pre14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
KB HOME
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing. |
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KB
HOME
10990
Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
March 9, 2009
Dear Fellow Stockholder:
Your officers and directors join me in inviting you to attend
the 2009 Annual Meeting of Stockholders of KB Home at
9:00 a.m. Pacific Time on April 2, 2009 at our
headquarters in Los Angeles, California.
The expected items of business for the meeting are described in
detail in the attached Notice of 2009 Annual Meeting of
Stockholders and Proxy Statement. We also will discuss our 2008
results and our plans for the future.
We look forward to seeing you on April 2.
Sincerely,
Jeffrey T. Mezger
President and Chief Executive Officer
Notice
of 2009 Annual Meeting of Stockholders
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Time and
Date:
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9:00 a.m. Pacific Time on Thursday, April 2, 2009.
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Location:
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KB Home Headquarters, 10990 Wilshire Boulevard, Los Angeles, CA
90024.
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Agenda:
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(1) Elect seven directors, each to serve for a
one-year term;
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(2) Ratify the appointment of Ernst & Young
LLP as our independent registered public accounting firm;
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(3) Adopt an amendment to our Restated Certificate of
Incorporation to help protect the tax benefits of our net
operating losses (the Protective Amendment);
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(4) Approve the Successor Rights Plan to help protect
the tax benefits of our net operating losses;
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(5) Approve the KB Home Annual Incentive Plan for
Executive Officers;
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(6) Consider three stockholder proposals, if properly
presented at the meeting; and
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(7) Transact any other business that may properly
come before the meeting or any adjournment or postponement of
the meeting.
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The accompanying Proxy Statement describes these items in more
detail. We have not received notice of any other matters that
may be properly presented at the meeting.
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Record Date:
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You can vote at the meeting and at any postponement or
adjournment of the meeting if you were a stockholder of record
on February 14, 2009.
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Voting:
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Please vote as soon as possible, even if you plan to attend
the meeting, to ensure that your shares will be represented. You
do not need to attend the meeting to vote if you vote your proxy
before the meeting. If you are a holder of record, you may vote
via mail, telephone or the Internet. If your shares are held by
a broker or financial institution, you must vote your shares as
instructed by your broker or financial institution.
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Annual
Report
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Copies of our Annual Report on
Form 10-K
for the fiscal year ended November 30, 2008 (the
Annual Report), including audited financial
statements, are being mailed to stockholders concurrently with
this Proxy Statement. We anticipate that this mailing will
commence on or about March 9, 2009.
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Important
Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting To Be Held on April 2, 2009. This Proxy
Statement and the Annual Report are available online at
www.kbhome.com/investor/proxy.
By
Order of The Board of Directors,
Wendy C.
Shiba
Executive Vice President,
General Counsel and
Corporate Secretary
Los Angeles,
California
March 9, 2009
Table of
Contents
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Attachment A
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Attachment B
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Attachment C
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KB
HOME
10990
Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
Proxy
Statement
for
the
2009
Annual Meeting of Stockholders
General
Information
What Is
This Proxy Statement For?
Your Board of Directors (the Board) is furnishing
this Proxy Statement to you to solicit your proxy for our 2009
Annual Meeting of Stockholders. The items of business for the
Annual Meeting are described in the accompanying Notice of 2009
Annual Meeting of Stockholders. This Proxy Statement contains
information to help you determine how you want your shares to be
voted.
Who Can
Vote?
Holders of record of the 77,746,137 shares of common stock
outstanding at the close of business on the record date
(February 14, 2009) are entitled to one vote for each
share held. The trustee of our Grantor Stock Ownership Trust
(the GSOT) will vote the 11,861,782 shares the
GSOT held on the record date based on the instructions received
from our employees who hold unexercised options under our
employee equity compensation plans. Accordingly, a total of
89,607,919 shares are entitled to vote at the Annual
Meeting. There is no right to cumulative voting.
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Attending the Annual Meeting
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Date:
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Thursday, April 2, 2009
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Place:
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KB Home Headquarters
10990 Wilshire Boulevard
Los Angeles, CA 90024
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To Attend:
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You and one guest may attend. You will need to show proof that
you were a stockholder on February 14, 2009 and a valid
photo ID. Parking is available at the garage for the meeting
location, which is accessed from Veteran Avenue. You may be
subject to a security check.
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Note:
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No cameras, recording equipment, electronic devices, large
bags, briefcases or packages will be permitted. Additional rules
of conduct will apply at the meeting.
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Who is a
Holder of Record?
If your shares are registered directly in your name with our
transfer agent, BNY Mellon Shareowner Services, you are
considered the holder of record of those shares.
If your shares are held in a stock brokerage account or by a
financial institution or other holder of record, you are a
beneficial owner of those shares held in street
name. If you are a beneficial owner, for ease of
reference, this Proxy Statement will use the term
broker to describe the person or institution that is
the holder of record of your shares.
Proxy
Solicitation Costs
We will pay the cost to solicit proxies for the Annual Meeting.
In addition to this Proxy Statement, our officers, directors and
other employees may solicit proxies personally or in writing or
by telephone, facsimile or email for no additional compensation.
We will, if requested, reimburse banks, brokerage houses and
other custodians, nominees and certain fiduciaries for their
reasonable expenses in providing material to their principals.
We have hired Georgeson Inc., a professional soliciting
organization, to assist us in proxy solicitation and in
distributing proxy materials. For these services, we will pay
Georgeson a fee of $8,500, plus reimbursement for out-of-pocket
expenses.
1
Voting
Information
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Quorum Requirement |
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For stockholders to take action at the Annual Meeting, a
majority of the shares of our common stock outstanding on the
record date must be present or represented at the Annual
Meeting. Abstentions and broker non-votes are
counted for this purpose. |
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Broker Non-Votes |
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A broker non-vote arises when a broker does not
receive instructions from a beneficial owner and does not have
the discretionary authority to vote. We understand that brokers
have discretionary authority to vote only on the election of
directors and the proposal to ratify the appointment of our
independent registered public accounting firm. |
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Proxy Voting |
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Holders of record may vote by proxy via mail, telephone or the
Internet as described on the proxy materials provided to you. If
you are a beneficial owner, your broker will send you proxy
voting instructions. |
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Voting at the Annual Meeting |
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Holders of record (or someone designated by a signed legal
proxy) may vote in person at the Annual Meeting. If you are a
beneficial owner, you must obtain a legal proxy from your broker
and present it with your ballot. Voting at the Annual Meeting
will replace any prior proxy voting. |
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Voting By Named Proxies |
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The named proxies for the Annual Meeting Jeffrey T.
Mezger and Wendy C. Shiba (or their duly authorized
designees) will follow submitted proxy voting
instructions. They will vote as the Board recommends as to any
submitted proxy voting instructions that do not direct how to
vote on any item, and will vote on any other matters properly
presented at the Annual Meeting in their judgment. |
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Closing of Polls |
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Polls will close at approximately 9:30 a.m., Pacific Time,
on April 2, 2009. Holders of record may vote via Internet
and telephone until 11:59 p.m., Eastern Time, on
April 1, 2009. Proxy voting instructions for shares held by
the KB Home Common Stock Fund in our 401(k) Savings Plan or the
GSOT must be received by 11:59 p.m., Eastern Time on
March 30, 2009. Each broker sets proxy voting deadlines for
its beneficial owners. |
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Changing Your Vote |
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Holders of record may revoke proxy votes at any time before
polls close by submitting a later vote (i) in person at the
Annual Meeting, (ii) via mail, telephone or the Internet
before the above-listed deadlines, or (iii) to our
Corporate Secretary at the address listed below under the
heading Communications with the Board by our close
of business on April 1, 2009. If you are a beneficial
owner, you must contact your broker to revoke any prior voting
instructions. |
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Votes Required to Approve or Adopt Proposals |
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Election of Directors. To be elected, each director
nominee must receive a majority of votes cast in favor
(i.e., the votes cast for a nominees election must
exceed the votes cast against the nominees election).
Shares that are not present or represented at the Annual Meeting
and abstentions will not affect the election outcome. |
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Other Proposals. Adoption of the Protective Amendment to
our Restated Certificate of Incorporation requires the
affirmative vote of a majority of the outstanding shares of our
common stock. Abstentions and broker non-votes will
have the same effect as an against vote. Approval of
each of the other proposals in this Proxy Statement, including
the stockholder proposals, requires the affirmative vote of a
majority of the shares present or represented at the Annual
Meeting and entitled to vote thereon. Abstentions will have the
same effect as an against vote, but broker
non-votes will not affect the outcomes. |
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Inspectors of Elections |
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We have engaged our transfer agent to count the votes and act as
an independent inspector of election. William A. Richelieu,
Assistant Corporate Secretary, will also act as an inspector of
election. |
2
Corporate
Governance and Board Matters
Role of
the Board of Directors
The Board is elected by our stockholders to oversee the
management of our business and to assure that the long-term
interests of our stockholders are being served. The Board
carries out this role subject to Delaware law and our
Certificate of Incorporation, By-laws and Corporate Governance
Principles.
Corporate
Governance Principles
Our Corporate Governance Principles provide a framework within
which we conduct our business and pursue our strategic goals.
The Nominating/Governance Committee regularly reviews our
Corporate Governance Principles, and the full Board approves
changes as it deems appropriate.
Ethics
Policy
We expect all of our directors and employees to follow the
highest ethical standards when representing KB Home and our
interests. To this end, all employees, including our senior
executive management, and our directors must comply with our
Ethics Policy.
The Audit Committee regularly reviews our Ethics Policy and
approves changes that it deems necessary or appropriate. The
Audit Committee most recently approved changes to our Ethics
Policy that became effective as of October 17, 2008.
Board
Meetings
The Board and the Board Committees hold regular meetings during
our fiscal year on a set schedule, and may hold interim meetings
and act by written consent from time to time as necessary or
appropriate.
The Board held seven meetings in our 2008 fiscal year. Stephen
F. Bollenbach, the Non-Executive Chairman of the Board, presides
over all meetings of the Board when he is present.
Executive
Sessions of Non-Employee Directors
As part of the Boards regularly scheduled meetings, the
non-employee directors meet in executive session. Any
non-employee director can request additional executive sessions.
As Non-Executive Chairman of the Board, Mr. Bollenbach is
responsible for scheduling and chairing the executive sessions.
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Access to Corporate Governance
Documents
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You can view, print and download copies of the following
corporate governance documents at
www.kbhome.com/investor/corporategovernance:
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Certificate of Incorporation
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By-laws
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Corporate Governance Principles
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Board Committee Charters
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Ethics Policy
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You may request free print copies of these documents by writing
to our Corporate Secretary at the address listed below under
Communications with the Board.
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Board
Committees
Three standing Board Committees assist the Board
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Audit and Compliance (Audit Committee)
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Management Development and Compensation (Compensation
Committee)
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Nominating and Corporate Governance (Nominating/Governance
Committee)
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The Board appoints the members of and has adopted a charter for
each Committee. The Board and each Committee conducts an annual
evaluation of its performance.
Board
Membership and Attendance
As of the date of this Proxy Statement, the Board has 10
members. Except for Jeffrey T. Mezger, our President and Chief
Executive Officer (CEO), no director is an employee.
In our 2008 fiscal year, each director attended at least 75% of
the meetings of the Board and the Board Committees on which he
or she served. We expect directors to attend our annual
stockholder meetings. Except for Mr. Burkle, all directors
serving at the time attended our 2008 Annual Meeting of
Stockholders, held on April 3, 2008.
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Communications with the Board
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Any interested party may write to the Board or to any
non-employee director in care of our Corporate Secretary at KB
Home, 10990 Wilshire Boulevard, Los Angeles, California 90024.
She or the Assistant Secretary will review and forward letters,
as they determine appropriate, to one or more directors.
Directors determine whether and how to respond. They will not
forward items unrelated to Board duties.
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3
Board
Committee Composition and 2008 Fiscal Year Meetings
The chart below shows the current members of the standing Board
Committees as of the date of this Proxy Statement and the number
of meetings each Board Committee held during our 2008 fiscal
year. Mr. Mezger does not serve on any Board Committees.
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Nominating/
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Director
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Audit
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Compensation
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Governance
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Stephen F. Bollenbach(a)
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Ronald W. Burkle(b)
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X
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Timothy W. Finchem
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Kenneth M. Jastrow, II
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X
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Robert L. Johnson(c)
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X
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Melissa Lora(d)
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Chair
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Michael G. McCaffery(e)
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Chair
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Leslie Moonves
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Chair
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Luis G. Nogales
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X
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Number of Meetings:
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10(f)
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7
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5
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Mr. Bollenbach joined both the Compensation Committee and
the Nominating/Governance Committee on April 3, 2008. |
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Mr. Burkle served on the Audit Committee until
April 3, 2008. |
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Mr. Robert Johnson joined the Board on July 10, 2008.
He was appointed to the Audit Committee on October 2, 2008. |
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Ms. Lora was designated Audit Committee Chair on
December 5, 2008. She served on the Audit Committee
throughout our 2008 fiscal year. |
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Mr. McCaffery was designated Compensation Committee Chair
on December 5, 2008. He served on the Compensation
Committee throughout our 2008 fiscal year. He served as Audit
Committee Chair throughout our 2008 fiscal year and until
December 5, 2008. |
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Includes conference calls with our management to review our
quarterly earnings releases prior to their issuance. |
Board
Committee Responsibilities and Related Matters
The Board has delegated certain responsibilities and authority
to each Board Committee as described below. At each
regularly-scheduled Board meeting, each Committee Chair (or
another designated Committee member) reports to the full Board
on his or her Committees activities.
Audit Committee. The Audit Committee is
responsible for general oversight of our (i) accounting and
reporting practices; (ii) internal control over financial
reporting and disclosure controls and procedures;
(iii) audit process, including our independent registered
public accounting firms qualifications, independence,
retention, compensation and performance, and the performance of
our internal audit department; and (iv) compliance with
legal and regulatory requirements and management of matters in
which we have or may have material liability exposure. In
addition, the Audit Committee may act for the Board to authorize
us or our subsidiaries or affiliates to incur, guarantee or
redeem debt or debt securities.
The Audit Committee also oversees the preparation of a required
report to be included in our annual proxy statements and is
charged with the duties and responsibilities listed in its
charter. The Audit Committees report is provided below
under the heading Audit and Compliance Committee
Report. The Audit Committee is a separately designated
standing audit committee as defined in Section 3(a)(58)(A)
of the Securities Exchange Act of 1934.
4
The Board has determined that each current member of the Audit
Committee is independent under our Corporate Governance
Principles (as described below under the heading Director
Independence), New York Stock Exchange (NYSE)
listing standards and Securities and Exchange Commission
(SEC) rules. The Board has also determined that each
current member of the Audit Committee is financially literate
under NYSE listing standards, and that Ms. Lora qualifies
as an audit committee financial expert under SEC
rules.
Compensation Committee. The Compensation Committee
is responsible for (i) the evaluation and compensation of
the CEO and his direct reports; (ii) oversight and approval
of the general design of our executive compensation and benefit
programs; (iii) our efforts to attract, develop, promote
and retain qualified senior executive talent; and (iv) the
evaluation and determination of non-employee director
compensation. The Compensation Committee oversees the
preparation of the compensation discussion and analysis to be
included in our annual proxy statements, recommends to the Board
whether to so include the compensation discussion and analysis,
provides an accompanying report to be included in our annual
proxy statements, and is charged with the duties and
responsibilities listed in its charter. The compensation
discussion and analysis for this Proxy Statement is provided
below under the heading Compensation Discussion and
Analysis, and the Compensation Committees report is
provided below under the heading Management Development
and Compensation Committee Report.
The Board has determined that each current Compensation
Committee member is independent under our Corporate Governance
Principles and NYSE listing standards, is a non-employee
director under SEC rules and is an outside
director under Section 162(m) of the Internal Revenue
Code (the Code).
Overview of Executive Officer and Non-Employee Director
Compensation Processes and Procedures. Under our By-laws,
the Board has the authority to fix the compensation of our
executive officers and non-employee directors. The Board has
delegated this authority to the Compensation Committee as
provided in the Compensation Committees charter. Per its
charter, the Compensation Committee annually reviews and
approves the goals and objectives relevant to our CEOs
compensation, evaluates his performance in light of those goals
and objectives and other criteria, and, either as a committee or
together with the other independent directors (as directed by
the Board), determines and approves our CEOs compensation
based on the evaluation. The Compensation Committee also
evaluates, in conjunction with our CEO, the performance of his
direct reports, and reviews and approves their compensation.
The Compensation Committee exercises the Boards authority
with respect to our employee compensation and benefits plans
(including our employee equity compensation plans) and policies,
except to the extent that the Board, in its discretion, reserves
its authority. This delegation includes the authority to select
eligible participants, recommend and approve grants and awards,
set performance targets and other award eligibility criteria,
approve an aggregate incentive pool for any annual or long-term
incentive awards, interpret the plans terms, delegate
certain responsibilities and adopt or modify as necessary any
rules and procedures to implement the plans, including any rules
and procedures that condition the approval of grants and awards.
The Compensation Committee also periodically reviews our
compensation and benefit plans and, from time to time, will
recommend to the Board new plans or modifications to existing
plans. The Compensation Committees exercise of this
authority, including specific considerations applied and
determinations made, with respect to the compensation and
benefits awarded to our named executive officers under our plans
is discussed below under the heading Compensation
Discussion and Analysis.
The Compensation Committee, from time to time, reviews and makes
recommendations to the Board regarding non-employee director
compensation consistent with the goals of recruiting the highest
caliber directors to serve on the Board, aligning
directors and stockholders interests, and fairly
paying directors for the work required to serve stockholder
interests given our size, scope and complexity of operations.
In its oversight of executive officer and non-employee director
compensation, the Compensation Committee seeks assistance from
our management and has engaged an outside compensation
consultant, Semler Brossy Consulting Group LLC (Semler
Brossy), as further described below under the heading
Compensation Discussion and Analysis. The
Compensation Committee may delegate to a subcommittee or to our
management any duties and responsibilities as the Compensation
Committee deems to be appropriate and in our best interests, but
it cannot delegate to our management the authority to grant
equity-based awards.
Compensation Committee Interlocks and Insider
Participation. All current Compensation Committee members
served throughout our 2008 fiscal year, except for
Mr. Bollenbach, who joined on April 3, 2008.
5
J. Terrence Lanni served as the Compensation Committee
Chair throughout our 2008 fiscal year until November 13,
2008, when he resigned from the Board. Mr. McCaffery was
designated Compensation Committee Chair on December 5,
2008. No member of the Compensation Committee during our 2008
fiscal year was part of a compensation committee
interlock as described under SEC rules. In addition, none
of our executive officers served as a director or member of the
compensation committee of another entity that would constitute a
compensation committee interlock.
Nominating/Governance Committee. The
Nominating/Governance Committee is responsible for
(i) providing oversight of our corporate governance
policies and practices; (ii) identifying, evaluating and
recommending to the Board individuals who are qualified to
become directors; and (iii) performing ongoing assessments
of the Boards size, operations, structure, needs and
effectiveness. The Nominating/Governance Committee also reviews
and makes recommendations to the full Board on proposed changes
to our Certificate of Incorporation and By-laws, periodically
assesses and recommends action with respect to stockholder
rights plans and other stockholder protections, reviews and
approves or ratifies (as applicable) related party
transactions, as further described below under the heading
Certain Relationships and Related Party
Transactions, and is charged with the duties and
responsibilities listed in its charter.
The Board has determined that each current member of the
Nominating/Governance Committee is independent under our
Corporate Governance Principles and New York Stock Exchange
listing standards.
Director
Qualifications
We believe our directors should possess the highest personal and
professional ethics, integrity, judgment and values, and be
committed to representing the long-term interests of our
stockholders. Our directors should also have an inquisitive and
objective perspective, and be able and willing to dedicate the
time necessary to Board and Board Committee service.
The Nominating/Governance Committee regularly assesses the
skills and characteristics of current and potential directors
and may consider the attributes listed to the right, among
others.
Director
Independence
We believe that a substantial majority of our directors should
be independent. To be independent, the Board must affirmatively
determine that a director does not have any material
relationship with us based on all relevant facts and
circumstances.
|
|
Selected Director Attributes
|
|
Personal qualities, accomplishments and reputation
in the business community.
|
Financial literacy, financial and accounting
expertise and significant business, academic or government
experience in leadership positions or at senior policy-making
levels.
|
Geographical representation in areas relevant to our
business.
|
Diversity of background and personal experience.
|
Fit of abilities and personality with those of
current and potential directors in building a Board that is
effective, collegial and responsive to the needs of our business.
|
Independence and an absence of conflicting time
commitments.
|
|
The Board makes independence determinations annually based on
information supplied by directors and other sources, the
Nominating/Governance Committees prior review and
recommendation, and certain categorical standards contained in
our Corporate Governance Principles. These standards are
consistent with NYSE listing standards. The Board has determined
that all non-employee directors who served during our 2008
fiscal year and all current director nominees are independent
under the Boards director independence standards.
