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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
KB Home
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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PROXY STATEMENT
it's not just business,
it's personal.
NOTICE OF 2001 KB HOME
ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
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KB LOGO
KB HOME
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
------------------------
BRUCE KARATZ
Chairman and Chief Executive Officer
------------------------
March 1, 2001
Dear Fellow Stockholder:
Your officers and directors join me in inviting you to attend the Annual Meeting
of Stockholders of KB Home at 9:00 a.m. on April 5, 2001 at The W Hotel 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 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.
We look forward to seeing you on April 5th.
Sincerely,
/s/ BRUCE KARATZ
BRUCE KARATZ
Chairman and Chief Executive Officer
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KB LOGO
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NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
To Be Held April 5, 2001
To the Holders of the Common Stock
of KB Home:
The Annual Meeting of Stockholders of KB Home (the "Company") will be held on
Thursday,
April 5, 2001 at 9:00 a.m. Los Angeles time in the Great Room of The W Hotel,
930 Hilgard Avenue in
Los Angeles, California for the following purposes:
(1) To elect four Class III Directors, each to serve for a term of three years;
(2) To approve the KB Home 2001 Stock Incentive Plan;
(3) To re-approve the KB Home Performance-Based Incentive Plan for Senior
Management
so that compensation paid thereunder will continue to be fully deductible by the
Company
for Federal Income Tax purposes;
(4) If properly presented, to consider and act upon a stockholder proposal,
which is opposed by
the Board of Directors; and
(5) To transact such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on February 14, 2001 as
the record date for determination of holders of Common Stock entitled to notice
of, and to vote at, the meeting or any adjournment thereof. If you plan to
attend the meeting you may be asked to present photo identification and you may
be accompanied by one guest only. If you hold your shares in a brokerage account
(in "street name"), you will need to bring a copy of a brokerage statement
reflecting your ownership of shares on February 14, 2001.
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.
BY ORDER OF THE BOARD OF DIRECTORS,
/S/KIMBERLY N. KING
KIMBERLY N. KING
Secretary
Los Angeles, California
March 1, 2001
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KB LOGO
KB HOME
10990 Wilshire Boulevard
Los Angeles, California 90024
PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 5, 2001
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GENERAL INFORMATION
Your Board of Directors furnishes this Proxy Statement in connection with its
solicitation of your proxy in the form enclosed to be used at the Company's
Annual Meeting of Stockholders to be held on Thursday, April 5, 2001 (the
"Annual Meeting"), at the time and place and for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. A copy of the Company's
Annual Report to Stockholders for the fiscal year ended November 30, 2000,
including audited financial statements, is also being mailed to stockholders
concurrently with this Proxy Statement. It is anticipated that the mailing to
stockholders of this Proxy Statement and the enclosed Proxy Card will commence
on or about March 8, 2001.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend, please date, sign and promptly return your Proxy Card in the
envelope provided. You may revoke your proxy at any time prior to its exercise
at the Annual Meeting by written notice to the Company's Secretary, and, if you
attend the Annual Meeting, you may vote your shares in person.
Only holders of record of the 43,973,952 shares of Common Stock outstanding at
the close of business on February 14, 2001 will be entitled to vote at the
Annual Meeting. Each holder of Common Stock is entitled to one vote for each
share held. The Company's Grantor Stock Trust, established to assist the Company
in meeting its stock-related obligations under various employee benefit
programs, held 8,774,612 shares of Common Stock outstanding for voting purposes
as of the record date. These shares are voted by the trustee of the Grantor
Stock Trust in accordance with instructions received from employees
participating in the Company's employee stock option plans. There is no right to
cumulative voting.
The representation in person or by proxy of at least a majority of the
outstanding shares entitled to vote is necessary to provide a quorum at the
Annual Meeting. 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. Where no specification is made with respect to any item
submitted to a vote, such shares will be voted for the election as directors of
the Company of the four individuals named under "Election of Directors", for the
KB Home 2001 Stock Incentive Plan, for re-approval of the
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KB Home Performance-Based Incentive Plan for Senior Management and against the
stockholder proposal. Since the proxy confers discretionary authority to vote
upon other matters that properly may come before the meeting, shares represented
by signed proxies returned to the Company will be voted in accordance with the
judgment of the person or persons voting the proxies. With regard to the
election of directors, votes may be cast in favor or withheld; votes that are
withheld will be counted as present and will have the effect of a negative vote
because the election of each director will require affirmative vote of a
majority of shares present. Abstentions may be specified on the KB Home 2001
Stock Incentive Plan, re-approval of the KB Home Performance-Based Incentive
Plan for Senior Management and the stockholder proposal, and will be counted as
present for purposes of voting on the proposal, and will have the effect of a
negative vote because passage of the proposal will require the affirmative votes
of a majority of shares present in person or by proxy and entitled to vote.
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 re-
approval of the KB Home Incentive Plan for Senior Management, but may not vote
on the KB Home 2001 Stock Incentive Plan, and stockholder proposal. Under
applicable Delaware law, a broker non-vote will have no effect on the outcome of
the matters presented for a stockholder vote.
The persons named as proxies on the enclosed Proxy Card are Bruce Karatz,
Chairman and Chief Executive Officer, and Kimberly N. King, Director of
Corporate Legal Affairs and Secretary.
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PROPOSAL ONE:
ELECTION OF DIRECTORS
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At the Annual Meeting, the Board of Directors will present as nominees and
recommend to stockholders that the four persons listed below be elected as Class
III Directors to serve for a three-year term ending at the 2004 Annual Meeting
of Stockholders. Should any of these nominees become unable to serve as a
director 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.
A brief summary of each nominee's principal occupation, business affiliations
and other information follows.
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[photo of Ronald W. Burkle]
RONALD W. BURKLE, age 48, is the founder and managing partner of The Yucaipa
Companies, a private investment firm that invests primarily its own capital.
Yucaipa has completed 16 transactions in the supermarket industry nationwide
including the acquisition and sale of Dominick's Finer Foods of Chicago and
mergers including: Ralphs Grocery Company, Alpha Beta and Hughes Markets of
Southern California; Fred Meyer, Inc. of Portland, Oregon; Smith's Food & Drug
of Salt Lake City and QFC of Seattle. In May of 1999 Yucaipa completed the
merger of Fred Meyer, Inc. with The Kroger Company of Cincinnati forming the
largest supermarket company in the United States. Mr. Burkle is also the
majority shareholder of Golden State Foods, the largest supplier of food
products to McDonald's, and Cyrk, Inc. the largest provider of toys and
promotions to McDonald's. Mr. Burkle is a member of the board of Occidental
Petroleum Corporation and Kaufman and Broad S.A., the Company's publicly-held
French subsidiary. He also serves as Trustee of The John F. Kennedy Center for
the Performing Arts, The J. Paul Getty Trust and the Carter Center; Chairman of
the Board of D.A.R.E. (Drug Abuse Resistance Education) America; member of the
Executive Board for the Medical Sciences at UCLA; Co-Chairman of the Burkle
Center for International Relations at UCLA; Trustee of the National Urban
League; and Founder and Chairman of the Board of Trustees of the Ralphs/Food 4
Less Foundation. He has been a director of the Company since 1995.
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[photo of Dr. Ray R. Irani]
DR. RAY R. IRANI, age 66, is Chairman and Chief Executive Officer of Occidental
Petroleum Corporation ("Occidental"). 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 serves as
Honorary Chairman of the Board of Directors of Canadian Occidental Petroleum
Ltd., an Occidental affiliate, and has been a director since 1984. He served as
Chairman of the Board of Canadian Occidental from 1987 to 1999. An Honorary
Fellow of the American Institute of Chemists, Dr. Irani is a director of the
National Association of Manufacturers, the American Petroleum Institute, the
National Committee on United States-China Relations, Cedars Bank (formerly Bank
Audi), ICN Pharmaceuticals, Inc. and the Jonsson Cancer Center Foundation/UCLA.
He is a member of The President's Export Council, the National Petroleum
Council, the Scientific Research Society of America, the American Chemical
Society, and the Industrial Research Institute. He is a trustee of the
University of Southern California and serves on the CEO Board of Advisors of the
University's School of Business Administration. He is also a trustee of the
American University of Beirut. Dr. Irani has been a director of the Company
since 1992.
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[photo of Guy Nafilyan] [photo of Luis G. Nogales]
GUY NAFILYAN, age 56, has been Chairman, President and Chief Executive Officer
of Kaufman & Broad S.A., the Company's publicly-held French subsidiary, and
Executive Vice President of the Company since April 1992. He was a Senior Vice
President of the Company from 1987 to 1992, and from 1983 through 1987 he was
President of Kaufman & Broad S.A. Mr. Nafilyan has been a director of the
Company since 1987.
LUIS G. NOGALES, age 57, is President of Nogales Partners, an acquisition
company, which he founded in 1990 and is senior advisor to Deutsche Bank Private
Equity Partners. He was Chairman and Chief Executive Officer of Embarcadero
Media, Inc. from 1992 to 1997, President of Univision Communications, Inc. (the
nation's largest Spanish language television network) from 1986 to 1988, and
Chairman and Chief Executive Officer of United Press International from 1983 to
1986. He is a director of the Adolph Coors Company, Southern California Edison
Co., Edison International, Arbitron, and Kaufman & Broad S.A., the Company's
publicly-held French subsidiary. He is a member of the board of the
Inter-American Dialogue and the Pacific Council on International Policy; a
trustee of The Ford Foundation, and The J. Paul Getty Trust and former Vice
President of the Board of Trustees of Stanford University. Mr. Nogales has been
a director of the Company since 1995.
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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. Mr. Randall Lewis, who had served on the Board of Directors since
January 1999, stepped down as a director in February 2001.
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[photo of Henry G. Cisneros] [photo of Jane Evans]
HENRY G. CISNEROS, age 53, is Chairman and Chief Executive Officer of American
CityVista, the homebuilding joint venture formed by Mr. Cisneros and the Company
in August 2000. Previously, Mr. Cisneros was president and chief operating
officer of Univision Communications, Inc. from 1997 through July 2000. From
January 1993 through January 1997, Mr. Cisneros served as the Secretary of the
U.S. Department of Housing and Urban Development. Prior to serving as Secretary,
he was Chairman of Cisneros Asset Management Company. In 1981, Mr. Cisneros
became the first Hispanic American mayor of a major U.S. city, San Antonio,
Texas, and served as mayor through 1987. Mr. Cisneros has also served as
President of the National League of Cities, Chairman of the National Civic
League, Deputy Chair of the Federal Reserve Bank of Dallas, and as a board
member of the Rockefeller Foundation. He was elected to the Company's Board of
Directors in August 2000 and will next stand for re-election in 2003.
JANE EVANS, age 56, is President and Chief Executive Officer of GAMUT
Interactive, Inc. (formerly SmartTV, LLC). From 1991 to 1995 she served as Vice
President and General Manager, Home and Personal Services Division, US West
Communications, Inc. From 1987 to 1989 she was a general partner of Montgomery
Securities, and from 1989 until 1991 she was President and Chief Executive
Officer of the InterPacific Retail Group. Ms. Evans serves as a director of
Georgia Pacific, Hypercom Corporation, Main Street & Main, Incorporated,
PETsMART, Inc., and Philip Morris Companies, Inc. Ms. Evans has been a director
of the Company since 1993 and her current term will expire in 2002.
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[photo of James A. Johnson] [photo of Bruce Karatz]
JAMES A. JOHNSON, age 57, is 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 is Chairman of The John F. Kennedy
Center for the Performing Arts and is Chairman of the Board of Trustees of The
Brookings Institution. He serves on the boards of Gannett Co., Inc., Target
Corporation, UnitedHealth Group, The Goldman Sachs Group, Inc., Cummins Engine
Company, Inc., Temple-Inland, Inc., National Association on Fetal Alcohol
Syndrome, The Enterprise Foundation, National Housing Endowment, Carnegie
Corporation of New York and Carnegie Endowment for International Peace. Mr.
Johnson has been a member of the Board of Directors since 1992 and his current
term will expire in 2002.
BRUCE KARATZ, age 55, has been Chairman, President, and Chief Executive Officer
of the Company since 1993. Mr. Karatz joined the Company's predecessor in 1972,
and from 1976 through 1980 he 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; and from
1986 to 1993 he was the Company's President and Chief Executive Officer. Mr.
Karatz is a director of Honeywell International Inc., The Kroger Company,
National Golf Properties, Inc. and Kaufman & Broad S.A., the Company's
publicly-held French subsidiary. Among his civic and professional activities,
Mr. Karatz is Chairman of the California Business Roundtable; Chairman of the
Los Angeles World Affairs Council; a trustee of the RAND Corporation; a member
of the Council on Foreign Relations, the Executive Committee of the Board of
Governors of The Performing Arts Center of Los Angeles County, and the
University of Southern California Law Center Board of Counselors; and
Co-Chairman of the Mayor's Alliance for a Safer L.A. Mr. Karatz has been a
director of the Company since 1986. He will next stand for re-election in 2003.
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[photo of Barry Munitz] [photo of Sanford C. Sigoloff]
BARRY MUNITZ, age 59, 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. In 1998, he also served as Head of the Gubernatorial Transition Team for
California Governor Gray Davis. In addition to his professional affiliations,
since 1992 he has served on numerous public and private boards. He was a
director of SunAmerica Inc., Chairman of the American Council on Education and
Chairman of the California Education Round Table. He also served on the
Commission on National Investment in Higher Education, and the White House
Commission "America Reads." Dr. Munitz's current term will expire in 2002.
SANFORD C. SIGOLOFF, age 70, has been Chairman, President and Chief Executive
Officer of Sigoloff & Associates, Inc. since 1989 and in 1994 was appointed to
the California State Board of Education by California Governor Pete Wilson. Mr.
Sigoloff was President and Chief Executive Officer of L. J. Hooker Corporation
from 1989 to 1992, and was Chairman, President and Chief Executive Officer of
Wickes Companies, Inc., a retail and wholesale merchandiser, from 1982 to 1988.
Mr. Sigoloff was a Presidential appointee to the United States Holocaust
Memorial Council in Washington, D.C. from 1988 through 1994 and is a Fellow in
the American College of Bankruptcy. Mr. Sigoloff is a director of Movie Gallery,
Inc. Among his many civic involvements, Mr. Sigoloff is a director of the
National Conference of Christians and Jews and the Center Theatre Group; a
trustee of the UCLA Foundation, the Medical Centers of Cedars-Sinai and Chaim
Sheba; a member of the Executive Committee of the City of Hope and the Executive
Board and the Board of Governors of The American Jewish Committee; and a
national trustee and Vice President of the National Jewish Center for Immunology
and Respiratory Medicine. He is also an adjunct professor at The Anderson
Graduate School of Management at UCLA. Mr. Sigoloff has been a director of the
Company or its predecessor company since 1979 and his current term will expire
in 2002.
