EMPLOYMENT AGREEMENT

aMENDMENT TO eMPLOYMENT aGREEMENT

cHANGE IN CONTROL SEVERANCE AGREEMENT

EXECUTIVE SEVERANCE PLAN

 

 

jEFFREY MEZGER

EMPLOYMENT AGREEMENT

     This Agreement is entered into by and between Jeffrey T. Mezger (the “Executive”) and KB Home, a Delaware corporation (the “Company”) as of February 28, 2007 (the “Effective Date”).

     1. Duties and Scope of Employment. For the term of this Agreement (“Employment”), the Company agrees to employ the Executive in the positions of President and Chief Executive Officer. The Executive shall report directly to the Company’s Board of Directors (the “Board”). The Executive shall have such duties, authority and responsibilities that are commensurate with his being the Company’s most senior executive officer. The Executive shall also serve as a member of the Board. During his Employment, the Executive shall devote substantially his full business efforts and time to the Company and, so long as such activities do not interfere with the performance of his responsibilities to the Company under this Agreement, the Executive may engage in civic and charitable activities and serve on the boards of directors (or managers or trustees) of civic or charitable organizations and, subject to the consent of the Board, may serve on the board of directors of corporations or other businesses. The Executive’s primary work place shall be at the Company’s corporate headquarters in Los Angeles, California.

2. Cash and Incentive Compensation.

          (a) Salary. The Company shall pay the Executive as compensation for his services a base salary at a gross annual rate of not less than $1,000,000. Such salary shall be payable in accordance with the Company’s standard payroll procedures but the Executive shall receive pro-rata payments of his annual base salary no less frequently than once per month. The annual compensation specified in this Subsection (a), together with any increases in such compensation that the Company may grant from time to time, is referred to in this Agreement as “Base Compensation.”

          (b) Incentive Bonuses. The Executive shall be eligible to receive an annual fiscal year incentive bonus that the Board or Management Development and Compensation Committee of the Board (the “Committee”) shall determine and award in its discretion on terms and conditions no less favorable than the terms and conditions generally applicable to the Company’s other senior executive officers (collectively, the “Peer Executives”). Such incentive bonus shall be awarded based upon the achievement of specific milestones that will be determined by the Committee in consultation with the Executive no later than 90 days after the start of each fiscal year. Payment for each year’s bonus actually earned shall be made to the Executive no later than the fifteenth day of the third month after the end of the applicable fiscal year and any such earned bonus shall be fully paid to Executive even if Executive is no longer employed by the Company after the end of the applicable performance year.

          (c) Promotion Stock Option Grant. At a future meeting of the Committee, the Committee shall grant the Executive a stock option under the Amended and Restated KB Home 1999 Incentive Plan (the “Promotion Option”) to purchase shares of the Company’s common stock. The Promotion Option shall have a grant date value of $4,000,000 as measured in accordance with Financial Accounting Statement 123R (“FAS 123R”). The per share

 


 

exercise price of such Option shall be equal to the fair market value of a share of Company common stock on the date of grant. The Promotion Option shall be governed by the terms set forth in this Section 2(c) and in that certain Option Agreement attached as Exhibit A.

          (d) Long-Term Incentive Compensation. With respect to 2007, at a future meeting of the Committee, the Committee shall grant to the Executive, pursuant to the Amended and Restated KB Home 1999 Incentive Plan, 54,000 shares of Company’s common stock (the “Performance Share Grant”) and also a stock option to purchase shares of the Company’s common stock with a total option grant date value of $4,000,000 as measured in accordance with FAS 123(R) (the “Second Option”). With the exception of the number of shares subject to each option, the Second Option shall have the same terms and conditions as the Option. The Performance Shares shall be governed by the terms set forth in those certain resolutions of the Committee of even date herewith. With respect to years after 2007 during the Term of Employment, at the discretion of the Committee, the Executive shall be entitled to participate in the Company’s long term incentive compensation arrangements on terms and conditions no less favorable than the terms and conditions generally applicable to the Peer Executives, as in effect from time to time.

          (e) Other Equity Terms. With respect to years after 2007 during the Term of Employment, at the discretion of the Committee, the Executive shall be entitled to participate in the Company’s equity compensation plans on terms and conditions no less favorable than the terms and conditions generally applicable to the Peer Executives, as in effect from time to time, and shall be eligible to receive grants of Company equity (the Promotion Option, Second Option, Performance Share Grant and any new equity grants to Executive on or after the Effective Date (but not any equity grants outstanding immediately prior to the Effective Date) shall collectively be referred to herein as “Compensatory Equity”), as determined by Committee, in its discretion from time to time. All grants of Compensatory Equity to the Executive shall be: (i) issued pursuant to a KB Home stockholder-approved employee stock plan (the “Equity Plans”), (ii) issued by the Board (or its committee of non-employee directors) in accordance with Rule 16b-3(d)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (iii) made pursuant to an effective registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act of 1933, as amended (“Securities Act”) and the Company shall use commercially reasonable efforts to maintain the effectiveness of such registration statement for so long as the Executive is still holding any Compensatory Equity. Accelerated vesting of Compensatory Equity may be credited: (x) pursuant to the terms of this Agreement and in addition (y) pursuant to the terms of the Equity Plans and any applicable Compensatory Equity agreement. If Executive’s Service is terminated due to his death or Disability, then an additional one year of vesting shall be credited to all outstanding Compensatory Equity, effective as of the date of such termination. While the Company’s common stock (or successor stock) is publicly traded, the Executive may elect to establish a trading plan in accordance with Rule 10b5-1 of the Exchange Act and in accordance with the Company’s insider trading policies and stock ownership guidelines. Executive shall be permitted at his election to satisfy his tax withholding obligations on each vesting date of the restricted stock grants (or settlement dates of stock units) via share withholding with the shares that are surrendered to the Company valued at their then fair market value as of the applicable vesting date(s). In the event that an Involuntary Termination, Change in Control, or Executive’s death or Disability (each a “Triggering Event”) occurs before the formal grant of the Promotion Option, Second Option

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and/or Performance Share Grant (collectively, the “2007 Equity Awards”) then any such yet-to-be granted 2007 Equity Award shall be automatically granted by the Committee under the Amended and Restated KB Home 1999 Incentive Plan immediately prior to the earliest such Triggering Event.

          (f) Retirement Plan Benefits. The Executive shall be entitled to participate in the KB Home Retirement Plan in effect as of the Effective Date. Pursuant to this plan, the Executive shall be entitled to an annual base retirement benefit from the Company as provided in the applicable agreement in an amount of $450,000 per year plus annual cost of living increases as determined each year by the Committee. The accrued annual benefit for Executive as of February 9, 2006 was $463,500.

          (g) Employee Benefits. The Executive shall also be eligible to participate in any employee benefits plans or equity compensation plans or arrangements (collectively, “Employee Benefits Plans”) maintained or offered by the Company on terms and conditions no less favorable than the terms and conditions generally applicable to the Peer Executives. This Agreement shall not adversely affect the Executive’s existing rights and entitlements under the Employee Benefits Plans.

          (h) Service Definition. For purposes of this Agreement and the Executive’s Compensatory Equity, “Service” shall mean service by the Executive as an employee, director and/or consultant of the Company (or any subsidiary or parent or affiliated entity of the Company).

     3. Vacation and Indemnification.

          (a) Vacation. During his Employment, the Executive shall accrue at least four weeks paid vacation annually in accordance with the Company’s standard vacation policies as they relate to senior executive officers.

          (b) Indemnification. The Company shall indemnify the Executive to the maximum extent permitted by applicable law and the Company’s bylaws with respect to the Executive’s Service and the Executive shall also be covered under a directors and officers liability insurance policy(ies) paid for by the Company during his Employment. The Company shall maintain directors and officers liability insurance for the Executive’s benefit on terms and conditions no less favorable than the terms and conditions generally applicable to the Peer Executives and the members of the Board and shall use its commercially reasonable efforts to maintain at least $50 million of non-rescindable side A liability coverage on the Executive under its directors and officers liability insurance policies during Employment and through at least the fifth anniversary of the Executive’s termination of Service. The Company’s obligations under this Section 3(b) shall survive termination of Executive’s Service and also termination or expiration of this Agreement.

     4. Business Expenses. During his Employment, the Executive shall be authorized to incur necessary and reasonable travel, entertainment and other business expenses in connection with his duties hereunder. The Company shall promptly reimburse the Executive for

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such expenses upon presentation of appropriate supporting documentation, all in accordance with the Company’s generally applicable policies.

     5. Term of Employment.

          (a) Basic Rule. This Agreement shall have a term that initially is scheduled to end on November 30, 2009 (the “End Date”) with an annual option to extend such term. Commencing on May 30, 2009, this Agreement and the End Date shall be on an annual basis automatically extended by one year unless the Company or the Executive gives the other party written notice of its desire to not extend the Agreement at least six months prior to the initial End Date or any extension thereof.

          (b) Employment. The Company may terminate the Executive’s Employment with or without Cause, by giving the Executive 30 days advance notice in writing. The Executive may terminate his Employment by giving the Company 30 days advance notice in writing. The Executive’s Employment shall terminate automatically in the event of his death.

          (c) Rights Upon Termination. Upon the termination of the Executive’s Employment for any reason, the Executive shall be entitled to the compensation, benefits and reimbursements described in this Agreement for the period ending as of the end of the effective date of the termination (the “Termination Date”) and the Company shall make the following payments to the Executive on his Termination Date: (i) all unpaid salary and unpaid vacation accrued through the Termination Date, (ii) any accrued, unpaid bonuses for any fiscal year of the Company ended prior to the Termination Date and (iii) any unreimbursed business expenses. The Executive may also be eligible for other post-Employment payments and benefits as provided in this Agreement or pursuant to other agreements or plans with the Company. Upon the Termination Date, the Executive shall have no further rights to receive compensation or benefits from the Company except as set forth in Section 6 and pursuant to the terms of any benefit plans (including without limitation any equity compensation plans) of the Company in which the Executive is a participant.

