective leadershipBoard determined that he provided strong and decisive leadership that was vital to our achieving these results, and noted that he has significantly enhanced our differentiation from other large production homebuilders through his efforts in directing the progress made towards achieving our key strategic goals for 2009, which encompassed, among other things, implementingpositioning us as a successful nationwide roll-out of new product designed to meet current homebuyer needs and interests; measurably improving profit margins and maintaining balance sheet strength and flexibility by managing and reducing costs, land inventory and debt levels; and positioning the organization, geographically and operationally, to achieve future growth as housing market conditions improve.leader in sustainable building practices.
For our NEOs other than our CEO,Mr. Hollinger, the Compensation Committee based in large part on the CEO’s evaluation of them, foundconsidered that Ms. Shiba provided excellent oversight of our governance, ethics and compliance programs and significant support to the achievement of key financial and operational initiatives, and successfully resolved a number of material litigation matters; Mr. Hollingerhe provided critical leadership and oversight of our accounting and financial reporting process in serving as our principal financial officer for mostalmost half of the year,year. During this time, he helped us to preserve balance sheet flexibility and a total cash balance above $1 billion while supporting investments in future growth, in addition to performing his duties as our Chief Accounting Officer; Mr. Masuda playedchief accounting officer. He was also a key rolecontributor to the Company’s cost savings efforts throughout the year. For Mr. Kaminski, the Compensation Committee determined that in restructuringthe relatively short time he has served as our debt to reduce the overall amountchief financial officer, he has quickly become grounded in our operational strategy and extend its maturity,taken ownership of our strategic planning process, solidified our finance team, enhanced our investor relations strategy, and been instrumental in helpingpositioning us to maintain a strong and liquid balance sheet; and Ms. Marlett successfully ledachieve our sales and marketing organization to achieve year-over-year net order growth and drove the consumer launch of our new product and new communities, which were instrumental in our 2009 results. Ms. Marlett was determined to have achieved the maximum potential payout under the personal performance component of her annual incentive, and this is reflected in the amount noted above for Ms. Marlett. The Compensation Committee did not apply any specific weighting or formula with respect to the foregoing considerations in determining our NEOs’ final annual incentive payouts.profitability goals.
Despite the strong operational and individual performance in 2009, givenWeighing our overall financial results for the yearperformance and prevailing and expected business conditions, though, the Compensation Committee used its discretion to reduce the annual incentive payouts to our NEOs to the following amounts: Mr. Mezger $2,750,000; Ms. Shiba $411,300;Mr. Kaminski $360,000; and Mr. Hollinger $390,000; Ms. Marlett $300,000; and Mr. Masuda $250,000.$350,000. The Compensation Committee did not apply any specific weighting or formula with respect to determining our NEOs’ actual annual incentive payouts.
Guaranteed Bonus.Mr. Silcock receivedBarnard was not originally selected to be eligible for a 2010 annual incentive based on considerations of his expected role and responsibilities with us. Due to executive officer transitions during 2010, however, Mr. Barnard’s duties were expanded and he made notable contributions to implementing certain of our operational goals. Therefore, in January, 2011, the Compensation Committee approved a discretionary bonus to Mr. Barnard of $150,000 in recognition of his work in 2010. Mr. Woram was eligible for a guaranteed bonus of $200,000$325,000 in lieu of an annual incentive for 2010 per the terms of his hiring in July, 2010. He also received a hiring bonus of $426,971. Mr. Silcock, whose employment with us terminated on December 14, 2009, fiscal year that was agreed to when he was hirednot eligible for an annual incentive in September.2010.
New Hire Incentive Awards. In connection with their joining us in 2010, the Compensation Committee approved incentive award grants to each of Messrs. Kaminski and Woram in the form of stock options and restricted stock. For Mr. Kaminski, the Compensation Committee approved a total grant-date fair value of $300,000; for Mr. Woram, the Compensation Committee approved a total grant-date fair value of $530,000. Each of these awards were granted in July and split 75%/25% in stock options and restricted stock, consistent with the split awarded for the 2010 long-term incentive awards granted to our NEOs in October, 2009. These grants to Messrs. Kaminski and Woram are shown below under the heading “Grants of Plan-Based Awards During Fiscal Year 2010.”
2011 Fiscal Year Long-Term Incentives. WeTo promote retention and alignment with stockholders’ interests, we provide long-term incentives to our NEOs that consist primarily of grants of equity-based vehicles settled in cash or stock. Because these awards vest over a three-year time horizonstock and the value oftypically grant these incentives is tied toin October each year. For the share price of our common stock, we believe they are performance-based and establish an alignment of NEO and stockholder interests over a long-term horizon. Other objectives the Compensation Committee considered in deciding on the grant vehicles and parameters for our 20102011 fiscal year long-term incentives, includedour approach was affected by the low number of shares available for grant under our 2010 Plan stemming from our efforts to minimize the variability of compensation expenses associated with prior grants of cash-settled SARs, as discussed above under the heading “Compensation in Context: Fiscal Year 2010.” Therefore, our 2011 fiscal year long-term incentive grants, which were made in October, 2010, consisted of stock options that the plan be sustainablevest in equal annual installments over timea three-year period and varied market conditions; rewardawards of restricted cash that vest in full after three years, subject in each case to a recipient’s continued employment with us through the
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recipients for strong performance in delivering financial and operational results that drive stockholder value creation while reflecting expected position-based contributions and responsibilities; and balance and align stockholder and management interests.applicable vesting periods. These other objectives are reflected in the types and mix of long-term incentives granted and the vesting conditions applied to the grants, as described below. We typically grant long-term incentives in October each year, in conjunction with a regularly scheduled Compensation Committee meeting, for the following fiscal year. Accordingly, the 2010 fiscal year long-term incentives were granted in October 2009.
In 2007 and 2008, the Compensation Committee granted to our NEOs cash-settled SARs and phantom shares as long-term incentives because at the time the grants were made there were a limited number of shares of common stock that were available for grant under our existing stockholder-approved equity compensation plans. Except for their cash-settled payout, the SARs and phantom shares granted in 2007 and 2008 mirror the attributes of common stock options and shares of restricted common stock, respectively. With the return in 2009 of a significant number of shares to our existing stockholder-approved equity compensation plans, as discussed in our Annual Report, the Compensation Committee granted 2010 fiscal year long-term incentives to our NEOs and other senior executives and employees in the form of common stock options and shares of restricted common stock.
As with the annual base salaries and annual incentives it approved for 2009, the Compensation Committee determined that the 2010 fiscal year long-term incentives should be oriented to emphasize, in a cost-effective manner, the retention and motivation of our top executive talent, those who are critical in driving long-term, sustainable value for our stockholders. In reaching this determination, the Compensation Committee considered that the retention value of our past long-term incentive awards is very low given the sustained downturn in the homebuilding industry and the general economy. This downturn has caused the price of our common stock to fall significantly below the exercise price of most of our outstanding employee stock options. The Compensation Committee also considered that our executives did not exercise options when they could, but instead held options through the downturn. The Compensation Committee believes it is appropriate for executives to have a stake in our long-term success that aligns with rebuilding our market value. To address these circumstances and promote retention while containing compensation expense, the Compensation Committee approved 2010 fiscal year long-term incentives at grant date values that roughly approximated the grant date values for the 2009 fiscal year long-term incentives, although the NEO grants were all slightly less than those made a year ago.
Based on these considerations and objectives, the Compensation Committee, with input from Semler Brossy and our CEO (as to our other NEOs and other senior management), granted to our NEOs a combination of common stock options and shares of restricted common stock. The specific amounts granted to our CEO and to the other NEOs are shown below under the heading “Grants of Plan-Based Awards During Fiscal Year 2009.2010.”
ForIn light of the important purpose long-term incentives serve to motivate and retain top executive talent, a key consideration for the Compensation Committee in approving the 2011 fiscal year long-term incentives for our NEOs was the low intrinsic value (and consequently low retention value) of our past long-term incentive awards. The exercise price of most of our outstanding employee stock options is higher, and in some cases substantially higher, than the current market price of our common stock, greatly undercutting the retention value of these awards. Based on these considerations and subjective evaluations of each NEO,NEO’s current performance (with the key aspects as described above under the heading “2010 Annual Incentives”) and expected future contributions and role, the Compensation Committee approved grants of stock options and awards of restricted cash to each of our NEOs, except for Messrs. Barnard and Silcock. Both Messrs. Mezger and Hollinger were granted almost the same number of stock options as each was granted last October for their 2010 long-term incentives, resulting in each receiving an award with a lower aggregate grant-date fair value compared to those prior grants due to a decline in the price of our common stock, reflecting the Compensation Committee’s recognition of their significant individual achievements in 2010 and to motivate future performance, balanced against our profitability goal, the current business environment and constrained capacity of shares available for grant. The aggregate amount of stock options and awards of restricted cash granted as 2011 fiscal year long-term incentives to Messrs. Kaminski and Woram were based in each case on values approved in connection with their hiring — $800,000 for Mr. Kaminski and $750,000 for Mr. Woram. Accordingly, as 2011long-term incentives the Compensation Committee approved the following grants of stock options and awards of restricted cash: Mr. Mezger 240,000 stock options, 260,000 performance stock options (as described below under the heading “CEO Performance Options”) and $500,000;
Mr. Kaminski 118,000 stock options and $260,000; Mr. Woram 111,000 stock options and $242,000; and Mr. Hollinger 60,000 stock options and $260,000.
As with the 2010 fiscal year long-term incentives, granted was based on the fair value of the award on the grant date, October 1, 2009, and on a total value the Compensation Committee approved for the NEO,granting of which, except for our CEO (as discussed below), 75% was allocated to common stock options and 25% was allocated to shares of restricted common stock. The Compensation Committee approved the 75%/25% allocation between common stock options and shares of restricted common stock to establish a strong link between the NEOs’ and stockholders’ interests in long-term value creation as the value of each common stock option increases with increases in the share price of our common stock. At lower management levels, to promote retention the allocation between common stock options and shares of restricted common stock was weighted more towards shares of restricted common stock (from 50% to 100% of the overall grants to individual recipients) and restricted cash grants at the lowest levels of management participants.
Mr. Mezger’s long-term incentive value was set at $3,500,000 based on the Compensation Committee’s view that it would appropriately compensate and motivate Mr. Mezger to continue to provide effective leadership and strong performance in developing and executing our long-term business strategy during the current housing market downturn, as the Compensation Committee felt he had in 2009 (see discussion above under the heading “Annual Incentives” with respect to the determination of Mr. Mezger’s 2009 annual incentive payout). Mr. Mezger’s long-term incentive consisted solely of stock options based on the Compensation Committee’s determination that they provide, compared to other equity-based instruments, the best alignment
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of his interests with those of our stockholders’ to meet the present challenges for the homebuilding industry and to enhance our performance relative to other homebuilders over the longer term.
For our other NEOs, the Compensation Committee considered a total long-term incentive value set within a range of 100% to 200% of current base salary based on their internal management level. Within this range, the Compensation Committee subjectively approved a dollar value for each NEO based on a number of factors, including the above-described objectives for the 2010 long-term incentives, the NEO’s individual current and expected future performance and role, overall potential compensation cost, and the factors described above under the heading “Executive Compensation Decisions – Participants, Factors, Component Mix, and Data Sources.” Based on these considerations, the Compensation Committee approved for each NEO other than our CEO the following total long-term incentive values: Ms. Shiba $675,000; Mr. Hollinger $650,000; Ms. Marlett $450,000; Mr. Masuda $350,000; and Mr. Silcock $1,200,000 (which he forfeited upon his termination of employment with us).
As with the 20092011 fiscal year long-term incentives all 2010 fiscal year long-term incentives were grantedother than Mr. Mezger’s performance options without specific performance-vesting requirements. This is largely because theThe Compensation Committee believed it could not set meaningful and sustainable long-term performance targets due to a continued uncertain outlook for the housing market and the overall economy. Giventook this approach based on the importance of motivating and retaining top executive talent in a difficult business environment and the Compensation Committee’sits view that stock options, the value of which rise and fall in line with the market price of our common stock, options are inherently performance-based and performance-motivating incentives that appropriately align the interests of executives and stockholders,stockholder-aligned incentives.
In January, 2010, the Compensation Committee determinedapproved a grant to Mr. Barnard of 90,000 stock options that performance-vesting requirements wouldwill vest in full in two years if Mr. Barnard continues to be employed with us through the vesting date. This grant of stock options aligns with Mr. Barnard’s anticipated role and responsibilities in overseeing the implementation of certain operational efficiency, product development and sustainability initiatives during the vesting period and was made in lieu of his receiving any other long-term incentives in 2010. As Mr. Silcock’s employment with us ended on December 14, 2009, he was not be productive in driving financial and operational results over the performance periodeligible for the 2010any 2011 fiscal year long-term incentives.
2011 CEO Performance Shares.Options. On July 12, 2007,Consistent with the Compensation Committee granted to Mr. Mezger under his Employment Agreement a long-term incentive award of 54,000 performance shares. The performance shares were to vest, if at all, based on our total stockholder return (“TSR”) over a three-year measurement period ending November 30, 2009, relative to our peer group, as shownpolicy it adopted in the chart below. Payouts are linearly interpolated between the percentiles indicated below.
| | | | |
| | Payout as a Percentage of
|
Relative TSR Percentile Ranking | | Performance Shares Granted |
|
|
Below the 25th percentile | | | 0 | % |
25th percentile | | | 25 | % |
50th percentile | | | 100 | % |
75th percentile and above | | | 150 | % |
On January, 21, 2010 the Compensation Committee determined that our TSR for purposes of the performance shares fell into approximately the 46th percentile. Accordingly, the Compensation Committee approved Mr. Mezger’s vesting in 48,492 shares of the total 54,000 performance shares originally granted. The amount of any cash dividends that were paid on our common stock during the three-year performance period, were equally and contemporaneously paid to Mr. Mezger on the 54,000 performance shares.
To further strengthen the alignment of our CEO’s interests with those of our stockholders, the Compensation Committee has adopted a policy to make the vesting of a majority of any future grants of equity compensation to our CEO contingent on the achievement of one or more long-term objective performance metrics.metrics, the Compensation Committee granted 260,000 performance stock options to Mr. Mezger as part of his 2011 long-term incentive award. The metrics may include earnings growthtiming and cash flow orextent to which the performance options vest, if at all, depends on our achieving (as determined by the Compensation Committee) any of the otherfollowing as of the end of our fiscal year in any of 2011, 2012 or 2013: (a) positive cumulative operating margin results measured from December 1, 2010 to the end of any one these fiscal years (excluding the impact of inventory and joint venture impairments and land option contract abandonments); (b) cumulative operating margin results that are better than the 50th percentile of a comparator group of homebuilding industry companies within the global industry classification standard homebuildingsub-industry index; or (c) customer satisfaction scores that are above the mean average score of the homebuilders covered in a third party survey. If none of the performance criteria providedmetrics is determined by the Compensation Committee to have been achieved by the end of our 2013 fiscal year, a portion of the performance stock options may vest if the Compensation Committee determines that the second or third performance metric described above has been achieved at a threshold level of 60% of the applicable performance metric goal. Accordingly, depending on how close the achievement was relative to the goal (provided it is above the 60% threshold level), up to one half of the performance stock option award will vest based on the second performance metric, and up to
31
one half of the performance stock option award will vest based on the third performance metric, in each case per the following table (with performance between 60% and 100% of an applicable performance goal interpolated linearly):
| | | |
Performance Metric Achievement
| | | Range of Performance Option Vesting
|
Actual % of Performance Goal Achieved | | | % of Eligible Award |
|
60% — 70% | | | 25% - 44% |
| | | |
70% — 80% | | | 44% - 63% |
| | | |
80% — 90% | | | 63% - 81% |
| | | |
90% — 100% | | | 81% - 100% |
If the Compensation Committee determines that none of the performance metrics have been achieved at a 60% threshold level, none of the performance stock options will vest.