Accordingly, Messrs. Bollenbach, Burkle, Finchem, Jastrow,
Robert Johnson, McCaffery, Moonves, and Nogales and
Ms. Lora are independent. In addition, the Board has
determined that all of the Board Committees are entirely
composed of independent directors.
In making its independence determinations, the Board considered
the following transactions during our 2008 fiscal year:
(a) radio and billboard advertising expenditures we made at
market rates with CBS Corporation (at which
Mr. Moonves serves as Chief Executive Officer), and
(b) building materials purchased at market prices from
Temple-Inland Inc. (at which Mr. Jastrow served as Chief
Executive Officer through December 2007), and for which we
received standard purchase rebates, for use in our homebuilding
operations. In each case, the transactions considered were in
the ordinary course of our business and the business of the
counterpart company and fell well within the categorical
independence standards contained in our Corporate Governance
6
Principles. In each case, Messrs. Jastrow and Moonves were
deemed to not have a direct or indirect material interest in the
expenditures, and did not participate in the transactions in an
individual capacity.
Consideration
of Director Candidates
The Nominating/Governance Committee is responsible for
identifying and evaluating director candidates. Candidate
evaluations may occur at regular or special meetings of the
Nominating/Governance Committee and at any point during the
year. The general qualifications for director candidates are
described above under the heading Director
Qualifications, and in the box above titled Selected
Director Attributes.
The Nominating/Governance Committee has retained professional
search firms from time to time to assist it with recruiting
potential director candidates to the Board based on criteria the
Nominating/Governance Committee provides to the firm. These
firms help identify, evaluate and select director candidates and
are typically paid an agreed upon fee plus expenses for their
work. A professional search firm helped recruit Mr. Robert
Johnson to the Board in 2008. Current directors or other persons
may recommend candidates to the Nominating/Governance Committee.
Any security holder may recommend a director candidate for the
Nominating/Governance Committees consideration by
submitting the candidates name and qualifications to us in
care of the Corporate Secretary at the address listed above
under the heading Communications with the Board.
Director candidates recommended by a security holder are
considered in the same manner as any other recommended
candidates.
7
Director
Compensation
The Board sets non-employee director compensation based on
recommendations from the Compensation Committee. Mr. Mezger
is not paid for his service as a director. The Compensation
Committee has retained Semler Brossy to assist it with designing
our compensation and benefit programs, including our
non-employee director compensation program. Non-employee
director compensation is currently provided under our 2003
Non-Employee Directors Stock Plan (Director Plan).
The key components are described below.
Key Director Plan Components
|
|
|
|
|
Each non-employee director is entitled to receive:
|
|
|
|
|
§
|
An $80,000 cash retainer, paid in four equal quarterly
installments during a Director Year; and
|
§ 4,000
stock units
|
|
Director Year
|
A Director Year is the period between our
annual meetings of stockholders. The
2008 Director Year began on April 3,
2008 and ends on April 1, 2009.
|
|
|
|
|
|
|
To promote greater alignment of non-employee director and
stockholder interests, a non-employee director may elect to
receive the cash retainer in:
|
|
|
|
|
§
|
Stock units in an amount equal to the number of shares of our
common stock that can be purchased with 120% of the
retainers value based on the common stocks grant
date closing price. The additional incentive over the
retainers cash value is intended to induce non-employee
directors to elect stock units; or
|
|
|
§
|
Stock options in an amount equal to approximately four times the
shares of our common stock that can be purchased with the
retainers value based on the common stocks grant
date closing price. In the Boards judgment, the
four-to-one ratio represents an appropriate trade-off for
selecting stock options in lieu of cash.
|
|
|
|
|
|
A non-employee director may also elect to receive the stock
units in the form of stock options in an amount equal to four
times the number of stock units, reflecting what the Board
believes is an appropriate trade-off for the greater potential
volatility in the value of a stock option over time.
|
|
|
|
Stock units and stock options are granted on the date of each
annual meeting of stockholders. Stock options are granted with
an exercise price equal to our common stocks closing price
on that date.
|
|
|
|
Each of the Chairs of the Compensation Committee and the
Nominating/Governance Committee is entitled to an additional
retainer of 600 stock units. The Chair of the Audit Committee is
entitled to an additional retainer of 1,000 stock units.
|
|
|
|
A non-employee director who joins the Board or who becomes a
Board Committee Chair during a Director Year receives pro-rated
compensation based on the time remaining in the Director Year,
with stock units granted on the date of the relevant event. A
non-employee director who resigns from the Board during a
Director Year must return a pro-rated amount of any cash
retainer received, and forfeit a pro-rated amount of any stock
units or Director Plan stock options granted, for that Director
Year.
|
|
|
|
Each Director Plan stock unit provides a right to receive the
fair market value of a share of our common stock and a cash
dividend equivalent payment at the same time and in the same
amount as any cash dividend paid on our common stock. Based on
each non-employee directors compensation election,
Director Plan stock units will be paid out in cash only, with
the amount paid equal to the total number of stock units held
multiplied by our common stocks closing price on the date
a non-employee director leaves the Board.
|
|
|
|
Director Plan stock options are fully vested when granted and
have a
15-year
term. A non-employee director cannot exercise Director Plan
stock options until the earlier of (a) the directors
acquisition and continued ownership of at least
10,000 shares of our common stock
and/or
Director Plan stock units and (b) the date the director
leaves the Board. Director Plan stock options must be exercised
within one year of the date a non-employee director leaves the
Board. Based on each non-employee directors compensation
election, Director Plan stock options will be paid out in cash
only, with the amount paid equal to the
|
8
|
|
|
|
|
positive difference between a stock options exercise price
and the closing price of our common stock on the applicable
exercise date. Accordingly, Director Plan stock options are
equivalent in nature to stock appreciation rights.
|
Chairman Retainer. Mr. Bollenbach is paid an
additional annual cash retainer of $300,000 for his service as
the Non-Executive Chairman of the Board. He may keep any
retainer payment if removed from the Board without cause.
Expenses. We pay the non-employee directors
expenses, including travel, accommodations and meals, for
attending Board and Board Committee meetings and our annual
stockholders meetings and any other activities related to our
business. They do not receive additional compensation for
attending Board-related or annual meetings.
Director
Compensation During Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or Paid
|
|
|
|
Stock
|
|
|
|
Option
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
in Cash
|
|
|
|
Awards
|
|
|
|
Awards
|
|
|
|
Compensation
|
|
|
|
Total
|
|
Name
|
|
|
($)(a)
|
|
|
|
($)(b)
|
|
|
|
($)(b)
|
|
|
|
($)(c)
|
|
|
|
($)
|
|
Mr. Bollenbach
|
|
|
$
|
300,000
|
|
|
|
$
|
0
|
|
|
|
$
|
145,046
|
|
|
|
$
|
0
|
|
|
|
$
|
445,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Burkle
|
|
|
|
95,653
|
|
|
|
|
3,965
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
99,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Finchem
|
|
|
|
14,689
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
16,390
|
|
|
|
|
31,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Jastrow
|
|
|
|
40,255
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
13,545
|
|
|
|
|
53,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Robert Johnson
|
|
|
|
2,368
|
|
|
|
|
88,132
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
90,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Lora
|
|
|
|
25,408
|
|
|
|
|
0
|
|
|
|
|
59,690
|
|
|
|
|
9,960
|
|
|
|
|
95,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. McCaffery
|
|
|
|
10,299
|
|
|
|
|
12,107
|
|
|
|
|
4,726
|
|
|
|
|
13,545
|
|
|
|
|
40,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Moonves
|
|
|
|
26,006
|
|
|
|
|
0
|
|
|
|
|
97,888
|
|
|
|
|
16,390
|
|
|
|
|
140,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Nogales
|
|
|
|
60,647
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
60,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Non-Employee
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. James Johnson
|
|
|
|
27,404
|
|
|
|
|
417,629
|
|
|
|
|
4,162
|
|
|
|
|
0
|
|
|
|
|
449,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Lanni
|
|
|
|
26,242
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
26,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Fees Earned or Paid in Cash: Except for
Messrs. Bollenbach and Burkle, these amounts are the total
Director Plan stock unit dividend equivalent payments paid
during our 2008 fiscal year. Non-employee directors with larger
stock unit holdings based on their tenure and compensation
elections received greater dividend equivalent payments. The
amount shown for Mr. Bollenbach is solely his Chairman
retainer. The amount shown for Mr. Burkle includes annual
cash retainer payments. |
|
(b) |
|
Stock and Option Awards: These amounts are the aggregate
compensation expense we recognized in our 2008 fiscal year for
Director Plan stock unit and stock option awards granted to our
non-employee directors in 2008 and in prior years, computed in
accordance with Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123(R)), except that, in
accordance with applicable SEC rules and guidance, we have
disregarded estimates of forfeitures related to service-based
vesting conditions and reversals in excess of amounts previously
expensed in 2007 for the non-employee directors who appeared in
the Director Compensation Table for that year. We account for
the Director Plan stock unit and stock option awards as
liability awards for purposes of SFAS No. 123(R)
because they will be settled in cash in the manner described
above under the heading Key Director Plan
Components. For Director Plan stock unit awards, the
SFAS No. 123(R) compensation expense was calculated
based on the price of our common stock on November 30,
2008, which was $11.63. For Director Plan stock option awards,
the SFAS No. 123(R) compensation expense was
calculated using the Black-Scholes option-pricing model with the
following assumptions as of November 30, 2008: a risk-free
interest rate from 2.0% to 4.1% (depending on when the specific
stock option was granted); an expected volatility factor for the
market price of our common stock of 56.7%; a dividend yield of
2.2%; and an expected life from five to |
9
|
|
|
|
|
15 years (depending on when the specific stock option was
granted). Except for Mr. Robert Johnson, the Director Plan
stock units and stock options were granted on April 3,
2008. Mr. Robert Johnson was granted a pro-rated amount of
stock units upon his election to the Board on July 10,
2008. Mr. James Johnson served on the Board until
April 3, 2008, when he retired, and was not granted any
Director Plan stock units or stock options in our 2008 fiscal
year. Below are the stock units and stock options granted to
each non-employee director per the directors election and
the corresponding grant date fair value calculated in accordance
with SFAS No. 123(R). The stock options fair
value was calculated using the Black-Scholes option-pricing
model with the following assumptions: a risk-free interest rate
of 5.0%; an expected volatility factor for the market price of
our common stock of 43.9%; a dividend yield of 3.5%; and an
expected life of 15 years. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Units
|
|
|
Stock Options
|
|
|
Grant Date Fair Value
|
Name
|
|
|
(#)
|
|
|
(#)
|
|
|
($)
|
Mr. Bollenbach
|
|
|
0
|
|
|
27,220
|
|
|
$296,698
|
|
|
|
|
|
|
|
|
|
|
Mr. Burkle
|
|
|
4,000
|
|
|
0
|
|
|
114,040
|
|
|
|
|
|
|
|
|
|
|
Mr. Finchem
|
|
|
7,367
|
|
|
0
|
|
|
210,033
|
|
|
|
|
|
|
|
|
|
|
Mr. Jastrow
|
|
|
7,367
|
|
|
0
|
|
|
210,033
|
|
|
|
|
|
|
|
|
|
|
Mr. Robert Johnson
|
|
|
7,578
|
|
|
0
|
|
|
119,202
|
|
|
|
|
|
|
|
|
|
|
Ms. Lora
|
|
|
4,000
|
|
|
11,220
|
|
|
236,338
|
|
|
|
|
|
|
|
|
|
|
Mr. McCaffery
|
|
|
8,367
|
|
|
0
|
|
|
238,543
|
|
|
|
|
|
|
|
|
|
|
Mr. Moonves
|
|
|
3,367
|
|
|
18,400
|
|
|
296,553
|
|
|
|
|
|
|
|
|
|
|
Mr. Nogales
|
|
|
7,367
|
|
|
0
|
|
|
210,033
|
|
|
|
|
|
|
|
|
|
|
Former Non-Employee
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Lanni
|
|
|
7,967
|
|
|
0
|
|
|
227,139
|
|
|
|
|
|
|
|
|
|
|
Mr. Lanni received an additional 600 stock units for his
service as the Compensation Committee Chair and
Mr. McCaffery received an additional 1,000 stock units for
his service as Audit Committee Chair. Mr. Moonves received
2,400 stock options for his service as Nominating/Governance
Committee Chair by electing to receive his 600 stock unit Chair
retainer grant in Director Plan stock options. All other stock
unit and stock option amounts reflect the Director Plan cash
retainer and stock unit grant the non-employee directors elected
to receive in stock units or, for Messrs. Bollenbach and
Moonves and Ms. Lora, in Director Plan stock options. Upon
his retirement effective April 3, 2008, and in accordance
with his compensation elections and the Director Plans
terms, we paid Mr. James Johnson $1,562,548 for the 54,807
stock units he held on that date based on the $28.51 closing
price of our common stock on that date. Mr. James Johnson
also held 143,957 Director Plan stock options on
April 3, 2008 with various exercise prices, and has until
April 3, 2009 to exercise these Director Plan stock
options. As of the date of this Proxy Statement, he has not
exercised any of these Director Plan stock options. Upon his
resignation from the Board effective November 13, 2008, and
in accordance with his compensation elections and the Director
Plans terms, we paid Mr. Lanni $399,461 for the
31,553 stock units he held on that date based on the $12.66
closing price of our common stock on that date. Due to his
resignation, Mr. Lanni forfeited 2,656 of the 7,967 stock
units that were granted to him on April 3, 2008 for the
2008 Director Year. Mr. Lanni did not hold any
Director Plan stock options.
Listed below are each non-employee directors total
Director Plan stock unit and stock option holdings as of
February 23, 2009. Ms. Loras total stock unit
holdings reflect an additional 333 stock units granted to her
upon her designation as Audit Committee Chair on
December 5, 2008, reflecting the pro-rated amount for the
remainder of the 2008 Director Year.
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Stock Units
|
|
|
Stock Options
|
|
|
Holdings
|
Name
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
Mr. Bollenbach
|
|
|
0
|
|
|
50,760
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|
|
50,760
|
|
|
|
|
|
|
|
|
|
|
Mr. Burkle
|
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|
37,320
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|
|
165,155
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|
|
202,475
|
|
|
|
|
|
|
|
|
|
|
Mr. Finchem
|
|
|
20,759
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|
|
0
|
|
|
20,759
|
|
|
|
|
|
|
|
|
|
|
Mr. Jastrow
|
|
|
44,821
|
|
|
0
|
|
|
44,821
|
|
|
|
|
|
|
|
|
|
|
Mr. Robert Johnson
|
|
|
7,578
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|
|
0
|
|
|
7,578
|
|
|
|
|
|
|
|
|
|
|
Ms. Lora
|
|
|
28,011
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|
|
11,220
|
|
|
39,231
|
|
|
|
|
|
|
|
|
|
|
Mr. McCaffery
|
|
|
17,568
|
|
|
73,609
|
|
|
91,177
|
|
|
|
|
|
|
|
|
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|
Mr. Moonves
|
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|
27,645
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|
|
18,400
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|
46,045
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|
|
|
|
|
|
|
|
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|
Mr. Nogales
|
|
|
64,013
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|
|
2,130
|
|
|
66,143
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|
|
|
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|
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|
Former Non-Employee
Director
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|
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|
|
|
|
|
|
|
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|
|
|
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Mr. James Johnson
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|
|
0
|
|
|
143,957
|
|
|
143,957
|
|
|
|
|
|
|
|
|
|
|
|
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|
(c) |
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All Other Compensation: These amounts are the premium
payments for the life insurance policies we maintain to fund
charitable donations under the Directors Legacy Program, which
is described below under the heading Directors Legacy
Program. Messrs. Bollenbach, Robert Johnson and Lanni
do not participate in the program. No additional premium
payments are currently required for the program donations for
each of Messrs. Burkle and Nogales. In our 2008 fiscal
year, we paid a total of $201,214 in life insurance premiums for
all participants, including former directors. Premium payments
vary depending on participants respective ages and other
factors. The total dollar amount payable under the program at
November 30, 2008 was $16.4 million. If all current
participating directors were vested in the full donation amount,
the total dollar amount payable under the program at
November 30, 2008 would have been $17.2 million. |
Directors Legacy Program. We established a Directors
Legacy Program in 1995 to recognize our and our directors
interests in supporting worthy educational institutions and
other charitable organizations. In making adjustments to our
philanthropic activities, the Board elected in 2007 to close the
program to new participants. Messrs. Bollenbach, Robert
Johnson, Lanni and Mezger do not participate in the program.
Under the program, we will make a charitable donation on each
participating directors behalf of up to $1 million.
Directors vest in the full donation in five equal annual
installments of $200,000, and therefore must serve on the Board
for five consecutive years to donate the maximum amount. A
participating director may allocate the donation to up to five
qualifying institutions or organizations. Donations are paid in
ten equal annual installments directly to designated
organizations after a participating directors death with
proceeds from the life insurance policies we maintain on each
participating directors life. Participating directors and
their families do not receive any proceeds, compensation or tax
savings associated with the program.
11
Items of
Business
Proposal 1:
Election
of Directors
At the Annual Meeting, the Board will present as nominees and
recommend to stockholders that Messrs. Bollenbach, Finchem,
Jastrow, Robert Johnson, McCaffery and Mezger and Ms. Lora
each be elected as directors to serve for a one-year term ending
at our 2010 Annual Meeting of Stockholders. Each nominee is
currently a director, has consented to being nominated and has
agreed to serve as a director if elected. Each nominee is
standing for re-election, except Mr. Robert Johnson, who
was elected to the Board subsequent to our 2008 Annual Meeting
of Stockholders. Should any of these nominees become unable to
serve as a director prior to the Annual Meeting, the persons
named as proxies on the proxy cards for the Annual Meeting will,
unless otherwise directed, vote for the election of such other
person as the Board may recommend in place of such nominee.
On the date of the Annual Meeting, the Board will have 10
members.
Vote
Required
Under our By-laws, the election of each director nominee will
require a majority of votes cast at the Annual Meeting to be in
favor of the nominee (i.e., the votes cast for a
nominees election must exceed the votes cast against the
nominees election).
Consistent with this director election standard, our Corporate
Governance Principles require that each director nominee in an
uncontested election at an annual meeting of stockholders
receive more votes cast for than against his or her election or
re-election in order to be elected or re-elected to the Board.
An uncontested election is one in which no director
candidates on the ballot were nominated by a stockholder in
accordance with our By-laws. This election is an uncontested
election.
Our Corporate Governance Principles also provide that a director
nominee who fails to win election or re-election to the Board in
an uncontested election is expected to tender his or her
resignation from the Board. If an incumbent director fails to
receive the required vote for election or re-election in an
uncontested election, the Nominating/Governance Committee will
act promptly to determine whether to accept the directors
resignation and will submit its recommendation for consideration
by the Board. The Board expects the director whose resignation
is under consideration to abstain from participating in any
decision regarding that resignation. The Nominating/Governance
Committee and the Board may consider any factors they deem
relevant in deciding whether to accept a directors
resignation.
Your
Board recommends a vote FOR the election to the Board of each of
the nominees.
12
A brief summary of each director nominees and each
incumbent directors principal occupation, recent
professional experience and the directors directorships at
other public companies, if any, is provided below.
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Stephen F. Bollenbach, age 66, is our Non-Executive
Chairman of the Board. He was the Co-Chairman and Chief
Executive Officer of Hilton Hotels Corporation, a hotel
developer and operator, positions he held from May 2004 and
February 1996, respectively. He retired from Hilton in October
of 2007. Prior to joining Hilton, Mr. Bollenbach was Senior
Executive Vice President and Chief Financial Officer for The
Walt Disney Company from 1995 to 1996. Before Disney,
Mr. Bollenbach was President and Chief Executive Officer of
Host Marriott Corporation from 1993 to 1995, and served as Chief
Financial Officer of Marriott Corporation from 1992 to 1993.
From 1990 to 1992, Mr. Bollenbach was Chief Financial
Officer of the Trump Organization. Mr. Bollenbach serves as
a director of Harrahs Entertainment, Inc., Time Warner
Inc., Macys, Inc. and American International Group, Inc.
Mr. Bollenbach joined the Board as Non-Executive Chairman
in 2007.
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Ron Burkle, age 56, is the founder and managing partner
of The Yucaipa Companies, a private investment firm based in
Southern California. Yucaipa specializes in acquisitions,
mergers and management of large retail, manufacturing and
distribution companies. Mr. Burkle has served as Chairman
of the Board and controlling shareholder of numerous companies
including Alliance Entertainment, Dominicks, Fred Meyer,
Ralphs and Food4Less. He is currently a member of the boards of
Occidental Petroleum Corporation and Yahoo! Inc. He has been a
director since 1995 and his current term expires in 2010.
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Timothy W. Finchem, age 61, has been Commissioner of the
PGA TOUR, a membership organization for professional golfers,
since 1994. He joined the TOUR staff as Vice President of
Business Affairs in 1987, and was promoted to Deputy
Commissioner and Chief Operating Officer in 1989.
