Your officers and directors join me in inviting you to attend the Annual Meeting of Stockholders of KB Home at 9:00 a.m. Pacific Daylight Time on April 7, 20055, 2007 in the Garden Room at the Hotel Bel-Air, 701 Stone Canyon Road, in Los Angeles, California.
The matters expected to be acted on at the meeting are described in detail in the attached Notice of Annual Meeting of Stockholders and Proxy Statement. In addition to specific agenda items, by attending the meetingAnnual Meeting you will have an opportunity to hear about our plans for the future and to meet your officers and directors. Whether or not you plan to attend, please sign and date the enclosed Proxy Card and return it as soon as possible in the envelope provided to ensure that your shares will be represented. You may also vote by calling the 800-number listed on your Proxy Card.
Whether or not you expect to attend the meeting, please complete, date and sign the enclosed Proxy Card and mail it promptly in the envelope provided. You may also vote by calling the 800-number listed on your Proxy Card. Your prompt return of the Proxy Card or telephone vote will ensure that your shares are represented at the meeting and will save the Company the additional expense of soliciting proxies. | | | | |
Time and Date: | | 9:00 a.m. Pacific Daylight Time on Thursday, April 5, 2007. |
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Location: | | Garden Room, Hotel Bel-Air, 701 Stone Canyon Road, Los Angeles, California. |
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Items of Business: | | (1) | | Elect three Class III Directors, each to serve for a three-year term, and one Class I Director, to serve for a one-year term; |
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| | (2) | | Vote on an amendment to the Amended Certificate of Incorporation of KB Home to declassify the Board of Directors and provide for the annual election of Directors; |
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| | (3) | | Vote on an amendment to the Amended Certificate of Incorporation of KB Home to eliminate its “fair price” provision and related supermajority voting requirements; |
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| | (4) | | Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending November 30, 2007; |
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| | (5) | | Consider three stockholder proposals, if properly presented at the meeting; and |
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| | (6) | | To transact any other business as may properly come before the meeting and any adjournment or postponement thereof. |
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Record Date: | | You can vote if you were a stockholder of record on February 14, 2007. |
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If you attend the Meeting: | | If you plan to attend the meeting, you may be asked to present photo identification and you may be accompanied by only one guest. If you hold your shares in a brokerage or similar account (in “street name”), you will need to bring a statement reflecting the shares you owned on February 14, 2007. |
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Proxy Voting: | | Whether or not you expect to attend the meeting, please promptly complete and return the Proxy Card or voting instruction card you received to ensure that your shares will be represented. If available to you, you may also vote by using the telephone number or via the Internet web site address printed on your Proxy Card or voting instruction card. |
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Annual Report: | | Copies of our Annual Report on Form 10-K for the fiscal year ended November 30, 2006, including audited financial statements, are being mailed to stockholders concurrently with this Proxy Statement. It is anticipated that the mailing will commence on or about March 5, 2007. |
By Order of theThe Board of Directors,
William A. Richelieu
Assistant Corporate Secretary
Los Angeles, California
February 25, 2005March 5, 2007
TABLE OF CONTENTS
KB HOME
10990 Wilshire Boulevard
Los Angeles, California 90024
Proxy Statement
for
Annual Meeting of Stockholders
To Be Held April 7, 20055, 2007
General Information
Why did I receive this Proxy Statement?
Your Board of Directors furnishesis furnishing this Proxy Statement in connection with its solicitation ofto you to solicit your proxy to be usedvoted at the Company’sour 2007 Annual Meeting of Stockholders to be held onStockholders. The Annual Meeting is scheduled for Thursday, April 7, 2005,5, 2007, at the time and place and for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. A copy of
Can I attend the Company’s 2004 Annual Report to Stockholders and Annual Report on Form 10-K for the fiscal year ended November 30, 2004, including audited financial statements, are also being mailed to stockholders concurrently with this Proxy Statement. It is anticipated that the mailing will commence on or about February 25, 2005.Meeting?
You are cordially invited to attend the Annual Meeting. WhetherPlease note, however, that you may be subject to a security check and that no cameras, recording equipment, electronic devices, large bags, briefcases or not you plan to attend, please date, sign and promptly return your Proxy Cardpackages will be permitted in the envelope provided. YouAnnual Meeting. Also, due to space constraints, you may alsobe accompanied by only one guest.
Who is entitled to vote by calling the 800-number listed on your Proxy Card. You may revoke your proxy at any time prior to its exercise at the Annual Meeting by written notice to the Company’s Corporate Secretary at the address on page 7, and, if you attend the Annual Meeting, you may vote your shares in person.Meeting?
Only holders of record of the 47,876,60689,374,122 shares of our Common Stock outstanding at the close of business on February 14, 20052007 will be entitled to vote at the Annual Meeting. Each holder of our Common Stock is entitled to one vote for each share held. The Company’sOur Grantor Stock Ownership Trust, established to assist the Companyus in meeting its stock-relatedcertain of our obligations to employees under variousour employee benefit programs,plans, held 7,360,50012,337,882 shares of our Common Stock outstanding for voting purposes as of the record date.February 14, 2007. These shares arewill be voted by the trustee of the Grantor Stock Ownership Trust in accordance with instructions received from employees participatingwho participate in the Company’scertain of our employee stockbenefit plans. There is no right to cumulative voting.
The representationWho is a “Holder of Record”?
If your shares of our Common Stock are registered directly in your name with our transfer agent, Mellon Investor Services LLC, you are considered the “holder of record” of those shares. If your shares are held in a stock brokerage account or by a financial institution or other holder of record, you are considered the beneficial owner of those shares held in “street name.”
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How do I vote?
If you are a beneficial owner, you have the right to instruct your broker, financial institution or other holder of record on how to vote your shares by using the voting instruction card you received from them or by following their respective telephone and/or Internet voting instructions.
If you are a holder of record, you may vote by mail, by telephone or via the Internet, as described below.
Mail. Please promptly complete and return your Proxy Card in the postage-paid envelope provided.
Telephone. Please call the toll-free telephone number listed on your Proxy Card. Telephone voting procedures have been established to verify your identity, to allow you to provide proxy voting instructions and to confirm that your instructions were accurately recorded. Please have your Proxy Card available when you call.
Internet. Please visit the Internet web site address listed on your Proxy Card. As with telephone voting, procedures have been established to verify your identity and to confirm your voting instructions. Please have your Proxy Card available when you visit the Internet web site address.
Telephone and Internet voting will be available to holders of record 24 hours each day until 11:59 p.m. Eastern Daylight Time on April 4, 2007. If you use the toll-free telephone number or the Internet to provide your proxy voting instructions, you do not need to mail in your Proxy Card.
Revoking Your Proxy Vote. If you are a holder of record, you may revoke the proxy voting instructions you make by mail, by telephone or via the Internet at any time prior to the exercise of those instructions at the Annual Meeting by delivering a revocation in writing to us in care of the Corporate Secretary, KB Home, 10990 Wilshire Boulevard, Los Angeles, California 90024.
If you are a beneficial owner, you may submit new voting instructions by contacting your broker, financial institution or other holder of record. You may also vote in person at the Annual Meeting as described in the next paragraph.
In Person at the Annual Meeting. Whether you are a holder of record or a beneficial owner, you may vote in person at the Annual Meeting, even if you have previously provided proxy voting instructions by mail, by telephone or via the Internet. If you are a holder of record, you may also be represented by another person at the Annual Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares of our Common Stock, you must obtain a legal proxy from your broker, bank or other holder of record and present it with your ballot to be able to vote in person at the Annual Meeting.
What are the voting requirements to elect the Director nominees and to approve each of the proposals in this Proxy Statement?
Under the laws of the State of Delaware, where we are incorporated, stockholders may take action at the Annual Meeting by voting their shares as described above, provided a quorum is present. At least a majority of the outstanding shares entitled to vote is necessary to provide a quorummust be present or represented at the Annual Meeting.Meeting to establish a quorum. Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of establishing a quorum.
A “broker non-vote” arises when a broker, financial institution or other holder of record that holds shares in street name does not receive instructions from a beneficial owner and does not have the discretionary authority to vote on a particular item. Per current New York Stock Exchange rules, bro-
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kers have discretionary authority to vote on the election of directors, each of the management proposals to amend our Amended Certificate of Incorporation and the ratification of the appointment of our independent registered public accounting firm. Brokers do not, however, have discretionary authority to vote on the stockholder proposals in this Proxy Statement. Accordingly, broker non-votes will not be considered entitled to vote for those proposals and will have no effect on the outcome.
All shares of Common Stock represented by valid proxies received pursuant to this solicitation and not revoked will be voted in accordance with the choices specified. In the election of directors, you may vote “for” all nominees or your vote may be “withheld” with respect to one or more of the nominees; votes that are withheld will be
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counted as present and will have the effect of a negative vote because the election of each director will require the affirmative vote of a majority of shares present. On the increase in authorized shares of Common Stock and the ratification of the appointment of the Company’s independent auditors, you may vote “for,” “against,” or “abstain.”proxy instructions given.
Under the rules of the New York Stock Exchange, brokers who hold shares in street name for customers have the authority to vote on certain items when they have not received instructions from beneficial owners. Brokers that do not receive instructions are entitled to vote on the election of directors and on the ratification of the appointment of the independent auditors. Under applicable Delaware law,Because a broker non-vote will have no effect on the outcome of the matters presented for a stockholder vote. Since the proxy confers discretionary authority to vote upon other matters that may properly may come before the meeting,Annual Meeting, shares represented by signedvalid proxies returned to the Company will be voted in accordance with the judgment of Jeffrey T. Mezger, President and Chief Executive Officer, and William A. Richelieu, Assistant Corporate Secretary, who are the personpersons named as proxies on the Proxy Cards for holders of record, or persons voting the proxies.their duly authorized designees.
Where no specificationinstruction is made on a signed Proxy Card with respect to any item submitted to a vote, such shares will be voted for the election as directorsDirectors of the Company of the threefour individuals named under “Election of Directors” on pages 11-12,13-15 below, for each of the increase in authorized sharesmanagement proposals to amend our Amended Certificate of Common Stock andIncorporation discussed on pages 20-23 below, for the ratification of the appointment of Ernst & Young LLP as the Company’sour independent auditorsregistered public accounting firm for the fiscal year ending November 30, 2005.2007 discussed on page 24 below and against the three stockholder proposals in this Proxy Statement, if properly presented at the Annual Meeting, discussed on pages 25-32 below.
Election of Directors.The persons named as proxies onaffirmative vote of a plurality of the enclosed Proxy Card are Bruce Karatz, Chairman and Chief Executive Officer, and Kimberly N. King, Vice President, Associate General Counselvotes present or represented at the Annual Meeting is required to elect each Director nominee. Accordingly, the Director nominee with the most votes for a particular board seat will be elected to that seat. You may vote “for” all Director nominees or you may “withhold” your vote with respect to one or more of the Director nominees. Abstentions will not be counted.
Under our Governance Principles, any Director elected to the Board of Directors at the Annual Meeting in an uncontested election with less than the affirmative vote of a majority of shares present in person or represented by proxy shall promptly tender his or her resignation to the Chair of the Nominating and Corporate Secretary.Governance Committee of the Board of Directors. The Nominating and Corporate Governance Committee will then promptly evaluate all relevant factors and recommend to the full Board whether to accept the resignation or, if appropriate, to adopt another course of action to remedy the underlying cause(s) of the election result. Subject to any applicable legal or regulatory requirements, the Board shall within 90 days following certification of the stockholder vote decide whether to accept the resignation, reject the resignation or, if appropriate, reject the resignation but adopt measures designed to address the underlying cause(s) of the election result. A full explanation of the Board’s decision will be publicly disclosed in a periodic or current report filed with the Securities and Exchange Commission. A Director who tenders his or her resignation because he or she was elected in an uncontested election with less than a majority of the shares present or represented at an Annual Meeting and any non-independent Director will not participate in these deliberations and decisions. As part of the new corporate governance initiatives discussed on page 5 below, the Board of Directors has resolved to move our mandatory majority voting policy from our Governance Principles to our Bylaws.
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Other Proposals in this Proxy Statement. The affirmative vote of not less than 80% of the outstanding shares of our Common Stock is required to approve each of the management proposals to amend our Amended Certificate of Incorporation. The affirmative vote of a majority of the shares of our Common Stock present or represented at the Annual Meeting and entitled to vote is required both to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending November 30, 2007 and to approve each of the stockholder proposals in this Proxy Statement, if properly presented at the Annual Meeting. You may vote “for,” “against,” or “abstain” with respect to any of these proposals. Abstentions will have the same effect as an “against” vote.
Are the Notice of Annual Meeting, Proxy Statement and the 2006 Annual Report on Form 10-K available online?
Yes. The Notice of Annual Meeting, this Proxy Statement and the 2006 Annual Report on Form 10-K may be viewed or downloaded from our website at: http://www.kbhome.com/investor.
Who will pay for this proxy solicitation?
We will pay the entire cost of soliciting proxies. In addition to use of the mail, proxies may be solicited by our officers, Directors and other employees by telephone, facsimile or personal solicitation, and no additional compensation will be paid to such individuals. We will, if requested, reimburse banks, brokerage houses and other custodians, nominees and certain fiduciaries for their reasonable expenses incurred in mailing proxy material to their principals. We have hired Georgeson Inc., a professional soliciting organization, to assist in proxy solicitation and in distributing proxy materials to institutions, brokerage houses, custodians, nominees and other fiduciaries. For these services, we will pay Georgeson a fee of $8,500.
Who will count the vote?
Representatives of our transfer agent, Mellon Investor Services LLC, will count the votes and act as independent inspectors of election.
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Corporate Governance Principles and Board Matters
KB HomeRole of the Board
The Board of Directors is elected by the stockholders to oversee the management of our business and to assure that the long-term interests of our stockholders are being served.
Recent Corporate Governance Initiatives
The Board of Directors has hadrecently taken a long-standing commitmentnumber of actions to soundstrengthen our corporate governance, practices. These practices provide an important framework withinincluding:
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| • | Creating the position of independent Non-Executive Chairman of the Board and initiating a search to fill this position; |
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| • | Appointing Kenneth M. Jastrow, II to serve as independent Lead Director until the Non-Executive Chairman position is filled; |
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| • | Dissolving the Executive Committee of the Board of Directors, effective in April 2007; |
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| • | Initiating a comprehensive review of our compensation programs and practices; |
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| • | Approving a resolution to declassify the Board of Directors, which is being presented to stockholders for their approval at the Annual Meeting; |
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| • | Approving a resolution to eliminate the “fair price” provision and related supermajority voting requirements from our Amended Certificate of Incorporation, which is being presented to stockholders for their approval at the Annual Meeting; |
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| • | Resolving to move our mandatory majority voting for Directors policy from our Governance Principles to our Bylaws; |
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| • | Creating the positions of Chief Compliance Officer and Risk Assessment Officer, each of which will report to the Audit and Compliance Committee of the Board of Directors as well as to senior executive management, and initiating a search to fill these positions; |
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| • | Resolving to conduct a comprehensive internal review of our compliance environment upon the engagement of a Chief Compliance Officer; |
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| • | Adopting an Equity-Based Award Grant Policy to improve the policies and procedures governing our equity compensation practices; and |
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| • | Resolving to review our Director and executive stock ownership guidelines and assess Board compensation. |
The Board cannot declassify the Board of Directors or eliminate the “fair price” provision and management can pursue strategic objectives, maintainrelated supermajority voting requirements from our Amended Certificate of Incorporation without first obtaining the Company’s integrity in the marketplace and ensure long-term stockholder value. The Company’s Corporate Governance Principles define the key elementsaffirmative vote of at least 80% of the Board’s governance philosophy.outstanding shares of our Common Stock. We are therefore presenting Proposals 2 and 3 for your consideration at the Annual Meeting, as further described on pages 20-23 below.
Director Qualifications
We believe that our Directors should possess the highest personal and professional ethics, integrity, judgment and values, and be committed to representing the long-term interests of our stockholders. Directors should also have an inquisitive and objective perspective, and be able and willing to dedicate the time necessary to Board and Committee service.
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The Principles are reviewed regularly by the Nominating and Corporate Governance Committee of the Board of Directors regularly assesses the skills and changescharacteristics of current and potential Directors in view of the perceived needs of the Board at the time an assessment is made and may consider the following attributes, among others:
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| • | Personal qualities, accomplishments and reputation in the business community; |
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| • | Financial literacy, financial and accounting expertise and significant business, academic or government experience in leadership positions or at senior policy-making levels; |
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| • | Geographical representation in areas relevant to our business; |
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| • | Diversity of background and personal experience; |
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| • | Fit of abilities and personality with those of current and potential Directors in building a Board that is effective, collegial and responsive to the needs of our business; and |
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| • | Independence and an absence of conflicting time commitments. |
Director Independence
We believe that a substantial majority of our Directors should be independent. A Director is deemed to be independent if he or she does not have any direct or indirect material commercial or charitable relationship with us based on all relevant facts and circumstances. The Board of Directors makes independence determinations annually based on information supplied by Directors and other sources, and on the prior review and recommendation of the Nominating and Corporate Governance Committee.
The Board’s Director independence determinations are approvedguided by certain standards which are set forth in our Governance Principles and are consistent with New York Stock Exchange listing standards.
The Board has determined that all currently incumbent Directors and Director nominees are independent under the Board’s Director independence standards, except Jeffrey T. Mezger, our President and Chief Executive Officer. In addition, the Board has determined that all Committees of the Board, except the Executive Committee, which did not regularly meet in the 2006 fiscal year, are entirely composed of independent Directors within the meaning of New York Stock Exchange listing standards and Securities and Exchange Commission rules. The Executive Committee was comprised of Dr. Ray R. Irani and Luis G. Nogales, who are both independent, and Mr. Mezger.
Governance Principles
In addition to containing our Director independence standards, our Governance Principles provide the framework within which we conduct our business and pursue strategic goals. Our Governance Principles are regularly reviewed by the Nominating and Corporate Governance Committee, and the full Board approves changes as appropriate.
In addition,Ethics Policy
We expect all of our Directors and employees and directors of the Company are expected to applyfollow the highest ethical standards in their representation of the Company and its interests. Allwhen representing KB Home and our interests. To this end, all employees, including senior executive management and members of the Board of Directors, are subject to the Company’s Businessmust abide by our Ethics Policy. The BusinessOur Ethics Policy is reviewed regularly by the Audit and Compliance Committee of the Board of Directors, and changes are approved by the full Board approves changes as appropriate. Our Ethics Policy was amended on September 15, 2006.
Director Qualifications and Board Independence
The Board of Directors has articulated certain criteria in the Corporate Governance Principles that must be met to serve as a director of the Company. Determinations regarding the eligibility of director candidates are made by the Nominating and Corporate Governance Committee. Among other things:
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• | directors must possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the Company’s stockholders, |
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• | all directors are expected to be financially literate, |
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• | no more than one employee of the Company may serve on the Board at any given time, and |
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• | consultants, lawyers or bankers who do a significant amount of business with the Company are ineligible to serve as a director. |
The Board further believes that a substantial majority of directors should be independent, and has adopted criteria and guidelines, consistent with those established by the New York Stock Exchange, to assist it in determining independence. In accordance with these criteria, the Board has determined that all currently incumbent KB Home directors, and all nominees for director, are independent except Mr. Karatz, Chairman and Chief Executive Officer of the Company. The independence criteria applied by the Board specify that no director who is a current employee of KB Home may be considered independent. Further, a director will not be considered independent if, within the preceding three years:
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• | the director or an immediate family member of the director received more than $100,000 in direct compensation from KB Home or any subsidiary, or joint venture or partnership with KB Home, other than fees directly related to service on KB Home’s Board or on the Board of Kaufman & Broad S.A., the Company’s publicly-held French subsidiary, |
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• | the director was employed by or affiliated with KB Home’s principal independent auditors, |
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• | an immediate family member of the director was employed by KB Home as an executive officer or by KB Home’s principal independent auditors in a professional capacity, |
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• | an executive officer of KB Home was on the compensation committee of the board of directors of a company which employed the director, or which employed an immediate family member of the director as an officer, or |
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• | the director was an executive officer or employee of, or an immediate family member of the director was an executive officer of, another company that does business with KB Home and the annual revenues derived from that business by either company accounts for more than (a) $1,000,000 or (b) two percent (2%) of the consolidated gross annual revenues of such company, whichever is greater. |
Under the Company’s Corporate Governance Principles, the following commercial or charitable relationships are not, by themselves, considered material relationships that impair a director’s independence:Board Meetings, Membership and Attendance
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• | the director is an executive officer of another company that does business with KB Home, provided the annual revenues derived from that business by either company accounts for less than (a) $1,000,000 or (b) two percent (2%) of the consolidated gross annual revenues of such company, whichever is greater, or |
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• | the director serves as an officer, director or trustee of a charitable organization, and KB Home makes discretionary charitable contributions to that organization, provided such contributions are less than the greater of (a) $100,000 or (b) two percent (2%) of that organization’s total annual charitable receipts. |
In accordance with the foregoing independence criteria, the Board has determined that all non-employee directors, incumbent and standing for election, are independent. The Board has determined that all Board members are financially literate. Furthermore, the Board has also determined that all Committees of the Board, except the Executive Committee, which does not regularly meet, are entirely composed of independent directors within the meaning of the rules of both the Securities and Exchange Commission and the New York Stock Exchange. The Executive Committee is comprised of Messrs. Irani and Nogales, both of whom are independent, and Mr. Karatz, Chairman and Chief Executive Officer of the Company.
Board Structure and Committee Composition
held seven meetings in our 2006 fiscal year. As of the date of this Proxy Statement, the Board has eleven incumbent directors, and11 members.
All Directors are expected to attend our Annual Meetings. All Directors who were serving at the following four committees: (1) Audit and Compliance, (2) Management Development and Compensation, (3) Nominating and Corporate Governance, and (4) Executive. The membership during fiscal 2004 andtime attended the function of each of the Committees are described2006 Annual Meeting, which was held on pages 5-7.April 6, 2006, except for J. Terrence Lanni.
During 2004, the Board held five meetings. Every KB Home directorEach Director attended 100%at least 75% of all Board meetings and of all meetings of the Committees on which he or she served in our 2006 fiscal year, except Mr. Moonves, who was absent for one Leslie Moonves.
Board Committees
In our 2006 fiscal year, the Board had four standing Committees: Audit and oneCompliance; Management Development and Compensation; Nominating and Corporate Governance; and Executive. Each standing Committee meeting. Directors are expected to attend Annual Meetings of KB Home stockholders. All directors who were serving atassists the time attended the 2004 Annual Meeting of KB Home stockholders, which was held on April 1, 2004.Board in fulfilling its responsibilities, as described below.
The chart on page 5below shows the variousstanding Committees of the KB Home Board, of Directors, the current members of those Committees and the number of meetings each standing Committee held during the 2006 fiscal year.
