SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
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 paid
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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(3) Filing Party:
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(4) Date Filed:
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THIS AMENDMENT NO. 1 TO THE 2002 PROXY STATEMENT OF KB HOME IS MADE TO
CORRECT CERTAIN PRINTER'S ERRORS ON THE PROXY CARDS THAT WERE FILED TOGETHER
WITH THE 2002 KB HOME PROXY STATEMENT WITH THE SECURITIES AND EXCHANGE
COMMISSION BY EDGAR TRANSMISSION ON MARCH 1, 2002. THE ERRORS CONTAINED IN THE
PROXY CARDS FILED ON MARCH 1, 2002 OCCURRED IN CONNECTION WITH THE CONVERSION OF
THE PROXY CARDS TO EDGAR FORMAT; THE ACTUAL PROXY CARDS PROVIDED TO KB HOME
STOCKHOLDERS CONTAIN NO ERRORS.
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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 5, 2002
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 11, 2002 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 11th.
Sincerely,
/s/ BRUCE KARATZ
BRUCE KARATZ
Chairman and Chief Executive Officer
KB LOGO
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NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
To Be Held April 11, 2002
To the Holders of the Common Stock
of KB Home:
The Annual Meeting of Stockholders of KB Home will be held on Thursday,
April 11, 2002 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 I Directors, each to serve for a term of three years;
(2) To approve an amendment to the KB Home Performance-Based Incentive Plan for
Senior Management to increase the limits on cash compensation that may be paid
thereunder while maintaining full deductibility for the Company for Federal
Income Tax purposes; and
(3) 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, 2002 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, 2002.
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 5, 2002
KB LOGO
KB HOME
10990 Wilshire Boulevard
Los Angeles, California 90024
PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 11, 2002
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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 11, 2002, 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, 2001, 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 6,
2002.
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 51,174,428 shares of Common Stock outstanding at
the close of business on February 14, 2002 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 7,941,640 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", and for
the amendment to the KB Home Performance-Based Incen-
1
tive Plan for Senior Management. 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 approval
of the amendment to the KB Home Performance-Based Incentive Plan for Senior
Management, 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 approval of the amendment to the KB Home
Performance-Based Incentive Plan for Senior Management. 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
I Directors to serve for a three-year term ending at the 2005 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. The election of each
nominee will require the affirmative votes of a majority of shares present at
the meeting in person or by proxy and entitled to vote.
A brief summary of each nominee's principal occupation, business affiliations
and other information follows.
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[PHOTOGRAPH]
JANE EVANS, age 57, was elected Chief Executive Officer of Opnix Inc. in 2001,
and from 1995 through 2001 she served as President and Chief Executive Officer
of GAMUT Interactive, Inc. From 1991 to 1995 Ms. Evans 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 is 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.
3
[PHOTOGRAPH]
JAMES A. JOHNSON, age 58, is Vice Chairman of Perseus LLC, a merchant banking
and private equity firm. In 2000, Mr. Johnson served as Chairman and Chief
Executive Officer of Johnson Capital Partners, a private investment company. Mr.
Johnson was employed by Fannie Mae from 1990 through 1999, where he served as
Vice Chairman in 1990, Chairman and Chief Executive Officer from 1991 through
1998 and Chairman of the Executive Committee of the Board in 1999. He 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, Inc., Target Corporation, UnitedHealth Group, The Goldman Sachs
Group, Inc., Cummins, Inc., Temple-Inland Inc., National Association on Fetal
Alcohol Syndrome, The Enterprise Foundation and National Housing Endowment. He
is a member of the American Friends of Bilderberg, The Business Council, the
Council on Foreign Relations, the Trilateral Commission, and he is Chairman of
the Advisory Council for Public Strategies Incorporated. Mr. Johnson has been a
member of the Board of Directors since 1992.
[PHOTOGRAPH]
DR. BARRY MUNITZ, age 60, 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 joined the Company's Board of Directors
in 1999.
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[PHOTOGRAPH]
SANFORD C. SIGOLOFF, age 71, has been Chairman, President and Chief Executive
Officer of Sigoloff & Associates, Inc. since 1989. 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 since
1979.
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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.
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[PHOTOGRAPH]
RON BURKLE, age 49, is the founder and managing partner of The Yucaipa
Companies, a private investment firm based in Southern California. Yucaipa
specializes in acquisitions, mergers and management of large retail and
distribution companies. Yucaipa completed the merger of Fred Meyer, Inc., where
Mr. Burkle served as Chairman, and 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 manufacturer and
distributor of food products to McDonald's. He is a member of the board of
Occidental Petroleum Corporation, Yahoo! Inc. and Kaufman & Broad S.A., the
Company's majority-owned publicly-held French subsidiary. Mr. Burkle also serves
as Trustee of The John F. Kennedy Center for the Performing Arts, The J. Paul
Getty Trust, the National Urban League and the Los Angeles County Museum of Art;
member of the Executive Board for the Medical Sciences at UCLA, the Carter
Center, Aids Project Los Angeles, RAND's Education Advisory Board, Claremont
Graduate University, National Campaign Against Youth Violence and The Children
Scholarship Fund; Co-Chairman of the Burkle Center for International Relations
at UCLA; Founder and Benefactor of the Burkle Scholarship Award with the Los
Angeles Urban League. He has been a director of the Company since 1995 and his
current time expires in 2004.
[PHOTOGRAPH]
HENRY G. CISNEROS, age 54, 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 is a director of Countrywide Credit
Industries, Inc. He was elected to the Company's Board of Directors in August
2000 and will next stand for re-election in 2003.
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[PHOTOGRAPH]
DR. RAY R. IRANI, age 67, is Chairman and Chief Executive Officer of Occidental
Petroleum Corporation. He joined Occidental in 1983 as Chairman and Chief
Executive Officer of Occidental Chemical Corporation, an Occidental subsidiary,
and as Executive Vice President of Occidental. In 1984 he was elected to the
Board of Directors of Occidental and was named President and Chief Operating
Officer. He assumed the responsibilities of Chairman and Chief Executive
Officer, in addition to President, in 1990. Dr. Irani was Chairman of the Board
of Directors of Canadian Occidental Petroleum Ltd., an Occidental affiliate,
from 1987 to 1999. An Honorary Fellow of the American Institute of Chemists, Dr.
Irani is a director of the American Petroleum Institute, Cedars Bank and Health
Net. He is a member of the American Chemical Society, the American Institute of
Chemists, Inc., the CEO Roundtable, The Conference Board, the Council on Foreign
Relations, the U.S.-Saudi Arabian Business 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 is Chairman of USC's Academic Affairs
Committee. He is also a Vice Chairman of the Board of the American University of
Beirut, he is a member of the Board of Governors of Town Hall and the World
Affairs Council. Dr. Irani's current term expires in 2004 and he has been a
director of the Company since 1992.
[PHOTOGRAPH]
KENNETH M. JASTROW, II, age 54, has been Chairman and Chief Executive Officer of
Temple-Inland Inc. since 2000. Prior to that, Mr. Jastrow served as President
and Chief Operating Officer in 1998 and 1999, Group Vice President from 1995
until 1998, and as Chief Financial Officer of Temple-Inland from November 1991
until 1999. Mr. Jastrow is also a director of MGIC Investment Corporation. He
was appointed to the Company's Board in December 2001 and will next stand for
election in 2003.
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[PHOTOGRAPH]
BRUCE KARATZ, age 56, has been Chairman of the Company since 1993 and Chief
Executive Officer since 1986. Mr. Karatz joined the Company's predecessor in
1972, and from 1976 through 1980 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 2001 he was also President of the Company. Mr. Karatz is a director of
Honeywell International Inc., Avery Dennison, The Kroger Company, National Golf
Properties, Inc. and Kaufman & Broad S.A., the Company's majority-owned
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. Mr. Karatz has
been a director of the Company since 1986. He will next stand for re-election in
2003.