“Over-Cap” Equity-Based Awards. In prior years, our annual incentive arrangements with certain senior executives limited the amount of annual incentive payouts they could receive in cash and required that they receive amounts over the specified cap in the proposed KB Homeform of restricted stock or phantom shares. These equity-based awards were granted on the date the cash portion of the annual incentive was paid, and vested on the earlier of the third anniversary of the grant date and the recipient’s termination of employment, other than a voluntary termination or a termination for cause. On July 12, 2010, Equity Incentive Plan,Messrs. Mezger and Hollinger vested in “over-cap” phantom shares that were originally granted to them on July 12, 2007 based on a stock price of $36.19 as follows: Mr. Mezger 55,264, and Mr. Hollinger 1,037. Each received a cash payout equal to the phantom shares each held multiplied by the closing price of our stock on the vesting date, $10.85.
SAR Exchange Offers. In our 2010 fiscal year, the Compensation Committee approved two separately conducted Exchange Offers under which certain officers and employees were given the opportunity to replace cash-settled SARs previously granted to them as long-term incentive awards in 2007, 2008 and 2009 with non-qualified options to purchase shares of our common stock issued under the 2010 Plan. We conducted the Exchange Offers in an effort to reduce the variability in the reporting of compensation expense for the SARs under applicable accounting rules, which variability could be substantial and obscure the reporting of our operating performance. By replacing the SARs with the stock options, we were able to eliminate much of this variability and provide stockholders and investors with a clearer view of our operating results. The Exchange Offers will also help us conserve cash that may otherwise have been paid in connection with SAR exercises. The Exchange Offers are describedfurther discussed above under the heading “Proposal 3: Approve an Amendment to the KB Home 2010 Equity Incentive Plan – Performance-Based Compensation.Plan.” The Exchange Offers did not include a re-pricing or any other changes impacting the value of the awards to the participating officers and employees, and no additional grants or awards were made to participants as part of the offers. In order to complete the Exchange Offers according to their terms, we issued a total of 2,041,735 stock options under the 2010 Plan. Messrs. Mezger, Barnard and Hollinger received stock options in one or both of the Exchange Offers, as shown below under the heading “Grants of Plan-Based Awards During Fiscal Year 2010.”
Benefits. The majority of our health and welfare benefits are made available to all full-time employees, including our NEOs. During 2009,2010, as in years past, our NEOs also received a supplemental benefit that reimburses them for any qualifiedout-of-pocket medical, dental and vision expenses whichthat exceed amounts payable under theour standard medical, dental and vision plans. In addition, in 2010, certain of our NEOs were provided with certain death benefitsa death-related benefit and participated in our Deferred Compensation Plan and Retirement Plan, each as described below under the heading “Post-Termination“Severance, Change in Control and Post-Termination Arrangements.” These benefits are offered to attract key executive talent and to promote retention. Mr. Mezger participates in a program under which he is credited with a specific number of vacation hours that remains fixed throughout his employment with us, regardless of actual vacation
37
time taken. When his employment with us ends, he is entitled to receive a payout of these vacation hours that is based on his then-current annual base salary.
Perquisites. In 2007, we discontinued substantially allWe provide very few perquisites to our NEOs, including automobile allowances, company-paid automobile fuel cards, and reimbursement of expenses for automobile insurance, annual financial planning and tax preparation services, and one-time estate planning services. On a few occasions in 2009, family members accompanied NEOs on business trips on a company-chartered aircraft; however, we did not incur any additional incremental cost for this travel. In one instance in 2009, a portion of a company-chartered aircraft business trip for our CEO was deemed to be for a personal purpose, and we incurred an incremental cost of $11,568 for this travel. From time to time, we also made available to our employees, including our NEOs, for their personal use, tickets to certain sporting events purchased as a season subscription for business purposes. We did not incur any additional incremental costs with such use and we have discontinued the practice.NEOs. In connection with Ms. Shiba’sMr. Kaminski’s hiring and relocation from ClevelandDetroit to Los Angeles in May, 2010, we agreed to pay for certain relocation expenses, and to provide her with a monthly housing cost differential amount through December 2008. In 2009, Ms. Shiba received $86,763 under this arrangement. This amount includes reimbursements related to the sale of her home in Cleveland. In connection with Mr. Silcock’s hiring and relocation from Connecticut to Los Angeles in September 2009, we agreed to reimburse his relocation expenses in accordance with our internal policies and to provide him an allowance of $5,000 per month forincluding temporary housing for up to six months.months, and for any personal income tax liability associated with such relocation-related payments. In 2009,our 2010 fiscal year, Mr. SilcockKaminski received $4,570$47,594 under this
32
arrangement. In connection with Mr. Woram’s hiring and relocation from Dallas to Los Angeles in July, 2010, we agreed to pay for certain relocation expenses, including temporary housing for up to six months, and for any personal income tax liability associated with such relocation-related payments. In our 2010 fiscal year, Mr. Woram received $69,515 under this arrangement.
Severance, Change in Control and Post-Termination Arrangements
Severance Arrangements. Mr. Mezger’s Employment Agreement provides him with certain severance benefits, discussed below under the heading “Potential Payments upon Termination of Employment or Change in Control.”
Following a review of executive severance policies at peer homebuilding companies and other similarly sized public companies, the Compensation Committee adopted an Executive Severance Plan in 2007 for non-change in control situations. Allall of our current NEOs participate in the plan. The planour Executive Severance Plan, which provides a specifiedcertain severance benefitbenefits for non-change in control situations ranging from one to two times salary and bonus depending on a participant’s internal management level, aslevel. Messrs. Kaminski and Woram, however, will not be eligible to receive benefits under our Executive Severance Plan until they have completed at least one year of employment with us. These severance arrangements are discussed further below under the heading “Potential Payments upon Termination of Employment or Change in Control.”
In July 2008, following stockholder approval of an advisory proposal, we We have adopted a policy under which we will obtain stockholder approval before paying severance benefits to an executive officer under a future severance arrangement in excess of 2.99 times the sum of the executive officer’s then-current base salary and target bonus. Future severance arrangements do not include severance arrangements existing at the time we adopted the policy in July, 2008 or any severance arrangement we assume or acquire unless, in each case, the severance arrangement is changed in a manner that materially increases its severance benefits. We adopted this policy to underscore our intent to continue to remain below the 2.99 times limit in our future severance arrangements.
Other Payments Due Upon Termination of Employmentand/or a Change in Control.Control Arrangements. In addition to the severance arrangements mentioned above,Since 2001, we maintainhave maintained a Change in Control Severance Plan (“CIC Plan”) that provides participants with certain severance benefits upon a change in control andprovides participants with certain severance-related payments, accelerated vesting of equity awards and full vesting in any benefits under our Death Benefit Only Plan (if a participant also participates in that plan). AllOur current NEOs and a very limited number of our current NEOsother senior executive management participate in the CIC Plan. The objectives of the CIC Plan areis intended to enable and encourage our management to focus its attention on obtaining the best possible deal for our stockholders in a change in control scenario and to make objective evaluations of all possible transactions, without being distracted by the possible impact such transactions may have on job security and benefits; to promote management continuity; and to provide income protection in the event of involuntary loss of employment. In addition, in the eventif we experience a change in control, therethe vesting is accelerated vesting offor any unvested benefits under our Deferred Compensation Plan and our Retirement Plan, each of which is discussed below, and under the heading “Retirement Programs,” and certain of our employee benefit plans, including our equity compensation plans. The payments to which each of our NEOs may be entitled on termination of their employmentand/or if we experienceupon a change in control is further discussed below under the heading “Potential Payments uponUpon Termination of Employment or Change in Control.”
38
Death Benefits. Our Death Benefit Only Plan, in which Messrs. Mezger and Hollinger and Ms. Marlett participate, provides a death benefit to the participant’s designated beneficiary of $1 million (plus an additionalgross-up“gross-up” amount sufficient to pay taxes on the benefit and the additional amount). We closed the Death Benefit Only Plan to new participants beginning in 2004, and only term life insurance, with a $750,000 benefit level payable to an executive’s designated beneficiaries, has been made available to incoming eligible executives. We maintain this term life insurance benefit for Ms. ShibaMessrs. Kaminski and Woram. We also maintain this type of coverage for Mr. Masuda, and provided itBarnard, but under an age-related provision of the policy, the benefit level was reduced to Mr. Silcock during 2009.$488,000 as of September 1, 2010. We also maintain a life insurance death benefit for Mr. Mezger of $400,000.
Retirement Programs. Our 401(k) Savings Plan, a qualified defined contribution plan, is the only program we offer to all full-time employees that provides post-employment benefits. Our current NEOs and certain other senior executives also have the opportunity to participate in an unfunded nonqualified Deferred Compensation Plan, which allows pretax contributions of base salary and annual incentive compensation. We provide adollar-for-dollar match of Deferred Compensation Plan and 401(k) Savings Plan contributions ofon up to an aggregate amount of six percent of a participant’s base salary. NEO deferrals under the Deferred Compensation Plan are shown below under the heading “Non-Qualified Deferred Compensation During Fiscal Year 2009.2010.” We offer the Deferred Compensation Plan to give participating executives the ability to defer amounts above the contribution limits applicable to our 401(k) Savings Plan.
We maintain a Retirement Plan for certain executives that has been closed to new participants since 2004. Messrs. Mezger, Barnard and Hollinger and Ms. Marlett participate in the Retirement Plan. The Retirement Plan provides each vested participant with a specific annual dollar amount for 20 years, commencing followingwith payments beginning upon the later of the participant’sparticipant reaching age 55; the tenth anniversary of the date the participant commenced his or her participation; or the termination of the participant’s employment with us. Mr. Mezger’s original annual benefit
33
amount under the Retirement Plan was $450,000. For the other NEO participants, the original annual benefit amount under the Retirement Plan was $100,000. For each participant, the annual benefit amount is increased by the same annualcost-of-living adjustments that are applied to federal social security benefits, starting with the plan year ending November 30, 2006. Vesting generally requires five years of participation and, once vested, the participant is entitled to his or her full benefit.benefit per the payout terms stated above. Details of NEO participation in the Retirement Plan are provided below under the heading “Pension Benefits During Fiscal Year 2009.2010.”
Indemnification Agreements
As with our non-employee directors, we have entered into agreements with each of our NEOs, other executive officers and certain other senior executives that provide them with indemnification and advancement of expenses to supplement that provided under our Certificate of Incorporation and insurance policies, subject to certain requirements and limitations.
Other Material Tax and Accounting Implications of the Executive Compensation Program
Section 162(m) of the Code generally disallows a tax deduction for compensation over $1 million paid to our highest paid executives unless it is qualifying performance-based compensation. We generally design compensation plans in order to maintain federal tax deductibility for executive compensation under Section 162(m) of the Code, and the Compensation Committee considers the potential Section 162(m) impact when approving the compensation paid to our NEOs. The Compensation Committee, recognizes the need to balance tax deductibility benefits with the need to provide effective compensation packages that enhance enterprise and stockholder value creation, however, and will approve compensation that may not be deductible under Section 162(m) of the Code where it believes it is in our and our stockholders’ best interests to do so.
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Overview of Executive Compensation Decision-Making and Other Compensation Policies
| | | |
Executive Compensation Decision-Making Process |
Participants and Roles
| | | The Compensation Committee uses its own judgment, generally based on the considerations below, in subjectively approving the compensation and benefits for each of our NEOs and for our other senior executive management:
• Each executive’s specific roles, responsibilities, performance, experience and skill set; the market for comparable jobs; prevailing business conditions; and our overall financial and operational results • Certain objective data, including • financial and operational metrics (particularly those used with performance-vesting compensation) • for each executive, a management-prepared tally sheet with up to five years of compensation data • surveys of comparative general industry and peer group (which is described below) compensation practices to assess whether our compensation is reasonable and competitive The Compensation Committee does not give any one of these data sources greater weight than another in making compensation decisions, and considers individual performance evaluations as a more important input. It also does not benchmark or target compensation and benefits at any specific level relative to general industry, to our peer group or to our financial results or stockholder return• The totality of compensation that may be paid through base salary and annual and long-term incentives The Compensation Committee does not follow any set formula or set a specific allocation as to any one element of the compensation and benefits provided to an executive. Rather, it seeks to establish overall compensation at a level that it believes is appropriate. As a result, an executive’s compensation can vary from year to year and from other executives’ compensation in any year |
| | | |
| | | | | | | |
Our Peer Group |
Like us, our peers are engagedin high production home building. Our annual revenues approximate the group median. | | | • Beazer Homes• DR Horton• Hovnanian Enterprises• Lennar Corporation | | • MDC Holdings• M/I Homes• Meritage Homes Corp.• NVR Incorporated | | • PulteGroup, Inc.• Ryland Group• Standard Pacific• Toll Brothers |
| | | | | | | |
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Equity Stock Ownership Policy. We have had an executive stock ownership policy since 1998. Itthat establishes specific levels of stock ownership that designated executives are expected to achieve within five years of joining us and is designedintended to encourage, and has encouraged, our executives to increase their ownership of our common stock over time and to align their interests with our stockholders’ interests. In February 2008, the Compensation Committee amended the policy, as described below.
The policy identifies specific levels of stock ownership that designated executives are expected to achieve. The targeted stock ownership levels for our NEOs range from 20,000 to 150,000 shares, depending on position. Executives subject to the policy have five years to achieve these ownership levels and must make meaningful progress every year towards the achievement of these ownership levels. Survey data and multiples of average base salaries per internal management level were used to determine theexpected ownership expected for each position. Sharelevels. Stock ownership may include shares of our common stock owned outright by a designated executive, sharesor owned indirectly through our 401(k) Savings Plan, and 60% of unvested restricted stock grants or phantom share rights. Phantom share rights are included so that executives subject to the policy wouldare not be penalized for theif there are a limited number of shares that were available for grant under our existing stockholder-approved equity compensation plans at the time the policy was amended. It is assumed that executives will use the cash proceeds they receive from the vesting
39
of phantom shares to increase their ownership of our common stock.plans. Once required ownership levels are achieved, they must be maintained throughout the executive’s employment. Our policy provides both financial incentives to achieve ownership requirements as well asand material consequences for non-compliance. The Compensation Committee may, from time to time, reevaluate and revise the ownership requirements to account for material changes in stock price. Our NEOs are currently in compliance with the policy.
Prohibition on Hedging/Pledging of KB Home Securities. To further align their interests with those of stockholders, our senior executives are prohibited from engaging in short sales of our securities and from buying or selling puts or calls on, or any other financial instruments that are designed to hedge or offset decreases or increases in the value of, our securities (including without limitation derivatives, prepaid variable forward contracts, equity swaps, collars and exchange funds).
Equity-Based Award Grant Policy. In February 2007, the Compensation Committee adopted aOur equity-based award grant policy that is designed to enhance the process by which we grant equity-based awards, including stock options, SARs, phantom shares and restricted stock, by governinggoverns the timing of equity-based awards and establishingestablishes certain internal controls over the grant of such awards, as described below.
equity-based awards. The policy requires that the Compensation Committee (or the Board) approve all grants of equity-based awards, and their terms. The policy does not permit any delegation of granting authority to our management. The grant date of any equity-based award will be the date on which the Compensation Committee met to approve the grant unless a written resolution sets a later date. The exercise price of any stock option award will not be less than the closing price of our common stock on the NYSE on the grant date. All equity-based award grants made in 2009 were made in compliance with the policy and were approved at regularly-scheduled Compensation Committee meetings in January and October 2009, as discussed above under the heading “Long-Term Incentives.”
Recovery of Compensation. Under his Employment Agreement, our CEO is required tomust repay certain bonus and incentive- or equity-based compensation he receives if we are required to restate our financial statements as a result of his misconduct, consistent with Section 304 of the Sarbanes-Oxley Act of 2002. We will also recoup equity-based compensation to the extent required under the Dodd-Frank Act.