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| | | | | | Management | | Nominating and | | | | | | | Management | | Nominating and | | |
| | | | Audit and | | Development and | | Corporate | | | | | Audit and | | Development and | | Corporate | | |
| Name of Director | Name of Director | | Compliance | | Compensation | | Governance | | Executive | Name of Director | | Compliance | | Compensation | | Governance | | Executive |
| Independent Directors | Independent Directors | | Independent Directors | | | | | | | | | | | | | |
| | Ronald W. Burkle | | X | | X | | Ronald W. Burkle | | | X | | | | | | X | | | | |
| | Dr. Ray R. Irani | | X* | | X* | | Timothy W. Finchem | | | X | | | | | | X | | | | |
| | Kenneth M. Jastrow, II | | X | | Dr. Ray R. Irani | | | | | | X | * | | | | | | X | * |
| | James A. Johnson(a) | | X | | X*† | | Kenneth M. Jastrow, II(a) | | | | | | | | | X | † | | | | |
| | J. Terrence Lanni(b) | | X | | X | | James A. Johnson(b) | | | | | | X | | | X | * | | | | |
| | Melissa Lora(c) | | X | | J. Terrence Lanni | | | | | | X | | | X | | | | |
| | Michael G. McCaffery(d) | | X | | X | | Melissa Lora | | | X | | | | | | | | | | |
| | Leslie Moonves(e) | | X | | Michael G. McCaffery | | | X | * | | | | | | X | | | | |
| | Dr. Barry Munitz | | X* | | X | | Leslie Moonves | | | | | | X | | | | | | | |
| | Luis G. Nogales(f) | | X | | X | | X | | Luis G. Nogales | | | X | | | X | | | | | | X | |
Employee Director | Employee Director | | Employee Director | | | | | | | | | | | | | |
| | Bruce Karatz | | X | | Jeffrey T. Mezger | | | | | | | | | | | | X | |
Number of Meetings in Fiscal 2004 | | 9 | | 3 | | 4 | | 0 | | |
Number of Meetings in Fiscal 2006 | | Number of Meetings in Fiscal 2006 | | | 10 | (d) | | | 3 | | | 3 | | | 1 | |
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| | X = Member * = Chair † = PresidingLead Director |
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| (a) | Mr. Johnson’s first meetingJastrow was elected as a memberthe independent Lead Director of the Management Development and Compensation Committee wasBoard of Directors on July 1, 2004.November 12, 2006. |
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| (b) | Mr. Lanni’s first meetingJohnson served as a memberthe Presiding Director of the Nominating and Corporate Governance Committee was on July 1, 2004.Board of Directors during the 2006 fiscal year until November 12, 2006. |
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| (c) | Ms. Lora’s first meetingMr. Bruce Karatz served as a memberour Chairman and Chief Executive Officer through November 12, 2006. During his tenure on our Board of Directors, Mr. Karatz also served on the Executive Committee. On November 12, 2006, the Board of Directors elected Jeffrey T. Mezger to the Board and to the Executive Committee of the AuditBoard and Compliance Committee was on July 1, 2004.as our President and Chief Executive Officer. |
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| (d) | Mr. McCaffery’s first meeting as a memberIncludes quarterly conference calls with management to review our earnings releases prior to their release. |
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Shown below are the standing Committees of the Board and the members of those Committees effective April 5, 2007.
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| | | | Management | | Nominating and |
| | Audit and | | Development and | | Corporate |
Name of the Nominating and Corporate Director | | Compliance | | Compensation | | Governance Committee was on July 1, 2004. |
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Independent Directors | | | | | | | | | | | | |
| Ronald W. Burkle | | | X | | | | | | | | X | |
| Timothy W. Finchem | | | X | | | | X | | | | | |
| Dr. Ray R. Irani | | | | | | | X | | | | | |
| Kenneth M. Jastrow, II | | | | | | | | | | | X | † |
| James A. Johnson | | | | | | | | | | | X | |
| J. Terrence Lanni | | | | | | | X | * | | | | |
| Melissa Lora | | | X | | | | | | | | X | |
| Michael G. McCaffery | | | X | * | | | X | | | | | |
| Leslie Moonves | | | | | | | | | | | X | * |
| Luis G. Nogales | | | X | | | | X | | | | | |
Employee Director | | | | | | | | | | | | |
| Jeffrey T. Mezger | | | | | | | | | | | | |
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(e) | Mr. Moonves’ first meeting as a member of the Management Development and Compensation Committee was on July 1, 2004. |
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(f) | Mr. Nogales’ first meeting as a member of the Audit and Compliance Committee was on July 1, 2004. Mr. Nogales served on the Nominating and Corporate Governance Committee until April 1, 2004.X = Member * = Chair † = Lead Director |
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Audit and Compliance Committee. KB Home has a separately-designated standing The Audit and Compliance Committee established in accordance with the Securities Exchange Act of 1934, as amended. The Auditrepresents and Compliance Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the independent auditors’ qualifications and independence; the performance of the Company’s internal audit function and independent auditors; and risk assessment and risk management. Among other things, the Committee preparesour:
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| • | accounting and reporting practices, including the quality and integrity of our financial statements and reports; |
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| • | internal control over financial reporting and disclosure controls and procedures; |
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| • | audit process, including our independent registered public accounting firm’s qualifications, independence, retention, compensation and performance, and the performance of our internal audit department; and |
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| • | compliance with legal and regulatory requirements and management of matters in which we have or may have material liability exposure. |
The Audit and Compliance Committee also oversees the preparation of a report for inclusion in the annual proxy statement; appoints, evaluatesstatement and determinesis charged with the compensation of the Company’s independent auditors; reviewsduties and approves the scope of the annual audit, the audit fee and the financial statements; pre-approves audit and permitted non-audit services by the Company’s independent auditors; reviews the Company’s disclosure controls and procedures, internal controls, information security policies, internal audit function, and corporate policies with respect to financial information and earnings guidance; oversees investigations into complaints concerning financial matters; reviews other risks that may have a significant impact on the Company’s financial statements; and annually evaluatesresponsibilities listed in its performance and its charter. The Audit and Compliance Committee works closely with management as well as the Company’s independent auditors. The Audit and Compliance Committee has the authority to obtain advice and assistance from, and receive appropriate funding from the Company for, outside legal, accounting or other advisors as it deems necessary to carry out its duties. The Board has determined that Ms. Lora qualifies as an “audit committee financial expert” within the meaning of Securities and Exchange Commission regulations.
Charter. The report of the Audit and Compliance Committee is included in this Proxy Statement on page 41.51 below.
The Board has determined that each current member of the Audit and Compliance Committee is independent under our Governance Principles, New York Stock Exchange listing standards and Securities and Exchange Commission rules. The Board has also determined that each current member of the Audit and Compliance Committee is financially literate under New York Stock Exchange listing standards, and that Ms. Lora qualifies as an “audit committee financial expert” under Securities and Exchange Commission rules.
In August 2006, a Subcommittee of the Audit and Compliance Committee was established to conduct a review of our past stock option grant practices in conjunction with independent legal counsel. This Subcommittee met 20 times in fiscal 2006. Mr. Finchem, Ms. Lora and Mr. McCaffery constituted this Subcommittee.
Management Development and Compensation Committee. The Management Development and Compensation Committee dischargesrepresents and assists the Board’sBoard in fulfilling its responsibilities relating tofor oversight of:
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| • | the compensation of corporate and division officers, including the determination of the nature and amount of awards to be granted under our employee compensation plans; and |
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| • | our efforts to attract, develop and promote qualified executives. |
The Management Development and Compensation Committee also oversees the preparation of the Company’s executives; produces an annuala report on executive compensation for inclusion in the Company’sannual proxy statement; provides general oversight ofstatement and is charged with the Company’s compensation structure, including the Company’s equity compensation plans and benefits programs; and has the authority to retain compensation consultants, outside counsel and other advisors as it deems necessary to carry out its duties. Other specific duties and responsibilities of the Management Development and Compensation Committee include: administering the Chairman and Chief Executive Officer’s employment agreement and compensation against performance, as well as establishing appropriate levels of short-term and long-term compensation levels for other executive officers and senior management; reviewing and reporting to the Board on the utilization of stock-based incentive plans within the Company; exercising the authority given to it under the Company’s various stock plans, including the determination of the nature and amount of awards to be granted thereunder; reviewing and reporting to the Board on the Company’s activity related to attracting qualified executives and the development of such executives within the Company; and annually evaluatinglisted in its performance and its charter.
Charter. The report of the Management Development and Compensation Committee is included in this Proxy Statement beginning on page 24.37 below.
In addition to being independent under our Governance Principles and New York Stock Exchange listing standards, the Board has determined that each current member of the Management Development and Compensation Committee is a “non-employee director” under Securities and Exchange Commission rules and an “outside director” under Section 162(m) of the Internal Revenue Code.
No member of the Management Development and Compensation Committee was part of a “compensation committee interlock” during our 2006 fiscal year as described under Securities and Exchange Commission rules. In addition, none of our executive officers served as a director or member of the compensation committee of another
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entity that would constitute a “compensation committee interlock.”
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee identifies individuals qualified to becomerepresents and assists the Board members, consistent with criteria set forth in the KB Homefulfilling its responsibilities to:
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| • | shape and monitor the implementation of our governance policies and practices; |
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| • | identify and investigate individuals qualified to become Board members, consistent with criteria approved by the Board, and recommend proposed nominees for Board membership; |
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| • | assess the Board’s size, operations, structure, needs and effectiveness by, among other things, reviewing and making recommendations as to the membership, purpose and functions of Board Committees and overseeing the annual evaluation of the Board’s and its Committees’ respective performance; and |
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| • | establish and from time to time adjust non-employee Director compensation and benefits in accordance with, among other things, the compensation guidelines set forth in our Governance Principles. |
The Nominating and Corporate Governance Principles and as otherwise may be established by the Board; oversees the organization of the Board to discharge the Board’s duties and responsibilities properly and efficiently;Committee also reviews and makes recommendations to the Board concerning director compensation. Other specific duties and responsibilities of the Nominating and Corporate Governance Committee include: regularly assessing the size and composition of the Board; developing membership qualifications for Board Committees; reviewing and recommending to the full Board changes to the Corporate Governance Principles; recruiting new members to the Board; reviewing and recommendingon proposed changes to the Company’s charter or bylaws; assessingour Amended Certificate of Incorporation and Bylaws, periodically assesses and recommendingrecommends action with respect to the Company’sour stockholder rights plan orand other stockholder protections; recommending Board committee assignments; overseeingprotections, reviews and approves or ratifies (as applicable) transactions in which we participate and in which certain related parties have a material interest, and is charged with the evaluation of the Board;other duties and annually evaluatingresponsibilities listed in its performance and its charter.Charter.
Executive Committee.The Executive Committee of the Board has the authority of the Board of Directors to act between meetings of the full Board of Directors, except to the extentdetermined that such authority may be limited by applicable law. The purpose of the Executive Committee is to provide director oversight and action between regular meetings of the Board to the extent necessary for the Company to operate efficiently. The Executive Committee typically acts only pursuant to authority specifically delegated to it by the full Board of Directors, and all actions taken by the Executive Committee between Board meetings are considered and ratified at the next regular meeting of the full Board. The Executive Committee did not meet in 2004, but acted periodically by written consent.
Copies of Corporate Governance Principles, Business Ethics Policy and Board Committee Charters
Copies of the Company’s Corporate Governance Principles, Business Ethics Policy and the Charters for all Board Committees can be viewed on and downloaded from our website at http://www.kbhome.com/investor/main. In addition, print copies of the Company’s Corporate Governance Principles, Business Ethics Policy and the Charters for all Board Committees are available without charge to any stockholder who requests a copy by writing to the Corporate Secretary at the address listed below on this page.
Consideration of Director Nominees
Stockholder Nominees. The policyeach member of the Nominating and Corporate Governance Committee is to consider properly submitted stockholder nominations for candidates for membershipindependent under our Governance Principles and New York Stock Exchange listing standards.
Executive Committee. The Executive Committee met once in our 2006 fiscal year and acted periodically by written consent. As part of the new corporate governance initiatives discussed on page 5 above, the Board as described on page 8 under “Identifying and Evaluating Nominees for Directors.” In evaluating such nominations,of Directors has voted to dissolve the Nominating and Corporate GovernanceExecutive Committee seeks to maximize the knowledge, experience and capability on the Board and to address the membership criteria set forth under “Director Qualifications and Board Independence” on pages 3 and 4. Any stockholder nominations proposed for consideration by the Nominating and Corporate Governance Committee should include the nominee’s name and qualifications for Board membership and should be addressed to:effective April 5, 2007.
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| Corporate Secretary |
| KB Home |
| 10990 Wilshire Boulevard |
| Los Angeles, California 90024 |
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In addition, the bylaws of the Company permit stockholders to nominate directors for consideration at an annual stockholder meeting. Please see “Stockholder Proposals for 2006 Annual Meeting” on pages 43-44.
Identifying and Evaluating Nominees for Directors. The Nominating and Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. The Nominating and Corporate Governance Committee regularly assesses the appropriate size of the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event vacancies are anticipated or arise, the Nominating and Corporate Governance Committee considers various potential candidates to serve as director. Candidates may come to the attention of the Nominating and Corporate Governance Committee through current Board members, professional search firms, or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee, and may be considered at any point during the year. As described above, the Nominating and Corporate Governance Committee will consider properly submitted stockholder nominations for candidates for the Board.
Executive Sessions of Independent Directors
Executive sessions The independent Directors have met in executive session without management present as part of the Company’sBoard’s regularly scheduled meetings, and will continue to do so. Any independent non-employee directors are held at least twice a year. The sessions areDirector can request additional executive sessions. Until November 12, 2006, Mr. Johnson served as the Board’s Presiding Director and scheduled and chaired byexecutive sessions. Since November 12, 2006, the independent Lead Director of the Board of Directors, currently Mr. Jastrow, is responsible for scheduling and chairing the executive sessions.
Communications with the Board
You may write to the Board or to any of the independent Directors in care of our Corporate Secretary at KB Home, 10990 Wilshire Boulevard, Los Angeles, California 90024. The Corporate Secretary or the Assistant Corporate Secretary reviews all such written correspondence promptly upon receipt and will forward it, as they determine is appropriate, to a Committee Chair, to an individual Director and/or to the Lead Director. Directors who receive such correspondence determine, individually or with other Directors and/or senior executive management, whether and how to respond.
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Consideration of Director Candidates
The Nominating and Corporate Governance Committee is responsible for identifying and evaluating Director candidates on the Board’s behalf. Director candidates may come to the attention of the Nominating and Corporate Governance Committee who acts asthrough current Board members, professional search firms or other persons. These candidates are evaluated at regular or special meetings of the Presiding Director. Any non-employee director can request an additional executive session.Nominating and Corporate Governance Committee, and may be considered at any point during the year.
Communications with Stockholders may recommend a candidate for the Board
Individuals may communicate withNominating and Corporate Governance Committee’s consideration by submitting the Boardcandidate’s name and qualifications to us in care of Directors by writing to the Corporate Secretary at the address set forth on page 7.
Communicationslisted above under the heading “Communications with the Independent DirectorsBoard.” Candidates recommended by stockholders will be evaluated in the same manner as candidates recommended by any other person.
Director Compensation
Stockholders and other individuals may communicate specifically with non-management directors by submitting written correspondence to the Corporate Secretary at the address set forth on page 7. The Corporate Secretary reviews all such correspondence promptly upon receipt. Correspondence concerning matters within a specific Board committee’s or the Board’s purview, per the Corporate Secretary’s determination, is forwarded to the appropriate committee chair or Board member and/or to the Presiding Director (presently, the Nominating and Corporate Governance Committee chair). Board recipients of such correspondence determine how to address any subject raised therein, including responses to senders and/or related parties, Board committee and/or Board action and follow-up with internal Company management (if any).
Compensation Paid to Board Members
Only non-employee directorsDirectors receive compensation for their Board service; therefore, Mr. Karatz receives no additional compensation for serving on the Board of KB Home or on the Board of Kaufman & Broad S.A. KB Home directorsand Committee service. Non-employee Directors are compensated on a “Director Year” basis, which is the period between annual meetings of stockholders.Annual Meetings. Accordingly, the “2004“2006 Director Year” commenced on April 1, 2004,6, 2006, the date of the Company’s 2004our 2006 Annual Meeting, of Stockholders, and will conclude on April 7, 2005,4, 2007, the date of the Company’s 2005before our 2007 Annual Meeting of Stockholders.Meeting.
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Non-Employee Directors Stock Plan.Non-employee Director compensation is currently provided under our Non-Employee Directors Stock Plan (the “Plan”“Director Plan”). Among other things, the
The Director Plan provides for grantseach non-employee Director with an annual cash retainer of $80,000 and an annual grant of 4,000 deferred “Stock Units” (as described below) or Stock OptionsUnits.” A “Stock Unit” is a contract right to receive a cash payment equal to the fair market value of a share of our non-employee directors. The material terms of the Plan have been in place since 1998, and the current program is described below. As of November 30, 2004, 342,534 shares remained available for option grants under the Plan.Common Stock.
Annual Retainer. Each KB Home director receives annon-employee Director may receive the annual cash retainer in quarterly installments of $80,000. A director$20,000 paid out over the course of a Director Year.
Under the Director Plan, each non-employee Director may elect to receive the annual retainer (i) in cash (ii)retainer in Stock Units or (iii) in Stock Options. If a director choosesDirector elects to receive the retainer inannual cash it is paid in quarterly installments of $20,000 over the course of the Director Year.
If a director elects to receive the retainer in Stock Units, the Stock Units are granted at the beginning of theeach Director Year at a value equal toof 120% of the cash value of the retainer on the dateday of grant. A “Stock Unit” is a contract right to receive a share of Common Stock or a cash payment equal to the fair market value of a share of Common Stock. Directors earn the equivalent of cash dividends on, but do not have voting or investment power with respect to, the shares of Common Stock represented by their Stock Units. The shares of Common Stock represented by Stock Units are distributed in-kind or in cash, at the election of the participating director, when the director retires or otherwise leaves the Board.
If a directornon-employee Director elects to receive Stock Options in lieu of the annual cash retainer, in Stock Options rather than in cash, the Stock Options are granted as ofat the beginning of theeach Director Year and will have an exercise price equal to the closing price of the Company’sour Common Stock on the New York Stock Exchange on the date of grant, andgrant. The number of Stock Options granted is equal to four times the number granted are determined by a Black-Scholes ratio of 25%. Theshares of our Common Stock that can be acquired with the amount of the annual retainer based on the closing price of our Common Stock on the date of grant.
Stock Options granted to a non-employee Director under the Director Plan are fully vested when granted, but cannot be exercised until the earlier to occur of (i)(a) the director’sDirector’s acquisition and continued ownership of at least 5,000 shares of the Company’sour Common Stock or (ii)(b) the director’s retirement or otherwise ceasingdate the Director ceases to serve on theour Board. These Stock Options granted to directors have a term of fifteen years, consistent withalthough they must be exercised within one year of the Company’s employee stock options.date the Director ceases to serve on our Board.
Annual Stock Unit Grant. EveryEach non-employee directorDirector receives an annual grant of 2,0004,000 Stock Units at the beginning of each Director Year. DirectorsA Director may elect to receive theirthe annual Stock Unit grant in Stock Options, rather than inas described above.
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Non-employee Directors are paid the equivalent of cash dividends on their Stock Units in which case the Stock Optionswhen cash dividends are granted pursuantpaid on shares of our Common Stock. The amount of these cash dividend equivalent payments is equal to the same termsnumber of Stock Units held multiplied by the amount of the cash dividend paid on a share of our Common Stock. Stock Units granted to a non-employee Director under the Director Plan are paid out in cash when the Director leaves the Board, and conditions as described above under “Annual Retainer.”the amount paid is equal to the number of Stock Units held multiplied by the closing price of our Common Stock on the last business day before the payment date.
Committee Chair Retainer. At the beginning of each Director Year, the Chair of the Audit and Compliance Committee receives an additional annual retainer of 5001,000 Stock Units, and each Chair of the other Board Committees receives an annual retainer of 600 Stock Units. Chairs of all other Committees of the Board receive annual retainers of 300 Stock Units.A Committee ChairsChair may elect to receive their retainerthe Chair Stock Unit grant in Stock Options rather than inas described above.
Cash Election. Although the Director Plan provides the non-employee Directors with the option to receive payout of any Stock Units in which case theand Stock Options arein shares of our Common Stock, all non-employee Directors have elected to receive payouts of currently outstanding stock-based awards granted pursuant to them under the same terms and conditions as described above under “Annual Retainer.”Director Plan in cash.
Charitable Giving.Directors Legacy Program. The Company also maintains a Directors’Under our Directors Legacy Program under which the Companywe will make a charitable donation on each Director’s behalf of up to $1,000,000 to$1,000,000. Each donation can be allocated to up to five charitablequalifying institutions or organizations or educational institutions of the director’sDirector’s choice upon his or her death. The program has no direct compensation value to directors or their families because they do not receive any cash compensation or tax savings. Accordingly, all directors, including employee directors, are eligible to participate in the program. Directors vest in the full donation in five equal annual installments of
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$200,000; directors $200,000, and therefore must serve on the Board for five consecutive years to be fully vested inable to donate the program. Tomaximum amount.
The Board of Directors has elected to close the Directors Legacy Program to new participants, and any future Directors will not be eligible to receive a donation, a recommended organization mustparticipate.
Copies of Governance Principles, Ethics Policy and Board Committee Charters
Copies of our Governance Principles, Ethics Policy and all Board Committee Charters can be an educational institution or charitable organizationviewed on and must qualifydownloaded from our website at http://www.kbhome.com/investor. Stockholders may request free print copies of our Governance Principles, Ethics Policy and Board Committee Charters by writing to receive tax-deductible donationsthe Corporate Secretary at the address listed above under the Internal Revenue Code. The program is funded by life insurance contracts maintained byheading “Communications with the Company on the lives of the participating directors. This funding is structured such that the life insurance proceeds are expected to equal the cost to the Company of maintaining the program.Board.”
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Proposals to Bebe Voted Onon
Proposal 1:
Election of Directors
At the Annual Meeting, the Board of Directors will present as nominees and recommend to stockholders that the three persons listed beloweach of Messrs. Burkle, Moonves and Nogales be elected to the Board of Directors. Messrs. Johnson, Lanni and Munitz are nominated as Class IIII Directors to serve for a three-year term ending at the 2010 Annual Meeting, and that Dr. Irani be elected as a Class I Director to serve for a one-year term ending at the 2008 Annual Meeting of Stockholders.Meeting. Each such Class I directornominee is currently a director of KB Home andDirector, is standing for re-election.re-election, has consented to being nominated and has agreed to serve as a Director if elected. Should any of these nominees become unable to serve as a directorDirector prior to the Annual Meeting, the persons named on the enclosed Proxy Card will, unless otherwise directed, vote for the election of such other person as the Board of Directors may recommend in place of such nominee. Although Dr. Irani has reached the retirement age for Directors under our Corporate Governance Principles, the Board believes it is in our and our stockholders’ best interests that Dr. Irani continues to serve on the Board until the 2008 Annual Meeting.
Vote Required
The election of each Director nominee will require the affirmative vote of a majorityplurality of shares of Common Stock present or represented at the Annual Meeting.
Your Board recommends a vote FOR the election to the Board of each of the following nominees. A brief summary of each nominee’s principal occupation, recent professional experience and their directorships if any, at other public companies, if any, is provided below.