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THE BOARD AND ITS COMMITTEES
------------------------
The Company's Board of Directors held five regular meetings during the fiscal
year ended November 30, 2000. Management also periodically conferred with
directors informally between meetings regarding Company affairs. During 2000,
all directors, with the exception of Messrs. Burkle and Nafilyan, attended 80%
or more of the total aggregate number of meetings of the Board of Directors and
meetings of the committees of the Board on which they served.
During most of 2000, the Company's Board of Directors was comprised of eight
non-employee directors and two employee directors. Mr. Cisneros, the ninth
non-employee director, was elected in August 2000. In February 2001, Mr. Lewis,
a non-employee director, stepped down from the Board of Directors. The
committees of the Board of Directors consist of the Personnel, Compensation and
Stock Plan Committee, the Audit and Compliance Committee, the Nominating and
Corporate Governance Committee and the Executive Committee. The committees of
the Board of Directors are comprised entirely of non-employee directors, except
for the Executive Committee, which includes one employee director.
PERSONNEL, COMPENSATION AND STOCK PLAN COMMITTEE
The Personnel, Compensation and Stock Plan Committee of the Board of Directors
reviews and makes recommendations regarding compensation and other employment
benefits for the Company's officers and other members of senior management. The
committee also reviews and approves awards made under the Company's employee
stock plans, the Company-wide annual merit increase guidelines for base salaries
and all nominations for officers of the Company. The committee also reviews,
considers and provides input regarding executive succession planning. The
members of the committee during 2000 were Messrs. Burkle, Irani, Johnson, and
Nogales, with Mr. Johnson serving as Chairman. The committee held four meetings
during 2000; members were also periodically consulted by management to discuss
compensation or personnel issues between meetings. See the "Personnel,
Compensation and Stock Plan Committee Report on Executive Compensation" (the
"Compensation Committee Report") at pages 15 - 19.
AUDIT AND COMPLIANCE COMMITTEE
The function of the Audit and Compliance Committee of the Board of Directors is
to approve the selection of, and review all services performed by, the Company's
independent auditors; to meet, consult with, and receive reports from the
Company's independent auditors, its financial and accounting staff and its
internal audit department; and to review and take action, or make
recommendations to the Board of Directors, with respect to the scope of the
audit procedures, accounting practices, internal accounting and financial
controls and legal affairs of the Company. The committee held three meetings
during the year. In 2000, the committee was comprised of Ms. Evans and Messrs.
Munitz, Nogales and Sigoloff. Mr. Sigoloff served as Chairman.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee of the Board of Directors
considers and makes recommendations to the Board concerning the appropriate size
and needs of the Board, including the annual nomination of directors and
nominees for new directors. The committee reviews and
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makes recommendations concerning other policies related to the Board of
Directors, including committee composition, structure and size, and director
compensation. The committee regularly evaluates Board performance to determine
ways to enhance Board effectiveness. The committee also considers and makes
recommendations to the Board concerning corporate governance issues and trends.
In 2000, the members of the committee were Ms. Evans and Messrs. Irani and
Johnson. Dr. Irani served as Chairman of the committee, which had two meetings
during the year.
The Nominating and Corporate Governance Committee will consider qualified
nominees for director. Stockholders wishing to make such recommendations should
submit the name of the candidate and the candidate's background and
qualifications to the committee, c/o the Secretary of the Company, 10990
Wilshire Boulevard, Los Angeles, California 90024 not later than January 1 of
the year in which the proposed candidate is to be considered for nomination.
EXECUTIVE COMMITTEE
The Executive Committee has the authority of the Board of Directors between
meetings of the Board of Directors except to the extent that such authority may
be limited by the Company's Bylaws (which do not currently provide for any such
limitation) or by applicable law. The members of the committee are Messrs.
Sigoloff and Karatz; Mr. Sigoloff is Chairman. Dr. Irani serves as alternate
member of the committee in the event Mr. Sigoloff or Mr. Karatz is not available
to act. The committee held one meeting in 2000, and also acted periodically by
written consent.
COMPENSATION PAID TO BOARD MEMBERS
Directors who are employees of the Company receive no additional compensation
for their service on the Board of Directors. The Company's employee directors
are Messrs. Karatz and Nafilyan. Directors who are not employees of the Company
are paid a quarterly retainer of $5,000, plus $1,500 for each Board of Directors
meeting and $1,000 for each committee meeting attended. If two committee
meetings are attended on the same day, $500 is paid for attendance at the second
committee meeting. Each committee chairman receives an annual retainer of 500
deferred Common Stock Units ("Stock Units") or, for directors who own at least
10,000 shares of Common Stock or Stock Units and who so elect, a specified
number of options (as described more fully below). Directors may defer all or a
portion of their cash fees until a later specified event, such as retirement.
Directors are reimbursed for travel and other expenses related to attendance at
Board of Directors and committee meetings.
With a view toward further aligning the compensation of the Company's
directors with the equity interests of the Company's stockholders, the Company
maintains the KB Home Non-Employee Directors Stock Plan (the "Directors Stock
Plan"). Under the Directors Stock Plan, in 2000 each director who was serving on
the Board as of the 2000 Annual Meeting received an annual grant of 2,000 Stock
Units or, for directors who own at least 10,000 shares of Common Stock or Stock
Units and who so elect, a specified number of options (as described more fully
below). Under the Directors Stock Plan, directors may also elect to receive all
or a portion of their Board retainers and meeting fees in Stock Units rather
than in cash. Directors who make this election receive Stock Units valued at
110% of the cash fees to which they would otherwise have been entitled. The
shares of Common Stock represented by the Stock Units will be distributed
in-kind or in cash, at the election of the participating director, when he or
she retires or otherwise leaves the Board. Directors earn the
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equivalent of cash dividends on, but do not have voting or investment power with
respect to, the shares of Common Stock represented by the Stock Units.
Additionally, the Directors Stock Plan provides that directors who own at
least 10,000 shares of the Company's Common Stock or Stock Units may elect to
receive their annual Stock Unit grant, annual retainers and/or meeting fees in
options rather than in Stock Units or cash, as the case may be. The number of
options granted in lieu of cash fees is equal to 110% of the cash value of the
retainer or meeting fees otherwise earned and are granted at a ratio determined
by reference to value of the Company's Common Stock on grant date. The value of
options granted in lieu of Stock Units is calculated in the same manner, except
that there is no added 10% premium. Options are granted as of each Annual
Meeting of Stockholders and have an exercise price equal to the average closing
price of the Company's Common Stock on the New York Stock Exchange for the ten
consecutive trading days immediately preceding the date of the Annual Meeting.
The options are immediately exercisable and, consistent with the Company's
employee options, have a term of fifteen years.
In furtherance of the Company's overall support for charitable giving, and in
acknowledgment of the service of the Company's directors, the Company maintains
a Directors' Legacy Program under which the Company will make a charitable
donation to no more than five charitable organizations or educational
institutions of the director's choice upon his or her death. All directors are
eligible to participate in the program. From the inception of the program in
1995 through 1998, the maximum charitable donation that could be made by the
Company on behalf of any director was $500,000. As of January 1, 1999, the
maximum charitable donation that may be made by the Company was increased to $1
million. Accordingly, directors who were serving on the Board as of January 1,
1999 vest in the original $500,000 donation in five equal annual installments of
$100,000 commencing with the first anniversary of their initial election to the
Board; these directors must serve on the Board for five consecutive years to be
fully vested in the original donation amount. In addition, directors serving on
the Board as of January 1, 1999 will vest in the increased charitable donation
in annual installments of $200,000, $150,000 and $150,000, respectively; these
directors must serve on the Board through January 1, 2002 to be fully vested in
the additional donation. Directors first elected to the Board after January 1,
1999 will vest in the full $1 million donation in five equal annual installments
of $200,000; these directors must serve on the Board for five consecutive years
to be fully vested in the program. To be eligible to receive a donation, a
recommended organization must be an educational institution or charitable
organization and must qualify to receive tax-deductible donations under the
Internal Revenue Code. The program is funded by life insurance contracts
maintained by 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. The program has no
direct compensation value to directors or their families because they do not
receive any direct cash or tax savings.
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BENEFICIAL OWNERSHIP OF COMPANY STOCK
------------------------
DIRECTORS AND MANAGEMENT
The following information is furnished as of February 27, 2001 to indicate the
beneficial ownership of the Company's Common Stock by each director and each of
the executive officers named in the Summary Compensation Table (the "Named
Executive Officers") individually, and by all directors, Named Executive
Officers and other executive officers as a group. Unless otherwise indicated,
beneficial ownership is direct and the person indicated has sole voting and
investment power. No director, Named Executive Officer or other executive
officer owns more than 1% of the Company's Common Stock, other than Mr. Karatz
who owns 3.2%. As a group, all directors, Named Executive Officers and other
executive officers of the Company own in the aggregate 5.0% of the Company's
Common Stock.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(A - D)
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Ronald W. Burkle 25,796
Henry G. Cisneros 7,597
Jane Evans 10,136
Dr. Ray R. Irani 28,201
James A. Johnson 33,699
Bruce Karatz 1,388,522
Dr. Barry Munitz 4,000
Guy Nafilyan 157,265
Luis G. Nogales 9,667
Sanford C. Sigoloff 32,652
Jeffrey T. Mezger 130,822
Glen Barnard 158,124
Albert Z. Praw 63,431
All directors, Named Executive Officers and other
executive officers as a group (16 persons) 2,198,206
---------------------------------------------------------------------------------
(a) Included are Stock Units held by non-employee directors under the Directors
Stock Plan in the following amounts: Mr. Burkle 13,155; Mr. Cisneros 597;
Ms. Evans 8,636; Dr. Irani 11,201; Mr. Johnson 18,699; Mr. Lewis 2,000; Dr.
Munitz 2,000; Mr. Nogales 9,167; and Mr. Sigoloff 17,352.
(b) Included are shares of Common Stock subject to acquisition within 60 days of
February 27, 2001 through the exercise of stock options granted under the
Company's employee stock plans in the following amounts: Mr. Karatz 928,819;
Mr. Mezger 105,193; Mr. Nafilyan 96,667; Mr. Barnard 118,941; and Mr. Praw
4,000; and all executive officers as a group, 1,352,799. Also included are
shares subject to acquisition within 60 days of February 27, 2001 through
the exercise of options under the
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Directors Stock Plan in the following amounts: Mr. Burkle 12,141; Dr. Irani
5,000; and Mr. Johnson 13,000.
(c) Included are a total of 153,593 shares of restricted Common Stock granted
under the Company's employee stock plans. As of February 27, 2001, Mr.
Karatz held 62,500, and Mr. Nafilyan held 31,250 shares of restricted Common
Stock under a grant made in 1991. These shares vest in twelve equal annual
installments, the first of which vested in 1994; full vesting will occur in
2005. For 2001, Mr. Karatz also received an award of 28,584 shares of
restricted stock; the shares vest on February 1, 2004, three years from the
date of grant. In accordance with his employment agreement, which places a
$3 million limit on his cash incentive bonus, these shares represent the
portion of his 2000 incentive bonus that was in excess of $3 million. Please
also see the Compensation Committee Report on pages 18-19. Pursuant to a
compensation program adopted in 1997 under which a portion of their annual
incentive bonus is determined by the Company's, or a particular business
unit's, pretax return on investment, the following officers also hold the
following shares of Common Stock granted on December 1, 2000 that are
restricted from sale for one year from the date of grant: Mr. Karatz 19,853;
Mr. Mezger 4,913; Mr. Nafilyan -0-; Mr. Barnard 2,525; Mr. Praw, 1,228; and
all executive officers as a group, 31,259. The actual number of shares of
restricted Common Stock earned by some executives was greater than the
amount reported; the amounts reported are shares beneficially owned by each
executive less shares that were withheld for income tax purposes.
(d) Mr. Praw holds 8,522 shares of Common Stock in a trust of which he is the
sole trustee and sole beneficiary and over which he exercises sole voting
and investment power.
BENEFICIAL OWNERS OF MORE THAN 5 PERCENT
Based on filings made under Section 13(d) and Section 13(g) of the Securities
Exchange Act of 1934, as amended, as of February 27, 2001 the only persons or
entities known to be beneficial owners of more than 5% of the Company's Common
Stock were as follows:
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(A - B) CLASS
------------------------------------ ---------------- -------
Wachovia Bank, N.A., 8,774,612 19.95%
Trustee for the KB Home
Grantor Stock Trust,
Institutional Trust and Retirement Services
301 North Church Street
Winston-Salem, North Carolina 27101
Wellington Management Company, LLP 3,032,300 6.90%
75 State Street
Boston, Massachusetts 02109
---------------
(a) Pursuant to the amendment to Schedule 13D dated February 14, 2001 filed
with the Securities and Exchange Commission by Wachovia Bank, N.A. (the
"Trustee"), the KB Home Grantor Stock Trust
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(the "GST") holds all of the shares reported pursuant to a trust agreement
creating the GST in connection with the prefunding of certain obligations
of the Company under various employee benefit plans. Both the GST 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 GST are
voted. The trust agreement for the GST provides that, as of any given
record date, employees who hold unexercised options under the Company's
employee stock option plans will determine the manner in which shares of
the Company's Common Stock held in the GST are voted.
The Trustee will vote the Common Stock held in the GST 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 will depend upon how many employees submit voting instructions to the
Trustee. Employees who are also directors of the Company are excluded from
voting; accordingly, Messrs. Karatz and Nafilyan may not direct the vote of
any shares in the Trust. If all eligible employees submit voting
instructions to the Trustee, as of the February 14, 2001 record date for
the Annual Meeting, the other Named Executive Officers will have the right
to vote the following share amounts: Mezger 975,221; Barnard 634,951; and
Praw 416,710; and all executive officers as a group, 2,741,042. If less
than all of the eligible employees submit voting instructions, then the
foregoing amounts will be higher. 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.
(b) Pursuant to the amendment to Schedule 13G dated February 14, 2001 filed
with the Securities and Exchange Commission by Wellington Management
Company, LLP ("WMC"), WMC, an investment advisor, has shared investment
power with respect to all shares reported as beneficially owned, shared
voting power with respect to 1,000 shares reported as beneficially owned
and no voting power with respect to 3,031,300 of the shares reported as
beneficially owned. Pursuant to the amendment to Schedule 13G dated
February 13, 2001 filed with the Securities and Exchange Commission by
Vanguard Windsor Funds -- Vanguard Windsor Fund ("Vanguard"), Vanguard, an
investment company, has shared investment power with respect to all shares
reported as beneficially owned by WMC, has sole voting power with respect
to 3,031,300 of the shares reported as beneficially owned and shared voting
power with respect to 1,000 of the shares reported as beneficially owned by
WMC.