     6. Termination Benefits.

          (a) Severance Pay. If there is an Involuntary Termination (as defined below) of the Executive’s Employment, subject to the Executive’s execution, delivery and non-revocation of a mutual release substantially in the form of Exhibit B (the “Release”), the Company shall pay the Executive cash in an amount equal to the sum of two times the Executive’s then annual Base Compensation and two times the Executive’s average annual incentive bonus earned for the three fiscal years prior to the fiscal year of the Termination Date (the “Average Bonus”), not to exceed $6 million in the aggregate (the “Cash Severance”). While the Cash Severance and other termination benefits in Sections 6(a), (b) and (c) will be timely provided to Executive conditioned upon his execution and non-revocation of the Release (whether or not the Company timely executes and delivers the Release to Executive), the effectiveness of Executive’s Release will be conditioned upon the Company’s similar execution and delivery of the Release to Executive. For purposes of calculating the Average Bonus: (i) any payments that were made in the form of restricted stock or other equity awards shall be valued as of their respective dates of grant and measured in accordance with the method used by the

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Company to determine their value for purposes of its financial statements and (ii) if the Termination Date occurs within the first 75 days of a fiscal year, then the bonus amount used for the fiscal year immediately preceding the fiscal year of the Termination Date (the “Prior Fiscal Year”) shall be no less than the average bonus earned for the two fiscal years preceding the Prior Fiscal Year. In addition, the Executive shall receive a cash payment equal to a pro-rata portion of the Average Bonus for the fiscal year of his termination of employment, with the pro-rata amount based on the number of calendar days that the Executive was an employee during such fiscal year divided by 365, provided, however, that no such payment shall be made if the Company’s pre-tax income for the four fiscal quarters ending immediately prior to the Termination Date, in the aggregate, is negative. Subject to the terms of the Release, all amounts payable under this Section 6(a) shall be made in a single lump sum payment to the Executive within thirty (30) days after the Termination Date. The Executive shall also receive the benefits provided in Sections 6(b), 6(c) and 6(d) (if Section 6(d) is applicable) and all such payments and benefits shall not be subject to mitigation or offset (except as specified in Section 6(b)).

          (b) Health Insurance. If the Executive is entitled to receive the payments in subsection (a), and if the Executive elects to continue his (and his dependents) health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) following the termination of his Employment, then the Company shall pay the Executive’s monthly premium under COBRA until the earliest of (i) twenty-four (24) months after the Termination Date, (ii) the expiration of the Executive’s continuation coverage under COBRA or (iii) the date when the Executive commences receiving substantially equivalent health insurance coverage in connection with new employment. Even if there is no legal requirement to provide COBRA continuation coverage for the entire twenty-four (24) month post-Employment period, the Company shall still be obligated to provide Company-paid health coverage to the Executive and his dependents for the entire twenty-four (24) months specified in Section 6(b)(i).

          (c) Equity Vesting. If the Executive is entitled to receive the payments in subsection (a), then the Executive will become immediately vested in an additional number of shares of Company common stock under all of the Executive’s outstanding Compensatory Equity as if the Executive had continued in employment for twenty-four (24) additional months following the Termination Date provided, however, that any unvested Compensatory Equity which had been issued in settlement of a bonus payment shall be fully vested. In addition, Executive shall have through 36 months following the Termination Date to exercise any of his outstanding Compensatory Equity (subject to the original term duration of each equity grant). If the Executive is then holding (or entitled to receive) performance shares, the performance period for each award shall close as of the Termination Date for all outstanding awards whose performance periods would otherwise close within twenty-four (24) months (or thirty-six (36) months for the Performance Share Grant) after the Termination Date and the Executive shall be entitled to receive the number of performance shares equal to the number of shares earned for each such performance period.

          (d) Effect of Change in Control. If the Company is subject to a Change in Control (as defined below), the Executive shall immediately vest in (and the Company’s right to repurchase, if applicable, shall lapse immediately as to) all of the Executive’s Compensatory Equity shares and he shall also immediately vest in and timely receive cash lump

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payments pursuant to any deferred compensation, retirement or other arrangements or agreements. If the Executive is then holding (or entitled to receive) performance shares, the performance period for each award shall close as of the date of the Change in Control and he shall be entitled to receive the number of performance shares equal to the number of shares earned for each performance period. Moreover, if there is an Involuntary Termination in connection with a Change in Control and/or within the period beginning three months before and ending fifteen (15) months after a Change in Control, then the Executive will also be entitled to all benefits described in Sections 6(a), 6(b) and 6(c) of this Agreement, except that the Cash Severance under Section 6(a) shall be an amount equal to the sum of three times the Executive’s then annual Base Compensation and three times the Executive’s Average Bonus, as determined under Section 6(a), not to exceed $12 million in the aggregate. For purposes of the preceding sentence, an Involuntary Termination shall be deemed to be in connection with a Change in Control if such termination (i) is required by the merger agreement or other instrument relating to such Change in Control or (ii) is made at the express request of the other party (or parties) to the transaction constituting such Change in Control.

The Company shall pay the Executive in an amount equal to the sum of: (i) any excise taxes that may be imposed on Executive under Internal Revenue Code Sections 280G and 4999 (the “Excise Tax Restoration”) and (ii) for any taxes (including excise taxes) imposed on the Excise Tax Restoration payment, and for any interest or penalties related to such excise tax with such tax computations performed applying the then highest marginal tax rates. Such payments shall be fully made to the Executive upon a determination that there are excise taxes owed. Any calculations and determinations required under this Section 6(d) shall be made in writing by the Company’s independent auditor (the “Accountant”) whose determination shall be conclusive and binding. The Executive and the Company shall furnish the Accountant such documentation as the Accountant may reasonably request in order to make a determination. The Company shall pay for all costs that the Accountant may reasonably incur in connection with performing any calculations contemplated by this Section 6(d).

          (e) Change in Control Definition. For purposes of this Agreement, “Change in Control” shall mean the occurrence of any of the following events:

     (i) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if the Company’s stockholders immediately prior to such merger, consolidation or reorganization cease to directly or indirectly own immediately after such merger, consolidation or reorganization at least a majority of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization;

     (ii) the consummation of the sale, transfer or other disposition of all or substantially all of the Company’s assets (other than (1) to a corporation or other entity of which at least a majority of its combined voting power is owned directly or indirectly by the Company, (2) to a corporation or other entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company or (3) to a continuing or surviving entity described in subsection (i) in connection with a

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merger, consolidation or corporate reorganization which does not result in a Change in Control under subsection (i));

     (iii) a change in the composition of the Board, as a result of which fewer than one-half of the incumbent directors are directors who either (1) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change in Control (the “original directors”) or (2) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved;

     (iv) the consummation of any transaction as a result of which any person becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 35% of the total voting power represented by the Company’s then outstanding voting securities. For purposes of this subsection, the term “person” shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude:

     (A) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or an affiliate of the Company;

     (B) a corporation or other entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company;

     (C) the Company; and

     (D) a corporation or other entity of which at least a majority of its combined voting power is owned directly or indirectly by the Company; or

     (v) a complete winding up, liquidation or dissolution of the Company.

     For purposes of this Section 6(e), a transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transactions.

          (f) Cause. For all purposes under this Agreement, “Cause” shall mean any of the following committed by the Executive:

     (i) Willful failure to follow the reasonable and lawful directions of the Board;

     (ii) Conviction of a felony (or a plea of guilty or nolo

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contendere by the Executive to a felony) that materially harms the Company;

     (iii) Acts of fraud, dishonesty or misappropriation committed by the Executive and intended to result in substantial personal enrichment at the expense of the Company;

     (iv) Willful misconduct by the Executive in the performance of the Executive’s material duties required by this Agreement which is likely to materially damage the Company’s financial position or reputation; or

     (v) A material breach of this Agreement.

The foregoing is an exclusive list of the acts or omissions that shall be considered “Cause” for the termination of the Executive’s Employment by the Company. With respect to the acts or omissions set forth in clauses (i), (iii), (iv) and (v) above, (x) the Board shall provide the Executive with 30 days advance written notice detailing the basis for the termination of Employment for Cause, (y) during the 30 day period after the Executive has received such notice, the Executive shall have an opportunity to cure such alleged Cause events and to present his case to the full Board (with the assistance of his own counsel) before any termination for Cause is finalized by a vote of a majority of the Board and (z) the Executive shall continue to receive the compensation and benefits provided by this Agreement during the 30 day cure period. In addition, no act or failure to act of Executive shall be willful or intentional if performed in good faith with the reasonable belief that the action or inaction was in the best interest of the Company.

          (g) Involuntary Termination Definition. For all purposes under this Agreement, “Involuntary Termination” shall mean any of the following: (i) termination of the Executive’s Employment by the Company without Cause; or (ii) the Executive’s resignation of Employment for Good Reason (as defined below); or (iii) the termination of the Executive’s Employment for any reason during the thirty day period immediately following twelve months after a Change in Control; or (iv) the Company’s election to not extend the term of this Agreement to or beyond the Executive’s Normal Retirement Date.

          (h) Good Reason Definition. For all purposes under this Agreement, “Good Reason” shall mean any of the following that occur without the Executive’s prior written consent: (i) the relocation of the Executive’s primary work location by more than fifty (50) miles from the Executive’s primary work location as specified in Section 1; or (ii) any reduction of the Executive’s Base Compensation or any reduction of Executive’s annual bonus opportunity which result in the Executive aggregate Base Compensation and annual bonus opportunity being materially uncompetitive (as compared to the chief executive officers of the peer public companies that are being utilized in the performance measurement comparison in the Performance Share Grant); or (iii) any material reduction or diminution of the Executive’s duties, authority or responsibilities (it shall be deemed to be a material reduction of the Executive’s duties, authority or responsibilities if the Executive is no longer a voting member of the Board or is no longer the President and Chief Executive Officer (“PCEO”) of the Company (or if the Company has a parent entity, then the Executive must be PCEO and a director of the Company’s highest parent entity)) other than on account of the Executive’s voluntary termination (without

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Good Reason), of his Employment; or (iv) the Company’s material breach of this Agreement including without limitation the failure to timely provide the Executive the cash compensation, equity compensation and/or employee benefits specified under this Agreement, provided that the Executive shall have provided the Company with 30 days advance written notice and an opportunity to cure such breach during such 30 day period; or (v) the failure of any successor of the Company to expressly in writing assume the Company’s obligations under this Agreement.

          (i) Disability Definition. For all purposes under this Agreement, “Disability” shall mean the Executive’s incapacity due to physical or mental illness to perform his full-time duties with the Company for a continuous period of three months or an aggregate of six months in any 18 month period.

          (j) Retirement Definition. For all purposes under this Agreement, Retirement shall mean termination of Executive’s service for any reason on or after the date that the Executive attains age 65.

     7. Non-Solicitation, Non-Compete and Non-Disparagement.

          (a) Non-Solicitation. During the period commencing on the date of this Agreement and continuing until the second anniversary of the Termination Date, the Executive shall not directly or indirectly, personally or through others, solicit or attempt to solicit (on the Executive’s own behalf or on behalf of any other person or entity) the employment of any employee of the Company or any of the Company’s affiliates.

          (b) No Non-Compete. The Executive will not be subject to any non-compete obligations on or after his Termination Date

          (c) Non-Disparagement. The Executive and the Company mutually agree not to disparage or defame, in writing or orally, the other party, and as applicable, its or his services, products, subsidiaries and affiliates, and/or their respective directors, officers, employees, agents, family members, successors and assigns. This non-disparagement provision shall not apply to statements made by non-management employees of the Company, so long as such statements did not originate from and were not induced or encouraged (directly or indirectly) by an officer, director or management employee of the Company. Notwithstanding the foregoing, nothing in this Section 7(c) shall limit the ability of the Company or the Executive, as applicable, to provide truthful testimony as required by law or any judicial or administrative process.