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Change in
| | | | | | | | | | | | | | | | | | | | | | | | | | | Change in
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | Pension Value
| | | | | | | | | | | | | | | | | | | | | | | | | | | Pension Value
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | and
| | | | | | | | | | | | | | | | | | | | | | | | | | | and
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | Nonqualified
| | | | | | | | | | | | | | | | | | | | | | | | | | | Nonqualified
| | | | | | |
| | | | | | | | | | | | | | | | | | Non-Equity
| | | Deferred
| | | | | | | | | | | | | | | | | | | | | | | | Non-Equity
| | | Deferred
| | | | | | |
| | | | | | | | | | | | Stock
| | | Option
| | | Incentive Plan
| | | Compensation
| | | All Other
| | | | | | | | | | | | | | | Stock
| | | Option
| | | Incentive Plan
| | | Compensation
| | | All Other
| | | |
| | | Fiscal
| | | Salary
| | | Bonus
| | | Awards
| | | Awards
| | | Compensation
| | | Earnings
| | | Compensation
| | | Total
| | | Fiscal
| | | Salary
| | | Bonus
| | | Awards
| | | Awards
| | | Compensation
| | | Earnings
| | | Compensation
| | | Total
|
Name and Principal Position(a) | | | Year | | | ($) | | | ($)(a) | | | ($)(b) | | | ($)(b) | | | ($)(c) | | | ($)(d) | | | ($)(e) | | | ($) | | | Year | | | ($) | | | ($)(b) | | | ($)(c) | | | ($)(c) | | | ($)(d) | | | ($)(e) | | | ($)(f) | | | ($) |
Jeffrey T. Mezger President and Chief Executive Officer | | | 2009 | | | $ | 1,000,000 | | | | $ | 0 | | | | $ | 1,137,076 | | | | $ | 3,310,337 | | | | $ | 2,750,000 | | | | $ | 747,377 | | | | | $83,699 | | | | | $9,028,489 | | | | 2010 | | | $ | 1,000,000 | | | | $ | 0 | | | | $ | 0 | | | | $ | 2,295,750 | | | | $ | 2,750,000 | | | | $ | 618,113 | | | | $ | 66,518 | | | | $ | 6,730,381 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | | | 1,000,000 | | | | | 0 | | | | | 1,069,341 | | | | | 4,593,443 | | | | | 2,750,000 | | | | | 141,666 | | | | | 70,482 | | | | | 9,624,932 | | | | 2009 | | | | 1,000,000 | | | | | 0 | | | | | 0 | | | | | 3,500,000 | | | | | 2,750,000 | | | | | 747,377 | | | | | 83,699 | | | | | 8,081,076 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | | | 1,000,000 | | | | | 6,000,000 | | | | | 4,181,624 | | | | | 3,743,258 | | | | | 97,500 | | | | | 388,632 | | | | | 972,604 | | | | | 16,383,618 | | | | 2008 | | | | 1,000,000 | | | | | 0 | | | | | 875,000 | | | | | 2,625,000 | | | | | 2,750,000 | | | | | 141,666 | | | | | 70,482 | | | | | 7,462,148 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wendy C. Shiba† Executive Vice President, General Counsel and Secretary | | | 2009 | | | | 457,000 | | | | | 0 | | | | | 106,230 | | | | | 252,918 | | | | | 411,300 | | | | | 0 | | | | | 122,982 | | | | | 1,350,430 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | | | 456,417 | | | | | 400,000 | | | | | 41,580 | | | | | 41,832 | | | | | 0 | | | | | 0 | | | | | 310,357 | | | | | 1,250,186 | | |
Jeff J. Kaminski Executive Vice President and Chief Financial Officer | | | | 2010 | | | | 266,891 | | | | | 0 | | | | | 75,000 | | | | | 766,797 | | | | | 360,000 | | | | | 0 | | | | | 51,670 | | | | | 1,520,358 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Brian J. Woram Executive Vice President, General Counsel and Secretary | | | | 2010 | | | | 202,933 | | | | | 751,971 | | | | | 132,500 | | | | | 907,157 | | | | | 0 | | | | | 0 | | | | | 79,262 | | | | | 2,073,823 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Glen W. Barnard Senior Vice President, KBnxt Group | | | | 2010 | | | | 300,001 | | | | | 150,000 | | | | | 0 | | | | | 598,122 | | | | | 0 | | | | | 148,423 | | | | | 26,762 | | | | | 1,223,308 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2009 | | | | 300,001 | | | | | 0 | | | | | 0 | | | | | | | | | 300,000 | | | | | 202,354 | | | | | 21,907 | | | | | 824,262 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2008 | | | | 299,168 | | | | | 45,000 | | | | | 0 | | | | | | | | | 375,000 | | | | | 13,716 | | | | | 29,582 | | | | | 762,466 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
William R. Hollinger Senior Vice President and Chief Accounting Officer | | | 2009 | | | | 365,000 | | | | | 0 | | | | | 152,833 | | | | | 259,498 | | | | | 390,000 | | | | | 205,116 | | | | | 31,348 | | | | | 1,403,795 | | | | 2010 | | | | 365,000 | | | | | 0 | | | | | 0 | | | | | 275,490 | | | | | 350,000 | | | | | 139,956 | | | | | 28,946 | | | | | 1,159,392 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | | | 363,750 | | | | | 0 | | | | | 106,947 | | | | | 58,853 | | | | | 370,000 | | | | | 25,877 | | | | | 29,784 | | | | | 955,211 | | | | 2009 | | | | 365,000 | | | | | 0 | | | | | 162,500 | | | | | 487,500 | | | | | 390,000 | | | | | 205,116 | | | | | 31,348 | | | | | 1,641,464 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | | | 347,083 | | | | | 350,000 | | | | | 123,273 | | | | | 107,703 | | | | | 483,000 | | | | | 83,116 | | | | | 121,111 | | | | | 1,615,286 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wendy L. Marlett† Senior Vice President, Sales, Marketing and Communications | | | 2009 | | | | 325,000 | | | | | 0 | | | | | 142,069 | | | | | 184,657 | | | | | 300,000 | | | | | 189,507 | | | | | 27,398 | | | | | 1,168,631 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kelly K. Masuda Senior Vice President and Treasurer | | | 2009 | | | | 310,000 | | | | | 0 | | | | | 98,441 | | | | | 162,796 | | | | | 250,000 | | | | | 0 | | | | | 23,732 | | | | | 844,969 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | | | 308,958 | | | | | 0 | | | | | 81,186 | | | | | 41,372 | | | | | 250,000 | | | | | 0 | | | | | 20,932 | | | | | 702,448 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | | | 296,771 | | | | | 100,000 | | | | | 78,837 | | | | | 85,238 | | | | | 355,500 | | | | | 0 | | | | | 96,459 | | | | | 1,012,805 | | | | 2008 | | | | 363,750 | | | | | 0 | | | | | 175,000 | | | | | 525,000 | | | | | 370,000 | | | | | 25,877 | | | | | 29,784 | | | | | 1,489,411 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Former NEO | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Raymond P. Silcock* | | | 2009 | | | | 136,538 | | | | | 200,000 | | | | | 16,667 | | | | | 87,272 | | | | | 0 | | | | | 0 | | | | | 6,276 | | | | | 446,753 | | | | 2010 | | | | 25,000 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 25,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2009 | | | | 136,538 | | | | | 200,000 | | | | | 300,000 | | | | | 900,000 | | | | | 0 | | | | | 0 | | | | | 6,276 | | | | | 1,542,814 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
36
The Audit and Compliance Committee of the Board of Directors acts under a written charter.
Under its charter, the Audit and Compliance Committee assists the Board of Directors in fulfilling the Board’s responsibility for oversight of KB Home’s financial reporting process and practices, and its internal control over financial reporting. Management is primarily responsible for KB Home’s financial statements, the reporting process and assurance for the adequacy of the internal control over financial reporting. KB Home’s independent registered public accounting firm, Ernst & Young LLP, is responsible for performing an independent audit of KB Home’s financial statements and KB Home’s internal control over financial reporting, and for expressing an opinion on the conformity of KB Home’s audited financial statements to generally accepted accounting principles used in the United States and the adequacy of KB Home’s internal control over financial reporting.
In this context, the Audit and Compliance Committee has reviewed and discussed with management and Ernst & Young LLP KB Home’s audited financial statements. The Audit and Compliance Committee has discussed with Ernst & Young LLP the matters required to be discussed in accordance with the standards of the Public Company Accounting Oversight Board. In addition, the Audit and Compliance Committee has received the written disclosures and the letter from Ernst & Young LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding an independent accountant’s communications with a registrant’s audit committee concerning independence, and has discussed with Ernst & Young LLP its independence from KB Home and KB Home’s management.
In reliance on the reviews, reports and discussions referred to above, the Audit and Compliance Committee recommended to the Board, and the Board approved, that the audited financial statements be included in KB Home’s Annual Report onForm 10-K for the fiscal year ended November 30, 2009,2010, for filing with the Securities and Exchange Commission.
This report is respectfully submitted by the members of the Audit and Compliance Committee:
Melissa Lora, Chair
Timothy W. Finchem
Robert L. Johnson
Michael G. McCaffery
| | |
Melissa Lora, Chair | | Barbara T. Alexander |
Robert L. Johnson | | Michael G. McCaffery |
Luis G. Nogales | | |
5651
Independent Auditor Fees and Services
Auditor Fees and Services in Ourour 2010 and 2009 and 2008 Fiscal Years
Ernst & Young LLP served as our independent registered public accounting firm for our 20092010 and 20082009 fiscal years. Services provided by Ernst & Young LLP and related fees in each of our last two fiscal years were as follows:
| | | | | | | | |
| | | Fiscal Year Ended
| | | Fiscal Year Ended
|
| | | (in thousands) | | | (in thousands) |
| | | 2009 | | | 2008 | | | 2010 | | | 2009 |
Audit Fees | | | $1,005 | | | $1,126 | | | $947 | | | $1,005 |
| | | | | | | | | | | | |
Audit-Related Fees | | | 41 | | | 36 | | | 39 | | | 41 |
| | | | | | | | | | | | |
Tax Fees | | | 51 | | | 51 | | | 23 | | | 51 |
| | | | | | | | | | | | |
All Other Fees | | | 0 | | | 0 | | | 0 | | | 0 |
| | | | | | | | | | | | |
Total Fees | | | $1,097 | | | $1,213 | | | $1,009 | | | $1,097 |
| | | | | | | | |
In each of our 20092010 and 20082009 fiscal years, audit fees included an annual consolidated financial statement audit, audits of our financial services subsidiary and audit services performed in connection with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
Audit-related fees included 401(k) Savings Plan audits and accounting consultations.
Tax fees included fees for review of our federal income tax return, as well as several state income tax returns.
Auditor Services Pre-Approval Policy
The Audit Committee has established a policy that requires it to pre-approve all services our principal independent registered public accounting firm provides to us, including audit services, audit-related services, tax services and other permitted non-audit services. In most cases, the Audit Committee pre-approves each specific service and a corresponding fee amount for the service. In addition, under the policy, the Audit Committee has pre-approved our chief accounting officer (or a functional equivalent) to authorize the performance of certain types or categories of services up to specific fee limits, and has delegated to the Audit Committee Chair the authority to pre-approve services subject to a specific per-engagement fee limit. The Audit Committee Chair must report to the Audit Committee any pre-approvals granted under this delegated authority.
The Audit Committee approved all audit, audit-related and permitted non-audittax services provided by Ernst & Young LLP during our 20092010 fiscal year in accordance with this policy.
5752
Other Matters
Certain Relationships and Related Party Transactions
Per its charter, the Nominating/Governance Committee must review and approve or ratify any transaction, arrangement or relationship (or series of similar transactions, arrangements or relationships) in which we participate and in which a director, a director nominee, an executive officer or a beneficial owner of five percent or more of our common stock (or, in each case, an Immediate Family Member thereof) had or will have a direct or indirect material interest (a “Covered Transaction”), except as provided below or as otherwise determined by the Board. An “Immediate Family Member” is any child, stepchild, parent, stepparent, spouse, sibling,mother-in-law,father-in-law,son-in-law,daughter-in-law,brother-in-law orsister-in-law of a director, director nominee, executive officer or beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, director nominee, executive officer or beneficial owner.
All Covered Transactions are subject to approval or ratification by the Nominating/Governance Committee in accordance with the following procedures:
| | |
| • | the Nominating/Governance Committee will approve or ratify a Covered Transaction if, based on a review of all material facts of the transaction and feasible alternatives, the Nominating/Governance Committee deems the transaction to be in our and our stockholders’ best interests. |
|
| • | no director who has a direct or indirect material interest in a Covered Transaction will be included in any consideration of, or in any approval or ratification of, the transaction, provided that each such director will supply to the Nominating/Governance Committee or to the Board, as appropriate, all material information about the transaction. |
|
| • | the Nominating/Governance Committee will consider Covered Transactions for approval or ratification at each regularly scheduled Nominating/Governance Committee meeting, or as circumstances otherwise require, and will annually review any ongoing Covered Transaction approved or ratified hereunder to assess if the transaction remains appropriate under the terms hereof. The Nominating/Governance Committee may establish guidelines for our management to follow with respect to any ongoing Covered Transactions. |
|
| • | the Nominating/Governance Committee will oversee, as appropriate, our disclosure of Covered Transactions as required by federal securities laws. |
|
| • | the Nominating/Governance Committee has reviewed the following Covered Transactions and determined that each of these transactions will be deemed to be pre-approved or ratified (as applicable) by the Nominating/Governance Committee: |
| | |
| • | any transaction in which the total amount involved is equal to or less than $120,000; |
|
| • | the employment and compensation (a) of a director or executive officer if the individual’s compensation is reported in our annual proxy statement, or (b) of any other executive officer who is not an Immediate Family Member of one of the foregoing individuals or a director nominee if such executive officer’s compensation was approved, or recommended for approval, by the Compensation Committee; |
|
| • | any transaction that would not (a) need to be reported under federal securities laws, (b) be deemed to impair a director’s independence under our Corporate Governance Principles and (c) be deemed to be a conflict of interest under our Ethics Policy; and |
|
| • | any transaction where an individual’s interest therein arises solely from ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis. |
The Nominating/Governance Committee determined that there were no Covered Transactions during our 20092010 fiscal year.
5853
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on written representations furnished to us from reporting persons and our review of Forms 3, 4 and 5 and any amendments thereto furnished to us, we believe all such Forms required to be filed during our 20092010 fiscal year under Section 16(a) of the Securities Exchange Act, as amended, were filed on a timely basis by our reporting persons.
Stockholder Proposals for Our 20112012 Annual Meeting of Stockholders
To be included in the Proxy Statementproxy statement and form of proxy for our 20112012 Annual Meeting of Stockholders, we must receive no later than November 5, 2010October 28, 2011 any proposal of a stockholder intended to be presented at that meeting. Further, the Board-designated proxies for our 20112012 Annual Meeting of Stockholders will use their discretionary voting authority with respect to any proposal presented at the meeting by a stockholder who does not provide us with written notice of the proposal on or prior to January 19, 2011.11, 2012.
By Order of the Board of Directors,
Wendy C. ShibaBrian J. Woram
Executive Vice President, General Counsel and Secretary
Los Angeles, California
59
Attachment A
KB HomeHOME
2010 Equity Incentive Plan10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
ARTICLE 1.
www.kbhome.com
PURPOSE
The purpose of the KB Home 2010 Equity Incentive Plan (the “Plan”) is to attract, motivate and retain the services of Employees, Non-Employee Directors and Consultants by enabling them to participate in the growth and financial success of KB Home (the “Company”) and to align their individual interests to those of the Company’s stockholders.
ARTICLE 2.
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below:
1. “Affiliate” shall mean a person or entity that directly or indirectly controls or is controlled by, or is under common control with, the Company.
