William A. RichelieuWendy C. Shiba
Executive Vice President, General Counsel and
Corporate Secretary

Assistant Corporate Secretary

Los Angeles, California

March 5, 20072008

KB HOME

10990 Wilshire Boulevard

Los Angeles, California 90024

Proxy Statement

for the

2008 Annual Meeting of Stockholders

To Be Held April 5, 20073, 2008

 

General Information

Why didDid I receive thisReceive This Proxy Statement?

 

Your Board of Directors is furnishing this Proxy Statement to you to solicit your proxy to be voted at our 20072008 Annual Meeting of Stockholders. The Annual Meeting is scheduled for Thursday, April 5, 2007,3, 2008, at the time and place and for the purposes set forth in the accompanying Notice of 2008 Annual Meeting of Stockholders. We anticipate that the mailing of this Proxy Statement to stockholders will commence on or about March 6, 2008.

Can I attendAttend the Annual Meeting?

 

You are cordially invited to attend the Annual Meeting.Please note however, that you may be asked to present photo identification and be subject to a security check, and that no cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting. Also, due to space constraints, you may be accompanied by only one guest. Parking is available at the garage for the meeting location, which is accessed from Veteran Avenue.

Who is entitledEntitled to voteVote at the Annual Meeting?

 

Only holders of record of the 89,374,12277,420,742 shares of our Common Stockcommon stock outstanding at the close of business on February 14, 2007 will be2008 are entitled to vote at the Annual Meeting. Each holder of our Common Stockcommon stock is entitled to one vote for each share held. Our Grantor Stock Ownership Trust, established to assist us in meeting certain of our obligations to employees under our employee benefit plans, held 12,337,88212,155,082 shares of our Common Stockcommon stock for voting purposes as of February 14, 2007.2008. These shares will be voted by the trustee of the Grantor Stock Ownership Trust in accordance with instructions received from employees who participate in certain of our employee benefit plans. There is no right to cumulative voting.

Who is a “Holder of Record”?

 

If your shares of our Common Stockcommon 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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Corporate Governance and Board Matters

 

Role of the Board of Directors

 

The Board of Directors (“Board”) is elected by theour 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 InitiativesDirector Qualifications

 The Board of Directors has recently taken a number of actions to strengthen our corporate governance, including:

	•	Creating the position of independent Non-Executive Chairman of the Board and initiating a search to fill this position;
	•	Appointing Kenneth M. Jastrow, II to serve as independent Lead Director until the Non-Executive Chairman position is filled;
	•	Dissolving the Executive Committee of the Board of Directors, effective in April 2007;
	•	Initiating a comprehensive review of our compensation programs and practices;
	•	Approving a resolution to declassify the Board of Directors, which is being presented to stockholders for their approval at the Annual Meeting;
	•	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;
	•	Resolving to move our mandatory majority voting for Directors policy from our Governance Principles to our Bylaws;
	•	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;
	•	Resolving to conduct a comprehensive internal review of our compliance environment upon the engagement of a Chief Compliance Officer;
	•	Adopting an Equity-Based Award Grant Policy to improve the policies and procedures governing our equity compensation practices; and
	•	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 related supermajority voting requirements from our Amended Certificate of Incorporation without first obtaining the affirmative vote of at least 80% of the 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 Directorsdirectors 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 Board Committee service.

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The Nominating and Corporate Governance Committee of the Board of Directors(“Nominating/Governance Committee”) regularly assesses the skills and characteristics of current and potential Directorsdirectors in view of the perceived needs of the Board at the time an assessment is made and may consider the following attributes, among others:

	•	Personalpersonal qualities, accomplishments and reputation in the business community;
	•	Financialfinancial literacy, financial and accounting expertise and significant business, academic or government experience in leadership positions or at senior policy-making levels;
	•	Geographicalgeographical representation in areas relevant to our business;
	•	Diversitydiversity of background and personal experience;
	•	Fitfit of abilities and personality with those of current and potential Directorsdirectors in building a Board that is effective, collegial and responsive to the needs of our business; and
	•	Independenceindependence and an absence of conflicting time commitments.

Director Independence

 

We believe that a substantial majority of our Directorsdirectors should be independent. A Director is deemed to bedirector qualifies as independent ifunless the Board determines that he or she does not have any direct or indirecthas a 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 Directorsdirectors and other sources, and on the prior review and recommendation of the Nominating and Corporate Nominating/Governance Committee.

 

The Board’s Director independence determinations are guided by certain categorical standards which are set forthcontained in our Corporate Governance Principles andPrinciples. These standards are consistent with New York Stock Exchange listing standards.standards, the national securities exchange on which our common stock is listed.

 

The Board has determined that all currently incumbent Directorsnon-employee directors who served during our 2007 fiscal year and Directorall current director nominees are independent under the Board’s Directordirector independence standards, except Jeffrey T. Mezger, our Presidentstandards. Accordingly, Messrs. Stephen F. Bollenbach, Ronald W. Burkle, Timothy W. Finchem, Kenneth M. Jastrow, II, James A. Johnson, J. Terrence Lanni, Michael G. McCaffery, Leslie Moonves, and Chief Executive Officer.Luis G. Nogales and Ms. Melissa Lora are independent. Dr. Ray R. Irani, who served on the Board until November 1, 2007, was also independent. 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,Committees are entirely composed of independent Directorsdirectors.