Mr. Finchem served in the White House as Deputy Advisor to
the President in the Office of Economic Affairs in 1978 and
1979, and in the early 1980s, co-founded the National
Marketing and Strategies Group in Washington, D.C. He
joined the Board in 2005.
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Kenneth M. Jastrow, II, age 61, is Non-Executive
Chairman, Forestar Group Inc., a real estate and natural
resources company. He served as Chairman and Chief Executive
Officer of Temple-Inland Inc., a manufacturing company and the
former parent of Forestar Group, from 2000 to 2007. Prior to
that, Mr. Jastrow served as President and Chief Operating
Officer in 1998 and 1999, Group Vice President from 1995 until
1998, and as Chief Financial Officer of Temple-Inland from
November 1991 until 1999. Mr. Jastrow is also a director of
MGIC Investment Corporation. He joined the Board in 2001.
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Robert L. Johnson, age 62, is founder and chairman of The
RLJ Companies, a business network that owns or holds interests
in a diverse portfolio of companies in the financial services,
real estate, hospitality/restaurant, professional sports, film
production, gaming, recording and automotive industries. Prior
to forming The RLJ Companies, Mr. Johnson was founder and
chief executive officer of Black Entertainment Television (BET),
which was acquired by Viacom Inc. in 2001. He continued to serve
as chief executive officer of BET until 2006. Mr. Johnson
currently serves on the board of directors of the Lowes
Companies, Inc., IMG Worldwide, Inc., and Strayer Education,
Inc. He joined the Board in 2008.
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13
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Melissa Lora, age 46, has since 2001 been the Chief
Financial Officer of Taco Bell Corp., a quick service restaurant
chain. Ms. Lora joined Taco Bell Corp. in 1987 and has held
various positions throughout the company, most recently acting
as Regional Vice President and General Manager from 1998 to 2000
for Taco Bells operations throughout the Northeastern
United States. She joined the Board in 2004.
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Michael G. McCaffery, age 55, is the Chief Executive
Officer of Makena Capital Management, an investment management
firm. From 2000 to 2006, Mr. McCaffery was President and
CEO of the Stanford Management Company (SMC), which was
established in 1991 to manage Stanford Universitys
financial and real estate investments. Previous to joining SMC,
Mr. McCaffery was President and Chief Executive Officer of
Robertson Stephens Investment Bankers from January 1993 to
December 1999, and also served as Chairman from January 2000 to
December 2000. Mr. McCaffery is a director of Thomas
Weisel Partners Group, Inc. He joined the Board in 2003.
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Jeffrey T. Mezger, age 53, has been our President and
Chief Executive Officer since November 2006. Prior to becoming
President and Chief Executive Officer, Mr. Mezger served as
our Executive Vice President and Chief Operating Officer, a
position he assumed in 1999. From 1995 until 1999,
Mr. Mezger held a number of executive posts in our
southwest region, including Division President, Phoenix
Division, and Senior Vice President and Regional General Manager
over Arizona and Nevada. Mr. Mezger joined us in 1993 as
president of the Antelope Valley Division in Southern
California. He joined the Board in 2006.
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Leslie Moonves, age 59, is President and Chief Executive
Officer and a Director of CBS Corporation, a mass media company.
Prior to that, he was Co-President and Co-Chief Operating
Officer of Viacom, a mass media company and the former parent of
CBS, which title he held from June 2004 to December 2005.
Mr. Moonves previously served as President and Chief
Executive Officer of CBS from 1998 to 2004, and served as its
Chairman from 2003 to 2005. He joined CBS in 1995 as President,
CBS Entertainment. Prior to that, Mr. Moonves was President
of Warner Bros. Television from 1993, when Warner Bros. and
Lorimar Television combined operations. From 1989 to 1993, he
was President of Lorimar Television. He joined the Board in 2004
and his current term expires in 2010.
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Luis G. Nogales, age 65, has been the Managing Partner of
Nogales Investors, LLC, a private equity investment firm, since
2001. He was Chairman and Chief Executive Officer of Embarcadero
Media, Inc. from 1992 to 1997, President of Univision
Communications, Inc., from 1986 to 1988, and Chairman and Chief
Executive Officer of United Press International from 1983 to
1986. He is a director of Southern California Edison Co., Edison
International and Arbitron Inc. He joined the Board in 1995 and
his current term expires in 2010.
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14
Proposal 2:
Ratification
of Appointment of Independent Registered Public Accounting
Firm
The Audit Committee has appointed Ernst & Young LLP as
our independent registered public accounting firm to audit our
consolidated financial statements for our fiscal year ending
November 30, 2009. During our 2008 fiscal year,
Ernst & Young LLP served as our independent registered
public accounting firm and also provided certain other
audit-related services, as further discussed below under the
heading Independent Auditor Fees and Services.
Representatives of Ernst & Young LLP are expected to
attend the Annual Meeting, be available to respond to
appropriate questions and, if they desire, make a statement.
Although we are not required to do so, we are seeking
stockholder ratification of Ernst & Young LLPs
appointment as our independent registered public accounting firm
as a matter of good corporate governance. If Ernst &
Young LLPs appointment is not ratified, the Audit
Committee will reconsider whether to retain Ernst &
Young LLP, but still may retain them. Even if the appointment is
ratified, the Audit Committee, in its discretion, may change the
appointment at any time during the year if it determines that
such a change would be in our and our stockholders best
interests.
Vote
Required
Approval of the ratification of the appointment of
Ernst & Young LLP as our independent registered public
accounting firm for our fiscal year ending November 30,
2009 requires the affirmative vote of the majority of shares of
common stock present or represented, and entitled to vote
thereon, at the Annual Meeting.
Your
Board recommends a vote FOR the ratification of the appointment
of Ernst & Young LLP as our independent registered
public accounting firm for our fiscal year ending
November 30, 2009.
15
Background
to Proposals 3 and 4
Since the end of our 2007 fiscal year, we have generated
significant net operating losses and unrealized tax losses
(collectively, NOLs), and may have additional NOLs
in our 2009 fiscal year. Under federal tax laws, we can use NOLs
and certain related tax credits to offset ordinary income tax
paid in our prior two tax years or on our future taxable income
for up to 20 years, when they expire for such
purposes. Until they expire, we can carry forward
NOLs and certain related tax credits that we do not use in any
particular year to offset income tax in future years. Although
we were able to use certain NOLs that we had generated up to
November 30, 2008 to offset the income taxes we paid in our
last two tax years, as of the date of this Proxy Statement, we
still have an $880 million net deferred tax asset related
to NOLs we have generated but have not yet realized for tax
purposes. This net deferred tax asset represents NOLs that we
believe could be used to potentially offset approximately
$2.2 billion of future taxable income. While we cannot
estimate the exact amount of NOLs that we can use to reduce
future income tax liability because we cannot predict the amount
and timing of our future taxable income, we consider our NOLs to
be a very valuable asset.
The benefits of our NOLs would be reduced or eliminated, and our
use of our NOLs would be substantially delayed, if we experience
an ownership change, as determined under
Section 382 of the Code. A Section 382 ownership
change occurs if a stockholder or a group of stockholders
who are deemed to own at least 5% of our common stock (each, a
5-percent stockholder) increase their ownership by
more than 50 percentage points over their lowest ownership
percentage within a rolling three-year period. If an
ownership change occurs, Section 382 would
impose an annual limit on the amount of our NOLs we can use to
offset income tax equal to the product of the total value of our
outstanding equity immediately prior to the ownership
change (reduced by certain items specified in
Section 382) and the federal long-term tax-exempt
interest rate in effect for the month of the ownership
change. A number of special rules apply to calculating
this annual limit.
We believe that if an ownership change were to
occur, the limitations Section 382 imposes could result in
a material amount of our NOLs expiring unused and, therefore,
significantly impair the value of our NOLs. While the complexity
of Section 382s provisions and the limited knowledge
any public company has about the ownership of its publicly
traded stock make it difficult to determine whether an
ownership change has occurred, we currently believe
that an ownership change has not occurred. However,
if no action is taken, we believe that we could experience an
ownership change.
After careful consideration, your Board believes the most
effective way to preserve the benefits of our NOLs to long-term
stockholder value is to adopt the Protective Amendment to our
Restated Certificate of Incorporation and the Successor Rights
Plan. The Protective Amendment, which is designed to block
transfers of our common stock that could result in an
ownership change, is described below under
Proposal 3 and its full terms can be found in
the accompanying Attachment A. The Successor Rights Plan,
pursuant to which we have issued certain stock purchase rights
with terms designed to deter transfers of our common stock that
could result in an ownership change, is described
below under Proposal 4 and its full terms can
be found in the accompanying Attachment B.
Your Board urges stockholders to read carefully each proposal,
the items discussed below under the heading Certain
Considerations Related to the Protective Amendment and the
Successor Rights Plan, and the full terms of the
Protective Amendment and the Successor Rights Plan. Your Board
unanimously adopted both measures on January 22, 2009, but
the Protective Amendment requires stockholder adoption to be put
into effect, and the Successor Rights Plan requires stockholder
approval to remain effective after March 5, 2010.
It is important to note that neither measure offers a complete
solution, and an ownership change may occur even if
the Protective Amendment is adopted and the Successor Rights
Plan is approved. There are limitations on the enforceability of
the Protective Amendment against stockholders who do not vote to
adopt it that may allow an ownership change to
occur, and the Successor Rights Plan may deter, but ultimately
cannot block, transfers of our common stock that might result in
an ownership change. The limitations of these
measures are described in more detail below. Because of their
individual limitations, your Board believes that both measures
are needed and that they will serve as important tools to help
prevent an ownership change that would reduce or
eliminate the significant long-term potential benefits of our
NOLs, and substantially delay our use of our NOLs. Accordingly,
your Board strongly recommends that stockholders adopt the
Protective Amendment and approve the Successor Rights Plan.
16
Proposal 3:
Adopt
the Protective Amendment to
KB
Homes Restated Certificate of Incorporation
For the reasons discussed above under Background to
Proposals 3 and 4, your Board recommends that
stockholders adopt the Protective Amendment to our Restated
Certificate of Incorporation. The Protective Amendment is
designed to prevent certain transfers of our common stock that
could result in an ownership change and therefore materially
inhibit our ability to use our NOLs to reduce our future income
tax liability. Your Board believes it is in our and our
stockholders best interests to adopt the Protective
Amendment to help avoid this result.
The Protective Amendment contains provisions that restrict
direct and indirect transfers of our stock if such transfers
will affect the percentage of stock that a 5-percent stockholder
is deemed to own. In addition, the Protective Amendment includes
a mechanism to block the impact of such transfers while allowing
purchasers to receive their money back from prohibited
purchases. In order to implement these transfer restrictions,
the Protective Amendment must be adopted. The Protective
Amendment is contained in a proposed new Article Ninth to
our Restated Certificate of Incorporation, which can be found in
the accompanying Attachment A and is incorporated by
reference herein. Existing Article Ninth to our Restated
Certificate of Incorporation will become new Article Tenth
if our stockholders adopt the Protective Amendment. Your Board
has adopted resolutions approving and declaring the advisability
of amending our Restated Certificate of Incorporation as
described below and as provided in accompanying Attachment
A, subject to stockholder adoption.
Description
of Protective Amendment
The following description of the Protective Amendment is
qualified in its entirety by reference to the full text of the
Protective Amendment, which is contained in a proposed new
Article Ninth of our Restated Certificate of Incorporation
and can be found in the accompanying Attachment A.
Please read the Protective Amendment in its entirety as the
discussion below is only a summary.
Prohibited Transfers. Subject to certain
exceptions pertaining to existing 5-percent stockholders, the
Protective Amendment generally will restrict any direct or
indirect transfer (such as transfers of our stock that result
from the transfer of interests in other entities that own our
stock) if the effect would be to:
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increase the direct or indirect ownership of our stock by any
person (or any public group of stockholders, as that
term is defined under Section 382) from less than 5%
to 5% or more of our common stock;
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increase the percentage of our common stock owned directly or
indirectly by a person (or public group) owning or deemed to own
5% or more of our common stock; or
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create a new public group.
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Restricted transfers include sales to persons or public groups
whose resulting percentage ownership (direct or indirect) of our
common stock would exceed the 5% thresholds discussed above, or
to persons whose direct or indirect ownership of our common
stock would by attribution cause another person or public group
to exceed such threshold. Complicated common stock ownership
rules will apply in determining whether a person or group of
persons constitute a 5-percent stockholder under
Section 382 and whether less than 5- percent
stockholders will be treated as one or more public groups, each
of which is a 5-percent stockholder under Section 382. A
transfer from one member of the public group to another member
of the public group does not increase the percentage of our
common stock owned directly or indirectly by the public group
and, therefore, such transfers are not restricted. For purposes
of determining the existence and identity of, and the amount of
our common stock owned by, any stockholder, we are entitled to
rely on the existence or absence of certain public securities
filings as of any date, subject to our actual knowledge of the
ownership of our common stock. The Protective Amendment includes
the right to require a proposed transferee, as a condition to
registration of a transfer of our common stock, to provide all
information reasonably requested regarding such persons
direct and indirect ownership of our common stock. These
transfer restrictions may result in the
17
delay or refusal of certain requested transfers of our common
stock, or prohibit ownership (thus requiring dispositions) of
our common stock due to a change in the relationship between two
or more persons or entities or to a transfer of an interest in
an entity other than us that, directly or indirectly, owns our
common stock. The transfer restrictions will also apply to
proscribe the creation or transfer of certain
options (which are broadly defined by
Section 382) in respect of our common stock to the
extent that, in certain circumstances, the creation, transfer or
exercise of the option would result in a proscribed level of
ownership.
Treatment of Pre-Existing 5-percent Stockholders.
The Protective Amendment contains exceptions permitting certain
transfers by pre-existing 5-percent stockholders.
Pre-existing 5-percent stockholders are:
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any person or entity who has publicly filed a Schedule 13D
or 13G with respect to their ownership of our common stock on or
before the date of adoption of the Protective Amendment; and
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certain persons and entities with specified ownership interests
in the foregoing persons or entities.
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In contrast to the treatment of persons who become 5-percent
stockholders (as defined in Section 382) after
adoption of the Protective Amendment, who will be prohibited
from disposing of any shares of our common stock without the
express consent of your Board, a direct or indirect transfer of
shares of our common stock by (but not to) a pre-existing
5-percent stockholder will be permitted so long as such a
transfer would not:
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increase the ownership of our common stock by any person (other
than a public group) to 5% or more of our common stock; or
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increase the percentage of our common stock owned by a person
(other than a public group) owning 5% or more of our common
stock.
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These permitted transfers include transfers to a public group
even though the public group becomes a new public group as a
result of such transfer and is treated as a 5-percent
stockholder under Section 382. In addition, the transferred
shares of our common stock must be owned by the pre-existing
5-percent stockholder prior to the date of adoption of the
Protective Amendment. These provisions will permit pre-existing
5-percent stockholders to dispose of shares owned by them,
subject to the conditions above.
Consequences of Prohibited Transfers. Upon adoption of
the Protective Amendment, any direct or indirect transfer
attempted in violation of the Protective Amendment would be void
as of the date of the prohibited transfer as to the purported
transferee (or, in the case of an indirect transfer, the
ownership of the direct owner of our common stock would
terminate simultaneously with the transfer), and the purported
transferee (or in the case of any indirect transfer, the direct
owner) would not be recognized as the owner of the shares owned
in violation of the Protective Amendment for any purpose,
including for purposes of voting and receiving dividends or
other distributions in respect of such common stock, or in the
case of options, receiving our common stock in respect of their
exercise. In this Proxy Statement, our common stock purportedly
acquired in violation of the Protective Amendment is referred to
as excess stock.
In addition to a prohibited transfer being void as of the date
it is attempted, upon demand, the purported transferee must
transfer the excess stock to our agent along with any dividends
or other distributions paid with respect to such excess stock.
Our agent is required to sell such excess stock in an arms
length transaction (or series of transactions) that would not
constitute a violation under the Protective Amendment. The net
proceeds of the sale, together with any other distributions with
respect to such excess stock received by our agent, after
deduction of all costs incurred by the agent, will be
distributed first to the purported transferee in an amount, if
any, up to the cost (or in the case of gift, inheritance or
similar transfer, the fair market value of the excess stock on
the date of the prohibited transfer) incurred by the purported
transferee to acquire such excess stock, and the balance of the
proceeds, if any, will be distributed to a charitable
beneficiary. If the excess stock is sold by the purported
transferee, such person will be treated as having sold the
excess stock on behalf of the agent, and will be required to
remit all proceeds to our agent (except to the extent we grant
written permission to the purported transferee to retain an
amount not to exceed the amount such person otherwise would have
been entitled to retain had our agent sold such shares).
To the extent permitted by law, any stockholder who knowingly
violates the Protective Amendment will be liable for any and all
damages we suffer as a result of such violation, including
damages resulting from any limitation in our ability to use our
NOLs and any professional fees incurred in connection with
addressing such violation.
18
With respect to any transfer of common stock that does not
involve a transfer of our securities within the
meaning of the Delaware General Corporation Law but that would
cause any 5-percent stockholder to violate the Protective
Amendment, the following procedure will apply in lieu of those
described above. In such case, no such 5-percent stockholder
shall be required to dispose of any interest that is not our
security, but such
5-percent
stockholder
and/or any
person whose ownership of our securities is attributed to such
5-percent stockholder will be deemed to have disposed of (and
will be required to dispose of) sufficient securities,
simultaneously with the transfer, to cause such 5-percent
stockholder not to be in violation of the Protective Amendment,
and such securities will be treated as excess stock to be
disposed of through the agent under the provisions summarized
above, with the maximum amount payable to such 5-percent
stockholder or such other person that was the direct holder of
such excess stock from the proceeds of sale by the agent being
the fair market value of such excess stock at the time of the
prohibited transfer.
Modification and Waiver of Transfer Restrictions. Your
Board will have the discretion to approve a transfer of our
common stock that would otherwise violate the transfer
restrictions if it determines that the transfer is in our and
our stockholders best interests. If your Board decides to
permit such a transfer, that transfer or later transfers may
result in an ownership change that could limit our
use of our NOLs. In deciding whether to grant a waiver, your
Board may seek the advice of counsel and tax experts with
respect to the preservation of our federal tax attributes
pursuant to Section 382. In addition, your Board may
request relevant information from the acquirer
and/or
selling party in order to determine compliance with the
Protective Amendment or the status of our federal income tax
benefits, including an opinion of counsel selected by your Board
(the cost of which will be borne by the transferor
and/or the
transferee) that the transfer will not result in a limitation on
the use of the NOLs under Section 382. If your Board
decides to grant a waiver, it may impose conditions on the
acquirer or selling party.
Your Board may establish, modify, amend or rescind by-laws,
regulations and procedures for purposes of determining whether
any transfer of common stock would jeopardize our ability to use
our NOLs.
Implementation
and Expiration of the Protective Amendment
If our stockholders adopt the Protective Amendment, we intend to
promptly file the Protective Amendment with the Secretary of
State of the State of Delaware, whereupon such amendment will
become effective. We intend to immediately thereafter enforce
the restrictions in the Protective Amendment to preserve the
future use of our NOLs. We also intend to include a legend
reflecting the transfer restrictions included in the Protective
Amendment on certificates representing newly issued or
transferred shares and to disclose such restrictions to persons
holding our common stock in uncertificated form.
The Protective Amendment would expire on the earliest of
(i) your Boards determination that the Protective
Amendment is no longer necessary for the preservation of our
NOLs because of the amendment or repeal of Section 382 or
any successor statute, (ii) the beginning of a taxable year
to which your Board determines that none of our NOLs may be
carried forward and (iii) such date as your Board otherwise
determines that the Protective Amendment is no longer necessary
for the preservation of our NOLs. Your Board may also accelerate
or extend the expiration date of the Protective Amendment in the
event of a change in the law.
Effectiveness
and Enforceability
Although the Protective Amendment is intended to reduce the
likelihood of an ownership change, we cannot
eliminate the possibility that an ownership change
will occur even if the Protective Amendment is adopted given
that:
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Your Board can permit a transfer to an acquirer that results or
contributes to an ownership change if it determines
that such transfer is in our and our stockholders best
interests.
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A court could find that part or all of the Protective Amendment
is not enforceable, either in general or as to a particular fact
situation. Under the laws of the State of Delaware, our
jurisdiction of incorporation, a corporation is conclusively
presumed to have acted for a reasonable purpose when restricting
the transfer of its securities in its certificate of
incorporation for the purpose of maintaining or preserving any
tax attribute (including net operating losses). Delaware law
provides that transfer
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restrictions with respect to shares of our common stock issued
prior to the effectiveness of the restrictions will be effective
against (i) stockholders with respect to shares that were
voted in favor of this proposal and (ii) purported
transferees of shares that were voted for this proposal if
(A) the transfer restriction is conspicuously noted on the
certificate(s) representing such shares or (B) the
transferee had actual knowledge of the transfer restrictions
(even absent such conspicuous notation). We intend to cause
shares of our common stock issued after the effectiveness of the
Protective Amendment to be issued with the relevant transfer
restriction conspicuously noted on the certificate(s)
representing such shares and therefore under Delaware law such
newly issued shares will be subject to the transfer restriction.