2. “Award” shall mean, as the case may be, a grant under the Plan of Options, Restricted Stock, Restricted Stock Units, Performance Awards, Stock Payments or Stock Appreciation Rights.
3. “Award Agreement” shall mean any written notice, terms and conditions, contract or other instrument or document evidencing an Award, including in electronic form, which shall contain any terms and conditions with respect to the Award as the Committee shall determine consistent with the Plan and any applicable Program.
4. “Award Limit” shall mean with respect to Awards payable in Shares or in cash, as the case may be, the respective limit set forth in Section 4.5.
5. “Board” shall mean the Board of Directors of the Company.
6. A “Change of Ownership” shall be deemed to have occurred if any of the following has occurred: (a) any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company, as determined in accordance withSection 1.409A-3(i)(5)(v) of the Treasury Regulations;provided,that if a person or group is considered either to own more than 50% of the total fair market value or total voting power of the stock of the Company, or to own more than the market value or total voting power specified in (b) below, and such person or group acquires additional stock of the Company, the acquisition of additional stock by such person or group shall not be considered to cause a “Change of Ownership”; (b) any one person, or more than one person acting as a group, acquires (or has acquired during the12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company, as determined in accordance withSection 1.409A-3(i)(5)(vi) of the Treasury Regulations;provided,that if a person or group is considered to possess 30% or more of the total voting power of the stock of the Company, and such person or group acquires additional stock of the Company, the acquisition of additional stock by such person or group shall not be considered to cause a “Change of Ownership”; (c) a majority of the members of the Board is replaced during any12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election, as determined in accordance withSection 1.409A-3(i)(5)(vi) of the Treasury Regulations; or (d) any one person, or more than one person acting as a group, acquires (or has acquired during the12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions, as determined in accordance withSection 1.409A-3(i)(5)(vii) of the Treasury Regulations;provided, that a transfer of assets shall not be treated as a “Change of Ownership” when such transfer is made to an entity that is controlled by the stockholders of the Company, as determined in accordance withSection 1.409A-3(i)(5)(vii)(B) of the Treasury Regulations.
7. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the Treasury Regulations and official guidance promulgated by the U.S. Department of Treasury.
A-154
8. “Committee” shall mean the Management Development and Compensation Committee of the Board or another committee of the Board designated by the Board that consists solely of Directors meeting the qualifications described in Section 12.1.9. “Common Stock” shall mean the common stock of the Company, par value $1.00 per share.
10. “Company Stock Administrator” shall mean the stock administrator of the Company, or such other person or entity designated by the Committee, or his, her or its office, as applicable, whether or not employed by the Company.
11. “Consultant” shall mean any consultant or advisor engaged to provide services to the Company or any Affiliate that qualifies as a consultant or advisor under the instructions for use of aForm S-8 Registration Statement.
12. “Covered Employee” shall mean any Employee who is, or who the Committee believes may become, a “covered employee” within the meaning of Section 162(m) of the Code.
13. “Director” shall mean a member of the Board.
14. “Effective Date” shall mean the date the Plan is first approved by the Company’s stockholders in accordance with the requirements of the Company’s by-laws, the applicable Securities Exchange and Sections 162(m) and 422 of the Code.
15. “Eligible Individual” shall mean any person who is an Employee, a Consultant or a Non-Employee Director, as determined by the Committee or the Board.
16. “Employee” shall mean any officer or other employee (as determined in accordance with Section 3401(c) of the Code) of the Company or of any Affiliate.
17. “Equity Restructuring” shall mean a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the Shares (or other securities of the Company) or the Share price (or the price of other securities), and results upon its implementation in a change in the per-Share value of the Shares underlying outstanding Awards.
18. “Exchange Act” shall mean the Securities Exchange Act of 1934.
19. “Fair Market Value” shall mean, as of any given date, the value of a Share determined as follows:
(1) If the Common Stock is listed on any Securities Exchange, its Fair Market Value shall be the closing sales price for a Share as quoted on such Securities Exchange for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported byThe Wall Street Journalor such other source (whether in print or electronic) as the Committee deems reliable;
(2) If the Common Stock is not listed on any Securities Exchange, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported byThe Wall Street Journalor such other source (whether in print or electronic) as the Committee deems reliable; or
(3) If the Common Stock is neither listed on any Securities Exchange nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Committee in good faith.
20. “Full Value Award” shall mean any Award other than (i) an Option, (ii) a Stock Appreciation Right or (iii) any other Award for which the Holder must pay the intrinsic value existing as of the date of grant (whether directly or by forgoing a right to receive a payment from the Company or any Affiliate) as a condition to exercising or receiving payment under it.
21. “Greater Than 10% Stockholder” shall mean an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary corporation (as defined in Section 424(f) of the Code) or parent corporation (as defined in Section 424(e) of the Code) thereof.
A-2
22. “Holder” shall mean a person who has been granted an Award.
23. “Incentive Stock Option” shall mean an Option that is intended to qualify as an incentive stock option and conforms to the applicable provisions of Section 422 of the Code.
24. “Non-Employee Director” shall mean a Director of the Company who is not an Employee.
25. “Non-Qualified Stock Option” shall mean an Option that is not an Incentive Stock Option.
26. “Option” shall mean a right to purchase Shares at a specified exercise price, granted under Article 6. An Option shall be either a Non-Qualified Stock Option or an Incentive Stock Option;provided,however, that Options granted to Non-Employee Directors and Consultants shall only be Non-Qualified Stock Options.
27. “Performance Award” shall mean a cash bonus award, stock bonus award, performance award or incentive award that is paid in cash, Shares or a combination of both, awarded under Section 9.1.
28. “Performance-Based Compensation” shall mean any compensation that is intended to qualify as “performance-based compensation” as described in Section 162(m)(4)(C) of the Code.
29. “Performance Criteria” shall mean the criteria that the Committee selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period. The Performance Criteria that shall be used to establish Performance Goals are limited to the following: (i) income/loss(e.g., operating income/loss, EBIT or similar measures, net income/loss, earnings/loss per share, residual or economic earnings), (ii) cash flow(e.g., operating cash flow, total cash flow, EBITDA, cash flow in excess of cost of capital or residual cash flow, cash flow return on investment and cash flow sufficient to achieve financial ratios or a specified cash balance), (iii) returns(e.g., on revenues, investments, assets, capital and equity), (iv) working capital(e.g., working capital divided by revenues), (v) margins(e.g., variable margin, profits divided by revenues, gross margins and margins divided by revenues), (vi) liquidity(e.g., total or net debt, debt reduction,debt-to-capital,debt-to-EBITDA and other liquidity ratios), (vii) revenues, cost initiative and stock price metrics(e.g., revenues, stock price, total shareholder return, expenses, cost structure improvements and costs divided by revenues or other metrics) and (viii) strategic metrics(e.g., market share, customer satisfaction, employee satisfaction, service quality, unit volume, orders, backlog, traffic, deliveries, cancellation rates, productivity, operating efficiency, inventory management, community count, goals related to acquisitions, divestitures or other transactions and goals related to KBnxt operational business model principles, including goals based on a per-employee, per-delivery or other basis).
30. “Performance Goals” shall mean, for a Performance Period, one or more goals established in writing by the Committee for the Performance Period based upon one or more Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance, either independently or as compared to one or more companies, performance of specific subsidiaries or business units, either independently or as compared to one or more companies’ subsidiaries or business units, or otherwise as determined by the Committee. If the Committee believes, in its sole discretion, that an equitable adjustment to any Performance Goal is advisable in light of new developments or circumstances, the Committee may provide for one or more objectively determinable adjustments. Such adjustments may include or arise from one or more of the following: (i) items related to a change in accounting principle; (ii) items relating to financing activities; (iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (vii) items related to the disposal of a business or segment of a business; (viii) items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards; (ix) items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Period; (x) any other items of significant income or expense which are determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary corporate transactions, events or developments, (xii) items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Company’s core, on-going business activities; (xiv) items related to acquired in-process research and development; (xv) items relating to changes in tax laws; (xvi) items relating to major licensing or partnership arrangements; (xvii) items relating to asset impairment charges; (xviii) items relating to gains or losses for litigation, arbitration and contractual settlements; or (xix) items relating to any other unusual or nonrecurring events or changes in applicable laws or business conditions. For all Awards intended to qualify as
A-3
Performance-Based Compensation, such determinations shall be made within the time prescribed by, and otherwise in compliance with, Section 162(m) of the Code.
31. “Performance Period” shall mean one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Holder’s right to, and the payment of, a Performance Award.
32. “Permitted Transferee” shall mean, with respect to a Holder, any person entitled to use aForm S-8 Registration Statement to exercise Awards originally granted to the Holder and to sell Shares issued pursuant to Awards originally granted to the Holder.
33. “Program” shall mean any program adopted by the Committee pursuant to the Plan containing terms and conditions intended to govern one or more specific types of Awardsand/or the manner in which they may be granted.
34. “QDRO” shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the regulations or official guidance promulgated thereunder.
35. “Restricted Stock” shall mean Shares awarded under Article 8 that are subject to certain restrictions and may be subject to risk of forfeiture or repurchase.
36. “Restricted Stock Units” shall mean the right to receive Shares or the value of Shares awarded under Section 9.3.
37. “Retirement” shall mean an Employee’s severance from employment with the Company and its Affiliates for any reason other than a leave of absence, termination for cause, death or disability, at such time as the Employee’s age and years of service with the Company and its Affiliates equals at least 65 or more, provided that the Employee is then at least 55 years of age. The Company shall have the sole right to determine whether an Employee’s severance from employment constitutes a Retirement.
38. “Securities Act” shall mean the Securities Act of 1933.
39. “Securities Exchange” shall mean the New York Stock Exchange or any other securities exchange, national market system or automated quotation system on which the Shares are listed, quoted or traded.
40. “Shares” shall mean shares of Common Stock.
41. “Stock Appreciation Right” shall mean a stock appreciation right as described and granted under Article 10.
42. “Stock Payment” shall mean (a) a payment in the form of Shares or (b) a right to purchase Shares, however denominated or described, as part of a bonus, deferred compensation or other arrangement, in any such case awarded under Section 9.2.
43. “Substitute Award” shall mean an Award granted under the Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity, in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock;provided,however, that in no event shall the term “Substitute Award” be construed to refer to an Award made in connection with the cancellation and repricing of an Option or Stock Appreciation Right.
44. “Termination of Service” shall mean,
(1) As to a Consultant, the time when the engagement of a Holder as a Consultant to the Company or an Affiliate is terminated for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment or service with the Company or any Affiliate.
(2) As to a Non-Employee Director, the time when a Holder who is a Non-Employee Director ceases to be a Director for any reason, with or without cause, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Holder simultaneously commences employment or service with the Company or any Affiliate.
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(3) As to an Employee, the time when the employee-employer relationship between a Holder and the Company or any Affiliate is terminated for any reason, with or without cause, including, without limitation, a termination by resignation, discharge, death, disability or retirement; but excluding terminations where the Holder simultaneously commences or remains in employment or service with the Company or any Affiliate.
The Committee, in its sole discretion, shall determine the effect of all matters and questions relating to Terminations of Service, including, without limitation, the question of whether a Termination of Service resulted from a discharge for cause and all questions of whether particular leaves of absence constitute a Termination of Service;provided,however, that, with respect to Incentive Stock Options, unless the Committee otherwise provides in the terms of the Program, Award Agreement or otherwise, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if and to the extent that any such event interrupts employment for the purposes of Section 422(a)(2) of the Code. For purposes of the Plan, a Holder’s employee-employer relationship or consultancy relationship shall be deemed to be terminated in the event that the Affiliate employing or contracting with such Holder ceases to remain an Affiliate following any merger, sale of stock or other corporate transaction or event (including, without limitation, a spin-off).
Notwithstanding the foregoing, with respect to any Award that constitutes “deferred compensation” subject to the requirements of Section 409A of the Code, a Termination of Service shall not be deemed to have occurred until there also has been a “separation from service” within the meaning of Section 409A of the Code, as determined in accordance withSection 1.409A-1(h) of the Treasury Regulations; provided that (i) for a Holder who provides services to the Company as an Employee, a separation from service shall be deemed to occur when the Holder has experienced a termination of employment with the Company and the facts and circumstances indicate that the Holder and the Company reasonably anticipate that either (A) no further services will be performed by the Holder for the Company after a certain date or (B) the level of bona fide services the Holder will perform for the Company after a certain date (whether as an Employee or as an independent contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed by the Holder (whether as an Employee or an independent contractor) over the immediately preceding36-month period (or the full period of services performed for the Company if the Holder has been performing services for less than 36 months); and (ii) for a Holder who provides services to the Company as an independent contractor, a separation from service shall be deemed to occur upon expiration or termination of all contracts under which services are performed by the Holder for the Company, provided that such expiration or termination constitutes a good-faith and complete severing of the contractual relationship between the Holder and the Company, and provided, further, that for a Holder who provides services to the Company as both an Employee and an independent contractor, a separation from service shall generally not occur until the Holder has ceased providing services for the Company as both an Employee and an independent contractor pursuant to clauses (i) and (ii) of this sentence. For purposes of determining whether a separation from service has occurred, services performed for the Company shall include services performed both for the Company and for any other corporation that is a member of the same “controlled group” as the Company under Section 414(b) of the Code or any other trade or business (such as a partnership) that is under common control with the Company as determined under Section 414(c) of the Code, in each case as modified bySection 1.409A-1(h)(3) of the Treasury Regulations and substituting “at least 50 percent” for “at least 80 percent” each place it appears in Section 1563(a) of the Code orSection 1.414(c)-2 of the Treasury Regulations.
45. “Treasury Regulations” shall mean the final, temporary and proposed regulations promulgated by the U.S. Department of the Treasury under the Code, as such regulations may be amended from time to time.
ARTICLE 3.
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares.
(a) Subject to adjustment as provided in Section 3.1(b) and Section 13.2, a total of Three Million Five Hundred Thousand (3,500,000) Shares shall be authorized for grant under the Plan. This limit includes Shares that were authorized for grant under the Company’s 2001 Stock Incentive Plan but that were
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not issued or subject to outstanding awards as of the Effective Date. Any Share that is subject to an Award that could be settled with Shares and is not a Full Value Award shall be deducted from this limit at the ratio of one (1) Share for every one (1) Share subject to the Award. Any Share that is subject to a Full Value Award that could be settled with Shares shall be deducted from this limit at the ratio of 1.78 Shares for every one (1) Share subject to the Award. After the Effective Date, no new awards may be granted under the 2001 Stock Incentive Plan, but any awards under the 2001 Stock Incentive Plan that are outstanding as of the Effective Date shall continue to be subject to the terms and conditions of the 2001 Stock Incentive Plan.
(b) If an Award expires or is canceled, forfeited or settled for cash (in whole or in part), the Shares subject to such Award shall, to the extent of such expiration, cancellation, forfeiture or cash settlement, again be available as Shares authorized for grant under the Plan, in accordance with Section 3.1(d) below. Notwithstanding anything to the contrary contained herein, Shares tendered by a Holder or withheld by the Company in payment of the exercise price of an Award or to satisfy any tax withholding obligation with respect to an Award shall not be available as Shares authorized for grant under the Plan.
(c) Substitute Awards shall not reduce the Shares authorized for grant under the Plan. Additionally, in the event that a company acquired by the Company or any Affiliate or with which the Company or any Affiliate combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan;provided, that Awards using such available shares shall not be made after the date awards could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or its Affiliates immediately prior to such acquisition or combination.
(d) Each Share that again becomes available for grant pursuant to this Section 3.1 shall be added back as (i) one (1) Share if such Share was subject to an Award other than a Full Value Award, and (ii) as 1.78 Share if such Share was subject to a Full Value Award.
3.2 Stock Distributed. Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Common Stock, treasury Common Stock or Common Stock purchased on the open market.
ARTICLE 4.