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PERSONNEL, COMPENSATION AND STOCK PLAN
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
------------------------
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company designs executive compensation to attract and retain top-quality
executive talent and to provide incentives for them to build stockholder wealth
and to achieve the Company's annual business plan. To this end, the Compensation
Committee is guided by the Company's executive compensation philosophy which is
based on a total compensation approach, which requires constant analysis of both
annual and long-term compensation and which is intended to:
- closely link compensation to the creation of stockholder value;
- encourage stock ownership by executives to directly align executive interests
with stockholder interests;
- reward contributions that further the Company's mission by aligning individual
performance measures with the Company's performance objectives;
- balance compensation elements to encourage the achievement of both short-term
business plans and long-term strategic objectives; and
- attract, retain and motivate executives of the highest quality.
Under the Company's total compensation approach, annual incentive compensation
is typically determined by the pre-tax, pre-incentive profit and pre-tax return
on investment of the Company (or a particular business unit). Long-term
compensation 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. Additionally, in determining the
level of annual and long-term compensation, qualitative data are analyzed to
ensure that qualitative achievements are fully recognized. This total
compensation approach puts a large portion of executives' compensation "at risk"
based on the Company's performance, as well as their individual performance. The
Personnel, Compensation and Stock Plan Committee (the "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's performance in 2000 was improved over 1999. While total revenues
increased modestly at 3% over 1999 and unit deliveries were essentially flat
with 1999, diluted earnings per share increased 28% over 1999 (excluding the
French IPO gain in 2000 and a one time secondary marketing trading loss in
1999); and 2000 year-end backlog value increased 30% over 1999. The improved
results in 2000 were largely achieved through the Company's continued use of its
KB2000 operational business model, which contributed to an increase in housing
gross margin. The Company's focus on selling, general and administrative expense
reduction initiatives as well as its lower effective tax rate and fewer shares
outstanding also had a favorable impact on 2000 results. During 2000, the
Company also completed $247 million of stock repurchases. Strong earnings as
well as the successful execution of an asset repositioning program enabled the
Company to maintain its debt to total capital ratio within targeted levels
despite the significant stock repurchase activity. Overall conditions in all of
the
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Company's principal markets remained favorable during 2000.
COMPENSATION IN 2000
The following generally describes how the Company's executive officers and, in
particular, the Named Executive Officers, were paid in 2000. Please see the
compensation tables on pages 23-27 for a detailed presentation of compensation
earned by the Named Executive Officers in 2000. The specifics of Chief Executive
Officer compensation are addressed separately in this report.
Base Salaries. Base salaries are viewed as compensation for an executive's
ongoing contribution to the performance of the business units for which he or
she is responsible. Increases in executive base salaries are made by reference
to the Compensation Committee's assessment of each executive's contribution to
the Company's business and by reference to the Company-wide budget for base
salary increases. Executive base salaries are targeted to be competitive with
average base salaries paid to executives with comparable responsibilities at
other companies in the real estate sector. The Committee reviews analyses by the
Compensation Department of the Company and by outside consultants to ensure that
base salaries remain competitive and are at least at the median level.
The average merit increase, of employees receiving merit increases, was 4.5%
in 2000. This increase was authorized by the Compensation Committee in light of
the Company's improved performance, and by general reference to national trends
across industries. Individual base salary increases are determined by individual
performance and contribution levels and ranged from 0% to 7.5% in 2000,
excluding promotional increases. Base salary increases (excluding promotional
increases) for the Named Executive Officers in 2000 were consistent with the
Company-wide increase and the Company's merit distribution philosophy.
In keeping with the Company's total compensation approach, base salaries,
coupled with annual incentive awards, are targeted to be competitive with the
upper quartiles of base salaries and incentive awards made to executives with
comparable responsibilities at other companies in the real estate sector.
Annual Incentive Awards. Annual incentives are paid in cash and restricted
shares of the Company's Common Stock and are intended to reward executives for
improved short-term performance by the Company. In general, annual cash
incentive awards paid to executives are determined by the pre-incentive, pre-tax
profit of the business operations for which they are responsible, but may be
increased or decreased depending upon the pre-tax return on investment from
those operations (the "PROI Modifier") and by customer satisfaction as measured
by the Company's Customer Satisfaction Index ("CSI"). This approach is intended
to motivate executives to improve the Company's overall performance in a
balanced manner.
In 2000, certain officers, including four of the Named Executive Officers,
earned annual cash incentive awards based upon a specific percentage of the
Company's (or a particular business unit's) pre-incentive, pre-tax profit, as
adjusted by the PROI Modifier. Annual incentive bonuses for certain other
executives were determined by a combination of a percentage participation in the
Company's (or a particular business unit's) pre-incentive, pre-tax profit, as
adjusted by the PROI Modifier and CSI, and the Compensation Committee's
assessment of their individual job performance and contribution levels.
Cash incentive compensation earned by the Company's executive officers is
primarily determined by the Company's performance. Therefore,
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as a result of the Company's improved performance in 2000, executive officers
earned more cash incentive compensation in 2000, than they did in 1999. Of the
total cash compensation earned by the Named Executive Officers in 2000, 75% was
from incentives determined by the Company's performance.
Long-Term Incentive Compensation. Long-term incentive compensation is generally
awarded in the form of stock option grants, as well as Performance Unit awards
under the Company's Unit Performance Program.
By providing executives with an ownership stake in the Company, stock options
are intended to align executive interests with stockholder interests and to
motivate executives to continually improve the long-term performance of the
Company. As shown in the table entitled "Option/SAR Grants in Last Fiscal Year"
on page 25, in 2000 original stock option grants were made to each of the Named
Executive Officers. Certain grants were made to Company executives, including
the Named Executive Officers, during the fourth quarter of fiscal 2000, which
represent the annual grants for fiscal year 2001.
In early 1998, the Committee adopted an Executive Stock Ownership Policy,
designed to further the Company's strategy of closely aligning the interests of
management and shareholders. The policy requires senior corporate and divisional
managers to achieve ownership levels of the Company's Common Stock equal to one
to four times their annual salary, depending on their position. Executives must
meet their required ownership levels within three years of becoming subject to
the policy, and must thereafter sustain those levels throughout their employment
with the Company.
In order to achieve their required ownership levels, in 2000, several
executives, including Mr. Praw, exercised options previously awarded in the
ordinary course under the Company's employee stock incentive plans. Although
certain shares were sold in the transactions to cover taxes and the exercise
price of the options, each executive's share ownership increased significantly,
achieving 100% of targeted ownership levels. Subsequent to the exercises, each
participating executive received replacement options at then-current fair market
value for a portion of the options exercised.
In 2000, the Compensation Committee also made awards of Performance Units
under the Unit Performance Program, which was first implemented in 1996. This
incentive compensation program is intended to motivate senior management toward
improving the Company's long-term performance by providing long-term incentive
compensation that is tied to specified long-term performance objectives for the
Company. Participants in the Unit Performance Program include all executive
officers, division presidents and certain other senior managers.
The value of Performance Units awarded under the Unit Performance Program is
determined over the period that the Performance Unit is outstanding by (i) the
Company's cumulative earnings per share and (ii) the average 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 Compensation Committee. For all Performance Units awarded in 2000, 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. Performance Unit
payouts, if any, may be paid in cash or in stock or stock equivalents, at the
discretion of Company management. It is management's current intention, absent
special circumstances, to pay out Performance Units in stock or stock
equivalents only. Please see "Long-Term Incentive Plans --
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Awards in Last Fiscal Year" on page 27 for the Performance Units granted to each
Named Executive Officer in 2000.
The value of Performance Units awarded under the Unit Performance Program are
realized, if at all, three years after the date of award. Performance Units
awarded at the beginning of fiscal 1998 vested at the end of fiscal 2000 and
were paid out in shares of the Company's Common Stock, underscoring the
Compensation Committee's commitment to aligning executive interests with
stockholder interests through increasing the levels of stock ownership by the
Company's executives. Please see "Summary Compensation Table" on page 23 for the
shares of Common Stock issued to each of the other Named Executive Officers upon
the vesting of their Performance Units in 2000. Employees of Kaufman & Broad
S.A., the Company's French subsidiary, do not participate in the Unit
Performance Program.
As part of the e-business strategy launched by the Company during 2000, the
e.KB Equity Incentive Program was established to motivate executive performance
in connection with the Company's e-business initiatives or investments. The
program provides executives with an opportunity to receive a portion of any
future distributions made by the Company's e-business initiatives after the
Company has recouped its investment.
Under the e.KB Equity Incentive Program, certain of the Company's e-business
initiatives or investments are separately owned by a specially formed limited
liability company (each, an "e.KB LLC"). e.KB, Inc., the Company's wholly-owned
subsidiary, is the majority owner and manager of each e.KB LLC. Under the e.KB
Equity Incentive Program, selected executives are granted an opportunity to
purchase minority membership interests in one or more of e.KB LLCs. The
interests do not vest until three years from the date of award, subject to the
executive's continued employment, unless a qualifying event accelerates such
vesting (e.g., death, disability, change of control or sale of substantially all
underlying assets). The aggregate amount of minority e.KB LLC interests
available for purchase by Company executives in each e.KB LLC ranges from 33% to
45%. The operating agreement for each e.KB LLC provides that distributions will
be made first to e.KB, Inc. until it has received a return of 100% of
contributed capital.
Compensation of Chief Executive Officer in 2000. In keeping 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 his current employment agreement with the
Company in 1996. Please see "Employment Agreements and Change in Control
Arrangements" on pages 21-22 for a more detailed description of Mr. Karatz's
employment agreement. The agreement provides that the Board of Directors may, in
its discretion, increase or decrease Mr. Karatz's base salary from time to time,
provided that any decrease does not fall below a specified minimum salary. Mr.
Karatz's base salary in 2000 was $850,000.
Mr. Karatz also received an annual incentive bonus of cash, Common Stock and
restricted Common Stock in 2000, the amount of which was primarily determined by
formulas based on the Company's pre-incentive, pre-tax profit and pre-tax return
on investment. With respect to his incentive bonus, Mr. Karatz's employment
agreement specifies a $3 million limit on the amount of his bonus that may be
paid in cash. For 2000, Mr. Karatz earned $909,500 over this cap. Accordingly,
in lieu of a cash payment for this amount, Mr. Karatz received an award of
28,584 shares of three-year restricted Common Stock. The value of the shares
issued on the date of grant was 110% of the cash value of this portion of his
incentive bonus, with a
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view toward compensating Mr. Karatz for the deferral and risk of loss associated
with his receipt of the restricted stock. With respect to the stock-based
portion of his incentive bonus, pursuant to the terms of his agreement, Mr.
Karatz also received 37,537 shares of Common Stock. Incentive compensation paid
to Mr. Karatz under his employment agreement is largely made under and subject
to the limitations set forth in the Performance-Based Incentive Plan for Senior
Management and the 1998 Stock Incentive Plan, both of which have been approved
by the Company's stockholders and are designed to qualify incentive compensation
in excess of $1 million paid to the Named Executive Officers for a tax deduction
under Section 162(m) of the Internal Revenue Code ("Section 162(m)"). Under his
employment agreement Mr. Karatz is also entitled to receive other benefits
afforded to other executives of the Company and, accordingly, in 2000 Mr. Karatz
received a discretionary award of 600 Performance Units under the Unit
Performance Program in accordance with the principles described above. He also
received an award of 500,000 options in late 2000, representing his annual
discretionary grant for fiscal 2001. In addition, he participated in the e.KB
Equity Incentive Program, at potential profit participation levels ranging from
9.9% to 22.5%, depending on the investment.
POLICY ON DEDUCTIBILITY OF COMPENSATION
The Company intends to comply with the requirements of Section 162(m) with
respect to maintaining tax deductibility for all executive compensation, except
in circumstances when the 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 2000 met the
deductibility requirements of Section 162(m).
PERSONNEL, COMPENSATION AND STOCK PLAN COMMITTEE
The Compensation Committee is responsible for setting the compensation strategy
of the Company. The Compensation Committee establishes and monitors principal
executive compensation programs, including those covering the Named Executive
Officers. For each of the Company's executive officers, the Compensation
Committee approves annual base salary, annual incentive bonus awards, and
long-term incentive awards. The Compensation Committee also approves all officer
nominations and annual merit increase guidelines for all Company employees. The
Compensation Committee is composed entirely of non-employee directors.
This report is respectfully submitted by the members of the Compensation
Committee:
James A. Johnson, Chairman
Ronald W. Burkle
Dr. Ray R. Irani
Luis G. Nogales
The above Compensation Committee Report and the Common Stock Price Performance
graph set forth on page 20 shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
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KB HOME
COMMON STOCK PRICE PERFORMANCE
------------------------
The graphs below compare the cumulative total return(a) of KB Home, the S&P
500 Index, the S&P Homebuilding Index and the Dow Jones Home Construction Index
(b) for the last five fiscal year-end periods. The Dow Jones Construction Index
is presented for informational purposes only.
LAST FIVE FISCAL YEARS
[PERFORMANCE GRAPH]
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
KB Home........................................... 100 101 174 204 182 261
Dow Jones Home Construction....................... 100 102 145 141 105 164
S&P Homebuilding Index............................ 100 101 150 168 123 191
S&P 500 Index..................................... 100 128 164 203 246 235
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's November 30, 2000 closing Common Stock price on the New
York Stock Exchange was $31.38 per share. On February 27, 2001, the Company's
Common Stock closed at $28.08 per share. The performance of the Company's Common
Stock depicted in the graphs above represents past performance only and is not
indicative of future performance.
(a) Total return assumes $100 invested at market close on November 30, 1995 in
the Company, the S&P 500 Index, the S&P Homebuilding Index, and the Dow
Jones Home Construction Index including reinvestment of dividends.
(b) The three companies that comprise the S&P Homebuilding Index are: Centex
Corporation, Pulte Homes, Inc. and the Company. The eight companies that
comprise the Dow Jones Home Construction Index are: Centex Corporation,
Champion Enterprises, Inc., Del Webb Corporation, D.R. Horton, Inc., Lennar
Corporation, Pulte Homes, Inc., Toll Brothers, Inc. and the Company.
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EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
------------------------
EMPLOYMENT AGREEMENTS
Mr. Karatz is employed under an agreement that provides for a term through
November 30, 2001 and will thereafter be automatically renewed for a one-year
period each December 1st, subject to the right of Mr. Karatz or the Company to
terminate on six months' prior notice. In the event Mr. Karatz's employment is
terminated prior to expiration of the agreement as a result of a "change of
ownership" of the Company or termination of his employment without cause, he
will receive a payment equal to two times his average annual compensation for
the prior three fiscal years. Mr. Karatz is entitled to receive similar benefits
in the event his employment is terminated as a result of death or disability.