In making its independence determinations, the Board considered various transactions for goods and services that we entered into during our 2007 fiscal year with firms or organizations at which some of our non-employee directors served as executive officers. In each case, the transactions were in the ordinary course of our business and the business of the counterpart firm or organization and fell well within the meaningcategorical independence standards

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contained in our Corporate Governance Principles. In no case was a non-employee director deemed to have a direct or indirect material interest in the transactions. There were no transactions in which any of New York Stock Exchange listing standardsour non-employee directors participated in an individual capacity. The specific goods and Securitiesservices consisted of: hotel rooms obtained in connection with business travel and Exchange Commission rules. Theat standard market rates (Mr. Bollenbach (who served as Chief Executive Committee was comprisedOfficer of Dr. Ray R. Irani and Luis G. Nogales, who are both independent,Hilton Hotels Corporation through October 2007) and Mr. Mezger.Lanni (who serves as Chief Executive Officer of MGM MIRAGE)); radio and billboard advertising expenditures at market rates to promote our business (Mr. Moonves (who serves as Chief Executive Officer of CBS Corporation)); building materials purchased at market prices (for which we received standard purchase rebates) for use in our homebuilding operations (Mr. Jastrow (who served as Chief Executive Officer of Temple-Inland Inc. through December 2007)); and event fees at market rates paid in connection with business-related activities (Mr. Finchem (who serves as Commissioner of the PGA TOUR)).

Corporate Governance Principles

 

In addition to containing our Directordirector independence standards, our Corporate Governance Principles provide the framework within which we conduct our business and pursue our strategic goals. OurThe Nominating/Governance Committee regularly reviews our Corporate Governance Principles, are regularly reviewed by the Nominating and Corporate Governance Committee, and the full Board approves changes as it deems appropriate. Our Corporate Governance Principles are available on our website athttp://www.kbhome.com/investor/corporategovernance.

Ethics Policy

 

We expect all of our Directorsdirectors and employees to follow the highest ethical standards when representing KB Home and our interests. To this end, all employees, including our senior executive management, and Directors,our directors must abide by our Ethics Policy. Our Ethics Policy is reviewed regularly by theThe Audit and Compliance Committee of the Board of Directors,(“Audit Committee”) regularly reviews our Ethics Policy, and the full Board approves changes as it deems appropriate. OurThe Board approved amendments to our Ethics Policy was amendedthat became effective as of September 17, 2007. The Ethics Policy is available on September 15, 2006.our website athttp://www.kbhome.com/investor/corporategovernance.

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Board Meetings, Membership and Attendance

 

The Board held seven10 meetings in our 20062007 fiscal year. As of the date of this Proxy Statement, the Board has 11 members.

In our 2007 fiscal year, each of our directors attended at least 75% of the aggregate number of meetings of the Board and the Board Committees on which he or she served. All Directorsdirectors are expected to attend our Annual Meetings.annual meetings of stockholders. All Directorsdirectors who were serving at the time attended the 2006our 2007 Annual Meeting of Stockholders, which was held on April 6, 2006, except for J. Terrence Lanni.5, 2007.

 Each Director attended 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 for Leslie Moonves.

Board Committees

 In our 2006 fiscal year, the

The Board had fourhas three standing Board Committees: Audit and Compliance;Audit; Management Development and Compensation; NominatingCompensation (“Compensation Committee”); and Corporate Governance; and Executive.Nominating/Governance. Each standing Board Committee assists the Board in fulfilling its responsibilities, as described below. The Board has adopted a charter for each standing Board Committee. Each charter is available on our website athttp://www.kbhome.com/investor/corporategovernance.

 

The chart below shows the standing Committeesmembers of the standing Board Committees as of the current membersdate of those Committeesthis Proxy Statement and the number of meetings each standingBoard Committee held during the 2006our 2007 fiscal year. Mr. Bollenbach, the Non-Executive Chairman of the Board, serves as anex officiomember of each standing Board Committee. Mr. Mezger, a

Management

Nominating and

Audit and

Development and

Corporate

Name of Director

Compliance

Compensation

Governance

Executive

Independent Directors

Ronald W. Burkle

X

X

Timothy W. Finchem

X

X

Dr. Ray R. Irani

X

*

X

*

Kenneth M. Jastrow, II(a)

X

†

James A. Johnson(b)

X

X

*

J. Terrence Lanni

X

X

Melissa Lora

X

Michael G. McCaffery

X

*

X

Leslie Moonves

X

Luis G. Nogales

X

X

X

Employee Director(c)

Jeffrey T. Mezger

X

Number of Meetings in Fiscal 2006

10

(d)

3

3

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director and our President and Chief Executive Officer (“CEO”), does not serve on any of the standing Board Committees.

Nominating/

Director

Audit

Compensation

Governance

Mr. Burkle

X

X

Mr. Finchem

X

X

Mr. Jastrow

X

Mr. Johnson

X

Mr. Lanni

X

*

Ms. Lora

X

X

Mr. McCaffery

X

*

X

Mr. Moonves

X

*

Mr. Nogales

X

X

Number of Meetings:

9

(a)

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X = Member  * = Chair

	X = Member     * = Chair     † = Lead Director

(a)	Mr. Jastrow was elected as the independent Lead Director of the Board of Directors on November 12, 2006.

(b)	Mr. Johnson served as the Presiding Director of the Board of Directors during the 2006 fiscal year until November 12, 2006.

(c)	Mr. Bruce Karatz served as our 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 Board and as our President and Chief Executive Officer.

(d)	Includes quarterly conference calls with our management to review our earnings releases prior to their release.issuance.

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 Shown below are the standing Committees of the Board and the members of those Committees effective April 5, 2007.