Ron Burkle, age 54, is the founder and managing partner of The Yucaipa Companies, a private investment firm based in Southern California. Yucaipa specializes in acquisitions, mergers and management of large retail, manufacturing and distribution companies. Mr. Burkle has served as Chairman of the Board and controlling shareholder of numerous companies including Alliance Entertainment, Dominick’s, Fred Meyer, Ralphs and Food4Less. He is currently a member of the board of Occidental Petroleum Corporation, Yahoo! Inc. and Kaufman & Broad S.A., the Company’s publicly-traded French subsidiary. He has been a Director of the Company since 1995.
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Dr. Ray R. Irani, age 72, is Chairman, President and Chief Executive Officer of Occidental Petroleum Corporation. He joined Occidental in 1983 as Chairman and Chief Executive Officer of Occidental Chemical Corporation, an Occidental subsidiary, and as Executive Vice President of Occidental. In 1984 he was elected to the Board of Directors of Occidental and was named President and Chief Operating Officer. He assumed the responsibilities of Chairman and Chief Executive Officer in 1990, and the additional position of President in 2005. Dr. Irani was Chairman of the Board of Directors of Canadian Occidental Petroleum Ltd., an Occidental affiliate, from 1987 to 1999. Dr. Irani is a director of Kaufman & Broad S.A., the Company’s publicly-traded French subsidiary. Dr. Irani has been a Director of the Company since 1992.
Leslie Moonves, age 57, is President and Chief Executive Officer and a Director of CBS Corporation and most recently was Co-President and Co-Chief Operating Officer of Viacom, which title he held from June 2004 to December 2005. Mr. Moonves previously served as President and Chief Executive Officer of CBS from 1998 to 2004, and served as its Chairman from 2003 to 2005, with responsibility for UPN since January 2002. He joined CBS in 1995 as President, CBS Entertainment. Prior to that, Mr. Moonves was President of Warner Bros. Television from 1993, when Warner Bros. and Lorimar Television combined operations. From 1989 to 1993, he was president of Lorimar Television. Mr. Moonves joined the Board in 2004.
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Luis G. Nogales, age 63, is the Managing Partner of Nogales Investors, LLC, a private equity investment firm. He was Chairman and Chief Executive Officer of Embarcadero Media, Inc. from 1992 to 1997, President of Univision Communications, Inc., from 1986 to 1988, and Chairman and Chief Executive Officer of United Press International from 1983 to 1986. He is a director of Edison International, Southern California Edison, Arbitron, and Kaufman & Broad S.A., the Company’s publicly-traded French subsidiary. Mr. Nogales has been a Director of the Company since 1995.
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Listed below are our other incumbent Directors and their respective principal occupations, business affiliations and other information for at least the past five years.
Timothy W. Finchem,age 59, has been Commissioner of the PGA TOUR since 1994. He joined the TOUR staff as Vice President of Business Affairs in 1987, and was promoted to Deputy Commissioner and Chief Operating Officer in 1989. Mr. Finchem served in the White House as Deputy Advisor to the President in the Office of Economic Affairs in 1978 and 1979, and in the early 1980’s, co-founded the National Marketing and Strategies Group in Washington, D.C. He joined the Board in May 2005 and his current term expires in 2008.
Kenneth M. Jastrow, II,age 59, has been Chairman and Chief Executive Officer of Temple-Inland Inc. since 2000. Prior to that, Mr. Jastrow served as President and Chief Operating Officer in 1998 and 1999, Group Vice President from 1995 until 1998, and as Chief Financial Officer of Temple-Inland from November 1991 until 1999. Mr. Jastrow is also a director of MGIC Investment Corporation. He joined the Board in December 2001 and was elected Lead Director in November 2006. His current term expires in 2009.
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James A. Johnson,, age 61,63, has been Vice Chairman of Perseus LLC, a merchant banking and private equity firm, since 2001. In 2000, Mr. Johnson served as Chairman and Chief Executive Officer of Johnson Capital Partners, a private investment company. Mr. Johnson was employed by Fannie Mae from 1990 through 1999, where he served as Vice Chairman in 1990, Chairman and Chief Executive Officer from 1991 through 1998 and Chairman of the Executive Committee of the Board in 1999. He serves on the boards of Gannett, Inc., Target Corporation, UnitedHealth Group, The Goldman Sachs Group, Inc., and Temple-Inland Inc. Mr. Johnson has been a member of the Board of Directors since 1992.1992 and his current term expires in 2008.
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J. Terrence Lanni,, age 62,63, has been Chairman of MGM MIRAGE since July 1995, and Chief Executive Officer from June 1995 to December 1999, and since March 2000. Before joining MGM MIRAGE, Mr. Lanni was President and Chief Operating Officer of Caesars World, Inc. from April 1981 to February 1995 and a director from January 1982 to February 1995. Mr. Lanni was elected to the Company’s Board of Directors in August 2003.
Dr. Barry Munitz, age 63, is President and Chief Executive Officer of The J. Paul Getty Trust. From 1991 to 1997, Dr. Munitz was Chancellor of the California State University, the largest system of senior higher education in the United States. He is also a director for Sallie Mae. Dr. Munitz joined the Company’s Board of Directors in 1999.
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The other directors of the Company and their respective principal occupations, business affiliations and other information for at least the past five years are as follows.
Ron Burkle, age 52, is the founder and managing partner of The Yucaipa Companies, a private investment firm based in Southern California. Yucaipa specializes in acquisitions, mergers and management of large retail, manufacturing and distribution companies. Mr. Burkle has served as Chairman of the Board and controlling shareholder of numerous companies including Alliance Entertainment, Dominick’s, Fred Meyer, Ralphs and Food4Less. He is currently a member of the board of Occidental Petroleum Corporation, Yahoo! Inc. and Kaufman & Broad S.A., the Company’s publicly-held French subsidiary. He has been a directorDirector of the Company since 19952003 and his current term expires in 2007.
Dr. Ray R. Irani, age 70, is Chairman and Chief Executive Officer of Occidental Petroleum Corporation. He joined Occidental in 1983 as Chairman and Chief Executive Officer of Occidental Chemical Corporation, an Occidental subsidiary, and as Executive Vice President of Occidental. In 1984 he was elected to the Board of Directors of Occidental and was named President and Chief Operating Officer. He assumed the responsibilities of Chairman and Chief Executive Officer, in addition to President, in 1990. Dr. Irani was Chairman of the Board of Directors of Canadian Occidental Petroleum Ltd., an Occidental affiliate, from 1987 to 1999. Dr. Irani is a director of Lyondell Chemical Company. Dr. Irani has been a director of the Company since 1992 and his current term expires in 2007.2008.
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Kenneth M. Jastrow, II, age 57, has been Chairman and Chief Executive Officer of Temple-Inland Inc. since 2000. Prior to that, Mr. Jastrow served as President and Chief Operating Officer in 1998 and 1999, Group Vice President from 1995 until 1998, and as Chief Financial Officer of Temple-Inland from November 1991 until 1999. Mr. Jastrow is also a director of MGIC Investment Corporation. He joined the Company’s Board in December 2001 and his current term expires in 2006.
Bruce Karatz, age 59, has been Chairman of the Company since 1993 and Chief Executive Officer since 1986. Mr. Karatz joined the Company’s predecessor in 1972, and from 1976 through 1980 was President of its French homebuilding subsidiary, Kaufman & Broad S.A. From 1980 until the formation of the Company in 1986, Mr. Karatz was President of Kaufman and Broad Development Group. Mr. Karatz is a director of Honeywell International Inc., Avery Dennison Corporation, Edison International, and Kaufman & Broad S.A., the Company’s publicly-held French subsidiary. Mr. Karatz has been a director of the Company since 1986 and his current term expires in 2006. Mr. Karatz will step down from one of his outside boards prior to the 2006 Annual Meeting of Stockholders.
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Melissa Lora,, age 42,44, is the Chief Financial Officer of Taco Bell Corp., a position that she has held since 2001. Ms. Lora joined Taco Bell Corp. in 1987 and has held various positions throughout the company, most recently acting as Regional Vice President and General Manager from 1998 to 2000 for Taco Bell’s operations throughout the Northeastern United States. Ms. Lora joined the Company’s Board of Directors in April 2004 and her current term expires in 2006.2009.
Michael G. McCaffery,, age 51,53, is President andthe Chief Executive Officer of Makena Capital Management. From 2000 to 2006, Mr. McCaffery was President and CEO of the Stanford Management Company (SMC), which was established in 1991 to manage the $10.9 billion endowment of Stanford University’s financial and real estate investment assets. Previously,investments. Previous to joining SMC, Mr. McCaffery was ChairmanPresident and Chief Executive Officer of Robertson Stephens Investment Bankers a position he held since 1993.from January 1993 to December 1999, and also served as Chairman from January 2000 to December 2000. Mr. McCaffery is a director of the Lucile Salter Packard Children’s Hospital, Thomas Weisel Partners Group, Inc., Western Technology Ventures, The Investment Fund for Foundations,Savvian, LLC and RS Investment Trust, and is a member of the Advisory BoardBoards of Accel Ventures.Ventures, Silver Lake Partners, Stanford University’s Graduate School of Business and Princeton University’s Bendheim Institute of Finance. Mr. McCaffery was elected to the Company’s Board of Directors in July 2003, and his current term expires in 2006.2009.
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Leslie MoonvesJeffrey T. Mezger,, age 55, is Co-President and Co-Chief Operating Officer of Viacom and most recently was51, has been President and Chief Executive Officer of CBS Corporation, which title he held from 1998 to June 2004, and Chairmanthe Company since 2003 with responsibility for UPN since January 2002. He joined CBS in 1995 as President, CBS Entertainment.November 2006. Prior to that,becoming President and Chief Executive Officer, Mr. Moonves wasMezger served as the Executive Vice President and Chief Operating Officer of Warner Bros. Television fromthe Company, a position he assumed in 1999. From 1995 until 1999, Mr. Mezger held a number of executive posts in the Company’s southwest region, including Division President, Phoenix Division, and Senior Vice President and Regional General Manager over Arizona and Nevada. Mr. Mezger joined the Company in 1993 when Warner Bros. and Lorimar Television combined operations. From 1989 to 1993, he wasas president of Lorimar Television.the Antelope Valley Division in Southern California. Mr. Moonves joinedMezger is a member of the executive board of the USC Lusk Center for Real Estate and is on the Policy Advisory Board for the Harvard Joint Center for Housing Studies. He is also a member of the NAHB High Production Builders Council and has served as an officer on numerous boards of the NAHB. Mr. Mezger is a director of Kaufman & Broad SA, the Company’s Boardpublicly-traded French subsidiary. Mr. Mezger has been a Director of Directors in April 2004the Company since November 2006, and his current term expires in 2007.2009.
Luis G. Nogales, age 61, is the Managing Partner of Nogales Investors, LLC, a private equity investment firm. He was Chairman and Chief Executive Officer of Embarcadero Media, Inc. from 1992 to 1997, President of Univision Communications, Inc., from 1986 to 1988, and Chairman and Chief Executive Officer of United Press International from 1983 to 1986. He is a director of Southern California Edison Co., Edison International, Arbitron Inc., and Kaufman & Broad S.A., the Company’s publicly-held French subsidiary. Mr. Nogales has been a director of the Company since 1995 and his current term expires in 2007.
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Proposal 2:
Approval of an Amendment to the Amended Certificate of Incorporation of KB Home to IncreaseDeclassify the NumberBoard of Authorized SharesDirectors and Provide for the Annual Election of KB Home Common Stock from 100 Million to 300 MillionDirectors
The Company’sBoard of Directors has recently taken a number of actions to strengthen our corporate governance. These initiatives are discussed on page 5 above. As part of these initiatives, the Board of Directors proposes to amend the Company’sour Amended Certificate of Incorporation to increasedeclassify the number of authorized shares of KB Home Common Stock. The purpose of the proposal is to enable the Company to effect a two-for-one split of the Common Stock to make it affordable to a broader base of stockholders and to use the Common Stock for other appropriate future corporate purposes. The proposed amendment would increase the number of authorized shares of Common Stock from 100,000,000 shares to 300,000,000 shares.
The Board of Directors adoptedand provide for the followingannual election of Directors.
Our current Amended Certificate of Incorporation divides the Board of Directors into three classes, and provides that each Director be elected for three-year terms within his or her respective class. The action described above would amend the Amended Certificate of Incorporation to eliminate these classes and provide for the annual election of Directors.
Although the current classification of Directors has served KB Home well, the Board believes approval of the proposed amendment, toas described below, will enhance KB Home’s corporate governance and will bring KB Home’s method of electing Directors in line with many U.S. public companies.
Proposed Amendment
To implement this proposal, the Company’sBoard has adopted resolutions approving and declaring the advisability of amending our Amended ArticlesCertificate of Incorporation, at its December 2, 2004 meeting, subject to stockholder approval, and declared the proposed amendment to be advisable:as follows:
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| | RESOLVED, that the Amended Certificate of Incorporation of the CorporationKB Home be amended to increasedeclassify the authorized Common StockBoard of Directors and provide for the annual election of directors and for this purpose each of Paragraph (a)(c) and Paragraph (d) of Article FourthFifth thereof shall be struck out in its entirety and shallwill be replaced with the following new Paragraph (a)(c) of Article Fourth:Fifth: |
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| | FOURTH: (a) The total numberFIFTH: (c) Except as provided herein or in the Corporation’s Bylaws, or as permitted by the General Corporation Law of sharesthe State of stock whichDelaware, the Corporationdirectors shall have authoritybe elected at each annual meeting of stockholders. Each director so elected shall hold office until his or her term expires and his or her successor is duly elected and qualified, or until his or her earlier death, resignation or removal. After the annual meeting of stockholders in 2007, all directors will be elected for a one-year term expiring at the next annual meeting of stockholders; provided, that nothing in this paragraph (c) of Article Fifth will shorten the term of any director elected at or prior to issue is 335,000,000, consistingthe annual meeting of 300,000,000 shares of Common Stock, par value $1.00 per share (the “Common Stock”), 25,000,000 shares of Special Common Stock, par value $1.00 per share (the “Special Common Stock”) and 10,000,000 shares of Preferred Stock, par value $1.00 per share (the “Preferred Stock”).stockholders in 2007. |
Current Capital Structure
As This proposal requires the approval of the February 14, 2005 record date, 47,876,606at least 80% of all outstanding shares of our Common Stock were issued and outstanding, of which 7,360,500 shares are held byStock. If this proposal is not approved, the Company’s Grantor Stock Trustcurrent classified structure will remain in connection with the Company’s obligations under various employee benefit plans. 8,500,698 shares of Common Stock were held in treasury. 7,851,396 shares of Common Stock were reserved for (1) issuance upon exercise of outstanding stock options and (2) stock options and stock awards that may be granted in the future under the Company’s stock option and other equity compensation and incentive programs. Accordingly, there are only 35,771,300 shares of Common Stock currently available for issuance. There are no shares of Special Common Stock or Preferred Stock currently outstanding.place.
Reasons forDeclassification Process
If this proposal is approved, the Proposed Amendment
Thedeclassification of the Board of Directors believes it is desirable and in the best interests of the Company and stockholders to increase the number of authorized shares of Common Stock from 100 million shares to 300 million shares to pursue a two-for-one stock split in the form of a stock dividend to stockholders and to provide the Company with sufficient authorized shares for appropriate future corporate purposes (which may not require further stockholder action or approval), including, but not limited to, future stock dividends, raising capital through Common Stock offerings, issuing Common Stock in acquisitions or other strategic transactions, and funding future employee benefit plan obligations.will occur as follows:
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| (a) the Directors elected at this Annual Meeting and all incumbent Directors will continue to serve the remainder of their respective terms; and |
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Under
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| (b) beginning with the 2008 Annual Meeting, Directors will be elected annually, so that by the 2010 Annual Meeting all Directors will be elected annually. |
In addition, if this proposal is approved by stockholders, the proposed amendment, each ofBoard will undertake to amend KB Home’s Bylaws to eliminate the newly authorized shares of Common Stock will have the same rights and privileges asBoard classification provisions contained therein, which follow those currently authorized shares of Common Stock. Adoption of the proposed amendment will not change the par value of the Common Stock. However, the issuance of additional shares of Common Stock under the proposed amendment could dilute the earnings and book value allocable to each share of Common Stock.
Authorized but unissued shares of Common Stock may also be used to oppose a hostile takeover attempt or to delay or prevent a changecontained in control of the Company. However, the Company has no present intention to issue shares for such purpose. The proposed amendment is based on business and financial considerations. The Company is not aware of any threat of takeover or change in control, nor is the Company proposing to stockholders any anti-takeover measures.
No stockholder has any preemptive rights regarding future issuances of any shares of Common Stock and, except as stated herein, the Company does not have any current plans, understandings or agreements for the issuance or use of the proposed additional shares of Common Stock.
Proposed Two-for-One Stock Split
If the proposed amendment is adopted, it will become effective upon the filing of a Certificate of Amendment to the Company’sour Amended Certificate of Incorporation with the Secretary of State of the State of Delaware. Subject to market conditions, the Board of Directors then intends to immediately declare a dividend of one additional share of Common Stock for each share of Common Stock then issued so that the resulting post-split number of shares in each stockholder’s account is twice the pre-split number of shares. Unless a stockholder requests certificated shares from the Company’s transfer agent, the additional share of Common Stock would be issued in book entry form.
However, without stockholder approval of the proposed amendment, the Company would not have sufficient authorized shares to declare and carry out the proposed two-for-one stock split.Incorporation.
Vote Required
Approval of the proposed amendment to the Company’sour Amended Certificate of Incorporation requires anthe affirmative vote of at least 80% of the holdersoutstanding shares of a majority in voting power of all outstandingour Common Stock.
Your Board recommends a vote FOR the approval of the proposed amendment to the Company’sour Amended Certificate of Incorporation.
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Proposal 3:
RatificationApproval of Independent Auditorsan Amendment to the Amended Certificate of Incorporation of KB Home to Eliminate its “Fair Price” Provision and
Related Supermajority Vote Requirements
The Board of Directors has recently taken a number of actions to strengthen our corporate governance. These initiatives are discussed on page 5 above. As part of these initiatives, to enhance KB Home’s corporate governance, the Board of Directors proposes to amend our Amended Certificate of Incorporation to eliminate its “fair price” provision. If stockholders approve this proposal and the above proposal to amend our Amended Certificate of Incorporation to declassify the Board and provide for the annual election of directors, our Amended Certificate of Incorporation would no longer contain any provisions that require a supermajority vote of stockholders (i.e., 80% of all outstanding capital stock) to undertake corporate actions or transactions.
The Board believes approval of the proposed amendment, as described below, will bring KB Home in line with many U.S. public companies, where actions requiring stockholder approval can be made by holders of a majority of our outstanding stock.
The “Fair Price” Provision
Article Eighth of our Amended Certificate of Incorporation, which is sometimes referred to as a “fair price” provision, requires the affirmative vote of the holders of not less than 80% of our outstanding capital stock to approve certain transactions involving any person or group that beneficially owns an aggregate of 20% or more of our outstanding capital stock (a “Related Person”).
The current 80% supermajority approval requirement of Article Eighth applies to the following transactions between a Related Person and KB Home:
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| • | any merger or consolidation of KB Home or a KB Home subsidiary; |
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| • | any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any substantial part of the assets either of KB Home (including without limitation any voting securities of a subsidiary) or a KB Home subsidiary; |
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| • | a voluntary liquidation or dissolution of KB Home; |
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| • | any sale, lease, exchange, transfer or other disposition, including without limitation by way of a mortgage or other security device, of all or any substantial part of the assets of a Related Person; |
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| • | certain issuances of any securities of KB Home or a KB Home subsidiary other than the issuance on a pro rata basis to all holders of stock of the same class pursuant to a stock split or stock dividend; and |
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| • | any transaction that would have the effect directly or indirectly of increasing the voting power of a Related Person. |
The 80% supermajority approval requirement does not apply to transactions (a) approved by two-thirds of the Continuing Directors (directors who were directors prior to the time the Related Person became a Related Person), or (b) in which the cash or fair market value of the property,
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securities or other consideration to be received by stockholders (as determined by two-thirds of the Continuing Directors) is not less than the highest price per share paid at any time by the Related Person (as determined by two-thirds of the Continuing Directors) in acquiring any of its holdings of KB Home capital stock, inclusive of brokerage commissions, transfer taxes, fees and other costs paid in connection with such purchases.
Effect of Eliminating the “Fair Price” Provision
The repeal of Article Eighth will have two primary effects on stockholder voting. First, those transactions covered by Article Eighth that would otherwise require a stockholder vote under the Delaware General Corporation Law would require the affirmative vote of the holders of a majority of our outstanding stock present or represented at a stockholder meeting, rather than an 80% supermajority vote.
Second, since the 80% supermajority vote requirement would no longer apply, the Board of Directors would be able to effect, without obtaining stockholder approval, those transactions covered by Article Eighth that do not otherwise require stockholder approval under Delaware law.
KB Home will continue to be subject to Section 203 of the Delaware General Corporation Law without regard to whether the proposed amendments are approved. Section 203 provides, in general, that a transaction constituting a “business combination” within the meaning of Section 203 involving a person owning 15% or more of our voting stock (referred to as an “interested stockholder”), cannot be completed for a period of three years after the date the person became an interested stockholder unless (a) the Board approved either the business combination or the transaction that resulted in the person becoming an interested stockholder prior to such business combination or transaction, (b) upon consummation of the transaction that resulted in the person becoming an interested stockholder, that person owned at least 85% of our outstanding voting stock (excluding shares owned by persons who are directors and also officers of KB Home and shares owned by certain KB Home employee benefit plans), or (c) the business combination was approved by the Board and by the affirmative vote of at least 662/3% of our outstanding voting stock not owned by the interested stockholder.
Proposed Amendment
To implement this proposal, the Board has adopted resolutions approving and declaring the advisability of amending our Amended Certificate of Incorporation, subject to stockholder approval, as follows:
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| RESOLVED, that the Amended Certificate of Incorporation of KB Home be amended to eliminate its fair price provision and related supermajority voting requirements, and for this purpose Article Eighth thereof shall be struck out in its entirety and the remaining Articles of the Amended Certificate of Incorporation will be renumbered sequentially as appropriate. |
Vote Required
Approval of the proposed amendment to our Amended Certificate of Incorporation will require the affirmative vote of at least 80% of the outstanding shares of our Common Stock.
Your Board recommends a vote FOR the approval of the proposed amendment to our Amended Certificate of Incorporation.
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Proposal 4:
Ratification of Independent Registered Public Accounting Firm
The Audit and Compliance Committee of the Board of Directors has appointed Ernst & Young LLP as our independent auditorsregistered public accounting firm to audit the Company’sour consolidated financial statements for the fiscal year ending November 30, 2005.2007. During our 2006 fiscal 2004,year, Ernst & Young LLP served as the Company’sour independent auditorsregistered public accounting firm and also provided certain other audit related services. See “Independent Auditor Fees and Services” on page 42.52 below. Representatives of Ernst & Young LLP are expected to attend the Annual Meeting, where they are expected to be available to respond to appropriate questions and, if they desire, to make a statement.
