KB HOME
CHANGE IN CONTROL SEVERANCE PLAN
(AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2009)
KB HOME, a
Delaware corporation (the “Company”), has adopted this
Change in Control Severance Plan (the “Plan”) for the
benefit of certain key employees of the Company. This Plan is
effective as of October 4, 2001 and has been amended and
restated pursuant to Section 10.3 of the Plan effective
January 1, 2009.
The purposes of
the Plan are as follows:
(1) To
reinforce and encourage the continued attention and dedication of
members of the Company’s management to their assigned duties
without the distraction arising from the possibility of a Change in
Control (as defined below) of the Company;
(2) To enable
and encourage the Company’s management to focus their
attention on obtaining the best possible deal for the
Company’s shareholders and to make an independent evaluation
of all possible transactions, without being diverted by their
personal concerns regarding the possible impact of various
transactions on the security of their jobs and benefits;
(3) To
provide severance benefits to any Participant (as defined below)
who incurs a termination of employment under the circumstances
described herein within a certain period following a Change in
Control; and
(4) To comply
with all applicable law, including Section 409A of the Code
and related Treasury guidance and regulations, and be operated and
interpreted in accordance with this intention.
1.
Defined Terms . For purposes of the Plan, the following
terms shall have the meanings indicated below:
(A)
“Act” shall mean the Securities Exchange Act of
1934, as amended from time to time.
(B) “
Affiliate ” shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the
Act.
(C) “
Board ” shall mean the Board of Directors of the
Company.
(D) “
Cause ” shall mean (i) acts of fraud or
misappropriation committed by the Participant and intended to
result in substantial personal enrichment at the expense of the
Company or (ii) repeated violations by the Participant of the
Participant’s obligations to the Company which are
demonstrably willful and deliberate and which result in material
injury to the Company; provided that, in each case, the Participant
has received written notice of the
described
activity, has been afforded a period of 20 days to cure or
correct the activity described in the notice, and has failed to
cure, correct or cease the activity, as appropriate.
(E) “Change
in Control” shall mean the occurrence of a “change in
the ownership,” a “change in the effective
control” or a “change in the ownership of a substantial
portion of the assets” of a corporation, as determined in
accordance with this Section.
In order for an
event described below to constitute a Change in Control with
respect to a Participant, except as otherwise provided in part
(ii)(b) of this Section, the applicable event must relate to the
corporation for which the Participant is providing services, the
corporation that is liable for payment of the Participant’s
Account Balance (or all corporations liable for payment if more
than one), as identified by the Committee in accordance with
Section 1.409A-3(i)(5)(ii)(A)(2) of the Treasury Regulations, or
such other corporation identified by the Committee in accordance
with Section 1.409A-3(i)(5)(ii)(A)(3) of the Treasury
Regulations.
In determining
whether an event shall be considered a “change in the
ownership,” a “change in the effective control”
or a “change in the ownership of a substantial portion of the
assets” of a corporation, the following provisions shall
apply:
(i) A
“change in the ownership” of the applicable corporation
shall occur on the date on which any one person, or more than one
person acting as a group, acquires ownership of stock of such
corporation that, together with stock held by such person or group,
constitutes more than 50% of the total fair market value or total
voting power of the stock of such corporation, as determined in
accordance with Section 1.409A-3(i)(5)(v) of the Treasury
Regulations. If a person or group is considered either to own more
than 50% of the total fair market value or total voting power of
the stock of such corporation, or to have effective control of such
corporation within the meaning of part (ii) of this Section,
and such person or group acquires additional stock of such
corporation, the acquisition of additional stock by such person or
group shall not be considered to cause a “change in the
ownership” of such corporation.
(ii) A
“change in the effective control” of the applicable
corporation shall occur on either of the following
dates:
(a) The date on
which any one person, or more than one person acting as a group,
acquires (or has acquired during the 12-month period ending on the
date of the most recent acquisition by such person or persons)
ownership of stock of such corporation possessing 30% or more of
the total voting power of the stock of such corporation, as
determined in accordance with Section 1.409A-3(i)(5)(vi) of
the Treasury Regulations. If a person or group is considered to
possess 30% or more of the total voting power of the stock of a
corporation, and such person or group acquires additional stock of
such corporation, the acquisition of additional stock by such
person or group shall not be considered to cause a “change in
the effective control” of such corporation; or
(b) The date on
which a majority of the members of the applicable
corporation’s board of directors is replaced during any
12-month period by directors whose appointment or election is not
endorsed by a majority of the members of such corporation’s
board of directors before the date of the
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appointment or
election, as determined in accordance with
Section 1.409A-3(i)(5)(vi) of the Treasury Regulations. In
determining whether the event described in the preceding sentence
has occurred, the applicable corporation to which the event must
relate shall only include a corporation identified in accordance
with Section 1.409A-3(i)(5)(ii) of the Treasury Regulations
for which no other corporation is a majority
shareholder.
(iii) A
“change in the ownership of a substantial portion of the
assets” of the applicable corporation shall occur on the date
on which any one person, or more than one person acting as a group,
acquires (or has acquired during the 12-month period ending on the
date of the most recent acquisition by such person or persons)
assets from the corporation that have a total gross fair market
value equal to or more than 40% of the total gross fair market
value of all of the assets of the corporation immediately before
such acquisition or acquisitions, as determined in accordance with
Section 1.409A-3(i)(5)(vii) of the Treasury Regulations. A
transfer of assets shall not be treated as a “change in the
ownership of a substantial portion of the assets” when such
transfer is made to an entity that is controlled by the
shareholders of the transferor corporation, as determined in
accordance with Section 1.409A-3(i)(5)(vii)(B) of the Treasury
Regulations.