Management

Nominating and

Audit and

Development and

Corporate

Name of Director

Compliance

Compensation

Governance

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

	X = Member     * = Chair     † = Lead Director

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Audit and Compliance Committee.  The Audit and Compliance Committee represents and assists the Board in fulfilling its responsibilities for oversight of our:

	•	corporate accounting and reporting practices, including the quality and integrity of our financial statements and reports;
	•	internal control over financial reporting and disclosure controls and procedures;
	•	audit process, including our independent registered public accounting firm’sthe qualifications, independence, retention, compensation and performance of the independent registered public accounting firm employed for the purpose of preparing or issuing an audit report or performing audit, review, attestation or other services for us, and the performance of our internal audit department; and
	•	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 theour annual proxy statementstatements and is charged with the duties and responsibilities listed in its Charter.charter. The report of the Audit and Compliance CommitteeCommittee’s report is included in this Proxy Statement on page 5154 below. The Audit Committee is a separately designated standing audit committee as defined in Section 3(a)(58)(A) of the Securities Exchange Act of 1934.

 

The Board has determined that each current member of the Audit and Compliance Committee is independent under our Corporate 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, an independent director, 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 represents and assists the Board in fulfilling its responsibilities for oversight of:with respect to:

	•	the evaluation and compensation of corporateour CEO and division officers, including the determination of the nature and amount of awards to be granted under our employee compensation plans; andhis direct reports;
	•	oversight and approval of the general design of our executive compensation and benefit programs;

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	•	our efforts to attract, develop, promote and promoteretain qualified executives.senior executive talent; and
	•	the evaluation and determination of non-employee director compensation.

 

The Management Development and Compensation Committee also oversees the preparation of a report on executivethe compensation for inclusiondiscussion and analysis to be included in theour annual proxy statementstatements, recommends to the Board whether to so include the compensation discussion and analysis, and provides an accompanying report to be included in our annual proxy statements. The compensation discussion and analysis for this Proxy Statement is provided under the heading “Compensation Discussion and Analysis” on pages 25-35 below. The Compensation Committee’s accompanying report is on page 25 below. The Compensation Committee is also charged with the duties and responsibilities listed in its Charter. charter.

The report of the Management Development andBoard has determined that each current Compensation Committee member is included in this Proxy Statement beginning on page 37 below.

   In addition to being independent under our Corporate 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 is an “outside director” under Internal Revenue Code Section 162(m).

Overview of Executive Officer and Non-Employee Director Compensation Processes and Procedures.  Under our Bylaws, the Board has the authority to fix the compensation of our executive officers and non-employee directors. The Board has delegated this authority to the Compensation Committee to the extent provided in the Compensation Committee’s charter. In accordance with its charter, the Compensation Committee annually reviews and approves the goals and objectives relevant to our CEO’s compensation, evaluates his performance in light of those goals and objectives, and, either as a committee or together with the other independent directors (as directed by the Board), determines and approves our CEO’s incentive compensation based on the evaluation. The Compensation Committee also evaluates, in conjunction with our CEO, the performance of his direct reports and other senior executives, and reviews and approves their compensation.

The Compensation Committee exercises the Board’s authority with respect to our employee compensation and benefits plans (including our employee equity compensation plans) and policies, except to the extent that the Board, in its discretion, reserves its authority. This includes the authority to select eligible participants, recommend and approve grants and awards, set performance targets and other award eligibility criteria, approve an aggregate incentive pool for any annual or long-term incentive awards, interpret the plans’ terms, delegate certain responsibilities and adopt or modify as necessary any rules and procedures to implement the plans, including any rules and procedures that condition the approval of grants and awards. The Compensation Committee also periodically reviews our compensation and benefit plans and, from time to time, will recommend to the Board new plans or modifications to existing plans. The Compensation Committee’s exercise of this authority, including specific considerations applied and determinations made, with respect to the compensation and benefits awarded to our named executive officers under our plans is discussed under the heading “Compensation Discussion and Analysis” on pages 25-35 below.

The Compensation Committee, from time to time, reviews and makes recommendations to the Board regarding non-employee director compensation consistent with the goals of recruiting the highest caliber directors to serve on the Board, aligning directors’ and stockholders’ interests, and fairly paying directors for the work required to serve stockholder interests given our size, scope and complexity of operations.

In carrying out its duties with respect to executive officer and non-employee director compensation, the Compensation Committee seeks assistance from our management and an outside compensation consultant it has engaged directly, Semler Brossy Consulting Group LLC (“Semler Brossy”), as further described under the heading “Compensation Discussion and Analysis” on pages 25-35 below. Under its charter, the Compensation Committee may delegate to a subcommittee or to our management any duties and responsibilities as the Compensation Committee deems to be appropriate and in our best interests. However, under our Equity-Based Award Grant Policy, as further described on page 35 below, the Compensation Committee cannot delegate to our management the authority to grant equity-based awards.

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Compensation Committee Interlocks and Insider Participation.  Messrs. Lanni and Nogales served on the Compensation Committee throughout our 2007 fiscal year. Messrs. Finchem and McCaffery each joined the Compensation Committee on April 5, 2007 and served through the remainder of our 2007 fiscal year. Dr. Irani served as the Chair of the Internal Revenue Code.

Compensation Committee from the beginning of our 2007 fiscal year until April 5, 2007, and then served as a Compensation Committee member until November 1, 2007, when he resigned from the Board. No member of the Management Development and Compensation Committee during our 2007 fiscal year 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 Nominating/Governance Committee represents and assists the Board in fulfilling its responsibilities to:by:

	•	shape and monitor the implementationproviding oversight of our corporate governance policies and practices;
	•	identifyidentifying, evaluating and investigaterecommending to the Board individuals who are qualified to become Board members, consistent with criteria approved bydirectors, as further described under the Board, and recommend proposed nominees for Board membership;
	•	assess the Board’s size, operations, structure, needs and effectiveness by, among other things, reviewing and making recommendations as to the membership, purpose and functionsheading “Consideration of Board Committees and overseeing the annual evaluation of the Board’s and its Committees’ respective performance;Director Candidates” below; and
	•	establishperforming ongoing assessments of the Board’s size, operations, structure, needs 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.effectiveness.