GRANTING OF AWARDS
4.1 Participation.The Committee may, from time to time, select from among all Eligible Individuals, those to whom an Award shall be granted.
4.2 Award Agreement. Each Award shall be evidenced by an Award Agreement. Award Agreements shall contain such terms and conditions as may be determined by the Committee that are not inconsistent with the Plan, including any terms and conditions that are necessary for Awards to comply with, or be exempt from, the requirements of Section 409A of the Code. Award Agreements evidencing Awards intended to qualify as Performance-Based Compensation shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.
4.3 Programs. The Board or the Committee may from time to time establish Programs pursuant to the Plan. An Award Agreement evidencing an Award granted pursuant to any Program shall comply with the terms and conditions of such Program and the Plan.
4.4 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, any Award granted to any individual who is then subject to Section 16 of the Exchange Act, and any applicable Program, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (includingRule 16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule. To the extent permitted by applicable
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law, the Plan and each Program and Award shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
4.5 Fiscal Year Award Limit.Notwithstanding any provision in the Plan to the contrary, and subject to Section 13.2, the maximum aggregate number of Shares with respect to one or more Awards that may be granted to any one person during any fiscal year of the Company shall be One Million (1,000,000) and the maximum aggregate amount of cash that may be paid to any one person during any fiscal year of the Company with respect to one or more Performance Awards payable in cash shall be Five Million Dollars ($5,000,000). To the extent required by Section 162(m) of the Code, Shares subject to Awards that are canceled shall continue to be counted against the Award Limit specified in the preceding sentence.
4.6 Minimum Vesting. The minimum time-based vesting period for an Award that is subject to the satisfaction of one or more Performance Goals or other performance-based criteria shall be one (1) year. With the exception of Stock Payments that are not subject to vesting, each other Award shall be subject to a minimum three (3) year time-based vesting period;provided, however,the Committee may provide for (a) an equal portion of each such Award to vest in annual installments during such three (3) year period, (b) a longer (but not shorter) time-based vesting period for an Award so long as the vesting schedule is not more favorable to the Holder than the default schedule specified above or (c) the acceleration of vesting to the extent permitted by Section 11.8.
4.7 At-Will Employment. Nothing in the Plan, any Program or any Award Agreement shall confer upon any Holder any right to be employed by or to serve as a Director or Consultant for the Company or any Affiliate, or to continue in such employment or service, or shall interfere with or restrict in any way the rights of the Company and any Affiliate, which rights are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, and with or without notice, or to terminate or change all other terms and conditions of employment or engagement, except to the extent expressly provided otherwise in a written agreement between the Holder and the Company or any Affiliate.
4.8 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the sole discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or (subject to the requirements of Section 409A of the Code) at a different time from the grant of such other Awards.
ARTICLE 5.
PERFORMANCE-BASED COMPENSATION
5.1 Purpose. The Committee, in its sole discretion, may determine at the time an Award is granted whether such Award is intended to qualify as Performance-Based Compensation. If the Committee, in its sole discretion, decides to grant such an Award to an Eligible Individual that is intended to qualify as Performance-Based Compensation, then the provisions of this Article 5 shall control over any contrary provision contained in the Plan. The Committee may in its sole discretion grant Awards to other Eligible Individuals that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 5 and that are not intended to qualify as Performance-Based Compensation.
5.2 Applicability. The grant of an Award to an Eligible Individual for a particular Performance Period shall not require the grant of an Award to such Eligible Individual in any subsequent Performance Period (or entitle such Eligible Individual to any such grant) and the grant of an Award to any one Eligible Individual shall not require the grant of an Award to any other Eligible Individual in such period or in any other period (or entitle any such other Eligible Individual to any such grant).
5.3 Types of Awards. Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to a Covered Employee in a manner intended to qualify as Performance-Based Compensation, including, without limitation, Restricted Stock for which the restrictions lapse upon the attainment of specified Performance Goals, and any Performance Awards described in Article 9 that vest or become exercisable or payable upon the attainment of one or more specified Performance Goals.
5.4 Procedures with Respect to Performance-Based Awards. To the extent necessary to comply with the requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted one or more Covered Employees and that is intended to qualify as Performance-Based Compensation, no later than 90 days
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following the commencement of any Performance Period (or such earlier time as may be required under Section 162(m) of the Code), the Committee shall, in writing, (a) designate one or more Eligible Individuals, (b) select the Performance Criteria applicable to the Performance Period, (c) establish objective Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period based on the Performance Criteria, and (d) specify an objective relationship between the Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether and the extent to which the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned or payable under such Awards, to the extent provided under any applicable Program or Award Agreement, the Committee shall have the right to reduce or eliminate (but not to increase) the amount earned or payable at a given level of performance to take into account additional factors that the Committee may deem relevant, including, without limitation, the assessment of individual or Company performance for the Performance Period.
5.5 Payment of Performance-Based Awards. Unless otherwise provided in the applicable Program or Award Agreement, as to an Award that is intended to qualify as Performance-Based Compensation, the Holder must be employed by the Company or an Affiliate throughout the Performance Period. Unless otherwise provided in the applicable Performance Goals, Program or Award Agreement, a Holder shall be eligible to receive payment pursuant to such Awards for a Performance Period only if and to the extent the Performance Goals for such period are achieved.
5.6 Additional Limitations. Notwithstanding any other provision of the Plan and except as otherwise determined by the Committee, any Award that is granted to a Covered Employee and is intended to qualify as Performance-Based Compensation shall be subject to any additional limitations set forth in Section 162(m) of the Code that are requirements for qualification as Performance-Based Compensation, and the Plan, any applicable Program and the Award Agreement shall be deemed amended to the extent necessary to conform to such requirements.
ARTICLE 6.
GRANTING OF OPTIONS
6.1 Granting of Options to Eligible Individuals. The Committee is authorized to grant Options to Eligible Individuals on such terms and conditions as it may determine that are not inconsistent with the Plan;provided, however, that no Option shall be granted to any Employee or Consultant of an Affiliate unless the Company is an “eligible issuer of service recipient stock” with respect to such person within the meaning of Section 409A of the Code.
6.2 Qualification of Incentive Stock Options. No Incentive Stock Option shall be granted to any person who is not an Employee of the Company or any subsidiary corporation of the Company (as defined in Section 424(f) of the Code). No person who is a Greater Than 10% Stockholder may be granted an Incentive Stock Option unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. Any Incentive Stock Option granted under the Plan may be modified by the Committee, with the consent of the Holder, to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code. To the extent that the aggregate Fair Market Value of Shares with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Holder during any calendar year under the Plan, and all other plans of the Company and any subsidiary or parent corporation thereof (each as defined in Section 424(f) and (e) of the Code, respectively), exceeds $100,000, the Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code. The requirements set forth in the preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted and the Fair Market Value of Shares shall be determined as of the time the respective instruments were granted. Subject to adjustment as provided in Section 3.1(b) and Section 13.2, no more than One Million Seven Hundred and Fifty Thousand (1,750,000) Shares may be issued pursuant to the exercise of Incentive Stock Options granted under the Plan.
6.3 Option Exercise Price. The exercise price per Share subject to each Option shall be set by the Committee, but shall not be less than 100% of the Fair Market Value of a Share on the date the Option is granted (or on the date the Option is modified, extended or renewed for purposes of Section 409A of the Code
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or, as to an Incentive Stock Option, Section 424(h) of the Code). In addition, in the case of Incentive Stock Options granted to a Greater Than 10% Stockholder, such price shall not be less than 110% of the Fair Market Value of a Share on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).
6.4 Option Term. The term of each Option shall be set by the Committee in its sole discretion;provided,however, that the term shall not be more than ten (10) years from the date the Option is granted, or five (5) years from the date an Incentive Stock Option is granted to a Greater Than 10% Stockholder. The Committee shall determine the time period, including the time period following a Termination of Service, during which a Holder has the right to exercise the vested Options, which time period may not extend beyond the term of the Option.
6.5 Option Vesting.Subject to Section 4.6, the Committee shall determine the period of time and other conditions that must be satisfied before the Holder’s right to exercise an Option, in whole or in part, shall vest. Such vesting may be based on service with the Company or an Affiliate, any of the Performance Criteria, or any other criterion or condition determined by the Committee. No portion of an Option that cannot be exercised at the Holder’s Termination of Service shall thereafter become exercisable.
6.6 Substitute Awards. Notwithstanding the foregoing provisions of this Article 6 to the contrary, in the case of an Option that is a Substitute Award, the price per share of the shares subject to such Option may be less than the Fair Market Value per share on the date of grant;provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate exercise price thereof does not exceed the excess of: (x) the aggregate Fair Market Value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such Fair Market Value to be determined by the Committee) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares, and that the grant of the Substitute Award otherwise satisfies the requirements ofSection 1.409A-1(b)(5)(v)(D) of the Treasury Regulations or, in the case of an Incentive Stock Option,Section 1.424-1(a) of the Treasury Regulations.
6.7 Substitution of Stock Appreciation Rights. The Committee may provide in the applicable Program or the Award Agreement evidencing the grant of an Option that the Committee, in its sole discretion, shall have the right to substitute a Stock Appreciation Right for such Option at any time prior to or upon exercise of such Option;provided,that such Stock Appreciation Right shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable and such Stock Appreciation Right shall have the same exercise price and the same remaining vesting schedule and term as such Option.
ARTICLE 7.
EXERCISE OF OPTIONS
7.1 Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Committee may require that, by the terms of the Option, a partial exercise must be with respect to a minimum number of Shares.
7.2 Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Company Stock Administrator:
(a) A written or electronic notice complying with the applicable rules established by the Company Stock Administrator stating that the Option, or a portion thereof, is exercised. The notice must be signed in writing or electronically by the Holder or other person then entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Company Stock Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all applicable laws and regulations, and the rules of any applicable Securities Exchange. The Company Stock Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;
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(c) In the event that the Option shall be exercised by any person other than the Holder who is permitted to exercise the Option in accordance with Section 11.3, appropriate proof of the right of such person to exercise the Option, as determined in the sole discretion of the Company Stock Administrator; and
(d) Full payment of the exercise price and applicable withholding taxes to the Company for the Shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by Section 11.1 and 11.2.
7.3 Notification Regarding Disposition. The Holder shall give the Company Stock Administrator prompt written or electronic notice of any disposition of Shares acquired by exercise of an Incentive Stock Option which occurs within (a) two years from the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) such Option to such Holder, or (b) one year after the transfer of such shares to such Holder.
ARTICLE 8.
AWARD OF RESTRICTED STOCK
8.1 Award of Restricted Stock.
(a) The Committee is authorized to grant Restricted Stock to Eligible Individuals, and shall determine such terms and conditions, including the restrictions applicable to each Award of Restricted Stock, that are not inconsistent with the Plan, and may impose such conditions on the issuance of such Restricted Stock, as it deems appropriate.
(b) The Committee shall establish the purchase price, if any, and form of payment for Restricted Stock;provided,however, that if a purchase price is charged, such purchase price shall be no less than the par value of the Shares to be purchased, unless otherwise permitted by applicable state law. In all cases, legal consideration shall be required for each issuance of Restricted Stock.
8.2 Rights as Stockholders. Subject to Section 8.4, upon the grant of a Restricted Stock Award, the Holder shall have, unless otherwise provided in the terms of the applicable Award Agreement, all the rights of a stockholder with respect to the Shares subject to the Award, subject to the restrictions in the applicable Program or in his or her Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the Shares;provided,however, that if the lifting or lapsing of the restrictions on an Award of Restricted Stock is subject to satisfaction of one or more Performance Goals, the Holder shall not be entitled to receive dividends or other distributions with respect to the Shares subject to the Award unless and until each of the applicable Performance Goals has been satisfied, at which time declared and accrued but unpaid dividends and distributions from and after the date of grant of the Award shall become payable to the Holder as soon as practicable. Notwithstanding anything in the foregoing to the contrary, dividends and other distributions made with respect to the Shares subject to an Award shall only be payable to the Holder of the Award to the extent provided by the Committee under the applicable Program or Award Agreement.
8.3 Restrictions. All Shares of Restricted Stock (including any Shares received by Holders thereof with respect to Shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, under the terms of the applicable Program or Award Agreement, be subject to such restrictions and vesting requirements as the Committee shall provide. Such restrictions may include, without limitation, restrictions concerning voting rights and transferability and such restrictions may lapse separately or in combination at such times and pursuant to such circumstances or based on such criteria as selected by the Committee, including, without limitation, criteria based on the Holder’s duration of employment or service with the Company or its Affiliates, applicable Performance Criteria, Company performance or individual performance. Restricted Stock may not be sold or encumbered until all applicable restrictions are satisfied, terminated or expire.
8.4 Repurchase or Forfeiture of Restricted Stock. If no purchase price was paid by a Holder in cash or property for a grant of Restricted Stock, upon a Termination of Service the Holder’s rights in any Shares of Restricted Stock then subject to restrictions shall terminate, and such Shares of Restricted Stock shall be surrendered to the Company and cancelled without consideration. If a purchase price was paid by a Holder in cash or property for a grant of Restricted Stock, upon a Termination of Service the Company shall have the right to repurchase from the Holder the Shares of Restricted Stock then subject to restrictions at a cash price per Share equal to the purchase price paid by the Holder in cash or property for such Shares of Restricted
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Stock or such other amount as may be specified under the applicable Program or in the applicable Award Agreement.
8.5 Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Company Stock Administrator shall determine. Certificates, book entries or electronic registration evidencing shares of Restricted Stock must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, in it sole discretion, retain physical possession of any stock certificate until such time as all applicable restrictions lapse.
8.6 Section 83(b) Election. If a Holder makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which the Holder would otherwise be taxable under Section 83(a) of the Code, the Holder shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service.
ARTICLE 9.
AWARD OF PERFORMANCE AWARDS, STOCK
PAYMENTS AND RESTRICTED STOCK UNITS
9.1 Performance Awards.
(a) The Committee is authorized to grant Performance Awards to any Eligible Individual and to determine whether such Performance Awards shall be Performance-Based Compensation. The number of Shares subject to a Performance Award and the value of a Performance Award may be linked to any one or more of the Performance Criteria or other specific criteria determined by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Performance Awards may be paid in cash, Shares, or both, as determined by the Committee.
(b) Without limiting Section 9.1(a), the Committee may grant Performance Awards to any Eligible Individual in the form of a cash bonus payable upon the attainment of objective Performance Goals, or such other criteria, whether or not objective, which are established by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Any such bonuses paid to a Holder that are intended to be Performance-Based Compensation shall be based upon objectively determinable bonus formulas established in accordance with the provisions of Article 5.
9.2 Stock Payments. The Committee is authorized to make Stock Payments to any Eligible Individual. The number or value of Shares of any Stock Payment shall be determined by the Committee and may be based upon one or more Performance Criteria or any other specific criteria, including service to the Company or any Affiliate, determined by the Committee. Shares underlying a Stock Payment that is subject to a vesting schedule or other restrictions, conditions or criteria set by the Committee will not be issued until the restrictions, conditions or criteria have been satisfied. Unless otherwise provided in the applicable Award Agreement, a Holder of a Stock Payment shall have no rights as a Company stockholder with respect to such Stock Payment until such time as the Stock Payment has vested and the Shares underlying the Award have been issued to the Holder. Stock Payments may, but are not required to, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such Eligible Individual.
9.3 Restricted Stock Units. The Committee is authorized to grant Restricted Stock Units to any Eligible Individual. The number and terms and conditions of Restricted Stock Units shall be determined by the Committee. The Committee shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such vesting restrictions, conditions or criteria as it deems appropriate, including, without limitation, conditions based on one or more Performance Criteria or other specific criteria, including service to the Company or any Affiliate, in each case on a specified date or dates or over any period or periods, as the Committee determines. The Company Stock Administrator shall specify, or permit the Holder to elect, the conditions and dates upon which the Shares underlying the Restricted Stock Units that shall be issued, if applicable, subject to the requirements of Section 409A of the Code. Restricted Stock Units may be paid in cash, Shares, or both, as determined by the Committee. On the distribution dates, the Company shall issue to the Holder one unrestricted, fully transferable Share (or the Fair Market Value of one such Share in cash) for each vested and nonforfeitable Restricted Stock Unit.