          (d) Confidential Information. Except as required in the good faith opinion of the Executive in connection with the performance of the Executive’s duties hereunder or as specifically set forth in this Section 7(d), the Executive shall, in perpetuity, maintain in confidence and shall not directly, indirectly or otherwise, use, disseminate, disclose or publish, or use for his benefit or the benefit of any person, firm, corporation or other entity any confidential or proprietary information or trade secrets of or relating to the Company, including, without limitation, information with respect to the Company’s operations, processes, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status, business

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plans, designs, marketing or other business strategies, compensation paid to employees or other terms of employment, or deliver to any person, firm, corporation or other entity any document, record, notebook, computer program or similar repository of or containing any such confidential or proprietary information or trade secrets. The Company and the Executive stipulate and agree that as between them the foregoing matters are important, material and confidential proprietary information and trade secrets and affect the successful conduct of the businesses of the Company (and any successor or assignee of the Company). Upon termination of the Executive’s employment with the Company for any reason, the Executive shall promptly deliver to the Company all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents concerning the Company’s customers, business plans, designs, marketing or other business strategies, products or processes, provided that the Executive may retain his rolodex, address book and similar information.

     8. Successors.

          (a) Company’s Successors. This Agreement shall be binding upon any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which becomes bound by this Agreement.

          (b) Employee’s Successors. This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

     9. Internal Revenue Code Section 409A. In the event that the Company determines that any of the benefits payable under this Agreement would violate Section 409A of the Internal Revenue Code (“Section 409A”), then the Company and the Executive shall agree to implement adjustments needed to comply with Section 409A (to the minimum extent necessary to avoid the imposition of any excise taxes and without reducing the absolute value of such benefits) including delaying payment to the Executive of such benefits. Any such delayed payments shall be fully paid (with accrual of interest at the annualized short-term applicable federal rate in effect as of the Termination Date) to the Executive on the first business day after the end of the delay period required by Section 409A.

     10. Repayment Provisions. If the Company is required to prepare an accounting restatement due to its material noncompliance, as a result of the Executive’s misconduct, with any financial reporting requirement under United States securities laws, then, and only if Section 304 of the Sarbanes-Oxley Act of 2002, or a successor provision, is then in effect, the Company may require the Executive to reimburse the Company for (i) any bonus or other incentive-based or equity-based compensation received by the Executive from the Company during the 12 month period following the first public issuance or filing with the Securities Exchange Commission (whichever first occurs) of the financial documents embodying such financial reporting requirement and (ii) any profits realized from the sale of securities of Company during such 12 month period.

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     11. Miscellaneous Provisions.

          (a) Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by overnight courier, U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to him at the home address that he most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

          (b) Modifications and Waivers. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

          (c) Whole Agreement. Except for those agreements or plans referenced herein (including without limitation any Employee Benefits Plans in which the Executive is a participant in as of the Effective Date), this Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes any other agreements, representations or understandings (whether oral or written and whether express or implied) with respect to the subject matter hereof. In the event of any conflict in terms between this Agreement and any other agreement executed by and between the Executive and the Company, the terms of this Agreement shall prevail and govern.

          (d) Legal Fees. The Company shall pay all reasonable legal fees and expenses incurred in connection with the negotiation, preparation and execution of this Agreement. The Company shall directly make full payment to the Executive’s legal counsel within 30 days after the Company’s receipt of applicable invoices.

          (e) Withholding Taxes. All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law.

          (f) Reporting Requirements. As the Executive is a Section 16 officer, the Company will assist the Executive and facilitate the Executive’s compliance with applicable Section 16 reporting requirements.

          (g) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California (except their provisions governing the choice of law).

          (h) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

          (i) Assignment. The Company may assign its rights under this Agreement to any entity that expressly in writing assumes the Company’s obligations hereunder

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in connection with any sale or transfer of all or substantially all of the Company’s assets to such entity.

          (j) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the Effective Date.

 

 

 

 

 

 

 

 

 

/s/ JEFFREY T. MEZGER  

 

 

Jeffrey T. Mezger 

 

 

 

 

 

 

KB HOME
 

 

 

By:  

/s/ KENNETH M. JASTROW, II  

 

 

 

Kenneth M. Jastrow, II 

 

 

 

Title:  

Lead Director, Board of Directors 

 

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EX-10.39 14 v50128exv10w39.htm EX-10.39

Exhibit 10.39

AMENDMENT
TO THE
EMPLOYMENT AGREEMENT BETWEEN JEFFREY T. MEZGER AND KB HOME

     This Amendment to the Employment Agreement, dated February 27, 2007 (the “Agreement”), between Jeffrey T. Mezger (the “Executive”) and KB Home (the “Company”), is entered into by the Executive and the Company on this 24th day of December, 2008, to be effective as of January 1, 2009. Capitalized terms used herein but not defined have the meanings set forth in the Agreement.

     WHEREAS, the Executive and the Company desire to make certain technical amendments to the Agreement in light of new requirements under Section 409A of the Internal Revenue Code; and

     WHEREAS, the amendments are being made pursuant to this Amendment in accordance with Sections 9 and 11(b) of the Agreement.

     NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the Executive and the Company, each intending to be legally bound, agree as follows:

     1. Section 6(a) is hereby amended by striking “While” at the beginning of the second sentence thereof and replacing it with “Subject to the requirements of Section 6(k), while”.

     2. Section 6(d) is hereby amended by striking the period at the end of the first sentence thereof and inserting the following:

“(except that cash lump sum payments under any arrangements or agreements subject to Internal Revenue Code Section 409A shall only be permitted as provided under the terms of those arrangements or agreements).”

     3. Section 6(d) is hereby amended by inserting the following new sentence at the end of the last paragraph thereof:

“In no event shall the payments contemplated under this paragraph be paid to the Executive later than the end of the taxable year of the Executive following the taxable year in which the Executive remits the related taxes.”

     4. Section 6 is hereby amended by inserting the following new subsection (k) at the end thereof:

“(k) Timing of Payment of Cash Severance and Execution of Release. Subject to Section 9, the payment of Cash Severance under Section 6(a) shall be made within 60 days after the date of the Executive’s Involuntary Termination; provided, however, that no payment of Cash Severance shall be made under this

 

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Agreement unless the Executive delivers an executed Release to the Company within 50 days after the date of the Executive’s Involuntary Termination.”

     5. Section 9 is hereby amended by deleting the first sentence thereof and replacing it with the following:

“If the Company shall make a good-faith determination that the Cash Severance payable pursuant to Section 6 constitutes “deferred compensation” (within the meaning of Section 409A) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A in order to preserve the tax treatment intended for such payment or to avoid additional tax, interest, or penalties under Section 409A, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it on the first business day after such six-month period.”

IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement on the date first set forth above.

 

 

 

 

 

 

 

 

 

KB HOME

 

 

 

EXECUTIVE

 

 

 

 

 

 

 

 

 

 

 

By:
Name:

 

/s/ Wendy C. Shiba

 

Wendy C. Shiba

 

 

 

/s/ Jeffrey T. Mezger

 

Jeffrey T. Mezger

 

 

Title:

 

Executive Vice President, General

 

 

 

 

 

 

 

 

Counsel and Secretary

 

 

 

 

 

 

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EX-10.27 10 v50128exv10w27.htm EX-10.27

Exhibit 10.27

KB HOME
CHANGE IN CONTROL SEVERANCE PLAN

(AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2009)

     KB HOME, a Delaware corporation (the “Company”), has adopted this Change in Control Severance Plan (the “Plan”) for the benefit of certain key employees of the Company. This Plan is effective as of October 4, 2001 and has been amended and restated pursuant to Section 10.3 of the Plan effective January 1, 2009.

     The purposes of the Plan are as follows:

     (1) To reinforce and encourage the continued attention and dedication of members of the Company’s management to their assigned duties without the distraction arising from the possibility of a Change in Control (as defined below) of the Company;

     (2) To enable and encourage the Company’s management to focus their attention on obtaining the best possible deal for the Company’s shareholders and to make an independent evaluation of all possible transactions, without being diverted by their personal concerns regarding the possible impact of various transactions on the security of their jobs and benefits;

     (3) To provide severance benefits to any Participant (as defined below) who incurs a termination of employment under the circumstances described herein within a certain period following a Change in Control; and

     (4) To comply with all applicable law, including Section 409A of the Code and related Treasury guidance and regulations, and be operated and interpreted in accordance with this intention.

     1. Defined Terms. For purposes of the Plan, the following terms shall have the meanings indicated below:

     (A) “Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

     (B) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Act.

     (C) “Board” shall mean the Board of Directors of the Company.

     (D) “Cause” shall mean (i) acts of fraud or misappropriation committed by the Participant and intended to result in substantial personal enrichment at the expense of the Company or (ii) repeated violations by the Participant of the Participant’s obligations to the Company which are demonstrably willful and deliberate and which result in material injury to the Company; provided that, in each case, the Participant has received written notice of the

 

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described activity, has been afforded a period of 20 days to cure or correct the activity described in the notice, and has failed to cure, correct or cease the activity, as appropriate.

     (E) “Change in Control” shall mean the occurrence of a “change in the ownership,” a “change in the effective control” or a “change in the ownership of a substantial portion of the assets” of a corporation, as determined in accordance with this Section.

In order for an event described below to constitute a Change in Control with respect to a Participant, except as otherwise provided in part (ii)(b) of this Section, the applicable event must relate to the corporation for which the Participant is providing services, the corporation that is liable for payment of the Participant’s Account Balance (or all corporations liable for payment if more than one), as identified by the Committee in accordance with Section 1.409A-3(i)(5)(ii)(A)(2) of the Treasury Regulations, or such other corporation identified by the Committee in accordance with Section 1.409A-3(i)(5)(ii)(A)(3) of the Treasury Regulations.

In determining whether an event shall be considered a “change in the ownership,” a “change in the effective control” or a “change in the ownership of a substantial portion of the assets” of a corporation, the following provisions shall apply:

     (i) A “change in the ownership” of the applicable corporation shall occur on the date on which any one person, or more than one person acting as a group, acquires ownership of stock of such corporation that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of such corporation, as determined in accordance with Section 1.409A-3(i)(5)(v) of the Treasury Regulations. If a person or group is considered either to own more than 50% of the total fair market value or total voting power of the stock of such corporation, or to have effective control of such corporation within the meaning of part (ii) of this Section, and such person or group acquires additional stock of such corporation, the acquisition of additional stock by such person or group shall not be considered to cause a “change in the ownership” of such corporation.