[PHOTOGRAPH]
GUY NAFILYAN, age 57, has been Chairman, President and Chief Executive Officer
of Kaufman & Broad S.A., the Company's majority-owned 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; his current term expires in 2004.
8
[PHOTOGRAPH]
LUIS G. NOGALES, age 58, is the Managing Partner of Nogales Investors, LLC, a
private equity investment firm, 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., from
1986 to 1988, and Chairman and Chief Executive Officer of United Press
International from 1983 to 1986. He is a director of Southern California Edison
Co., Edison International, Arbitron, and Kaufman & Broad S.A., the Company's
majority-owned 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 and his current term expires in 2004.
9
THE BOARD AND ITS COMMITTEES
------------------------
The Company's Board of Directors held five regular meetings during the fiscal
year ended November 30, 2001. Management also periodically conferred with
directors informally between meetings regarding Company affairs. During 2001,
all directors 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 2001, the Company's Board of Directors was comprised of eight
non-employee directors and two employee directors. Mr. Randall Lewis was the
Company's ninth non-employee director, until he stepped down from the Board of
Directors in February 2001. Mr. Jastrow was elected to the Board in December
2001, bringing the number of non-employee directors back up to nine. The
committees of the Board of Directors consist of the Management Development and
Compensation Committee (formerly, 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.
MANAGEMENT DEVELOPMENT AND
COMPENSATION COMMITTEE
The Management Development and Compensation 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 2001 were Ms. Evans and Messrs. Irani, Munitz,
and Nogales, with Dr. Irani serving as Chairman. The committee held four
meetings during 2001; members were also periodically consulted by management to
discuss compensation or personnel issues between meetings. See the "Management
Development and Compensation Committee Report on Executive Compensation" at
pages 17 - 21.
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 2001, the committee was comprised of Ms. Evans and Messrs.
Burkle, Munitz and Sigoloff. Dr. Munitz served as Chairman. See the "Audit and
Compliance Committee Report" at page 34.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee of the Board of Directors
considers and makes recommendations to the Board concerning
10
the appropriate size and needs of the Board, including the annual nomination of
directors and nominees for new directors. The committee reviews and 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 2001, the
members of the committee were Messrs. Burkle, Cisneros, Johnson and Nogales. Mr.
Johnson served as Chairman of the committee, which had three 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.
Karatz and Sigoloff; 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 did not meet in 2001, but acted periodically by written
consent.
COMPENSATION PAID TO BOARD MEMBERS
Retainers and Meeting Fees. Directors who are employees of the Company receive
no additional compensation for their service on the Board of Directors.
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 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). A
"Stock Unit" is a contract right to receive a share of Common Stock or a cash
payment equal to the fair market value of a share of Common Stock. Directors
earn the equivalent of cash dividends on, but do not have voting or investment
power with respect to, the shares of Common Stock represented by the Stock
Units. The shares of Common Stock represented by 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 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.
Equity Awards. 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. Under the
Directors Stock Plan, in 2001 each director who was serving on the Board as of
the 2001 Annual Meeting received an annual grant of 2,000 Stock Units or, for
directors who owned at least 10,000 shares of Common Stock or Stock Units and
who so
11
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.
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 the market value of the Company's Common Stock on the 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 stock options, have a term of fifteen years.
Charitable Giving. 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 up to 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 have served 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 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.
12
BENEFICIAL OWNERSHIP OF COMPANY STOCK
------------------------
DIRECTORS AND MANAGEMENT
The following information is furnished, as of February 28, 2002, 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 6.0% of the Company's
Common Stock.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(a-d)
--------------------------------------------------------------------------------
Ron Burkle 38,278
Henry G. Cisneros 9,597
Jane Evans 12,136
Dr. Ray R. Irani 41,794
Kenneth M. Jastrow, II --0--
James A. Johnson 44,827
Bruce Karatz 1,662,755
Dr. Barry Munitz 6,500
Guy Nafilyan 140,598
Luis G. Nogales 11,667
Sanford C. Sigoloff 42,652
Jeffrey T. Mezger 220,830
John E. Goodwin 103,066
Robert Freed 62,530
All directors, Named Executive Officers and other
executive officers as a group (22 persons) 3,092,725
--------------------------------------------------------------------------------
(a) Included are Stock Units held by non-employee directors under the
Non-Employee Directors Stock Plan in the following amounts: Mr. Burkle
13,155; Mr. Cisneros 2,597; Ms. Evans 10,636; Dr. Irani 11,703; Mr. Jastrow
-0-; Mr. Johnson 19,972; Dr. Munitz 4,500; Mr. Nogales 11,167; and Mr.
Sigoloff 17,352.
(b) Included are shares of Common Stock subject to acquisition within 60 days of
February 28, 2002 through the exercise of stock options granted under the
Company's employee stock plans in the following amounts: Mr. Karatz 929,892;
Mr. Mezger 157,054; Mr. Nafilyan 80,000; Mr. Goodwin 48,543; Mr. Freed
33,918; and all executive officers as a group, 1,676,957. Also included are
shares
13
subject to acquisition within 60 days of February 28, 2002 through the
exercise of options under the Non-Employee Directors Stock Plan in the
following amounts: Mr. Burkle 24,623; Dr. Irani 18,091; Mr. Johnson 22,855;
and Mr. Sigoloff 10,000.
(c) Included are a total of 517,827 shares of restricted Common Stock granted
under the Company's employee stock plans. As of February 28, 2002, Mr.
Karatz held 50,000, and Mr. Nafilyan held 25,000 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 received an award of 50,369 shares of restricted
Common Stock; the shares vest on January 15, 2005, three years from the date
of grant. In accordance with his 1995 employment agreement, which places a
$3 million limit on his cash incentive bonus, these shares represent the
portion of his 2001 incentive bonus that was in excess of $3 million. In
2001, Mr. Karatz also received an award of 350,000 shares of restricted
stock; the shares vest on December 31, 2008, if Mr. Karatz continues to be
employed by the Company at that time. These shares represent a one-time
retention grant upon the signing of Mr. Karatz' amended and restated
employment contract. Please also see the "Management Development and
Compensation Committee Report on Executive Compensation" at pages 17 - 21.
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 Named Executive
Officers also hold shares of Common Stock granted on January 15, 2002 that
are restricted from sale for one year from the date of grant: Mr. Karatz
15,133; Mr. Mezger 6,005; Mr. Nafilyan -0-; Mr. Goodwin 3,859; Mr. Freed
2,421; and all executive officers as a group, 39,204. The actual number of
shares of restricted Common Stock earned by most executives was greater than
the amount reported because most executives elected to have shares withheld
for income tax purposes; the amounts reported are shares beneficially owned
by each executive less shares the executive may have elected to have
withheld.
14
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 28, 2002 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 - d) CLASS
------------------------------------ ----------------- -------
KB Home Grantor Stock Trust, 7,941,640 15.52%
Wachovia Bank, N.A., as Trustee,
Institutional Trust and Retirement Services
301 North Church Street
Winston-Salem, North Carolina 27101
Capital Growth Management Limited Partnership 4,076,000 7.85%
One International Place
Boston, Massachusetts 02110
FMR Corp. 3,267,641 6.49%
82 Devonshire Street
Boston, Massachusetts 02109
Wellington Management Company, LLP 2,895,000 5.58%
75 State Street
Boston, Massachusetts 02109
---------------
(a) Pursuant to the amendment to Schedule 13D dated February 20, 2002 filed with
the Securities and Exchange Commission by Wachovia Bank, N.A. (the
"Trustee"), the KB Home Grantor Stock Trust (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, 2002 record date for
the Annual Meeting, the other Named Executive Officers will have the right
to vote the following share
15
amounts: Mezger 1,381,836; Goodwin 407,172; and Freed 299,737; and all
executive officers as a group, 5,015,450. 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 Schedule 13G dated February 11, 2002 filed with the
Securities and Exchange Commission by Capital Growth Management Limited
Partnership, Capital Growth has sole voting power and shared dispositive
power with respect to all of the shares reported as beneficially owned.