 

The Nominating and Corporate Nominating/Governance Committee also reviews and makes recommendations to the full Board on proposed changes to our AmendedRestated Certificate of Incorporation and Bylaws, periodically assesses and recommends action with respect to our stockholder rights plan and other stockholder protections, reviews and approves or ratifies (as applicable) transactions in which we participate and in which certain related parties have a material interest (as further discussed under the heading “Certain Relationships and Related Party Transactions” on page 56 below), and is charged with the other duties and responsibilities listed in its Charter.charter.

 

The Board has determined that each current member of the Nominating and Corporate Nominating/Governance Committee is independent under our Corporate Governance Principles and New York Stock Exchange listing standards.

 

Executive Committee.Consideration of Director Candidates

The ExecutiveNominating/Governance Committee met once in our 2006 fiscal yearis responsible for identifying and acted periodically by written consent. As partevaluating director candidates on the Board’s behalf. Director candidates may come to the attention of the new corporate governance initiatives discussedNominating/Governance Committee through current Board members or other persons. Candidates are evaluated at regular or special meetings of the Nominating/Governance Committee, and may be considered at any point during the year. The general qualifications for director candidates are described under the heading “Director Qualifications” on page 5 above,4 above.

The Nominating/Governance Committee has retained professional search firms from time to time to assist it with recruiting potential director candidates to the Board of Directors has votedbased on criteria the Nominating/Governance Committee provides to dissolve the Executive Committee effective April 5,firm. These firms help identify, evaluate and select director candidates and are typically paid an agreed upon fee plus expenses for their work. A professional search firm helped recruit Mr. Bollenbach to the Board in 2007.

Any security holder may recommend a director candidate for the Nominating/Governance Committee’s consideration by submitting the candidate’s name and qualifications to us in care of the Corporate Secretary at the address listed under the heading “Communications with the Board” on the next page. The Nominating/Governance Committee will consider director candidates recommended by a security holder in the same manner as it considers any other recommended candidates.

Executive Sessions of IndependentNon-Employee Directors

 The independent Directors have met in executive session without management present as

As part of the Board’s regularly scheduled meetings, and will continue to do so.the non-employee directors meet in executive session. Any independent Directornon-employee director can request additional executive sessions. Until November 12, 2006, Mr. Johnson served asBollenbach, the Board’s Presiding Director and scheduled and chaired executive sessions. Since November 12, 2006, the independent Lead DirectorNon-Executive Chairman of the Board, of Directors, currently Mr. Jastrow, is responsible for scheduling and chairing the executive sessions.

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Communications with the Board

 You

Any interested party may write to the Board or to any of the independent Directorsnon-employee 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 Board Committee Chair, to an individual Director directorand/or to the Lead Director.Chairman of the Board. Directors who receive such correspondence determine, individually or with other Directors directorsand/or senior executive our management, whether and how to respond.

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Consideration of Director CandidatesCompensation

 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 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.

   Stockholders may recommend a candidate for the Nominating and Corporate Governance Committee’s consideration by submitting the candidate’s name and qualifications to us in care of the Corporate Secretary at the address listed above under the heading “Communications with the Board.” Candidates recommended by stockholders will be evaluated in the same manner as candidates recommended by any other person.

DirectorOverview.  The Board sets non-employee director compensation based on recommendations from the Compensation

   Only Committee. The Compensation Committee has retained Semler Brossy to assist it with designing our compensation and benefit programs, including our non-employee Directors receivedirector compensation for their Board and Committee service.program. Non-employee Directors are compensated on a “Director Year” basis, which is the period between Annual Meetings. Accordingly, the “2006 Director Year” commenced on April 6, 2006, the date of our 2006 Annual Meeting, and will conclude on April 4, 2007, the date before our 2007 Annual Meeting.

   Non-employee Directordirector compensation is currently provided under our 2003 Non-Employee Directors Stock Plan (the “Director(“Director Plan”). Mr. Mezger is not paid for his service as a director.

 The

Under the Director Plan, provides each non-employee Director withdirector is entitled to receive an annual$80,000 cash retainer paid in $20,000 quarterly installments during a Director Year (the period between our annual meetings of $80,000stockholders) and 4,000 stock units that are granted on the date of each annual meeting of stockholders. Each of the Chairs of the Compensation Committee and the Nominating/Governance Committee is entitled to an annualadditional retainer of 600 stock units. The Chair of the Audit Committee is entitled to an additional retainer of 1,000 stock units. A non-employee director who joins the Board or who becomes a Board Committee Chair during a Director Year is entitled to a pro-rated amount of the applicable compensation provided under the Director Plan based on the time remaining in the Director Year.

To promote greater alignment of non-employee director and stockholder interests, the Director Plan allows each non-employee director to elect to receive his or her Director Plan cash retainer in stock units or stock options, and to elect to receive his or her stock unit grant (or Board Committee Chair stock unit retainer grant, if applicable) in stock options. If a non-employee director elects to receive the Director Plan cash retainer in stock units, the director is granted an amount equal to the shares of 4,000 deferred “Stockour common stock that can be purchased with 120% of the retainer’s value based on the common stock’s grant date closing price. The additional incentive over the retainer’s cash value is intended to induce non-employee directors to elect stock units. If a non-employee director elects to the receive the Director Plan cash retainer in stock options, the stock options are granted in an amount equal to approximately four times the shares of our common stock that can be purchased with the retainer’s value based on the common stock’s grant date closing price. In the Board’s judgment, the four-to-one ratio represents an appropriate trade-off for selecting stock options in lieu of cash. If a non-employee director elects to receive any stock unit grants in stock options, the director is granted an amount equal to four times the number of stock units, reflecting what the Board believes is an appropriate trade-off for the greater potential volatility in the value of a stock option over time.