     (ii) A “change in the effective control” of the applicable corporation shall occur on either of the following dates:

     (a) The date on which any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of such corporation possessing 30% or more of the total voting power of the stock of such corporation, as determined in accordance with Section 1.409A-3(i)(5)(vi) of the Treasury Regulations. If a person or group is considered to possess 30% or more of the total voting power of the stock of a corporation, and such person or group acquires additional stock of such corporation, the acquisition of additional stock by such person or group shall not be considered to cause a “change in the effective control” of such corporation; or

     (b) The date on which a majority of the members of the applicable corporation’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of such corporation’s board of directors before the date of the

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appointment or election, as determined in accordance with Section 1.409A-3(i)(5)(vi) of the Treasury Regulations. In determining whether the event described in the preceding sentence has occurred, the applicable corporation to which the event must relate shall only include a corporation identified in accordance with Section 1.409A-3(i)(5)(ii) of the Treasury Regulations for which no other corporation is a majority shareholder.

     (iii) A “change in the ownership of a substantial portion of the assets” of the applicable corporation shall occur on the date on which any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the corporation immediately before such acquisition or acquisitions, as determined in accordance with Section 1.409A-3(i)(5)(vii) of the Treasury Regulations. A transfer of assets shall not be treated as a “change in the ownership of a substantial portion of the assets” when such transfer is made to an entity that is controlled by the shareholders of the transferor corporation, as determined in accordance with Section 1.409A-3(i)(5)(vii)(B) of the Treasury Regulations.

     (F) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

     (G) “Committee” shall mean the committee responsible for administering the Plan, as described in Section 3 hereof.

     (H) “Company” shall mean KB HOME, a Delaware corporation, and, except in determining under Section 1(E) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets.

     (I) “Disability” shall mean the Participant’s incapacity due to physical or mental illness to perform his or her full-time duties with the Company for a continuous period of three months or an aggregate of six months in any eighteen-month period.

     (J) “Good Reason” shall mean, without the consent of the Participant, (i) any changes in the duties and responsibilities of the Participant which are materially inconsistent with the duties and responsibilities of the Participant within the Company immediately prior to the Change in Control, (ii) any reduction of the Participant’s salary, aggregate incentive compensation opportunities (excluding any reduction in incentive compensation awards due to the economic performance of the Company) or aggregate benefits, (iii) any required relocation of the Participant’s office beyond a 50 mile radius from the location of the Participant’s office immediately prior to the Change in Control, (iv) any failure by the Company to obtain the assumption of the Plan by a successor of the Company, or (v) the Company’s requiring the Participant to travel materially in excess of the Participant’s business travel obligations prior to the Change in Control.

     (K) “Participants” shall mean those persons who are expressly designated in writing by the Committee from time to time and identified as “Group A Participants” or “Group B

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Participants,” as the case may be.

     (L) “Protected Period” shall mean the period beginning on the date of a Change in Control and ending on the date which is eighteen months after the date of such Change in Control.

     (M) “Separation from Service” shall mean a termination of services provided by a Participant to the Company, other than by reason of death or Disability, as determined by the Committee in accordance with Treas. Reg. §1.409A-1(h). In determining whether a Participant has experienced a Separation from Service, the following provisions shall apply:

(i) For a Participant who provides services to the Company as an Employee, except as otherwise provided in part (iii) of this Paragraph, a Separation from Service shall occur when such Participant has experienced a termination of employment with the Company. A Participant shall be considered to have experienced a termination of employment when the facts and circumstances indicate that the Participant and the Company reasonably anticipate that either (a) no further services will be performed for the Company after a certain date, or (b) that the level of bona fide services the Participant will perform for the Company after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed by such Participant (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Company if the Participant has been providing services to the Company less than 36 months).

     If a Participant is on military leave, sick leave, or other bona fide leave of absence, the employment relationship between the Participant and the Company shall be treated as continuing intact, provided that the period of such leave does not exceed 6 months, or if longer, so long as the Participant retains a right to reemployment with the Company under an applicable statute or by contract. If the period of a military leave, sick leave, or other bona fide leave of absence exceeds 6 months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship shall be considered to be terminated for purposes of this Plan as of the first day immediately following the end of such 6-month period. In applying the provisions of this paragraph, a leave of absence shall be considered a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Company. For purposes of this paragraph, where a leave of absence is due to any physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a 29-month period of absence shall be substituted for such 6-month period.

(ii) For a Participant who provides services to the Company as an independent contractor, except as otherwise provided in part (iii) of this

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Paragraph, a Separation from Service shall occur upon the expiration of the contract (or in the case of more than one contract, all contracts) under which services are performed for the Company, provided that the expiration of such contract(s) is determined by the Committee to constitute a good-faith and complete termination of the contractual relationship between the Participant and the Company.

(iii) For a Participant who provides services to the Company as both an employee and an independent contractor, a Separation from Service generally shall not occur until the Participant has ceased providing services for the Company as both as an employee and as an independent contractor, as determined in accordance with the provisions set forth in parts (i) and (ii) of this Paragraph, respectively. Similarly, if a Participant either (a) ceases providing services for the Company as an independent contractor and begins providing services for the Company as an employee, or (b) ceases providing services for the Company as an employee and begins providing services for the Company as an independent contractor, the Participant will not be considered to have experienced a Separation from Service until the Participant has ceased providing services for the Company in both capacities, as determined in accordance with the applicable provisions set forth in parts (i) and (ii) of this Paragraph.

     Notwithstanding the foregoing provisions in this part (iii), if a Participant provides services for the Company as both an employee and as a director, to the extent permitted by Treas. Reg. §1.409A-1(h)(5) the services provided by such Participant as a director shall not be taken into account in determining whether the Participant has experienced a Separation from Service as an employee.

(iv) For purposes of this Paragraph, services performed for the Company shall include service performed both for the Company and for any other corporation that is a member of the same “controlled group” of corporations as the Company under Section 414(b) of the Code or any other trade or business (such as a partnership)_that is under common control with the Company as determined under Section 414(c) of the Code, in each case as modified by Treasury Regulation Section 1.409A-1(h)(3) and substituting “at least 50 percent” for “at least 80 percent” each place it appears in Section 1563(a) of the Code or Treasury Regulation Section 1.414(c)-2..

     (N) “Specified Employee” shall mean any Participant who is determined to be a “key employee” (as defined under Section 416(i) of the Code without regard to paragraph (5) thereof) for the applicable period, as determined annually by the Committee in accordance with the methodology specified by resolution of the Board or the Management Development and Compensation Committee of the Board and in accordance with Section 1.409A-1(i) of the Treasury Regulations.

     2. Effective Date of Plan. The original effective date of the Plan was October 4, 2001, and the effective date of the amendment and restatement of the Plan is January 1, 2009 (the “Effective Date”). The Plan shall remain in effect until the earlier of (i) such time as the Company has discharged all of its obligations hereunder, or (ii) the date of the termination of

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the Plan pursuant to Section 10.3 hereof.

     3. Administration.

     (A) Prior to the date of a Change in Control, the Plan shall be interpreted, administered and operated by the Personnel, Compensation and Stock Plan Committee of the Board; on and after the date of a Change in Control, the Plan shall be interpreted, administered and operated by a committee appointed by a committee of individuals appointed by the Personnel, Compensation and Stock Plan Committee of the Board as such Committee is constituted immediately prior to the Change in Control. In each case, subject to the terms of the Plan, the Committee shall have complete authority, in its sole discretion subject to the express provisions of the Plan, to determine who shall be a Participant, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable for the administration of the Plan. Notwithstanding the foregoing, the Committee may delegate any of its duties hereunder to such person or persons from time to time as it may designate.

     (B) All expenses and liabilities which members of the Committee incur in connection with the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants, appraisers, brokers, or other persons, and the Committee, the Company and the Company’s officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. No member of the Committee or the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, and all members of the Committee shall be fully protected by the Company in respect of any such action, determination or interpretation.

     4. Benefits Provided.

     4.1 Termination After Change in Control. (A) Subject to Section 4.2 and 4.3 hereof, if a Participant’s employment with the Company is terminated during the Protected Period (a) by the Company other than for Cause or Disability, or (b) by the Participant for Good Reason, the Company shall, except as provided in Section 4.1(C), pay to each Participant within ten (10) business days after the Participant’s Separation from Service a severance payment (the “Severance Payment”) in an amount determined as follows: (i) in the case of each Group A Participant, a lump sum payment in an amount equal to two (2) times the sum of the Participant’s average annual base salary and the Participant’s average actual annual cash bonus under the Company’s incentive compensation plan, in each case, for the three fiscal years prior to the fiscal year in which the Change in Control occurs and (ii) in the case of each Group B Participant, a lump sum payment in an amount equal to one (1) times the sum of the Participant’s average annual base salary and the Participant’s average actual annual cash bonus under the Company’s Incentive Compensation Plan, in each case, for the three fiscal years prior to the fiscal year in which the Change in Control occurs. In addition, notwithstanding any provisions of the Company’s stock option plans, incentive plans, or other similar plans, all outstanding options, if any, granted to a Participant under any of the Company’s stock option plans, incentive plans, or other similar plans (or options substituted therefor covering the stock of a successor corporation) shall become fully vested and exercisable upon a “Change in Control” or “Change of Ownership,” as such terms are defined in the applicable plan or agreement thereunder, as to all shares of stock covered thereby, and the restricted period with

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respect to any restricted stock or any other equity award granted to a Participant thereunder shall lapse immediately upon such “Change in Control” or Change of Ownership.” In addition, notwithstanding any provisions of the Company’s Death Benefit Only Life Insurance Plan, each Participant’s interest in such plan shall become fully vested upon a Change in Control. The Severance Payment and other benefits described herein shall be conditioned upon the execution by the Participant of the Company’s standard form general release, in accordance with paragraph (B) of this Section 4.1.

     (B) Notwithstanding anything to the contrary contained in this Plan, a Participant shall not be entitled to receive any Severance Payment or any other benefit under the Plan unless and until the Participant has signed and returned to the Plan Administrator a release (the “Release”) by the deadline established by the Plan Administrator (which shall be no later than 50 calendar days after the Participant’s Separation from Service) and any period during which the Participant may revoke the Release under applicable law or pursuant to the terms of the Release has elapsed.

     (C) If on the date of the Change in Control, a Participant is party to any employment or similar agreement with the Company that provides severance payments or any of the other benefits provided in this Plan, and any terms of that agreement are inconsistent with, or in addition to, the terms of this Plan, the terms of that agreement shall apply to the Participant to the extent of such inconsistent or additional terms. In addition, except as otherwise expressly provided in a written agreement between the Company and the Participant that such severance payments or benefits are to be paid in addition to any payment or benefit described herein, the payment herein shall be reduced by the aggregate amount of any other cash payments in the nature of severance payments or the like that any Employer is obligated to pay to the Participant by any contract, plan, or arrangement other than this Plan.