The Company’s organizational documents doAlthough not require that the Company’s stockholders ratify the appointmentrequired by our charter or Bylaws, we are seeking stockholder ratification of Ernst & Young LLP as the Company’sour independent auditors. The Company isregistered public accounting firm. We are doing so, as it haswe have done in prior years, because the Company believeswe believe it is a matter of good corporate practice.governance. If the Company’s stockholders do not ratify the appointment, the Audit and Compliance Committee will reconsider whether or not to retain Ernst & Young LLP, but still may retain them. Even if the appointment is ratified, the Audit and Compliance Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in theour and our stockholders’ best interests of KB Home and its stockholders.interests.
Vote Required
Approval of the ratification of the appointment of Ernst & Young LLP as our independent public accounting firm for the fiscal year ending November 30, 2007 requires the affirmative vote of the majority of shares of Common Stock present or represented, and entitled to vote thereon, at the Annual Meeting.
Your Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as the Company’sour independent auditorsregistered public accounting firm for the 2005 fiscal year.year ending November 30, 2007.
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Beneficial Proposal 5:
Stockholder Proposal
The International Brotherhood of Electrical Workers Pension Benefit Fund, 900 Seventh Street, N.W., Washington, D.C. 20001, the beneficial owner of 1,758 shares of our Common Stock, has notified us that it intends to present a proposal at the Annual Meeting. The proposal is set forth below, along with the recommendation of our Board of Directors that you vote AGAINST the proposal. We accept no responsibility for the accuracy of the proposal or the proponent’s supporting statement.
Stockholder Proposal
RESOLVED: The shareholders of KB Home urge the Board of Directors to adopt a policy under which senior executives and directors commit to hold throughout their tenure at least 75 percent of all KB Home shares that they obtain by exercising stock options or receiving other equity-based compensation. The board shall implement this policy in a manner that does not violate any existing employment agreement or equity compensation plan. In adopting such a policy, it is requested that the Compensation Committee of the Board of Directors shall report to stockholders regarding the adoption of such a policy and other information relevant to the proposal, before the KB Home 2008 annual meeting.
Proponent’s Supporting Statement
The role of equity-based executive compensation has come under close scrutiny in recent years, inasmuch as stock options can provide incentives to senior executives that differ from the interests of stockholders. Option grants promise executives all of the gain of share price increases with none of the risk of share price declines. Thus, option grants can encourage actions to boost short-term performance.
This resolution proposes to align the interest of directors and senior executives more closely with the interest of shareholders by asking KB Home to adopt a policy that its directors and senior executives will hold throughout their tenure at least 75 percent of the KB Home shares that they obtain by exercising options or receiving other equity-based compensation. This policy, which is similar to one adopted at Cooper Industries, thus seeks to decouple equity compensation for senior executives and directors from short-term price movements, to encourage an emphasis on longer-term gains, and to give directors and executives some flexibility with respect to their holdings.
We view this reform as necessary, particularly in light of the recent events such as KB Home’s October 10, 2006 disclosure that it improperly accounted for stock option grants awarded to corporate officers (including CEO Bruce Karatz) and may need to restate previous earnings as a result. This follows the Company’s confirmation in August that it was the subject of an SEC investigation regarding stock-option grants. Even if these past stock-option grants and transactions were entirely lawful, these practices raise serious governance concerns and suggest that senior executives may be operating on a short-term horizon.
We believe that it is reasonable for KB Home to ask its senior executives and directors to ensure and to demonstrate their confidence in the Company’s future, and increased accountability, by requiring them to hold on to 75% of their equity-based compensation for the duration of their tenure at KB Home.
We urge you to vote FOR this resolution.
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Recommendation of the Board of Directors AGAINST the Proposal
Your Board of Directors recommends a vote AGAINST this proposal.
The Board, which oversees non-employee Director and executive compensation, shares the proponent’s view that equity compensation and mandatory equity ownership for executives and non-employee Directors promotes accountability and encourages them to enhance stockholder value. For this reason, KB Home already requires its executives and Directors to own significant amounts of its Common Stock, and has done so for years.
Executive Stock Ownership Requirements. Executives must own stock with a value equal to a certain multiple of their base salary. This multiple increases with seniority. Currently, the ownership target for most senior executives is 5 times their base salary. The current President and Chief Executive Officer must own 10 times his base salary. Executives who are subject to a stock ownership requirement may not sell or otherwise dispose of any shares of stock they obtain through the exercise of stock options or awards of restricted stock until they have met their respective ownership targets, except to cover stock option exercise costs and tax withholding obligations. Most executives who are subject to a stock ownership requirement hold stock well above their respective ownership targets. As of February 14, 2007, the Named Executive Officers (as described on page 33 below) exceeded their respective ownership targets by an average of over 300%, and the President and Chief Executive Officer held stock with a value of approximately 15 times his base salary.
Non-Employee Director Stock Ownership Requirements. Each non-employee Director must own at least 5,000 shares of stock or stock equivalents within 3 years of joining the Board. As described under “Director Compensation” on pages 11-12 above, non-employee Directors cannot receive payment for any Stock Option awards they obtain under the Director Plan until they reach and maintain their ownership target or leave the Board of Directors. In addition, except for a change of control of KB Home, non-employee Directors may not receive payment for any Stock Unit awards they obtain under the Director Plan until they leave the Board.
Over the years, these stock ownership requirements have contributed to an ownership culture at KB Home with a close alignment of stockholder and management interests focused on creating long-term stockholder value.
At the same time, however, KB Home’s stock ownership requirements were carefully designed to strike the right balance between management ownership and management compensation. No stock ownership policy should hinder KB Home’s ability to attract, motivate and retain high-quality management talent at a reasonable cost. KB Home’s continued ability to do so is critical to its and its stockholders’ long-term success.
The proposed stock retention requirement does not strike the right balance. Perversely, while this proposal supposedly seeks to promote equity ownership, it would actually make equity compensation less attractive for both our executives and Directors and for KB Home. The proposal reduces the benefits of equity compensation to our executives and Directors by:
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| • | Severely limiting our executives’ ability to diversify their personal assets, which are already heavily weighted in KB Home stock. |
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| • | Requiring our executives and Directors to spend significantly more of their own funds to pay exercise prices and associated taxes |
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| | incurred on the exercise or vesting of equity compensation. |
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| • | Making it more difficult for our executives to make estate planning and charitable giving arrangements. |
This proposal similarly reduces the benefits of equity compensation to KB Home by:
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| • | Mandating a “one size fits all” approach that prevents us from requiring a range of target ownership levels based on position, seniority, salary level and other relevant factors. |
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| • | Undermining the retention value of our equity compensation programs by making it more attractive for executives exercising vested options to do so after leaving KB Home, when they would no longer be subject to the proposed stock retention requirement. |
This proposal would make it more difficult and costly to attract, motivate and retain management talent. Of the eleven companies we consider to be our most direct operational peers, only one reports maintaining a share retention requirement, and that retention requirement applies only with respect to net shares obtained from stock option exercises and only until covered executives reach their respective stock ownership targets. The rest report no retention requirement at all. In order to compete with these companies for management talent, KB Home would likely need to pay additional compensation to offset the burdens this proposal would impose on the ability of its executives and Directors to realize value from equity compensation. The Board believes the loss of talent and/or higher compensation costs likely triggered by this proposal would hurt KB Home’s ability to create long-term stockholder value.Accordingly, your Board recommends that you vote AGAINST this proposal.
Vote Required
Approval of this stockholder proposal requires the affirmative vote of the majority of shares of Common Stock present or represented, and entitled to vote thereon, at the Annual Meeting. However, the proposal is a request to the Board of Directors to consider a matter. If the proposal passes, the Board may consider, in its business judgment, whether to take the requested action or not, but it is not legally obligated to do so.
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Proposal 6:
Stockholder Proposal
The AFL-CIO Reserve Fund, 815 Sixteenth Street, N.W., Washington, D.C. 20006, the beneficial owner of 400 shares of our Common Stock, has notified us that it intends to present a proposal at the Annual Meeting. The proposal is set forth below, along with the recommendation of our Board of Directors that you vote AGAINST the proposal. We accept no responsibility for the accuracy of the proposal or the proponent’s supporting statement.
Stockholder Proposal
RESOLVED, that the shareholders of KB Home (the “Company”) urge the Board of Directors to adopt a policy that a significant portion of future equity compensation grants to senior executives shall be shares of stock that require the achievement of performance goals as a prerequisite to vesting (“performance-vesting shares”).
This policy shall apply to existing employment agreements and equity compensation plans only if the use of performance-vesting shares can be legally implemented by the Company, and will otherwise apply to the design of all future plans and agreements.
Proponent’s Supporting Statement
We believe that our Company’s compensation policies should encourage the ownership of stock by senior executives in order to align their interests with those of shareholders. To achieve this goal, we favor granting senior executives actual shares of stock that vest only after meeting specified performance goals. In our opinion, performance-vesting shares are a better form of equity compensation than fixed-price stock options or time-vesting restricted stock.
Fixed-price stock option grants provide senior executives with incentives that may not be in the best interests of long-term shareholders. In our view, stock option grants promise executives all the benefit of share price increases with none of the risk of share price declines. This asymmetrical incentive structure can reward executives for share price volatility, a measure of investment risk. Stock options can also reward short-term decision-making because many executives’ options can be exercised just one year after the grant date. Furthermore, we believe that stock options can create a strong incentive to manipulate a company’s stock price through questionable or even fraudulent accounting.
Leading investors and regulators have questioned the use of stock options. Berkshire Hathaway CEO Warren Buffet has characterized fixed-price stock options as “really a royalty on the passage of time.” Former Federal Reserve Chairman Alan Greenspan blamed poorly-structured options for the “infectious greed” of the 1990s because “they failed to properly align the long-term interests of shareholders and managers.” In August our Company announced an informal SEC inquiry into KB Home’s stock option grants.
Similarly, we oppose granting executives time-vesting restricted stock that does not include any performance requirements. In our view, time-vesting restricted stock rewards tenure, not performance. Instead, we believe vesting requirements should be tailored to measure each individual executive’s performance through disclosed benchmarks, in addition to the Company’s share price. To align their incentives with those of long-term sharehold-
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ers, we also believe that senior executives should be required to hold a significant portion of these performance-vesting shares for as long as they remain executives of the Company.
Executive compensation consultant Pearl Meyer has said “if a company is going to issue restricted stock grants as a way of making sure executives are owners rather than optionees, the grant should be earned on a performance basis – it shouldn’t be just a giveaway.” Former SEC Chairman Richard Breeden has stated that “there is not a strong reason for granting restricted stock rather than simply paying cash unless there are performance hurdles to vesting.”
Recommendation of the Board of Directors AGAINST the Proposal
Your Board of Directors believes this proposal does not serve the best interests of KB Home or its stockholders and recommends a vote AGAINST it.
Executive compensation at KB Home is overseen by the Board of Directors through the Management Development and Compensation Committee (“Compensation Committee”). The Compensation Committee consists exclusively of independent Directors who, with the assistance of independent compensation consultants and other advisors, make decisions they believe are in the best interests of KB Home and our stockholders. We have long supported the concept of performance-based incentive arrangements for senior executives. In particular, we believe that the incentive programs for our senior executives should be determined within a framework based on the achievement of designated financial and other targets. Furthermore, we believe that executive compensation should be designed to attract, motivate and retain talented executives responsible for our success.
We believe that we have already implemented a flexible compensation program for senior executives that links compensation to performance. We believe that adopting a policy that requires a significant portion of future equity compensation grants to senior executives to automatically be performance-vesting restricted stock would put us at a competitive disadvantage by severely restricting the Compensation Committee’s discretion to select from among those compensation vehicles that best compensate our senior executives while advancing our long-term success and enhancing stockholder value.
We also believe that time-vesting stock options are inherently performance-based compensation vehicles, since their eventual value to the recipient is directly linked to the price of our stock, which is largely driven by company performance.
Performance-vesting awards have become more popular and the Compensation Committee may consider this trend among the various alternatives for long-term equity incentive compensation. However, we believe that it is in the best interests of our stockholders to allow the Compensation Committee the flexibility and discretion to use and introduce all available compensation and equity incentive tools as appropriate, based on the circumstances and information available at the time and after consultation with its independent advisors. This proposal would unduly limit the Compensation Committee’s flexibility and undercut its compensation philosophy by requiring that a significant portion of equity compensation be in one particular form.
Given these concerns about performance-vesting shares, the Board believes this proposal would not be in the best interests of KB Home or its stockholders.Accordingly, your Board recommends a vote AGAINST this proposal.
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Vote Required
Approval of this stockholder proposal requires the affirmative vote of the majority of shares of Common Stock present or represented, and entitled to vote thereon, at the Annual Meeting. However, the proposal is a request to the Board of Directors to consider a matter. If the proposal passes, the Board may consider, in its business judgment, whether to take the requested action or not, but it is not legally obligated to do so.
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Proposal 7:
Stockholder Proposal
The Trowel Trades S&P 500 Index Fund, 1776 Eye Street, N.W., 5th Floor, Washington, D.C. 20006, the beneficial owner of 2,377 shares of our Common Stock, has notified us that it intends to present a proposal at the Annual Meeting. The proposal is set forth below, along with the recommendation of our Board of Directors that you vote AGAINST the proposal. We accept no responsibility for the accuracy of the proposal or the proponent’s supporting statement.
Stockholder Proposal
RESOLVED: that the shareholders of KB Home (the “Company”) urge the Board of Directors to seek shareholder approval of future severance agreements with senior executives that provide benefits in an amount exceeding 2.99 times the sum of the executives’ base salary plus bonus. “Future severance agreements” include employment agreements containing severance provisions, special retirement provisions and agreements renewing, modifying or extending existing such agreements. “Benefits” include lump-sum cash payments (including payments in lieu of medical and other benefits); the payment of any “gross up” tax liability; the estimated present value of special retirement provisions; any stock or option awards that are awarded under any severance agreement; any prior stock or option awards as to which the executive’s access is accelerated under the severance agreement; fringe benefits; and consulting fees (including reimbursable expenses) to be paid by the executive.
Proponent’s Supporting Statement
In our opinion, severance agreements as described in this resolution, commonly known as “golden parachutes”, are excessive in light of the high levels of compensation enjoyed by senior executives at the Company and U.S. corporations in general.
We believe requiring shareholder approval of such agreements may have the beneficial effect of insulating the Board of Directors from manipulation in the event a senior executive’s employment must be terminated by the Company. Because it is not always practical to obtain prior shareholder approval, the Company would have the option if this proposal were implemented of seeking shareholder approval after the material terms of the agreement were agreed upon.
For those reasons, we urge shareholders to vote for this proposal.
Recommendation of the Board of Directors AGAINST the Proposal
Your Board recommends a vote AGAINST this proposal because it would impair KB Home’s ability to attract and retain high-caliber executive talent, and, as a result, could inhibit KB Home’s ability to create long-term stockholder value.
The Board, through its Management Development and Compensation Committee, takes seriously its duty to provide independent oversight of KB Home’s compensation practices to ensure that they enhance long-term stockholder value. To achieve this goal, KB Home strives to design compensation programs and packages that will attract, motivate and retain quality executives whose skills and abilities will enable KB Home to outperform its competitors in the homebuilding industry.
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Severance agreements are a common and appropriate component of the compensation programs and packages that KB Home offers from time to time to certain executives to remain competitive in the market for executive talent against peer homebuilding companies and other similar-sized public companies. Severance agreements also serve an important role in motivating executives to focus on maximizing KB Home’s performance and stockholder value when significant strategic transactions are being considered.
When offered, KB Home tailors severance agreements to a specific individual’s unique skills and abilities or to the responsibilities and duties associated with a particular executive position, or both, taking into account competitors’ severance offerings. As a result, the severance agreements KB Home offers may provide different levels and types of benefits, and may use a variety of measures to calculate benefits, in order to meet the demands of a particular individual and the market.
This proposal runs counter to the dynamics associated with severance agreements and would make it impractical and costly for KB Home to offer or to implement them. The wide scope of the proposal’s definition of “benefits” and the indeterminate nature of some of those “benefits” – such as potential “gross up” tax liability and estimated present values of “special retirement provisions” – would likely create uncertainty about whether a particular severance agreement would require stockholder approval. As such, KB Home would likely need to call special stockholders meetings for each severance agreement it proposes to offer or has offered to a current or a potential executive to ensure compliance with this proposal.
This would cause KB Home to incur significant and unnecessary additional expense to reach agreements on compensation with existing or potential future executives. It would also inject delay and uncertainty into the process that would likely distract existing executives and dissuade potential future executives from joining KB Home if they can reach these agreements on compensation with competitors without having to first seek stockholder approval. The alternative, to not offer severance agreements to existing and potential future executives, would make KB Home a less attractive employer for such individuals relative to its peers and other public companies.
For the reasons discussed above, this proposal would likely place KB Home at a competitive disadvantage in attracting, motivating and retaining talented executives who are critical to KB Home’s and its stockholders’ future success.Accordingly, your Board recommends that you vote AGAINST this proposal.
Vote Required
Approval of this stockholder proposal requires the affirmative vote of the majority of shares of Common Stock present or represented, and entitled to vote thereon, at the Annual Meeting. However, the proposal is a request to the Board of Directors to consider a matter. If the proposal passes, the Board may consider, in its business judgment, whether to take the requested action or not, but it is not legally obligated to do so.
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Ownership of Company StockKB Home Securities
Ownership of Directors and Management
The following information is furnished,table lists, as of February 14, 2005, to indicate2007, (i) the beneficial ownership of the Company’sour Common Stock by each director,Director, each Director nominee for director and each of the executive officers named in the Summary Compensation Table (the “Named Executive Officers”) individually, and by all directors, Named Executive Officerscurrent Directors and other executive officers as a group. Unless otherwise indicated,group; and (ii) the holdings of each of our non-employee Directors of Stock-Based Awards (including Stock Option and Stock Unit awards), as granted to them under the Director Plan, as described on pages 11-12 above. Based on each Director’s election, the non-employee Directors will receive cash payouts for the outstanding Stock-Based Awards granted to them under the Director Plan.
Except as stated in footnote (c) below, beneficial ownership is direct and the person indicated has sole voting and investment power.power over his or her shares. No director,current Director, Director nominee for director, Named Executive Officer or other executive officer owns more than 1.0% of the Company’sour Common Stock, other than Mr. Karatz, who owns approximately 4.5%, and Jeffrey T. Mezger, who owns approximately 1.8%2.0%. Bruce Karatz, who served as our Chairman and Chief Executive Officer through November 12, 2006, may beneficially own as much as 5.1% of our Common Stock. However, the nature and extent of his rights to certain outstanding stock options and shares of restricted Common Stock granted to him during his tenure is subject to both a court order preventing Mr. Karatz from exercising his stock options and a Tolling Agreement between us and Mr. Karatz, and has not been determined, as further described in the footnotes below. As a group, all directors, Named Executive Officersof our Directors, Director nominees and othercurrent executive officers of the Company own in the aggregate approximately 8.6%3.0% of the Company’sour Common Stock.