The annual incentive bonus formula in Mr. Karatz's employment agreement
provides him with an opportunity to earn an annual cash incentive bonus in an
amount equal to 1.25% of the Company's pre-incentive, pre-tax profit. The
formula further provides that no such bonus will be paid in any year in which
the Company does not achieve a specified minimum pre-tax return on equity and,
if paid, the cash portion of such bonus may not exceed a specified dollar
amount. In 2000, Mr. Karatz's annual incentive cash bonus exceeded this limit
and, accordingly, he was paid the excess in restricted shares of Common Stock.
The bonus formula in the agreement also includes an opportunity to earn an
annual award of Common Stock. The number of shares of Common Stock awarded each
year, if any, is determined by dividing (i) the product of .50% times the
Company's pre-incentive, pre-tax profit in excess of $50,000,000 by (ii) the
average trading price of the Company's Common Stock on the date of grant. No
annual bonus of Common Stock may be awarded to Mr. Karatz pursuant to this
formula in any year in which the Company does not generate pre-incentive,
pre-tax profit exceeding $50,000,000 and, if such level is exceeded, there is a
specified limit on the number of shares that may be awarded. Pursuant to the
terms of his agreement, shares awarded pursuant to this formula were to be
restricted until October 10, 2000, his 55th birthday. Accordingly, shares
awarded to Mr. Karatz in years 1995 through 1999 were restricted. These shares
vested on October 10, 2000 and, consistent with the terms of his employment
agreement, the shares awarded on February 1, 2001 as a part of his 2000 bonus
were not restricted. In 1997, along with certain other key executives of the
Company, Mr. Karatz's annual incentive bonus formula was revised by the
Compensation Committee to include a PROI Modifier. Any increases in Mr. Karatz's
annual incentive bonus as a result of the PROI Modifier are to be paid in shares
of Common Stock that may not be sold for one year from the date of grant; any
decreases are to be deducted from Mr. Karatz's annual cash incentive bonus.
Please see the Compensation Committee Report at page 16 for a description of the
PROI Modifier.
Under his agreement, Mr. Karatz is entitled to a specified minimum annual base
salary, which is subject to annual adjustment in the discretion of the Board of
Directors. Mr. Karatz is also entitled to a nonqualified retirement arrangement
pursuant to which he will receive an annual pension of $492,000, payable for 25
years, if he continues in the employment of the Company until age 60. If Mr.
Karatz retires before or after age 60, he will be entitled to a lesser or
greater amount, as the case may be, pursuant to an actuarially defined formula
based on the returns from continuing annual contributions to a retirement trust.
Based on this formula, if Mr. Karatz retires after age 60, his annual pension
will increase by varying amounts, but at an average annual rate of 13.7%. The
retirement arrangement is structured so that upon Mr. Karatz's death, the
Company will recover the
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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 control" of the Company. In addition,
under his employment agreement, Mr. Karatz is entitled to receive other benefits
generally awarded to Company executives, which, in 2000 included a discretionary
stock option grant, an award of restricted stock under the PROI Modifier,
participation in Unit Performance Program and participation in the e.KB Equity
Incentive Plan. Please see the Compensation Committee Report on pages 18 - 19
for additional information on compensation paid to Mr. Karatz during the year.
No other Named Executive Officer has an employment agreement with the Company.
CHANGE IN CONTROL ARRANGEMENTS
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, and
the KB Home 1999 Incentive Plan and the proposed KB Home 2001 Stock 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" of the Company. A change of ownership
will be deemed to occur if (i) 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's voting securities
or in connection with an election contest) cease to represent a majority of the
Board or (ii) the Board determines that a change of ownership has occurred.
The KB Home Unit Performance Program, which is administered under the
Company's employee stock plans, provides that upon a change of ownership each
outstanding Performance Unit will be paid in cash at the target level.
Similarly, the operating agreements for each of the e.KB LLCs under the e.KB
Equity Incentive Program provide that each unvested interest held by a
participant shall vest upon a change in ownership. The Kaufman & Broad S.A.
Incentive Plan, the primary equity-based incentive plan for employees of the
Company's publicly held French subsidiary, provides that in the event of a
change of ownership all outstanding options shall become fully exercisable.
The Directors Stock Plan provides that upon a change of ownership, all
outstanding options will become immediately exercisable and Stock Units shall
immediately vest and will be paid in cash or shares of Common Stock, in accord
with the prior election made by each participating director. The KB Home
Directors' Legacy Program provides that upon a change of ownership of the
Company, all participating directors shall become immediately vested under the
program, and the Company shall create an irrevocable trust into which it shall
transfer sufficient assets (including the directors' life insurance policies) to
make the designated charitable contributions for the participating directors.
The Company also maintains a non-qualified Executive Deferred Compensation
Plan. From 1985 to 1992, pursuant to the plan Messrs. Karatz and Nafilyan
deferred receipt of a certain amount of pre-tax income, plus a Company matching
contribution, until retirement, termination or certain other events, including a
"change 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 continues to pay interest on prior contributions still held in the plan.
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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, 2000, 1999 and 1998.
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------------------
---------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
FISCAL COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
NAME AND POSITION YEAR SALARY($) BONUS($) ($)(B) AWARDS($)(C) SARS(#) ($)(D) ($)(E)
----------------------------------------------------------------------------------------------------------------------------------
Bruce Karatz
Chairman, President 2000 $847,083 $4,313,800(a) --0-- $1,977,825 500,000 $773,518 $73,186
and Chief 1999 811,667 2,948,363 --0-- 1,666,436 750,000 450,000 71,912
Executive Officer 1998 768,750 1,919,588 --0-- 997,732 456,152 450,000 72,068
----------------------------------------------------------------------------------------------------------------------------------
Jeffrey T. Mezger
Executive Vice 2000 400,000 1,269,370 $359,890 317,343 125,000 442,010 9,000
President
and Chief Operating 1999 275,000 1,023,605 --0-- --0-- 113,815 112,500 9,000
Officer 1998 198,333 441,448 --0-- 90,906 32,378 112,500 9,000
----------------------------------------------------------------------------------------------------------------------------------
Guy Nafilyan
Chairman, President 2000 295,680 1,146,899 --0-- --0-- --0-- --0-- 6,211
and Chief Executive 1999 324,226 1,023,617 --0-- --0-- 10,000 --0-- 3,892
Officer of Kaufman & 1998 315,139 451,301 --0-- --0-- 35,000 225,000 7,206
Broad S.A.
----------------------------------------------------------------------------------------------------------------------------------
Glen Barnard
Executive Vice 2000 274,167 600,000 --0-- 150,000 35,000 442,010 16,450
President
and President, e.KB, 1999 265,000 922,215 --0-- 112,971 107,606 225,000 24,900
Inc. 1998 250,000 626,749 --0-- 10,968 45,000 112,500 13,750
----------------------------------------------------------------------------------------------------------------------------------
Albert Z. Praw
Senior Vice President, 2000 333,750 317,343 --0-- 79,336 120,478 442,010 20,025
Asset Management 1999 320,000 204,122 --0-- 43,886 86,239 225,000 28,550
and Acquisitions 1998 250,000 697,313 --0-- 101,110 71,500 225,000 15,000
----------------------------------------------------------------------------------------------------------------------------------
(a) Of the total annual bonus compensation reported for Mr. Karatz in 2000,
$1,313,800 was paid in shares of the Company's Common Stock, the number of
which was determined by reference to the closing price of the Company's
Common Stock on the New York Stock Exchange on the date of grant (February
1, 2001).
(b) The Named Executive Officers listed in this table receive certain personal
benefits; however, for all such officers other than Mr. Mezger, such
benefits did not exceed the lesser of $50,000 or 10% of such officer's
salary and bonus for any of the years reported. In late 1999, Mr. Mezger was
promoted to Executive Vice President and Chief Operating Officer of the
Company, which promotion required that he relocate to the Company's Los
Angeles headquarters. To facilitate this transition, the Company agreed to
pay certain of Mr. Mezger's related relocation and housing expenses, in
addition to the benefits he received under the Company's relocation program
available to all employees. This arrangement
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resulted in an agreed upon amount of approximately $30,000 per month in
reimbursements through the end of 2001.
(c) For 2000, the Named Executive Officers received the following awards of
Common Stock that are restricted from sale for one year from the date of
grant (December 1, 2000) as a result of the PROI Modifier: Mr. Karatz 30,725
shares; Mr. Mezger 9,976 shares; Mr. Nafilyan -0-; Mr. Barnard 4,715 shares;
and Mr. Praw 2,494 shares. The value of these awards was determined by
reference to the average trading price of the Company's Common Stock on the
New York Stock Exchange on the date of grant. The actual number of shares
delivered to the Named Executive Officers was less than the amount shown
because shares were withheld for income tax purposes. These shares are
restricted from sale for one year from the date of grant. In addition, under
the performance-based incentive bonus formula specified in his employment
agreement, Mr. Karatz received 28,584 shares of restricted Common Stock that
will vest on February 1, 2004. Please also see the Compensation Committee
Report on page 18.
(d) Payouts in 2000 to all participants under the Company's long-term incentive
program, the Unit Performance Program, were made in shares of Common Stock.
Accordingly, in 2000 the Named Executive Officers earned the following
payouts under the Unit Performance Program: Mr. Karatz 24,317 shares; Mr.
Mezger 13,895 shares; Mr. Nafilyan -0- shares; Mr. Barnard 13,895; and Mr.
Praw 13,895 shares. The actual number of shares delivered to the Named
Executive Officers was less than the amount shown because shares were
withheld for income tax purposes.
(e) These amounts represent the Company's aggregate contributions to the
Company's 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 fiscal 2000, the Named Executive Officers accrued the
following respective amounts under such plans: Mr. Karatz $9,000, $41,825
and $22,361; Mr. Mezger $9,000, $-0- and $-0-; Mr. Nafilyan $-0-, $-0-and
$6,211; Mr. Barnard $9,000, $7,450 and $-0-; and Mr. Praw $9,000, $11,025
and $-0-.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table summarizes information relating to stock option grants,
including original grants and reimbursement option grants pursuant to the
Company's Executive Stock Ownership Policy, during 2000 to the Named Executive
Officers. All options granted are for shares of the Company's Common Stock. No
stock appreciation rights have been granted at any time under the Company's
employee stock plans.
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT
SECURITIES TOTAL ASSUMED ANNUAL RATE OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(D)
GRANTED(#) EMPLOYEES IN BASE PRICE GRANT EXPIRATION ------------------------------
NAME (A)(B) FISCAL YEAR ($/SH)(C) DATE DATE 5%($) 10%($)
----------------------------------------------------------------------------------------------------------------------
Bruce Karatz 500,000 30.9% $25.000 10/13/00 10/13/15 $13,486,605 $39,715,605
----------------------------------------------------------------------------------------------------------------------
Jeffrey T. Mezger 125,000 7.7 25.000 10/13/00 10/13/15 3,371,651 9,928,901
----------------------------------------------------------------------------------------------------------------------
Guy Nafilyan --0-- --0-- --0-- --0-- --0-- --0-- --0--
----------------------------------------------------------------------------------------------------------------------
Glen Barnard 35,000 2.2 25.000 10/13/00 10/13/15 944,062 2,780,092
----------------------------------------------------------------------------------------------------------------------
Albert Z. Praw 35,000 2.2 17.188 6/01/00 6/01/15 649,062 1,911,369
6,353 0.4 22.822 8/28/00 8/28/15 156,432 460,663
50,000 3.1 25.000 10/13/00 10/13/15 1,348,660 3,971,560
29,125 1.8 31.630 11/21/00 11/21/15 993,934 2,926,956
----------------------------------------------------------------------------------------------------------------------
(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 13, 2000 represent annual
discretionary awards to the Named Executive Officers for fiscal 2001.
(b) The options granted to Mr. Praw on August 28, 2000 and November 21, 2000
were reimbursement grants in connection with the Company's Executive Stock
Ownership Policy. The Executive Stock Ownership Policy, adopted in 1998,
requires the Named Executive Officers and certain other Company executives
to attain specified levels of stock ownership within three years of becoming
subject to the policy. Executives may receive reimbursement options to the
extent original grant options are exercised to acquire shares in accordance
with the Executive Stock Ownership Policy, and some of the shares acquired
are sold to pay for the exercise price and tax liability. Executives receive
that number of reimbursement options equal to the number of shares sold to
cover the exercise price and the tax liability; the reimbursement options
are fully vested on the date of grant and have an exercise price equal to
the market value on the date of grant. Reimbursement option grants under the
Executive Stock Ownership Policy are made only in connection with the
exercise of an original option grant, and are not available with respect to
the exercise of a reimbursement option. Further, the reimbursement option
feature is available only for options exercised to increase share ownership
in compliance with the Executive Stock Ownership Policy; grants of such
options will cease to be made once a participating executive achieves his or
her target stock ownership level.
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30
(c) 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.
(d) 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.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUE
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR END(#) FISCAL YEAR END($)(C)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(A) REALIZED($)(B) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------------------------------------------------------------------------------------------
Bruce Karatz --0-- $ --0-- 1,561,425 1,076,666 $29,570,380 $9,883,059
Jeffrey T. Mezger --0-- --0-- 84,860 205,333 1,000,095 1,773,020
Guy Nafilyan 30,000 577,500 77,668 22,332 1,049,766 241,084
Glen Barnard --0-- --0-- 90,274 98,666 1,026,636 930,416
Albert Z. Praw 43,001 454,465 103,884 147,332 608,643 1,523,836
---------------------------------------------------------------------------------------------------------------
(a) The transaction reported for Mr. Praw was an exercise in accordance with the
Company's Executive Stock Ownership Policy. See footnote (b) to the table
entitled "Option/SAR" Grants in Last Fiscal Year" on page 25.
(b) Represents the difference between the market value of the Company's Common
Stock at exercise minus the exercise price of the options.
(c) Represents the difference between the $31.38 closing price of the Company's
Common Stock on November 30, 2000 on the New York Stock Exchange and the
exercise price of the options.
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LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The following table provides information on long-term incentive awards granted
in 2000 to the Named Executive Officers under the Unit Performance Program.
Please also see the Compensation Committee Report on pages 17 - 18.