Director Plan Stock Units.” A “Stock Unit” is  Each stock unit provides a contract right to receive a cash payment equal to the fair market value of a share of our Common Stock.

Annual Retainer. Eachcommon stock and a cash dividend equivalent payment at the same time and in the same amount as any cash dividend paid on our common stock. Based on each non-employee director’s election, Director may receive the annual cash retainer in quarterly installments of $20,000Plan stock units will be paid out overin cash only, with the course of a Director Year.

   Underamount paid equal to the aggregate stock units held multiplied by our common stock’s closing price on the last business day before the payment date. Director Plan eachstock units are paid out when a non-employee director leaves the Board.

Director may elect to receive the annual cash retainer in Stock Units or inPlan Stock Options.  If aelected, all Director elects to receive the annual cash retainer in Stock Units, the Stock UnitsPlan stock options are granted at the beginning of each Director Year at a value of 120% of the cash value of the retainerto non-employee directors on the daydate of grant.

   If a non-employee Director elects to receive Stock Options in lieuour annual meetings of the annual cash retainer, the Stock Options are granted at the beginning of each Director Year and will havestockholders with an exercise price equal to theour common stock’s closing price of our Common Stock on the New York Stock Exchange on the date of grant.that date. The number of Stock Options granted is equal to four times the number of shares 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 Planstock options are fully vested when granted butand have a15-year term. A non-employee director cannot be exercisedexercise Director Plan stock options until the earlier to occur of (a) the Director’sdirector’s acquisition and continued ownership of at least 5,00010,000 shares of our Common Stock common stockand/or Director Plan stock units and (b) the date the director leaves the Board. Director ceases to serve on our Board. These Stock Options have a term of fifteen years, although theyPlan stock options must be exercised within one year of the date a non-employee director leaves the Board. Based on each non-employee director’s election, Director ceases to serve on our Board.Plan stock options will be paid

Annual Stock Unit Grant. Each non-employee Director receives an annual grant of 4,000 Stock Units at the beginning of each Director Year. A Director may elect to receive the annual Stock Unit grant in Stock Options, as described above.

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   Non-employee Directors are

out in cash only, with the amount paid the equivalent of cash dividends on their Stock Units when cash dividends are paid on shares of our Common Stock. The amount of these cash dividend equivalent payments is equal to the number of Stock Units held multiplied by the amount of the cash dividend paid onpositive difference between 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,stock option’s exercise price and the amount paid is equal to the number of Stock Units held multiplied by the closing price of our Common Stockcommon stock on the last business day beforeapplicable exercise date. Accordingly, Director Plan stock options are equivalent in nature to stock appreciation rights.

Chairman Retainer and One-Time Service Payments.  In recognition of his additional responsibilities and service to the payment date.

Committee Chair Retainer. AtBoard, Mr. Bollenbach, the beginning of each Director Year, the ChairNon-Executive Chairman of the Audit and Compliance Committee receivesBoard, is entitled to receive an additional annual retainer of 1,000 Stock Units,$300,000. Mr. Bollenbach may keep any Chairman retainer payment he receives if he is removed from the Board without cause. Also, in 2007 the Board approved a one-time $50,000 cash bonus payment to each member of an Audit Committee subcommittee that directed a review of employee stock option grants (“Review”). This Review is described in our Annual Report onForm 10-K for the fiscal year ended November 30, 2006. The subcommittee members were Messrs. Finchem and McCaffery and Ms. Lora.

Expenses.  We pay the non-employee directors’ expenses, including travel, accommodations and meals, associated with attending all Board and Board Committee meetings and each Chairannual meeting of thestockholders and any other activities related to our business. They do not receive any additional compensation for attending individual Board Committees receives anor Board Committee meetings or for attending our annual retainermeetings of 600 Stock Units. A Committee Chair may elect to receive the Chair Stock Unit grant in Stock Options as described above.stockholders.

 Cash Election. Although

Our 2007 fiscal year non-employee director compensation is provided in the Director Plan provides the non-employee Directors with the option to receive payout of any Stock Units and Stock Options in shares of our Common Stock, all non-employee Directors have elected to receive payouts of currently outstanding stock-based awards granted to them under the Director Plan in cash.following table.

 

Director Compensation During Fiscal Year 2007

			Fees Earned
			or Paid					Stock					Option					All Other
			in Cash					Awards					Awards					Compensation					Total
Name			($)(a)					($)(b)					($)(b)					($)(c)					($)
Mr. Bollenbach			$	225,000				$	0				$	108,755				$	0				$	333,755
Mr. Burkle				33,320					(1,026,256	)				(2,606,087	)				0					(3,599,023	)
Mr. Finchem				61,826					(88,739	)				0					16,390					(10,523	)
Mr. Jastrow				59,282					(829,849	)				0					13,545					(757,022	)
Mr. Johnson				53,241					(1,364,321	)				(3,016,948	)				32,181					(4,295,847	)
Mr. Lanni				24,526					(453,505	)				0					0					(428,979	)
Ms. Lora				72,112					(405,548	)				0					9,960					(323,476	)
Mr. McCaffery				66,102					(283,391	)				(214,288	)				13,545					(418,032	)
Mr. Moonves				22,562					(393,014	)				0					16,390					(354,062	)
Mr. Nogales				55,080					(1,420,962	)				(48,394	)				0					(1,414,276	)
Former Non-Employee Director
Dr. Irani				93,047					(1,738,968	)				(1,094,079	)				0					(2,740,000	)