We also intend to disclose such restrictions to persons holding
our common stock in uncertificated form. For the purpose of
determining whether a stockholder is subject to the Protective
Amendment, we intend to take the position that all shares issued
prior to the effectiveness of the Protective Amendment that are
proposed to be transferred were voted in favor of the Protective
Amendment, unless the contrary is established. We may also
assert that stockholders have waived the right to challenge or
otherwise cannot challenge the enforceability of the Protective
Amendment, unless a stockholder establishes that it did not vote
in favor of the Protective Amendment. Nonetheless, a court could
find that the Protective Amendment is unenforceable, either in
general or as applied to a particular stockholder or fact
situation.
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Despite the adoption of the Protective Amendment, there is still
a risk that certain changes in relationships among stockholders
or other events could cause an ownership change
under Section 382. We cannot assure you that the Protective
Amendment is enforceable in all circumstances, particularly
against stockholders who do not vote in favor of this proposal
or who do not have notice of the acquisition restrictions at the
time they subsequently acquire their shares. Accordingly, we
cannot assure you that an ownership change will not
occur even if the Protective Amendment is made effective.
However, your Board has adopted the Successor Rights Plan, which
is intended to act as a deterrent to any person becoming a
5-percent stockholder and endangering our ability to use our
NOLs.
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As a result of these and other factors, the Protective Amendment
serves to reduce, but does not eliminate, the risk that we will
undergo an ownership change.
Section 382
Ownership Change Determinations
The rules of Section 382 are very complex, and are beyond
the scope of this summary discussion. Some of the factors that
must be considered in determining whether a Section 382
ownership change has occurred include the following:
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All stockholders who each own less than 5% of our common stock
are generally (but not always) treated as a single 5-percent
stockholder. Transactions in the public markets among
stockholders who are not 5-percent stockholders are generally
(but not always) excluded from the Section 382 calculation.
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There are several rules regarding the aggregation and
segregation of stockholders who otherwise do not qualify as
5-percent stockholders. Ownership of stock is
generally attributed to its ultimate beneficial owner without
regard to ownership by nominees, trusts, corporations,
partnerships or other entities.
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Acquisitions by a person that cause the person to become a
5-percent stockholder generally result in a 5% (or more) change
in ownership, regardless of the size of the final purchase(s)
that caused the threshold to be exceeded.
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Certain constructive ownership rules, which generally attribute
ownership of stock owned by estates, trusts, corporations,
partnerships or other entities to the ultimate indirect
individual owner thereof, or to related individuals, are applied
in determining the level of stock ownership of a particular
stockholder. Special rules can result in the treatment of
options (including warrants) or other similar interests as
having been exercised if such treatment would result in an
ownership change.
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Our redemption or buyback of our common stock will increase the
ownership of any 5-percent stockholders (including groups of
stockholders who are not themselves 5-percent stockholders) and
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can contribute to an ownership change. In addition,
it is possible that a redemption or buyback of shares could
cause a holder of less than 5% to become a 5-percent
stockholder, resulting in a 5% (or more) change in
ownership.
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Vote
Required
Adoption of the Protective Amendment requires the affirmative
vote of a majority of the outstanding shares of our common
stock. The Protective Amendment, if adopted, would become
effective upon the filing of a Certificate of Amendment with the
Secretary of State of the State of Delaware, which we expect to
do as soon as practicable after the Protective Amendment is
adopted.
Your
Board recommends a vote FOR the adoption of the Protective
Amendment to KB Homes Restated Certificate of
Incorporation.
Proposal 4:
Approve
the Successor Rights Plan
Background
on Our Existing Rights Plan
We have an existing stockholder rights plan that was adopted in
February 1999 (the Existing Rights Plan). At the
time of its adoption, the Existing Rights Plan was intended to
reduce our vulnerability to certain potentially coercive
takeover practices and takeover bids that are inadequate or
otherwise inconsistent with our interests and our
stockholders interests, and to encourage potential
acquirors to negotiate with your Board. The rights issued under
the Existing Rights Plan, as originally adopted, would generally
be triggered if a person or group acquired a number of shares of
our common stock that were entitled to 15% or more of our
outstanding voting power. On January 22, 2009, your Board
amended the Existing Rights Plan to decrease the triggering
threshold of the rights from 15% or more of our outstanding
voting power to 4.9% or more of our outstanding common stock,
among other things. This amendment to the Existing Rights Plan
was intended to help preserve the long-term value to us of our
NOLs by deterring the acquisition of our stock in excess of
amounts that could reduce or eliminate our ability to use our
NOLs under Section 382 (as described above under
Background to Proposals 3 and 4). The rights
issued pursuant to the Existing Rights Plan expired on
March 5, 2009. The Successor Rights Plan is intended to
continue to help preserve the long-term value to us of our NOLs
by deterring acquisitions of our stock that, under
Section 382, could inhibit our ability to use our NOLs to
reduce our future income tax liability.
The
Successor Rights Plan
On January 22, 2009, your Board adopted the Successor
Rights Plan to replace the Existing Rights Plan effective as of
the expiration date of its rights on March 5, 2009. The
rights issued under the Successor Rights Plan will expire on
March 5, 2010, if our stockholders have not approved the
Successor Rights Plan by that date. Subject to certain limited
exceptions, the Successor Rights Plan is designed to deter any
person from buying our common stock (or any interest in our
common stock) if the acquisition would result in a stockholder
(or several stockholders, in the aggregate, who hold their stock
as a group under the federal securities laws) owning
4.9% or more of our then-outstanding common stock.
The Successor Rights Plan is intended to protect stockholder
value by attempting to preserve our ability to use our NOLs to
reduce our future income tax liability. Because of the
limitations of the Protective Amendment in preventing transfers
of our common stock that may result in an ownership
change, as further described above under
Proposal 3, your Board believes it is in our
and our stockholders best interests to approve the
Successor Rights Plan. Your Board of Directors has adopted the
Successor Rights Plan and is recommending that stockholders
approve the Successor Rights Plan at the Annual Meeting.
The following description of the Successor Rights Plan is
qualified in its entirety by reference to the text of the
Successor Rights Plan, which can be found in the accompanying
Attachment B. Please read the Successor Rights Plan in
its entirety as the discussion below is only a summary.
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Description
of Successor Rights Plan
The Successor Rights Plan is intended to act as a deterrent to
any person or group acquiring 4.9% or more of our outstanding
common stock (an Acquiring Person) without the
approval of your Board. Stockholders who owned 4.9% or more of
our common stock as of the close of business on March 5,
2009 will not trigger the Successor Rights Plan so long as they
do not (i) acquire any additional shares of our common
stock or (ii) fall under 4.9% ownership of our common stock
and then re-acquire 4.9% or more of our common stock. The
Successor Rights Plan does not exempt any acquisitions of our
common stock after March 5, 2009 by such persons. Any
rights held by an Acquiring Person are void and may not be
exercised. Your Board of Directors may, in its sole discretion,
exempt any person or group from being deemed an Acquiring Person
for purposes of the Successor Rights Plan. The terms of the
Successor Rights Plan are substantially similar to those of the
Existing Rights Plan, as amended by your Board of Directors on
January 22, 2009.
The Rights. Your Board authorized the issuance of one
right per each outstanding share of our common stock payable to
our stockholders of record as of the close of business on
March 5, 2009. Subject to the terms, provisions and
conditions of the Successor Rights Plan, if these rights become
exercisable, each right would initially represent the right to
purchase from us one one-hundredth of a share of our
Series A Participating Cumulative Preferred Stock for a
purchase price of $85.00 (the Purchase Price). If
issued, each fractional share of preferred stock would generally
give the stockholder approximately the same dividend, voting and
liquidation rights as does one share of our common stock.
However, prior to exercise, a right does not give its holder any
rights as a stockholder, including without limitation any
dividend, voting or liquidation rights.
Exercisability. The rights will not be exercisable until
the earlier of (i) ten calendar days after a public
announcement by us that a person or group has become an
Acquiring Person and (ii) ten business days after the
commencement of a tender or exchange offer by a person or group
if upon consummation of the offer the person or group would
beneficially own 4.9% or more of our outstanding common stock.
In this Proxy Statement, we refer to the date on which the
rights become exercisable as the Distribution Date.
Until the Distribution Date, common stock certificates will
evidence the rights and may contain a notation to that effect.
Any transfer of shares of our common stock prior to the
Distribution Date will constitute a transfer of the associated
rights. After the Distribution Date, the rights may be
transferred other than in connection with the transfer of the
underlying shares of our common stock.
If there is an Acquiring Person on the Distribution Date or a
person or group becomes an Acquiring Person after the
Distribution Date, each holder of a right, other than rights
that are or were beneficially owned by an Acquiring Person
(which will be void), will thereafter have the right to receive
upon exercise of a right and payment of the Purchase Price, that
number of shares of our common stock having a market value of
two times the Purchase Price.
Exchange. After the later of the Distribution Date and
the time we publicly announce that an Acquiring Person has
become such, your Board of Directors may exchange the rights,
other than rights that are or were beneficially owned by an
Acquiring Person, which will be void, in whole or in part, at an
exchange ratio of one share of common stock per right, subject
to adjustment.
Redemption. At any time prior to the later of the
Distribution Date and the time we publicly announce that an
Acquiring Person becomes such, your Board may redeem all of the
then-outstanding rights in whole, but not in part, at a price of
$0.001 per right, subject to adjustment (the
Redemption Price). The redemption will be
effective immediately upon the Board action, unless the Board
action provides that such redemption will be effective at a
subsequent time or upon the occurrence or nonoccurrence of one
or more specified events, in which case the redemption will be
effective in accordance with the provisions of the Board action.
Immediately upon the effectiveness of the redemption of the
rights, the right to exercise the rights will terminate and the
only right of the holders of rights will be to receive the
Redemption Price, with interest thereon.
Anti-Dilution Provisions. The Purchase Price of the
preferred shares, the number of preferred shares issuable and
the number of outstanding rights are subject to adjustment to
prevent dilution that may occur as a result of certain events,
including among others, a stock dividend, a stock split or a
reclassification of the preferred shares or common stock. No
adjustments to the Purchase Price of less than 1% will be made.
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Amendments. Prior to the time the rights cease to be
redeemable, your Board may amend or supplement the Successor
Rights Plan without the consent of the holders of the rights.
From and after the time the rights cease to be redeemable, your
Board may amend or supplement the Successor Rights Plan only to
cure an ambiguity, to correct or supplement inconsistent
provisions, to alter time period provisions, or to make any
other changes to the Successor Rights Plan, but only to the
extent that those changes do not impair or adversely affect any
rights holder as such (other than an Acquiring Person or an
affiliate or associate thereof), and no amendment may cause the
rights to become redeemable or amendable other than in
accordance with this sentence.
Expiration. The rights issued pursuant to the Successor
Rights Plan will expire on the earliest of (i) the close of
business on March 5, 2019, (ii) the time at which the
rights are redeemed, (iii) the time at which the rights are
exchanged, (iv) the time at which your Board determines
that the Protective Amendment is no longer necessary,
(v) the close of business on the first day of a taxable
year of the company to which your Board determines that no tax
benefits may be carried forward, and (vi) the close of
business on March 5, 2010, if prior to such time the
Successor Rights Plan has not been approved by our stockholders.
Vote
Required
Approval of the Successor Rights Plan requires the affirmative
vote of the majority of shares of common stock present or
represented, and entitled to vote thereon, at the Annual Meeting.
Your
Board recommends a vote FOR the approval of the Successor Rights
Plan.
Certain
Considerations Related to the
Protective Amendment and the Successor Rights Plan
Your Board believes that attempting to protect the tax benefits
of our NOLs as described above under Background to
Proposals 3 and 4 is in our and our
stockholders best interests. However, we cannot eliminate
the possibility that an ownership change will occur
even if the Protective Amendment is adopted and the Successor
Rights Plan is approved. Please consider the items discussed
below in voting on Proposals 3 and 4.
The
Internal Revenue Service (IRS) could challenge the
amount of our NOLs or claim we experienced an ownership
change, which could reduce the amount of our NOLs that we
can use or eliminate our ability to use them
altogether
The IRS has not audited or otherwise validated the amount of our
NOLs. The IRS could challenge the amount of our NOLs, which
could limit our ability to use our NOLs to reduce our future
income tax liability. In addition, the complexity of
Section 382s provisions and the limited knowledge any
public company has about the ownership of its publicly traded
stock make it difficult to determine whether an ownership
change has occurred. Therefore, we cannot assure you that
the IRS will not claim that we experienced an ownership
change and attempt to reduce or eliminate the benefit of
our NOLs even if the Protective Amendment and the Successor
Rights Plan are in place.
Continued
Risk of Ownership Change
Although the Protective Amendment and the Successor Rights Plan
are intended to reduce the likelihood of an ownership
change, we cannot assure you that they would prevent all
transfers of our common stock that could result in such an
ownership change. In particular, absent a court
determination, we cannot assure you that the Protective
Amendments restrictions on acquisition of our common stock
will be enforceable against all our stockholders, and they may
be subject to challenge on equitable grounds, as discussed above
under Proposal 3.
Potential
Effects on Liquidity
The Protective Amendment will restrict a stockholders
ability to acquire, directly or indirectly, additional shares of
our common stock in excess of the specified limitations.
Furthermore, a stockholders ability to
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dispose of our common stock may be limited by reducing the class
of potential acquirers for such common stock. In addition, a
stockholders ownership of our common stock may become
subject to the restrictions of the Protective Amendment upon
actions taken by persons related to, or affiliated with, them.
Stockholders are advised to carefully monitor their ownership of
our stock and consult their own legal advisors
and/or us to
determine whether their ownership of our stock approaches the
restricted levels.
Potential
Impact on Value
If the Protective Amendment is adopted, your Board intends to
include a legend reflecting the transfer restrictions included
in the Protective Amendment on certificates representing newly
issued or transferred shares and to disclose such restrictions
to persons holding our common stock in uncertificated form.
Because certain buyers, including persons who wish to acquire
more than 5% of our common stock and certain institutional
holders who may not be comfortable holding our common stock with
restrictive legends, may not be able to purchase our common
stock, the Protective Amendment could depress the value of our
common stock in an amount that could more than offset any value
preserved from protecting our NOLs. The Successor Rights Plan
could have a similar effect if investors object to holding our
common stock subject to the terms of the Successor Rights Plan.
Anti-Takeover
Impact
The reason your Board adopted the Protective Amendment and the
Successor Rights Plan is to preserve the long-term value of our
NOLs. The Protective Amendment, if adopted by our stockholders,
could be deemed to have an anti-takeover effect
because, among other things, it will restrict the ability of a
person, entity or group to accumulate more than 5% of our common
stock and the ability of persons, entities or groups now owning
more than 5% of our common stock from acquiring additional
shares of our common stock without the approval of your Board.
Similarly, the Successor Rights Plan is not intended to prevent
a takeover, but because an Acquiring Person may be diluted upon
the occurrence of a triggering event, it does have a potential
anti-takeover effect. Accordingly, the overall effects of the
Protective Amendment, if adopted by our stockholders, and the
Successor Rights Plan may be to render more difficult, or
discourage, a merger, tender offer, proxy contest or assumption
of control by a substantial holder of our securities. The
Protective Amendment and the Successor Rights Plan proposals are
not part of a plan by us to adopt a series of anti-takeover
measures, and we do not presently intend to propose or adopt any
other anti-takeover measures. We are presently not aware of any
potential takeover transaction.
Stockholders should be aware that we are subject to
Section 203 of the Delaware General Corporation Law, which
provides, in general, that a transaction constituting a
business combination within the meaning of
Section 203 involving a person owning 15% or more of our
outstanding voting stock (referred to as an interested
stockholder), cannot be completed for a period of three
years after the date on which the person became an interested
stockholder unless (i) our Board approved either the
business combination or the transaction that resulted in the
person becoming an interested stockholder prior to such business
combination or transaction, (ii) upon consummation of the
transaction that resulted in the person becoming an interested
stockholder, that person owned at least 85% of our outstanding
voting stock (excluding shares owned by persons who are both
directors and officers of KB Home and shares owned by certain of
our employee benefit plans), or (iii) the business
combination was approved by our Board and by the affirmative
vote of the holders of at least 66-2/3% of our outstanding
voting stock not owned by the interested stockholder.
In addition, our Restated Certificate of Incorporation and our
By-laws contain the following provisions that may be deemed to
have a potential anti-takeover effect:
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Cumulative voting is not permitted in the election of directors;
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Stockholders have no preemptive right to acquire our securities;
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Stockholders may not call or request special meetings of
stockholders;
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Stockholders may not take action by written consent in lieu of a
meeting of stockholders;
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The maximum number of directors is fixed at 12; and
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Your Board may fix the designation, rights, preferences and
limitations of the shares of each series of our preferred stock.
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Effect of
the Protective Amendment if you vote for it and already own more
than 5% of our common stock
If you already own more than 5% of our common stock, you would
be able to transfer only shares of our common stock that you
acquired prior to the effective date of the Protective Amendment
and only if the transfer does not increase the percentage stock
ownership of another holder of 5% or more of our common stock or
create a new holder of 5% or more of our common stock (other
than certain transfers that create a new public group). Shares
acquired in any such transaction will be subject to the
Protective Amendments transfer restrictions.
Effect of
the Protective Amendment if you vote for it and own less than 5%
of our common stock
The Protective Amendment will apply to you, but so long as you
own less than 5% of our common stock you can transfer your
shares to a purchaser who, after the sale, also would own less
than 5% of our common stock.
Effect of
the Protective Amendment if you vote against it
Delaware law provides that transfer restrictions of the
Protective Amendment with respect to shares of our common stock
issued prior to its effectiveness will be effective as to
(i) stockholders with respect to shares that were voted in
favor of adopting the Protective Amendment and
(ii) purported transferees of such shares if (A) the
transfer restriction is conspicuously noted on the
certificate(s) representing such shares or (B) the
transferee had actual knowledge of the transfer restrictions
(even absent such conspicuous notation). We intend to cause
shares of our common stock issued after the effectiveness of the
Protective Amendment to be issued with the relevant transfer
restriction conspicuously noted on the certificate(s)
representing such shares and therefore under Delaware law such
newly issued shares will be subject to the transfer restriction.
We also intend to disclose such restrictions to persons holding
our common stock in uncertificated form. For the purpose of
determining whether a stockholder is subject to the Protective
Amendment, we intend to take the position that all shares issued
prior to the effectiveness of the Protective Amendment that are
proposed to be transferred were voted in favor of the Protective
Amendment, unless the contrary is established. We may also
assert that stockholders have waived the right to challenge or
otherwise cannot challenge the enforceability of the Protective
Amendment, unless a stockholder establishes that it did not vote
in favor of the Protective Amendment. Nonetheless, a court could
find that the Protective Amendment is unenforceable, either in
general or as applied to a particular stockholder or fact
situation.
Proposal 5:
Approve
the KB Home Annual Incentive Plan for Executive
Officers
In order to allow us to obtain the benefit of a federal income
tax deduction for the performance-based compensation we pay to
our executive officers, we are seeking stockholder approval of
the KB Home Annual Incentive Plan for Executive Officers (the
Plan).
Generally, Section 162(m) of the Code prevents us from
receiving a federal income tax deduction for the compensation we
pay to certain executive officers in excess of $1 million
for any year unless, among other things, that compensation is
performance-based and has been paid pursuant to a plan approved
by our stockholders. Currently, our only stockholder-approved
compensation plan that allows for deductible performance-based
cash incentives to executive officers is the Amended and
Restated 1999 Incentive Plan, which will expire as to new
incentives on April 2, 2009.
Accordingly, the Plan is intended to replace the Amended and
Restated 1999 Incentive Plan with respect to future
performance-based cash incentives that could qualify for tax
deductibility under Section 162(m). The Plan must be
approved by our stockholders to be used. If the Plan is not
approved, no awards will be made under it.
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A copy of the Plan can be found in the accompanying
Attachment C, and the following summary of the
Plans material terms is qualified in its entirety by
reference to the full text. Stockholders are urged to read
the full Plan as set forth in Attachment C.
Summary
of the Plan
The purpose of the Plan is to promote our success by providing
participating executive officers with incentives that qualify as
performance-based compensation under Section 162(m). The
Plan will become effective upon approval by our stockholders,
and will remain in effect until terminated by the Compensation
Committee.
Administration. The Compensation Committee will
administer and interpret the Plan. All determinations of the
Compensation Committee shall be final and binding.
Eligibility. Participation in the Plan will be limited to
our executive officers who are selected for participation by the
Compensation Committee. We typically have between five and ten
senior level employees whom we consider to be executive officers
in this context.