     4.2 Section 280G. (A) Notwithstanding anything in this Plan to the contrary, in the event that it shall be determined that any payment or benefit to a Group A Participant, whether pursuant to the terms of this Plan or otherwise (a “Payment”), would constitute an “excess parachute payment” within the meaning of Section 280G of the Code, the Group A Participant shall be paid an additional amount (a “Gross-Up Payment”) such that the net amount retained by the Group A Participant after deduction of any excise tax imposed under Section 4999 of the Code, and any federal, state and local income and employment taxes and excise tax, including any interest and penalties with respect thereto, imposed upon the Gross-Up Payment shall be equal to the Payment. For purposes of determining the amount of the Gross-Up Payment, the Group A Participant shall be deemed to pay federal income tax and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Group A Participant’s residence on the date the Payment is made, net of the reduction in federal income taxes that the Group A Participant may obtain from the deduction of such state and local income taxes. Group B Participants shall not be eligible to receive a Gross-Up Payment under this Plan.

     (B) All determinations to be made under this Section 4.2 shall be made by the Company’s independent public accountant immediately prior to the date the Payment is made (the “Accounting Firm”), which firm shall provide its determinations and any supporting calculations and workpapers both to the Company and the Group A Participant within ten (10) 

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days of such date. Any such determination by the Accounting Firm shall be binding upon the Company and the Group A Participant. Within five days after receipt of the Accounting Firm’s determination, the Company shall pay to the Group A Participant the Gross-Up Payment determined by the Accounting Firm.

     (C) In the event that upon any audit by the Internal Revenue Service, or by a state or local taxing authority, of a Payment or Gross-Up Payment, a change is finally determined to be required in the amount of taxes paid by the Group A Participant, appropriate adjustments shall be made under this Section 4.2 such that the net amount which is payable to the Group A Participant after taking into account the provisions of Section 4999 of the Code and any interest and penalties shall reflect the intent of the parties as expressed in paragraph (A) of this Section 4.2, in the manner determined by the Accounting Firm. The Group A Participant shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Group A Participant is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Group A Participant shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Group A Participant in writing prior to the expiration of such period that it desires to contest such claim, the Group A Participant shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Group A Participant harmless, on an after-tax basis, for any excise tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4.2, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may contest the claim in any permissible manner, and the Group A Participant agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine. The Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Group A Participant shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

     (D) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in paragraphs (B) and (C) of this Section 4.2 shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm from any and all claims, damages and expenses resulting from or relating to its determinations pursuant to paragraphs (B) and (C) of this Section 4.2, except for claims, damages or expenses

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resulting from the gross negligence or willful misconduct of the Accounting Firm.

     (E) Pursuant to the requirements of Section 409A of the Code, any payment due to the Group A Participant under this Section 4.2 shall be made no later than the end of the calendar year following the year in which related taxes are remitted to the relevant taxing authority, or, in the case of an audit or litigation that results in no taxes being remitted, no later than the end of the calendar year following the year in which such audit or litigation is completed.

     4.3 Compliance with Section 409A of the Code; Delay in Payments to Specified Employees. Payments under this Plan are intended to comply with Section 409A of the Code (to the extent applicable) and this Plan shall be interpreted consistent with that intent. In the case of a Participant who is a Specified Employee, payment of benefits under Section 4.1 (to the extent subject to Section 409A of the Code) shall not be made sooner than six months following the Participant’s Separation from Service. Any resulting delayed payments shall be made on the first day of the seventh month following the date of the Participant’s Separation from Service.

     5. Termination Procedures.

     5.1 Notice of Termination. Any purported termination of a Participant’s employment following a Change in Control (other than by reason of death) shall be communicated by written Notice of Termination from one party to the other party in accordance with Section 8 hereof. For purposes of this Plan, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Plan relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant’s employment under the provision so indicated. Further, no termination for Cause shall be effective without (i) reasonable notice to the Participant setting forth the reasons for the Company’s intention to terminate, and (ii) an opportunity for the Participant to cure or correct any such breach within twenty (20) days after receipt of such notice. Notwithstanding anything contained herein, no termination for Good Reason shall be effective unless (i) the Participant has delivered to the Company a Notice of Termination in accordance with this Section 5.1 within thirty (30) days after the occurrence of the event or circumstance which constitutes Good Reason under Section 1(J) hereof, and (ii) the Company has been afforded an opportunity to cure or correct such event or circumstance within twenty (20) days after receipt of such notice.

     5.2 Date of Termination. “Date of Termination,” with respect to any purported termination of a Participant’s employment (other than by reason of the Participant’s death or Disability), shall mean the date specified in the Notice of Termination (which shall be within thirty (30) days from the date such Notice of Termination is given).

     5.3 Covenants. The Participant agrees that, in order for the Participant to be eligible to receive the Severance Payment and other benefits described herein, the Participant must comply with the covenants set forth in paragraphs (A) and (B) of this Section 5.3. In the event that a Participant breaches or violates any provision of paragraphs (A) and (B) of this Section 5.3, the Participant shall forfeit any right and interest of the Participant to receive any Severance Payment or other benefit described herein and the Participant shall promptly refund to the Company all payments received under Section 4.1(A).

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     (A) The Participant hereby agrees that, upon termination of the Participant’s employment with the Company, the Participant shall not discuss or use any confidential and/or secret information of a proprietary nature which is not otherwise publicly available.

     (B) The Participant hereby agrees that, for a period commencing on the Date of Termination and terminating on the first anniversary thereof, the Participant shall not, either on the Participant’s own account or jointly with or as a manager, agent, officer, employee, consultant, partner, joint venturer, owner or shareholder or otherwise on behalf of any other person, firm or corporation, directly or indirectly solicit or attempt to solicit away from the Company any of its officers or employees; provided, however, that a general advertisement to which an employee of the Company responds shall in no event be deemed to result in a breach of this Section 5.3(B).

     6. No Mitigation. The Company agrees that, in order for a Participant to be eligible to receive the Severance Payment and other benefits described herein, the Participant is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Participant by the Company pursuant to Section 4 hereof. Further, the amount of any payment or benefit provided for in this Plan hereof shall not be reduced by any compensation or income earned by the Participant as the result of employment by another employer or self-employment, by retirement benefits, by offset against any amount claimed to be owed by the Participant to the Company, or otherwise.

     7. Successors.

     7.1 (A) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume this Plan and all obligations of the Company hereunder in the same manner and to the same extent that the Company would be so obligated if no such succession had taken place.

          (B) This Plan shall inure to the benefit of and shall be binding upon the Company, its successors and assigns, but without the prior written consent of the Participants this Plan may not be assigned other than in connection with the merger or sale of substantially all of the business and/or assets of the Company or similar transaction in which the successor or assignee assumes (whether by operation of law or express assumption) all obligations of the Company hereunder.

     7.2 This Plan shall inure to the benefit of and be enforceable by the Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, legatees or other beneficiaries. If a Participant shall die while any amount would still be payable to such Participant hereunder (other than amounts which, by their terms, terminate upon the death of the Participant) if such Participant had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the executors, personal representatives or administrators of such Participant’s estate.

     8. Notices. For the purpose of this Plan, notices and all other communications

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provided for in the Plan shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to a Participant, to the address on file with the Company and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:

To the Company:

KB Home
10990 Wilshire Boulevard
Los Angeles, California 90024

Attention: Senior Vice President, Human Resources

     9. Claims Procedures; Expenses.

     9.1 Claim for Benefits. A Participant may file with the Committee a written claim for benefits under the Plan if the Participant believes that the Company has not paid the Participant all amounts due under the Plan. The Committee shall, within a reasonable time not to exceed ninety (90) days, unless special circumstances require an extension of time of not more than an additional ninety

     (90) days (in which event a Participant will be notified of the delay during the first ninety (90) day period), provide adequate notice in writing to any Participant whose claim for benefits shall have been denied, setting forth the following in a manner calculated to be understood by the Participant: (i) the specific reason or reasons for the denial; (ii) specific reference to the provision or provisions of the Plan on which the denial is based; (iii) a description of any additional material or information required to perfect the claim, and an explanation of why such material or information is necessary; and (iv) information as to the steps to be taken in order that the denial of the claim may be reviewed. If written notice of the denial of a claim has not been furnished to a Participant, and such claim has not been granted within the time prescribed in this Section 9.1 (including any applicable extension), the claim for benefits shall be deemed denied.

     9.2 Appeal of Denial. (A) A Participant whose claim for benefits shall have been denied in whole or in part, may, within sixty (60) days from either the receipt of the denial of the claim or from the time the claim is deemed denied (unless the notice of denial grants a longer period within which to respond), appeal such denial to the Committee. In the event of a claim, the Participant may, upon request, at this time review documents pertinent to his claim and may submit written issues and comments.

     (B) The Committee shall notify a Participant of its decision within sixty (60) days after an appeal is received, unless special circumstances require an extension of time of not more than an additional sixty (60) days (in which event a Participant will be notified of the delay during the first sixty (60) day period). Such decision shall be given in writing in a manner calculated to be understood by the Participant and shall include the following: (i) specific reasons for the decision; and (ii) specific reference to the provision or provisions of the Plan on which the decision is based.

     9.3 Expenses, Legal Fees. If a Participant commences a legal action to enforce any

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of the obligations of the Company under this Plan and it is ultimately determined that the Participant is entitled to any payments or benefits under this Plan, the Company shall pay the Participant the amount necessary to reimburse the Participant in full for all reasonable expenses (including reasonable attorneys’ fees and legal expenses) incurred by the Participant with respect to such action.

     10. Miscellaneous.

     10.1 No Waiver. No waiver by the Company or any Participant, as the case may be, at any time of any breach by the other party of, or of any lack of compliance with, any condition or provision of this Plan to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. All other plans, policies and arrangements of the Company in which the Participant participates during the term of this Plan shall be interpreted so as to avoid the duplication of benefits paid hereunder.

     10.2 No Right to Employment. Nothing contained in this Plan or any documents relating to the Plan shall (i) confer upon any Participant any right to continue in the employ of the Company or a subsidiary, (ii) constitute any contract or agreement of employment, or (iii) interfere in any way with the right of the Company to terminate the Participant’s employment at any time, with or without Cause.

     10.3 Termination and Amendment of Plan. Prior to a Change in Control, the Board shall have the right to amend or terminate the Plan and to add or remove Participants from time to time, in its sole and absolute discretion. From and after the date of a Change in Control, the Board shall not have the right to terminate the Plan or amend it in any manner which adversely affects the rights of any Participant unless the Company has obtained the prior written consent of each affected Participant. Notwithstanding the foregoing, the Plan shall automatically terminate on the date following the termination of the Protected Period, provided that all obligations accrued by Participants prior to such termination of the Plan must be satisfied in full in accordance with the terms hereof.