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| | Amount and Nature of |
Name of Beneficial Owner | | Beneficial Ownership(a – d) |
|
Ronald W. Burkle | | | 66,933 | |
Dr. Ray R. Irani | | | 53,690 | |
Kenneth M. Jastrow, II | | | 9,839 | |
James A. Johnson | | | 80,816 | |
Bruce Karatz | | | 2,154,841 | |
J. Terrence Lanni | | | 14,179 | |
Melissa Lora | | | 4,197 | |
Michael G. McCaffery | | | 4,503 | |
Leslie Moonves | | | 3,197 | |
Dr. Barry Munitz | | | 14,000 | |
Luis G. Nogales | | | 24,446 | |
Jeffrey T. Mezger | | | 840,716 | |
Robert Freed | | | 48,974 | |
Jay Moss | | | 81,944 | |
Leah S. W. Bryant | | | 80,915 | |
All directors, Named Executive Officers and other executive officers as a group (25 people) | | | 4,132,774 | |
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| | | | | | | | | |
| | | Amount and Nature of | | Holdings of Stock-Based |
| Non-Employee Directors | | Beneficial Ownership (a – c) | | Awards under Director Plan (d) |
| |
| Ronald W. Burkle | | | 1,000 | | | | 174,935 | |
| Timothy W. Finchem | | | — | | | | 7,129 | |
| Dr. Ray R. Irani | | | 10,000 | | | | 96,801 | |
| Kenneth M. Jastrow, II | | | — | | | | 31,191 | |
| James A. Johnson | | | — | | | | 192,501 | |
| J. Terrence Lanni | | | — | | | | 19,379 | |
| Melissa Lora | | | 2,027 | | | | 17,415 | |
| Michael G. McCaffery | | | — | | | | 55,270 | |
| Leslie Moonves | | | — | | | | 17,415 | |
| Luis G. Nogales | | | 7,400 | | | | 52,513 | |
33
| | | | | | | |
| | | Amount and Nature of | | Holdings of Stock-Based |
| Named Executive Officers | | Beneficial Ownership (a – c) | | Awards under Director Plan (d) |
| |
| Jeffrey T. Mezger | | | 1,821,465 | | | N/A |
| Domenico Cecere | | | 259,883 | | | N/A |
| Robert Freed | | | 145,503 | | | N/A |
| William R. Hollinger | | | 250,262 | | | N/A |
| Kelly Masuda | | | 42,029 | | | N/A |
| Bruce Karatz | | | 4,528,183 | | | N/A |
| All Directors, Director nominees and current executive officers as a group (16 people) | | |
2,591,743 | | |
664,549 |
| |
| |
(a) | Included are Stock Units held by non-employee directors under the Non-Employee Directors Stock Plan in the following amounts: Mr. Burkle 16,660; Dr. Irani 22,876; Mr. Jastrow 9,839; Mr. Johnson 22,272; Mr. Lanni 4,179; Ms. Lora 3,197; Mr. McCaffery 4,503; Mr. Moonves 3,197; Dr. Munitz 12,000; and Mr. Nogales 19,681. |
| |
(b) (a) | | Included are shares of Common Stock subject to acquisition within 60 days of February 14, 20052007 through the exercise of stock options granted under the Company’sour employee stockbenefit plans in the following amounts: Mr. Karatz 1,312,392;Mezger 1,428,940; Mr. Mezger 678,612;Cecere 240,134; Mr. Moss 26,267;Freed 55,066; Mr. Hollinger 164,058; Mr. Masuda 35,001; and Ms. Bryant |
20
| |
| 44,135; and all current executive officers as a group 2,472,220. Also included are1,967,867. As of February 14, 2007, the Company and Mr. Karatz have not agreed on the nature and extent of Mr. Karatz’s rights in the outstanding stock options granted to him. Immediately prior to Mr. Karatz’s departure as our Chairman and Chief Executive Officer, 2,658,120 shares of our Common Stock were subject to acquisition within 60 days of February 14, 2005 through the exercise of stock options under the Non-Employee Directorsgranted to him. |
|
| (b) | | Included are awards of shares of restricted Common Stock Plan in the following amounts: Mr. Burkle 49,773; Dr. Irani 18,814;Mezger 175,493; Mr. Johnson 56,544;Cecere 12,665; Mr. Freed 43,904; Mr. Hollinger 4,900; Mr. Masuda 3,000; and all current executive officers as a group 246,962. As of February 14, 2007, the Company and Mr. Nogales 1,065. |
| |
(c) | Included are a totalKaratz have not agreed on the nature and extent of 961,617Mr. Karatz’s rights in the shares of restricted Common Stock granted under the Company’s employee stock plans. As of February 14, 2005,to him. Immediately prior to Mr. KaratzKaratz’s departure as our Chairman and Chief Executive Officer, he held 12,5001,613,282 shares of restricted Common Stock under a grant made in 1991. These shares were part of a 150,000 share grant that vests in equal annual installments over twelve years. The first installment vested in 1994; full vesting will occur in 2005. In addition, for 2004, Mr. Karatz received an award of 116,844 shares of restricted Common Stock; the shares vest on January 15, 2007, three years from the date of grant. In accordance with his current employment agreement, which places a $5,000,000 limit on his cash incentive bonus, these shares represent the portion of his 2004 incentive bonus that was in excess of $5,000,000. Also, in 2004, all executive officers, including the Named Executive Officers, received restricted stock grants as part of their equity incentive awards for fiscal 2005. These shares vest on October 22, 2007, and were awarded in the following amounts: Mr. Karatz 30,000; Mr. Mezger 9,500; Mr. Freed 1,250; Mr. Moss 1,250; and Ms. Bryant 1,250; and all executive officers as a group, 54,700. In January 2005, certain executive officers received restricted stock for that portion of their annual incentive bonus that exceeded a specified amount. These shares vest on January 14, 2008, and were awarded to the Named Executive Officers in the following amounts: Mr. Karatz 107,397; Mr. Mezger 25,575; Mr. Freed 9,253; Mr. Moss 16,151; and Ms. Bryant 7,362; and all executive officers as a group, 167,200. |
| Stock. |
(d) |
| (c) | | Included are beneficially owned shares of Common Stock held in certain trusts as follows: Immediately prior to Mr. Karatz holds all ofKaratz’s departure as our Chairman and Chief Executive Officer, he held the Common Stock he beneficially ownsowned in a trust of which he iswas the sole trustee and sole beneficiary and over which he exercisesexercised sole voting and investment power; and Ms. Lora holds 1,0002,027 shares of our Common Stock in a trust in which she and her spouse are trustees and sole beneficiaries and over which they jointly exercise sole voting and investment power; Mr. Moss holds all of the Common Stock he beneficially owns in a trust of which he is the sole trustee and sole beneficiary and over which he exercises sole voting and investment power; Ms. Bryant holds 24,571 shares of beneficially owned Common Stock in a trust in which she is the sole trustee and sole beneficiary and over which she exercises sole voting and investment power. |
|
| (d) | | Included are Stock Option awards and Stock Unit awards granted under the Director Plan in the following amounts: Mr. Burkle 141,615, 33,320; Mr. Finchem 0, 7,129; Dr. Irani 37,628, 59,173; Mr. Jastrow 0, 31,191; Mr. Johnson 143,957, 48,544; Mr. Lanni 0, 19,379; Ms. Lora 0, 17,415; Mr. McCaffery 46,069, 9,201; Mr. Moonves 0, 17,415; and Mr. Nogales 2,130, 50,383. Our executive officers are not eligible to receive Stock-Based Awards under our Director Plan. |
2134
Beneficial Owners of More Than 5Five Percent of our Common Stock
Based on filings made under Section 13(d) and Section 13(g) of Except as stated above or in the Securities Exchange Act of 1934, as amended,footnotes, the information below shows each person or entity known to us as of February 14, 2005 the only persons or entities known2007 to be the beneficial ownersowner of more than 5%five percent of the Company’sour Common Stock were as follows:Stock:
| | | | | | | | | | |
| | | Amount and Nature | | Percent |
| | | of Beneficial | | of |
| Name and Address of Beneficial Owner | | Ownership (a – c) | | Class |
| | | | | |
| KB Home Grantor Stock Trust, | | | 7,360,500 | | | | 15.4 | % |
| | Wachovia Bank, N.A., as Trustee, | | | | | | | | |
| Institutional Trust and Retirement Services | | | | | | | | |
| 101 North Main Street | | | | | | | | |
| Winston-Salem, North Carolina 27150 | | | | | | | | |
| |
| FMR Corp. | | | 3,644,603 | | | | 7.9 | % |
| 82 Devonshire Street | | | | | | | | |
| Boston, Massachusetts 02109 | | | | | | | | |
| | | | | | | | | |
| | | Amount and Nature | | Percent |
| | | of Beneficial | | of |
| Name and Address of Beneficial Owner | | Ownership | | Class |
| | | | | |
KB Home Grantor Stock Ownership Trust,
Wachovia Bank, N.A., as Trustee,
Institutional Trust and Retirement Services
101 North Main Street
Winston-Salem, North Carolina 27150 | | | 12,337,882 | (a) | | | 13.8% | |
| |
Marsico Capital Management, LLC
1200 17th Street, Suite 1600
Denver, Colorado 80202 | | | 8,250,187 | (b) | | | 9.2% | |
| |
FMR Corp. and Edward C. Johnson 3d
82 Devonshire Street
Boston, Massachusetts 02109 | | | 6,967,654 | (c) | | | 7.8% | |
| |
Jeffrey L. Gendell
55 Railroad Avenue
Greenwich, Connecticut 06830 | | | 6,036,188 | (d) | | | 6.8% | |
| | |
| (a) | Pursuant to the amendment to Schedule 13D dated February 17, 2005 filed with the Securities and Exchange Commission by the | The KB Home Grantor Stock Ownership Trust, Wachovia Bank, N.A., as Trustee (the “GST”“GSOT”), the GST holds all of the shares reported above pursuant to a trust agreement creating the GST in connection with the prefunding of certain of our obligations of the Companyto employees under variousour employee benefit plans. Both the GSTGSOT and the Trustee disclaim beneficial ownership of the shares reported. The Trustee has no discretion over the manner in which the shares held by the GSTGSOT are voted. The trust agreement for the GSTGSOT provides that, as of any given record date, employees who hold unexercised options under the Company’sour employee stock optionequity compensation plans will determine the manner in which shares of the Company’sour Common Stock held in the GSTGSOT are voted. |
|
| |
| The Trustee will vote the shares of our Common Stock held in the GSTGSOT in the manner directed by those eligible employees who submit voting instructions for the shares. The number of shares as to which any one employee can direct the vote is determined on a pro-rata basis and will depend upon how many employees submit voting instructions to the Trustee. Employees who are also directors of the CompanyDirectors are excluded from voting; accordingly, Mr. KaratzMezger may not direct the vote of any shares in the GST.GSOT. If all eligible employees submit voting instructions to the Trustee, as of the February 14, 2005 record date for the Annual Meeting, the other Named Executive Officers who are employed by the Company at the date of the Annual Meeting will have the right to vote the following share amounts:amounts (which, for each eligible Named Executive Officer, include both the stock options reported above in the “Beneficial Ownership of Directors and Management” table and stock options granted to them under our employee benefit plans that do not vest within 60 days of February 14, 2007): Mr. Mezger 919,944; Cecere 1,288,711; |
35
| | |
| | Mr. Freed 30,366;353,171; Mr. Moss 56,633; Ms. Bryant 84,900;Hollinger 904,656; Mr. Masuda 231,227; and all current executive officers as a group 1,727,916. If less than all of the eligible employees submit voting instructions, then the foregoing amounts will be higher.(excluding Mr. Mezger) 3,055,244. The trust agreement further provides that all voting instructions received by the Trustee will be held in confidence and will not be disclosed to any person, including the Company.to us. |
| |
| (b) | Pursuant | The stock holding information reported in the table above and in this footnote is based solely on an amendment to Schedule 13G dated February 13, 2007 that Marsico Capital Management, LLC, an investment advisor, filed with the Securities and Exchange Commission to report beneficial ownership as of December 31, 2006. Of the amount reported as beneficially owned, Marsico Capital Management, LLC exercises sole voting power as to 6,913,306 shares and sole dispositive power as to 8,250,187 shares. Marsico Capital Management, LLC does not share voting power as to any of the shares reported. |
|
| (c) | | The stock holding information reported in the table above and in this footnote is based solely on an amendment to Schedule 13G dated February 14, 20052007 that FMR Corp. filed with the Securities and Exchange Commission byto report beneficial ownership of FMR Corp., 2,281,990 and Mr. Edward C. Johnson 3d, FMR Corp.’s Chairman, as of theDecember 31, 2006. The shares reported are beneficially owned by the following direct or indirect wholly-owned subsidiaries of FMR Corp.: (i) Fidelity Management & Research Company (6,551,769 shares), (ii) Fidelity Management Trust Company (13,000 shares), (iii) Pyramis Global Advisors LLC (16,700 shares), (iv) Pyramis Global Advisors Trust Company (116,785 shares); and by Fidelity International Limited (269,400 shares), an investment adviserentity of which Edward C. Johnson 3d is Chairman and a wholly-owned subsidiary of |
22
| |
| in which his family owns an indirect interest. FMR Corp., as a result of acting as investment adviser to various investment companies (collectively, the “Fidelity Funds”); with respect to these shares, FMR Corp., and Mr. Edward C. Johnson 3d have sole dispositive power as to all of the shares reported, and FMR Corp. has sole voting power as to 378,554 shares. |
|
| (d) | | The stock holding information reported in the table above and in this footnote is based solely on an amendment to Schedule 13G dated February 13, 2007 that Mr. Gendell, individually, and as managing member of Tontine Management, L.L.C., general partner of Tontine Partners, L.P., and Tontine Overseas Associates, L.L.C., filed with the Securities and Exchange Commission to report beneficial ownership as of December 31, 2006. Mr. Gendell, in his capacity as managing member, directs the operations of each of Tontine Management, L.L.C. and Tontine Overseas Associates, L.L.C. Tontine Management, L.L.C., as general partner, has the Fidelity Funds exercise sole investment power andto direct the Fidelity Funds’ Boardsaffairs of TrusteesTontine Partners, L.P. Of the amount reported as beneficially owned, Mr. Gendell exercises sole voting power.and dispositive power with respect to 350,000 shares, and shares voting and dispositive power as to 5,686,188 shares. Of thethose 5,686,188 shares, reported, 376,023(i) Tontine Management, L.L.C. shares voting and dispositive power as to 3,402,409 shares, which shares are beneficiallydirectly owned by Fidelity Management Trust Company, a bankTontine Partners, L.P., and a wholly-owned subsidiary of FMR Corp.,(ii) Tontine Overseas Associates, L.L.C. shares voting and dispositive power as to which each of Mr. Johnson and FMR Corp., through its control of Fidelity Management Trust Company, has sole investment and voting power. The remaining 986,590 shares reported are beneficially owned by Fidelity International Limited, an investment adviser and an entity independent of FMR Corp., as to which shares Fidelity International Limited exercises sole investment and voting power. Based on the number of shares outstanding as of February 14, 2005, the percent of class that may be deemed to be beneficially owned by FMR Corp. is approximately 7.6%.2,283,779 shares. |
2336
Management Development and Compensation
Committee Report on Executive Compensation
Executive Compensation Philosophy and ObjectivesPrinciples
The Management Development and Compensation Committee of the Company’s Board of Directors provides guidance, recommendations and approvals regardingoversees the Company’s executive compensation programs. The Company designs its executive compensation programs around five key objectives,principles, which comprisetogether constitute the Company’s executive compensation philosophy:
| | |
| • | closely link executive compensation to the creation of stockholder value,value; |
| |
| • | encouragepromote stock ownership by executives to directly align executivetheir interests with stockholder interests,interests; |
| |
| • | reward contributions that furtherenhance the Company’s KBnxt operational business model (as described in our 2004 Annual Report to Stockholders) by aligninglinking individual performance goals and compensation measures withto the Company’s performance objectives,achievement of specific business objectives; |
| |
| • | balance compensation elements to encourage the achievement of both short-term business plans and long-term strategic objectives with a focus ontotalcompensation,objectives; and |
| |
| • | attract, retain and motivate executivesindividuals of the highest quality. |
Under the Company’stotalcompensation focus, theThe Company and the Committee continually analyze boththe Company’s executive compensation programs to ensure they adhere to the above philosophy and are competitive with peer companies.
Compensation of Executive Officers in 2006
In the 2006 fiscal year, each executive officer of the Company received an annual base salary and annual and long-term compensation. Annual compensation for each Company executive is comprised of base salary and incentive compensation, the latter typically determined by the pre-tax, pre-incentive profitas further described below. Most of the compensation paid to the executive officers was in the form of incentive compensation linked to the achievement of specific short-term and long-term performance objectives by each executive officer, the Company (or a particular business unit) and/or individual job performance. The overall amount of annual compensation is determined by specific performance requirements established for each executive at the beginning of the fiscal year. Performance against these requirements is analyzed to ensure that the results achieved are sustainable and that the KBnxta relevant operational business model is being followed.
Long-term compensation is comprised of the Company’s Unit Performance Program and equity awards. Performance Unit awards are determined by the Company’s cumulative earnings per share and the Company’s (or a particular business unit’s) average pre-tax return on investment over a specified period of years. Long-term equity awards are granted based on individual performance results and build value for each executive grantee in step with improved Company performance.
This total compensation orientation links a large portion of executives’ compensation directly to the Company’s performance, as well as their individual performance. The Management Development and Compensation Committee believes that this is a balanced approach that motivates the Company’s executives to continually improve the Company’s performance and maintains close alignment with the interests of the Company’s stockholders.
The Company achieved significant increases in unit deliveries, total revenues, and diluted earnings per share in 2004. Unit deliveries rose 16% from the prior year, to 31,646, while total revenues increased 21% to $7.05 billion. Diluted earnings per share increased 30% to $11.40, establishing a new Company record. The improved results in 2004 were largely due to higher unit delivery volume and expanded operating margins. The Company ended its fiscal year in a strong financial position, including approximately $234 million of
24
cash and stockholders’ equity of $2.06 billion. The Company’s backlog value at November 30, 2004 stood at $4.82 billion, up 57% from the prior year, and reflected 2004 net order growth of 26%.
Compensation in 2004
The following generally describes how the Company’s executive officers and, in particular, the Named Executive Officers, were paid in 2004.area. Please see the tables under “Executive Compensation” on pages 36-4046-49 below for a detailed presentation of the compensation earned by the Named Executive Officers in 2004. The specifics of Chief Executive Officer compensation are addressed separately in this report.the 2006 fiscal year.
Annual Base Salaries. Base Annual base salaries are viewed as compensation for an executive’sexecutive officer’s ongoing contribution to the performance of the business unitsoperational area(s) for which he or she is responsible. Increases in executive base salaries are made by reference to the Management Development and Compensation Committee’s assessment of each executive’s contribution toIn keeping with the Company’s businesscompensation philosophy to attract and by reference toretain individuals of the Company-wide budgetary guidelines for base salary increases. Executivehighest quality, executive officer base salaries are targeted to be competitive with average base salaries paid to executivesexecutive officers with comparable responsibilities at other companies in the real estate sector.peer companies. The Management Development and Compensation Committee reviews analyses by the Company’s CompensationHuman Resources Department and by outside consultants to ensure that base salaries remain competitive and are at least at the median level.competitive.
In 2004,addition to adjustments made for competitive reasons, the aggregate average merit increase,Committee adjusts executive officer base salaries based on its assessment of employees receiving merit increases, was 3.5% on an annualized basis. Individualeach executive’s performance and the Company’s overall budgetary guidelines for base salary increases. In the 2006 fiscal year, individual base salary increases were determined by individual performance and contribution levels and ranged from 0% to 8% in 2004, excluding promotional increases. Base salary increasesaveraged 3.5% Company-wide. The base salaries for each of the Named Executive Officers were increased consistent with a Company-wide increasethe foregoing. Some of the Named Executive Officers received additional base salary increases in connection with promotions or to maintain competitiveness with base salaries andpaid by the Company’s merit distribution philosophy.peer homebuilders.
37
Annual Incentive Awards. Annual incentive awards are paid in cash and, when certain thresholds are met, in shares of Company Common Stock that grantees are restricted from selling for three years after grant (“restricted stock”). These annual incentive awards are intended to reward executivesexecutive officers for improved short-termthe achievement of personal performance as measured against specificgoals and performance criteria relativegoals as to their respective businesses.operational areas and/or the Company’s overall business results. Applicable performance criteria arefor the 2006 fiscal year were established by the Companyfor each executive officer at the beginning of the fiscal year and include performance in pre-taxincluded pretax profit, pre-tax return on investment, unit deliveries, unit backlog, community count, customer satisfaction metrics,e.g., J.D. Power rankingsdebt-to-capital ratios, expense control and other performance hurdles specific to an executive officer’s responsibilities and relevant Company business goals.
Long-Term Incentive Compensation. Long-term incentive compensation consists of stock option grants, awards of shares of restricted stock and awards of performance units under the executive’s business.Company’s Unit Performance Program (the “UPP”). Ordinarily, the Company makes annual grants of stock options, shares of restricted Common Stock and performance units to executive officers. However, due to a review of the Company’s stock option grant practices by a subcommittee of the Audit and Compliance Committee of the Board of Directors, the Company did not make any annual grants of long-term incentive compensation to executive officers in the 2006 fiscal year. As part of the new corporate governance initiatives discussed on page 5 above, the Committee is reviewing the Company’s executive compensation programs and, as part of its review, may approve grants of long-term incentive compensation to executive officers in the Company’s 2007 fiscal year in recognition of contributions made in the 2006 fiscal year.
Stock Option Grants. Stock options are granted to executive officers based on a subjective evaluation by the Committee of a recipient’s contribution to the Company’s and/or his or her respective operational area’s performance, as well as peer company practices. Stock options may be granted occasionally to new hires or in connection with promotions. Typically, the Company grants fixed-price stock options that vest in installments of 33% on each anniversary of the date of grant, and, therefore, do not fully vest until 3 years after they are granted. Because the value of stock option awards increase only if the price of the Company’s Common Stock increases after grant, this vesting schedule is intended to motivate executive officers to enhance Company performance and stockholder value over a long-term period. Stock option grants are also intended to promote executive stock ownership.
Awards of Restricted Stock. Awards of shares of restricted Common Stock are granted to executive officers annually based on similar criteria as annual stock option grants. Typically, the Company grants shares of restricted Common Stock that do not vest until 3 years after they are granted. This vesting schedule is intended to motivate executive officers to enhance Company performance and stockholder value over a long-term period and also serves as a retention tool.
Performance Units. In 2003, caps were introducedOctober 2005, the Committee awarded performance units for the fiscal 2006-2008 performance period to limitall executive officers and certain other members of senior management under the amountUPP, which was first implemented in 1996. Each performance unit provides a payout to a recipient only if specific goals set by the Committee are achieved at the end of compensationa three-year period with respect to the following two performance metrics: (a) the cumulative diluted earnings per share of the Company and (b) the average pretax return on investment of the operations for which the recipient is responsible.
If applicable performance goals are achieved, the value of a performance unit at the end of the three-year performance cycle depends on the degree to which the performance goals are exceeded and the Committee’s weighting of the two performance
38
metrics at the time the performance unit is awarded. For all performance units awarded to the executive officers for the fiscal 2006-2008 performance period, earnings per share will determine 75% of the value of the award and pretax return on investment will determine the remaining 25%. If a payout is earned, a performance unit may be paid in cash, stock or stock equivalents. Please see “Long-Term Incentive Plans – Awards in Last Fiscal Year” on page 49 below for the performance units awarded to certain executives, including each Named Executive Officer for the fiscal 2006-2008 performance period.
At the end of the 2006 fiscal year, executive officers earned a cash payout on performance units awarded to them in 2003. The Named Executive Officers. To encourageOfficers received payouts on such performance units as follows: Mr. Mezger $746,250, Mr. Cecere $525,000, Mr. Freed $375,000, Mr. Hollinger $375,000 and Mr. Masuda $37,500.
Cash Compensation Caps. Beginning in 2003, to promote executive stock ownership and to further alignmotivate executives to improve the interestsCompany’s performance on a longer term basis, the Company introduced caps on the amount of annual cash incentive compensation paid to certain executives, and stockholders, incentive amounts earned in excess of the cap werecaps are paid in shares of restricted stock. This approach, also applied in 2004, is intendedCommon Stock. For the 2006 fiscal year, maximum cash incentive compensation was set at $5,000,000 for Mr. Karatz (pursuant to motivate executives to improve the Company’s overall performance in a balanced manner. Restricted stock grants paidhis Employment Agreement), $2,500,000 for Mr. Mezger, $2,000,000 for Mr. Freed, and $750,000 for Mr. Cecere and Mr. Hollinger. Grants of restricted Common Stock to the Named Executive Officers for annual incentive awards are reflectedset forth in the table entitled “Summary Compensation Table” on pages 36-37.
Long-Term Incentive Compensation. Long-term incentive compensation is generally awarded in the form of stock option grants, restricted stock, and Performance Unit awards under the Company’s Unit Performance Program.46-47 below.
By providing executives with an ownership stake in the Company, stock option and restricted stock grants are intended to align executive interests with stockholder interests and to motivate executives to
25
continually improve the long-term performance of the Company. As shown in the table entitled “Option/ SAR Grants in Last Fiscal Year” on page 38, stock option grants were made in 2004 to each of the Named Executive Officers. Grants made to Company executives, including the Named Executive Officers, during the fourth quarter of fiscal 2004 represent their annual discretionary grants for fiscal year 2005. Beginning in 2003, a portion of the estimated present value of annual equity awards, formerly made only through stock option grants was replaced with an equivalent value of shares of restricted stock. Use of restricted stock as a part of the annual grant process was initiated to encourage direct share ownership by executives and to provide an additional retention incentive for members of the executive team. The Named Executive Officers’ options and restricted stock grants are reflected in the table entitled “Summary Compensation Table” on pages 36-37.
Stock Ownership Guidelines. In early 1998, the Committee adopted an Executive Stock Ownership Policyexecutive stock ownership policy designed to further the Company’s strategy of closely aligningalign the interests of management and stockholders. The policy requires the Named Executive Officers, as well as allother senior corporate and divisional managers, to achieve specified ownership levels of the Company’s Common Stock. The policy has been updated from time to time since its adoption. Current stock ownership targets are based on the average total annual cash compensation (base salary and cash bonus) over a period of two fiscal yearsThe current target for all participantsexecutive officers is ownership of Common Stock with a value equal to five times base salary except Mr. Karatz.Mezger. The target for Mr. Karatz is based on two-times his average total annual cash compensation.
In 2004, the Management Development and Compensation Committee also made awards of Performance Units under the Unit Performance Program, which was first implemented in 1996. This long-term incentive compensation program is intended to motivate senior management toward improving the Company’s long-term performance by providing incentives tied to specified long-term performance objectives of the Company. ParticipantsMezger in the Unit Performance Program include all executive officers and certain other members2006 fiscal year was 10 times his base salary. The amount of senior management. No employees of Kaufman & Broad S.A., the Company’s publicly traded French subsidiary, participate in the Unit Performance Program.