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9.4 Term. The term of a Performance Award, Stock Payment awardand/or Restricted Stock Unit award shall be set by the Committee in its sole discretion.
9.5 Exercise or Purchase Price. The Committee may establish an exercise or purchase price for a Performance Award, Shares distributed as a part of a Stock Payment or Shares distributed pursuant to a Restricted Stock Unit Award.
ARTICLE 10.
AWARD OF STOCK APPRECIATION RIGHTS
10.1 Grant of Stock Appreciation Rights.
(a) The Committee is authorized to grant Stock Appreciation Rights to Eligible Individuals on such terms and conditions as it may determine that are not inconsistent with the Plan;provided, however, that no Stock Appreciation Right shall be granted to any Employee or Consultant of an Affiliate unless the Company is an “eligible issuer of service recipient stock” with respect to such person within the meaning of Section 409A of the Code.
(b) A Stock Appreciation Right shall entitle the Holder (or other person entitled to exercise the Stock Appreciation Right) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price of the Stock Appreciation Right from the Fair Market Value of a Share on the date of exercise of the Stock Appreciation Right, and multiplying the difference, if positive, by the number of Shares with respect to which the Stock Appreciation Right shall have been exercised, subject to any limitations the Committee may impose. Except as described in Section 10.1(c) below, the exercise price of each Stock Appreciation Right shall be set by the Committee, but shall not be less than 100% of the Fair Market Value of a Share on the date the Stock Appreciation Right is granted (or on the date the Stock Appreciation Right is modified, extended or renewed for purposes of Section 409A of the Code).
(c) Notwithstanding the foregoing provisions of Section 10.1(b) to the contrary, in the case of a Stock Appreciation Right that is a Substitute Award, the exercise price of such Stock Appreciation Right may be less than 100% of the Fair Market Value of a Share on the date of grant;provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the Shares subject to the Substitute Award, over (b) the aggregate exercise price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Committee) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares, and that the grant of the Substitute Award otherwise satisfies the requirements ofSection 1.409A-1(b)(5)(v)(D) of the Treasury Regulations.
10.2 Stock Appreciation Right Term. The term of each Stock Appreciation Right shall be set by the Committee in its sole discretion;provided,however, that the term shall not be more than ten (10) years from the date the Stock Appreciation Right is granted. The Committee shall determine the time period, including the time period following a Termination of Service, during which the Holder has the right to exercise a vested Stock Appreciation Right, which time period may not extend beyond the term of the Stock Appreciation Right.
10.3 Stock Appreciation Right Vesting. Subject to Section 4.6, the Committee shall determine the period of time and other conditions that must be satisfied before the Holder’s right to exercise a Stock Appreciation Right, in whole or in part, shall vest. Such vesting may be based on service with the Company or an Affiliate, any of the Performance Criteria, or any other criterion or condition determined by the Committee. No portion of a Stock Appreciation Right that cannot be exercised at the Holder’s Termination of Service shall thereafter become exercisable.
10.4 Manner of Exercise. All or a portion of an exercisable Stock Appreciation Right shall be deemed exercised upon delivery of all of the following to the Company Stock Administrator, or such other person or entity designated by the Committee, or his, her or its office, as applicable:
(a) A written or electronic notice complying with the applicable rules established by the Company Stock Administrator stating that the Stock Appreciation Right, or a portion thereof, is exercised. The notice must be signed in writing or electronically by the Holder or other person then entitled to exercise the Stock Appreciation Right or such portion of the Stock Appreciation Right;
(b) Such representations and documents as the Company Stock Administrator, in its sole discretion, deems necessary or advisable to effect compliance with applicable laws and regulations. The
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Company Stock Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance; and
(c) In the event that the Stock Appreciation Right shall be exercised pursuant to this Section 10.4 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Stock Appreciation Right.
10.5 Payment. Payment of the amounts payable with respect to Stock Appreciation Rights pursuant to this Article 10 shall be in cash, Shares (based on their Fair Market Value as of the date the Stock Appreciation Right is exercised), or a combination of both, as determined by the Committee.
ARTICLE 11.
ADDITIONAL TERMS OF AWARDS
11.1 Payment. The Committee shall determine the methods by which payments by any Holder with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check, (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award) or Shares not subject to any pledge or security interest and held for such period of time as may be required by the Committee, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Holder has placed a market sell order with a broker with respect to Shares then issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required;provided, that payment of such proceeds is then made to the Company upon settlement of such sale, or (d) other property or legal consideration acceptable to the Committee. The Committee shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Holders. Notwithstanding any other provision of the Plan to the contrary, no Holder who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment, with a loan from the Company or a loan arranged by the Company to the extent it would violate Section 13(k) of the Exchange Act.
11.2 Tax Withholding. The Company and any Affiliate shall have the authority and the right to deduct or withhold, or require a Holder to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Holder’s FICA or employment tax obligation) required by law to be withheld with respect to any taxable event concerning a Holder arising as a result of the Plan. The Committee may, in its sole discretion and in satisfaction of the foregoing requirement, allow a Holder to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the surrender of Shares). The number of Shares which may be so withheld or surrendered shall be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities not to exceed the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income. The Company Stock Administrator shall determine the Fair Market Value of the Shares, consistent with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option exercise or a Stock Appreciation Right exercise involving the sale of Shares to pay the Option or Stock Appreciation Right exercise price or any tax withholding obligation.
11.3 Transferability of Awards.
(a) Except as otherwise provided in Section 11.3(b):
(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than to a Permitted Transferee by will or the laws of descent and distribution or, subject to the consent of the Committee, pursuant to a QDRO, unless and until and to the extent such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed;
(ii) No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or the Holder’s successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or
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any other legal or equitable proceedings (including bankruptcy), and any attempted imposition of liability thereon or disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted hereunder; and
(iii) During the lifetime of the Holder, only the Holder (or the personal representative of an incompetent Holder) may exercise an Award (or any portion thereof) granted to such Holder under the Plan, unless it has been disposed of pursuant to a QDRO, in which case the beneficiary of the QDRO may exercise the Award; after the death of the Holder, any exercisable portion of an Award may be exercised by a Permitted Transferee, but only prior to the time when such portion expires or becomes unexercisable under the Plan or the applicable Program or Award Agreement.
(b) Notwithstanding Section 11.3(a), the Committee, in its sole discretion and subject to such terms and conditions as it may impose, may permit a Holder to transfer an Award other than an Incentive Stock Option to any one or more Permitted Transferees, subject to any state, federal, local or foreign tax and securities laws applicable to transferable Awards.
(c) A Holder may, in the manner determined by the Committee, designate a Permitted Transferee to exercise the rights of the Holder as his or her beneficiary and to receive any distribution with respect to any Award upon the Holder’s death. Such person shall be subject to all terms and conditions of the Plan and any Program or Award Agreement applicable to the Holder, except to the extent the Plan, the Program, the Award Agreement or applicable law otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Holder is married and resides in a community property state, a designation of a person other than the Holder’s spouse as his or her beneficiary with respect to more than 50% of the Holder’s interest in the Award shall not be effective without the prior written or electronic consent of the Holder’s spouse. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Holder at any time provided the change or revocation is filed with the Committee prior to the Holder’s death. If no beneficiary has been designated in this manner or the beneficiary does not survive the Holder, the rights of the Holder shall be exercisable by the Holder’s executor or administrator.
11.4 Conditions to Issuance of Shares.
(a) Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise or vesting of any Award, unless and until the Board or the Committee has determined, with advice of counsel, that the issuance of such Shares is in compliance with all applicable laws and regulations and, if applicable, the requirements of any Securities Exchange, and the Shares are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Board or the Committee may require that a Holder make such reasonable covenants, agreements, and representations as the Board or the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements.
(b) All certificates evidencing Shares delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Committee or the Company Stock Administrator deems necessary or advisable to comply with applicable laws and regulations and the rules of any Securities Exchange.
(c) The Company Stock Administrator shall have the right to require any Holder to comply with any timing or other restrictions with respect to the settlement, vesting, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Company Stock Administrator, or because of any other requirement arising from compliance with any applicable laws or regulations, as determined by the Company Stock Administrator, in its sole discretion.
(d) No fractional Shares shall be issued and the Company Stock Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding.
(e) Notwithstanding any other provision of the Plan, unless otherwise determined by the Company Stock Administrator or required by any applicable laws or regulations, the Company shall not deliver to any Holder certificates evidencing Shares issued in connection with any Award and instead such
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Shares shall be recorded in the books of the Company (or, as applicable, its transfer agent or the Company Stock Administrator).
11.5 Forfeiture Provisions. Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Committee shall have the right to provide, in the terms or conditions of Programs or Awards made under the Plan or in any policy with respect to the recovery or recoupment of compensation or benefits in the event of financial restatements or the occurrence of other events that are inconsistent with the payment of compensation, as determined by the Committee, or to require a Holder to agree by separate written or electronic instrument, that: (a)(i) any proceeds, gains or other economic benefit actually or constructively received by the Holder upon any receipt or exercise of the Award, or upon the receipt or resale of any Shares underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of Service occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, (ii) the Holder at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Committee, (iii) the Holder incurs a Termination of Service for “cause” (as such term is defined in the sole discretion of the Committee, or as set forth in a written agreement relating to such Award between the Company and the Holder) or (iv) the Company’s financial results are restated and such proceeds, gains or other economic benefit actually or constructively received by the Holder would have been lower had they been calculated based on such restated results.
11.6 Prohibition on Repricing. Except as provided in Section 13.2, the Committee shall not, without the approval of the stockholders of the Company, (i) authorize the amendment of any outstanding Option or Stock Appreciation Right to reduce its exercise price, except with respect to any Substitute Award, or (ii) cancel any outstanding Option or Stock Appreciation Right in exchange for cash or another Award that has a lower exercise price or that provides additional value to the Holder, except with respect to any Substitute Award.
11.7 Permitted Replacement Awards. The Committee shall have the authority, without the approval of the stockholders of the Company, to amend any outstanding Award (or any award granted under another Company plan, subject to the terms of such other plan) to increase the exercise price or to cancel and replace an Award (or any award granted under another Company plan, subject to the terms of such other plan) with the grant of an Award having an exercise price that is greater than or equal to the original price per share and having vesting schedule and term equal to the remaining vesting schedule and term of the Award (or award granted under another Company plan) being replaced.
11.8 Shareholder Approval of Certain Accelerations. The Committee shall not, without the approval of the stockholders of the Company, accelerate the vesting of any Awards except (a) in connection with the death or disability of a Holder or the Retirement of a Holder who is an Employee, or (b) in accordance with Section 13.2(h).
ARTICLE 12.
ADMINISTRATION
12.1 Committee. The Committee shall administer the Plan (except as otherwise permitted herein) and shall consist solely of two or more Non-Employee Directors appointed by and holding office at the pleasure of the Board, each of whom is intended to qualify as a “non-employee director” as defined byRule 16b-3 of the Exchange Act or any successor rule, an “outside director” for purposes of Section 162(m) of the Code and an “independent director” under the rules of any Securities Exchange;provided, that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 12.1 or otherwise provided in any charter of the Committee.
12.2 Duties and Powers of Committee. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions, subject to the Committee’s power to delegate duties under Section 12.6. The Committee shall have the power to interpret the Plan, the Program and any Award Agreement, and to adopt such rules for the administration, interpretation and application of the Plan as are not inconsistent therewith, to interpret, amend or revoke any such rules and to amend any Program or
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Award Agreement in any manner not inconsistent with the Plan;providedthat the rights of the Holder of an Award that is the subject of any such Program or Award Agreement are not affected adversely by such amendment, unless the consent of the Holder is obtained or such amendment is otherwise permitted under Section 13.9. Any such Award under the Plan need not be the same with respect to each Holder. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which underRule 16b-3 under the Exchange Act, Section 162(m) of the Code or the rules of any Securities Exchange require otherwise.
12.3 Action by the Committee. Unless otherwise established by the Board or in any charter of the Committee, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee for purposes of the Plan. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s independent certified public accountants, or any compensation consultant, attorney or other professional retained by the Company to assist in the administration of the Plan.
12.4 Authority of Committee. Subject to any specific designation in the Plan or any applicable Program, the Committee has the exclusive power, authority and sole discretion to:
(a) Designate Eligible Individuals to receive Awards;
(b) Determine the type or types of Awards to be granted to each Eligible Individual;
(c) Determine the number of Awards to be granted and the number of Shares to which an Award will relate;
(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to: the exercise price, grant price, or purchase price; any Performance Criteria; any reload provision; any restrictions or limitations on the Award; any schedule for vesting; lapse of forfeiture restrictions or restrictions on the exercisability of an Award and accelerations or waivers thereof; and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines;
(e) Determine whether, to what extent, and pursuant to what circumstances (i) an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards, or other property (subject to the requirements of Section 409A of the Code), or (ii) an Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be identical for each Holder;
(g) Decide all other matters that must be determined in connection with an Award;
(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;
(i) Interpret the terms of, and any matter arising pursuant to, the Plan, any Program or any Award Agreement; and
(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.
12.5 Decisions Binding. The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Program, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.
12.6 Delegation of Authority. The Board or Committee may from time to time delegate (a) to a committee of one or more members of the Board the authority to grant or amend Awards and (b) to a committee of one or more members of the Board or to one or more officers of the Company the authority to take administrative actions pursuant to Article 12;providedthat any delegation of authority shall only be
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permitted to the extent it is permissible under Section 162(m) of the Code, applicable securities laws, the rules of any applicable Securities Exchange and any Company policy governing the grant of equity-based awards. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegate. At all times, the delegatee appointed under this Section 12.6 shall serve in such capacity at the pleasure of the Board and the Committee.
ARTICLE 13.
MISCELLANEOUS PROVISIONS
13.1 Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section 13.1, the Plan and any Award Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee. However, without approval of the Company’s stockholders, no action of the Committee may, except as provided in Section 13.2, (i) increase the limits imposed in Section 3.1 on the maximum number of Shares that may be issued under the Plan, (ii) take any action described in Section 11.6 above, (iii) materially modify the requirements for eligibility to participate in the Plan, (iv) materially increase the benefits accruing to participants in the Plan, or (v) take any other action that requires the approval of the Company’s stockholders under the rules of any applicable Securities Exchange. Except as provided in Section 13.9, no amendment, suspension or termination of the Plan shall, without the consent of the Holder, adversely affect the rights of the Holder under any Award theretofore granted to such Holder, unless the Award itself otherwise expressly so provides.
13.2 Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events.
(a) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares or the Share price other than an Equity Restructuring, the Committee shall make equitable adjustments, if any, to reflect such change with respect to (i) the aggregate number and kind of securities that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 on the maximum number and kind of securities that may be issued under the Plan, adjustments of the Award Limit, and adjustments of the manner in which securities subject to Full Value Awards will be counted); (ii) the number and kind of securities (or other property) subject to outstanding Awards; (iii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (iv) the grant or exercise price per share for any outstanding Awards under the Plan.
(b) In the event of any transaction or event described in Section 13.2(a) or any unusual or nonrecurring transactions or events affecting the Company, any Affiliate of the Company, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations or accounting principles, the Committee, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder’s request, is hereby authorized to take any one or more of the following actions whenever the Committee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
(i) To provide for either (A) termination of any such Award in exchange for an amount of cash, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Holder’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 13.2 the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Holder’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Committee in its sole discretion having an aggregate value not exceeding the amount that could have been attained upon the exercise of such Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested;
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(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
(iii) To make adjustments in the number and type of securities (or other property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stockand/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards and Awards which may be granted in the future;
(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all Shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Program or Award Agreement; and/or
(v) To provide that the Award cannot vest, be exercised or become payable after such event.