     10.4 Benefits not Assignable. Except as otherwise provided herein or by law, no right or interest of any Participant under the Plan shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation by execution, levy, garnishment, attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be effective; and no right or interest of any Participant under the Plan shall be liable for, or subject to, any obligation or liability of such Participant. When a payment is due under this Plan to a Participant who is unable to care for his or her affairs, payment may be made directly to his or her legal guardian or personal representative.

     10.5 Tax Withholding. All amounts payable hereunder shall be subject to applicable federal, state and local tax withholding.

     10.6 Delaware Law. This Plan shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Delaware (without regard to the conflicts of laws principles thereof), to the extent not preempted by federal law, which shall otherwise control.

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     10.7. Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect. If this Plan shall for any reason be or become unenforceable by either party, this Plan shall thereupon terminate and become unenforceable by the other party as well.

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EX-10.41 2 v50084exv10w41.htm EXHIBIT 10.41

Exhibit 10.41

KB HOME

EXECUTIVE SEVERANCE PLAN

ARTICLE I — PURPOSE

The Management Development and Compensation Committee of the Board of Directors of KB Home hereby adopts the KB Home Executive Severance Plan (the “Plan”). The Plan is designed to provide severance protection to certain key employees who are expected to make substantial contributions to the success of KB Home and its Affiliates (together, the “KB Companies,” and each, individually, a “KB Company”) and thereby provide for stability and continuity of operations.

ARTICLE II — ESTABLISHMENT OF THE PLAN

The benefits provided by the Plan shall be available to Participants, as defined in Article III.

ARTICLE III — DEFINITIONS

     “Affiliate” means, with respect to any person, any entity, directly or indirectly, controlled by, controlling or under common control with such person.

     “Average Bonus” means, with respect to any Participant, the lesser of: (a) the average of the annual cash bonuses, if any, actually paid by any Employer to the Participant for three most recent completed fiscal years preceding the Participant’s Termination Date (or, if the Participant has been employed by one or more Employers for less than three complete fiscal years, the average of all annual cash bonuses actually paid to the Participant for completed fiscal years preceding the Participant’s Termination Date, if any) and (b) (i) for Group A Participants, 3.0 times the Participant’s Base Salary; (ii) for Group B Participants, 2.5 times the Participant’s Base Salary; and (iii) for Group C Participants, 2.0 times the Participant’s Base Salary.

     “Base Salary” means, with respect to any Participant, the Participant’s annual base salary as in effect on the Participant’s Termination Date.

     “Board” means the Board of Directors of KB Home.

     “Cause” means, with respect to any Participant, any of the following committed by the Participant:

 

(a)

 

Serious violation or deliberate disregard of the KB Home Ethics Policy or the policies of any KB Company;

 

 

 

 

 

(b)

 

Gross dereliction in the performance of the Participant’s job duties and responsibilities;

 

 

 

 

 

(c)

 

Material misappropriation of a KB Company’s property (whether real, personal, tangible or intangible);

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(d)

 

Commission of an act of fraud upon, or bad faith, dishonesty or disloyalty toward, any KB Company;

 

 

 

 

 

(e)

 

Material breach of any of the covenants under Article VI;

 

 

 

 

 

(f)

 

An act (or failure to act) of egregious misconduct involving serious moral turpitude to the extent that, in the reasonable judgment of the Plan Administrator, the Participant’s credibility and reputation no longer conform to expected standards; or

 

 

 

 

 

(g)

 

An act or omission that the Plan Administrator reasonably determines may prejudice significantly any KB Company’s best interests if the Participant’s employment is not terminated.

     “CIC Plan” means the KB Home Change in Control Severance Plan, as it may be amended from time to time, or any successor or replacement plan in effect at a relevant Termination Date.

     “Code” means the Internal Revenue Code of 1986, as amended. All references to the Code or any provision of the Code shall include the regulations and other guidance promulgated by the Treasury Department thereunder. Such regulations may be referred to in this Plan as “Treasury Regulations.”

     “Committee” means the Management Development and Compensation Committee of the Board, or any successor committee of the Board that performs the same or similar executive compensation responsibilities delegated to the Committee as of the Effective Date.

     “Disability” means, with respect to any Participant, the Participant’s incapacity due to physical or mental illness to perform the Participant’s full-time duties or responsibilities with the Participant’s Employer for a continuous period of three months or an aggregate of six months in any eighteen month period.

     “Effective Date” means October 4, 2007, the effective date of this Plan.

     “Eligible Officer” means any officer of KB Home who at the time of any determination has been elected by the Board to one or more of the following positions: President (other than a President who also is the Chief Executive Officer), Executive Vice President or Senior Vice President.

     “Employer” means, with respect to any Participant, the particular KB Company that employs the Participant.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Group A Participant” means (a) any Participant who, on a relevant Termination Date, is serving in one or more of the following positions with KB Home: President (other than a President who also is the Chief Executive Officer) or Executive

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Vice President; or (b) any other Participant who is expressly designated by the Committee or the Board as a Group A Participant.

     “Group B Participant” means (a) any Participant who, on a relevant Termination Date, is serving as a Senior Vice President of KB Home and is designated by the Board as an “executive officer” within the meaning of Rule 3b-7 under the Securities Exchange Act of 1934, as amended; or (b) any other Participant who is expressly designated by the Committee or the Board as a Group B Participant.

     “Group C Participant” means (a) any Participant who, on a relevant Termination Date, is serving as a Senior Vice President of KB Home and has not been designated by the Board as an “executive officer” within the meaning of Rule 3b-7 under the Securities Exchange Act of 1934, as amended; or (b) any other Participant who is expressly designated by the Committee or the Board as a Group C Participant.

     “Participant” means an Eligible Officer or other employee of a KB Company who is expressly designated by the Committee or the Board as a Participant and who, in each case, has been continuously employed on a full-time basis by one or more KB Companies for at least one year. A Participant shall cease to be a Participant under the Plan when he or she is no longer an Eligible Officer or, by action of the Committee or the Board, is no longer a Participant.

     “Plan Administrator” means KB Home.

     “Section 409A” means Section 409A of the Code and, for the avoidance of doubt only, shall include the regulations and other guidance promulgated by the Treasury Department thereunder.

     “Severance Payment” means, with respect to any Participant, the amount to be paid to the Participant under Sections 4.1(a) and (b).

     “Severance Period” means the period of time commencing on a relevant Termination Date and continuing until: (a) for Group A Participants, the second anniversary of the relevant Termination Date; (b) for Group B Participants, eighteen months following the relevant Termination Date; and (c) for Group C Participants, the first anniversary of the relevant Termination Date.

     “Termination” means, with respect to any Participant, the Participant’s Employer’s unilateral termination of the Participant’s employment without Cause and for reasons other than death or Disability, but only if such termination constitutes a “separation from service” with respect to the Participant’s Employer within the meaning of Section 409A of the Code.

          For purposes of this Plan, whether a “separation from service” has occurred shall be determined by the Committee in accordance with Treasury Regulation Section 1.409A-1(h). In determining whether a Participant has experienced a separation from service, the following provisions shall apply:

          (a) For a Participant who provides services to the Employer as an employee, except as otherwise provided in part (c) below, a separation from service shall occur when such Participant has experienced a termination of employment with the Employer.

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A Participant shall be considered to have experienced a termination of employment when the facts and circumstances indicate that the Participant and the Employer reasonably anticipate that either (i) no further services will be performed for the Employer after a certain date, or (ii) that the level of bona fide services the Participant will perform for the Employer after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed by such Participant (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Employer if the Participant has been providing services to the Employer less than 36 months).

          If a Participant is on military leave, sick leave, or other bona fide leave of absence, the employment relationship between the Participant and the Employer shall be treated as continuing intact, provided that the period of such leave does not exceed 6 months, or if longer, so long as the Participant retains a right to reemployment with the Employer under an applicable statute or by contract. If the period of a military leave, sick leave, or other bona fide leave of absence exceeds 6 months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship shall be considered to be terminated for purposes of this Plan as of the first day immediately following the end of such 6-month period. In applying the provisions of this paragraph, a leave of absence shall be considered a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Employer. For purposes of this paragraph, where a leave of absence is due to any physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a 29-month period of absence shall be substituted for such 6-month period.

          (b) For a Participant who provides services to the Employer as an independent contractor, except as otherwise provided in part (c) below, a separation from service shall occur upon the expiration of the contract (or in the case of more than one contract, all contracts) under which services are performed for the Employer, provided that the expiration of such contract(s) is determined by the Committee to constitute a good-faith and complete termination of the contractual relationship between the Participant and the Employer.

          (c) For a Participant who provides services to the Employer as both an employee and an independent contractor, a separation from service generally shall not occur until the Participant has ceased providing services for such Employer as both as an employee and as an independent contractor, as determined in accordance with the provisions set forth in parts (a) and (b) above, respectively. Similarly, if a Participant either (i) ceases providing services for the Employer as an independent contractor and begins providing services for the Employer as an employee, or (ii) ceases providing services for the Employer as an employee and begins providing services for the Employer as an independent contractor, the Participant will not be considered to have experienced a separation from service until the Participant has ceased providing services for the Employer in both capacities, as determined in accordance with the applicable provisions set forth in parts (a) and (b) above.

          Notwithstanding the foregoing provisions in this part (c), if a Participant provides services for the Employer as both an employee and as a director, to the extent

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permitted by Section 1.409A-1(h)(5) of the Treasury Regulations, the services provided by such Participant as a director shall not be taken into account in determining whether the Participant has experienced a separation from service as an employee.

          (d) For purposes of determining whether a Participant has experienced a separation from service, services performed for the Employer shall include service performed both for the Employer and for any other corporation that is a member of the same “controlled group” of corporations as the Employer under Section 414(b) of the Code or any other trade or business (such as a partnership) that is under common control with the Employer as determined under Section 414(c) of the Code, in each case as modified by Section 1.409A-1(h)(3) of the Treasury Regulations and substituting “at least 50 percent” for “at least 80 percent” each place it appears in Section 1563(a) of the Code or Section 1.414(c)-2 of the Treasury Regulations.

     “Termination Date” means, with respect to any Participant, the date on which the Participant’s Termination occurs.

ARTICLE IV — SEVERANCE BENEFITS

4.1

 

Right to Severance Payment.

 

(a)

 

Subject to Section 4.4(c) and Article V, in the event of a Participant’s Termination, the Participant shall be entitled to receive from the Participant’s Employer a Severance Payment in the amount provided in Section 4.1(b), payable as described in Section 4.1(d); provided that:

 

 

(i)

 

if the relevant Termination Date occurs during a Protected Period (as defined in the CIC Plan) and the Participant is thereby entitled to receive a severance payment under the CIC Plan, then the Participant’s rights and obligations will be as specified in the CIC Plan and the Participant will not be eligible to receive a Severance Payment or any other benefits or rights pursuant to this Plan nor be subject to any obligations pursuant to this Plan; and

 

 

 

 

 

(ii)

 

if on the relevant Termination Date a Participant is party to any employment or similar agreement with an Employer that provides severance payments or any of the other benefits provided in this Plan (other than the CIC Plan), and any terms of that agreement are inconsistent with, or in addition to, the terms of this Plan, the terms of that agreement shall apply to the Participant to the extent of such inconsistent or additional terms.