Performance Measures and Targets. Before 25% of an
applicable performance period has elapsed (but in no event later
than 90 days after the performance period begins), the
Compensation Committee will determine the executive officers
eligible to receive an incentive award under the Plan and the
specific performance goals, one or more of which must be
objectively achieved during the performance period in order for
an award to pay out. The Compensation Committee shall also
establish a target amount for each award, and may also establish
a lower minimum threshold
and/or a
higher maximum amount, as well as any other terms and conditions
of the award that it deems appropriate. In all cases, the
Compensation Committee shall establish an objective formula for
computing the amount to be paid under each award if the
specified goals are achieved; provided, that the Compensation
Committee may, in its discretion, reduce or eliminate (but not
increase) the amount actually paid to a participant under an
award, based on our performance, individual performance or other
criteria. The Compensation Committee may also determine that
only a threshold level relating to a goal must be met for awards
to pay out, and if multiple goals are selected, that awards will
be paid upon achievement of threshold levels of any one or more
of such goals. The specific goal or goals shall relate to one or
more of the following performance measures:
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Income/Loss (e.g., operating income/loss, EBIT or
similar measures, net income/loss, earnings/loss per share,
residual or economic earnings)
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Cash Flow (e.g., operating cash flow, total cash
flow, EBITDA, cash flow in excess of cost of capital or residual
cash flow, cash flow return on investment and cash flow
sufficient to achieve financial ratios or a specified cash
balance)
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Returns (e.g., on revenues, investments, assets,
capital and equity)
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Working Capital (e.g., working capital divided by
revenues)
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Margins (e.g., variable margin, profits divided by
revenues, gross margins and margins divided by revenues)
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Liquidity (e.g., total or net debt, debt
reduction, debt-to-capital, debt-to-EBITDA and other liquidity
ratios)
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Revenues, Cost Initiative and Stock Price Metrics
(e.g., revenues, stock price, total shareholder
return, expenses, cost structure improvements and costs divided
by revenues or other metrics)
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Strategic Metrics (e.g., market share, customer
satisfaction, employee satisfaction, service quality, orders,
backlog, traffic, homes delivered, cancellation rates,
productivity, operating efficiency, inventory management,
community count, goals related to acquisitions, divestitures or
other transactions and goals related to KBnxt operational
business model principles, including goals based on a
per-employee, per-home delivered or other basis)
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Performance Period. The performance period for awards
under the Plan shall be our fiscal year, unless another time
period is selected by the Compensation Committee.
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Limitation on Benefits. The maximum amount paid to any
participant in any fiscal year cannot exceed $5 million.
Determination and Payment of Awards. After the end of
each performance period, the Compensation Committee will review
performance against the pre-established goal or goals. The
Compensation Committee will then certify the extent, if any, to
which the goal or goals have been met. Then, after the final
amounts have been determined, awards will be paid in cash as
soon as practicable, but in no event later than March 15 of the
year following the calendar year in which the performance period
concluded.
Termination of Employment. Generally, if a participant
ceases to be employed by us for any reason prior to the date on
which an award is paid, the award will be canceled and the
participant will not be entitled to any payment with respect to
that award.
Change of Ownership. In the event of a change of
ownership, the Plan provides that the performance goals for
outstanding awards are deemed to have been met at the target
level, and a participant will become entitled to promptly
receive a pro-rated portion of the target level pay out amount,
based on the percentage of the performance period that has
elapsed at the time of the change of ownership. Any such payment
would not satisfy the requirements for tax deductibility under
Section 162(m) if the performance goals have not actually
been met. The Plan contains a definition of change of
ownership that is substantially identical to the one in
the Amended and Restated 1999 Incentive Plan.
Amendments. The Compensation Committee may amend, suspend
or terminate the Plan at any time; provided that, except for
technical amendments to comply with the deferred compensation
rules under Section 409A of the Code, no such amendment,
suspension or termination shall, without the consent of a
participant, adversely affect any right of the participant under
the participants outstanding awards.
Non-Exclusivity. The Plan is not the exclusive means by
which we can provide our executive officers with incentives,
although discretionary bonuses and incentives under plans that
have not been approved by our stockholders may not be tax
deductible for certain of our executive officers under
Section 162(m).
Estimate of Benefits. The specific awards to individual
participants have not been determined under the Plan, and
instead will be specified by the Compensation Committee from
time to time. The framework of the Plan is substantially similar
to that contained in the cash award portion of the Amended and
Restated 1999 Incentive Plan. Accordingly, for an estimate of
what our named executive officers would have received under the
Plan in our 2008 fiscal year had the Plan been in effect instead
of the Amended and Restated 1999 Incentive Plan, please refer to
the non-equity incentive plan compensation shown below in the
Summary Compensation Table. The aggregate amount of
incentive compensation paid to our named executive officers for
our 2008 fiscal year under the Amended and Restated 1999
Incentive Plan was $3,745,000.
Federal
Income Tax Consequences
Under present federal income tax laws, participants will realize
ordinary income in the year they receive a cash pay out under an
award. We will be entitled to deduct a corresponding amount,
provided that the Plan and the award satisfy the requirements of
Section 162(m). It is our intention that the Plan be
construed and administered in a manner that maximizes the tax
deductibility of compensation under Section 162(m).
Vote
Required
Approval of the KB Home Annual Incentive Plan for Executive
Officers requires the affirmative vote of the majority of shares
of common stock present or represented, and entitled to vote
thereon, at the Annual Meeting.
Your Board recommends you vote FOR this proposal to approve
the KB Home Annual Incentive Plan for Executive Officers.
27
Proposal 6:
Stockholder
Proposal
The Central Laborers Pension, Welfare and Annuity Funds,
P.O. Box 1267, Jacksonville, IL 62651, the beneficial
owner of 450 shares of our common stock, has notified us
that it intends to present a proposal at the Annual Meeting. The
proposal is set forth below, along with the recommendation of
the Board that you vote AGAINST the proposal. We accept no
responsibility for the accuracy of the proposal or the
proponents supporting statement.
Stockholder
Proposal
RESOLVED: That the shareholders of KB Home (Company)
request that the Board of Directors Executive Compensation
Committee adopt a Pay for Superior Performance principle by
establishing an executive compensation plan for senior
executives (Plan) that does the following:
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Sets compensation targets for the Plans annual and
long-term incentive pay components at or below the peer group
median;
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Delivers a majority of the Plans target long-term
compensation through performance-vested, not simply time-vested,
equity awards;
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Provides the strategic rationale and relative weightings of the
financial and non-financial performance metrics or criteria used
in the annual and performance-vested long-term incentive
components of the Plan;
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Establishes performance targets for each Plan financial metric
relative to the performance of the Companys peer
companies; and
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Limits payment under the annual and performance-vested long-term
incentive components of the Plan to when the Companys
performance on its selected financial performance metrics
exceeds peer group median performance.
|
Proponents
Supporting Statement
We feel it is imperative that executive compensation plans for
senior executives be designed and implemented to promote
long-term corporate value. A critical design feature of a
well-conceived executive compensation plan is a close
correlation between the level of pay and the level of corporate
performance. The pay-for-performance concept has received
considerable attention, yet all too often executive pay plans
provide generous compensation for average or below average
performance. We believe the failure to tie executive
compensation to superior corporate performance has fueled the
escalation of executive compensation and detracted from the goal
of enhancing long-term corporate value.
We believe that the Pay for Superior Performance principle
presents a straightforward formulation for senior executive
incentive compensation that will help establish more rigorous
pay for performance features in the Companys Plan. A
strong pay and performance nexus will be established when
reasonable incentive compensation target pay levels are
established; demanding performance goals related to
strategically selected financial performance metrics are set in
comparison to peer company performance; and incentive payments
are awarded only when median peer performance is exceeded.
We believe the Companys Plan fails to promote the Pay for
Superior Performance principle in several important ways. Our
analysis of the Companys executive compensation plan
reveals the following features that do not promote the Pay for
Superior Performance principle:
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The company does not target total compensation at any particular
level;
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Bonus payments for 2007 were discretionary, with no specific
performance targets, except for a special grant of performance
shares to the CEO;
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Long-term awards do not include a peer group comparison;
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28
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The performance vesting condition for Stock Appreciation Rights
(SAR) and phantom share awards is based on a one-year
performance cycle;
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SARs vest ratably over three years; and
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Stock options are fixed price only.
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We believe a plan designed to reward superior corporate
performance relative to peer companies will help moderate
executive compensation and focus senior executives on building
sustainable long-term corporate value. We urge shareholders to
vote FOR our proposal.
Recommendation
of the Board AGAINST the Proposal
Your Board recommends a vote AGAINST this proposal, which
stockholders rejected by a significant margin at last
years annual meeting. As with last years proposal,
your Board believes that the proposal does NOT establish a
pay-for-performance plan and, therefore, it does not serve the
best interests of KB Home or its stockholders.
We share the proponents view that executive incentive
compensation should appropriately reward performance that
creates and sustains enterprise and stockholder value, and
believe that this view is reflected in our current executive
compensation philosophy and programs. These are discussed in
detail below under the heading Compensation Discussion and
Analysis.
By requiring us to set incentive compensation targets at
or below peer group median, however, we believe
implementing this proposal would seriously undermine incentive
pays role in promoting value creation at this critical
time. We also believe it would severely impair our ability to
attract, motivate and retain high-caliber executive talent.
Indeed, we cannot conceive how offering to reward someone with
just average or below-average pay for delivering above-average
results would provide an incentive for them to come to or stay
with us, or motivate them to deliver such results. This is
particularly true during a period when we are experiencing a
severe industry downturn.
We continue to believe the proposal essentially fails to
accomplish what its proponent asserts is a critical design
feature of a well-conceived executive compensation
plan a close correlation between the
level of pay and the level of corporate performance. In
our view, restricting incentive compensation to a level below
the level of performance required to earn it does not establish
a close correlation between pay and performance.
Therefore, we think the executive compensation approach in this
proposal is clearly not well-conceived, even from
the view of the proponents own standards.
We believe that our current executive compensation programs and
practices, as further discussed below under the heading
Compensation Discussion and Analysis, provide
primarily performance-based pay consistent with the
proponents compensation principle, while
enabling us to remain competitive in attracting, motivating and
retaining quality executive talent and a solid management team.
As a result, we do not believe that adopting this proposal is
necessary or desirable for KB Home or its stockholders.
Vote
Required
Approval of this stockholder proposal requires the affirmative
vote of the majority of shares of common stock present or
represented, and entitled to vote thereon, at the Annual
Meeting. However, the proposal is a request to the Board to
consider a matter. If the proposal passes, the Board may
consider, in its business judgment, whether to take the
requested action or not, but it is not legally obligated to do
so.
Your Board recommends that you vote AGAINST this proposal.
29
Proposal 7:
Stockholder
Proposal
The New York City Employees Retirement System, the New
York City Teachers Retirement System, the New York City
Police Pension Fund, the New York City Fire Department Pension
Fund, and the New York City Board of Education Retirement
System, collectively the beneficial owners of
214,935 shares of our common stock, have notified us that
they intend to present a proposal at the Annual Meeting. The
proposal is set forth below, along with the recommendation of
the Board that you vote AGAINST the proposal. We accept no
responsibility for the accuracy of the proposal or the
proponents supporting statement.
Stockholder
Proposal
RESOLVED: that the shareholders of KB Home request the board of
directors to adopt a policy that provides shareholders the
opportunity at each annual shareholder meeting to vote on an
advisory resolution, proposed by management, to ratify the
compensation of the named executive officers (NEOs)
set forth in the proxy statements Summary Compensation
Table (the SCT) and the accompanying narrative
disclosure of material factors provided to understand the SCT
(but not the Compensation Discussion and Analysis). The proposal
submitted to shareholders should make clear that the vote is
non-binding and would not affect any compensation paid or
awarded to any NEO.
Proponents
Supporting Statement
Investors are increasingly concerned about mushrooming executive
compensation especially when it is insufficiently linked to
performance. In 2008, shareholders filed close to 100 Say
on Pay resolutions. Votes on these resolutions have
averaged 43% in favor, with ten votes over 50%, demonstrating
strong shareholder support for this reform.
An Advisory Vote establishes an annual referendum process for
shareholders about senior executive compensation. We believe the
results of this vote would provide the board and management with
useful information about shareholder views on the companys
senior executive compensation.
In its 2008 proxy Aflac submitted an Advisory Vote resulting in
a 93% vote in favor, indicating strong investor support for good
disclosure and a reasonable compensation package. Daniel Amos,
Chairman and CEO said, An advisory vote on our
compensation report is a helpful avenue for our shareholders to
provide feedback on our pay-for-performance compensation
philosophy and pay package.
To date eight other companies have also agreed to an Advisory
Vote, including Verizon, MBIA, H&R Block, Blockbuster, and
Tech Data. TIAA-CREF, the countrys largest pension fund,
has successfully utilized the Advisory Vote twice.
Influential proxy voting service RiskMetrics Group recommends
votes in favor, noting: RiskMetrics encourages companies
to allow shareholders to express their opinions of executive
compensation practices by establishing an annual referendum
process. An advisory vote on executive compensation is another
step forward in enhancing board accountability.
The Council of Institutional Investors has endorsed advisory
votes and a bill to allow annual advisory votes passed the House
of Representatives by a 2-to-1 margin. As presidential
candidates, Senators Obama and McCain supported the Advisory
Vote.
We believe that existing U.S. Securities and Exchange
Commission rules and stock exchange listing standards do not
provide shareholders with sufficient mechanisms for providing
input to boards on senior executive compensation. In contrast,
in the United Kingdom, public companies allow shareholders to
cast a vote on the directors remuneration
report, which discloses executive compensation. Such a
vote isnt binding, but gives shareholders a clear voice
that could help shape senior executive compensation.
We believe that a company that has a clearly explained
compensation philosophy and metrics, reasonably links pay to
performance, and communicates effectively to investors would
find a management sponsored Advisory Vote a helpful tool.
30
We urge our board to allow shareholders to express their opinion
about senior executive compensation through an Advisory Vote.
Recommendation
of the Board AGAINST the Proposal
Your Board recognizes the importance of communicating with
stockholders about executive pay. Because your Board believes
this proposal would not enhance its interaction with
stockholders, however, it recommends a vote AGAINST the proposal.
Your Board takes stockholders views seriously and is
committed to maintaining an open dialogue on KB Homes
business and affairs. In the past few years, your Board has
adopted a number of corporate governance reforms in response to
sound stockholder suggestions and as best practices. It has also
enhanced the transparency of corporate governance processes and
decision-making. For example, your Board believes the
Compensation Discussion and Analysis below provides
a considerable amount of information on KB Homes
executive pay philosophy, programs and determinations, and on
the Boards oversight of those subjects.
Stockholders have many ways to communicate directly to the Board
and to management their specific ideas or concerns regarding
executive pay or other matters. These include contacting the
Board, the Compensation Committee,
and/or
individual directors through the Corporate Secretary, as
described above under the heading Communications with the
Board, and contacting our investor relations
professionals. Your Board believes these are effective channels
for stockholders to fully express their views on executive pay
or corporate governance.
The proponents cite various statistics (including this
proposals 90% failure rate), abstract principles, outside
party opinions, and the experiences of other countries to
support their proposal. But they do not explain how the proposed
advisory vote would specifically benefit KB Home and its
stockholders over current communication channels or otherwise
strengthen KB Homes corporate governance or the
Boards oversight of executive pay. After careful
consideration, your Board believes the proposed
up-or-down advisory vote would not be helpful
because it would not provide useful information or actionable
feedback. In addition, compared to the ways stockholders may
currently communicate with the Board, your Board believes the
proposed advisory vote (if adopted) could actually hinder
constructive dialogue with stockholders about executive pay.
The outcome of an advisory vote would not identify the
particular aspects of executive pay that stockholders like or
dont like, nor specify what should be changed, if
anything. It would also not provide any information on why
stockholders voted for or against named
executive officer compensation. Without knowing the reasons for
a particular outcome or having any way to assess the likely
diverse, and possibly conflicting, stockholder preferences and
motivations, your Board could not, consistent with its fiduciary
duties to all stockholders, effectively respond to stockholders
who voted one way or the other. Accordingly, your Board believes
the proposed advisory vote would not help it or the Compensation
Committee carry out their executive pay oversight role or
improve KB Homes corporate governance.
Vote
Required
Approval of this stockholder proposal requires the affirmative
vote of the majority of shares of common stock present or
represented, and entitled to vote thereon, at the Annual
Meeting. However, the proposal is a request to the Board to
consider a matter. If the proposal passes, the Board may
consider, in its business judgment, whether to take the
requested action or not, but it is not legally obligated to do
so.
Your Board recommends that you vote AGAINST this proposal.
31
Proposal 8:
Stockholder
Proposal
The AFL-CIO Reserve Fund, the beneficial owner of
400 shares of our common stock, has notified us that it
intends to present a proposal at the Annual Meeting. The
proposal is set forth below, along with the recommendation of
the Board that you vote AGAINST the proposal. We accept no
responsibility for the accuracy of the proposal or the
proponents supporting statement.
Stockholder
Proposal
RESOLVED: Shareholders of KB Home (the Company) urge
the Board of Directors to adopt principles for health care
reform based upon principles reported by the Institute of
Medicine:
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1.
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Health care coverage should be universal.
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2.
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Health care coverage should be continuous.
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3.
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Health care coverage should be affordable to individuals and
families.
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4.
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The health insurance strategy should be affordable and
sustainable for society.
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5.
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Health insurance should enhance health and well being by
promoting access to high-quality care that is effective,
efficient, safe, timely, patient-centered, and equitable.
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Proponents
Supporting Statement
The Institute of Medicine, established by Congress as part of
the National Academy of Sciences, issued five principles for
reforming health insurance coverage in a report, Insuring
Americas Health: Principles and Recommendations (2004). We
believe principles for health care reform, such as those set
forth by the Institute of Medicine, are essential if public
confidence in our Companys commitment to health care
coverage is to be maintained.
Access to affordable, comprehensive health care insurance is the
most significant social policy issue in America according to
polls by NBC News/The Wall Street Journal, the Kaiser Foundation
and The New York Times/CBS News. In our opinion, health care
reform also is a central issue in the presidential campaign of
2008.
Many national organizations have made health care reform a
priority. In 2007, representing a stark departure from
past practice, the American Cancer Society redirected its
entire $15 million advertising budget to consequences
of inadequate health coverage in the United States (The
New York Times,
8/31/07).
John Castellani, president of the Business Roundtable
(representing 160 of the countrys largest companies), has
stated that 52 percent of the Business Roundtables
members say health costs represent their biggest economic
challenge. The cost of health care has put a tremendous
weight on the U.S. economy, according to Castellani,
The current situation is not sustainable in global,
competitive workplace. (BusinessWeek, July 3, 2007).
The National Coalition on Health Care (whose members include
some of the largest publicly-held companies, institutional
investors and labor unions) also has created principles for
health insurance reform. According to the National Coalition on
Health Care, implementing its principles would save employers
presently providing health insurance coverage an estimated
$595-$848 billion in the first 10 years of
implementation.
We believe that the 47 million Americans without health
insurance results in higher costs, causing an adverse effect on
shareholder value for our Company, as well as all other
U.S. companies which provide health insurance to their
employees. Annual surcharges as high as $1,160 for the uninsured
are added to the total cost of each employees health
insurance, according to Kenneth Thorpe, a leading health
economist at Emory University. Moreover, we feel that increasing
health care costs further reduces shareholder value when it
leads companies to shift costs to employees, thereby reducing
employee productivity, health and morale.
32
Recommendation
of the Board AGAINST the Proposal
Your Board recognizes that health care reform is an important
national priority and strongly supports efforts to improve the
availability, quality and affordability of health care and
health care insurance. Your Board believes, however, that health
care reform is an issue that can be addressed only through state
and federal legislative and agency action and is not a proper
subject for the Annual Meeting. Your Board also believes that it
is not in KB Homes best interests to adopt the principles
of a single organization given the complex nature of health care
reform and the current wide-ranging policy debate on the issue.
KB Homes adoption of these principles would not help
resolve this debate, aid in government efforts to enact and
implement effective health care reforms, or otherwise benefit KB
Home or its stockholders. Accordingly, your Board recommends
that stockholders vote AGAINST this proposal.
KB Home has a strong commitment to supporting its employees with
quality health care insurance coverage and other health and
wellness benefits. It provides employees and their families with
a comprehensive set of reasonably-priced medical, dental and
vision care coverage options, opportunities to establish
reimbursement accounts for health care and dependent care, and
income protection vehicles, and makes available employee
assistance and work/life support services programs to meet
employees needs.
Vote
Required
Approval of this stockholder proposal requires the affirmative
vote of the majority of shares of common stock present or
represented, and entitled to vote thereon, at the Annual
Meeting. However, the proposal is a request to the Board to
consider a matter. If the proposal passes, the Board may
consider, in its business judgment, whether to take the
requested action or not, but it is not legally obligated to do
so.
Your
Board recommends that you vote AGAINST this proposal.
33
Ownership of
KB Home Securities
Ownership
of Directors and Management
The following table shows, as of February 23, 2009, the
beneficial ownership of our common stock by each current
director and each of the current executive officers named below
in the Summary Compensation Table, and by all
current directors and executive officers as a group. Except as
stated in footnote (c) to the table, beneficial ownership
is direct and each director and executive officer has sole
voting and investment power over his or her shares.