(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 13.2(a) and 13.2(b):
(i) The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, shall be equitably adjusted; and/or
(ii) The number and kind of securities that may be issued under the Plan pursuant to new Awards shall be equitably adjusted.
(d) The Committee may, in its sole discretion, include such further provisions and limitations in any Award, Program, Award Agreement or certificate or book-entry evidencing Shares, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.
(e) No adjustment or action described in this Section 13.2 or in any other provision of the Plan, any applicable Program or the Award Agreement shall be authorized to the extent that such adjustment or action would cause such Award to violate the requirements of Section 409A of the Code. With respect to any Award which is granted to a Covered Employee and is intended to qualify as Performance-Based Compensation, no adjustment or action described in this Section 13.2 or in any other provision of the Plan, any applicable Program or the Award Agreement shall be authorized to the extent that such adjustment or action would cause such Award to fail to so qualify as Performance-Based Compensation, unless the Committee determines that the Award should not so qualify. No adjustment or action described in this Section 13.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code, unless the Committee determines that Options granted under the Plan are not to qualify as “incentive stock options”. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action could result in short-swing profits liability under Section 16 or violate the exemptive conditions ofRule 16b-3 unless the Committee determines that the Award is not to comply with such exemptive conditions.
(f) The existence of the Plan, any Program, any Award Agreement and any Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
(g) In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares or the Share price, including any Equity Restructuring, for reasons of administrative convenience, the Company in its sole discretion may refuse to permit the exercise of any Award during a period of thirty (30) days prior to the consummation of any such transaction.
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(h) Without limiting the generality of the foregoing, the vesting of an Award willnot automatically accelerate upon the occurrence of a Change of Ownership;provided, however,the Committee may determine that upon the occurrence of a Change of Ownership, (i) the acquirer or surviving entity shall be required to assume an Award or substitute a comparable award with respect to the equity of the acquirer or surviving entity, (ii) the vesting of all or any portion of the Award will accelerate to the time immediately prior to the consummation of the Change of Ownership, or, in the case of an Option or Stock Appreciation Right, all or any portion of the Award shall become immediately exercisable so that the Holder will have the opportunity to exercise the Award (or portion thereof) immediately prior to consummation of the Change of Ownership,and/or (iii) all or any portion of the Award, including any unvested portion should the Committee so determine, shall be purchased for (x) in the case of an Option or Stock Appreciation Right, cash in an amount equal to the excess of the aggregate Fair Market Value of the Shares subject to the Award to be purchased over the aggregate exercise price for such Shares, net of tax withholding, and (y) in the case of any other Award, such consideration as the Committee may in good faith determine to be equitable under the circumstances;provided, further,that any determination of the Committee in this regard shall comply with Sections 409A and 424 of the Code.
13.3 No Stockholder Rights. Except as otherwise provided herein, a Holder shall have none of the rights of a stockholder with respect to Shares subject to any Award until the Holder becomes the record owner of such Shares.
13.4 Paperless Administration. In the event that the Company Stock Administrator establishes, for the Company or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Holder may be permitted through the use of such an automated system.
13.5 Effect of Plan upon Other Compensation Plans. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Affiliate, except as described in Section 3.1(a) above with respect to the Company’s 2001 Stock Incentive Plan. Nothing in the Plan shall be construed to limit the right of the Company or any Affiliate: (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Affiliate, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.
13.6 Compliance with Laws. The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Shares and the payment of money under the Plan or under Awards granted or awarded under the Plan are subject to compliance with all applicable laws and regulations, the rules of any Securities Exchange, and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan, any Program and any Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
13.7 Titles and Headings, References to Sections of the Code, the Securities Act or Exchange Act. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections of the Code, the Securities Act or the Exchange Act shall include any amendment or successor thereto.
13.8 Governing Law. The Plan, any Program and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof.
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13.9 Section 409A.
(a) To the extent that the Committee determines that any Award granted under the Plan is subject to Section 409A of the Code, the Program pursuant to which such Award is granted and the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan, the Program and any Award Agreements shall be interpreted in accordance with Section 409A of the Code. Notwithstanding any provision of the Plan or the applicable Program or Award Agreement to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to Section 409A of the Code, the Committee may adopt such amendments to the Plan and the applicable Program and Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (i) exempt the Award from Section 409A of the Codeand/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (ii) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of any penalty taxes under such Section.
(b) If, at the time of a Holder’s “separation from service” (within the meaning of Section 409A of the Code), (i) such Holder is a “specified employee” (within the meaning of Section 409A of the Code as determined annually by the Committee in accordance with the methodology specified by resolution of the Board or the Committee and in accordance withSection 1.409A-1(i) of the Treasury Regulations) and (ii) the Committee shall make a good-faith determination that an amount payable pursuant to an Option or Award constitutes “deferred compensation” (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to preserve the tax treatment intended for such payment or to avoid additional tax, interest, or penalties under Section 409A of the Code, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it on the first business day after such six-month period. Such amount shall be paid without interest, unless otherwise determined by the Committee, in its sole discretion, or as otherwise provided in any applicable agreement between the Company and the relevant Holder.
(c) The Holder shall be solely responsible and liable for the satisfaction of all taxes, interest, and penalties that may be imposed on such Holder or for such Holder’s account in connection with any Award (including any taxes, interest, and penalties under Section 409A of the Code), and neither the Company nor its Affiliates shall have any obligation to reimburse, indemnify or otherwise hold such Holder harmless from any or all of such taxes, interest, or penalties.
13.10 No Rights to Awards. No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Eligible Individuals, Holders or any other persons uniformly.
13.11 Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Holder pursuant to an Award, nothing contained in the Plan or any Program or Award Agreement shall give the Holder any rights that are greater than those of a general creditor of the Company or any Affiliate.
13.12 Indemnification. To the extent allowable pursuant to applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
13.13 Term.The ability to grant new awards under this Plan shall terminate on the tenth (10th) anniversary of the Effective Date.
A-20
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS INSTRUCTED BY THE UNDERSIGNED, OR IF NO INSTRUCTION IS INDICATED,
IT WILL BE VOTED “FOR” THE ELECTION OF DIRECTORS, “FOR” PROPOSALS 2 AND 3 AND “AGAINST” PROPOSALS 4 THROUGH 6.
| | | | |
| | YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY. We encourage you to take advantage of Internet or telephone voting. Both are available 24 hours a day, 7 days a week. (see the reverse side for voting deadlines)INTERNET http://www.proxyvoting.com/kbh Use the Internet to vote. Have this form in hand when you access the web site.OR TELEPHONE 1-866-540-5760 Use any touch-tone telephone to vote. Have this form in hand when you call. If you vote by Internet or by telephone, you do NOT need to mail in this form. To vote by mail, mark, sign and date this form and return it in the enclosed postage-paid envelope.Your Internet or telephone vote authorizes the named proxies or the applicable Trustee to vote your shares in the same manner as if you marked, signed and returned this form. Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on April 7, 2011: You may access and download copies of KB Home’s 2010 Annual Report and 2011 Proxy Statement at http://www.kbhome.com/investor/proxyFOLD AND DETACH HERE THIS FORM, WHEN PROPERLY EXECUTED, WILL BE VOTED AS INSTRUCTED BY THE UNDERSIGNED, OR IF NO INSTRUCTION IS INDICATED, IT WILL BE VOTED “FOR” THE ELECTION OF EACH OF THE DIRECTORS, “FOR” PROPOSALS 2, 3 AND 4, AND FOR “1 YEAR” ON PROPOSAL 5.Please mark your votes as indicated in this example | | x |
XYOUR BOARD RECOMMENDS A VOTE “FOR” THESE NOMINEESYOUR DIRECTORS RECOMMEND A VOTE “FOR”
| | | | | | | | | | | | | | | |
|
1. ELECTION OF DIRECTORS | | Election of DirectorsFOR | | AGAINST | | ABSTAIN | | | | FOR | | AGAINST | | ABSTAIN |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
01 STEVENBarbara T.06Melissa Alexander Lora02Stephen F. BOLLENBACH | | o
| | o | | o | | 06 MICHAEL07Michael G. MCCAFFERY | | o | | o | | o |
02 TIMOTHYBollenbach McCaffery03Timothy W. FINCHEM | | o
| | o | | o | | 07 JEFFREY08Jeffrey T. MEZGER | | o | | o | | o |
03 KENNETHFinchem Mezger04Kenneth M. JASTROW,09Leslie Jastrow, II | | o
| | o | | o | | 08 LESLIE MOONVES | | o | | o | | o |
04 ROBERT Moonves05Robert L. JOHNSON | | o
| | o | | o | | 09 LUIS10Luis G. NOGALES | | o | | o | | o |
05 MELISSA LORA | | o
| | o | | o | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
YOUR DIRECTORS RECOMMEND A VOTE “FOR”
| | | | | | | | |
| | | | Johnson NogalesYOUR BOARD RECOMMENDS A VOTE “FOR” PROPOSALS 2,3 AND 4, AND FOR | | “1 YEAR” ON PROPOSAL 5 FOR AGAINST | | ABSTAIN |
|
2.Proposal to ratify the appointment of Ernst & Young LLP as KB Home’s independent registered public accounting firm for the fiscal year ending November 30, 2011.3.Proposal to approve an amendment to the KB Home 2010 Equity Incentive Plan4.Advisory vote to approve named executive officer compensation1 YEAR 2 | | PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS KB HOME’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING NOVEMBER 30, 2010 | | o | | o | | o |
| | | | | | | | |
YEARS 3 | | PROPOSAL TO APPROVE THE KB HOME 2010 EQUITY INCENTIVE PLAN | | o | | o | | o |
| | | | | | | | |
|
YOUR DIRECTORS RECOMMEND A VOTE “AGAINST”
| | | | | | | | |
4 | | STOCKHOLDER PROPOSAL RELATING TO EXECUTIVE COMPENSATION | | o | | o | | o |
| | | | | | | | |
5 | | STOCKHOLDER PROPOSAL RELATING TO AN ADVISORY VOTE ON THE COMPENSATION COMMITTEE’S REPORT AND EXECUTIVE COMPENSATION POLICIES AND PRACTICES | | o | | o | | o |
| | | | | | | | |
6 | | STOCKHOLDER PROPOSAL RELATING TO THE ENGAGEMENT OF STOCKHOLDER PROPOSAL PROPONENTS | | o | | o | | o |
| | | | |
| | YEARS ABSTAIN 5.Advisory vote on the frequency of an advisory vote to approve named executive officer compensation In their discretion, the named proxies are authorized to vote upon such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. Mark Here for Address Change or Comments | o |
| | SEE REVERSE | | |
| | | | | | | | | | |
| | | | Signature
| | | | Date
| | |
| | | | | | | | | | |
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If more than one trustee, all should sign. Signature Signature Date |
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING.
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting are available through 11:59 PM Eastern Time on March 29, 2010.
You may access and download copies of our 2009 Annual Report and our 2010 Proxy Statement from our website at:
http://www.kbhome.com/investor/proxy
|
INTERNEThttp://www.proxyvoting.com/kbh-gstUse the Internet to vote. Have your card in hand when you access the web site.
|
|
TELEPHONE1-866-540-5760Use any touch-tone telephone to vote. Have your card in hand when you call.
|
If you vote by Internet or by telephone, you do NOT need to mail back your card.
To vote by mail, mark, sign and date your card and return it in the enclosed postage-paid envelope.
Your Internet or telephone vote authorizes the named proxies or the applicable Trustee to vote your shares in the same manner as if you marked, signed and returned your card.
PROXY/VOTING INSTRUCTIONS FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 1, 2010
Receipt of proxy material for the above Annual Meeting is acknowledged. The undersigned hereby constitutes and appoints Jeffrey T. Mezger and Wendy C. Shiba, and each of them, as proxies, each with the power to act without the other and with full power of substitution, and authorizes them to represent the undersigned and to vote all shares of Common Stock, $1.00 par value, of KB Home (the “Company”) of which the undersigned would be entitled to direct the vote if personally present at the 2010 Annual Meeting of Stockholders of the Company to be held on April 1, 2010, and at any and all adjournments or postponements thereof (the “Meeting”), as instructed on the reverse side of this form or, if no instruction is given, “FOR” Proposals 1, 2 and 3 and “AGAINST” Proposals 4 through 6, and in each such proxyholder’s discretion upon any other matter that may properly come before the Meeting.This proxy is solicited by the Board of Directo rs. If shares of the Company’s Common Stock are held on behalf of the undersigned under the Company’s Amended and Restated 401(k) Savings Plan (the “Plan”) and/or if the undersigned is entitled as a participant in the Company’s employee stock option plans to direct the vote of shares held by the Grantor Stock Trust (the “Trust”), this form serves to provide confidential voting instructions to the respective Trustee who votes the shares of the Plan and the Trust as to any and all such shares as to which the undersigned had the right to give voting instructions on February 10, 2010 to vote as instructed on the reverse side of this form, or if no instruction is given, “FOR” Proposals 1, 2 and 3 and “AGAINST” Proposals 4 through 6. PLEASE MARK, DATE AND SIGN THIS FORM AND RETURN IT PROMPTLY, OR USE THE INTERNET OR TELEPHONE OPTIONS DESCRIBED ON THE REVERSE SIDE, EVEN IF YOU PLAN TO ATTEND THE MEETING. VOTING INSTRUCTIONS TO THE PROXIES AS TO COMMON STOCK MUST BE RECEIVED BEFORE THE CLOSING OF THE POLLS ON APRIL 1, 2010 TO BE COUNTED. VOTING INSTRUCTIONS TO THE RESPECTIVE TRUSTEES AS TO PLAN SHARES AND TRUST SHARES MUST BE RECEIVED BY THE TRUSTEE ON OR BEFORE MARCH 29, 2010KB HOME ANNUAL MEETING OF STOCKHOLDERS APRIL 7, 2011 Dear Fellow Stockholder: Your vote and investment in KB Home are very important. We encourage you to vote via the Internet or telephone as indicated on the reverse side of this form. If you choose to vote by mail, please complete and return this form for tabulation as soon as possible to ensure your vote is counted. Thank you for your continued support of KB Home. Sincerely, Jeffrey T. Mezger President and Chief Executive OfficerFOLD AND DETACH HERE PROXY/VOTING INSTRUCTIONS FOR ANNUAL MEETING OF STOCKHOLDERS APRIL 7, 2011 THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS Receipt of proxy materials for the above Annual Meeting of Stockholders is acknowledged. The undersigned hereby constitutes and appoints Jeffrey T. Mezger and Brian J. Woram, and each of them, as attorney, agent and proxy of the undersigned, each with the power to act without the other and with full power of substitution, and authorizes each of them to represent the undersigned and to vote all shares of Common Stock, $1.00 par value, of KB Home (the “Company”) of which the undersigned would be entitled to direct the vote if personally present at the 2011 Annual Meeting of Stockholders of the Company to be held on April 7, 2011, and at any and all adjournments or postponements thereof (the “Meeting”), as instructed on the reverse side of this form or, if no instruction is given, “FOR” the election of each director nominee, “FOR” Proposals 2, 3 and 4, for “1 YEAR” on Proposal 5, and in each such proxyholder’s discretion upon any other matter that may properly come before the Meeting. If shares of the Company’s Common Stock are held on behalf of the undersigned under the Company’s Amended and Restated 401(k) Savings Plan (the “Plan”) and/or if the undersigned is entitled as a participant in the Company’s employee stock option plans to direct the vote of shares held by the Grantor Stock Ownership Trust (the “Trust”), this form serves to provide confidential voting instructions to the respective Trustee that votes the shares of the Plan and the Trust as to any and all such shares as to which the undersigned had the right to give voting instructions on February 11, 2011 to vote as instructed on the reverse side of this form or, if no instruction is given, “FOR” the election of each director nominee, “FOR” Proposals 2, 3 and 4, for “1 YEAR” on Proposal 5, and in the discretion of each of the above-named proxies upon any other matter that may properly come before the Meeting. PLEASE MARK, DATE AND SIGN THIS FORM AND RETURN IT PROMPTLY, OR USE THE INTERNET OR TELEPHONE OPTIONS DESCRIBED ON THE REVERSE SIDE OF THIS FORM, EVEN IF YOU PLAN TO ATTEND THE MEETING. VOTING INSTRUCTIONS IN RESPECT OF SHARES OF THE COMPANY’S COMMON STOCK REGISTERED WITH KB HOME’S TRANSFER AGENT MUST BE RECEIVED ON OR BEFORE 11:59 P.M. EASTERN TIME ON APRIL 6, 2011 TO BE COUNTED. VOTING INSTRUCTIONS TO THE RELEVANT TRUSTEES IN RESPECT OF PLAN SHARES AND TRUST SHARES, HOWEVER, MUST BE RECEIVED BY THE TRUSTEE ON OR BEFORE 11:59 P.M. EASTERN TIME ON APRIL 5, 2011 TO BE COUNTED. IF YOU DO NOT PROVIDE VOTING INSTRUCTIONS TO THE PLAN TRUSTEE, YOUR PLAN SHARES, IF ANY, WILL NOT BE VOTED.
| | | | | | | | | BNY MELLON SHAREOWNER SERVICES | | | | | | | Address Change/Comments | | | P.O. BOX 3550
SOUTH HACKENSACK, NJ 07606-9250 | | (Mark (Mark the corresponding box on the reverse side)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | BNY MELLON SHAREOWNER SERVICES P.O. BOX 3550 SOUTH HACKENSACK, NJ 07606-9250(Continued and to be marked, dated and signed, on the other side) | | | | | | | | | | | | | | | |
5FOLD AND DETACH HERE5
ANNUAL MEETING OF STOCKHOLDERS APRIL 1, 2010
Dear Fellow Employee:
Your vote and your investment in KB Home are very important. We encourage you to vote via the Internet or telephone as indicated on the reverse side of this card. If you choose to vote by mail, please complete and return your Confidential Instruction Card for tabulation to arrive by no later than March 29, 2010 to ensure that your vote is counted.