(c) Pursuant to the Schedule 13G dated February 14, 2002 filed with the
Securities and Exchange Commission by FMR Corp., 2,700,630 of the shares
reported are beneficially owned by Fidelity Management & Research Company,
an investment adviser and a wholly-owned subsidiary of FMR Corp., as a
result of acting as investment advisor to various investment companies
(collectively, the "Fidelity Funds"); with respect to these shares, FMR
Corp. and Mr. Edward C. Johnson 3d exercise sole investment power and the
Fidelity Funds' Boards of Trustees exercises sole voting power. Of the
shares reported, 344,511 shares are beneficially owned by Fidelity
Management Trust Company, a bank and a wholly-owned subsidiary of FMR
Corp., as to which each of Mr. Johnson and FMR Corp., through its control
of Fidelity Management Trust Company, has sole investment power as to
344,511 shares and sole voting power as to 329,311 shares, but no voting
power as to 15,200 shares held in certain investment accounts. Of the
shares reported, 1,000 shares are beneficially owned by Strategic Advisers,
Inc., an investment adviser and a wholly-owned subsidiary of FMR Corp.,
over which shares Strategic Advisers has sole investment power but no
voting power. The remaining 221,500 shares reported are beneficially owned
by Fidelity International Limited, an investment adviser and an entity
independent of FMR Corp., as to which shares Fidelity International Limited
exercises sole investment and voting power.
(d) Pursuant to the amendment to Schedule 13G dated February 14, 2002 filed with
the Securities and Exchange Commission by Wellington Management Company,
LLP, WMC, an investment advisor, has shared investment power with respect to
all shares reported as beneficially owned, shared voting power with respect
to 18,700 shares reported as beneficially owned and no voting power with
respect to 2,876,300 of the shares reported as beneficially owned. Pursuant
to the amendment to Schedule 13G dated February 14, 2002 filed with the
Securities and Exchange Commission by Vanguard Windsor Funds -- Vanguard
Windsor Fund, Vanguard, an investment company, has shared investment power
and has sole voting power with respect to 2,866,200 of the shares reported
as beneficially owned by WMC.
16
MANAGEMENT DEVELOPMENT AND COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
------------------------
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company designs executive compensation around five key objectives, which
comprise the Company's executive compensation philosophy. The Management
Development and Compensation Committee provides guidance, recommendations and
approvals to executive compensation programs guided by the Company's executive
compensation philosophy which is intended to:
- closely link executive 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 KBnxt operational business
model 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 with a focus on total
compensation; and
- attract, retain and motivate executives of the highest quality.
Under the Company's total compensation focus, continuing analysis of both
annual and long-term compensation is required. Annual 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
compensation, specific performance requirements are set for each executive.
Performance against these requirements is analyzed to ensure that the results
achieved are sustainable and that the KBnxt operational business model is being
followed. 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 Management Development and Compensation Committee
believes that this is a balanced approach that motivates the Company's
executives to continually improve the Company's performance and maintains close
alignment with the interests of the Company's stockholders.
The Company achieved record unit deliveries, total revenues, net income and
earnings per share in 2001 and demonstrated substantial improvement over its
2000 performance. Unit deliveries (including joint venture units) posted
year-over-year growth of nearly 9%, total revenues increased by more than 16%
over 2000, diluted earnings per share increased more than 29% over 2000
(excluding the French IPO gain in 2000); and 2001 year-end backlog value
(including joint ventures) increased approximately 4% over 2000. The improved
results in 2001 were largely achieved through the Company's continued use of its
KBnxt operational business model, which contributed to an increase in housing
gross margin, higher unit delivery volume and increased net income from mortgage
banking operations. The Company ended its fiscal year with a solid financial
position, including $281.3 million of cash and stockholders' equity of $1.09
billion. The Company's ratio of debt to total capital improved four percentage
points to
17
49.9% at November 30, 2001 from 53.9% at November 30, 2000. Despite the events
of September 11, 2001, overall conditions in all of the Company's principal
markets remained favorable during 2001.
COMPENSATION IN 2001
The following generally describes how the Company's executive officers and, in
particular, the Named Executive Officers, were paid in 2001. Please see the
compensation tables at pages 28 - 32 for a detailed presentation of compensation
earned by the Named Executive Officers in 2001. 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 Management Development and 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 4.3%
in 2001. This increase was authorized by the Management Development and
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 2001, excluding promotional increases. Base salary
increases (excluding promotional increases) for the Named Executive Officers in
2001 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 as measured against specific performance
criteria relative to their respective businesses. 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. The annual
cash incentive awards may be increased or decreased depending upon the pre-tax
return on investment from those operations (the "PROI Modifier"), customer
satisfaction as measured by the Company's Customer Satisfaction Index ("CSI"),
and the results against specific individual performance measures established at
the beginning of the fiscal year. This approach is intended to motivate
executives to improve the Company's overall performance in a balanced manner.
In 2001, certain executives, including two 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, including two of the Named Executive Officers, were determined by a
combina-
18
tion 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, CSI,
and assessment of their individual job performance as determined against their
specific performance measures established at the beginning of the fiscal year.
Cash incentive compensation earned by the Company's executive officers is
primarily determined by the Company's performance, or by the performance of the
particular business unit for which an executive is responsible. Therefore, as a
result of the Company's improved performance in 2001, executive officers earned
more cash incentive compensation in 2001, than they did in 2000. Of the total
cash compensation earned by the Named Executive Officers in 2001, 79% was from
incentives determined by the Company's performance, up 4 percentage points from
75% in 2000.
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"
at page 30, in 2001 stock option grants were made to each of the Named Executive
Officers, except Mr. Nafilyan. Mr. Nafilyan's long-term incentive compensation
is linked to the performance of Kaufman & Broad S.A., the Company's majority
owned publicly-traded French subsidiary. Grants made to Company executives,
including the Named Executive Officers, during the fourth quarter of fiscal 2001
represent their annual discretionary grants for fiscal year 2002.
In 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. Early in
2001, the target ownership levels were met by all original executives covered
under the policy.
In 2001, the Compensation Committee also made awards of Performance Units
under the Unit Performance Program, which was first implemented in 1996. This
long-term incentive compensation program is intended to motivate senior
management toward improving the Company's long-term performance by providing
incentives tied to specified long-term performance objectives for the Company.
Participants in the Unit Performance Program include all executive officers
(except Mr. Nafilyan), 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 pre-tax return on
investment of the specific operations for which the participating executive is
responsible. The weighting of both factors, as well as the individual
performance targets for each executive, are established on an annual basis by
the Compensation Committee. For all Performance Units awarded in 2001, 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 --
19
Awards in Last Fiscal Year" at page 32 for the Performance Units granted to each
Named Executive Officer in 2001.
The value of Performance Units awarded under the Unit Performance Program is
realized, if at all, three years after the date of award. Performance Units
awarded at the beginning of fiscal 1999 vested at the end of fiscal 2001 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" at pages 28 and 29
for the shares of Common Stock issued to each of the other Named Executive
Officers upon the vesting of their Performance Units in 2001. No employees of
Kaufman & Broad S.A., the Company's French subsidiary, including Mr. Nafilyan,
participate in the Unit Performance Program.