The value of Performance Units awarded under the Unit Performance Program is determined over the three-year period that the Performance Units are outstandingCommon Stock beneficially owned by (1) the Company’s cumulative earnings per share and (2) the average pre-tax return on investment of the specific operations for which the participating executive is responsible. The weighting of both factors, as well as the individual performance targets for each executive, are established on an annual basis by the Management Development and Compensation Committee. For all Performance Units awarded to corporate-based executives in 2004, earnings per share will determine 75% of the value of the award and pre-tax return on investment will determine 25% of the value of the award. For awards to division-based executives, earnings per share will determine 50% of the value of the award and pre-tax return on investment will determine 50% of the value of the award. Performance Unit payouts, if any, may be paid in cash or in stock or stock equivalents, at the discretion of Company management. Please see “Long-Term Incentive Plans — Awards in Last Fiscal Year” on pages 39-40 for the Performance Units granted to each Named Executive Officer in 2004.
The value of Performance Units awarded under the Unit Performance Program is realized, if at all, three years after the date of award. Performance Units awarded at the beginning of fiscal 2001 were paid out in cash based on results measured through the end of fiscal 2004. Please see “Summary Com-
26
pensation Table” on pages 36-37 for the value of the awards paid to each of the Named Executive Officers, upon the vesting ofincluding Mr. Mezger, far exceeds their Performance Units in 2004.respective ownership guidelines.
Decisions made by the Management Development and Compensation Committee in 2003 as a result of a strategic review of the total compensation package for executives also applied in 2004:
| |
• | Under the terms of his employment agreement, the maximum cash value of Mr. Karatz’s annual incentive is capped at a predetermined amount. For fiscal 2004, the Committee implemented similar cash value caps for Regional General Managers, Division Presidents, and certain Corporate Executives. Maximum cash values for annual incentive awards were set at $1,250,000 for Regional General Managers and $750,000 for Division Presidents. Amounts earned in excess of the cash cap were paid in restricted stock. |
|
• | Stock option award practices were modified for all executive officers and certain other senior executives in the most recent fiscal year. When determining award levels, the present value of the award is reviewed for each recipient. As a means to enhance executive retention, approximately 30% of the value of the overall equity award was granted in restricted stock. |
Compensation of Chief Executive Officer in 2004. In keeping2006. While he served as the Chief Executive Officer in the 2006 fiscal year, Mr. Karatz received $1,185,417 in salary. This amount was in line with the Company’s compensation objectives, Mr. Karatz’s compensation is largely driven by cash and stock-based incentives that are directly tied to the Company’s financial performance. Mr. Karatz entered into an employment agreement with the company in 1995 for a term of six years. In 2001, the Board amended and restated the 1995 agreement and extended the term for an additional seven years, until December 31, 2008. Please see “Employment Agreements” on pages 31-32 for a more detailed description of Mr. Karatz’s employment agreement. The amended and restated agreement provides that$1,250,000 base salary the Board of Directors may, in its discretion, increase or decreaseapproved for Mr. Karatz for the 2006 fiscal year pursuant to his Employment Agreement. Pursuant to a November 2006 Tolling Agreement between the Company and Mr. Karatz, the Company agreed to pay Mr. Karatz the dollar value of all accrued and unpaid vacation benefits based on Mr. Karatz’s base salary from time to time, provided that any decrease does not fall below $900,000. In 2004, Mr. Karatz’s base salary remained at $1,000,000.
Mr. Karatz also received an annual incentive bonus of cash and restricted stock for 2004,unreimbursed business expenses through the amount of which was primarily determined by formulas based on the Company’s pre-incentive, pre-tax profit. Mr. Karatz’s 2004 incentive bonus was paid pursuant to the formula in his amended and restated employment agreement. The agreement specifies a $5,000,000 limit on the amountdate of his bonusdeparture. Under the Tolling Agreement, the Company retained and suspended the payment of any other compensation and benefits to Mr. Karatz that may be paid in cash. For 2004, Mr. Karatz earned $11,750,000 over this cap. Accordingly, in lieu of a cash payment for this amount, Mr. Karatz received an award of 107,397 shares of restricted stock. The number of shares awarded was determined by the market price ofpayable under his Employment Agreement or the Company’s Common Stockcompensation programs, as further described under “Certain Agreements with Mr. Karatz” on January 14, 2005, the date which coincided with payment of the cash portion of the incentive award.page 42 below.
Incentive compensation paid to Mr. Karatz under his employment agreement is made under and subject to the limitations set forth inMezger became the Company’s 2001 Stock Incentive Plan, which has been approved byPresident and Chief Executive Officer in November 2006, replacing Mr. Karatz. Prior to his appointment, Mr. Mezger served as the Company’s stockholders and is designed to qualify incentive compensation in excess of $1,000,000 paid to the Named Executive Officers for a tax deduction under Section 162(m) of the Internal Revenue Code.
Under his employment agreement Mr. Karatz is also entitled to receive other benefits afforded to other executives of the Company. In 2004, Mr. Karatz received a discretionary award of 1,000 Performance Units under the Unit Performance Program in accordance with the principles described above. He also received an award of 280,000 options and 30,000 shares of restrictedChief Operat-
2739
stocking Officer. In the 2006 fiscal year, Mr. Mezger received $568,750 in late 2004, representing hisbase salary. Mr. Mezger also received incentive compensation of $4,500,000. Because of the Company’s cash incentive compensation limits, $2,000,000 of Mr. Mezger’s total incentive compensation will be paid to him in the form of shares of restricted Common Stock, as described in footnote (a) to the table on page 46 below. Mr. Mezger did not receive any additional compensation in the 2006 fiscal year for serving as President and Chief Executive Officer.
In December 2006, the Board of Directors approved an increase in Mr. Mezger’s annual discretionary grant for fiscal 2005.base salary to $1 million.
Mr. Karatz is also a participantMezger participates in the KB Home Retirement Plan and the KB Home Death Benefit Only Plan.
Policy on Deductibility of Compensation
The Company intends to comply with the requirements of Section 162(m) of the Internal Revenue Code with respect to maintaining federal tax deductibility for all executive compensation, except in circumstances when the Management Development and Compensation Committee believes that such compliance would not be in the best interests of the Company or its stockholders. The Company believes that all executive officer compensation paid in 2004 met the deductibility requirements of Section 162(m).
Management Development and Compensation Committee
The Management Development and Compensation Committee is responsible for approving the compensation strategy of the Company. The committee approves and monitors principal executive compensation programs, including those covering the Named Executive Officers. For each of the Company’s executive officers, the committee approves annual base salary, annual incentive bonus awards, and long-term incentive awards. The Management Development and Compensation Committee also approves all officer nominations and annual merit increase guidelines for all Company employees. The committee is composed entirely of independent directors within the meaning of the rules of both the Securities and Exchange Commission and the New York Stock Exchange.
This report is respectfully submitted by the members of the Management Development and Compensation Committee:
Dr. Ray R. Irani,Chairman
Mr. James A. Johnson
Mr. J. Terrence Lanni
Mr. Leslie Moonves
Dr. Barry Munitz
Mr. Luis G. Nogales
2840
KB HOMEHome
Common Stock Price Performance
The graphsgraph below comparecompares the cumulative total return of KB Home Common Stock, the S&P Homebuilding Index, the Dow Jones Home Construction Index, and the S&P 500 Index for the last five fiscal year-end periods.
Last Five Fiscal Years
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1999 | | 2000 | | 2001 | | 2002 | | 2003 | | 2004 | | 2001 | | | 2002 | | | 2003 | | | 2004 | | | 2005 | | | 2006 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| KB Home | | 100 | | 144 | | 155 | | 208 | | 322 | | 417 | | | | 100 | | | 134 | | | 207 | | | 268 | | | 431 | | | 326 | |
| S&P Homebuilding Index | | 100 | | 155 | | 177 | | 213 | | 420 | | 484 | | |
| S&P 500 Homebuilding Index | | | | 100 | | | 120 | | | 237 | | | 274 | | | 398 | | | 321 | |
| Dow Jones Home Construction Index | | 100 | | 157 | | 201 | | 237 | | 462 | | 526 | | | | 100 | | | 118 | | | 230 | | | 262 | | | 354 | | | 282 | |
| S&P 500 Index | | 100 | | 96 | | 84 | | 70 | | 81 | | 91 | | | | 100 | | | 83 | | | 96 | | | 108 | | | 118 | | | 134 | |
The above graph is based upon the Common Stock and index prices calculated as of the last trading day before December 1st of the fiscal year-end periods presented. The Company’sOur November 30, 20042006 closing Common Stock price on the New York Stock Exchange was $87.89$51.69 per share. On February 14, 2005, the Company’s2007, our Common Stock closed at $113.58$54.13 per share. The performance of the Company’sour Common Stock depicted in the graphs above represents past performance only and is not indicative of future performance. Total return assumes $100 invested at market close on November 30, 2001 in KB Home, the S&P 500 Index, the S&P 500 Homebuilding Index, and the Dow Jones Home Construction Index including reinvestment of dividends.
| | |
| (a) | Total return assumes $100 invested at market close on November 30, 1999 in the Company, the S&P 500 Index, the S&P Homebuilding Index, and the Dow Jones Home Construction Index including reinvestment of dividends. |
29
| | |
| (b) | The three companies that comprise the S&P Homebuilding Index are: Centex Corporation, Pulte Homes, Inc. and the Company. The thirteen companies that comprise the Dow Jones Home Construction Index are: Beazer Homes, Centex Corporation, Champion Enterprises, Inc., D.R. Horton, Inc., Hovnanian Enterprises, Lennar Corporation, MDC Holdings, Inc., NVR, Inc., Pulte Homes, Inc., Ryland Group, Inc., Standard Pacific Corporation, Toll Brothers, Inc. and the Company. |
3041
Employment Agreements, Change in Control Arrangements,
Retirement and Death Benefit Plans
EmploymentCertain Agreements with Mr. Karatz
On November 12, 2006, we entered into a Tolling Agreement with Mr. Karatz in connection with the Company’stermination of his service as our Chairman and Chief Executive Officer,Officer. Under the Tolling Agreement, we and Mr. Karatz reserve all rights under his Employment Agreement and under any stock option, restricted stock, retirement and other benefit plans in which he was a participant. The Tolling Agreement remains in effect and no resolution has been reached as to the matters reserved under its terms. We have made no severance or other payments to Mr. Karatz with respect to the matters reserved. We have agreed to provide Mr. Karatz with medical and dental benefits at least equal to those he would have received if still employed by us until these reserved matters are resolved.
Mr. Karatz was employed under an employment agreement that he entered into with the Company in 1995Employment Agreement that provided him with a salary (set at $1,250,000 for a term through November 30, 2001. In mid-2001, the 1995 agreement was amendedfiscal 2006) and restated, pursuant to which, among other things, the term of the agreement was extended through December 31, 2008.
For the 2004 fiscal year, under the terms of his employment agreement, Mr. Karatz was entitled to annual incentive compensation ranging from 1% to 2% of the Company’s pre-tax,our pretax, pre-incentive income depending on the specifiedour return on equity of the Company for thea particular fiscal year. Mr. Karatz’s employment agreement provides that suchHis incentive compensation will bewas paid 75% in cash and 25% in shares of restricted stock, unless thealthough any cash amount exceedscompensation in excess of $5 million in which case any excess will bewas also paid in shares of restricted stock. Accordingly, approximately 70% ofCommon Stock.
Mr. Karatz’s 2004 bonus was paid in restricted stock. PursuantEmployment Agreement also provided for him to his agreement, any restricted stock granted under his employment agreement vests on the third anniversary of the date of grant, but will vest earlier in the event of Mr. Karatz’s death, disability, involuntary termination by the Company without cause or his voluntary termination for good reason.
Under his employment agreement, Mr. Karatz is entitled toreceive a specified minimum annual base salary of $900,000, which is subject to annual adjustment in the discretion of the Board of Directors. Mr. Karatz is also entitled to a modified nonqualified retirement arrangement pursuant to which he will receive an annual pensionbenefit equal to 100% of his average base salary during the final three years of his employment, payable for 25 years,years. In addition, if he continues inwas involuntarily terminated without cause or if he voluntarily terminated his employment for good reason, he was entitled to a severance equal to three times the employmentsum of his average annual base salary and incentive compensation for the three fiscal years prior to the date of the Company until November 30, 2008.termination of his employment.
If Mr. Karatz retires orretired with the Board’s consent, Mr. Karatz and his employment is terminated before such date, he willfamily would be entitled to a lesser amount pursuant to a defined formula. The retirement arrangement is structured so that upon Mr. Karatz’s death, the Company will recover the after-tax cost to the Company of his retirement benefit. The retirement arrangement also contemplates certain benefits prior to retirement in the event of death, disability, or a “change in ownership” of the Company. In addition, under his employment agreement, Mr. Karatz is entitled to receive other benefits generally awarded to Company executives, which, in 2004, included a discretionary stock option and restricted stock grant, and an award under the KB Home Unit Performance Program. Please see “Compensation of Chief Executive Officer in 2004” in the Management Development and Compensation Committee Report on Executive Compensation on pages 27-28 for additional information on compensation paid to Mr. Karatz during the year.
In the event Mr. Karatz’s employment with the Company is terminated prior to the expiration of the amended and restated agreement, Mr. Karatz or his estate, as applicable, will receive the following:
| |
• | in the event his employment is terminated as a result of his death or disability, an amount equal to two times Mr. Karatz’s average annual compensation for the three fiscal years prior to the date of the termination of his employment, |
|
• | in the event his employment is terminated as a result of an involuntary termination of his |
31
| |
| employment by the Company without cause or his voluntary termination for good reason, an amount equal to three times his average annual compensation for the three fiscal years prior to the date of the termination of his employment, and |
|
• | in the event his employment is terminated within 18 months following a “change of ownership” of the Company, an amount equal to three times his average annual compensation for the three fiscal years prior to the date of the termination of his employment. If, in such event, Mr. Karatz is subject to an excise tax under Section 4999 of the Internal Revenue Code with respect to the payments or distributions in the nature of compensation made to him by the Company in connection with a change in ownership of the Company, an additional amount so as to place him in the same after-tax position he would have been in had the excise tax not applied. |
Upon Mr. Karatz’s termination of employment on or after the expiration of his employment agreement or upon his earlier retirement with the consent of the Board of Directors, Mr. Karatz’s employment agreement provides that the Company will continue to provide him and his family medical and dental benefits for Mr. Karatz’s lifetime at least equal to those which would have been provided under the Company’s plan had Mr. Karatz not retired or otherwise terminated his employment with the Company. If Mr. Karatz is not eligible under the terms of the Company’s medical and dentalour plans, to continue to be covered, the Company shall provide Mr. Karatz with substantially similar coverage through other sources; provided, however, that the foregoing benefits will be reduced if Mr. Karatz becomesunless he became re-employed and to the extent he iswas eligible to receive comparable benefits from another employer. In addition, at the reasonable request ofWe would also be obligated to provide Mr. Karatz with, or reimburse Mr. Karatz the Company shall provide him withexpenses for, an appropriate office and administrative support commensurate with his then-formerformer status as our Chief Executive OfficerOfficer.
In the event Mr. Karatz’s termination of service was by us for cause, or if it was by him without good reason, all of his unearned rights under the Company, plus reimbursement of reasonable expenses attendantEmployment Agreement terminate. The Tolling Agreement mentioned above provides that neither party has made an admission as to the maintenancecharacterization of such office and retention of such administrative support. At Mr. Karatz’s request, the Company shall, in lieutermination of providingservice, including whether such an officetermination constituted a “retirement” or other form of termination.
Mr. Karatz’s termination of service does not affect any advancement of fees or indemnification to which he is otherwise entitled under applicable state law, our Certificate of Incorporation and administrative support, reimburse him for expenses of such officeBylaws, and administrative support.
No other Named Executive Officer has an employmentany agreement with us. Mr. Karatz is a named insured under our D&O insurance policies and we agreed in the Company.Tolling Agreement to use our best efforts to ensure that he would be covered under any renewals or replacements of those policies.
42
Change in Control Arrangements
The Company has We have a Change in Control Plan in which 13 senior corporate executives currently participate, including Mr. Mezger.Messrs. Mezger, Cecere, and Hollinger. The plan is designed to encourage the retention of senior executives in the event of a change in control of the Company, which could play a key role in the continuing success of the Company in the event of a change in control. The plan provides that if there is a “changechange in control” ofcontrol, as defined in the Companyplan, and a participating executive is terminated within a specified period after such change, in ownership, other than for “cause”cause or “disability,” as defined in the plan,disability, or if the executive voluntarily terminates his or her employment for “Good Reason,”good reason, the terminated executive will be entitled to receive an amount equal to one or two years’ average salary and cash incentive bonus, depending on the executive.
Under the KB Home 1988 Employee Stock Plan, the KB Home Performance-Based Incentive Plan for Senior Management, the KB Home 1998 Stock Incentive Plan, the KB Home 19992001 Stock Incentive Plan and the Amended and Restated KB Home 2001 Stock1999 Incentive Plan, all outstanding stock options will become fully exercisable and all restrictions on outstanding shares of restricted Common Stock or other awards shall lapse upon a “change of ownership”ownership.” A “change of the Com-
32
pany. A change of ownershipownership” will be deemed to occur if: (i)(1) current members of the Board of Directors or other directors elected by three-quarters of the current members or their respective replacements (excluding certain individuals who took office in connection with an acquisition of 20% or more of the Company’sour voting securities or in connection with an election contest) cease to represent a majority of the Board; or (ii)(2) the Board determines that a change of ownership has occurred.
The KB Home Unit Performance Program, which is administered under the Company’sour employee stockequity compensation plans, provides that upon a change of ownership, as defined in the program documents, each outstanding Performance Unit will be paid in cash at the target level.
The KB Home Non-Employee Directors Stock Plan provides that upon a “changechange in control,” as defined in the plan, all Stock Units will be paid in cash or shares of Common Stock, in accordance with the prior election made by each participating director.Director. The KB Home Directors’ Legacy Program provides that upon a change of ownership, ofas defined in the Company,program documents, all participating directorsDirectors shall become immediately vested under the program, and the Companywe shall create an irrevocable trust into which itwe shall transfer sufficient assets (including the directors’Directors’ life insurance policies) to make the designated charitable contributions for the participating directors.Directors.
The CompanyWe also maintainsmaintain a non-qualified Executive Deferred Compensation Plan. From 1985 to 1992, pursuant to the plan, Mr. Karatz and certain other executives deferred receipt of a certain amount of pre-taxpretax income, plus a Company matching contribution, until retirement, termination or certain other events, including a “changechange in control.” A change in control is defined in the plan to include the acquisition by a person or “group” (as defined) of 25% or more of the Company’s voting power, a transaction which results in a change in a majority of the then-incumbent Board or the Company ceasing to be publicly owned. No new contributions to the Executive Deferred Compensation Plan may be made, but the Company continueswe continue to pay interest on prior contributions still held in the plan.
Under the KB Home Non-Qualified Deferred Compensation Plan, implemented in 2001, in the event of a change of control, as defined in the plan, participating executives, including Messrs. Mezger, Freed and Hollinger, become immediately vested in matching and other contributions we may make to their respective accounts under the plan unless we determine that payment of any part of such vested amounts would not be deductible under federal income tax rules. During his service as our Chairman and Chief Executive Officer, Mr. Karatz participated in the plan.
Under the KB Home Retirement Plan, which is described in more detail on page 34below under “Retirementthe heading
43
“Retirement Plan”, participants become fully vested in their Retirement Plan benefits, and may elect a lump sum distribution of Retirement Plan benefits, in the event of a “change in control.” A “change in control” under the Retirement Plan is generally defined to include certain changeschange in control, that must be reported pursuant to federal securities laws,as defined in the acquisition by a person or “group” (as defined) of 15% or more of the Company’s voting power, and certain changes in a majority of the Board.plan.
The CompanyWe also maintainsmaintain the KB Home Death Benefit Only Plan (the “DBO Plan”), which is described in more detail below under the heading “Death Benefit Only Plan” on pages 34-35.Plan.” Participants become fully vested in their DBO Plan benefits and, as described more fully below, will receive a distribution of the insurance policy on their life in cash in the event of a “change in control.” A “change in control” under the DBO Plan is generally defined to include certain changeschange in control, that must be reported pursuant to federal securities laws,as defined in the acquisition by a person or “group” (as defined) of 20% or more of the Company’s voting power, and certain changes in a majority of the Board.plan.
33
Retirement Plan
The Company We adopted the KB Home Retirement Plan in 2002. The Retirement Plan provides certain supplemental retirement benefits to selected executives. Currently, 27 executives, including all of the Company’s Named Executive Officers,Messrs. Mezger, Cecere, Freed and Hollinger, participate in the Retirement Plan. The Company establishesDuring his service as our Chairman and Chief Executive Officer, Mr. Karatz participated in the plan. We establish an “annual benefit amount” for each participant in the Retirement Plan. A participant becomes entitled to benefits under the Retirement Plan only if the participant releases the Companyus from any and all claims that he or she may then have against the Companyus and only if the participant’s termination of employment with the Companyus occurs either (i)(1) on or after the fifth anniversary of the date the participant commenced participation in the Retirement Plan, or (ii)(2) before that date, due to the participant’s death or disability. A participant is eligible for a reduced level of benefits if the Company terminateswe terminate the participant’s employment without cause after the fourth, but before the fifth, anniversary of the date the participant commenced participation in the Retirement Plan.
If a participant becomes entitled to Retirement Plan benefits, the Companywe will pay the participant a series of installment payments over a period of twenty20 years commencing following the later of (1) the participant’s attainment of age 55, (2) the tenth anniversary of the date the participant commenced participation in the Retirement Plan or (3) the termination of the participant’s employment with the Company.us. The annual benefit to be paid to a participant who is entitled to Retirement Plan benefits (to be paid each year over the twenty-year payment period) equals the “annual benefit amount” determined by the Companywe determine for that participant. In February 2006, the Management Development and Compensation Committee of the Board of Directors approved the incorporation of acost-of-living adjustment (“COLA”) to the base benefit amounts. The 2006 COLA was 3%. The rate of COLA adjustment will be reviewed by the Management Development and Compensation Committee annually. Messrs. Karatz, Mezger, Freed, Cecere and Moss, and Ms. ByrantHollinger commenced participation in the Retirement Plan as of July 11, 2002 and in 2004, their annual benefit amounts were $800,000, $450,000, $100,000, $100,000upon retirement are $463,000, $103,000, $103,000 and $150,000,$103,000, respectively. The CompanyWe may elect to pay a participant the actuarial equivalent of his or her benefits in a lump sum payment as opposed to installments over twenty years. A participant’s benefits will be paidAt the time of Mr. Karatz’s termination of service, his annual benefit amount under the Retirement Plan was $824,000. However, Mr. Karatz’s rights to a participant’s beneficiary ifthis amount are reserved under the participant dies.Tolling Agreement described on page 42 above. Mr. Karatz’s participation in the Retirement Plan commenced as of July 11, 2002.