ESTIMATED FUTURE PAYOUT IN SHARES
NUMBER OF OF COMMON STOCK
PERFORMANCE ----------------------------------------
NAME UNITS(#)(A) PERFORMANCE PERIOD THRESHOLD(#)(B) TARGET(#) MAXIMUM(#)
--------------------------------------------------------------------------------------------------
Bruce Karatz 600 12/1/99 - 11/30/02 13,636 27,273 40,909
Jeffrey T. Mezger 500 12/1/99 - 11/30/02 11,364 22,727 34,091
Guy Nafilyan --0-- 12/1/99 - 11/30/02 --0-- --0-- --0--
Glen Barnard 400 12/1/99 - 11/30/02 9,091 18,182 27,273
Albert Z. Praw 300 12/1/99 - 11/30/02 6,818 13,636 20,455
--------------------------------------------------------------------------------
(a) At the beginning of fiscal 2000, the Company awarded Performance Units under
the UPP for the fiscal 2000 - 2002 performance period. Each Performance Unit
represents the opportunity to receive an award payable in shares of Common
Stock. The target award for each Performance Unit is 45.45 shares of Common
Stock. The actual number of shares awarded at the end of the performance
period will depend upon the Company's cumulative EPS (weighted at 75%) and
average PROI (weighted at 25%) during the performance period. The target
number of shares will be awarded if a specified, targeted cumulative EPS and
average PROI are achieved for the period. The threshold number of shares
(22.73 shares per Performance Unit), equal to 50% of the target number, will
be awarded if a specified minimum cumulative EPS and 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 number of shares. The maximum number of shares
(68.18 shares per Performance Unit), equal to 150% of the target number,
will be awarded if the specified maximum cumulative EPS and average PROI for
the period are achieved or exceeded. The dollar value of any payout in
shares will depend on the number of shares awarded at the end of the
performance period and the market value of the 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 2000 - 2002 performance period.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------------------------
LEWIS HOMES ACQUISITION
On January 7, 1999, the Company acquired substantially all of the homebuilding
assets of the Lewis Homes group of companies ("Lewis Homes"). Prior to the
acquisition, Lewis Homes was one of the largest privately held homebuilders in
the United States based on the number of homes delivered. The purchase price
included the issuance of 7,886,686 shares of the Company's Common Stock, all of
which shares were beneficially owned by members of the Lewis family, including
Messrs. Randall and Robert Lewis, and a former senior executive officer of Lewis
Homes (collectively, the "Lewis Shareholders"). In September 2000, the Company
repurchased from the Lewis Shareholders, 4,000,000 shares of the Company's
Common Stock originally issued in the acquisition, at a purchase price of $26.00
per share. Each of the Lewis Shareholders thereafter sold on the public market
the balance of the shares of Common Stock that they owned, except for Mr.
Randall Lewis who, as of February 27, 2001, continued to own 122,469 shares
acquired in the acquisition. In connection with the September 2000 share
repurchase from the Lewis Shareholders, the Company issued promissory notes to
the Lewis Shareholders with an aggregate principal amount of $78 million.
Interest due on the notes is accrued monthly at a rate of 6.6%. Under the terms
of the notes, one payment of $26 million plus accrued interest was paid on
January 4, 2001, with two equal payments due on June 7, 2001 and December 6,
2001.
Shareholder Agreement. In connection with the Lewis Homes purchase agreement
(the "Purchase Agreement"), the Company and the Lewis Shareholders entered into
a Shareholder Agreement (the "Shareholder Agreement"), pursuant to which, among
other things, the Company agreed to elect a designee of the Lewis Shareholders
to serve on the Company's Board of Directors until the Company's Annual Meeting
of Shareholders in 2000. In accordance with the Shareholder Agreement, effective
January 7, 1999 Mr. Randall Lewis was elected to the Company's Board of
Directors, and was re-elected by the Company's Stockholders at the 2000 Annual
Stockholders meeting. He stepped down as a director on February 27, 2001.
Under the Shareholder Agreement, the Lewis Shareholders agreed to vote all
shares of the Company's Common Stock beneficially owned by them in accordance
with the recommendations of the Company's Board of Directors. The Shareholder
Agreement provided, however, that this voting arrangement would be automatically
suspended if, among other things, the aggregate beneficial ownership of the
Company's Common Stock by Lewis Shareholders fell below 10% of all shares
outstanding. Accordingly, in late 2000, the voting agreement was suspended when
the Lewis Shareholders' aggregate beneficial ownership of the Company's Common
Stock fell below 10%.
Real Property Purchase and Option Agreements. Under the Purchase Agreement, the
Company has a right of first offer through January 7, 2003 to purchase certain
residential properties that may be developed by the Lewises in California or
Nevada. As of February 27, 2001, the Company had not exercised its right to
purchase any such properties.
The Lewises retained ownership of certain residential properties, including
Sierra Lakes, a 2,000-lot master plan community in Fontana, California. The
Lewises have granted the Company options to purchase over a period of no more
than ten years all
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33
of the approximately 2,000 lots anticipated to be developed in Sierra Lakes.
Pursuant to the Purchase Agreement, in 1999 the Company made a $5 million
deposit against these options, which deposit eventually will be offset against
the purchase price of the lots, if and to the extent the Company exercises its
options. As of February 27, 2001, the Company had exercised options to purchase,
and had acquired, 501 lots in the Sierra Lakes community for an aggregate
purchase price of approximately $18.6 million, none of which was offset by the
$5 million deposit. Mr. Randall Lewis and Mr. Robert Lewis directly or
indirectly own approximately 3% and 4%, respectively, of the Lewises' interest
in the Sierra Lakes project. Other members of the Lewis family and a former
senior executive officer of Lewis Homes own the balance of the ownership
interests in the Sierra Lakes project.
The Company has entered into certain other option and purchase agreements to
acquire residential properties developed in California and Nevada by the
Lewises. On an aggregate basis, the Company may acquire a total of approximately
407 lots under these agreements. If the Company acquires all of the lots under
these agreements, the aggregate purchase price for all lots will be
approximately $22.3 million. As of February 27, 2001, the Company had acquired
363 lots under these agreements, for aggregate consideration of approximately
$20.5 million. The Company has deposited approximately $274,000 under one of the
option agreements, which deposit will be incrementally offset against the
purchase price of the final lots acquired under that agreement, if and to the
extent the Company determines to exercise its option to purchase all of the
lots. Mr. Randall Lewis and Mr. Robert Lewis directly or indirectly have a
weighted average ownership interest of 35% and 11%, respectively, in such
properties. Other members of the Lewis family and a former senior executive
officer of Lewis Homes own the balance of the ownership interests in such
properties.
On February 5, 2001, the Company entered into an agreement with the Lewises to
sell back to them approximately 88 acres of property in the Reno, Nevada area
for approximately $2.2 million. The property was originally acquired by the
Company pursuant to the Purchase Agreement as part of the Lewis Homes
acquisition. Mr. Randall Lewis and Mr. Robert Lewis directly or indirectly own
approximately 27% and 34%, respectively, of the Lewis entity that is purchasing
the property in this transaction.
All of the foregoing real property purchase and option agreements were
negotiated at arm's length as part of the Lewis Homes acquisition, or subsequent
thereto. The Company believes that such agreements are on terms that are at
least as favorable to the Company as those obtained by the Company in similar
arms-length agreements with unrelated third parties.
Employment and Consulting Agreements. Through January 6, 2000, Mr. Randall Lewis
was a Senior Vice President of the Company and was engaged under an employment
agreement with the Company that provided for a monthly salary of $20,000 and an
annual bonus and other benefits on a level comparable to other senior officers
of the Company. On January 7, 2000, Mr. Lewis stepped down as Senior Vice
President and entered into a non-employee consulting agreement with the Company
under which he was engaged to assist the Company in the design, marketing,
merchandising and performance of the Company's New Home Showrooms, products and
other matters. The agreement provided for a monthly retainer of $8,333 and
expired pursuant to its own terms on November 30, 2000.
From January 7, 1999 through November 30, 1999, Mr. Robert Lewis was President
of the Company's Nevada operations and was engaged under an employment agreement
with the Com-
29
34
pany. The agreement provided for an annual salary of $230,000 and an annual
bonus and other benefits on a level comparable to other senior officers of the
Company. On December 1, 1999, Mr. Robert Lewis stepped down as President of the
Company's Nevada operations and entered into a non-employee consulting agreement
with the Company under which he was engaged to continue to assist the Company's
Nevada and other domestic operations in a variety of capacities. The agreement
provided for a monthly retainer of $16,667 and expired pursuant to its own terms
on November 30, 2000.
From January 7, 1999 through January 7, 2000, Mr. Richard Lewis, a brother of
Mr. Randall Lewis and Mr. Robert Lewis, was engaged under a non-employee
consulting agreement with the Company under which he was engaged to assist the
Company in identifying, entitling and developing land suitable for single family
residential construction by the Company. Mr. Richard Lewis received a monthly
retainer of $15,000 under the agreement.
AMERICAN CITYVISTA
In August 2000, the Company and Mr. Henry Cisneros formed American CityVista, a
joint venture limited liability company to build single family homes and
townhouse communities in the central zones of major metropolitan areas where new
residential development has not occurred in recent years. On February 10, 2001,
American CityVista commenced sales in its first community, Lago Vista in San
Antonio, Texas. American CityVista is jointly capitalized by the Company and Mr.
Cisneros, with Mr. Cisneros having a 65% majority interest in the venture, and
the Company owning the remaining 35%. Mr. Cisneros is Chairman of the Board and
Chief Executive Officer of American CityVista. Mr. Karatz is a director of
American CityVista, which also has a third, jointly-selected outside director.
As of February 27, 2001, the Company had contributed $1,050,000 to the joint
venture.
In August 2000, Mr. Cisneros was elected to the Board of Directors of the
Company. Mr. Cisneros is neither an employee of the Company nor does he receive
any compensation or other benefits from the Company other than those received by
all non-employee directors of the Company.
OTHER TRANSACTIONS
e.KB Equity Incentive Program. Under the Company's e.KB Equity Incentive
Program, certain executives are granted the opportunity to purchase minority
membership interests in separate limited liability companies which are
established to hold each of the Company's e-business investments (each, an "e.KB
LLC"). The operating agreement for each e.KB LLC provides that distributions
will be made first to e.KB, Inc., the Company's wholly-owned subsidiary, until
it has received a return of 100% of contributed capital. The interests that may
be acquired by executives represent a right to receive a portion of any
distributions by a particular e.KB LLC in excess of the Company's capital
contribution. An executive's interests do not vest until three years from the
date of award, subject to the executive's continued employment with the Company,
unless a qualifying event accelerates vesting (e.g., death, disability, change
of control or sale of substantially all of the e.KB LLC's underlying assets).
Participating executives pay a nominal amount for each percentage interest they
are permitted to acquire in an e.KB LLC. The aggregate amount of minority e.KB
LLC interests available for grant to company executives in each e.KB LLC ranges
from 33% to 45%.
During 2000, the Company granted interests in six e.KB LLCs under the e.KB
Equity Incentive Program. The Company's capital contribution to four of the e.KB
LLCs as of the end of fiscal 2000
30
35
equaled $3.4 million, $1.8 million, $1.0 million and $0.3 million. The Company's
capital contribution to the other two e.KB LLCs was made in the form of goods or
services, valued at $0.1 million and $10,000, respectively. In 2000, Named
Executive Officers were granted interests under the e.KB Equity Incentive
Program representing the following percentage of any distributions by these e.KB
LLCs in excess of the Company's capital contribution: Mr. Karatz: 9.9%, 9.9%,
9.9%, 9.9%, 22.5% and 11.25%; Mr. Mezger: 3.3%, 3.3%, 3.3%, 3.3%, 2.25% and
3.375%; Mr. Barnard: 4.95%, 4.95%, 4.95%, 4.95%, 2.25% and 5.4%; and Mr. Praw:
1.65%, 1.65%, 1.65%, 2.475%, 1.35% and 2.25%. No distributions were made under
the e.KB Equity Incentive Program in fiscal 2000. Please also see the
Compensation Committee Report at page 18.
Mortgage Loans. Through its mortgage banking subsidiary, the Company offers home
mortgage loans to its employees and directors. These mortgage loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other customers and do
not involve more than the normal risk of collectability. Such loans are
typically promptly sold to third-party mortgage purchasers.
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36
AUDIT AND COMPLIANCE COMMITTEE REPORT
------------------------
The Company's Audit and Compliance Committee (the "Audit Committee") is
comprised of four independent directors, and acts under a written Audit
Committee Charter first adopted and approved by the Audit Committee and the full
Board of Directors in 1999. Each of the members of the Audit Committee is
independent as defined by the Audit Committee Charter and the listing standards
of the NYSE. A copy of the Audit Committee Charter is attached to this Proxy
Statement as Attachment A.
The Audit Committee reviews the Company's financial reporting process and its
internal controls processes on behalf of the Board of Directors. Management has
the primary responsibility for the financial statements, the reporting process
and assurance for the adequacy of controls. The Company's independent auditors
are responsible for expressing an opinion on the conformity of the Company's
audited financial statements to generally accepted accounting principles.
In this context, the Audit Committee has reviewed and discussed with
management and the independent auditors the Company's audited financial
statements. The Audit Committee has discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees). In addition, the Audit Committee has
received from the independent auditors the written disclosures required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees) and discussed with them their independence from the Company and its
management. Further, the Audit Committee has considered whether the independent
auditors provision of non-audit services to the Company is compatible with the
auditors' independence.
In reliance on the reviews and discussions referred to above, the Audit
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 year ended November 30, 2000, for filing with the
Securities and Exchange Commission.
This report is respectfully submitted by the members of the Audit and Compliance
Committee:
Sanford C. Sigoloff -- Chair
Jane Evans
Dr. Barry Munitz
Luis G. Nogales
The above Audit Committee Report shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
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PROPOSAL TWO:
2001 STOCK INCENTIVE PLAN
------------------------
On February 1, 2001, the Company's Board of Directors adopted the KB Home 2001
Stock Incentive Plan (the "2001 Plan"), subject to approval by the Company's
stockholders.
The 2001 Plan is intended to replace the Company's stockholder-approved
incentive plans (the KB Home 1998 Employee Stock Plan and KB Home
Performance-Based Incentive Plan for Senior Management), which, at February 27,
2001, had 210,000 shares of Common Stock remaining and available for awards
thereunder, which is less than one grant cycle. Under the proposed 2001 Plan,
the Company may grant to eligible employees stock options, restricted stock,
performance stock, stock units and limited stock appreciation rights. The 2001
Plan will support the Company's ongoing effort to align the interest of
management and other key employees with those of the Company's stockholders by
providing incentives that are directly linked to the profitability of the
Company's business and increases in stockholder value. ACCORDINGLY, THE 2001
PLAN WILL FORM AN IMPORTANT PART OF THE COMPANY'S OVERALL COMPENSATION PROGRAM,
AND YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
The following summary of the main features of the 2001 Plan is qualified in
its entirety by the complete text of the 2001 Plan, copies of which may be
obtained by making a written request to the Company's Secretary and will be
available at the Annual Meeting.