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Amount and Nature
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of Beneficial
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Percent of
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Non-Employee Directors
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Ownership (a - e)
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Class
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Mr. Bollenbach
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*
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Mr. Burkle
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1,000
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*
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Mr. Finchem
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*
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Mr. Jastrow
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*
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Mr. Robert Johnson
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*
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Ms. Lora
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2,043
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*
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Mr. McCaffery
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*
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Mr. Moonves
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*
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Mr. Nogales
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7,400
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*
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Named Executive Officers
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Jeffrey T. Mezger
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2,191,926
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2.4%
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Wendy C. Shiba
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10,000
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*
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William R. Hollinger
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260,510
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*
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Glen W. Barnard
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58,881
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*
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Kelly K. Masuda
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50,956
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*
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All current directors and executive officers as a group
(15 people)
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2,582,716
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2.8%
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(a) |
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Included are shares of common stock that can be acquired within
60 days of February 23, 2009 through the exercise of
stock options granted under our employee equity compensation
plans in the following amounts: Mr. Mezger 1,808,140;
Ms. Shiba 0; Mr. Hollinger 176,058; Mr. Barnard
54,000; Mr. Masuda 45,000; and all current executive
officers as a group 2,083,198. |
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(b) |
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Included in Mr. Mezgers beneficial ownership total
are 54,000 shares of restricted common stock.
Mr. Mezger is the only current executive officer who holds
shares of restricted common stock. |
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(c) |
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Ms. Lora holds 2,043 shares of our common stock in a
trust in which she and her spouse are trustees and sole
beneficiaries and over which they jointly exercise voting and
investment power. |
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(d) |
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Not shown in the table are the non-employee directors
equity-based holdings under the Director Plan, which are shown
above under the heading Director Compensation, and
certain equity-based holdings of our NEOs, which are shown below
under Grants of Plan-Based Awards During Fiscal Year
2008 and Outstanding Equity Awards at Fiscal
Year-End 2008. |
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(e) |
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Based on records available to us, Mr. Domenico Cecere, our
former Executive Vice President and Chief Financial Officer,
beneficially owned as of February 14, 2009,
177,880 shares of our common stock. Included in this amount
are 170,800 shares of common stock that can be acquired
within 60 days of February 14, 2009 through the
exercise of stock options granted under our employee equity
compensation plans. Mr. Ceceres beneficial ownership
is not included in the total shown in the above table. |
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* |
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Indicates less than one percent ownership. |
34
Beneficial
Owners of More Than Five Percent of Our Common Stock
The following table shows each person or entity known to us as
of February 23, 2009 to be the beneficial owner of more
than five percent of our common stock:
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Amount and Nature
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of Beneficial
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Name and Address of Beneficial Owner
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Ownership
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Percent of Class
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KB Home Grantor Stock Ownership Trust(a)
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11,861,782
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13.24%
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Wachovia Executive Benefits Group
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One West Fourth Street - NC 6251
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Winston-Salem, North Carolina 27101
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FMR LLC and Edward C. Johnson 3d(c)
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11,509,157
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14.8%(b)
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82 Devonshire Street
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Boston, Massachusetts 02109
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AXA Financial, Inc., et al.(d)
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6,014,979
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6.7%(b)
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1290 Avenue of the Americas
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New York, NY 10104
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State Street Bank and Trust Company(e)
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4,441,890
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5.7%(b)
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One Lincoln Street
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Boston, MA 02111
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(a) |
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The KB Home Grantor Stock Ownership Trust (GSOT)
holds all of the shares of our common stock shown above per a
trust agreement with Wachovia Bank, N.A., as trustee. The GSOT
shares are held to help us meet certain obligations to employees
under our employee benefit plans. Both the GSOT and the trustee
disclaim beneficial ownership of the shares reported. The
trustee has no discretion over the manner in which the GSOT
shares are voted. Under the GSOT trust agreement, employees who
hold unexercised options under our employee equity compensation
plans will determine how the GSOT shares are voted. |
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The trustee will vote the GSOT shares as directed by those
eligible employees who submit voting instructions for the
shares. The number of GSOT shares as to which any one employee
can direct the vote depends on how many employees submit voting
instructions to the trustee. Employees who are also directors
cannot vote GSOT shares; therefore, Mr. Mezger cannot
direct the vote of any GSOT shares. If all eligible employees
submit voting instructions to the trustee, the other named
executive officers who are employed by us at the date of the
Annual Meeting can direct the vote of the following amounts of
GSOT shares: Ms. Shiba 0, Mr. Hollinger 1,593,021,
Mr. Barnard 488,607, Mr. Masuda 407,172, and all
current executive officers as a group (excluding
Mr. Mezger) 2,488,800. Under the GSOT trust agreement,
votes on GSOT shares received by the trustee will be held in
confidence and will not be disclosed to any person, including to
us. |
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(b) |
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These percent of class figures are furnished in reliance on the
respective Schedule 13G filings or amended
Schedule 13G filings by FMR LLC and Edward C. Johnson
3d, AXA Financial, Inc. et al., and State Street Bank and Trust
Company. |
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(c) |
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The stock holding information reported in the table above and in
this footnote is based solely on an amendment to
Schedule 13G dated February 17, 2009 that FMR LLC
filed with the Securities and Exchange Commission to report
beneficial ownership of FMR LLC (f/k/a FMR Corp.) and
Mr. Edward C. Johnson 3d, FMR LLCs Chairman, as of
December 31, 2008. The shares are beneficially owned by the
following direct or indirect wholly-owned subsidiaries of FMR
LLC: (i) Fidelity Management & Research Company
(11,151,287 shares, with one investment company, Magellan
Fund, the beneficial |
35
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owner of 4,088,000 of those shares, amounting to a reported
ownership of 5.3% of our outstanding common stock), and
(ii) Pyramis Global Advisors Trust Company
(354,626 shares); and by FIL Limited (3,244 shares),
an entity of which Edward C. Johnson 3d is Chairman and in which
his family owns an indirect interest. FMR LLC and
Mr. Edward C. Johnson 3d each have sole dispositive power
as to all of the shares reported and sole voting power as to
354,626 shares. Mr. Edward C. Johnson 3d, through
controlled partnerships or trusts, has sole voting power as to
3,244 shares. |
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(d) |
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The stock holding information reported in the table above and in
this footnote is based solely on amendment to Schedule 13G
dated February 13, 2009 that AXA Financial, Inc., et al.
filed with the Securities and Exchange Commission pursuant to a
joint filing agreement to report beneficial ownership as of
December 31, 2008. The shares are beneficially owned by the
following AXA Financial, Inc. subsidiaries: AllianceBernstein
L.P., an investment advisor, and AXA Equitable Life Insurance
Company, an insurance company and an investment advisor. Of the
amount reported as beneficially owned:
(i) AllianceBernstein L.P. had sole voting power as to
4,421,622 shares of our common stock, and had sole
dispositive power as to 6,012,755 shares; and (ii) AXA
Equitable Life Insurance Company had sole voting and dispositive
power as to 2,224 shares of our common stocks. AXA is a
parent holding company for AXA Financial, Inc. AXA Assurances
I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle, as a group
(collectively, Mutuelles AXA), are the parent
holding company that controls AXA. The address of Mutuelles AXA
is 26, rue Drouot, 75009 Paris, France. The address of AXA is
25, avenue Matignon, 75008 Paris, France. |
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(e) |
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The stock holding information reported in the table above and in
this footnote is based solely on a Schedule 13G dated
February 13, 2009 that State Street Bank and
Trust Company, a bank, filed with the Securities and
Exchange Commission to report beneficial ownership as of
December 31, 2008. Of the amount reported as beneficially
owned, State Street Bank and Trust Company had sole voting
power as to 4,441,890 shares of our common stock and had
shared dispositive power as to 4,441,890 shares. |
Stock
Ownership Requirements
We have established stock ownership requirements for our
non-employee directors and senior management to better align
their interests with those of our stockholders. Our Corporate
Governance Principles require each of our non-employee directors
to own at least 5,000 shares of our common stock or common
stock equivalents within three years of joining the Board. Our
Executive Stock Ownership Policy applies to members of our
senior management team and requires executives at various levels
to own a number of shares with a value equal to a range of
one-to-five times base salary. Executives are expected to
demonstrate meaningful progress toward satisfying their
ownership requirement and to comply fully within five years of
becoming subject to the policy, or be subject to consequences
for non-compliance. The policy, as applied to our named
executive officers, is discussed in additional detail below
under the heading Equity Stock Ownership Policy.
36
Executive
Compensation
Management
Development and Compensation Committee Report
The Management Development and Compensation Committee of the
Board of Directors has reviewed and discussed the following
Compensation Discussion and Analysis with KB Home
management. Based on this review and discussion, the Management
Development and Compensation Committee recommended to the Board
of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement.
Management
Development and Compensation Committee
Michael G. McCaffery, Chair
Stephen F. Bollenbach
Timothy W. Finchem
Luis G. Nogales
Compensation
Discussion and Analysis
General
Overview
We believe our KBnxt operational business model provides us with
a distinct competitive advantage over other homebuilders. This
disciplined, fact-based and process-driven approach to
homebuilding, founded on a constant and systematic assessment of
consumer preferences and market opportunities, is designed to
generate operational efficiencies and return on investment for
our business. To execute our KBnxt operational business model
optimally, it is critical that we attract, motivate and retain a
talented workforce in a highly competitive labor market.
Our executive compensation and benefit programs, including our
arrangements with our named executive officers
(NEOs), are structured to meet this need. They also
aim to appropriately reward the contributions our NEOs and other
executives make in creating and sustaining enterprise and
stockholder value, taking into account each executives
specific roles, responsibilities, experience, skill sets, and
individual performance; the market for comparable jobs; the
existing and expected business environment; and our overall
financial and operational results. We believe that this focus on
rewarding contributions that create and sustain enterprise and
stockholder value establishes a clear alignment of executive and
stockholder interests.
Compensation Committee Oversight Role. The
Compensation Committee, with support from our management and
outside advisors, oversees our executive compensation and
benefit programs, including the specific arrangements we have
with our NEOs. The Compensation Committee evaluates and, as
necessary, adjusts these arrangements to ensure consistency with
our compensation and benefit programs goals.
In addition to providing general oversight, the Compensation
Committee annually reviews and approves goals and objectives for
our CEO, evaluates our CEOs performance in light of those
goals and objectives and other criteria, and determines and
approves our CEOs compensation based on that performance
evaluation, as discussed above under the heading Overview
of Executive Officer and Non-Employee Director Compensation
Processes and Procedures. The Compensation Committee also
reviews and approves the compensation of the other NEOs.
Compensation Committee Consultant Role. Semler
Brossy serves as the Compensation Committees independent
compensation consultant, providing advice and perspective to the
Compensation Committee on executive and non-employee director
compensation and benefits. Under the Compensation
Committees charter, and to maintain its independence and
avoid any conflict of interests, Semler Brossy may not work
directly for our management unless the Compensation Committee
pre-approves the work, including fees. No such work was
performed or fees paid in 2008.
CEO and Managements Role. The Compensation
Committee frequently asks for recommendations, input and support
from our CEO and certain members of top management, particularly
regarding compensation and benefit program design and
implementation, employee feedback, and compliance and disclosure
requirements. At the Compensation Committees request, the
CEO reviews and discusses the performance and compensation of
our other NEOs and makes recommendations to the Compensation
Committee as to their annual base
37
salaries, annual incentives and long-term incentives. Our
management is responsible for implementing our compensation and
benefit programs under the Compensation Committees
oversight. Our management has retained a compensation
consultant, Towers Perrin, for the purpose of providing
compensation and benefits related information, analysis and
support.
Use of Tally Sheets. Our management typically
provides the Compensation Committee with a tally sheet for each
NEO at the beginning of each fiscal year, and may do so at other
times in connection with NEO compensation decisions. The tally
sheets that are typically provided at the beginning of each
fiscal year contain up to five years of data on various
compensation components, including base salary, annual
incentives and long-term incentives. The tally sheets provided
at other times may contain all or some of this data. The
Compensation Committee uses the tally sheets as one tool in
making decisions on these compensation components. It also uses
advice and input from Semler Brossy and our CEO and certain
members of top management, and subjectively considers the
factors described above under the heading General
Overview, and general market and peer group data.
Use of General Market and Peer Group Data. Our
peer group which is listed to the right
consists of companies that are engaged, as we are, in high
production home building. Our annual revenues approximate the
group median. The Compensation Committee uses peer group and
general industry market survey data to get a general sense of
whether our NEO compensation is reasonable and competitive with
the compensation paid to executives with similar
responsibilities at companies both within and outside the
homebuilding industry that we consider to be similar to us based
on revenues and nature of operations.
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Our Peer Group
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Beazer Homes
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Centex Corporation
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DR Horton
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Hovnanian Enterprises
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Lennar Corporation
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MDC Holdings
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NVR Incorporated
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Pulte Homes
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Ryland Group
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Standard Pacific
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Toll Brothers
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Although the Compensation Committee finds this data helpful in
assessing the overall competitiveness of our compensation and
benefit programs to attract and retain executive talent, the
Compensation Committee does not benchmark or target compensation
and benefits at any specific level within a general industry or
our peer group. This is largely because the Compensation
Committee considers the individual performance of
responsibilities unique to our business operations and KBnxt
operational business model to be a more significant factor in
making NEO compensation decisions.
CEO Employment Agreement. The terms of our
CEOs compensation are governed by his Employment
Agreement. The Employment Agreements specifies that our CEO be
paid an annual salary of no less than $1 million. It also
specifies that he is eligible to receive an annual incentive and
entitled to participate in our long-term incentive compensation
arrangements on terms and conditions that are no less favorable
than those that apply to our other senior executives. The Board
believes the Employment Agreement provides compensation that is
in line with CEO compensation practices in the homebuilding
industry. Our CEO is the only NEO with whom we have an
employment agreement.
Compensation
in Context: Fiscal Year 2008
In our 2008 fiscal year, due to the severe and sustained
downturn in the housing market and the significant deterioration
in the general economy in the second half of the year, we
continued, and in some instances, accelerated, several strategic
actions designed to help us maintain a strong cash position and
balance sheet, generate positive cash flows, restore the
profitability of our homebuilding operations and reposition our
business to capitalize on an eventual housing market recovery
when it occurs. These actions included significantly reducing
our overhead, including our workforce levels, inventory
investments and community counts, transitioning to new,
value-engineered product, and consolidating operations or
selectively exiting certain markets in line with the principles
of our KBnxt operational business model. We ended the year with
more than $1.25 billion of cash (including restricted
cash), which exceeded our goals, no borrowings under our
revolving credit facility, a lower year-over-year operating
loss, lower overall debt levels, and market positions that we
believe provide us with a solid foundation for growth as
business conditions become more favorable. During our 2008
fiscal year, we experienced lower year-over-year net orders,
homes delivered and
38
revenues, and we expect those trends to continue into our 2009
fiscal year. These operational and financial results are
discussed in greater detail in our Annual Report.
Given the prevailing business conditions and uncertainty as to
the timing of a housing market recovery, the primary focus for
our executive compensation and benefits program for 2008 was to
retain and motivate, in a cost-effective manner, our top
executive talent to achieve our strategic initiatives,
recognizing that many are working with fewer resources and
greater duties and responsibilities due to overhead and
workforce reductions. The following discussion provides
additional information and analysis regarding our executive
compensation and benefit programs and the specific arrangements
we have with our NEOs.
NEO
Compensation for the 2008 Fiscal Year
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NEO Compensation and Benefit Components
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Description/Purpose
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Base Salary
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Semi-monthly cash payments that provide competitive fixed income
for performance of day-to-day position responsibilities.
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Annual Incentives
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Lump sum cash payments made after a relevant fiscal year to
build accountability and reward achievement of annual business
goals.
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Long-Term Incentives
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Stock- or cash-settled stock options/stock appreciation rights
(SARs) and restricted stock/phantom shares that are
designed to promote retention and align executive compensation
and stockholder value creation over a multi-year time period.
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Executive Health Benefits
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Provide 100% reimbursement of out-of-pocket medical, dental and
vision expenses.
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Executive Death Benefits
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Provide a death benefit to an executives beneficiary
through a Death Benefit Only Plan that was closed to new
participants in 2004 and/or through company-owned or
company-paid term life insurance.
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Deferred Compensation Plan
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Permits deferred receipt of earned compensation into a
non-qualified savings plan similar to our 401(k) Savings Plan;
we match dollar-for-dollar deferrals under this plan and our
401(k) Savings Plan up to a total of six percent of base salary.
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Retirement Plan (closed)
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Provides an annuity benefit after retirement; not all NEOs
participate in the plan and no participants have been added to
the plan since 2004.
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Perquisites. In 2007, we discontinued
substantially all perquisites to our NEOs, including automobile
allowances, company-paid automobile fuel cards, and
reimbursement of expenses for automobile insurance, annual
financial planning and tax preparation services, and one-time
estate planning services. The few perquisites we provided to our
NEOs in 2008 are described below under the heading
Perquisites.
Mix and Levels of Compensation Elements. The
Compensation Committee uses its own judgment when approving the
mix and levels of the above-listed compensation and benefit
components for our NEOs, generally taking into account
individual NEO performance and the other factors described above
under the heading General Overview. The Compensation
Committee also takes into account the totality of compensation
that may be paid to an NEO in approving the NEOs specific
annual base salary, annual incentives and long-term incentives
so that the overall compensation these components may provide is
in line with what the Compensation Committee believes is
appropriate. Reflecting its generally subjective approach to
making NEO compensation and benefit determinations, the
Compensation Committee does not follow a set formula or set a
specific allocation for any one component within the total
amount of a NEOs overall compensation and benefits.
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Consistent with our focus on aligning our executive compensation
and benefit programs with stockholder interests, the
Compensation Committee has generally weighted NEO compensation
significantly toward variable, performance-based annual and
long-term incentives. As a result, each NEOs total
compensation can vary from year-to-year and from other
NEOs compensation in any year depending on individual
performance and our overall financial and operational results.
To reflect the CEOs key role in setting and executing
long-term business strategies, the Compensation Committee has
awarded the CEO a greater proportion of long-term incentives and
greater overall compensation compared to the other NEOs.
Base Salaries. Base salary is a fixed element of
compensation for our CEO and our other NEOs. The Compensation
Committee annually reviews and may approve NEO base salary
adjustments based on a number of factors, including each
NEOs experience and specific responsibilities; individual
performance and expectations; our current and expected financial
and operational results; equity of salary relative to our
executives who are at the same internal management level, but
who are not NEOs; market rates to ensure competitiveness; our
general budgetary guidelines for base salary increases as set by
the Compensation Committee; and our overall financial and
operational results. Based on its subjective weighing of these
considerations, the Compensation Committee maintained our
CEOs base salary for 2008 at $1 million, the minimum
set in his Employment Agreement, and approved annual base salary
increases in 2008 for our other NEOs of between two and four
percent. The Compensation Committee believes these increases for
our other NEOs appropriately balanced the need to maintain
market-competitive pay levels to promote retention with our
financial and operational performance and current business
conditions.
Annual Incentives. In 2008, each of our NEOs,
other than Mr. Cecere, who announced in 2007 that he would
retire in 2008, was eligible for an objective performance-based
annual incentive based on the level of our pretax income or loss
for the year, subject to the discretion of the Compensation
Committee to reduce or eliminate the incentive payout. In
approving potential annual incentives for our NEOs, which was
done at the beginning of 2008, the Compensation Committee sought
to balance the need to retain and motivate our NEOs to achieve
sound results with the objective of containing overall
compensation expense given the business environment. These
annual incentives are described below.
Each NEO was eligible to receive a potential annual incentive
payout if we generated pretax income or a pretax loss of no more
than $300 million for our 2008 fiscal year. If our pretax
loss exceeded $300 million, our NEOs were not eligible to
receive any annual incentive payout. The pretax income or loss
metric was to be determined in accordance with generally
accepted accounting principles, excluding impairment charges for
inventory, goodwill or deferred tax assets. The Compensation
Committee approved these parameters based primarily on our
outlook at the beginning of the year. This outlook reflected our
expectations of extremely difficult and volatile housing market
and general business conditions throughout the year and our
corresponding strategic business plans, which contemplated lower
overall homes delivered and revenues compared to prior years as
a result of repositioning and streamlining our operations
through market consolidations, overhead reductions and a product
transition initiative. Given this outlook, the Compensation
Committee determined that the above pretax income or loss metric
was substantially uncertain to be met and would, to the extent
achieved, represent a strong performance result for the year.