Compensation of Chief Executive Officer in 2001. In keeping with the Company's
compensation objectives, Mr. Karatz' compensation is largely driven by cash and
stock-based incentives that are directly tied to the Company's financial
performance. Base and incentive compensation paid to Mr. Karatz for fiscal year
2001 were paid pursuant to the terms of an agreement he entered into with the
Company in 1995. On July 11, 2001, the Board amended and restated the 1995
agreement and extended the term for an additional seven years, until December
31, 2008. Pursuant to the amended and restated agreement, Mr. Karatz received a
one-time retention grant of 350,000 shares of restricted stock. The restrictions
on these shares lapse on the earlier of December 31, 2008 or certain other
triggering events specified in the amended employment agreement. Please see
"Employment Agreements and Change in Control Arrangements" at pages 24 - 26 for
a more detailed description of Mr. Karatz' 1995 employment agreement and his
amended and restated employment agreement. The amended and restated agreement
provides that the Board of Directors may, in its discretion, increase or
decrease Mr. Karatz' base salary from time to time, provided that any decrease
does not fall below $900,000, which was Mr. Karatz' base salary in 2001.
Mr. Karatz also received an annual incentive bonus of cash, Common Stock and
restricted Common Stock for 2001, 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. Mr. Karatz' 2001 incentive bonus was paid pursuant to the
formula under his 1995 employment agreement, which specifies a $3 million limit
on the amount of his bonus that may be paid in cash. For 2001, Mr. Karatz earned
$1,781,225 over this cap. Accordingly, in lieu of a cash payment for this
amount, Mr. Karatz received an award for 50,369 shares of three-year restricted
Common Stock. The value of the shares issued on the grant date was 110% of the
cash value of this portion of his incentive bonus, with a view toward
compensating Mr. Karatz for the deferral and risk of loss associated with his
receipt of restricted stock. The additional 42,738 shares of Common Stock that
Mr. Karatz earned pursuant to the stock-based portion of his incentive bonus
were withheld by the Company to cover a portion of his 2001 income tax
obligations.
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, 1998 Stock Incentive
Plan, and the 2001 Stock Incentive Plan, each 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
20
Officers for a tax deduction under Section 162(m) of the Internal Revenue Code.
Under his employment agreement Mr. Karatz is also entitled to receive other
benefits afforded to other executives of the Company and, accordingly, in 2001
Mr. Karatz received a discretionary award of 700 Performance Units under the
Unit Performance Program in accordance with the principles described above. He
also received an award of 600,000 options in late 2001, representing his annual
discretionary grant for fiscal 2002.
POLICY ON DEDUCTIBILITY OF COMPENSATION
The Company intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code with respect to maintaining 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 2001 met the deductibility requirements of Section 162(m).
MANAGEMENT DEVELOPMENT AND
COMPENSATION COMMITTEE
The Management Development and Compensation Committee is responsible for
approving the compensation strategy of the Company. The committee approves and
monitors principal executive compensation programs, including those covering the
Named Executive Officers. For each of the Company's executive officers, the
committee approves annual base salary, annual incentive bonus awards, and
long-term incentive awards. The Management Development and Compensation
Committee also approves all officer nominations and annual merit increase
guidelines for all Company employees. The committee is composed entirely of
non-employee directors.
This report is respectfully submitted by the members of the Management
Development and Compensation Committee:
Dr. Ray R. Irani, Chairman
Jane Evans
Dr. Barry Munitz
Luis G. Nogales
21
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]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
KB Home........................................... 100 171 202 179 258 279
S&P Homebuilding Index............................ 100 149 166 122 189 216
Dow Jones Home Construction....................... 100 143 139 103 161 207
S&P 500 Index..................................... 100 129 159 192 184 162
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, 2001 closing Common Stock price on the New
York Stock Exchange was $33.62 per share. On February 28, 2002, the Company's
Common Stock closed at $43.65 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, 1996 in
the Company, the S&P 500 Index, the S&P Homebuilding Index, and the Dow
Jones Home Construction Index including reinvestment of dividends.
22
(b) The three companies that comprise the S&P Homebuilding Index are: Centex
Corporation, Pulte Homes, Inc. and the Company. The ten companies that
comprise the Dow Jones Home Construction Index are: Centex Corporation,
Champion Enterprises, Inc., Clayton Homes, Inc., D.R. Horton, Inc., Lennar
Corporation, MDC Holdings, Inc., NVR, Inc., Pulte Homes, Inc., Toll
Brothers, Inc. and the Company.
23
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
------------------------
EMPLOYMENT AGREEMENTS
Mr. Karatz was employed under an employment agreement that he entered into with
the Company in 1995 (the "1995 Agreement") that provided for a term through
November 30, 2001. Effective July 11, 2001, the 1995 Agreement was amended and
restated, pursuant to which, among other things, the term of the agreement was
extended through December 31, 2008.
For the 2001 fiscal year, the amended and restated employment agreement
provided that Mr. Karatz' annual incentive bonus would be payable pursuant to
the terms of the 1995 Agreement. The annual incentive bonus formula in the 1995
Agreement provided Mr. Karatz 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 provided that no such bonus would be paid in
any year in which the Company did not achieve a specified minimum pre-tax return
on equity and, if paid, the cash portion of such bonus could not exceed
$3,000,000. In addition, the Management Development and Compensation Committee
has the discretion to increase or decrease Mr. Karatz' annual incentive bonus
depending on the PROI Modifier. See the "Management Development and Compensation
Committee Report on Executive Compensation" at page 18 for a description of the
PROI Modifier. In 2001, Mr. Karatz' annual incentive cash bonus exceeded the
cash limit and, accordingly, he was paid the excess in restricted shares of
Common Stock. The bonus formula in the 1995 Agreement also included an
opportunity to earn an annual award of Common Stock. The number of shares of
Common Stock awarded each year, if any, was 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 could be awarded to Mr.
Karatz pursuant to this formula in any year in which the Company did 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 the 1995 Agreement, shares awarded pursuant to
this formula were to be restricted until October 10, 2000, his 55th birthday.
Consistent with the terms of the 1995 Agreement, the shares that would have been
awarded on January 15, 2002 as a part of his 2001 bonus were not restricted.
These shares were, however, withheld by the Company to cover a portion of Mr.
Karatz' 2001 income tax obligation.
For the 2002 fiscal year and each subsequent year through December 31, 2008,
subject to the approval of the Company's stockholders of an amendment to any
plan that permits an aggregate amount of $5 million of cash compensation to
qualify for tax deductibility under Section 162(m) of the Internal Revenue Code,
Mr. Karatz shall be entitled to annual incentive compensation ranging from 1% to
2% of the Company's pre-tax, pre-incentive income depending on the specified
return on equity of the Company for the year. Such incentive compensation will
be paid 75% in cash, and 25% in shares of three-year restricted stock, unless
the cash amount exceeds $5 million, in which case any excess will also be paid
in three-year restricted stock. Any restricted stock granted under the amended
and restated employment agreement will vest on the third anniversary of the date
of grant and will vest earlier in the event of Mr. Karatz' death, disability,
involuntary termina-
24
tion by the Company with out cause or his voluntary termination for good reason.
The amended and restated employment agreement, however, provides that if the
Code Section 162(m) plan amendment is not approved by stockholders, Mr. Karatz'
incentive compensation in 2002, and for the remainder of the term of the amended
and restated employment agreement, will be paid pursuant to the formula under
the 1995 Agreement. See "Proposal Two: Amendment to the Perfomance-Based
Incentive Plan for Senior Management" at pages 35 - 38 for the proposed Code
Section 162(m) plan amendment.