ELIGIBILITY
Officers, other employees or prospective employees of, and consultants or
advisors to, the Company, its subsidiaries and its affiliates who are
responsible for or contribute to the management, growth and long-term
profitability and value of the Company will be eligible to receive awards under
the 2001 Plan. Approximately 235 Company employees are currently eligible to
receive awards under the Company's existing shareholder-approved plans and the
Company expects that approximately the same number initially would be eligible
to receive awards under the 2001 Plan. No determination has been made, however,
as to which of the Company's employees will receive grants under the 2001 Plan;
therefore, the benefits to be allocated thereunder to any individual or to
various groups of employees are not presently determinable.
ADMINISTRATION
If approved by stockholders, the 2001 Plan will be administered by the Board of
Directors and/or a Committee of the Board of Directors (the "Committee"). The
Committee will select the individuals to whom awards will be granted and will
set the terms of such awards. It is currently anticipated that the 2001 Plan
will be administered by the Compensation Committee or a subcommittee thereof.
Subject to the express provisions of the 2001 Plan (including the prohibition
in the 2001 Plan on repricing stock options without stockholder approval), the
Committee has broad authority to administer and interpret the 2001 Plan,
including, without limitation, authority to determine who is eligible to
participate in the 2001 Plan and to which of such persons, and when, awards are
to be granted under the 2001 Plan, to determine the number of shares of Common
Stock subject to awards and the exercise or purchase price of such shares under
an award, to establish and verify the
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38
extent of satisfaction of any performance goals applicable to awards, to
prescribe and amend the terms of the agreements evidencing awards made under the
2001 Plan, and to make all other determinations deemed necessary or advisable
for the administration of the 2001 Plan.
STOCK SUBJECT TO THE 2001 PLAN
The aggregate number of shares of the Company's Common Stock that can be issued
under the 2001 Plan may not exceed 4,200,000 shares. The number of shares
subject to the 2001 Plan and to outstanding awards under the 2001 Plan will be
appropriately adjusted by the Board of Directors if the Company's Common Stock
is affected through a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than routine cash dividends) or
other distribution, stock split, spin-off or sale of substantially all of the
Company's assets. For purposes of calculating the aggregate number of shares
issued under the 2001 Plan, only the number of shares of Common Stock actually
issued upon exercise, vesting or settlement of an award and not returned to the
Company upon cancellation, expiration or forfeiture of an award or in payment or
satisfaction of the purchase price, exercise price or tax withholding obligation
of an award shall be counted.
The maximum number of shares of Common Stock that can be subject to options
and limited stock appreciation rights granted to any participant in any calendar
year may not exceed 1,000,000. The maximum number of shares that can be subject
to all other types of awards under the 2001 Plan granted to any participant in
any calendar year may not exceed 500,000 in the aggregate.
AWARDS
The 2001 Plan authorizes the grant and issuance of the following types of
awards: stock options and associated limited stock appreciation rights,
restricted stock, performance stock, and stock units.
Stock Options. Subject to the express provisions of the 2001 Plan and as
discussed below, the Committee has discretion to determine the vesting schedule
of options, the events causing an option to expire, the number of shares subject
to any option, the restrictions on transferability of an option, and such
further terms and conditions, in each case not inconsistent with the 2001 Plan,
as may be determined from time to time by the Committee. Options granted under
the 2001 Plan may be either incentive stock options ("Incentive Stock Options")
qualifying under Section 422 of the Internal Revenue Code (the "Code") or
options which are not intended to qualify as Incentive Stock Options
("Nonqualified Options").
The exercise price for options may not be less than 100% of the fair market
value of the Company's Common Stock on the date the option is granted, except
that in the case of options granted in assumption and substitution of options
held by employees of a company acquired by the Company, the exercise price of
such options may be above or below the fair market value of the Company's Common
Stock on the date the option is granted. In addition, if a participant is
required to pay or forego cash compensation prior to receiving an option, the
aggregate exercise price of the option may be reduced by the amount paid or
foregone. Unless approved by stockholders, the exercise price of options cannot
be repriced.
Limited Stock Appreciation Rights. The Committee may determine at the time of
grant of an option or thereafter to grant a limited stock appreciation right
relating to an option which shall only be exercisable during the 91-day period
commencing upon the occurrence of a change of ownership (as defined in the 2001
Plan and described below). Upon the exercise of a limited stock appreciation
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right, the optionee is entitled to receive a cash payment equal to the excess of
the fair market value of a share of Common Stock or the offer price per share of
Common Stock, whichever is higher, over the option price of the related option.
Performance Stock. Performance stock is an award of shares, the grant, issuance,
retention and/or vesting of which is subject to such performance and other
conditions as may be specified by the Committee. Subject to the express
provisions of the 2001 Plan and as discussed in this paragraph, the Committee
has discretion to determine the terms of any performance stock award, including
the number of shares of Common Stock subject to a performance stock award or a
formula for determining such, the performance criteria and level of achievement
versus these criteria which determine the number of shares granted, issued,
retainable and/or vested, the period (if applicable) as to which performance
shall be measured for determining achievement of performance, forfeiture
provisions, the effect of termination of employment for various reasons, and
such further terms and conditions, as may be determined from time to time by the
Committee. The performance criteria upon which performance shares are granted,
issued, retained and/or vested may be based on financial performance and/or
personal performance evaluations, except that for any performance stock that is
intended by the Committee to satisfy the requirements for "performance-based
compensation" under Section 162(m) the performance criteria shall be a measure
based on one or more Qualifying Performance Criteria (as defined below).
Notwithstanding satisfaction of any performance goals, the number of shares of
Common Stock granted, issued, retainable and/or vested under a performance stock
award may be reduced by the Committee on the basis of such further
considerations as the Committee in its sole discretion shall determine.
Restricted Stock. The Committee may also issue or transfer shares of Common
Stock to a participant under an award of restricted stock. Restrictions on
shares issued under an award of restricted stock will lapse no earlier than two
years from the date of grant, unless the lapsing of the restrictions is
contingent upon the attainment of specified performance criteria, in which case
the restrictions may lapse earlier. Stock certificates for such shares will be
held by the Company during the restriction period and cannot be transferred by
the grantee prior to the termination of that period. The grantee, however, may
be entitled to vote the shares and receive dividends currently.
Stock Units. The 2001 Plan also authorizes the Committee to grant to
participants, either alone or in settlement of options and awards of performance
stock or restricted stock thereunder, awards of Common Stock and other awards
that are valued in whole or in part by reference to, or are otherwise based on,
the value of Common Stock (such awards are referred to herein as "stock units").
Stock units may be settled in stock or in cash upon termination of a
participant's employment or otherwise, as specified in the 2001 Plan and by the
Committee. The Committee has the discretion to determine the participants to
whom stock unit awards are to be made, the times at which such awards are to be
made, the size of such awards and all other conditions of such awards, including
any restrictions, deferral periods or performance requirements. The provisions
of the stock unit awards will be subject to such rules and regulations as the
Committee shall determine at the time of grant. For example, stock unit awards
may, but need not, provide that (i) the participant is not permitted to sell,
transfer, pledge or assign any shares involved prior to the date on which such
shares are issued, or, if later, the date on which any applicable restriction,
performance or deferral period lapses, (ii) the participant has the right to
receive cur-
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rently or on a deferred basis interest or dividends, or interest or dividend
equivalents, and (iii) such awards are subject to forfeiture provisions, all as
the Committee shall determine.
Qualifying Performance Criteria and Section 162(m) Limits. The 2001 Plan is
designed so that awards made thereunder may satisfy the requirements for
"performance-based" compensation under Section 162(m). The performance criteria
for any restricted stock, performance stock or stock unit that is intended to
satisfy the requirements for "performance based compensation" under Section
162(m) shall be any one or more of the following qualifying performance criteria
("Qualifying Performance Criteria"), either individually or in any combination,
applied to either the Company as a whole or to a business unit or subsidiary,
and measured either on an absolute basis or relative to a pre-established
target, to previous years' results or to a designated comparison group, in each
case as pre-established by the Committee under the terms of the award: (a)
pre-tax income, (b) after-tax income, (c) cash flow, (d) earnings per share
(including earnings before interest, taxes, depreciation and amortization), (e)
return on equity, (f) total shareholder return, (g) return on investment, (h)
unit volume, (i) net sales, or (j) service quality, in each case as determined
in accordance with Generally Accepted Accounting Principles, if applicable.
CHANGE OF OWNERSHIP
Unless otherwise specifically determined by the Committee at time of grant, all
outstanding options and all restrictions on outstanding awards shall lapse on a
change of ownership. A "change of ownership" will be deemed to occur if (i)
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's voting securities or in connection with an
election contest) cease to represent a majority of the Board or (ii) the Board
determines that a change of ownership has occurred.
TRANSFERABILITY OF AWARDS
Generally, options granted under the 2001 Plan may not be sold, assigned,
conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner,
other than by will or the laws of descent and distribution, except that the
Committee may permit options to be transferable in its discretion in other
circumstances.
FINANCING
The Committee may provide financing to participants on such terms as the
Committee determines in a principal amount sufficient to pay the exercise or
purchase price under, and the taxes due with respect to, awards under the 2001
Plan.
AMENDMENTS AND TERMINATION
The Board of Directors may alter, amend, suspend or terminate the 2001 Plan or
any award theretofore granted under the 2001 Plan, except that, unless otherwise
approved by the Company's stockholders, no such action may reduce the exercise
price of outstanding options, reduce the minimum permissible option exercise
price, extend the maximum option term or the term of the 2001 Plan, or
materially increase the total number of shares available for awards under the
2001 Plan. No option granted under the 2001 Plan shall have a term of more than
fifteen years from the date it is granted, and no awards shall be granted
pursuant to the 2001 Plan more than ten years after the date of the approval of
the 2001 Plan by the Company's stockholders.
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SUMMARY OF FEDERAL INCOME TAX
CONSEQUENCES OF OPTIONS
The following is a brief summary of the principal United States Federal income
tax consequences under current Federal income tax laws related to options under
the 2001 Plan. This summary is not intended to be exhaustive and among other
things, does not describe state or local tax consequences.
Tax Deductibility and Section 162(m). Any cash payments or the fair market value
of any shares of Common Stock or other property an employee receives in
connection with other stock-based awards, incentive awards, or as unrestricted
payments equivalent to dividends on unfunded awards or on restricted stock are
includible in income in the year received or made available to the employee
without substantial limitations or restrictions. Generally, the Company will be
entitled to deduct the amount the employee includes in income as a business
expense in the year of payment.
Section 162(m) places a $1 million annual limit on the deductible compensation
of certain executives of publicly traded corporations. The limit, however, does
not apply to "qualified performance-based compensation." The 2001 Plan is
designed so that awards made thereunder may qualify for the performance-based
compensation exception to the deductibility limit, assuming that the 2001 Plan
is approved by stockholders.
Nonqualified Options. The recipient of a Nonqualified Option does not recognize
income at the time the option is granted. When the Nonqualified Option is
exercised, the grantee recognizes ordinary income equal to the difference
between the fair market value on the exercise date of the number of shares of
Common Stock issued and their exercise price. The Company receives a deduction
equal to the amount of ordinary income recognized by the optionee. The
optionee's basis in the shares acquired upon exercise of an option is equal to
their exercise price plus the ordinary income recognized upon exercise. Upon
subsequent disposition of the shares, the optionee will recognize capital gain
or loss, which will be short-term or long-term, depending upon the length of
time the shares were held since the date the Nonqualified Option was exercised.
Incentive Stock Options. In general, the recipient of an Incentive Stock Option
will not be subject to tax at the time the Incentive Stock Option is granted or
exercised. However, the excess of the fair market value of the shares of Common
Stock received upon exercise of the Incentive Stock Option over their exercise
price is potentially subject to the alternative minimum tax. Upon disposition of
the shares acquired upon exercise of an Incentive Stock Option, long-term
capital gain or loss will be recognized in an amount equal to the difference
between the sales price and the aggregate exercise price for those shares,
provided that the optionee has not disposed of the shares within two years of
the date the Incentive Stock Option was granted or within one year from the date
the Incentive Stock Option was exercised. If the optionee disposes of the Shares
without satisfying both of the foregoing holding period requirements (a
"Disqualifying Disposition"), the optionee will recognize ordinary income at the
time of such Disqualifying Disposition to the extent of the difference between
the option exercise price and the lesser of the fair market value of the shares
on the date the Incentive Stock Option is exercised or the amount realized on
such Disqualifying Disposition. Any remaining gain or loss is treated as a
short-term or long-term capital gain or loss, depending upon how long the shares
have been held. The Company is not entitled to a tax deduction upon either the
exercise of an Incentive Stock Option or upon disposition of the shares acquired
pursuant to such exercise, except to the extent that the optionee recognizes
ordinary income in a Disqualifying Disposition.
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Special Rules. To the extent an optionee pays all or part of the option exercise
price of a Nonqualified Stock Option by tendering shares of Common Stock already
owned by the optionee, the tax consequences described above apply except that
the number of shares received upon such exercise which is equal to the number of
shares surrendered in payment of the option exercise price shall have the same
basis and tax holding period as the shares surrendered. If the shares of Common
Stock surrendered had previously been acquired upon the exercise of an Incentive
Stock Option, the surrender of such shares may be a Disqualifying Disposition if
the holding period requirements described above have not been satisfied with
respect to such shares at the time of such exercise. The additional shares of
Common Stock received upon such exercise have a tax basis equal to the amount of
ordinary income recognized on such exercise and a holding period which commences
on the date of exercise. Under proposed Treasury regulations, if an optionee
exercises an Incentive Stock Option by tendering shares previously acquired on
the exercise of an Incentive Stock Option, a Disqualifying Disposition may occur
if the holding period requirements described above have not been satisfied with
respect to such shares at the time of such exercise, and the optionee may
recognize income and be subject to other basis allocation and holding period
requirements.
STOCKHOLDER APPROVAL
The affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to approve the material terms of the 2001 Plan.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
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PROPOSAL THREE:
RE-APPROVAL OF THE PERFORMANCE-BASED
INCENTIVE PLAN FOR SENIOR MANAGEMENT
------------------------
Stockholder re-approval of the KB Home Performance-Based Incentive Plan for
Senior Management (the "Performance-Based Incentive Plan") is being sought this
year to preserve the Company's tax deduction for all awards earned and paid
under the Performance-Based Incentive Plan without limitation under Section
162(m) of the Internal Revenue Code ("Code Section 162(m)").
DESCRIPTION OF THE PERFORMANCE-BASED INCENTIVE PLAN
The following summary of the Performance-Based Incentive Plan is qualified in
its entirety by reference to the plan, a copy of which may be obtained by making
a written request to the Secretary of the Company and will be available at the
Annual Meeting.
Awards may be made under the Performance-Based Incentive Plan to officers of
the Company or its subsidiaries, as designated by the Compensation Committee.