 

(b)

 

Subject to the terms and conditions of this Plan, the Severance Payment to which a Participant shall be entitled to receive under this Plan shall be equal to:

 

 

(i)

 

the sum of the Participant’s Base Salary and Average Bonus multiplied by (i) 2.0, in the case of a Group A Participant; (ii) 1.5,

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in the case of a Group B Participant; or (iii) 1.0, in the case of a Group C Participant,

 

minus the sum of:

 

 

 

 

 

(ii)

 

the aggregate amount of any other cash payments in the nature of severance payments, notice pay, or the like that any Employer is obligated to pay to the Participant by law or by any contract, plan, or arrangement other than this Plan and the CIC Plan; and

 

 

 

 

 

(iii)

 

if an Employer is obligated by law to provide advance notice of Termination to the Participant, the aggregate amount of compensation received by the Participant from the date of such notice through the Participant’s Termination Date;

 

 

 

 

and shall be further reduced as provided in Section 4.1(d)(ii).

 

 

 

 

 

(c)

 

Subject to Section 4.4(c) and Article V, a Participant’s Employer shall provide the Participant continued participation in the Employer’s medical, dental and vision plans (collectively, the “Health Plans”) for the Severance Period, subject to the terms and conditions of the Health Plans, including, but not limited to, timely payment of any employee contributions necessary to maintain participation; provided, however, that for a Group A Participant, continued participation in the Health Plans shall be limited to the period beginning on the Participant’s Termination Date and ending on the eighteen-month anniversary of the Participant’s Termination Date, and the Group A Participant’s Employer shall pay such Group A Participant in a lump sum on the eighteen-month anniversary of the Participant’s Termination Date, the present value of continued participation in the Health Plans for the last six months of the applicable Severance Period. If a Participant entitled to benefits under this Section 4.1(c) should die before the end of the Participant’s applicable Severance Period, the Participant’s Employer’s obligations under this Section 4.1(c) shall cease. Any qualified beneficiaries of any such deceased Participant shall be entitled to continue participation in such Employer’s Health Plans only to the extent provided under the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended.

 

(d)

 

   

 

 

(i)

 

Subject to Sections 4.3 and 9.7, the Severance Payment shall be paid in installments in the amounts described in Section 4.1(d)(ii) during the Severance Period according to a Participant’s Employer’s then-current payroll policies; provided, however, that any installments that would otherwise have been paid during the 60-calendar day period beginning on the Participant’s Termination Date shall not be paid during such 60-day period, but shall be accumulated and paid with the first standard pay period that occurs on or after the expiration of such 60-day period.

 

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(ii)

 

The amount of each installment shall be equal to the total amount of the Severance Payment divided by the number of applicable payroll dates in the Severance Period, and shall be reduced by any amount due and payable by a Participant to the Participant’s Employer as of the date such installment is paid, on account of any advance or loan from the Employer or any other obligation the Participant may be required to repay to the Employer (including, without limitation, amounts required to be repaid pursuant to Section 4.2); provided, however, that the aggregate amount of reductions pursuant to this Section 4.1(d)(ii) with respect to Severance Payment installments paid in any taxable year of the Employer shall not exceed $5,000, with any other amounts owed by the Participant to Participant’s Employer being repaid by the Participant as and when due.

 

 

 

 

 

(iii)

 

If a Participant entitled to a Severance Payment under this Section 4.1 should die before all amounts payable to him or her have been paid, such unpaid amounts shall be paid, in a lump sum, as soon as practicable following the Participant’s death (but in no event later than 30 calendar days after the Participant’s death) to the Participant’s executor or personal representative or to the administrators of the Participant’s estate, as the Plan Administrator, in its sole discretion, may determine.

 

4.2

 

Business Expenses. Each Participant shall be responsible for any non-business-related charges incurred on any Employer’s credit card or other account used by the Participant on or prior to the Participant’s Termination Date and the Participant shall pay all such charges when due. The Participant’s Employer shall reimburse the Participant for any pending, reasonable business-related expenses for which the Participant has not already been reimbursed as of the Participant’s Termination Date provided the Participant timely submits a proper travel and expense report. Such reimbursement shall be paid no later than the last day of the Participant’s taxable year following the taxable year in which the expense was incurred.

 

 

 

4.3

 

Withholding. A Participant’s Employer shall withhold such amounts from any payments payable pursuant to this Article IV as are required by applicable tax or other law.

 

 

 

4.4

 

Other Rights and Obligations.

 

(a)

 

Nothing in this Plan will affect the benefits or rights that a Participant may have accrued as of the Participant’s Termination Date pursuant to: (i) KB Home’s stock plans, incentive plans, 401(k) Savings Plan, Nonqualified Deferred Compensation Plan, Retirement Plan and Death Benefit Only Plan or (ii) any vacation pay policy and any agreement, policy, plan, program or arrangement similar to those identified in clause (i) above of any KB Company under which the Participant may have rights at the Participant’s Termination Date. These benefits and rights will be governed by the terms of such agreements, policies, plans, programs and

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arrangements, as they may be modified from time to time consistent with their terms.

 

(b)

 

In connection with a Participant’s Termination, such Participant shall follow the Participant’s Employer’s standard procedures relating to departing employees, including, without limitation, returning (and providing written confirmation that the Participant has so returned) all Employer-owned property, documents and materials (including copies, reproductions, summaries and/or analyses), and all other materials that contain, reflect, summarize, describe, analyze or refer or relate to any items of Information (as defined in Section 6.5).

 

 

 

 

 

(c)

 

The Participant shall not be required to mitigate damages or the amount of the Participant’s Severance Payment or any other benefit under the Plan by seeking other employment or otherwise, nor, except as provided in the following sentence, shall any benefit under the Plan be reduced by any compensation or like benefits received by the Participant as a result of employment after the Participant’s Termination. In the event that a person receiving benefits under the Plan is reemployed or is otherwise engaged in any capacity to provide business services by any KB Company, the obligation of any Employer to provide benefits to the person under the Plan will cease immediately.

ARTICLE V — RELEASE

5.1

 

Release. Notwithstanding anything to the contrary contained in this Plan, a Participant shall not be entitled to receive any Severance Payment or any other benefit under the Plan unless and until the Participant has signed and returned to the Plan Administrator a release (the “Release”) by the deadline established by the Plan Administrator (which shall be no later than 50 calendar days after the Participant’s Termination Date) and any period during which the Participant may revoke the Release under applicable law or pursuant to the terms of the Release has elapsed. The Release, which shall be signed by the Participant no earlier than the Participant’s Termination Date, shall be a written document, in a form prescribed by the Plan Administrator, intended to create a binding agreement by the Participant to release any claim that the Participant has or may have against any Employer and related entities and individuals, including the KB Companies and their respective directors, officers and employees, arising on or before the date on which Participant signs the Release, including, without limitation, any claims under the federal Age Discrimination in Employment Act.

 

 

 

5.2

 

Breach. Each Employer’s obligations to a Participant under the Plan, and the Participant’s benefits and rights under Article IV, shall cease immediately in the event the Participant breaches any of the covenants contained in the Release or in Article VI.

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ARTICLE VI — NON-SOLICITATION, NON-DISPARAGEMENT, CONFIDENTIALITY AND COOPERATION

6.1

 

Non-Solicitation. From the relevant Termination Date until the expiration of the Severance Period, a Participant shall not directly or indirectly (a) induce or assist others in inducing any person who is an employee, officer, consultant, or agent of any KB Company to terminate employment or business affiliation with the KB Company; or (b) employ or associate in business with any person employed by or associated in business with any KB Company at any time during the Severance Period or in the one-year period prior to the Participant’s Termination Date; provided, however, that the foregoing shall not prohibit the Participant, or any business with which the Participant becomes associated, from engaging in general solicitations of employment or hiring persons that respond to such solicitations.

 

 

 

6.2

 

Statements to Third Parties. A Participant shall not, directly or indirectly, make or cause to be made any statements to any third parties criticizing or disparaging any KB Company or commenting negatively on its character or business reputation. A Participant further shall not: (a) comment to others concerning the status, plans or prospects of the business of any KB Company, or (b) engage in any act or omission that would be detrimental, financially or otherwise, to any KB Company, or that would subject any KB Company to public disrespect, scandal, or ridicule. Solely for purposes of this Section 6.2, the references to a “KB Company” shall include, in addition to KB Home and its Affiliates, each of their respective directors, officers and predecessors. The foregoing obligations shall not apply to any statements or opinions that are made under oath in any investigation, civil or administrative proceeding or arbitration in which the individual has been compelled to testify by subpoena or other judicial process or which are privileged communications.

 

 

 

6.3

 

Severability. In the event that the scope of the obligations in Sections 6.1 or 6.2 are found contrary to applicable law by a court of competent jurisdiction, the court shall reform the obligations by limiting them to the maximum reasonable scope.

 

 

 

6.4

 

Cooperation. A Participant shall assist and cooperate with any KB Company and its designated agents and representatives in the conduct of any administrative or legal proceeding to the extent such proceeding relates to matters involving actions, duties or responsibilities (whether alleged or actual) of the Participant during his or her employment by any Employer.

 

 

 

6.5

 

Confidential Information. As an employee of an Employer, a Participant may have created, observed or had access to information and other trade secrets including confidential information relating to the business or interests of persons with whom a KB Company may have commercial relations (“Information”) that is valuable to any of the KB Companies and may lose its value if disclosed to third parties. Without limiting a Participant’s obligations under the KB Home Ethics Policy with respect to Information, Participants shall treat all such Information as confidential and belonging to the KB Companies and take all actions reasonably requested to confirm such ownership. A Participant shall not, without the prior written consent of the Plan Administrator, disclose or use the

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Information. Participant’s obligations under this Section 6.5 shall continue as to all Information until and only to the extent that a specific item of Information becomes public knowledge through no fault of the Participant. A Participant shall promptly inform the Plan Administrator of any request, order, or legal process requesting or requiring the Participant to disclose Information. A Participant shall cooperate with any efforts by the KB Companies to prevent or limit disclosure of Information.

ARTICLE VII — AMENDMENT AND TERMINATION

KB Home, through the Committee, reserves the right to amend or terminate the Plan (in whole or in part), in its sole and absolute discretion, at any time without any prior notice to or approval of any Participant or any other Employer. No such amendment, modification or change shall adversely affect any benefit under the Plan previously paid or actually provided to a Participant (or a Participant’s successor in interest) or cause a violation of the requirements of Section 409A.

ARTICLE VIII — ADMINISTRATION OF PLAN

8.1

 

Administration.