(a)		Fees Earned or Paid in Cash:  Except as discussed in this footnote, the amounts reported in this column reflect the aggregate Director Plan stock unit dividend equivalent payments paid to non-employee directors during our 2007 fiscal year. Non-employee directors who have accumulated larger Director Plan stock unit holdings based on their tenure and their annual elections received higher aggregate dividend equivalent payments. The amount reported for Mr. Bollenbach reflects only the portion of his $300,000 annual Chairman retainer paid in our 2007 fiscal year. We will pay the remaining $75,000 prior to the date of the Annual Meeting. The respective amounts reported for Messrs. Finchem and McCaffery and Ms. Lora also include the one-time $50,000 payment each received for their service in directing the Review. The amount reported for Dr. Irani also includes the pro-rated annual cash retainer he was paid for his service in the 2007 Director Year corresponding to his resignation from the Board on November 1, 2007. Dr. Irani was the only non-employee director who

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		elected to receive his 2007 Director Year annual retainer in cash. The 2007 Director Year began on April 5, 2007, the date of our 2007 Annual Meeting of Stockholders, and it ends on April 2, 2008.
(b)		Stock and Option Awards:  The amounts reported in each of these columns reflect the aggregate compensation expense we recognized in our 2007 fiscal year for Director Plan stock unit and stock option awards, respectively, computed in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004),“Share-Based Payment” (“SFAS 123(R)”) (disregarding estimates of forfeitures related to service-based vesting conditions). Information used in determining these amounts can be found in Note 15 of the Notes to the Consolidated Financial Statements contained in our Annual Report on Form10-K for the fiscal year ended November 30, 2007. The negative values reported in these columns are due to the decline in the market price of our common stock between November 30, 2006 and November 30, 2007. The Director Plan stock units and stock options were granted on April 5, 2007, the date of our 2007 Annual Meeting of Stockholders. Listed below are the respective Director Plan stock units and stock options granted to each non-employee director in accordance with their elections and the corresponding grant date fair value computed in accordance with SFAS 123(R).

													Grant Date
			Stock Units					Stock Options					Fair Value
Name			(#)					(#)					($)
Mr. Bollenbach				0					23,540				$	455,264
Mr. Burkle				0					23,540					455,264
Mr. Finchem				6,263					0					265,676
Mr. Jastrow				6,263					0					265,676
Mr. Johnson				6,263					0					265,676
Mr. Lanni				6,863					0					291,128
Ms. Lora				6,263					0					265,676
Mr. McCaffery				0					27,540					532,624
Mr. Moonves				6,863					0					291,128
Mr. Nogales				6,263					0					265,676
Former Non-Employee Director
Dr. Irani				2,334					0					99,008

		Mr. Lanni received an additional 600 stock units for his service as the Compensation Committee Chair and Mr. Moonves received an additional 600 stock units for his service as the Nominating/Governance Committee Chair. Mr. McCaffery received 4,000 stock options for his service as Audit Committee Chair by electing to receive his 1,000 stock unit retainer grant in stock options. As required under the Director Plan, Dr. Irani forfeited 1,666 stock units due to his resignation from the Board on November 1, 2007. All other stock unit and stock option amounts reflect the Director Plan cash retainer and stock unit grant the non-employee directors elected to receive in Director Plan stock units or, for Messrs. Bollenbach, Burkle and McCaffery, in Director Plan stock options.

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		Listed below are each respective non-employee director’s aggregate Director Plan stock unit and stock option holdings as of February 25, 2008.

													Total
			Stock Units					Stock Options					Holdings
Name			(#)					(#)					(#)
Mr. Bollenbach				0					23,540					23,540
Mr. Burkle				33,320					165,155					198,475
Mr. Finchem				13,392					0					13,392
Mr. Jastrow				37,454					0					37,454
Mr. Johnson				54,807					143,957					198,764
Mr. Lanni				26,242					0					26,242
Ms. Lora				23,678					0					23,678
Mr. McCaffery				9,201					73,609					82,810
Mr. Moonves				24,278					0					24,278
Mr. Nogales				56,646					2,130					58,776

		Upon his resignation from the Board on November 1, 2007, and in accordance with his elections and the Director Plan’s terms, we paid Dr. Irani $1,591,801 for the 61,507 stock units he held on November 1, 2007 based on the $25.88 closing price of our common stock on that date. Dr. Irani also held 37,628 Director Plan stock options on November 1, 2007 with various exercise prices. Dr. Irani exercised 36,182 of these Director Plan stock options on January 18, 2008, and we paid him $186,760 in cash, the sum total of the respective positive differences between the Director Plan stock options’ exercise prices and the $18.52 closing price of our common stock on the exercise date. Dr. Irani has until October 31, 2008 to exercise his remaining 1,446 Director Plan stock options. If he exercises his remaining Director Plan stock options, we will pay Dr. Irani the sum total of the respective positive differences between the Director Plan stock options’ exercise prices and the closing price of our common stock on the exercise date.
(c)		All Other Compensation:  The amounts reported in this column represent premium payments for the life insurance policies we maintain to fund charitable donations under the Directors Legacy Program, which is described below. Messrs. Bollenbach and Lanni do not participate in the program. No additional premium payments are currently required for the program donations for each of Messrs. Burkle and Nogales and Dr. Irani. In our 2007 fiscal year, we paid a total of $201,214 in life insurance premiums for all participants, including former directors. Premium payments vary depending on participants’ respective ages and other factors. The total dollar amount payable under the program at November 30, 2007 was $15,700,000. If all current participating directors were vested in the full donation amount, the total dollar amount payable under the program at November 30, 2007 would have been $17,300,000.