Currently, Messrs. Karatz and Mezger are the only officers whom the Compensation
Committee have selected to participate in the Performance-Based Incentive Plan.
At the commencement of each performance period (i.e., the fiscal year), the
Compensation Committee establishes performance goals and corresponding target
awards, based on one or more objective performance criteria. Such goals,
criteria and target awards may vary among participants. The performance criteria
may include one or more of the following objective measurements: pre-tax income,
after-tax income, cash flow, return on equity, return on capital, earnings per
share, unit volume, net sales or service quality, as measured by preset quality
objectives.
Awards are based upon the level of achievement of the pre-established
performance goals. Awards may be paid in cash, stock options, SARs, restricted
stock or a combination thereof. The awards are paid in cash as soon as
practicable after the performance period, except to the extent deferred under
any deferred compensation plan that may be adopted by the Company and applicable
to the awards. Under the Performance-Based Incentive Plan, annual cash awards to
a participant other than the Chief Executive Officer may not exceed $2 million;
annual cash awards to the Chief Executive Officer may not exceed $3 million. No
more than an aggregate total of 1,000,000 shares may be issued under the
Performance-Based Incentive Plan. No more than 100,000 shares may be issued to
any participant in any year; provided, however, that this number may be
increased in any year to the extent that stock-based awards in prior years under
the Performance-Based Incentive Plan to that participant represented less than
100,000 shares.
The Compensation Committee has full power to administer and interpret the
Performance-Based Incentive Plan and to establish rules for its administration.
The Compensation Committee or the Board may amend, suspend or terminate the
Performance-Based Incentive Plan at any time.
DISCUSSION OF CODE SECTION 162(M)
Under the provisions of Code Section 162(m), the allowable deduction for
compensation paid or accrued with respect to the Named Executive
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Officers, defined as "covered employees," is limited to $1 million per year (the
"deductibility limitation"). However, certain types of compensation are exempted
from the deductibility limitation, including performance-based compensation.
"Performance-based compensation" is compensation paid (i) upon the attainment of
an objective performance goal or goals; (ii) upon approval by the Compensation
Committee, which committee must be comprised entirely of outside directors; and
(iii) pursuant to a plan as to which stockholders have approved certain material
terms, specifically the eligibility, per-person limits, and the business
criteria upon which the performance goals are based. The Company intends that
awards under the Performance-Based Incentive Plan continue to qualify as
"performance-based compensation" so that these awards will not be subject to the
deductibility limitation.
Under Treasury Regulations promulgated under Code Section 162(m), the material
terms of the Performance-Based Incentive Plan must be submitted to stockholders
for approval every five years because the Compensation Committee has discretion
under the Performance-Based Incentive Plan to fix the targets under specific
performance goals annually. Stockholders last approved the Performance-Based
Incentive Plan at the Company's 1995 Annual Stockholders Meeting; accordingly,
re-approval of the material terms of the Performance-Based Incentive Plan
relating to eligibility, annual per-person limits, and business criteria used in
performance goals, as described in this Proposal 3, is being sought to preserve
full deductibility of awards under the Performance-Based Incentive Plan going
forward. In the event stockholders disapprove this Proposal, awards will not be
granted or paid out under the Performance-Based Incentive Plan to the extent
required under Treasury Regulation 1.162-27(e)(4) to meet the stockholder re-
approval requirements of that regulation.
STOCKHOLDER APPROVAL
The affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to re-approve the material terms of the
Performance-Based Incentive Plan.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL
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PROPOSAL FOUR:
STOCKHOLDER PROPOSAL
------------------------
Victor Morris, 10 Miller Place, #1701, San Francisco, California 94108, the
beneficial owner of 1,000 shares of Common Stock, has notified the Company that
he intends to present a proposal at the Company's 2001 Annual Meeting of
Stockholders. The proposal is set forth below, along with the Company's reasons
for recommending a vote AGAINST the proposal. The Board of Directors and the
Company accept no responsibility for the accuracy of the proposal or the
proponent's supporting statement.
STOCKHOLDER PROPOSAL
"WHEREAS many shareowners lack the time and expertise to make the best voting
decisions, yet prefer not to always follow management's recommendations, because
of management's possible conflicts of interest;
"WHEREAS shareowners have a common interest in obtaining sound independent
advice, but often insufficient private interest to justify paying for it
individually (the "free-rider" problem);
"THEREFORE BE IT RESOLVED that KB Home shareowners request the Board of
Directors to hire a proxy advisory firm for one year, to be chosen by shareowner
vote. Shareowners request the Board to take all necessary steps to enact this
resolution in time to hold the vote at the year-2002 shareowner meeting, with
the following features:
"- To insulate advisor selection from influence by Company management, any proxy
advisory firm could put itself on the ballot by paying an entry fee,
declaring the price (no more than $5000) for advisory services for the coming
year, and providing the address of a website describing their proposed
services and qualifications.
"- The winning candidate would be paid its declared price by the Company, and
make advice freely available to all Company shareowners for the subsequent
year, on all matters put to shareowner vote except director elections. This
advice could relate to such matters as mergers, stock option plans, and
shareowner proposals. (Advice on director elections is excluded to satisfy
SEC rule 14a-8(i)(8).)
"- Performance of the advisory firm would not be policed by Company management,
but rather by gain or loss of the advisor's reputation and future business.
"- Brief summary advice could be included in the Company proxy, with references
to a website and/or toll-free number for more detail.
"- The decision of whether to hire proxy advisory firms in later years would be
left open, and could be decided by future shareowner votes.
SUPPORTING STATEMENT
"This proposal can be expected to improve the Company's stock return by:
"- improving management accountability to shareowners by making independent
professionally researched advice available to all;
"- increasing support for value-enhancing mergers and proposals;
"- encouraging greater competition on price and quality among proxy advisors to
serve shareowner interests, making it easier for new advi-
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sors to enter the business, and reducing the market share of the largest
proxy advisory firm.
"Like the Company's external auditor, the proxy advisor would be paid with
Company funds to give shareowners an independent professional opinion.
Independence would be further enhanced by having shareowners choose the proxy
advisor.
"The conflicts of interest between managers and shareowners are described in
Monk's and Minow's 1996 book Watching the Watchers, along with shareowners'
information problems.
"Articles discussing the company-pay system for proxy advice are on the
Corporate Monitoring website (http://www.corpmon.com/publications.htm), in
particular "The Internet Will Drive Corporate Monitoring" (Corporate Governance
International, June 2000). Further developments in corporate governance that may
follow from this proposal are presented in "The Corporate Monitoring Firm"
(Corporate Governance: An International Review, January 1999) and "Corporate
Monitoring: New Shareholder Power Tool" (Financial Analysts Journal,
September/October 1998)."
RECOMMENDATION OF THE BOARD OF DIRECTORS AGAINST THE PROPOSAL
Your Board of Directors recommends that you vote AGAINST the stockholder
proposal for the following reasons:
1. The Board of Directors, which includes eight outside directors and only two
members of management, is in the best position to make informed
recommendations to the Company's stockholders with respect to the matters
to be voted upon.
2. There already is a significant amount of research and information readily
available on the Internet and elsewhere regarding the Company and issues
important to the Company's stockholders.
3. The stockholder proposal would require the Company to spend corporate funds
for the hiring of a proxy advisory firm and for the distribution of the
firm's advice to stockholders.
4. The stockholder proposal would preclude management of the Company from
evaluating the quality of the proxy advisory firm's work, its
recommendations or the process by which recommendations are made.
ACCORDINGLY, YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL
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OTHER MATTERS
------------------------
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Based upon its review of Forms 3, 4 and 5 and any amendments thereto furnished
to the Company 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's
reporting persons during 2000.
FINANCIAL STATEMENTS
The Company's 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, 2000 are included at pages 34 through 72 of the Company's
2000 Annual Report to Stockholders, which is being mailed to stockholders
concurrently with this Proxy Statement. Additional copies of the Annual Report
are available without charge upon request. The financial statements, the report
of independent auditors thereon, selected financial information, and
management's discussion and analysis of financial condition and results of
operations in the Annual Report are incorporated by reference herein.
INDEPENDENT ACCOUNTANTS
The firm of Ernst & Young LLP served as the Company's independent auditors for
2000. This firm has advised the Company that it has no direct or indirect
financial interest in the Company. For the 2000 fiscal year, the Company paid
Ernst & Young LLP the following fees:
FINANCIAL INFORMATION
SYSTEMS DESIGN AND
AUDIT FEES AUDIT RELATED IMPLEMENTATION FEES ALL OTHER FEES
-------------------------------------------------------------------
$412,850 $624,750 $--0-- $140,000
-------------------------------------------------------------------
Audit related services generally include fees for statutory and pension audits,
foreign and domestic registration statements, operational internal audit
procedures and accounting consultations. 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.
OTHER BUSINESS
The Board of Directors knows of no business other than that described herein
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
delivered proxies on such matters in accordance with their judgment in the best
interest of the Company.
STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the Company's 2002
Annual Meeting of Stockholders must be received by the Company for inclusion in
the Proxy Statement and form of proxy for that meeting no later than November 1,
2001. Further, management proxies for the Company's 2002 Annual Meeting of
Stockholders will use their discretionary voting authority with respect to any
proposal presented at the meeting by a stockholder who does not provide the
Company with written notice of such proposal prior to January 17, 2002.
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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 mails, proxies may be solicited by officers, directors, and other regular
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 $10,000.
By Order of the Board of Directors,
Kimberly N. King
Director of Corporate Legal Affairs
and Secretary
March 1, 2001
Los Angeles, California
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ATTACHMENT A
KB HOME
AUDIT AND COMPLIANCE COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit and Compliance Committee (the "Committee")
is to provide assistance to the Board of Directors in fulfilling its oversight
responsibilities to the shareholders relating to the corporate accounting and
reporting practices of the Company and the quality and integrity of financial
reports of the Company. The Committee shall assure that the Company has a
reasonable system of internal controls, shall review the audit efforts of the
independent accountants and the internal Controls Evaluation and Audit
Department ("Audit Department") and shall provide assistance to the Board in the
oversight of matters in which the Company has or may have material liability
exposure.
II. COMPOSITION
A. The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be "independent" directors (as defined in
Section V.A. below) and free from any relationship that, in the opinion of the
Board, would interfere with the exercise of his or her independent judgment as a
member of the Committee. All members of the Committee shall be "financially
literate" (as defined in Section V.B. below). The Committee Chairman shall have
accounting or related "financial management expertise" (as defined in Section
V.C. below).
B. The Chairman and members of the Committee shall be appointed by the Board
annually.
III. MEETINGS
A. The Committee shall meet at least three times annually, or more frequently
as circumstances dictate. The Chairman shall have the authority to call such
additional meetings as he or she deems necessary or desirable.
B. As part of its job to foster open communication, the Committee should meet
at least annually with the director of the Audit Department and the independent
accountants in separate executive sessions to discuss any matters that the
Committee, or any individual Committee member, and/or either auditor believes
should be discussed privately.
C. The Chairman shall formally report the matters discussed at each Committee
meeting to the Board of Directors.
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IV. RESPONSIBILITIES AND DUTIES
A. Documents and Reports Review
To fulfill its responsibilities and duties the Committee shall:
1. Review and reassess the adequacy of this Charter on an annual
basis.
2. Review a preliminary draft of the Company's annual financial
statements, including any certification, report, opinion, or review
rendered by the independent accountants.
3. Review the regular internal audit reports prepared by the Audit
Department.
B. Independent Accountants
1. The Committee shall annually recommend to the Board of Directors the
selection of the independent accountants, considering their independence
and effectiveness, and shall review the fees and other compensation to be
paid to the independent accountants. Further, on an annual basis, the
Committee shall review and discuss with the independent accountants all
significant relationships the accountants have with the Company to
determine the accountants' independence. The Committee will procure from
the outside auditor an annual written statement delineating all
relationships between the independent accountants and the Company, and the
Committee shall be responsible for engaging in active dialogue with the
independent accountants regarding any relationship that might compromise
their objectivity.
2. The Committee shall insure that the independent accountants are ultimately
accountable to the Committee and the Board of Directors, as representatives
of the Company's stockholders, and that these stockholders' representatives
have the ultimate authority to select, evaluate and, where appropriate,
replace the independent accountant.
C. Financial Reporting Processes
To fulfill its responsibilities and duties the Committee shall:
1. Consider the independent accountants' judgments about the internal
control environment and the appropriateness of the Company's accounting
principles as applied in its financial reporting.
2. Consider and approve, if appropriate, major changes to the
Company's auditing and accounting principles and practices as suggested by
the independent accountants, management, or the Audit Department.
3. Review any significant disagreement among management and the
independent accountants or the Audit Department in connection with the
internal control environment or preparation of the financial statements.
4. Review with financial management and the independent accountants
the results of their timely analysis of significant financial reporting
issues and practices, including changes in, or adoptions of, accounting
principles and disclosure practices.
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5. Review the adequacy of internal controls and procedures related to
executive expense accounts, including the use of Company assets.
6. The Chairman of the Committee will annually report to the Board the
Committee's recommendation with respect to whether, based on information
available to the Committee, the Company's financial statements should be
filed with the Company's Annual Report on Form 10-K.
D. Ethical and Legal Compliance
To fulfill its responsibilities and duties the Committee shall:
1. Periodically review and approve the Company's Business Ethics
Policy, as may be materially revised from time to time. The Committee shall
specifically call to the attention of the full Board of Directors those
provisions of the Business Ethics Policy, and amendments thereto, that
pertain to the conduct of directors of Company. The Committee shall further
ensure that management has established a system to enforce the policy.
2. Review the staffing, organizational structure and qualifications of
the Audit Department.
3. Meet with the Company's general counsel at least annually, and
review any matters of legal liability exposure that could reasonably be
anticipated to have a material impact on the Company's financial
statements.
4. Perform any other activities consistent with this Charter, the
Company's By-laws and governing law or other regulations exchange
regulation, as the Committee or the Board of Directors deems necessary or
appropriate.
5. The Committee shall have the power to conduct or authorize
investigations into any matters within the Committee's scope of
responsibilities. The Committee shall be empowered to retain independent
counsel, accountants, or others to assist it in the conduct of any
investigation.
V. DEFINITIONS:
A. "Independent" director means that there is no relationship to the company
that may interfere with the exercise of independence from management and
the company. Examples of such non-independent relationships include:
- a director being employed by the Company or any of its affiliates for the
current year or any of the past five years;
- a director accepting any compensation from the Company or any of its
affiliates other than compensation for board service or benefits under a
tax-qualified retirement plan;
- a director being a member of the immediate family of an individual who
is, or has been in any of the past five years, employed by the Company or
any of its affiliates as an executive officer;
47
52
- a director being a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which the
Company made, or from which the Company received, payments that are or
have been significant to the Company or business organization in any of
the past five years;
- a director being employed as an executive of another organization where
any of the Company's executives serves on that organization's
compensation committee.