The new performance-based annual incentive bonus formula in Mr. Karatz'
amended and restated agreement more closely aligns with stockholders' interests
than did the formula in the 1995 Agreement in several respects, including:
- Under Mr. Karatz' 1995 Agreement, if a specified minimum return on equity was
achieved, he earned a fixed amount equal to 1.75% of the Company's pretax,
pre-incentive income. Under the amended and restated agreement, he will earn a
range from 1% to 2% of the Company's pretax, pre-incentive income depending on
the Company's return on equity for the year. Therefore, his bonus opportunity
under the amended and restated contract is subject to more downside risk as
percentage of the entire award than under the formula in his 1995 Agreement.
- The performance-based incentive bonus formula under the amended and restated
agreement requires substantially higher return on equity hurdles as a
condition of payout than was contained in the 1995 Agreement. If the formula
under the amended and restated agreement had been in place in 2001, to earn
the same incentive bonus as Mr. Karatz did in 2001, the Company's return on
equity hurdle would have been 11% higher than the 10% hurdle contained in the
1995 Agreement.
Upon signing the amended and restated employment agreement, Mr. Karatz
received a one-time retention grant of 350,000 restricted shares of Common
Stock. The shares vest on December 31, 2008 provided Mr. Karatz is still
employed by the Company at that time. These shares may vest earlier in the event
of his death, disability, involuntary termination by the Company without cause
or his voluntary termination for good reason.
Under the amended and restated agreement, Mr. Karatz is entitled to a
specified minimum annual base salary of $900,000, which is subject to annual
adjustment in the discretion of the Board of Directors. Mr. Karatz is also
entitled to a modified nonqualified retirement arrangement pursuant to which he
will now receive an annual pension equal to 100% of his average base salary
during the final three years of his employment, payable for 25 years, if he
continues in the employment of the Company until November 30, 2008. If Mr.
Karatz retires or his employment is terminated before such date, he will be
entitled to a lesser amount pursuant to defined formula. The retirement
arrangement is structured so that upon Mr. Karatz' death, the Company will
recover the after-tax cost to the Company of his retirement benefit. The
retirement arrangement also contemplates certain benefits prior to retirement in
the event of death, disability, or a "change in ownership" of the Company. In
addition, under the amended and restated employment agreement, Mr. Karatz is
entitled to receive other benefits generally awarded to Company executives,
which, in 2001 included a discretionary stock option grant, and an award of
one-year sale restricted stock under the PROI Modifier. Please see the
"Management Development and Compensation Committee Report" at pages 20 - 21 for
additional information on compensation paid to Mr. Karatz during the year.
25
In the event Mr. Karatz' employment with the Company is terminated prior to
the expiration of the amended and restated agreement, Mr. Karatz or his estate,
as applicable, will receive the following:
- in the event his employment is terminated as a result of his death or
disability, an amount equal to two times Mr. Karatz's average annual
compensation for the three fiscal years prior to the date of the termination
of his employment;
- in the event his employment is terminated as a result of an involuntary
termination of his employment by the Company without cause or his voluntary
termination for good reason, an amount equal to three times his average annual
compensation for the three fiscal years prior to the date of the termination
of his employment; and
- in the event his employment is terminated within 18 months following a "change
of ownership" of the Company, an amount equal to three times his average
annual compensation for the three fiscal years prior to the date of the
termination of his employment and if Mr. Karatz is subject to an excise tax
under Section 4999 of the Internal Revenue Code, with respect to the payments
or distributions in the nature of compensation made to him by the Company in
connection with a change in ownership of the Company, an additional amount so
as to place him in the same after-tax position he would have been in had the
excise tax not applied.
Upon Mr. Karatz's termination of employment on or after the expiration of his
amended and restated employment agreement or upon his earlier retirement with
the consent of the Board of Directors, the Company will continue to provide him
and his family medical and dental benefits for Mr. Karatz' lifetime and such
benefits will be reduced if Mr. Karatz becomes re-employed and is eligible to
receive comparable benefits from another employer.
No other Named Executive Officer has an employment agreement with the Company.
CHANGE IN CONTROL ARRANGEMENTS
In 2001, the Company put in place a Change in Control Plan in which ten senior
corporate executives currently participate, including Mr. Mezger. The plan is
designed to encourage the retention of senior executives in the event of a
change in control of the Company, which could play a key role in the continuing
success of the Company in the event of a change in control. The Plan provides
that if there is a "change in control" of the Company and a participating
executive is terminated within a specified period after such change in
ownership, other than for "cause" or "disability", as defined in the plan, or if
the executive terminates for "Good Reason", the terminated executive will be
entitled to receive an amount equal to one or two years' average salary and cash
incentive bonus, depending on the executive.
Under the KB Home 1988 Employee Stock Plan, the KB Home Performance-Based
Incentive Plan for Senior Management, the KB Home 1998 Stock Incentive Plan, the
KB Home 1999 Incentive Plan and the 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
26
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.
As part of the Company's overall strategy to utilize technology and e-business
initiatives which support and facilitate achievement of the business objectives,
during 2000 the Company launched the e.KB Equity Incentive Program. This Program
was established to motivate executive performance in connection with the
Company's e-business initiatives or investments. The program provided 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.
No new interests were granted to executives under the e.KB Equity Incentive
Program in 2001, and no distributions were made during the year. The operating
agreements for each of the pre-existing 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 Non-Employee 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 accordance 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.
27
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, 2001, 2000 and 1999.
LONG-TERM COMPENSATION
--------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------------------------
----------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP
FISCAL COMPENSATION STOCK OPTIONS/ PAYOUTS
NAME AND POSITION YEAR SALARY($) BONUS($)(a) ($)(b) AWARDS($)(c) SARs(#) ($)(d)
--------------------------------------------------------------------------------------------------------------------------
Bruce Karatz
Chairman and 2001 $895,833 $6,621,838 --0-- $12,188,806 602,328 $1,300,250
Chief Executive 2000 847,083 4,313,800 --0-- 1,977,825 500,000 773,518
Officer 1999 811,667 2,948,363 --0-- 1,666,436 750,000 450,000
--------------------------------------------------------------------------------------------------------------------------
Jeffrey T. Mezger
Chief Operating Officer and 2001 418,333 1,897,062 $321,168 474,265 298,148 780,150
Executive Vice 2000 400,000 1,269,370 359,890 317,343 125,000 442,010
President 1999 275,000 1,023,605 --0-- --0-- 113,815 112,500
--------------------------------------------------------------------------------------------------------------------------
Guy Nafilyan
Chairman, President 2001 303,811 1,121,537 --0-- --0-- --0-- --0--
and Chief Executive 2000 295,680 1,146,899 --0-- --0-- --0-- --0--
Officer of Kaufman 1999 324,226 1,023,617 --0-- --0-- 10,000 --0--
& Broad S.A.
--------------------------------------------------------------------------------------------------------------------------
John E. Goodwin
Regional General 2001 259,167 1,025,634 --0-- 256,408 50,000 572,110
Manager 2000 250,000 800,467 --0-- 200,117 40,000 331,508
1999 177,917 600,150 --0-- 139,535 29,367 112,500
--------------------------------------------------------------------------------------------------------------------------
Robert Freed
Regional General 2001 197,917 997,389 --0-- 191,253 36,944 390,075
Manager 2000 173,917 816,314 --0-- 185,329 40,000 165,754
1999 163,750 510,575 --0-- 127,644 22,688 112,500
--------------------------------------------------------------------------------------------------------------------------
ALL OTHER
COMPENSATION
NAME AND POSITION ($)(e)
----------------------------- ------------
Bruce Karatz
Chairman and $93,402
Chief Executive 73,186
Officer 71,912
--------------------------------------------------------
Jeffrey T. Mezger
Chief Operating Officer and 22,800
Executive Vice 9,000
President 9,000
---------------------------------------------------------------------
Guy Nafilyan
Chairman, President 11,014
and Chief Executive 6,211
Officer of Kaufman 3,892
& Broad S.A.