Thank you for your continued support of KB Home.
Sincerely,
Jeffrey T. Mezger
President and Chief Executive Officer
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS INSTRUCTED BY THE UNDERSIGNED, OR IF NO INSTRUCTION IS INDICATED,
IT WILL BE VOTED “FOR” THE ELECTION OF DIRECTORS, “FOR” PROPOSALS 2 AND 3 AND “AGAINST” PROPOSALS 4 THROUGH 6.
| | | | | | | Please mark
your votes as
indicated in
this example | | x |
YOUR DIRECTORS RECOMMEND A VOTE “FOR”
| | | | | | | | | | | | | | | | |
1. ELECTION OF DIRECTORS | | FOR | | AGAINST | | ABSTAIN | | | | FOR | | AGAINST | | ABSTAIN | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 01 STEVEN F. BOLLENBACH | | o | | o | | o | | 06 MICHAEL G. MCCAFFERY | | o | | o | | o | | | | | | | | | | | | | | | | | 02 TIMOTHY W. FINCHEM | | o | | o | | o | | 07 JEFFREY T. MEZGER | | o | | o | | o | | | | | | | | | | | | | | | | | 03 KENNETH M. JASTROW, II | | o | | o | | o | | 08 LESLIE MOONVES | | o | | o | | o | | | | | | | | | | | | | | | | | 04 ROBERT L. JOHNSON | | o | | o | | o | | 09 LUIS G. NOGALES | | o | | o | | o | | | | | | | | | | | | | | | | | 05 MELISSA LORA | | o | | o | | o | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
YOUR DIRECTORS RECOMMEND A VOTE “FOR”
| | | | | | | | | | | | | FOR | | AGAINST | | ABSTAIN | | 2 | | PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS KB HOME’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING NOVEMBER 30, 2010 | | o | | o | | o | | | | | | | | | | 3 | | PROPOSAL TO APPROVE THE KB HOME 2010 EQUITY INCENTIVE PLAN | | o | | o | | o | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
YOUR DIRECTORS RECOMMEND A VOTE “AGAINST”
| | | | | | | | | 4 | | STOCKHOLDER PROPOSAL RELATING TO EXECUTIVE COMPENSATION | | o | | o | | o | | | | | | | | | | 5 | | STOCKHOLDER PROPOSAL RELATING TO AN ADVISORY VOTE ON THE COMPENSATION COMMITTEE’S REPORT AND EXECUTIVE COMPENSATION POLICIES AND PRACTICES | | o | | o | | o | | | | | | | | | | 6 | | STOCKHOLDER PROPOSAL RELATING TO THE ENGAGEMENT OF STOCKHOLDER PROPOSAL PROPONENTS | | o | | o | | o |
| | | | | | Mark Here for Address
Change or Comments | o | | | SEE REVERSE | |
| | | | | | | | | | | | | | | Signature
| | | | Date
| | | | | | | | | | | | | | NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If more than one trustee, all should sign.
|
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING.
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting are available through 11:59 PM Eastern Time on March 29, 2010.
You may access and download copies of our 2009 Annual Report and our 2010 Proxy Statement from our website at:
http://www.kbhome.com/investor/proxy
| INTERNEThttp://www.proxyvoting.com/kbh-spUse the Internet to vote. Have your card in hand when you access the web site.
|
| TELEPHONE1-866-540-5760Use any touch-tone telephone to vote. Have your card in hand when you call.
|
If you vote by Internet or by telephone, you do NOT need to mail back your card.
To vote by mail, mark, sign and date your card and return it in the enclosed postage-paid envelope.
Your Internet or telephone vote authorizes the named proxies or the applicable Trustee to vote your shares in the same manner as if you marked, signed and returned your card.
PROXY/VOTING INSTRUCTIONS FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 1, 2010
Receipt of proxy material for the above Annual Meeting is acknowledged. The undersigned hereby constitutes and appoints Jeffrey T. Mezger and Wendy C. Shiba, and each of them, as proxies, each with the power to act without the other and with full power of substitution, and authorizes them to represent the undersigned and to vote all shares of Common Stock, $1.00 par value, of KB Home (the “Company”) of which the undersigned would be entitled to direct the vote if personally present at the 2010 Annual Meeting of Stockholders of the Company to be held on April 1, 2010, and at any and all adjournments or postponements thereof (the “Meeting”), as instructed on the reverse side of this form or, if no instruction is given, “FOR” Proposals 1, 2 and 3 and “AGAINST” Proposals 4 through 6, and in each such proxyholder’s discretion upon any other matter that may properly come before the Meeting.This proxy is solicited by the Board of Directors.
If shares of the Company’s Common Stock are held on behalf of the undersigned under the Company’s Amended and Restated 401(k) Savings Plan (the “Plan”) and/or if the undersigned is entitled as a participant in the Company’s employee stock option plans to direct the vote of shares held by the Grantor Stock Trust (the “Trust”), this form serves to provide confidential voting instructions to the respective Trustee who votes the shares of the Plan and the Trust as to any and all such shares as to which the undersigned had the right to give voting instructions on February 10, 2010 to vote as instructed on the reverse side of this form, or if no instruction is given, “FOR” Proposals 1, 2 and 3 and “AGAINST” Proposals 4 through 6.
PLEASE MARK, DATE AND SIGN THIS FORM AND RETURN IT PROMPTLY, OR USE THE INTERNET OR TELEPHONE OPTIONS DESCRIBED ON THE REVERSE SIDE, EVEN IF YOU PLAN TO ATTEND THE MEETING. VOTING INSTRUCTIONS TO THE PROXIES AS TO COMMON STOCK MUST BE RECEIVED BEFORE THE CLOSING OF THE POLLS ON APRIL 1, 2010 TO BE COUNTED. VOTING INSTRUCTIONS TO THE RESPECTIVE TRUSTEES AS TO PLAN SHARES AND TRUST SHARES MUST BE RECEIVED BY THE TRUSTEE ON OR BEFORE MARCH 29, 2010 TO BE COUNTED. IF YOU DO NOT PROVIDE VOTING INSTRUCTIONS TO THE PLAN TRUSTEE, YOUR PLAN SHARES, IF ANY, WILL NOT BE VOTED.
| | | | | | | | | BNY MELLON SHAREOWNER SERVICES | | | | | | | Address Change/Comments
| | | P.O. BOX 3550
SOUTH HACKENSACK, NJ 07606-9250 | | (Mark the corresponding box on the reverse side)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | (Continued and to be marked, dated and signed, on the other side) | | | | | | | | | | | | | | | |
5FOLD AND DETACH HERE5
ANNUAL MEETING OF STOCKHOLDERS APRIL 1, 2010
Dear Fellow Employee:
Your vote and your investment in KB Home are very important. We encourage you to vote via the Internet or telephone as indicated on the reverse side of this card. If you choose to vote by mail, please complete and return your Confidential Instruction Card for tabulation to arrive by no later than March 29, 2010 to ensure that your vote is counted.
Thank you for your continued support of KB Home.
Sincerely,
Jeffrey T. Mezger
President and Chief Executive Officer
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS INSTRUCTED BY THE UNDERSIGNED, OR IF NO INSTRUCTION IS INDICATED,
IT WILL BE VOTED “FOR” THE ELECTION OF DIRECTORS, “FOR” PROPOSALS 2 AND 3 AND “AGAINST” PROPOSALS 4 THROUGH 6.
| | | | | | | Please mark
your votes as
indicated in
this example | | x |
YOUR DIRECTORS RECOMMEND A VOTE “FOR”
| | | | | | | | | | | | | | | | |
1. ELECTION OF DIRECTORS | | FOR | | AGAINST | | ABSTAIN | | | | FOR | | AGAINST | | ABSTAIN | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 01 STEVEN F. BOLLENBACH | | o | | o | | o | | 06 MICHAEL G. MCCAFFERY | | o | | o | | o | | | | | | | | | | | | | | | | | 02 TIMOTHY W. FINCHEM | | o | | o | | o | | 07 JEFFREY T. MEZGER | | o | | o | | o | | | | | | | | | | | | | | | | | 03 KENNETH M. JASTROW, II | | o | | o | | o | | 08 LESLIE MOONVES | | o | | o | | o | | | | | | | | | | | | | | | | | 04 ROBERT L. JOHNSON | | o | | o | | o | | 09 LUIS G. NOGALES | | o | | o | | o | | | | | | | | | | | | | | | | | 05 MELISSA LORA | | o | | o | | o | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
YOUR DIRECTORS RECOMMEND A VOTE “FOR”
| | | | | | | | | | | | | FOR | | AGAINST | | ABSTAIN | | 2 | | PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS KB HOME’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING NOVEMBER 30, 2010 | | o | | o | | o | | | | | | | | | | 3 | | PROPOSAL TO APPROVE THE KB HOME 2010 EQUITY INCENTIVE PLAN | | o | | o | | o | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
YOUR DIRECTORS RECOMMEND A VOTE “AGAINST”
| | | | | | | | | 4 | | STOCKHOLDER PROPOSAL RELATING TO EXECUTIVE COMPENSATION | | o | | o | | o | | | | | | | | | | 5 | | STOCKHOLDER PROPOSAL RELATING TO AN ADVISORY VOTE ON THE COMPENSATION COMMITTEE’S REPORT AND EXECUTIVE COMPENSATION POLICIES AND PRACTICES | | o | | o | | o | | | | | | | | | | 6 | | STOCKHOLDER PROPOSAL RELATING TO THE ENGAGEMENT OF STOCKHOLDER PROPOSAL PROPONENTS | | o | | o | | o |
| | | | | | Mark Here for Address
Change or Comments | o | | | SEE REVERSE | |
| | | | | | | | | | | | | | | Signature
| | | | Date
| | | | | | | | | | | | | | NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If more than one trustee, all should sign.
|
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING.
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting are available through 11:59 PM Eastern Time on March 30, 2010.
You may access and download copies of our 2009 Annual Report and our 2010 Proxy Statement from our website at:
http://www.kbhome.com/investor/proxy
| INTERNEThttp://www.proxyvoting.com/kbhUse the Internet to vote. Have your card in hand when you access the web site.
|
| TELEPHONE1-866-540-5760Use any touch-tone telephone to vote. Have your card in hand when you call.
|
If you vote by Internet or by telephone, you do NOT need to mail back your card.
To vote by mail, mark, sign and date your card and return it in the enclosed postage-paid envelope.
Your Internet or telephone vote authorizes the named proxies or the applicable Trustee to vote your shares in the same manner as if you marked, signed and returned your card.
PROXY/VOTING INSTRUCTIONS FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 1, 2010
Receipt of proxy material for the above Annual Meeting is acknowledged. The undersigned hereby constitutes and appoints Jeffrey T. Mezger and Wendy C. Shiba, and each of them, as proxies, each with the power to act without the other and with full power of substitution, and authorizes them to represent the undersigned and to vote all shares of Common Stock, $1.00 par value, of KB Home (the “Company”) of which the undersigned would be entitled to direct the vote if personally present at the 2010 Annual Meeting of Stockholders of the Company to be held on April 1, 2010, and at any and all adjournments or postponements thereof (the “Meeting”), as instructed on the reverse side of this form or, if no instruction is given, “FOR” Proposals 1, 2 and 3 and “AGAINST” Proposals 4 through 6, and in each such proxyholder’s discretion upon any other matter that may properly come before the Meeting.This proxy is solicited by the Board of Directors.
If shares of the Company’s Common Stock are held on behalf of the undersigned under the Company’s Amended and Restated 401(k) Savings Plan (the “Plan”) and/or if the undersigned is entitled as a participant in the Company’s employee stock option plans to direct the vote of shares held by the Grantor Stock Trust (the “Trust”), this form serves to provide confidential voting instructions to the respective Trustee who votes the shares of the Plan and the Trust as to any and all such shares as to which the undersigned had the right to give voting instructions on February 10, 2010 to vote as instructed on the reverse side of this form, or if no instruction is given, “FOR” Proposals 1, 2 and 3 and “AGAINST” Proposals 4 through 6.
PLEASE MARK, DATE AND SIGN THIS FORM AND RETURN IT PROMPTLY, OR USE THE INTERNET OR TELEPHONE OPTIONS DESCRIBED ON THE REVERSE SIDE, EVEN IF YOU PLAN TO ATTEND THE MEETING. VOTING INSTRUCTIONS TO THE PROXIES AS TO COMMON STOCK MUST BE RECEIVED BEFORE THE CLOSING OF THE POLLS ON APRIL 1, 2010 TO BE COUNTED. VOTING INSTRUCTIONS TO THE RESPECTIVE TRUSTEES AS TO PLAN SHARES AND TRUST SHARES MUST BE RECEIVED BY THE TRUSTEE ON OR BEFORE MARCH 29, 2010 TO BE COUNTED. IF YOU DO NOT PROVIDE VOTING INSTRUCTIONS TO THE PLAN TRUSTEE, YOUR PLAN SHARES, IF ANY, WILL NOT BE VOTED.
| | | | | | | | | BNY MELLON SHAREOWNER SERVICES | | | | | | | Address Change/Comments
| | | P.O. BOX 3550
SOUTH HACKENSACK, NJ 07606-9250 | | (Mark the corresponding box on the reverse side)
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5FOLD AND DETACH HERE5
ANNUAL MEETING OF STOCKHOLDERS APRIL 1, 2010
Dear Fellow Stockholder:
Your vote and your investment in KB Home are very important. We encourage you to vote via the Internet or telephone as indicated on the reverse side of this card. If you choose to vote by mail, please complete and return your Proxy Card for tabulation to arrive by no later than the closing of the polls on April 1, 2010 to ensure that your vote is counted.
Thank you for your continued support of KB Home.
Sincerely,
Jeffrey T. Mezger
President and Chief Executive Officer
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