If we generated pretax income, our CEO was eligible for a
maximum potential annual incentive payout of $12.5 million,
and each of our other NEOs was eligible for a maximum potential
annual incentive payout equal to two times base salary, as
follows: Ms Shiba $914,000; Mr. Hollinger $730,000;
Mr. Barnard $600,000; and Mr. Masuda $620,000. If we
generated a pretax loss of no more than $300 million, our
CEO was eligible for a potential annual incentive payout of
between $500,000 and $10.5 million, depending on where the
specific amount of the loss fell within a defined set of loss
and corresponding potential payout ranges. The Compensation
Committee believed it appropriate to align potential annual
incentive payouts with certain specific loss ranges within the
pretax loss parameter to establish a strongly
performance-oriented and motivating, yet cost-effective, annual
incentive for our CEO. For our other NEOs, if we generated a
pretax loss of no more than $300 million, Ms. Shiba
was eligible for a target annual incentive payout equal to the
amount of her annual base salary, or $457,000, and each of
Messrs. Hollinger, Barnard and Masuda were eligible for a
target annual incentive payout equal to 125% of his annual base
salary, or $456,250, $375,000
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and $387,500, respectively. The target annual incentive payouts
set for the other NEOs matched the annual base salary multiples
the Compensation Committee approved for annual incentives at the
NEOs respective internal management level. The
Compensation Committee set the target salary multiple for Senior
Vice Presidents (such as Messrs. Hollinger, Barnard and
Masuda) above the target salary multiple set for our Executive
Vice President (i.e., Ms. Shiba) to more evenly
balance the target annual incentive payouts between those
management levels given that our Executive Vice President is
paid a higher annual base salary. The Compensation Committee
believes the relatively higher potential payouts and more
discrete potential payout ranges that it set for our CEOs
annual incentive compared to the annual incentives it approved
for our other NEOs appropriately reflect Mr. Mezgers
unique and critical role in setting and directly overseeing the
implementation of our overall operating strategy and significant
related strategic initiatives, his broader responsibilities for
driving our overall financial and operational performance, and
his wide-ranging internal and external duties across all areas
of our business.
The Compensation Committee believes the annual incentive
parameters and corresponding potential payouts it approved for
2008 struck the appropriate balance between the objectives
described above. The Compensation Committee also believes the
approach to the 2008 annual incentives helped to: foster
internal pay equity among similarly-situated executives, as the
same salary multiples were applied within the same management
level; set appropriate compensation expectations given the
present business environment; and promote a performance-based
orientation to annual incentives.
In addition to approving annual incentive parameters and
corresponding potential payouts, the Compensation Committee
identified for each NEO a mix of quantitative and qualitative
financial
and/or
operational individual performance objectives related to each
NEOs specific role and position responsibilities.
Mr. Mezgers individual performance objectives focused
primarily on achieving our liquidity and balance sheet goals for
the year, providing leadership and oversight in the development
and execution of our strategic initiatives to meet housing
market conditions, which are described above under the heading
Compensation in Context: Fiscal Year 2008, and
implementing top management recruitment and development
strategies. Ms. Shibas individual performance
objectives focused primarily on providing leadership and
oversight of our corporate governance, ethics and compliance
standards and policies, minimizing our litigation exposure and
successfully resolving material litigation.
Mr. Hollingers individual performance objectives
focused primarily on achieving our liquidity and balance sheet
goals for the year and providing leadership and oversight of our
accounting and financial reporting processes.
Mr. Barnards individual performance objectives
focused primarily on improving margins and driving the
implementation of our strategic initiatives.
Mr. Masudas individual performance objectives focused
primarily on achieving our liquidity and balance sheet goals for
the year and providing leadership and oversight of our joint
venture investments and investor relationships.
The Compensation Committee used these individual performance
objectives in deciding whether and to what degree it would apply
downward discretion to the annual incentive payouts. It
evaluated performance objectives tied to a specific financial or
other quantitative or quantifiable result on an objective basis,
and evaluated qualitative performance objectives on a subjective
basis. It also considered the CEOs evaluation of the other
NEOs achievement of their individual performance
objectives and the factors described above under the heading
General Overview. In determining the annual
incentive payouts to the NEOs, however, no specific weighting or
formulas were applied to the individual performance objectives
or the other factors considered. Rather, as discussed below, the
Compensation Committee used its own judgment, taking into
account the individual performance objectives and other factors,
to determine the final annual incentive payouts.
Based on its terms, as described above, the objective pretax
income or loss metric for the NEO annual incentives was
determined to be a loss of $141 million. Accordingly, the
NEOs were eligible for annual incentives in the following
amounts: Mr. Mezger $6.5 million; Ms. Shiba
$457,000; Mr. Hollinger $456,250; Mr. Barnard
$375,000; and Mr. Masuda $387,500. The Compensation
Committee also found that each NEO delivered strong performance
with respect to their individual objectives in a challenging
business environment. Given our overall financial results for
2008 and business conditions, however, the Compensation
Committee in its discretion reduced the annual incentive payouts
to most of the NEOs to the following amounts: Mr. Mezger
41
$2.75 million; Ms. Shiba $0; Mr. Hollinger
$370,000; and Mr. Masuda $250,000. Ms. Shibas
annual incentive payout reflected that she was guaranteed an
annual bonus for 2008 of $400,000 when she was hired in 2007.
Mr. Barnard received his full annual incentive amount
largely because he did not receive any long-term incentives, as
discussed further below under the headings Guaranteed and
Discretionary Bonuses and Long-Term Incentives.
In determining Mr. Mezgers annual incentive payout
for 2008, the Compensation Committee, with the Boards
approval, took into account our performance and
Mr. Mezgers achievements during the year amid
extremely difficult and unstable conditions in the housing
market and general economy. In particular, the Compensation
Committee determined that Mr. Mezger provided excellent
leadership in (a) directing the repositioning of the
geographic and asset footprint of our business and
the bolstering of our financial and operational ability to
capitalize on an eventual housing market recovery when it
occurs, while at the same time implementing necessary overhead
reductions; (b) implementing a new product transition
initiative to meet consumer demand for smaller, more affordable
homes; and (c) recruiting key talent and maintaining a
strong, focused management team during a period of significant
challenge. The Compensation Committee also considered that our
balance sheet was strong and liquid, as we achieved positive
cash flows throughout 2008 and ended the year with a cash
balance of $1.25 billion (including restricted cash),
exceeding our expectations, no cash borrowings outstanding under
our credit facility, a lower year-over-year operating loss, and
lower overall debt levels. While the Compensation Committee
believes that Mr. Mezgers performance was outstanding
in 2008, in light of our overall financial results for the year
and the business environment, it exercised its downward
discretion and reduced Mr. Mezgers 2008 annual
incentive from a potential $6.5 million to
$2.75 million.
Guaranteed and Discretionary Bonuses. As discussed
above, Ms. Shiba was awarded her guaranteed 2008 annual
bonus of $400,000 in lieu of any annual incentive payout. The
Compensation Committee approved a $45,000 discretionary annual
bonus for Mr. Barnard to recognize his contributions to our
new product transition and organizational repositioning
initiatives in 2008 and to provide Mr. Barnard with higher
annual compensation in lieu of long-term incentive awards based
on current management development planning. As discussed below
under the heading Long-Term Incentives,
Mr. Barnard did not receive any long-term incentive for our
2009 fiscal year. The Compensation Committee approved a $430,000
discretionary bonus for Mr. Cecere to recognize his
contributions and years of service as our chief financial
officer.
Long-Term Incentives. We provide long-term
incentives to our NEOs that consist primarily of grants of
equity-based vehicles settled in cash or stock. Because the
value of these incentives is tied to the share price of our
common stock, we believe they are performance-based and
establish a clear alignment of NEO and stockholder interests. We
typically grant long-term incentives in October each year, in
conjunction with a regularly-scheduled Compensation Committee
meeting, for the following fiscal year. Mr. Cecere did not
receive any long-term incentives in October 2007 or October 2008
due to his announced retirement.
As with the annual salaries and annual incentives it approved
for 2008, the Compensation Committee determined in October 2008
that our long-term incentives for our 2009 fiscal year should be
oriented to emphasize, in a cost-effective manner, the retention
of top executive talent. In reaching this determination, the
Compensation Committee considered that the retention value of
our past long-term incentive awards is very low given the
sustained downturn in the homebuilding industry and the general
economy. This downturn has caused the price of our common stock
to fall significantly below the exercise price of most of our
outstanding employee stock options, diminished or eliminated
recent payouts under our Unit Performance Program
(UPP), which is further described below under the
heading Unit Performance Program, and reduced annual
incentive payouts. The Compensation Committee believes that
these negative results severely undermine our ability to retain
management talent critical to our long-term performance, yet are
largely beyond our executives control and cannot be
attributed to their actions or decisions. To address these
circumstances and promote retention while containing
compensation expense, the Compensation Committee approved 2009
long-term incentives that would deliver to our NEOs and other
recipients, if earned, a level of total long-term compensation
close to, though for NEOs slightly below, the levels provided to
them (or similarly-situated individuals) in prior years when UPP
performance units were granted in tandem with equity-based
awards. As discussed below under the heading Unit
Performance Program, grants of UPP performance units are
no longer being made. Other objectives the Compensation
Committee considered for our 2009 long-term incentives included
that they be sustainable over time and varied market conditions;
reward recipients for
42
strong performance in delivering financial and operational
results that drive stockholder value creation while reflecting
expected position-based contributions and responsibilities; and
balance and align stockholder and management interests. These
other objectives are reflected in the types and mix of long-term
incentives granted and the vesting conditions applied to the
grants, as described below.
Based on these considerations and objectives, the Compensation
Committee, with input from Semler Brossy and our CEO, granted to
our NEOs a combination of SARs and phantom shares that are
settled in cash only. The reason for using these vehicles is
discussed below under the heading Use of SARs and Phantom
Shares, and the specific amounts granted to our CEO and to
the other NEOs are shown below under the heading Grants of
Plan-Based Awards During Fiscal Year 2008.
For each NEO, the number of long-term incentives granted is
based on a total value the Compensation Committee set for the
NEO, a 75% allocation of that value to SARs and a 25% allocation
of that value to phantom shares, and the closing price of our
common stock on the grant date, October 2, 2008. The
Compensation Committee approved the 75%/25% allocation between
SARs and phantom shares to establish a strong link between the
NEOs and stockholders interests in long-term value
creation as the value of each SAR increases with increases in
the share price of our common stock. At lower management levels,
the allocation between SARs and phantom shares was weighted more
towards phantom shares (from 50% to 100% of the overall grants
to individual recipients) and restricted cash grants to promote
retention.
Mr. Mezgers long-term incentive value was set at
$3.5 million based on the Compensation Committees
view that it would appropriately compensate and motivate
Mr. Mezger to continue to provide effective leadership and
strong performance in developing and executing our long-term
business strategy during the current housing market downturn, as
the Compensation Committee felt he had in 2008 (see discussion
above under the heading Annual Incentives with
respect to the determination of Mr. Mezgers 2008
annual incentive payout). The Compensation Committee also
determined that the value was competitive with the value of
long-term incentives granted to peer CEOs, although
$1 million lower than the value set for Mr. Mezger in
the prior year to contain compensation expense.
For our other NEOs, the Compensation Committee considered a
total long-term incentive value set within a range of 150% to
250% of current base salary based on their internal management
level. Within this range, the Compensation Committee
subjectively approved a dollar value for each NEO based on a
number of factors, including the above-described objectives for
the 2009 long-term incentives, the NEOs individual current
and expected future performance and role, overall potential
compensation cost, and the factors described above under the
heading General Overview. Based on these
considerations, the Compensation Committee approved for each NEO
other than our CEO the following total long-term incentive
values: Ms. Shiba $700,000; Mr. Hollinger $700,000;
and Mr. Masuda $450,000. For the reasons discussed above
under the heading Guaranteed and Discretionary
Bonuses, Mr. Barnard did not receive any long-term
incentives for our 2009 fiscal year.
Use of SARs and Phantom Shares. The Compensation
Committee used cash-settled SARs and phantom shares for our
NEOs 2009 long-term incentives because of the limited
number of shares that were available for grant in October 2008
under our existing stockholder-approved equity compensation
plans. The SARs and phantom shares are designed to mirror the
attributes of stock options and restricted stock respectively,
except that both instruments are settled in cash. Each SAR, if
it vests, will provide upon exercise a cash payment equal to the
positive difference, if any, between its grant price and the
closing price of our common stock on the exercise date, and will
expire on the tenth anniversary of its grant date. Each phantom
share, if it vests, will provide a cash payment equal to the
closing price of our common stock on the applicable vesting
date, plus the cumulative value of all cash dividends or other
distributions paid in respect of a share of our common stock
from and including its grant date through and including the
vesting date. Because the Compensation Committee believed it
could not set meaningful and sustainable long-term performance
targets due to the uncertain outlook for the housing market, the
2009 long-term incentives were granted without a
performance-vesting requirement. Given the importance of
motivating and retaining top executive talent in a difficult
business environment, and the Compensation Committees view
that the SARs are inherently performance-
43
based and performance-motivating incentives that appropriately
align the interests of executives and stockholders, the
Compensation Committee determined that performance-vesting
requirements would not be productive in driving financial and
operational results over the performance period for the 2009
long-term incentives.
Unit Performance Program. For several years, our
long-term incentives have included performance unit grants under
our UPP. Each UPP performance unit provides a payout to a
recipient only if specific goals set by the Compensation
Committee are achieved at the end of a three-year period with
respect to the following two performance metrics: our cumulative
diluted earnings per share and the average pretax return on
investment of the operations for which the recipient is
responsible. If applicable performance goals are achieved, the
value of a performance unit at the end of the three-year
performance period depends on the degree to which the
performance goals are exceeded and the Compensation
Committees weighting of the two performance metrics at the
time the performance unit is awarded. Recipients must remain
employed with us for the entire three-year period to which a
performance unit relates to receive a payout.
In October 2005, the Compensation Committee granted performance
units to each of our NEOs (other than Ms. Shiba, who was hired
in August 2007) and to other members of our senior management
for the fiscal
2006-2008
performance period, which ended on November 30, 2008. The
cumulative diluted earnings per share metric determined 75% of
the value of these performance units and the average pretax
return on investment metric determined the remaining 25%. Based
on the results for the performance period, our NEOs did not
receive any payouts on these performance units. The Compensation
Committee did not approve any new grants of performance units
under the UPP in 2007 or 2008, and has decided to suspend the
UPP to streamline our overall long-term incentive compensation
program.
Benefits. The majority of our health and welfare
benefits are made available to all full-time employees,
including our NEOs. During 2008, our NEOs also received a
supplemental benefit that reimburses them for any out-of-pocket
medical, dental and vision expenses that qualify for a tax
deduction under IRS guidelines. In addition, our NEOs were
provided with certain death benefits and participated in our
Deferred Compensation Plan and Retirement Plan, each as
described below under the heading Post-Termination
Arrangements. These benefits are offered to attract key
executive talent and to promote retention. Mr. Mezger
participates in a program under which he is credited with a
specific number of vacation hours that remains fixed throughout
his employment with us, regardless of actual vacation time
taken. When his employment with us ends, he is entitled to
receive a payout of these vacation hours that is based on his
then-current annual base salary. Mr. Cecere was also a
participant in this vacation hours program. This program is
closed to new participants.
Perquisites. In 2007, we discontinued
substantially all perquisites to our NEOs, including automobile
allowances, company-paid automobile fuel cards, and
reimbursement of expenses for automobile insurance, annual
financial planning and tax preparation services, and one-time
estate planning services. We no longer own a corporate aircraft,
having sold it in 2007. On a few occasions in 2008, family
members accompanied NEOs on business trips on a
company-chartered aircraft; however, we did not incur any
additional incremental cost for this travel. From time to time,
we also make available to our employees for their personal use,
including our NEOs, tickets to certain sporting events that are
purchased as a season subscription for business purposes. We do
not incur any additional incremental costs with such use. In
connection with Ms. Shibas hiring and relocation from
Cleveland to Los Angeles in August 2007, we agreed to pay for
certain travel, temporary living, moving and home closing
expenses and to provide her a monthly housing cost differential
amount through December 2008. In 2008, Ms. Shiba received
$276,703 under this arrangement.
Post-Termination
Arrangements
Severance Arrangements. Mr. Mezgers
Employment Agreement provides him with certain severance
benefits, discussed below under the heading Potential
Payments upon Termination of Employment or Change in
Control.
Following a review of executive severance policies at peer
homebuilding companies and other similarly sized public
companies, the Compensation Committee adopted an Executive
Severance Plan in 2007 for non-change in control situations. All
of our NEOs are currently participants under the plan. The plan
provides a specified severance benefit ranging from one to two
times salary and bonus depending on a participants
44
internal management level, as discussed further below under the
heading Potential Payments upon Termination of Employment
or Change in Control.
In July 2008, following stockholder approval of an advisory
proposal, we adopted a policy under which we will obtain
stockholder approval before paying severance benefits to an
executive officer under a future severance arrangement in excess
of 2.99 times the executive officers then-current base
salary and target bonus. Future severance arrangements do not
include severance arrangements existing at the time we adopted
the policy or any severance arrangement we assume or acquire
unless, in each case, the severance arrangement is changed in a
manner that materially increases its severance benefits. We
adopted this policy to underscore our intent to continue to
remain below the 2.99 times limit in our future severance
arrangements.
Other Payments Due Upon Termination of Employment
and/or a
Change in Control. In addition to the severance
arrangements mentioned above, we maintain a Change in Control
Severance Plan (CIC Plan) that provides participants
with certain severance benefits upon a change in control and
accelerated vesting of equity awards and benefits under our
Death Benefit Only Plan (if a participant also participates in
that plan). All of our NEOs are participants in the CIC Plan.
The objectives of the CIC Plan are to enable and encourage our
management to focus its attention on obtaining the best possible
deal for our stockholders in a change in control scenario and to
make objective evaluations of all possible transactions, without
being distracted by the possible impact such transactions may
have on job security and benefits; to promote management
continuity; and to provide income protection in the event of
involuntary loss of employment. In addition, in the event we
experience a change in control, there is accelerated vesting of
any unvested benefits under our Deferred Compensation Plan and
our Retirement Plan, each of which is discussed below under the
heading Retirement Programs, and certain of our
employee benefit plans, including our equity compensation plans.
The payments to which our NEOs may be entitled on termination of
their employment
and/or if we
experience a change in control is further discussed below under
the heading Potential Payments upon Termination of
Employment or Change in Control.
Death Benefits. Our Death Benefit Only Plan, in
which Messrs. Mezger and Hollinger participate, provides a
death benefit to a participants designated beneficiary of
$500,000 or $1 million (plus an additional
gross-up
amount sufficient to pay taxes on the benefit and the additional
amount). Messrs. Mezger and Hollinger have a death benefit
of $1 million. We closed the Death Benefit Only Plan to new
participants beginning in 2004, and only term life insurance,
with a $750,000 benefit level payable to an executives
designated beneficiaries, has been made available to incoming
eligible executives. We maintain this term life insurance
benefit for Messrs. Masuda and Barnard and Ms. Shiba.
We also maintain a life insurance death benefit for
Mr. Mezger of $400,000.
Retirement Programs. Our 401(k) Savings Plan, a
qualified defined contribution plan, is the only program we
offer to all full-time employees that provides post-employment
benefits. Our NEOs and certain other senior executives also
participate in an unfunded nonqualified Deferred Compensation
Plan, which allows pretax contributions of base salary and
annual incentive compensation. We provide a dollar-for-dollar
match of Deferred Compensation Plan and 401(k) Savings Plan
contributions of up to an aggregate amount of six percent of a
participants base salary. NEO deferrals under the Deferred
Compensation Plan are shown below under the heading
Non-Qualified Deferred Compensation During Fiscal Year
2008. We offer the Deferred Compensation Plan to give
participating executives the ability to defer amounts above the
contribution limits applicable to our 401(k) Savings Plan.
We maintain a Retirement Plan for certain executives that has
been closed to new participants since 2004. Each of our NEOs,
other than Ms. Shiba and Mr. Masuda, participate in
the Retirement Plan. The Retirement Plan provides each vested
participant with a specific annual dollar amount for
20 years commencing following the later of the
participants reaching age 55; the tenth anniversary
of the date the participant commenced his or her participation;
or the termination of the participants employment with us.
Mr. Mezgers original annual benefit amount under the
Retirement Plan was $450,000. For the other NEO participants,
the original annual benefit amount under the Retirement Plan was
$100,000. For each participant, the annual benefit amount is
increased by the same annual cost-of-living adjustments that are
applied to federal social security benefits, starting with the
plan year ending November 30, 2006. Vesting generally
requires five years of participation and, once vested, the
participant is entitled to his or her full benefit. Details of
NEO participation in the Retirement Plan are provided below
under the heading Pension Benefits During Fiscal Year
2008.
45
Other
Material Tax and Accounting Implications of the Executive
Compensation Program
Code Section 162(m) generally disallows a tax deduction for
compensation over $1 million paid to our highest paid
executives unless it is qualifying performance-based
compensation. We generally design compensation plans in order to
maintain federal tax deductibility for executive compensation
under Section 162(m), and the Compensation Committee
considers the potential Section 162(m) impact when
approving the compensation paid to our NEOs. The Compensation
Committee recognizes the need to balance tax deductibility
benefits with the need to provide effective compensation
packages that enhance enterprise and stockholder value creation,
however, and will approve compensation that may not be
deductible under Section 162(m) where it believes it is in
our and our stockholders best interests to do so.