----------------------------------------------------------------------------------
John E. Goodwin
Regional General 15,350
Manager 15,000
20,175
-----------------------------------------------------------------------------------------------
Robert Freed
Regional General 3,500
Manager 6,548
6,188
------------------------------------------------------------------------------------------------------------
(a) Of the total annual bonus compensation reported for Mr. Karatz in 2001,
$3,621,838 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 (January
15, 2002). Of these shares, 42,738 (or $1,662,490) were withheld by the
Company to satisfy Mr. Karatz' tax liability.
(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 Chief Operating Officer and Executive Vice President 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
28
received under the Company's relocation program available to all employees.
This arrangement resulted in an agreed upon amount of approximately $30,000
per month in reimbursements through the end of 2001.
(c) For 2001, the Named Executive Officers received the following awards of
Common Stock as a result of the PROI Modifier: Mr. Karatz 30,728 shares; Mr.
Mezger 12,192, shares; Mr. Nafilyan -0-; Mr. Goodwin 6,591 shares; and Mr.
Freed 4,917 shares. These shares are restricted from sale for one year from
the date of grant (January 15, 2002). 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.
Also included for Mr. Karatz is the value of a one-time retention grant of
350,000 shares of restricted Common Stock which were granted on July 11,
2001, the effective date of Mr. Karatz' amended and restated employment
agreement with the Company. The shares vest on December 31, 2008, if Mr.
Karatz continues to be employed by the Company at that time. The value of
this award 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.
(d) Payouts in 2001 to all participants under the Company's long-term incentive
program, the Unit Performance Program, were made in shares of Common Stock.
Accordingly, in 2001 the Named Executive Officers earned the following
payouts under the Unit Performance Program: Mr. Karatz 33,425 shares; Mr.
Mezger 20,055 shares; Mr. Nafilyan -0- shares; Mr. Goodwin 14,707 shares;
and Mr. Freed 10,028 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 2001, the Named Executive Officers accrued the
following respective amounts under such plans: Mr. Karatz $10,200, $43,550
and $39,652; Mr. Mezger $10,200, $12,600 and $-0-; Mr. Nafilyan $-0-, $-0-
and $11,014; Mr. Goodwin $10,200, $5,150 and $-0-; and Mr. Freed $3,500,
$-0-and $-0-.
29
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table summarizes information relating to stock option grants,
including original grants and reimbursement option grants pursuant to the
Company's Executive Stock Ownership Policy, during 2001 to the Named Executive
Officers. All options granted are for shares of the Company's Common Stock. No
stock appreciation rights have been granted at any time under the Company's
employee stock plans.
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT
SECURITIES TOTAL ASSUMED ANNUAL RATE OF
UNDERLYING OPTIONS STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(d)
GRANTED(#) EMPLOYEES IN BASE PRICE GRANT EXPIRATION -----------------------------
NAME (a)(b) FISCAL YEAR ($/SH)(c) DATE DATE 5%($) 10%($)
----------------------------------------------------------------------------------------------------------------------
Bruce Karatz 2,328 0.1% $33.570 2/19/01 2/19/16 $ 84,319 $ 248,305
600,000 28.1 27.900 10/30/01 10/30/16 18,061,258 53,187,134
----------------------------------------------------------------------------------------------------------------------
Jeffrey T. Mezger 41,690 1.9 26.870 2/23/01 2/23/16 1,208,626 3,559,186
250,000 11.7 27.900 10/30/01 10/30/16 7,525,524 22,161,306
6,458 0.3 32.490 11/16/01 11/16/16 226,381 666,652
----------------------------------------------------------------------------------------------------------------------
Guy Nafilyan --0-- --0-- --0-- --0-- --0-- --0-- --0--
----------------------------------------------------------------------------------------------------------------------
John E. Goodwin 50,000 2.3 27.900 10/30/01 10/30/16 1,505,105 4,432,261
----------------------------------------------------------------------------------------------------------------------
Robert Freed 11,994 0.6 33.557 2/19/01 2/19/16 434,250 1,278,787
25,000 1.2 27.900 10/30/01 10/30/16 752,552 2,216,131
----------------------------------------------------------------------------------------------------------------------
(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 30, 2001 represent annual
discretionary awards to the Named Executive Officers for fiscal 2002.
(b) The options granted to the Named Executive Officers on dates other than
October 30, 2001 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.
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 812,847 $23,369,260 848,688 1,152,123 $10,612,785 $9,396,681
Jeffrey T. Mezger 54,000 341,222 166,009 368,332 1,809,847 2,656,872
Guy Nafilyan 20,000 361,480 76,667 3,333 1,095,187 37,263
John E. Goodwin --0-- --0-- 66,617 90,832 808,455 713,319
Robert Freed 20,757 208,914 51,740 64,165 516,817 543,863
---------------------------------------------------------------------------------------------------------------
(a) Of the options exercised by Mr. Karatz in fiscal 2001, 809,272 were
exercised in connection with the settlement of his divorce in December 2000.
At that time, Mr. Karatz also transferred ownership of 426,761 vested
options to his ex-wife in connection with the settlement.
The balance of the options exercised by Mr. Karatz, as well as the
transactions reported for Messrs. Mezger and Freed, were exercises in
accordance with the Company's Executive Stock Ownership Policy. See footnote
(b) to the table entitled "Option/SAR Grants in Last Fiscal Year" at page
30.
(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 $33.62 closing price of the Company's
Common Stock on November 30, 2001 on the New York Stock Exchange and the
exercise price of the options.
31
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The following table provides information on long-term incentive awards granted
in 2001 to the Named Executive Officers under the Unit Performance Program.
Please also see the "Management Development and Compensation Committee Report on
Executive Compensation" at pages 19 - 20.
ESTIMATED FUTURE PAYOUT IN SHARES
NUMBER OF OF COMMON STOCK
PERFORMANCE ----------------------------------------
NAME UNITS(#)(a) PERFORMANCE PERIOD THRESHOLD(#)(b) TARGET(#) MAXIMUM(#)
--------------------------------------------------------------------------------------------------
Bruce Karatz 700 12/1/00 - 11/30/03 11,840 23,681 35,521
Jeffrey T. Mezger 500 12/1/00 - 11/30/03 8,457 16,915 25,372
Guy Nafilyan --0-- 12/1/00 - 11/30/03 --0-- --0-- --0--
John E. Goodwin 250 12/1/00 - 11/30/03 4,229 8,457 12,686
Robert Freed 250 12/1/00 - 11/30/03 4,229 8,457 12,686
--------------------------------------------------------------------------------------------------
(a) At the beginning of fiscal 2001, the Company awarded Performance Units under
the UPP for the fiscal 2001 - 2003 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 33.83 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
(16.92 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
(50.75 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 2001 - 2003 performance period.
32
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
------------------------
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 ownership 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, 2002, the Company had contributed $2,100,000 to the
joint venture. In addition, in 2001 the Company made payments totaling $140,000
to the venture to reimburse American CityVista for its promotional efforts on
behalf of the Company.
Since August 2000, Mr. Cisneros has served on 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.
TEMPLE-INLAND INC.
In the ordinary course of its business, the Company's Texas homebuilding
operations directly and indirectly purchase certain building materials,
including drywall, siding, and lumber, from subsidiaries of Temple-Inland Inc.
In 2001, the Company received $328,685 in trade allowances on building materials
that it purchased from Temple-Inland. In addition, Guaranty Bank, another
subsidiary of Temple-Inland, is a participating lender under the Company's
primary unsecured credit facility. The Company also maintains some of its
day-to-day checking accounts with Guaranty Bank. The Company's purchase of
building materials from, and its financing arrangements with, Temple-Inland and
its subsidiary savings bank were negotiated on arms-length bases, and the terms
of such transactions are consistent with the terms under which the Company
purchases materials from other suppliers and secures financing from other banks.