Directors Legacy Program. Under our  We established a Directors Legacy Program in 1995 to recognize our and our directors’ interests in supporting worthy educational institutions and other charitable organizations. In making adjustments to our philanthropic activities, the Board elected in 2007 to close the program to new participants. Messrs. Bollenbach, Lanni and Mezger do not participate in the program. Under the program, we will make a charitable donation on each Director’sparticipating director’s behalf of up to $1,000,000. Each$1,000,000 (up to $500,000 for a participating director who left the Board before January 1, 1999). A participating director may allocate the donation can be allocated to up to five qualifying institutions or organizations of the Director’s choice upon his or her death.organizations. Directors vest in the full donation in five equal annual installments of $200,000, and therefore must serve on the Board for five consecutive years to be able to donate the maximum amount.

   The Board of Directors has elected Donations are paid directly to closedesignated organizations after a participating director’s death with proceeds from the Directors Legacy Program to new participants,life insurance policies we maintain on each participating director’s life. Participating directors and their families do not receive any future Directors will not be eligible to participate.

Copies of Governance Principles, Ethics Policy and Board Committee Charters

   Copies of our Governance Principles, Ethics Policy and all Board Committee Charters can be viewed on and downloaded 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 the Corporate Secretary at the address listed above under the heading “Communicationsproceeds, compensation or tax savings associated with the Board.”program.

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Proposals to beTo Be Voted onOn

Proposal 1:

Election of Directors

 

 

At the Annual Meeting, the Board of Directors will present as nominees and recommend to stockholders that each of Messrs. Burkle, MoonvesBollenbach, Finchem and NogalesLanni each be elected as Class III Directors to serve for a three-year term ending at the 2010 Annual Meeting, and that Dr. Irani be elected as a Class I Directordirectors to serve for a one-year term ending at the 2008our 2009 Annual Meeting.Meeting of Stockholders. Each nominee is currently a Director, is standing for re-election,director, has consented to being nominated and has agreed to serve as a Directordirector if elected. Messrs. Finchem and Lanni are standing for re-election. Mr. Bollenbach was appointed to the Board subsequent to our 2007 Annual Meeting of Stockholders. Should any of these nominees become unable to serve as a Directordirector prior to the Annual Meeting, the persons named as proxies on the enclosed Proxy Cardproxy cards for the Annual Meeting 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

Mr. Johnson has reacheddecided to retire from the retirement ageBoard effective as of the date of the Annual Meeting, when his current term as a director expires. On the date of the Annual Meeting, the Board will have 10 members.

Vote Required

Under our Bylaws, the election of each director nominee will require a majority of votes cast at the Annual Meeting to be in favor of the nominee (i.e.,the votes cast for Directors undera nominee’s election must exceed the votes cast against the nominee’s election).

Consistent with this director election standard, our Corporate Governance Principles require that each director nominee in an uncontested election at an annual meeting of stockholders receive more votes cast for than against his or her election or re-election in order to be elected or re-elected to the Board. An “uncontested election” is one in which no director candidates on the ballot were nominated by a stockholder in accordance with our Bylaws. This election is an uncontested election.

Our Corporate Governance Principles also provide that a director nominee who fails to win election or re-election to the Board believes itin an uncontested election is expected to tender his or her resignation from the Board. If an incumbent director fails to receive the required vote for election or re-election in ouran uncontested election, the Nominating/Governance Committee will act on an expedited basis to determine whether to accept the director’s resignation and our stockholders’ best interestswill submit its recommendation for prompt consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that Dr. Irani continues to serve onresignation. The Nominating/Governance Committee and the Board until the 2008 Annual Meeting.

Vote Requiredmay consider any factors they deem relevant in deciding whether to accept a director’s resignation.

 The election of each Director nominee will require the affirmative vote of a plurality 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.

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A brief summary of each nominee’s principal occupation, recent professional experience and their directorships at other public companies, if any, is provided below.

 

		Stephen F. Bollenbach, age 65, was the Co-Chairman and Chief Executive Officer of Hilton Hotels Corporation, positions he held from May 2004 and February 1996, respectively. He retired from Hilton in October of 2007. Prior to joining Hilton, Mr. Bollenbach was Senior Executive Vice President and Chief Financial Officer for The Walt Disney Company from 1995 to 1996. Before Disney, Mr. Bollenbach was President and Chief Executive Officer of Host Marriott Corporation from 1993 to 1995, and served as Chief Financial Officer of Marriott Corporation from 1992 to 1993. From 1990 to 1992, Mr. Bollenbach was Chief Financial Officer of the Trump Organization. Mr. Bollenbach serves a director of Harrah’s Entertainment, Inc., Time Warner Inc., Macy’s, Inc. and American International Group, Inc. Mr. Bollenbach joined the Board as Chairman in 2007.

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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		Timothy W. Finchem,age 60, 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 2005.

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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		J. Terrence Lanni,age 64, 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. Mr. Lanni has been a director since 2003.

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 Directorsdirectors who will continue to serve on the Board following the Annual Meeting and their respective principal occupations, business affiliations and other information for at least the past five years.

 

		Ron Burkle,age 55, 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 boards of Occidental Petroleum Corporation and Yahoo! Inc. He has been a director since 1995 and his current term expires in 2010.

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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		Kenneth M. Jastrow, II,age 60, currently Non-Executive Chairman of Guaranty Financial Group Inc. and Forestar Real Estate Group Inc., served as Chairman and Chief Executive Officer of Temple-Inland Inc. from 2000 to 2007. 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 2001 and his current term expires in 2009.

James A. Johnson,age 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 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 and his current term expires in 2008.

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J. Terrence Lanni,age 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. Mr. Lanni has been a Director of the Company since 2003 and his current term expires in 2008.