Other
Compensation Policies
Equity Stock Ownership Policy. We have had an
executive stock ownership policy since 1998. It is designed to
encourage, and has encouraged, our executives to increase their
ownership of our common stock over time and to align their
interests with our stockholders interests. In February
2008, the Compensation Committee amended the policy, as
described below.
The policy identifies specific levels of stock ownership that
designated executives are expected to achieve. The targeted
stock ownership levels for our NEOs range from 20,000 to
150,000 shares, depending on position. Executives subject
to the policy have five years to achieve these ownership levels
and must make meaningful progress every year towards the
achievement of these ownership levels. Survey data and multiples
of average base salaries per level were used to determine the
ownership expected for each position. Share ownership may
include shares owned outright by a designated executive, shares
owned indirectly through our 401(k) Savings Plan and 60% of
unvested restricted stock grants or phantom share rights.
Phantom share rights are included so that executives subject to
the policy would not be penalized for the limited number of
shares that were available for grant under our existing
stockholder-approved equity compensation plans at the time the
policy was amended. It is assumed that executives will use the
cash proceeds they receive from the vesting of phantom shares to
increase their ownership of our common stock. Once required
ownership levels are achieved, they must be maintained
throughout the executives employment. Our policy provides
both financial incentives to achieve ownership requirements as
well as material consequences for non-compliance. The
Compensation Committee may, from time to time, reevaluate and
revise the ownership requirements to account for material
changes in stock price. Our NEOs are currently in compliance
with the policy.
Equity-Based Award Grant Policy. In February
2007, the Compensation Committee adopted a policy that is
designed to enhance the process by which we grant equity-based
awards, including stock options, SARs, phantom shares and
restricted stock, by governing the timing of equity-based awards
and establishing certain internal controls over the grant of
such awards, as described below.
The policy requires that the Compensation Committee (or the
Board) approve all grants of equity-based awards, and their
terms. The policy does not permit any delegation of granting
authority to our management. The grant date of any equity-based
award will be the date on which the Compensation Committee met
to approve the grant unless a written resolution sets a later
date. The exercise price of any stock option award will not be
less than the closing price of our common stock on the New York
Stock Exchange on the grant date. All equity-based award grants
made in 2008 were made in compliance with the policy and were
approved at a regularly-scheduled Compensation Committee meeting
in October 2008, as discussed above under the heading
Long-Term Incentives.
Recovery of Compensation. Under his
Employment Agreement, our CEO is required to repay certain bonus
and incentive- or equity-based compensation he receives if we
are required to restate our financial statements as a result of
his misconduct, consistent with Section 304 of the
Sarbanes-Oxley Act of 2002.
46
Summary
Compensation Table
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|
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|
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|
|
|
|
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|
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|
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|
|
|
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|
|
|
|
|
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|
|
Change in
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|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
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|
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|
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|
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|
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|
|
|
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|
|
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|
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|
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|
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and
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|
|
|
|
|
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|
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|
|
|
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|
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Nonqualified
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
Non-Equity
|
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|
|
Deferred
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Option
|
|
|
|
Incentive Plan
|
|
|
|
Compensation
|
|
|
|
All Other
|
|
|
|
|
|
Name and Principal
|
|
|
Fiscal
|
|
|
Salary
|
|
|
|
Bonus
|
|
|
|
Awards
|
|
|
|
Awards
|
|
|
|
Compensation
|
|
|
|
Earnings
|
|
|
|
Compensation
|
|
|
|
Total
|
|
Position
|
|
|
Year
|
|
|
($)
|
|
|
|
($)(a)
|
|
|
|
($)(b)
|
|
|
|
($)(b)
|
|
|
|
($)(c)
|
|
|
|
($)(d)
|
|
|
|
($)(e)
|
|
|
|
($)
|
|
Jeffrey T. Mezger
President and Chief Executive
Officer
|
|
|
2008
|
|
|
$
|
1,000,000
|
|
|
|
$
|
0
|
|
|
|
$
|
1,069,341
|
|
|
|
$
|
4,593,443
|
|
|
|
$
|
2,750,000
|
|
|
|
$
|
141,666
|
|
|
|
$
|
70,482
|
|
|
|
$
|
9,624,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
1,000,000
|
|
|
|
|
6,000,000
|
|
|
|
|
4,181,624
|
|
|
|
|
3,743,258
|
|
|
|
|
97,500
|
|
|
|
|
388,632
|
|
|
|
|
972,604
|
|
|
|
|
16,383,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wendy C. Shiba
Executive Vice President,
General Counsel and Corporate Secretary
|
|
|
2008
|
|
|
|
456,417
|
|
|
|
|
400,000
|
|
|
|
|
41,580
|
|
|
|
|
41,832
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
310,357
|
|
|
|
|
1,250,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
William R. Hollinger*
Senior Vice President and Chief
Accounting Officer
|
|
|
2008
|
|
|
|
363,750
|
|
|
|
|
0
|
|
|
|
|
106,947
|
|
|
|
|
58,853
|
|
|
|
|
370,000
|
|
|
|
|
25,877
|
|
|
|
|
29,784
|
|
|
|
|
955,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
347,083
|
|
|
|
|
350,000
|
|
|
|
|
123,273
|
|
|
|
|
107,703
|
|
|
|
|
483,000
|
|
|
|
|
83,116
|
|
|
|
|
121,111
|
|
|
|
|
1,615,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen W. Barnard
Senior Vice President, KBnxt
Group
|
|
|
2008
|
|
|
|
299,168
|
|
|
|
|
45,000
|
|
|
|
|
93,076
|
|
|
|
|
31,518
|
|
|
|
|
375,000
|
|
|
|
|
13,716
|
|
|
|
|
29,582
|
|
|
|
|
887,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
289,168
|
|
|
|
|
0
|
|
|
|
|
98,662
|
|
|
|
|
96,478
|
|
|
|
|
600,000
|
|
|
|
|
79,716
|
|
|
|
|
95,069
|
|
|
|
|
1,259,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelly K. Masuda
Senior Vice President and
Treasurer
|
|
|
2008
|
|
|
|
308,958
|
|
|
|
|
0
|
|
|
|
|
81,186
|
|
|
|
|
41,372
|
|
|
|
|
250,000
|
|
|
|
|
0
|
|
|
|
|
20,932
|
|
|
|
|
702,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
296,771
|
|
|
|
|
100,000
|
|
|
|
|
78,837
|
|
|
|
|
85,238
|
|
|
|
|
355,500
|
|
|
|
|
0
|
|
|
|
|
96,459
|
|
|
|
|
1,012,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former NEO
|
|
|
2008
|
|
|
|
600,001
|
|
|
|
|
430,000
|
|
|
|
|
(5,008
|
)
|
|
|
|
17,194
|
|
|
|
|
0
|
|
|
|
|
31,481
|
|
|
|
|
24,639
|
|
|
|
|
1,098,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domenico Cecere*
|
|
|
2007
|
|
|
|
595,834
|
|
|
|
|
0
|
|
|
|
|
376,181
|
|
|
|
|
90,560
|
|
|
|
|
438,500
|
|
|
|
|
86,362
|
|
|
|
|
114,295
|
|
|
|
|
1,701,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Bonus: These amounts are guaranteed or discretionary
bonuses. The bonuses paid in 2008 to Ms. Shiba and to
Messrs. Barnard and Cecere are discussed above under the
heading Guaranteed and Discretionary Bonuses. |
|
(b) |
|
Stock Awards and Option Awards: These amounts are the
aggregate compensation expense we recognized in our 2008 fiscal
year for Stock Awards (shares of restricted stock and phantom
shares) and Option Awards (stock options and SARs) granted to
our NEOs in 2008 and in prior years, computed in accordance with
SFAS No. 123(R), except that, in accordance with
applicable SEC rules and guidance, we have disregarded estimates
of forfeitures related to service-based vesting conditions and
reversals in excess of amounts previously expensed in 2007 for
the NEOs who appeared in the Summary Compensation Table for that
year. We account for shares of restricted stock as equity awards
for purposes of SFAS No. 123(R), and the related
compensation expense was based on our amortization of their
grant-date fair value. The grant-date fair value is equal to the
closing price of our common stock on the grant date, except for
the performance shares granted to Mr. Mezger in July 2007,
for which we use a Monte Carlo simulation model to estimate the
grant-date fair value. We account for the phantom shares as
liability awards for purposes of SFAS No. 123(R)
because they will be settled in cash in the manner described
above under the heading Use of SARs and Phantom
Shares, and the related compensation expense was
calculated based on the price of our common stock on
November 30, 2008, which was $11.63. We account for stock
options as equity awards for purposes of
SFAS No. 123(R), and the related compensation expense
was based on our amortization of their grant-date fair value.
Information used in determining these amounts can be found in
Note 15 of the Notes to Consolidated Financial Statements
contained in our Annual Report. We did not grant any stock
options in 2008. We account for SARs as liability awards for
purposes of SFAS No. 123(R) because they will be
settled in cash in the manner described above under the heading
Use of SARs and Phantom Shares, and the related
compensation expense was calculated using the Black-Scholes
option-pricing model with the following assumptions as of
November 30, 2008 and 2007, respectively: a risk-free
interest rate of 1.2% to 1.6% (depending on when the specific
SAR was granted) and 3.1%; an expected volatility factor for the
market price of our common stock of 56.7% and 43.9%; a dividend
yield of 2.2% and 4.8%; and an expected life of 2.9 to
4.1 years and 3.7 to 3.9 years (depending on when the
specific SAR was granted). |
|
(c) |
|
Non-Equity Incentive Plan Compensation: These amounts are
the annual incentive compensation the respective NEOs earned
based on achieving fiscal year performance goals.
Mr. Cecere did not receive non-equity incentive plan
compensation due to his previously announced retirement. |
|
(d) |
|
Change in Pension Value and Nonqualified Deferred
Compensation Earnings: These amounts are the change in
present value of accumulated benefits provided under our
Retirement Plan. We do not provide above-market or preferential
earnings under our Deferred Compensation Plan. |
|
(e) |
|
All Other Compensation: The amounts shown consist of the
following items: |
47
|
|
|
|
|
Matching 401(k) Savings Plan and Supplemental Deferred
Compensation Plan Contributions: We provide a
dollar-for-dollar match of Deferred Compensation Plan and 401(k)
Savings Plan contributions of up to an aggregate amount of six
percent of a participants base salary. The respective
aggregate 2008 and 2007 fiscal year matching contributions we
made to each NEO (other than Ms. Shiba) were as follows:
Mr. Mezger $58,383 and $57,125; Mr. Hollinger $21,813
and $20,825; Mr. Barnard $17,950 and $17,350;
Mr. Masuda $9,300 and $9,550; and Mr. Cecere $13,500
and $13,500. The aggregate 2008 fiscal year matching
contribution we made to Ms. Shiba was $25,190.
|
|
|
|
Premium Payments: We paid premiums on supplemental
medical expense reimbursement plans and life insurance policies
for the benefit of participating executives. These plans and
policies are described above under the heading
Benefits. The respective aggregate premiums we paid
in our 2008 and 2007 fiscal years for each NEO (other than
Ms. Shiba) for these plans and policies were as follows:
Mr. Mezger $12,099 and $9,043; Mr. Hollinger $7,971
and $5,781; Mr. Barnard $11,632 and $8,552; Mr. Masuda
$11,632 and $8,552; and Mr. Cecere $11,139 and $8,083. The
aggregate premium we paid in our 2008 fiscal year for
Ms. Shiba was $8,464.
|
|
|
|
Relocation Assistance: In connection with
Ms. Shibas hiring and relocation from Cleveland to
Los Angeles in August 2007, we agreed to pay for certain travel,
temporary living, moving and home closing expenses and to
provide her with a monthly housing cost differential amount
through December 2008. In 2008, Ms. Shiba received $276,703
under this arrangement.
|
|
|
|
2007 Fiscal Year Perquisites and Payments: In our 2007
fiscal year, our NEOs (other than Ms. Shiba) received certain
perquisites (including automobile allowances, company-paid
automobile fuel cards, and reimbursement of expenses for
automobile insurance, annual financial planning and tax
preparation services, and one-time estate planning services),
and certain one-time payments to offset increases in stock
option exercise prices following an internal review of our stock
option grant practices. We discontinued substantially all such
perquisites in July 2007. Accordingly, these items did not apply
in our 2008 fiscal year.
|
|
|
|
|
|
Ms. Shiba was not a NEO in our 2007 fiscal year.
Accordingly, data for that year has been omitted from the
Summary Compensation Table in accordance with SEC guidance. |
|
* |
|
Effective October 7, 2008, Mr. Cecere ceased serving
as our Executive Vice President and Chief Financial Officer. His
employment with us ended on January 15, 2009.
Mr. Hollinger has served as our principal financial officer
since October 7, 2008. |
Grants of
Plan-Based Awards During Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
All Other
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Option
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
Awards:
|
|
|
|
Exercise
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts Under
|
|
|
|
Number
|
|
|
|
Number of
|
|
|
|
or Base
|
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards
|
|
|
|
of Shares
|
|
|
|
Securities
|
|
|
|
Price of
|
|
|
|
Stock and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Stock
|
|
|
|
Underlying
|
|
|
|
Option
|
|
|
|
Option
|
|
|
|
|
Grant
|
|
|
Type of
|
|
|
Threshold
|
|
|
|
Target
|
|
|
Maximum
|
|
|
|
or Units
|
|
|
|
Options
|
|
|
|
Awards
|
|
|
|
Awards
|
|
Name
|
|
|
Date(a)
|
|
|
Award
|
|
|
($)
|
|
|
|
($)
|
|
|
($)
|
|
|
|
(#)
|
|
|
|
(#)
|
|
|
|
($/Sh)
|
|
|
|
($)(c)
|
|
Mr. Mezger
|
|
|
1/22/08
|
|
|
Annual Incentive
|
|
|
$
|
500,000
|
|
|
|
(b)
|
|
|
$
|
12,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
SARs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397,818
|
|
|
|
$
|
19.90
|
|
|
|
$
|
2,625,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
Phantom Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Shiba
|
|
|
2/6/08
|
|
|
Annual Incentive
|
|
|
|
|
|
|
|
457,000
|
|
|
|
914,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
SARs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,564
|
|
|
|
|
19.90
|
|
|
|
|
525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
Phantom Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Hollinger
|
|
|
1/22/08
|
|
|
Annual Incentive
|
|
|
|
|
|
|
|
456,250
|
|
|
|
730,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
SARs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,564
|
|
|
|
|
19.90
|
|
|
|
|
525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
Phantom Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Barnard
|
|
|
1/22/08
|
|
|
Annual Incentive
|
|
|
|
|
|
|
|
375,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Masuda
|
|
|
1/22/08
|
|
|
Annual Incentive
|
|
|
|
|
|
|
|
387,500
|
|
|
|
620,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
SARs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,148
|
|
|
|
|
19.90
|
|
|
|
|
337,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
Phantom Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Grant Date: The grant date for each award is the date the
Compensation Committee approved the award. The exercise price
for each award is equal to the closing price of our common stock
on the date of grant. We did not grant Mr. Cecere any
plan-based awards due to his previously announced retirement. |
48
|
|
|
(b) |
|
As described above under the heading Annual
Incentives, for Mr. Mezgers 2008 annual
incentive, the Compensation Committee set a range of potential
payouts between the threshold and maximum amounts shown in the
table depending on our pretax income or loss for the year,
subject to the discretion of the Compensation Committee to
reduce or eliminate the incentive payout. The Compensation
Committee did not set any specific amount within the range as a
target payout. |
|
(c) |
|
Grant Date Fair Value of Stock and Option Awards: The
grant date fair value for each award is computed in accordance
with SFAS No. 123(R). |
49
Outstanding
Equity Awards at Fiscal Year-End 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
Awards:
|
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
Value of
|
|
|
|
Number of
|
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
|
Shares or
|
|
|
|
Unearned
|
|
|
|
Payout Value
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
or Units
|
|
|
|
Units of
|
|
|
|
Shares,
|
|
|
|
of Unearned
|
|
|
|
|
|
|
|
Securities
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
of Stock
|
|
|
|
Stock
|
|
|
|
Units or
|
|
|
|
Shares, Units
|
|
|
|
|
|
|
|
Underlying
|
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
That
|
|
|
|
That
|
|
|
|
Other
|
|
|
|
or Other
|
|
|
|
|
|
|
|
Unexercised
|
|
|
|
Unexercised
|
|
|
|
Option
|
|
|
|
|
|
|
|
Have
|
|
|
|
Have
|
|
|
|
Rights That
|
|
|
|
Rights That
|
|
|
|
|
|
|
|
Options
|
|
|
|
Options
|
|
|
|
Exercise
|
|
|
|
Option
|
|
|
|
Not
|
|
|
|
Not
|
|
|
|
Have Not
|
|
|
|
Have Not
|
|
|
|
|
|
|
|
Exercisable
|
|
|
|
Unexercisable
|
|
|
|
Price
|
|
|
|
Expiration
|
|
|
|
Vested
|
|
|
|
Vested
|
|
|
|
Vested
|
|
|
|
Vested
|
|
Name
|
|
|
Grant Date
|
|
|
(#)*
|
|
|
|
(#)(a)*
|
|
|
|
($)
|
|
|
|
Date
|
|
|
|
(#)*
|
|
|
|
($)(b)
|
|
|
|
(#)(c)*
|
|
|
|
($)(d)
|
|
Mr. Mezger
|
|
|
10/30/01
|
|
|
|
431,122
|
|
|
|
|
|
|
|
|
$
|
13.95
|
|
|
|
|
10/30/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/30/01
|
|
|
|
68,878
|
|
|
|
|
|
|
|
|
|
13.95
|
|
|
|
|
10/30/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/13/02
|
|
|
|
102,090
|
|
|
|
|
|
|
|
|
|
20.07
|
|
|
|
|
2/13/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/8/02
|
|
|
|
44,516
|
|
|
|
|
|
|
|
|
|
25.63
|
|
|
|
|
5/8/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/7/02
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
21.51
|
|
|
|
|
10/7/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/24/03
|
|
|
|
74,667
|
|
|
|
|
|
|
|
|
|
33.24
|
(e)
|
|
|
|
10/24/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/24/03
|
|
|
|
149,333
|
|
|
|
|
|
|
|
|
|
34.05
|
(e)
|
|
|
|
10/24/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/22/04
|
|
|
|
80,750
|
|
|
|
|
|
|
|
|
|
40.90
|
|
|
|
|
10/22/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/22/04
|
|
|
|
119,250
|
|
|
|
|
|
|
|
|
|
40.90
|
|
|
|
|
10/22/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/18/05
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
63.77
|
|
|
|
|
10/18/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/13/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,343
|
|
|
|
$
|
934,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/12/07
|
|
|
|
108,350
|
|
|
|
|
216,700
|
|
|
|
|
36.19
|
|
|
|
|
11/30/16
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/12/07
|
|
|
|
108,350
|
|
|
|
|
216,700
|
|
|
|
|
36.19
|
|
|
|
|
7/12/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/12/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/12/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,000
|
|
|
|
$
|
628,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/12/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,264
|
|
|
|
|
642,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/4/07
|
|
|
|
45,834
|
|
|
|
|
91,666
|
|
|
|
|
28.10
|
|
|
|
|
10/4/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/4/07
|
|
|
|
137,500
|
|
|
|
|
275,000
|
|
|
|
|
28.10
|
|
|
|
|
10/4/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
|
|
|
|
|
|
397,818
|
|
|
|
|
19.90
|
|
|
|
|
10/2/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,970
|
|
|
|
|
511,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Shiba
|
|
|
10/4/07
|
|
|
|
12,295
|
|
|
|
|
24,590
|
|
|
|
$
|
28.10
|
|
|
|
|
10/4/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,677
|
|
|
|
$
|
124,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
|
|
|
|
|
|
79,564
|
|
|
|
|
19.90
|
|
|
|
|
10/2/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/2/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,794
|
|
|
|
|
102,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Hollinger
|
|
|
7/1/02
|
|
|
|
58,058
|
|
|
|
|
|
|
|
|
$
|
26.29
|
|
|
|
|
7/1/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/7/02
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
21.51
|
|
|
|
|
10/7/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/24/03
|
|
|
|
9,334
|
|
|
|
|
|
|
|
|
|
33.24
|
(e)
|
|
|
|
10/24/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/24/03
|
|
|
|
18,666
|
|
|
|
|
|
|
|
|
|
34.05
|
(e)
|
|
|
|
10/24/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/22/04
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
40.90
|
|
|
|
|
10/22/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/18/05
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
63.77
|
|
|
|
|
10/18/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/12/07
|
|
|
|
8,554
|
|
|
|
|
17,108
|
|
|
|
|
36.19
|
|
|
|
|
7/12/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/12/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,327
|
|
|
|
$
|
108,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/4/07
|
|
|
|
12,295
|
|
|
|
|
24,590
|
|
|
|
|
28.10
|
|
|
|
|
10/4/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,677
|
|
|
|
|
124,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|