Mr. Kenneth M. Jastrow, II, is Chairman and Chief Executive Officer of
Temple-Inland, and was elected to the Board of Directors of the Company in
December 2001. Mr. James A. Johnson is a director of the Company and is also a
director of Temple-Inland.
KB HOME MORTGAGE COMPANY
Through its mortgage banking subsidiary, KB Home Mortgage Company, 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.
33
AUDIT AND COMPLIANCE COMMITTEE REPORT
------------------------
The Company's Audit and Compliance Committee acts under a written Audit
Committee Charter. Each of the members of the Audit Committee is independent as
defined by the Audit Committee Charter and the listing standards of the NYSE.
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 used in
the United States.
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, 2001, for filing with the
Securities and Exchange Commission.
This report is respectfully submitted by the members of the Audit and Compliance
Committee:
Dr. Barry Munitz, Chairman
Ron Burkle
Jane Evans
Sanford C. Sigoloff
34
PROPOSAL TWO:
AMENDMENT TO THE PERFORMANCE-BASED
INCENTIVE PLAN FOR SENIOR MANAGEMENT
------------------------
Stockholder approval of an amendment to the KB Home Performance-Based Incentive
Plan for Senior Management (the "Performance-Based Incentive Plan") is being
sought this year. The primary purposes of the Performance-Based Incentive Plan
are to motivate senior executives of the Company through performance-based
incentives designed to achieve long-range performance goals, while also
qualifying such compensation for deductibility under Section 162(m) of the
Internal Revenue Code.
In recognition of the significant growth and improved performance of the
Company since the Performance-Based Incentive Plan was adopted in 1995, your
Board of Directors is recommending an amendment to the plan to increase the
limits on the amount of any cash award that may be paid thereunder. The proposed
increase will more appropriately reflect the current size, scope and
profitability of the Company -- all of which have grown exponentially since the
Performance-Based Incentive Plan was adopted. The proposed increase will ensure
that the Company (i) remains competitive in attracting and retaining highly
skilled executive talent and (ii) continues to motivate its senior executives to
further the aggressive growth of the Company, thereby increasing shareholder
value, while at the same time continuing to maintain deductibility under 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.
The purposes of the Performance-Based Incentive Plan are to promote the
interests of the Company and its stockholders by (i) attracting and retaining
exceptional senior executive employees, (ii) motivating such employees by means
of performance-based incentives to achieve long-range performance goals, (iii)
enabling such employees to participate in the long-term growth and financial
success of the Company, and (iv) qualifying the compensation paid under the plan
as performance-based for purposes of Code Section 162(m).
Awards may be made under the Performance-Based Incentive Plan to officers of
the Company or its subsidiaries, as designated by the Management Development and
Compensation Committee. Currently, Messrs. Karatz and Mezger are the only
officers whom the Management Development and 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, as determined in
accordance with generally accepted accounting principles: pre-tax income,
after-tax income, cash flow, return on equity, return on capital, earnings per
share, unit volume, net sales or
35
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 as soon as practicable after
the performance period, except to the extent cash awards may be deferred under
any deferred compensation plan that may be adopted by the Company. Under the
current provisions of the Performance-Based Incentive Plan, annual cash awards
to a participant other than the Chief Executive Officer may not exceed $2
million and 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 Management Development and Compensation Committee has full power to
administer and interpret the Performance-Based Incentive Plan and to establish
rules for its administration. The Management Development and Compensation
Committee or the Board of Directors may amend, suspend or terminate the
Performance-Based Incentive Plan at any time.
DISCUSSION OF INTERNAL REVENUE 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 Officers is
limited to $1 million per year. However, certain types of compensation are
exempted from this 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.
REASON FOR THE PROPOSED AMENDMENT
Stockholders initially approved the Performance-Based Incentive Plan at the
Company's 1995 Annual Stockholders Meeting; and re-approved the plan without
amendment at the 2001 Annual Stockholders Meeting, thereby preserving full tax
deductibility of awards under the Performance-Based Incentive Plan for an
additional five years, as required under Treasury Regulations promulgated under
Code Section 162(m).
Since 1995 when the Performance-Based Incentive Plan was adopted, the Company
has experienced remarkable growth on all measures and has demonstrated steady
profitability, while at the same time significantly improving its operating
efficiency:
GROWTH
1995 2001 1995-2001
--------------------------------------------------------------
Unit Deliveries...... 7,857 24,868 3.2x
Revenues............. $1.4 billion $4.6 billion 3.3x
Net Income........... $29 million $214 million 7.4x
Diluted EPS.......... $.58 $5.50 9.5x
Unit Backlog......... 1,412 11,225 7.9x
--------------------------------------------------------------
Perhaps most importantly, the Company's stock price has outperformed the S&P
500, the S&P
36
Homebuilding Index and the Dow Jones Home Construction Index. See the "Common
Stock Price Performance" graph at pages 22 - 23. The graph illustrates that $100
invested in the Company's Common Stock in November 1996 increased to $279 by
November 2001. This solid growth and profitable performance is, in the view of
your Board of Directors, largely attributable to the strong, innovative
leadership provided by the Company's senior executives.
In 2001, Mr. Karatz' employment agreement with the Company which was entered
into in 1995 (the "1995 Agreement") was amended and restated. The amended and
restated employment agreement was negotiated by the Management Development and
Compensation Committee and was approved by the full Board of Directors. Subject
to stockholder approval of an amendment of a plan that permits an aggregate
amount of $5 million in cash compensation to qualify for tax deductibility under
Code Section 162(m), the amended and restated employment agreement provides for
a new incentive compensation formula that is directly tied to higher return on
equity measures than were contained in his 1995 Agreement. This new formula
subjects Mr. Karatz' annual incentive bonus payout to greater "downside risk"
than the 1995 Agreement if the Company does not achieve the higher return on
equity measures specified in such formula. The new formula also provides an
increased payout opportunity if the performance of the Company exceeds those
measures, thereby creating greater motivation to continually improve the
performance of the Company. In this manner, Mr. Karatz' amended and restated
employment agreement is even more closely linked with the interests of the
Company's stockholders than was his 1995 Agreement. See "Employment Agreements
and Change in Control Arrangements" at pages 24 - 26.
Accordingly, to allow for the new higher return on equity based cash incentive
bonus formula in Mr. Karatz' amended and restated employment agreement and in
view of the Company's tremendous growth since the plan was initially approved in
1995, your Board of Directors, is requesting stockholders to approve an
amendment to the Performance-Based Incentive Plan to increase from $3 million to
$5 million the maximum amount of cash incentive compensation that may be paid
pursuant to the plan in a given year to the Chief Executive Officer.
In the event stockholders disapprove this Proposal, (i) the incentive
compensation formula in Mr. Karatz' amended employment agreement will not go
into effect and his future incentive compensation will be paid pursuant to the
formula established under his 1995 Agreement and (ii) any incentive compensation
that exceeds the maximum cash amount currently allowable under the
Performance-Based Incentive Plan will be paid in shares of restricted Common
Stock.
Mr. Mezger does not have a formal employment agreement with the Company.
However, he receives an annual cash incentive bonus based on the achievement of
pre-established performance measures that are set by the Management Development
and Compensation Committee and paid under the plan. See the "Management
Development and Compensation Committee Report on Executive Compensation" at
pages 18 - 19. So that the Company may continue to provide Mr. Mezger with
performance-based compensation opportunities that provide appropriate motivation
relative to the size, growth and profitability of the Company, your Board of
Directors is requesting stockholders approve an amendment to the
Performance-Based Incentive Plan to increase the maximum amount of cash
incentive compensation payable under the plan in a given year to any individual
other than the
37
Chief Executive Officer from $2 million to $3 million.