Death Benefit Only Plan
In 2001, the Companywe implemented the DBO Plan. Currently 57 executives, including all of the Named Executive Officers, participate in the DBO Plan.The Plan currently covers 52 executives. The beneficiary of a DBO Plan participant is entitled to DBO Plan benefits if the participant either (1) dies while actively employed by the Companyus or an affiliate or (2) dies after completing 10 years of service with the Companyus or an affiliate, including at least five5 consecutive years of
44
service while a DBO Plan participant. Each participant is assigned a “basic” level of benefit of either $1 million or $500,000. A beneficiary of a participant entitled to benefits receives an aggregate DBO Plan benefit in an amount that equals, after the payment of all federal and state income taxes attributable to such benefit,provided a net after-tax benefit from $500,000 to the beneficiary of either $1 million or $500,000, as applicable; in the discretion of the committee that administers the plan, payroll taxes may also be taken into account.million. The basicnet after-tax death benefit of each of Messrs. Karatz, Mezger, Freed, Cecere and Moss and Ms. BryantHollinger is $1 million.
The Company hasWe have purchased life insurance policies on the lives of the participants in the DBO Plan. In the event of a change in control, the Companywe will pay to the issuanceinsurance company, on behalf of each participant, an amount large enough so that, after the payment, the policy is “fully paid up.” For this purpose, the term “fully paid up” means that, after the payment described in the preceding sentence is paid as a premium to the insurer, the value of the policy is such that the
34
policy is projected (based on assumptions set forth in the DBO Plan) to be able to pay at least the basic benefit applicable to the participant if the participant dies at any time after the change in control and prior to age 100. The policy will then be transferred to the participant along with a cash payment large enough to pay any federal, or state or local income or payroll taxes (including excise taxes, such as the excise tax under Section 4999 of the Internal Revenue Code, if applicable) attributable to the distribution of the policy and the cash payment.
As of October 2004, new eligible executives are provided with a $750,000 death benefit under our group term life insurance policy instead of participating in the DBO Plan. Mr. Masuda has been provided with this $750,000 death benefit.
3545
Executive Compensation
Summary Compensation Table
The following Summary Compensation Table sets forth the total compensation earned by each of the Named Executive Officers for the fiscal years ended November 30, 2004, 20032006, 2005 and 2002.2004.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Long-Term Compensation | | | | | | | | | | | | | Long-Term Compensation | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Awards | | | | Payouts | | | | | | | | | Awards Payouts | | |
| | | | | | Annual Compensation | | | | | | | | | | | | | Annual Compensation | | | | |
| | | | | | | | | | Securities | | | | | | | | | | | | | Securities | | | | |
| | | | | | | | Other Annual | | Restricted | | Underlying | | LTIP | | All Other | | | | | | | Other Annual | | Restricted | | Underlying | | LTIP | | All Other |
| | | | Fiscal | | | | Bonus | | Compensation | | Stock | | Options/ | | Payouts | | Compensation | | | Fiscal | | | | Bonus | | Compensation | | Stock | | Options/ | | Payouts | | Compensation |
| Name and Position | Name and Position | | Year | | Salary($) | | ($)(a) | | ($)(b) | | Awards($) | | SARs(#) | | ($)(c) | | ($)(d) | Name and Position | | Year | | Salary($) | | ($)(a) | | ($)(b) | | Awards($)(a) | | SARs(#) | | ($)(c) | | ($)(d) |
| | Bruce Karatz | | |
| | Chairman and | | 2004 | | $ | 1,000,000 | | $ | 5,000,000 | | $ | 165,263 | | $ | 14,045,340 | | 280,000 | | $ | 3,865,455 | | $ | 101,528 | | |
| | Chief Executive | | 2003 | | 994,667 | | 5,000,000 | | —0— | | 9,995,580 | | 280,000 | | 2,432,478 | | 95,995 | | |
| | Officer | | 2002 | | 921,000 | | 7,755,970 | | —0— | | 6,023,880 | | 500,000 | | 1,803,678 | | 95,556 | | |
| | |
| Jeffrey T. Mezger | Jeffrey T. Mezger | | Jeffrey T. Mezger | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Executive Vice | | 2004 | | 478,333 | | 2,000,000 | | —0— | | 3,524,962 | | 100,000 | | 2,761,071 | | 28,800 | | |
| | President and | | 2003 | | 458,333 | | 2,000,000 | | —0— | | 2,473,948 | | 112,000 | | 1,737,475 | | 27,500 | | |
| | Chief Operating | | 2002 | | 431,000 | | 3,766,789 | | —0— | | —0— | | 273,303 | | 1,503,072 | | 25,100 | | |
| | Officer | | |
| | |
| Jay Moss | | |
| | Regional General | | 2004 | | 259,167 | | 1,250,000 | | —0— | | 1,862,689 | | 12,500 | | 1,380,426 | | 15,600 | | President and Chief | | | 2006 | | $ | 568,750 | | $ | 2,500,000 | | $ | 80,357 | | $ | 2,000,000 | | | – | | $ | 746,250 | | $ | 15,700 | |
| | Manager | | 2003 | | 249,167 | | 1,449,165 | | —0— | | 662,132 | | 16,800 | | 868,806 | | 14,450 | | Executive Officer | | | 2005 | | | 498,333 | | | 2,500,000 | | | – | | | 7,212,531 | | | 75,000 | | | 2,519,442 | | | 29,900 | |
| | | | �� | 2002 | | 240,000 | | 1,134,207 | | —0— | | —0— | | 36,828 | | 681,367 | | 14,400 | | | | | 2004 | | | 478,333 | | | 2,000,000 | | | – | | | 3,524,962 | | | 200,000 | | | 2,761,071 | | | 28,800 | |
| | Robert Freed | Robert Freed | | Robert Freed | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Regional General | | 2004 | | 229,167 | | 1,250,000 | | —0— | | 1,107,985 | | 12,500 | | 1,380,426 | | 13,800 | | Senior Vice President, | | | 2006 | | | 389,167 | | | 2,000,000 | | | 50,716 | | | 1,233,359 | | | – | | | 375,000 | | | 10,850 | |
| | Manager | | 2003 | | 219,167 | | 1,774,697 | | —0— | | 968,435 | | 16,800 | | 868,806 | | 550 | | Investment Strategy | | | 2005 | | | 266,667 | | | 1,250,000 | | | – | | | 1,772,264 | | | 8,000 | | | 1,007,808 | | | 16,175 | |
| | | | 2002 | | 205,000 | | 2,078,159 | | —0— | | —0— | | 53,918 | | 730,880 | | 500 | | | | | 2004 | | | 229,167 | | | 1,250,000 | | | – | | | 1,107,985 | | | 25,000 | | | 1,380,426 | | | 13,800 | |
| | Leah S.W. Bryant | | |
| Domenico Cecere | | Domenico Cecere | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Regional General | | 2004 | | 269,167 | | 1,250,000 | | —0— | | 901,057 | | 12,500 | | 1,104,494 | | 16,013 | | Executive Vice | | | 2006 | | | 548,333 | | | 750,000 | | | – | | | 570,000 | | | – | | | 525,000 | | | 13,200 | |
| | Manager | | 2003 | | 232,500 | | 1,250,000 | | —0— | | 637,049 | | 32,400 | | 521,270 | | 13,950 | | President and Chief | | | 2005 | | | 529,167 | | | 750,000 | | | – | | | 576,731 | | | 6,000 | | | 1,763,585 | | | 12,600 | |
| | | | 2002 | | 218,077 | | 1,319,888 | | —0— | | —0— | | 20,000 | | 150,303 | | 13,140 | | Financial Officer | | | 2004 | | | 518,333 | | | 750,000 | | | – | | | 236,500 | | | 20,000 | | | 1,932,728 | | | 11,700 | |
| | William R. Hollinger | | William R. Hollinger | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Senior Vice President | | | 2006 | | | 312,633 | | | 750,000 | | | – | | | 37,500 | | | – | | | 375,000 | | | 18,571 | |
| | | and Chief Accounting | | | 2005 | | | 285,683 | | | 716,500 | | | – | | | 160,700 | | | 6,000 | | | 1,007,808 | | | 16,844 | |
| | | Officer | | | 2004 | | | 274,717 | | | 750,000 | | | – | | | 91,800 | | | 24,000 | | | 1,104,494 | | | 16,536 | |
| | | |
| Kelly Masuda | | Kelly Masuda | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Senior Vice President | | | 2006 | | | 287,604 | | | 625,000 | | | – | | | – | | | – | | | 37,500 | | | 9,384 | |
| | | and Treasurer | | | 2005 | | | 273,646 | | | 412,500 | | | – | | | 128,560 | | | 5,000 | | | – | | | 688 | |
| | | | | | 2004 | | | 258,021 | | | 258,750 | | | – | | | 38,250 | | | 20,000 | | | – | | | 8,409 | |
| | | |
| Bruce Karatz | | Bruce Karatz | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Former Chairman | | | 2006 | | | 1,185,417 | | | – | | | 629,089 | | | – | | | – | | | – | | | 103,975 | |
| | | and Chief | | | 2005 | | | 1,091,667 | | | 5,000,000 | | | 296,077 | | | 27,913,496 | | | 250,000 | | | 3,527,250 | | | 102,401 | |
| | | Executive Officer | | | 2004 | | | 1,000,000 | | | 5,000,000 | | | 165,263 | | | 14,045,340 | | | 560,000 | | | 3,865,455 | | | 101,528 | |
| | | |
| | |
| (a) | | The 2004 bonusBonus reported as annual compensation for Mr. Karatzeach of Messrs. Mezger, Freed, Cecere, Hollinger and Masuda in the 2006 fiscal year is comprised of the cash portion of histheir respective annual incentive bonus. Mr. Karatz’sbonuses. The Restricted Stock Award dollar amounts reported for each of Messrs. Mezger, Freed, Cecere and Hollinger in the 2006 fiscal year reflect the amount of their annual incentive bonus is determined by a performance-based formula set forth in his employment agreement.awards over the cash limits established for them. The formula requires, among other things, that any amount earned over $5,000,000 must be paid in shares of three-year restricted stock. Accordingly, in 2004, $5,000,000 of Mr. Karatz’s incentive bonus was paid in cash, and $11,750,000 was paid in 107,397 shares of restricted stock and is reported separately in the table above under “Restricted Stock Awards.” The amountnumber of shares of restricted stock issuedhas not yet been determined due to Mr. Karatz wasthe review of our stock option grant practices in the 2006 fiscal year. When granted, the number of shares of restricted stock will be determined by reference to the closing price of the Company’s Common Stock on the New York Stock Exchange on the date of grant (January 14, 2005). Please see “Employment Agreements” on pages 31-32 for a description of the performance-based incentive compensation formula in Mr. Karatz’s employment agreement. The remaining $2,295,340 of the restricted stock awards reported for Mr. Karatz in 2004 is a grant of 30,000 shares of Common Stock made on October 22, 2004 as part of |
36
| | |
| | Mr. Karatz’s 2005 equity incentive award, the value reported determined by reference to the closing price of the Company’sour Common Stock on the New York Stock Exchange on the date of grant. |
|
46
| | Restricted stock grants reported for Messrs. Mezger, Moss and Freed and Ms. Bryant include the restricted Common Stock portion of their 2005 equity incentive awards, granted on October 22, 2004, as follows: Mr. Mezger 9,500; Mr. Moss 1,250; Mr. Freed 1,250; and Ms. Bryant 1,250. In addition, in 2004 certain limits were placed on the amount of annual incentive awards for certain senior executives that may be paid in cash. Accordingly, as a result of these caps, on January 14, 2005, the Named Executive Officers received restricted stock awards in the following amounts: Mr. Karatz 107,397; Mr. Mezger 25,575; Mr. Moss 16,151; Mr. Freed 9,253; and Ms. Bryant 7,362. |
|
| | In accordance with the Company’s Supplemental Nonqualified Deferred Compensation Plan, irrevocable elections to defer a portion of 2004 cash incentive bonuses were required to be made in December of 2003. |
|
| (b) | | The Named Executive Officers receive certain personal benefits, including financial planning and tax preparation services, an automobile and gasoline allowance and automobile insurance reimbursement; however,reimbursement. However, in accordance with Securities and Exchange Commission rules, personal benefits for each Named Executive Officer in 2004the 2006 fiscal year totaling less than $50,000 in aggregate incremental cost to the Companyus have been omitted. Ofomitted, except as discussed in this footnote. The amount reported for Mr. Mezger for our 2006 fiscal year includes financial planning and tax preparation services and an automobile and gasoline allowance. It also includes $62,255, representing an allocated portion of overall flight costs attributable to his spouse’s joining him on business trips he took using Company-owned aircraft. We encouraged his spouse to join him on the trips, these trips were not personal, and we did not incur any incremental cost to have Mr. Mezger’s spouse join him on such trips. The amount reported for Mr. Freed includes an automobile allowance and $38,716 related to his spouse’s joining him on business trips Mr. Freed took on Company-owned aircraft. The amount reported for Mr. Karatz $113,010for the 2006 fiscal year includes financial planning and tax preparation services, an automobile and gasoline allowance, tickets to sporting events, personal gifts, personal meal and lodging expenses and club membership fees. It also includes $558,009 related to the incremental cost to the Company for his personal use of Company ownedCompany-owned aircraft. |
| |
| (c) | | Payouts in 2004for our 2006 and 2005 fiscal years to all participants under the Company’sour long-term incentive program, the Unit Performance Program, were paid in cash. |
| |
| (d) | | These amounts represent the Company’sour aggregate contributions to the Company’sour 401(k) Savings Plan, Supplemental Nonqualified Deferred Compensation Plan and the amount of interest earned on the Executive Deferred Compensation Plan at a rate in excess of 120% of the applicable federal rate. In the 2006 fiscal 2004year, the Named Executive Officers accrued the following respective amounts under such plans: Mr. Karatz $12,300, $47,700 and $41,528; Mr. Mezger $12,300, $16,500 and $0; Mr. Moss $12,300, $3,300$13,200, $2,500 and $0; Mr. Freed $12,300, $1,500$9,500, $1,350 and $0; Mr. Cecere $13,200, $0 and $0; Mr. Hollinger $13,200, $5,371 and $0; Mr. Masuda $9,384, $0 and $0; and Ms. Bryant $12,300, $3,713Mr. Karatz $13,200, $57,925 and $0.$32,850. |
37
Option/SAR Grants in Last Fiscal Year
The following table summarizes information relating to There were no grants of stock option grants during 2004 to the Named Executive Officers. All options granted are for shares of the Company’s Common Stock. Noor stock appreciation rights have been granted atmade to any time under the Company’s employee stock plans.of our Named Executive Officers during our 2006 fiscal year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of | | Percent of | | | | | | | | Potential Realizable Value at |
| | | Securities | | Total | | | | | | | | Assumed Annual Rate of |
| | | Underlying | | Options | | | | | | | | Stock Price Appreciation for |
| | | Options | | Granted to | | Exercise or | | | | | | Option Term(c) |
| | | Granted | | Employees in | | Base Price | | Grant | | Expiration | | |
| Name | | (#)(a) | | Fiscal Year | | ($/sh)(b) | | Date | | Date | | 5%($) | | 10%($) |
| |
| Bruce Karatz | | | 280,000 | | | | 25.5 | % | | $ | 76.50 | | | | 10/22/04 | | | | 10/22/19 | | | $ | 23,110,642 | | | $ | 68,056,656 | |
| Jeffrey T. Mezger | | | 100,000 | | | | 9.1 | | | | 76.50 | | | | 10/22/04 | | | | 10/22/19 | | | | 8,253,801 | | | | 24,305,948 | |
| Jay Moss | | | 12,500 | | | | 1.1 | | | | 76.50 | | | | 10/22/04 | | | | 10/22/19 | | | | 1,031,725 | | | | 3,038,244 | |
| Robert Freed | | | 12,500 | | | | 1.1 | | | | 76.50 | | | | 10/22/04 | | | | 10/22/19 | | | | 1,031,725 | | | | 3,038,244 | |
| Leah S.W. Bryant | | | 12,500 | | | | 1.1 | | | | 76.50 | | | | 10/22/04 | | | | 10/22/19 | | | | 1,031,725 | | | | 3,038,244 | |
| |
| |
(a) | Except as noted below, options reported are original option grants and are exercisable in cumulative 33% installments commencing one year from the date of grant, with full vesting occurring on the third anniversary of the date of grant. The options granted on October 22, 2004 represent annual equity incentive awards to the Named Executive Officers for fiscal 2005. |
|
(b) | All options were granted at market value on the date of grant. The term “market value” as used with respect to this table was computed as the average of the high and low stock prices for the Company’s Common Stock on the New York Stock Exchange on the date of grant. The exercise price and tax withholding obligations related to exercise may be paid by delivery of already owned shares or by withholding a number of the underlying shares, subject to certain conditions. |
| |
(c) | Gains are net of the option exercise price, but before taxes associated with exercise. These amounts represent certain assumed rates of appreciation over the 15-year term of the options. Actual gains, if any, on stock option exercises are dependent on the future performance of the Company’s Common Stock, overall stock market conditions, as well as the optionholders’ continued employment through the vesting period. The amounts reflected in this table may not necessarily be achieved, or may be exceeded. |
3847
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Value
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Number of Unexercised | | Value of Unexercised | | | Number of Unexercised | | Value of Unexercised |
| | | | | | | Options Held at Fiscal | | In-the-Money Options at | | | Options Held at Fiscal | | In-the-Money Options at |
| | | Shares | | | | Year End(#) | | Fiscal Year End($)(b) | | Shares | | | | Year End(#) | | Fiscal Year End($)(a) |
| | | Acquired on | | Value | | | | | | Acquired on | | Value | | | | |
| Name | | Exercise(#) | | Realized($)(a) | | Exercisable | | Unexercisable | | Exercisable | | Unexercisable | | Exercise(#) | | Realized($)(a) | | Exercisable | | Unexercisable | | Exercisable | | Unexercisable |
| | Bruce Karatz | | 431,659 | | $ | 25,977,391 | | 1,995,818 | | 543,334 | | $ | 115,059,996 | | $ | 12,738,132 | | |
| Jeffrey T. Mezger | | —0— | | —0— | | 678,612 | | 241,332 | | 36,747,665 | | 5,729,649 | | | | – | | $ | – | | | 1,428,940 | | | 116,666 | | $ | 41,255,895 | | $ | 895,991 | |
| Jay Moss | | 33,919 | | 2,030,142 | | 37,267 | | 30,366 | | 2,136,590 | | 681,382 | | |
| Robert Freed | | 29,999 | | 1,901,604 | | 18,934 | | 30,366 | | 718,249 | | 681,382 | | | | – | | | – | | | 55,066 | | | 13,666 | | | 1,039,756 | | | 111,996 | |
| Leah S.W. Bryant | | 24,999 | | 1,440,057 | | 44,135 | | 40,765 | | 2,064,894 | | 974,989 | | |
| Domenico Cecere | | | | – | | | – | | | 240,134 | | | 10,666 | | | 6,072,893 | | | 89,591 | |
| William R. Hollinger | | | | – | | | – | | | 164,058 | | | 12,000 | | | 4,017,253 | | | 107,520 | |
| Kelly Masuda | | | | – | | | – | | | 35,001 | | | 9,999 | | | 593,609 | | | 89,591 | |
| Bruce Karatz(b) | | | | – | | | – | | | 2,658,120 | | | 353,332 | | | 73,174,491 | | | 2,508,791 | |
|
| | |
| (a) | | Represents the difference between the market value of the Company’s Common Stock at exercise minus the exercise price of the options. |
| |
(b) | Represents the difference between the $87.89$51.69 closing price of the Company’sour Common Stock on November 30, 20042006 on the New York Stock Exchange and the exercise price of the options. |
|
| (b) | | Pursuant to a Tolling Agreement between us and Mr. Karatz, as described on page 42 above, both parties have reserved all rights under Mr. Karatz’s Employment Agreement and under our stock option, restricted stock, retirement or other benefit plans to which Mr. Karatz was a party or was subject. As of the date of this Proxy Statement, the Tolling Agreement remains in effect and no resolution has been reached as to the matters reserved under its terms. Accordingly, no agreement or determination has been made on the nature and extent of Mr. Karatz’s rights in the outstanding stock options granted to him. We have made no severance or other payments to Mr. Karatz with respect to the matters reserved. In addition, pursuant to a Stipulation and Order Preserving the Status Quo entered in January 2007 in a shareholder derivative litigation matter pending in California state court, Mr. Karatz may not exercise any of his stock options, vested or unvested, at any price, until March 31, 2007. However, the expiration or earlier termination of the Stipulation and Order will not entitle Mr. Karatz to exercise any of his stock options, as any such exercise will remain subject to resolution of the matters reserved under the Tolling Agreement. |
48
Long-Term Incentive Plans —– Awards in Last Fiscal Year
The following table provides information on long-term incentive awards granted in 2004the 2006 fiscal year to the Named Executive Officers under the Unit Performance Program. Please also see the “Management Development and Compensation Committee Report on Executive Compensation” on pages 24-2837-40 above for more information on the Unit Performance Program. Pursuant to a Tolling Agreement between us and Mr. Karatz, as described on page 42 above, Mr. Karatz’s eligibility for any payout on performance units granted to him during his service as our Chairman and Chief Executive Officer is reserved and no determination or agreement regarding such eligibility has been reached.
| | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | | | | | | | | | | | | | Estimated Future Payout |
| | | | | | | Estimated Future Payout in Shares | | | in Shares of Common Stock |
| | | Number of | | | | of Common Stock | | Number of | | | | |
| | | Performance | | | | | | Performance | | Performance | | Threshold | | Target | | Maximum |
| Name | | Units(#)(a) | | Performance Period | | Threshold(#)(b) | | Target(#) | | Maximum(#) | | Units(#)(a) | | Period | | ($)(b) | | ($) | | ($) |
| | Bruce Karatz | | 700 | | 12/1/03 — 11/30/06 | | $ | 350,000 | | $ | 700,000 | | $ | 1,050,000 | | |
| Jeffrey T. Mezger | | 500 | | 12/1/03 — 11/30/06 | | 250,000 | | 500,000 | | 750,000 | | | | 1,000 | | 12/1/05 – 11/30/08 | | $ | 500,000 | | $ | 1,000,000 | | $ | 2,000,000 | |
| Jay Moss | | 250 | | 12/1/03 — 11/30/06 | | 125,000 | | 250,000 | | 375,000 | | |
| Robert Freed | | 250 | | 12/1/03 — 11/30/06 | | 125,000 | | 250,000 | | 375,000 | | | | 325 | | 12/1/05 – 11/30/08 | | | 162,500 | | | 325,000 | | | 650,000 | |
| Leah S.W. Bryant | | 250 | | 12/1/03 — 11/30/06 | | 125,000 | | 250,000 | | 375,000 | | |
| Domenico Cecere | | | | 300 | | 12/1/05 – 11/30/08 | | | 150,000 | | | 300,000 | | | 600,000 | |
| William R. Hollinger | | | | 300 | | 12/1/05 – 11/30/08 | | | 150,000 | | | 300,000 | | | 600,000 | |
| Kelly Masuda | | | | 100 | | 12/1/05 – 11/30/08 | | | 50,000 | | | 100,000 | | | 200,000 | |
|
| | |
| (a) | | At the beginning of our 2006 fiscal 2004, the Companyyear, we awarded Performance Units under the Unit Performance Program for the fiscal 2004 – 20062006-2008 performance period. Each Performance Unit represents the opportunity to receive an award payable in cash or in shares of our Common Stock. The dollar value or actual number of shares awarded at the end of the performance period will depend upon the Company’sour cumulative earnings per share, or EPS, and average pre-taxpretax return on investment, or PROI, during the performance period. The target dollar value or number of shares will be awarded if a specified, targeted cumulative EPS and average PROI are achieved for the period. The threshold dollar value or number of shares, equal to 50% of the target number, will be awarded if a specified minimum cumulative EPS and |
39
| |
| average PROI are achieved for the period. Achievement of either the specified minimum cumulative EPS or average PROI, but not both, would result in a smaller payout than the threshold dollar value or number of shares. The maximum dollar value or number of shares, equal to 150%200% of the target number, will be awarded if the specified maximum cumulative EPS and average PROI for the period are achieved or exceeded. If paid out in shares, the number of shares awarded at the end of the performance period will depend on the market value of theour Common Stock at that time. |
| |
| (b) | | No award will be made upon the vesting of a Performance Unit if neither the specified minimum cumulative EPS nor the specified minimum average PROI is achieved for the 2004 – 20062006-2008 performance period. |
4049
Equity Compensation Plan Information
The following table provides information as of November 30, 2006 with respect to shares of our Common Stock that may be issued under our existing compensation plans:
| | | | | | | | | | | | | |
| | | | | | | Number of Common |
| | | Number of | | | | Shares Remaining |
| | | Common Shares | | | | Available for Future |
| | | to be Issued | | | | Issuance Under Equity |
| | | Upon Exercise of | | Weighted-average | | Compensation Plans |
| | | Outstanding | | Exercise Price of | | (excluding common |
| | | Options, Warrants | | Outstanding Options, | | shares reflected in |
| | | and Rights | | Warrants and Rights | | column (a)) |
| | | (a) | | (b) | | (c) |
| |
| Equity compensation plans approved by stockholders | | | 7,982,877 | | | $ | 28.45 | | | | 3,906,459 | |
| Equity compensation plans not approved by stockholders(1) | | | 371,399 | | | | 34.23 | | | | 566,061 | |
| |
| Total | | | 8,354,276 | | | $ | 28.71 | | | | 4,472,520 | |
| |
| | |
| (1) | | Represents the Non-Employee Directors Stock Plan. The Non-Employee Directors Stock Plan is described above under the heading “Director Compensation” on pages 11-12. |
50
Audit and Compliance Committee Report
The Audit and Compliance Committee of the Company’s Board of Directors acts under a written Audit and Compliance Committee Charter. The Audit and Compliance Committee Charter was first adopted in 1999, and was revisedamended and restated in February 2004 in conformity with New York Stock Exchange corporate governance listing standards and U.S. Securities and Exchange Commission proxy disclosure rules.October 2005.