 

(a)

 

The Plan shall be administered by the Plan Administrator. The Plan Administrator shall have the sole and absolute discretion to interpret all provisions of the Plan (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the Plan), to make factual findings with respect to any issue arising under the Plan, to determine the rights and status under the Plan of Participants or other persons, to resolve questions (including factual questions) or disputes arising under the Plan and to make any determinations with respect to the benefits provided under the Plan and the persons entitled thereto. Without limiting the generality of the foregoing, the Plan Administrator shall have the authority: (i) to determine whether a particular person is a Participant, and (ii) to determine if a person is entitled to benefits under the Plan and, if so, the amount, scope and duration of such benefits. The Plan Administrator’s determination of the rights of any person under the Plan shall be final and binding on all persons, subject only to the provisions of Section 8.3.

 

 

 

 

 

(b)

 

The Plan Administrator may delegate (or revoke the delegation of) any of its administrative duties, including, without limitation, duties with respect to the processing, review, investigation, approval and provision of benefits, to a designated internal and/or external administrator or administrators.

 

8.2

 

Regulations. The Plan Administrator shall promulgate any rules, regulations and interpretations it deems necessary in order to carry out the purposes of the Plan or to interpret the provisions of the Plan; provided, however, that no rule, regulation or interpretation shall be contrary to the provisions of the Plan. The rules, regulations and interpretations made by the Plan Administrator shall, subject only to the provisions of Section 8.3, be final and binding on all persons.

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8.3

 

Claims Procedures.

 

 

(a)

 

The Plan Administrator shall determine the rights of any person to any benefit under the Plan. Any person who believes that he or she has not received a benefit to which he or she is entitled under the Plan must file a claim in writing with the Plan Administrator specifying the basis for his or her claim and the facts upon which he or she is relying in making such a claim.

 

 

 

 

 

(b)

 

The Plan Administrator will notify a claimant of its decision regarding his or her claim within a reasonable period of time, but not later than 90 calendar days following the date on which the claim is filed, unless circumstances require a longer period for adjudication and the claimant is notified in writing of the reasons for an extension of time prior to the end of the initial 90-day period and the date by which the Plan Administrator expects to make the final decision. In no event will the Plan Administrator extend its processing of a claim beyond 180 calendar days after the date on which the claim is first filed with the Plan Administrator.

If a claim is denied, the Plan Administrator will notify the claimant of its decision in writing and the notice will contain the following information:

 

(i)

 

The specific reason(s) for the denial;

 

 

 

 

 

(ii)

 

A specific reference to the pertinent Plan provision(s) on which the denial is based;

 

 

 

 

 

(iii)

 

A description of additional information or material necessary for the claimant to reverse the denial of his or her claim, if any, and an explanation of why such information or material is necessary; and

 

 

 

 

 

(iv)

 

An explanation of the Plan’s claim review procedures and the applicable time limits under such procedures and a statement as to the claimant’s right to bring a civil action under ERISA after all of the Plan’s review procedures have been satisfied.

If additional information or material is needed, an applicable claimant shall be provided at least 45 calendar days after receiving notice of such need to provide the information or material and any otherwise applicable time period specified in this Section 8.3 for making a determination or for filing a request for a review of a denied claim shall be extended by the same period during which the information or material is being obtained.

Within 60 calendar days after receipt of a denial of a claim, the claimant must file with the Plan Administrator, a written request for review of such claim. If a request for review is not filed within such 60-day period, the claimant shall be deemed to have acquiesced to the original decision of the Plan Administrator on his or her claim. If a request for review is filed, the Plan Administrator shall review the claim. The claimant will be provided, upon request and free of charge, reasonable access to and

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copies of all documents, information and material relevant to the claimant’s claim for benefits. The claimant may submit positions and comments in writing, and the review will take into account all information submitted by the claimant regardless of whether it was reviewed as part of the original determination. The decision by the Plan Administrator with respect to the review will be given no later than 60 calendar days after receipt of the request for review, unless circumstances warrant an extension of time not to exceed an additional 60 calendar days. If an extension is needed, written notice of the extension will be furnished to the claimant before the end of the initial 60-day period, indicating the circumstances requiring the extension and the date by which the Plan Administrator expects to make a decision.

If the Plan Administrator denies the claim after review, the Plan Administrator will notify the claimant of its decision in writing and the notice will contain the following information:

 

(A)

 

The specific reason(s) for the denial;

 

 

 

 

 

(B)

 

A reference to the specific Plan provision(s) on which the denial is based;

 

 

 

 

 

(C)

 

A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all information relevant to the claimant’s claim for benefits; and

 

 

 

 

 

(D)

 

A statement of the claimant’s right to bring a civil action under ERISA.

The Plan Administrator’s decision on review shall be, to the extent permitted by applicable law, final and binding on all interested persons.

For the avoidance of doubt, any documents, information and material relevant to a claim for benefits that a claimant may access or copy in accordance with the provisions of this Section 8.3 shall be deemed Information.

8.4

 

Mediation. After an applicable claimant has exhausted all administrative remedies as provided in Section 8.3, the claimant may submit any dispute to mediation by written notice to the Plan Administrator and to any other relevant party or parties. The mediator shall be selected by agreement of the parties. If the parties cannot agree on a mediator, a mediator shall be designated by the American Arbitration Association at the request of a party. Any mediator so designated must be acceptable to all parties. The mediation shall be conducted as specified by the mediator and agreed upon by the parties. The parties agree to discuss their differences in good faith and to attempt, with facilitation by the mediator, to reach an amicable resolution of the dispute. The mediation shall be treated as a settlement discussion and any matters discussed, information disclosed, determinations made or agreements reached during mediation proceedings shall be confidential and deemed to be Information. The mediator may not testify for either party in any later proceeding relating to the dispute. No

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recording or transcript shall be made of the mediation proceedings. Each party shall bear its own costs in the mediation. The fees and expenses of the mediator shall be shared equally by the parties.

ARTICLE IX — MISCELLANEOUS

9.1

 

Alienation. Except as otherwise required by law, no benefit under the Plan shall be subject in any way to alienation, sale, transfer, assignment, pledge, attachment, garnishment, execution or encumbrance of any kind, and any attempt to accomplish the same shall be void.

 

 

 

9.2

 

Incapacity. Except as provided in Section 4.1(iii), benefits shall be provided under the Plan only to a Participant who is eligible therefor, except that if the Plan Administrator shall find that such Participant is unable to manage his or her affairs for any reason, each benefit for which he or she is eligible shall be provided, when due, to his or her duly appointed legal representative, if there is one, and, if not, to the spouse, parents, children or other relatives or dependents of such Participant as the Plan Administrator, in its discretion, may determine.

 

 

 

9.3

 

Participant’s Successors. This Plan shall inure to the benefit of and be enforceable by the Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees.

 

 

 

9.4

 

Exclusive Benefit. This Plan is intended to be for the exclusive benefit of the KB Companies and the Participants, and except as provided in Sections 4.1(c), 4.1(d)(iii), 9.2 and 9.3, no third party shall have any rights under the Plan.

 

 

 

9.5

 

Employment Rights. The Participant’s rights as an employee, and each Employer’s rights to discharge a Participant as an employee of such Employer, shall not be enlarged or affected by reason of the Plan. Nothing contained in the Plan shall be deemed to alter in any manner the management rights of the KB Companies with respect to the employment status, title or job duties or responsibilities of any Participant with any Employer.

 

 

 

9.6

 

Legal Status of Plan. The Plan, as a “severance pay arrangement” within the meaning of Section 3(2)(B)(i) of ERISA, is intended to be excepted from the definitions of “employee pension benefit plan” and “pension plan” set forth under Section 3(2) of ERISA, and is intended to meet the descriptive requirements of a plan constituting a “severance pay plan” within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations §2510.3-2(b).

 

 

 

9.7

 

Code Section 409A.

(a)

 

The Plan shall be interpreted in accordance with Section 409A, including without limitation any Treasury Regulations or other Department of Treasury guidance that may be issued or amended after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any payment or benefit under the Plan may be subject to Section 409A, the Committee may adopt such amendments to the Plan or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or

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take any other actions, that the Committee determines are necessary or appropriate to (A) exempt the payment or benefit from Section 409A and/or preserve the intended tax treatment of the payment or benefit, or (B) comply with the requirements of Section 409A.

(b)

 

Each installment or payment under this Plan shall be considered a separate payment for purposes of Section 409A.

 

 

 

(c)

 

If, on Participant’s Termination Date, (A) such Participant is a “specified employee” (within the meaning of Section 409A as determined annually by the Committee in accordance with the methodology specified by resolution of the Board or the Committee and in accordance with Section 1.409A-1(i) of the Treasury Regulations) and (B) the Committee shall make a good-faith determination that payment or benefit under the Plan constitutes “deferred compensation” (within the meaning of Section 409A) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A in order to preserve the tax treatment intended for such payment or to avoid additional tax, interest, or penalties under Section 409A, then the Employer shall not pay such amount on the otherwise scheduled payment date but shall instead pay it on the first business day after such six-month period. Such amount shall be paid without interest, unless otherwise determined by the Committee, in its sole discretion, or as otherwise provided in any applicable agreement between any KB Company and the relevant Participant.

 

 

 

(d)

 

A Participant shall be solely responsible and liable for the satisfaction of all taxes, interest, and penalties that may be imposed on such Participant or for such Participant’s account in connection with any payment or benefit under the Plan (including any taxes, interest, and penalties under Section 409A), and no KB Company shall have any obligation to indemnify or otherwise hold such Participant harmless from any or all of such taxes, interest, or penalties.

 

9.8

 

Unfunded Plan. The Plan shall not be required to be funded unless such funding is authorized by the Committee or the Board. Regardless of whether the Plan is funded, no Participant shall have any right to, or interest in, any assets of any KB Company to satisfy the provision of benefits under this Plan.

 

 

 

9.9

 

Notices. For all purposes of this Plan, all communications, including, without limitation, notices, consents, requests or approvals provided for herein, shall be in writing and shall be deemed to have been duly given when delivered, addressed to KB Home (to the attention of the Chief Legal Officer) at its principal executive offices and to any Participant at his or her principal residential address on file with KB Home, or to such other address as any party may have furnished to the other in writing and in accordance herewith. Notices of change of address shall be effective only upon receipt.

 

 

 

9.10

 

Governing Law. Any dispute, controversy, or claim of whatever nature arising out of or relating to this Plan or breach thereof shall be governed by and under the laws of the State of California, to be interpreted as a contract between residents of the State of California performed entirely within the State of California.

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9.11

 

Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall nevertheless remain in full force and effect.

 

 

 

9.12

 

Captions and Section Headings. Captions and section headings used herein are for convenience and are not part of this Plan and shall not be used in construing it. References to “Section” or “Article” refer to the corresponding Section or Article of this Plan, unless otherwise indicated.

Effective date of plan: October 4, 2007
Date of plan document: July 10, 2008

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