A director who has one or more of these relationships may be appointed to
the Committee if the Board determines that membership on the Committee by
the individual is required by the best interests of the Company and its
stockholders.
B. "Financially literate" means the ability to read and understand fundamental
financial statements, including a company's balance sheet, income
statement, and cash flow statements.
C. "Financial management expertise" means past employment experience in
accounting or any other comparable experience or background which results
in the individual's financial sophistication, including being or having
been a CEO or other senior officer with financial oversight
responsibilities.
48
53
[KB HOME LOGO]
KB HOME
10990 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
www.kbhome.com
54
PROXY
[KB HOME LOGO]
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 5, 2001
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 5, 2001, 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.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, IT
WILL BE VOTED FOR PROPOSALS 1, 2, AND 3 AND AGAINST PROPOSAL 4, AND ON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
55
Please mark
your votes as
indicated in [X]
this example.
--------------------------------------------------------------------------------
Your Directors recommend a vote "FOR":
--------------------------------------------------------------------------------
WITHHOLD
FOR AUTHORITY
(Except as marked to vote for
to the contrary) nominees listed
1. ELECTION OF DIRECTORS in Class III
Nominees: 01 Ronald W. Burkle
02 Dr. Ray R. Irani [ ] [ ]
03 Guy Nafilyan
04 Luis G. Nogales
To withhold authority to vote for any individual nominee, strike a line
through the nominee's name.
2. Approval of 2001 STOCK INCENTIVE PLAN FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Reapproval of PERFORMANCE-BASED INCENTIVE FOR AGAINST ABSTAIN
PLAN FOR SENIOR MANAGEMENT [ ] [ ] [ ]
--------------------------------------------------------------------------------
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW ***
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Your Directors recommend a vote "AGAINST":
--------------------------------------------------------------------------------
4. STOCKHOLDER PROPOSAL regarding hiring of FOR AGAINST ABSTAIN
proxy advisor [ ] [ ] [ ]
--------------------------------------------------------------------------------
By checking the box to the right, I consent to future access of [ ]
KB Home's Annual Reports, Proxy Statements, prospectuses and
other communications electronically via the Internet. I
understand that the Company may no longer distribute printed
materials to me for any future stockholder meeting until such
consent is revoked. I understand that I may revoke this consent
at any time by contacting the Company's transfer agent, Mellon
Investor Services, Ridgefield, Park, NJ and that costs normally
associated with electronic access, such as usage and telephone
charges, will be my responsibility.
Signature(s) ________________________________________ Date _______________, 2001
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.
--------------------------------------------------------------------------------
[ARROW UP] FOLD AND DETACH HERE [ARROW UP]
------------------------------
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
------------------------------
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.
CALL OUR TOLL FREE NUMBER 1.800.840.1208 ON A TOUCH TONE TELEPHONE AT ANY TIME
OF THE DAY OR NIGHT. THERE IS NO CHARGE TO YOU FOR THIS CALL.
YOU WILL BE ASKED TO ENTER THE 11-DIGIT CONTROL NUMBER LOCATED IN THE BOX IN
THE LOWER RIGHT HAND CORNER OF THIS FORM.
--------------------------------------------------------------------------------
OPTION 1: To vote as the Board of Directors recommends on ALL proposals,
press 1.
--------------------------------------------------------------------------------
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
--------------------------------------------------------------------------------
OPTION 2: If you choose to vote on each Proposal separately, press 0. You
will hear these instructions:
--------------------------------------------------------------------------------
- Proposal 1: to vote FOR ALL nominees, press 1;
to WITHHOLD AUTHORITY for all nominees, press 9;
to WITHHOLD AUTHORITY for an individual nominee, press 0
and listen to the instructions.
- Proposal 2: to vote FOR, press 1; to vote AGAINST, press 9; to ABSTAIN,
press 0.
- Proposal 3: to vote FOR, press 1; to vote AGAINST, press 9; to ABSTAIN,
press 0.
- Proposal 4: to vote FOR, press 1; to vote AGAINST, press 9; to ABSTAIN,
press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
--------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU HAVE VOTED BY TELEPHONE
--------------------------------------------------------------------------------
56
PROXY
[KB HOME LOGO]
ANNUAL MEETING OF STOCKHOLDERS APRIL 5, 2001
CONFIDENTIAL INSTRUCTIONS TO WACHOVIA BANK, N.A.
TRUSTEE FOR THE KB HOME GRANTOR STOCK TRUST
We respect to the voting at the Annual Meeting of Stockholders of KB Home
(the "Company") to be held on April 5, 2001, 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 undersigned's votes to which the undersigned is
entitled to direct 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 CHOICES ARE INDICATED, THE VOTES THAT THE
UNDERSIGNED IS ENTITLED TO DIRECT WILL BE VOTED FOR PROPOSALS 1, 2, AND 3 AND
AGAINST PROPOSAL 4, 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 SIGNED ON THE OTHER SIDE)
--------------------------------------------------------------------------------
[ARROW UP] FOLD AND DETACH HERE [ARROW UP]
-----------------------------------------------------
INSTRUCTION CARD KB HOME
-----------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS APRIL 5, 2001
-----------------------------------------------------
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 2, 2001 to ensure that your vote is counted.
Bruce Karatz
Chairman and
Chief Executive Officer
57
Please mark
your votes as
indicated in [X]
this example.
--------------------------------------------------------------------------------
Your Directors recommend a vote "FOR":
--------------------------------------------------------------------------------
WITHHOLD
FOR AUTHORITY
(Except as marked to vote for
to the contrary) nominees listed
1. ELECTION OF DIRECTORS in Class III
Nominees: 01 Ronald W. Burkle
02 Dr. Ray R. Irani [ ] [ ]
03 Guy Nafilyan
04 Luis G. Nogales
To withhold authority to vote for any individual nominee, strike a line
through the nominee's name.
2. Approval of 2001 STOCK INCENTIVE PLAN FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Reapproval of PERFORMANCE-BASED INCENTIVE FOR AGAINST ABSTAIN
PLAN FOR SENIOR MANAGEMENT [ ] [ ] [ ]
--------------------------------------------------------------------------------
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW ***
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Your Directors recommend a vote "AGAINST":
--------------------------------------------------------------------------------
4. STOCKHOLDER PROPOSAL regarding hiring of FOR AGAINST ABSTAIN
proxy advisor [ ] [ ] [ ]
--------------------------------------------------------------------------------
By checking the box to the right, I consent to future access of [ ]
KB Home's Annual Reports, Proxy Statements, prospectuses and
other communications electronically via the Internet. I
understand that the Company may no longer distribute printed
materials to me for any future stockholder meeting until such
consent is revoked. I understand that I may revoke this consent
at any time by contacting the Company's transfer agent, Mellon
Investor Services, Ridgefield, Park, NJ and that costs normally
associated with electronic access, such as usage and telephone
charges, will be my responsibility.
Signature(s) ________________________________________ Date _______________, 2001
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.
--------------------------------------------------------------------------------
[ARROW UP] FOLD AND DETACH HERE [ARROW UP]
------------------------------
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
------------------------------
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.
CALL OUR TOLL FREE NUMBER 1.800.840.1208 ON A TOUCH TONE TELEPHONE AT ANY TIME
OF THE DAY OR NIGHT. THERE IS NO CHARGE TO YOU FOR THIS CALL.
YOU WILL BE ASKED TO ENTER THE 11-DIGIT CONTROL NUMBER LOCATED IN THE BOX IN
THE LOWER RIGHT HAND CORNER OF THIS FORM.
--------------------------------------------------------------------------------
OPTION 1: To vote as the Board of Directors recommends on ALL proposals,
press 1.
--------------------------------------------------------------------------------
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
--------------------------------------------------------------------------------
OPTION 2: If you choose to vote on each Proposal separately, press 0. You
will hear these instructions:
--------------------------------------------------------------------------------
- Proposal 1: to vote FOR ALL nominees, press 1;
to WITHHOLD AUTHORITY for all nominees, press 9;
to WITHHOLD AUTHORITY for an individual nominee, press 0
and listen to the instructions.
- Proposal 2: to vote FOR, press 1; to vote AGAINST, press 9; to ABSTAIN,
press 0.
- Proposal 3: to vote FOR, press 1; to vote AGAINST, press 9; to ABSTAIN,
press 0.
- Proposal 4: to vote FOR, press 1; to vote AGAINST, press 9; to ABSTAIN,
press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
--------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU HAVE VOTED BY TELEPHONE
--------------------------------------------------------------------------------
58
PROXY
[KB HOME LOGO]
ANNUAL MEETING OF STOCKHOLDERS APRIL 5, 2001
CONFIDENTIAL INSTRUCTIONS 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 5, 2001 at 9:00 a.m., 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
Proposals 1, 2 and 3 and AGAINST Proposal 4, 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 SIGNED ON THE OTHER SIDE)
--------------------------------------------------------------------------------
[ARROW UP] FOLD AND DETACH HERE [ARROW UP]
-----------------------------------------------------
INSTRUCTION CARD KB HOME
-----------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS APRIL 5, 2001
-----------------------------------------------------
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 2, 2001 to ensure that your vote is counted.
Bruce Karatz
Chairman and
Chief Executive Officer
59
Please mark
your votes as
indicated in [X]
this example.
--------------------------------------------------------------------------------
Your Directors recommend a vote "FOR":
--------------------------------------------------------------------------------
WITHHOLD
FOR AUTHORITY
(Except as marked to vote for
to the contrary) nominees listed
1. ELECTION OF DIRECTORS in Class III
Nominees: 01 Ronald W. Burkle
02 Dr. Ray R. Irani [ ] [ ]
03 Guy Nafilyan
04 Luis G. Nogales
To withhold authority to vote for any individual nominee, strike a line
through the nominee's name.
2. Approval of 2001 STOCK INCENTIVE PLAN FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Reapproval of PERFORMANCE-BASED INCENTIVE FOR AGAINST ABSTAIN
PLAN FOR SENIOR MANAGEMENT [ ] [ ] [ ]
--------------------------------------------------------------------------------
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW ***
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Your Directors recommend a vote "AGAINST":
--------------------------------------------------------------------------------
4. STOCKHOLDER PROPOSAL regarding hiring of FOR AGAINST ABSTAIN
proxy advisor [ ] [ ] [ ]
--------------------------------------------------------------------------------
By checking the box to the right, I consent to future access of [ ]
KB Home's Annual Reports, Proxy Statements, prospectuses and
other communications electronically via the Internet. I
understand that the Company may no longer distribute printed
materials to me for any future stockholder meeting until such
consent is revoked. I understand that I may revoke this consent
at any time by contacting the Company's transfer agent, Mellon
Investor Services, Ridgefield, Park, NJ and that costs normally
associated with electronic access, such as usage and telephone
charges, will be my responsibility.
Signature(s) ________________________________________ Date _______________, 2001
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.
--------------------------------------------------------------------------------
[ARROW UP] FOLD AND DETACH HERE [ARROW UP]
------------------------------
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
------------------------------
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.
CALL OUR TOLL FREE NUMBER 1.800.840.1208 ON A TOUCH TONE TELEPHONE AT ANY TIME
OF THE DAY OR NIGHT. THERE IS NO CHARGE TO YOU FOR THIS CALL.
YOU WILL BE ASKED TO ENTER THE 11-DIGIT CONTROL NUMBER LOCATED IN THE BOX IN
THE LOWER RIGHT HAND CORNER OF THIS FORM.
--------------------------------------------------------------------------------
OPTION 1: To vote as the Board of Directors recommends on ALL proposals,
press 1.
--------------------------------------------------------------------------------
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
--------------------------------------------------------------------------------
OPTION 2: If you choose to vote on each Proposal separately, press 0. You
will hear these instructions:
--------------------------------------------------------------------------------
- Proposal 1: to vote FOR ALL nominees, press 1;
to WITHHOLD AUTHORITY for all nominees, press 9;
to WITHHOLD AUTHORITY for an individual nominee, press 0
and listen to the instructions.
- Proposal 2: to vote FOR, press 1; to vote AGAINST, press 9; to ABSTAIN,
press 0.
- Proposal 3: to vote FOR, press 1; to vote AGAINST, press 9; to ABSTAIN,
press 0.
- Proposal 4: to vote FOR, press 1; to vote AGAINST, press 9; to ABSTAIN,
press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
--------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU HAVE VOTED BY TELEPHONE
--------------------------------------------------------------------------------
60
[KB Home Letterhead]
March 1, 2001
TO: PARTICIPANTS IN THE COMPANY'S EMPLOYEE STOCK OPTION PLANS
The Company has placed approximately 8.8 million shares of Common Stock
into a Grantor Stock Trust where they are being held to fund benefits for our
employees under, among other things, the Company's employee stock option plans.
As a participant in one or more of the Company's stock option plans, you have
certain rights to direct the voting of these shares at the upcoming 2001 Annual
Meeting. Your voting rights are based upon the number of unexercised options you
held as of February 14, 2001.
The 8.8 million shares held by the Grantor Stock Trust represent just under
20% of the Company's shares eligible to vote at the Annual Meeting. Accordingly,
these shares give our employees a strong voice in the direction of the Company.
Please note that because there are more than three times as many shares in the
Grantor Stock Trust than employee options currently outstanding, your vote has
more than three times the weight of your option holdings. For example, if you
hold 1,000 options, your instructions to the Trustee will direct the vote of
approximately 3,360 shares.
To exercise your voting rights, please complete the enclosed Voting
Instruction Card. It directs the Trustee for the Grantor Stock Trust how to
vote. YOU MUST RETURN THE VOTING INSTRUCTION CARD USING THE ENCLOSED RETURN
ENVELOPE BY NO LATER THAN APRIL 2, 2001 IN ORDER TO EXERCISE YOUR VOTING RIGHTS
UNDER THE GRANTOR STOCK TRUST. OR YOU CAN VOTE BY PHONE BY SIMPLY DIALING THE
1-800 NUMBER ON YOUR PROXY CARD.
For reasons stated in the enclosed Proxy Statement for the Annual Meeting,
your Board of Directors recommends a vote "FOR" the four nominees for director,
the 2001 Stock Incentive Plan and re-approval of the Performance-Based Incentive
Plan for Senior Management and "AGAINST" the stockholder proposal.
You may get more than one package of materials regarding the upcoming
Annual Meeting. Please return any Proxy Card/Voting Instruction Card you may
receive separately in the separate return envelope provided with each package.
If you need further assistance, please contact Kimberly King at (310)
231-4123. Thank you.
Sincerely,
/s/ Bruce Karatz
-----------------------
Bruce Karatz