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		Melissa Lora,age 45, 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 Board in 2004 and her current term expires in 2009.

Melissa Lora,age 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 Board of Directors in April 2004 and her current term expires in 2009.

Michael G. McCaffery,age 53, is the 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 Stanford University’s financial and real estate investments. Previous to joining SMC, Mr. McCaffery was President and Chief Executive Officer of Robertson Stephens Investment Bankers 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, Savvian, LLC and RS Investment Trust, and is a member of the Advisory Boards of Accel 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 Board of Directors in 2003, and his current term expires in 2009.

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		Michael G. McCaffery,age 54, is the 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 Stanford University’s financial and real estate investments. Previous to joining SMC, Mr. McCaffery was President and Chief Executive Officer of Robertson Stephens Investment Bankers 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, Savvian, LLC and RS Investment Trust, is a member of the Advisory Boards of Accel Ventures, Silver Lake Partners and Stanford University’s Graduate School of Business, and serves as a trustee for the Rhodes Trust. Mr. McCaffery was elected to the Board in 2003 and his current term expires in 2009.

Jeffrey T. Mezger, age 51,

Jeffrey T. Mezger,age 52, has been our President and Chief Executive Officer of the Company since November 2006. Prior to becoming President and Chief Executive Officer, Mr. Mezger served as the Executive Vice President and Chief Operating Officer of the 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 as president of the Antelope Valley Division in Southern California. Mr. Mezger 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 publicly-traded French subsidiary. Mr. Mezger has been a Director of the Company since November 2006. Prior to becoming President and Chief Executive Officer, Mr. Mezger served as our Executive Vice President and Chief Operating Officer, a position he assumed in 1999. From 1995 until 1999, Mr. Mezger held a number of executive posts in our southwest region, including Division President, Phoenix Division, and Senior Vice President and Regional General Manager over Arizona and Nevada. Mr. Mezger joined us in 1993 as president of the Antelope Valley Division in Southern California. Mr. Mezger is a member of the executive board of the USC Lusk Center for Real Estate, is on the Policy Advisory Board for the Harvard Joint Center for Housing Studies, is a member of the California Business Roundtable and is a member of the Milken Institute California Advisory Council. 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 has been a director since 2006 and his current term expires in 2009.

		Leslie Moonves,age 58, 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. 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 and his current term expires in 2010.

		Luis G. Nogales,age 64, 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 and Arbitron Inc. Mr. Nogales has been a director since 1995 and his current term expires in 2010.

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Proposal 2:

Approval of 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

    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, the Board of Directors proposes to amend our Amended Certificate of Incorporation to declassify the Board of Directors and provide for the annual 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, as 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 Board has adopted resolutions approving and declaring the advisability of amending our Amended Certificate of Incorporation, subject to stockholder approval, as follows:

	RESOLVED, that the Amended Certificate of Incorporation of KB Home be amended to declassify the Board of Directors and provide for the annual election of directors and for this purpose each of Paragraph (c) and Paragraph (d) of Article Fifth thereof shall be struck out in its entirety and will be replaced with the following new Paragraph (c) of Article Fifth:
	FIFTH: (c) Except as provided herein or in the Corporation’s Bylaws, or as permitted by the General Corporation Law of the State of Delaware, the directors shall be 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 the annual meeting of stockholders in 2007.

   This proposal requires the approval of at least 80% of all outstanding shares of our Common Stock. If this proposal is not approved, the current classified structure will remain in place.

Declassification Process

   If this proposal is approved, the declassification of the Board of Directors will occur as follows:

	(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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	(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 Board will undertake to amend KB Home’s Bylaws to eliminate the Board classification provisions contained therein, which follow those currently contained in our Amended Certificate of Incorporation.

Vote Required

   Approval of the proposed amendment to our Amended Certificate of Incorporation requires 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 3:

Approval of an 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:

	•	any merger or consolidation of KB Home or a KB Home subsidiary;
	•	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;
	•	a voluntary liquidation or dissolution of KB Home;
	•	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;
	•	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
	•	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:

	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 registered public accounting firm to audit our consolidated financial statements for theour fiscal year ending November 30, 2007.2008. During our 20062007 fiscal year, Ernst & Young LLP served as our independent registered public accounting firm and also provided certain other audit relatedaudit-related services. See “Independent Auditor Fees and Services” on page 5255 below. Representatives of Ernst & Young LLP are expected to attend the Annual Meeting, be available to respond to appropriate questions and, if they desire, to make a statement.

 

Although not required by our charterRestated Certificate of Incorporation or Bylaws, we are seeking stockholder ratification of Ernst & Young LLP as our independent registered public accounting firm. We are doing so, asAs we have done in prior years, we are doing so because we believe it is a matter of good corporate governance. If the stockholders doErnst & Young LLP’s appointment is not ratify the appointment,ratified, the Audit and Compliance Committee will reconsider whether 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 our and our stockholders’ best interests.

Vote Required

 

Approval of the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for theour fiscal year ending November 30, 20072008 requires the affirmative vote of the majority of shares of Common Stockcommon 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 our independent registered public accounting firm for theour fiscal year ending November 30, 2007.2008.

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		incurred on the exercise or vesting ofPlan’s target long-term compensation through performance-vested, not simply time-vested, equity compensation.awards;
	•	Making it more difficultProvides the strategic rationale and relative weightings of the financial and non-financial performance metrics or criteria used in the annual and performance-vested long-term incentive components of the Plan;
	•	Establishes performance targets for our executiveseach Plan financial metric relative to make estate planningthe performance of the Company’s peer companies; and charitable giving arrangements.
	•	Limits payment under the annual and performance-vested long-term incentive components of the Plan to when the Company’s performance on its selected financial performance metrics exceeds peer group median performance.

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