The Board of Directors has determined that each of the members of the Audit and Compliance Committee is independent, is “financially literate”, and at least one member has “financial management expertise” under the current New York Stock Exchange Listing standards. In addition,assists the Board of Directors has determined that Ms. Lora qualifies as an “audit committee financial expert” withinin fulfilling the meaningBoard’s responsibility for oversight of Securities and Exchange Commission regulations.
The Audit Committee reviews the Company’s financial reporting process and practices, and its internal controls processes on behalf ofcontrol over financial reporting. Management is primarily responsible for the Board of Directors. Management has the primary responsibility for theCompany’s financial statements, the reporting process and assurance for the adequacy of controls.the internal control over financial reporting. The Company’s independent auditors areregistered public accounting firm, Ernst & Young LLP, is responsible for performing an independent audit of the Company’s financial statements and the Company’s internal control over financial reporting, and for expressing an opinion on the conformity of the Company’s audited financial statements to generally accepted accounting principles used in the United States.States and the adequacy of the Company’s internal control over financial reporting.
In this context, the Audit and Compliance Committee has reviewed and discussed with management and the independent auditorsErnst & Young LLP the Company’s audited financial statements. The Audit and Compliance Committee has discussed with the independent auditorsErnst & Young LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees)., as amended. In addition, the Audit and Compliance Committee has received from the independent auditorsErnst & Young LLP the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and discussed with them theirErnst & Young LLP its independence from the Company and the Company’s management.
The Audit and Compliance Committee has also reviewed management’s fiscal year 2006 documentation, testing and evaluation of the adequacy of the Company’s internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules and regulations, and has been apprised by both management and Ernst & Young LLP on management’s processes and activities in this regard. Following the conclusion of fiscal year 2006, management reviewed with the Audit and Compliance Committee its management.report on the effectiveness of the Company’s internal control over financial reporting. The Audit and Compliance Committee also received a report from Ernst & Young LLP on management’s assessment of the effectiveness of the Company’s internal control over financial reporting.
In reliance on the reviews, reports and discussions referred to above, the Audit and Compliance Committee recommended to the Board, of Directors, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004,2006, for filing with the Securities and Exchange Commission.
This report is respectfully submitted by the members of the Audit and Compliance Committee:
Dr. Barry Munitz,Mr. Michael G. McCaffery,Chairman
Mr. Ronald W. Burkle
Mr. Timothy W. Finchem
Ms. Melissa Lora
Mr. Michael G. McCaffery
Mr. Luis G. Nogales
4151
Independent Auditor Fees and Services
Auditor Fees in 20042006 and 2003.2005
The firm of Ernst & Young LLP served as the Company’sour principal independent auditorsregistered public accounting firm for 2004our 2006 and 2003. The Company2005 fiscal years. We paid Ernst & Young LLP the following fees in 2004our 2006 and 2003.2005 fiscal years.
| | | | | | | | | | | | | | | | | | | |
| | | | Fiscal Year Ended | | | Fiscal Year Ended |
| | | | (in thousands) | | | (in thousands) |
| | | | | | | |
| | | | 2004 | | 2003 | | | 2006 | | 2005 |
| | Audit Fees | Audit Fees | | $ | 1,758 | | $ | 946 | | Audit Fees | | | $1,523 | | | $1,644 | |
| Audit-related Fees | Audit-related Fees | | 140 | | 181 | | Audit-related Fees | | | 674 | | | 34 | |
| Tax Fees | Tax Fees | | 43 | | 41 | | Tax Fees | | | 50 | | | 43 | |
| All Other Fees | All Other Fees | | -0- | | -0- | | All Other Fees | | | – | | | – | |
| | | | | | | |
| | Total Fees | | $ | 1,941 | | $ | 1,168 | | Total Fees | | $ | 2,247 | | $ | 1,721 | |
| | | | | | | |
Audit fees include statutory audits of the Company’sour French subsidiary, Kaufman & Broad S.A., which is publicly traded on the Premier Marché of theEuronext Paris, Bourse, audits of the Company’s wholly ownedour mortgage banking subsidiary and audit services performed in connection with the Company’sour compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Audit fees for the Kaufman & Broad S.A. statutory audits totaled $400,000$620,000 in fiscal 20042006 and $375,000$689,000 in fiscal 2003.2005.
Audit-related services generally include fees for 401(k) or employee benefit plan audits and accounting consultations. In fiscal 2006, audit-related fees included fees related to the internal review of our past stock option grant practices by a Subcommittee of the Audit and Compliance Committee of the Board of Directors in conjunction with independent legal counsel, as noted on page 9 above and further described in our Annual Report on Form 10-K for the fiscal year ended November 30, 2006. Fiscal 2006 audit-related fees also included fees related to our Annual Report on Form 10-K for the fiscal year ended 2006 to adjust certain non-cash compensation expense charges.
Tax fees generally include fees for review of the Company’sour federal income tax return, as well as several state income tax returns.
Auditor Fees Pre-approval Policy.Policy
In 2003, the Audit and Compliance Committee approved a policy concerning the pre-approval of audit and permitted non-audit services to be provided by the principal independent auditor to the Company.registered public accounting firm. The policy requires that the Audit and Compliance Committee pre-approve all services provided by Ernst & Young LLP provides to the Company,us, including audit services, audit-related services, tax services and other services, must be pre-approved by the Committee.services. In some cases, pre-approval is provided by the full Audit and Compliance Committee for up to a year, and relates to a particular category or group of services and is subject to a specific budget. In other cases, the ChairmanChair of the Audit and Compliance Committee has the delegated authority from the Audit and Compliance Committee to pre-approve additional services, and such pre-approvals are then communicated to the full Committee.
The Audit and Compliance Committee approved all audit and permitted non-audit services provided by Ernst & Young LLP during the 2004our 2006 fiscal year.
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting, with the opportunity to make a statement should they desire to do so, and will be available to respond to appropriate questions from stockholders.
4252
Other Matters
Certain Relationships and Related Party Transactions
Matthew Karatz, managera director of land acquisition and planning for the Company’sour Greater Los Angeles division, is the son of Bruce Karatz, the Company’sour former Chairman and Chief Executive Officer. In our 2006 fiscal 2004,year, Matthew Karatz earned $160,775 ($164,522 including auto allowance$184,535, comprised of salary, bonus and gas) in salaryan automobile and bonus.gas allowance. Robert Karatz, awho manages real estate broker liaisonrelations for the Company’s Los Angelesour Inland Valley division, is the brother of Bruce Karatz. In our 2006 fiscal 2004,year, Robert Karatz earned $69,600 in$110,982, comprised of professional services fees, incentive pay and an automobile and gas allowance. Both Matthew Karatz and Robert Karatz have been employed by us since 2002. Lance Freed, the son of Robert Freed, Senior Vice President, served as a Land Acquisition Analyst for the first half of our 2006 fiscal year and as a Land Associate for the second half of our 2006 fiscal year for our Central Valley Division. In our 2006 fiscal year, Lance Freed earned $61,597, comprised of salary, bonus and commissions ($75,039 including auto allowance and gas). The compensation earned by these individuals, both of whom joined the Companyan automobile allowance. Lance Freed resigned in 2002, is consistent with compensation paid to other KB Home employees in similar positions.January 2007.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon itsour review of Forms 3, 4 and 5 and any amendments thereto furnished to the Companyus in compliance with Section 16 of the Securities Exchange Act of 1934, as amended, all such Forms were filed on a timely basis by the Company’sour reporting persons during 2004, except for a late filing by Mr. Glen Barnard regarding the purchase of 253 shares of Common Stock through his individual brokerage account in October and November 2004, and Ms. Bryant regarding the acquisition of 2,500 shares of restricted stock from the Company on December 1, 2003.fiscal year 2006.
Financial Statements
The Company’s Our audited consolidated financial statements and notes thereto, including selected financial information and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended November 30, 20042006, are included on pages 2325 through 7388 of the Company’sour Annual Report on Form 10-K for the fiscal year ended November 30, 2004, which is beingthat period. The Form 10-K was mailed to stockholders concurrently with this Proxy Statement. Additional copies of the Annual Report on Form 10-K are available without charge upon request.March 5, 2007. The financial statements, the report of the independent auditors thereon, selected financial information, and management’s discussion and analysis of financial condition and results of operations in the Annual ReportForm 10-K are incorporated by reference herein.Additional copies of the Form 10-K are available without charge upon request to the Corporate Secretary at KB Home, 10990 Wilshire Boulevard, Los Angeles, CA 90024. Exhibits to the Form 10-K will be provided upon request and payment of copying charges. You may also view and download copies of the 2006 Annual Report on Form 10-K from our website at: http://www.kbhome.com/ investor.
Other Business
The Board of Directors knows of no business other than that described hereinin this Proxy Statement that will be presented for consideration at the Annual Meeting. If however, other business shall properly come before the Annual Meeting, the persons named in the enclosed form of proxy intend to vote the shares represented by properly deliveredvalid proxies will be voted on such matters in accordance with their judgment in the best interestjudgment of the Company.persons named as proxies on the Proxy Cards for the Annual Meeting, or their duly authorized designees.
53
Stockholder Proposals for 20062008 Annual Meeting
Any proposal of a stockholder intended to be presented at the Company’s 2006 Annual Meeting of Stockholders must be received by the Company for For inclusion in the Proxy Statement and form of proxy for that meetingour 2008 Annual Meeting of Stockholders, we must receive no later than October 28, 2005.November 5, 2007 any proposal of a stockholder intended to be presented at that meeting. Further, management proxies for the Company’s 2006our 2008 Annual Meeting of Stockholders will use their discretionary voting authority with respect to any proposal presented at the meeting by a
43
stockholder who does not provide the Companyus with written notice of suchthe proposal on or prior to January 11, 2006.
Cost and Method of Proxy Solicitation
The entire cost of preparing, assembling, printing and mailing the Notice of Meeting, this Proxy Statement, and the proxy itself, and the cost of soliciting proxies relating to the meeting will be borne by the Company. In addition to use of the mail, proxies may be solicited by officers, directors, and other employees of the Company by telephone, facsimile, or personal solicitation, and no additional compensation will be paid to such individuals. The Company will, if requested, reimburse banks, brokerage houses, and other custodians, nominees and certain fiduciaries for their reasonable expenses incurred in mailing proxy material to their principals. The Company will use the services of Georgeson Shareholder Communications Inc., a professional soliciting organization, to assist in proxy solicitation and in distributing proxy materials to institutions, brokerage houses, custodians, nominees and other fiduciaries. The Company estimates the costs for such services will not exceed $8,500.19, 2008.
By Order of the Board of Directors,
William A. Richelieu
Assistant Corporate Secretary
February 25, 2005
Los Angeles, California
44
PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 7, 2005
CONFIDENTIAL INSTRUCTIONS TO FIDELITY MANAGEMENT TRUST COMPANY
TRUSTEE FOR THE KB HOME 401(k) SAVINGS PLAN
Receipt of proxy material for the above Annual Meeting is acknowledged. I instruct you to vote (in person or by proxy) all shares of Common Stock of KB Home (the “Company”) held by you for my account under the Company’s Amended and Restated 401(k) Savings Plan at the Company’s Annual Meeting of Stockholders to be held on April 7, 2005, and at all adjournments thereof, on the matters as indicated on the reverse side of this card and in your discretion on any other matters that may come before the Annual Meeting and as to which discretionary authority is permitted by applicable law. If this card is signed and returned, but no choice is specified, I instruct you to vote this proxy FOR Proposal 1, FOR Proposal 2, FOR Proposal 3 and upon such other business as may come before the Annual Meeting in accordance with the Board of Directors’ recommendation.
PLEASE MARK, DATE AND SIGN THESE INSTRUCTIONS AND RETURN THEM PROMPTLY, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
(Continued, and to be marked, dated and signed, on the other side)
Address Change/Comments(Mark the corresponding box on the reverse side)
March 5, 2007
54
▲ Detach here from proxy voting card ▲
ANNUAL MEETING OF STOCKHOLDERS APRIL 7, 2005
Dear Fellow Employee:
Just a reminder, your vote and your investment in KB Home are very important. Please complete and return your Confidential Instruction Card for tabulation by no later than April 4, 2005 to ensure that your vote is counted.
Bruce Karatz
Chairman and Chief Executive Officer
| | |
Mark here for address change or comments. | | o |
PLEASE SEE REVERSE SIDE |
| | | | | | | | | | |
YOUR DIRECTORS RECOMMEND A VOTE“FOR” | | FOR (EXCEPT AS MARKED TO THE CONTRARY) | | WITHHOLD AUTHORITY TO VOTE FOR NOMINEES LISTED |
1. | | ELECTION OF DIRECTORS
NOMINEES IN CLASS I: | | | | o | | o |
| | | | 01 JAMES A. JOHNSON | | 03 DR. BARRY MUNITZ | | | | |
| | | | 02 J. TERRENCE LANNI | | | | | | |
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE’S NAME.
| | | | | | | | |
| | | | FOR | | AGAINST | | ABSTAIN |
2. | | PROPOSAL TO AMEND THE AMENDED CERTIFICATE OF INCORPORATION OF KB HOME TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF KB HOME COMMON STOCK FROM 100 MILLION SHARES TO 300 MILLION SHARES. | | o | | o | | o |
| | | | | | | | |
3. | | PROPOSAL TO RATIFY ERNST & YOUNG LLP AS KB HOME’S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING NOVEMBER 30, 2005. | | o | | o | | o |
You may consent to receive all future annual meeting materials and stockholder communications electronically.Enroll atwww.melloninvestor.com/ISD for secure online access to your proxy materials, statements, tax documents and other stockholder correspondence.
Note: Please sign EXACTLY as your name appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please give full title. If more than one trustee, all should sign. Joint owners should sign.
▲ Detach here from proxy voting card ▲
Vote by Telephone
24 Hours a Day, 7 Days a Week
Telephone voting is available through 11:59PM Eastern Time
the day prior to annual meeting day.
Your telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
| | | | |
Telephone
1-866-540-5760
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.
| | OR | | Mail
Mark, sign and date your proxy card and return it in the enclosed postage-paid envelope |
If you vote your proxy by telephone,
you do NOT need to mail back your proxy card.
PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 7, 2005
The undersigned hereby appoints Bruce Karatz and Kimberly N. King, and each of them, as proxies with full power of substitution and revocation, to vote all of the shares of KB Home Common Stock the undersigned is entitled to vote at the KB Home Annual Meeting of Stockholders to be held on April 7, 2005, or at any adjournment thereof, upon the Proposals set forth on the reverse side of this Proxy Card and described in the accompanying Proxy Statement, and upon such other business as may properly come before the meeting or any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
Address Change/Comments(Mark the corresponding box on the reverse side)
▲ Detach here from proxy voting card ▲
| | |
Mark here for address change or comments. | | o |
PLEASE SEE REVERSE SIDE |
| | | | | | | | | | |
YOUR DIRECTORS RECOMMEND A VOTE“FOR” | | FOR (EXCEPT AS MARKED TO THE CONTRARY) | | WITHHOLD AUTHORITY TO VOTE FOR NOMINEES LISTED |
1. | | ELECTION OF DIRECTORS
NOMINEES IN CLASS I: | | | | o | | o |
| | | | 01 JAMES A. JOHNSON | | 03 DR. BARRY MUNITZ | | | | |
| | | | 02 J. TERRENCE LANNI | | | | | | |
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE’S NAME.
| | | | | | | | |
| | | | FOR | | AGAINST | | ABSTAIN |
2. | | PROPOSAL TO AMEND THE AMENDED CERTIFICATE OF INCORPORATION OF KB HOME TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF KB HOME COMMON STOCK FROM 100 MILLION SHARES TO 300 MILLION SHARES. | | o | | o | | o |
| | | | | | | | |
3. | | PROPOSAL TO RATIFY ERNST & YOUNG LLP AS KB HOME’S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING NOVEMBER 30, 2005. | | o | | o | | o |
You may consent to receive all future annual meeting materials and stockholder communications electronically.Enroll at www.melloninvestor.com/ISD for secure online access to your proxy materials, statements, tax documents and other stockholder correspondence.
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted FOR proposals 1, 2 and 3.
Note: Please sign EXACTLY as your name appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please give full title. If more than one trustee, all should sign. Joint owners should sign.
▲ Detach here from proxy voting card ▲
Vote by Telephone
24 Hours a Day, 7 Days a Week
Telephone voting is available through 11:59PM Eastern Time
the day prior to annual meeting day.
Your telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
| | | | |
Telephone
1-866-540-5760
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.
| | OR | | Mail
Mark, sign and date your proxy card and return it in the enclosed postage-paid envelope |
If you vote your proxy by telephone,
you do NOT need to mail back your proxy card.
PROXY
ANNUAL MEETING OF STOCKHOLDERS
APRIL 7, 2005
CONFIDENTIAL INSTRUCTIONS TO WACHOVIA BANK, N.A.
TRUSTEE FOR THE KB HOME GRANTOR STOCK TRUST
With respect to the voting at the Annual Meeting of Stockholders of KB Home (the “Company”) to be held on April 7, 2005, or any adjournment or postponement thereof, the undersigned participant in the Company’s employee stock option plans hereby directs Wachovia Bank, N.A., as Trustee of the Company’s Grantor Stock Trust, to vote all of the shares for which the undersigned is entitled to direct the vote under the Grantor Stock Trust in accordance with the following instructions:
THE VOTES THAT THE UNDERSIGNED IS ENTITLED TO DIRECT UNDER THE COMPANY’S GRANTOR STOCK TRUST WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE HEREOF. IF THIS CARD IS SIGNED AND RETURNED, BUT NO CHOICE IS INDICATED, THE VOTES THAT THE UNDERSIGNED IS ENTITLED TO DIRECT WILL BE VOTED FOR PROPOSAL 1, FOR PROPOSAL 2, FOR PROPOSAL 3 AND UPON SUCH OTHER BUSINESS AS MAY COME BEFORE THE ANNUAL MEETING IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
PLEASE MARK, DATE AND SIGN THESE INSTRUCTIONS AND RETURN THEM PROMPTLY, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
(Continued, and to be marked, dated and signed, on the other side)
Address Change/Comments(Mark the corresponding box on the reverse side)
▲ Detach here from proxy voting card ▲
ANNUAL MEETING OF STOCKHOLDERS APRIL 7, 2005
Dear Fellow Employee:
Just a reminder, your vote and your investment in KB Home are very important. Please complete and return your Confidential Instruction Card for tabulation by no later than April 4, 2005 to ensure that your vote is counted.
Bruce Karatz
Chairman and Chief Executive Officer
| | |
Mark here for address change or comments. | | o |
PLEASE SEE REVERSE SIDE |
| | | | | | | | | | |
YOUR DIRECTORS RECOMMEND A VOTE“FOR” | | FOR (EXCEPT AS MARKED TO THE CONTRARY) | | WITHHOLD AUTHORITY TO VOTE FOR NOMINEES LISTED |
1. | | ELECTION OF DIRECTORS
NOMINEES IN CLASS I: | | | | o | | o |
| | | | 01 JAMES A. JOHNSON | | 03 DR. BARRY MUNITZ | | | | |
| | | | 02 J. TERRENCE LANNI | | | | | | |
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE’S NAME.
| | | | | | | | |
| | | | FOR | | AGAINST | | ABSTAIN |
2. | | PROPOSAL TO AMEND THE AMENDED CERTIFICATE OF INCORPORATION OF KB HOME TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF KB HOME COMMON STOCK FROM 100 MILLION SHARES TO 300 MILLION SHARES. | | o | | o | | o |
| | | | | | | | |
3. | | PROPOSAL TO RATIFY ERNST & YOUNG LLP AS KB HOME’S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING NOVEMBER 30, 2005. | | o | | o | | o |
You may consent to receive all future annual meeting materials and stockholder communications electronically.Enroll at www.melloninvestor.com/ISD for secure online access to your proxy materials, statements, tax documents and other stockholder correspondence.
Note: Please sign EXACTLY as your name appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please give full title. If more than one trustee, all should sign. Joint owners should sign.
▲ Detach here from proxy voting card ▲
Vote by Telephone
24 Hours a Day, 7 Days a Week
Telephone voting is available through 11:59PM Eastern Time the day prior to annual meeting day.
Your telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
| | | | |
Telephone
1-866-540-5760
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.
| | OR | | Mail
Mark, sign and date your proxy card and return it in the enclosed postage-paid envelope |
If you vote your proxy by telephone,
you do NOT need to mail back your proxy card.