The actual amount of payments for the 2002 fiscal year under the amended cash
incentive compensation limits proposed for the Performance-Based Incentive Plan
are not currently determinable because such amounts are dependent on future
attainment of the performance goals with respect to such payments. Set forth
below, however, is the actual performance-based incentive compensation that was
earned by Messrs. Karatz and Mezger for fiscal 2001, as well as the incentive
compensation that would have been earned by Messrs. Karatz and Mezger in the
2001 fiscal year if the amendments to the Performance-Based Incentive Plan and
the incentive compensation formula under Mr. Karatz' amended and restated
employment agreement had been in effect in the 2001 fiscal year.
2001 INCENTIVE
COMPENSATION:
ACTUAL
-----------------------
PARTICIPANT CASH TOTAL
----------------------------------------------
Bruce Karatz......... $3,000,000 $6,621,838
Jeffrey T. Mezger.... $1,897,062 $1,897,062
----------------------------------------------
2001 INCENTIVE
COMPENSATION:
PROFORMA
-----------------------
PARTICIPANT CASH TOTAL
----------------------------------------------
Bruce Karatz......... $5,000,000 $7,650,000
Jeffrey T. Mezger.... $1,897,062 $1,897,062
----------------------------------------------
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 proposed amendment to the
Performance-Based Incentive Plan.
BOARD RECOMMENDATION
In view of the continuous strength of the Company's performance since the
Performance-Based Incentive Plan was adopted in 1995, and the need to ensure
that the Company is able to continue to motivate its senior executives to
further the aggressive growth of the Company, thereby increasing shareholder
value while at the same time continuing to maintain tax deductibility under
Section 162(m), YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
38
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 2001.
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, 2001 are included at pages 32 through 64 of the Company's
2001 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
2001. This firm has advised the Company that it has no direct or indirect
financial interest in the Company. For the 2001 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
-------------------------------------------------------------------
$491,198 $247,629 $--0-- $133,483
-------------------------------------------------------------------
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 2003 ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the Company's 2003
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 October 24,
2002. Further, management proxies for the Company's 2003 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 10, 2003.
39
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 $15,000.
By Order of the Board of Directors,
Kimberly N. King
Secretary
March 5, 2002
Los Angeles, California
40
PROXY
[KB HOME LOGO]
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 11, 2002
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 11, 2002, 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 AND 2, AND ON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
FOLD AND DETACH HERE
PLEASE MARK
YOUR VOTES AS [X]
INDICATED IN
THIS EXAMPLE
Your Directors recommend a vote "FOR":
1. ELECTION OF DIRECTORS in Class I
WITHHOLD
FOR AUTHORITY
(EXCEPT AS MARKED TO VOTE FOR
TO THE CONTRARY) NOMINEES LISTED
Nominees: 01 Jane Evans [ ] [ ]
02 James A. Johnson
03 Dr. Barry Munitz
04 Sanford C. Sigoloff
To withhold authority to vote for any individual nominee, strike a line through
the nominee's name.
2. Approval of amendment to PERFORMANCE-BASED
INCENTIVE PLAN FOR SENIOR MANAGEMENT
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
***IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW***
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 ______________, 2002
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.
*FOLD AND DETACH HERE*
[TELEPHONE] VOTE BY TELEPHONE [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 1.800.435.6710 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 BOTH 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.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU HAVE VOTED BY TELEPHONE
PROXY
[KB HOME LOGO]
ANNUAL MEETING OF STOCKHOLDERS APRIL 11, 2002
CONFIDENTIAL INSTRUCTIONS TO FIDELITY MANAGEMENT TRUST COMPANY
TRUSTEE FOR THE KB HOME 401(k) SAVINGS PLAN
Receipt of proxy material for the above Annual Meeting is acknowledged. I
instruct you to vote (in person or by proxy) all shares of Common Stock of KB
Home (the "Company") held by you for my account under the Company's Amended and
Restated 401(k) Savings Plan at the Company's Annual Meeting of Stockholders to
be held on April 11, 2002 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 and 2, 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.)
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
________________________________________________________________________________
INSTRUCTION CARD KB HOME
________________________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS APRIL 11, 2002
________________________________________________________________________________
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 5, 2002 to ensure that your vote is counted.
Bruce Karatz
Chairman and
Chief Executive Officer
PLEASE MARK
YOUR VOTES AS [X]
INDICATED IN
THIS EXAMPLE
--------------------------------------------------------------------------------
Your Directors recommend a vote "FOR":
--------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS in Class I
WITHHOLD
FOR AUTHORITY
(Except as marked to vote for
to the contrary) nominees listed
Nominees: 01 Jane Evans
02 James A. Johnson [ ] [ ]
03 Dr. Barry Munitz
04 Sandford C. Sigoloff
To withhold authority to vote for any individual nominee, strike a line through
the nominee's name.
FOR AGAINST ABSTAIN
2. Approval of amendment to PERFORMANCE-BASED
INCENTIVE PLAN FOR SENIOR MANAGEMENT [ ] [ ] [ ]
***IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW***
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 __________________, 2002
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.
FOLD AND DETACH HERE
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 1.800.435.6710 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 BOTH 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:
o 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.
o Proposal 2: 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
PROXY
[KB HOME LOGO]
ANNUAL MEETING OF STOCKHOLDERS APRIL 11, 2002
CONFIDENTIAL INSTRUCTIONS TO WACHOVIA BANK, N.A.
TRUSTEE FOR THE KB HOME GRANTOR STOCK TRUST
With respect to the voting at the Annual Meeting of Stockholders of KB Home
(the "Company") to be held on April 11, 2002, or any adjournment or postponement
thereof, the undersigned participant in the Company's employee stock option
plans hereby directs Wachovia Bank, N.A., as Trustee of the Company's Grantor
Stock Trust, to vote all of the shares for which the undersigned is entitled to
direct the vote under the Grantor Stock Trust in accordance with the following
instructions:
THE VOTES THAT THE UNDERSIGNED IS ENTITLED TO DIRECT UNDER THE COMPANY'S
GRANTOR STOCK TRUST WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE HEREOF. IF
THIS CARD IS SIGNED AND RETURNED, BUT NO CHOICES ARE INDICATED, THE VOTES THAT
THE UNDERSIGNED IS ENTITLED TO DIRECT WILL BE VOTED FOR PROPOSALS 1 AND 2, 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.)
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
________________________________________________________________________________
INSTRUCTION CARD KB HOME
________________________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS APRIL 11, 2002
________________________________________________________________________________
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 5, 2002 to ensure that your vote is counted.
Bruce Karatz
Chairman and
Chief Executive Officer
PLEASE MARK
YOUR VOTES AS [X]
INDICATED IN
THIS EXAMPLE
Your Directors recommend a vote "FOR":
1. ELECTION OF DIRECTORS in Class I
WITHHOLD
FOR AUTHORITY
(Except as marked to vote for
to the contrary) nominees listed
Nominees: 01 Jane Evans [ ] [ ]
02 James A. Johnson
03 Dr. Barry Munitz
04 Sanford C. Sigoloff
To withhold authority to vote for any individual nominee, strike a line through
the nominee's name.
2. Approval of amendment to PERFORMANCE-BASED
INCENTIVE PLAN FOR SENIOR MANAGEMENT
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
***IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW***
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 ______________, 2002
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.
*FOLD AND DETACH HERE*
[TELEPHONE] VOTE BY TELEPHONE [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 1.800.435.6710 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 BOTH 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.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU HAVE VOTED BY TELEPHONE