(F) “
Code ” shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(G) “
Committee ” shall mean the committee responsible for
administering the Plan, as described in Section 3
hereof.
(H) “
Company ” shall mean KB HOME, a Delaware corporation,
and, except in determining under Section 1(E) hereof whether
or not any Change in Control of the Company has occurred, shall
include any successor to its business and/or assets.
(I) “
Disability ” shall mean the Participant’s
incapacity due to physical or mental illness to perform his or her
full-time duties with the Company for a continuous period of three
months or an aggregate of six months in any eighteen-month
period.
(J) “
Good Reason ” shall mean, without the consent of the
Participant, (i) any changes in the duties and
responsibilities of the Participant which are materially
inconsistent with the duties and responsibilities of the
Participant within the Company immediately prior to the Change in
Control, (ii) any reduction of the Participant’s salary,
aggregate incentive compensation opportunities (excluding any
reduction in incentive compensation awards due to the economic
performance of the Company) or aggregate benefits, (iii) any
required relocation of the Participant’s office beyond a 50
mile radius from the location of the Participant’s office
immediately prior to the Change in Control, (iv) any failure
by the Company to obtain the assumption of the Plan by a successor
of the Company, or (v) the Company’s requiring the
Participant to travel materially in excess of the
Participant’s business travel obligations prior to the Change
in Control.
(K) “
Participants ” shall mean those persons who are
expressly designated in writing by the Committee from time to time
and identified as “Group A Participants” or
“Group B
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Participants,” as the case may
be.
(L) “
Protected Period ” shall mean the period beginning on
the date of a Change in Control and ending on the date which is
eighteen months after the date of such Change in
Control.
(M) “Separation
from Service” shall mean a termination of services provided
by a Participant to the Company, other than by reason of death or
Disability, as determined by the Committee in accordance with
Treas. Reg. §1.409A-1(h). In determining whether a Participant
has experienced a Separation from Service, the following provisions
shall apply:
(i) For a
Participant who provides services to the Company as an Employee,
except as otherwise provided in part (iii) of this Paragraph,
a Separation from Service shall occur when such Participant has
experienced a termination of employment with the Company. A
Participant shall be considered to have experienced a termination
of employment when the facts and circumstances indicate that the
Participant and the Company reasonably anticipate that either
(a) no further services will be performed for the Company
after a certain date, or (b) that the level of bona fide
services the Participant will perform for the Company after such
date (whether as an employee or as an independent contractor) will
permanently decrease to no more than 20% of the average level of
bona fide services performed by such Participant (whether as an
employee or an independent contractor) over the immediately
preceding 36-month period (or the full period of services to the
Company if the Participant has been providing services to the
Company less than 36 months).
If a Participant
is on military leave, sick leave, or other bona fide leave of
absence, the employment relationship between the Participant and
the Company shall be treated as continuing intact, provided that
the period of such leave does not exceed 6 months, or if
longer, so long as the Participant retains a right to reemployment
with the Company under an applicable statute or by contract. If the
period of a military leave, sick leave, or other bona fide leave of
absence exceeds 6 months and the Participant does not retain a
right to reemployment under an applicable statute or by contract,
the employment relationship shall be considered to be terminated
for purposes of this Plan as of the first day immediately following
the end of such 6-month period. In applying the provisions of this
paragraph, a leave of absence shall be considered a bona fide leave
of absence only if there is a reasonable expectation that the
Participant will return to perform services for the Company. For
purposes of this paragraph, where a leave of absence is due to any
physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not
less than six months, where such impairment causes the Participant
to be unable to perform the duties of his or her position of
employment or any substantially similar position of employment, a
29-month period of absence shall be substituted for such 6-month
period.
(ii) For a
Participant who provides services to the Company as an independent
contractor, except as otherwise provided in part (iii) of
this
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Paragraph, a
Separation from Service shall occur upon the expiration of the
contract (or in the case of more than one contract, all contracts)
under which services are performed for the Company, provided that
the expiration of such contract(s) is determined by the Committee
to constitute a good-faith and complete termination of the
contractual relationship between the Participant and the
Company.
(iii) For
a Participant who provides services to the Company as both an
employee and an independent contractor, a Separation from Service
generally shall not occur until the Participant has ceased
providing services for the Company as both as an employee and as an
independent contractor, as determined in accordance with the
provisions set forth in parts (i) and (ii) of this
Paragraph, respectively. Similarly, if a Participant either
(a) ceases providing services for the Company as an
independent contractor and begins providing services for the
Company as an employee, or (b) ceases providing services for the
Company as an employee and begins providing services for the
Company as an independent contractor, the Participant will not be
considered to have experienced a Separation from Service until the
Participant has ceased providing services for the Company in both
capacities, as determined in accordance with the applicable
provisions set forth in parts (i) and (ii) of this
Paragraph.
Notwithstanding
the foregoing provisions in this part (iii), if a Participant
provides services for the Company as both an employee and as a
director, to the extent permitted by Treas. Reg.
§1.409A-1(h)(5) the services provided by such Participant as a
director shall not be taken into account in determining whether the
Participant has experienced a Separation from Service as an
employee.
(iv) For
purposes of this Paragraph, services performed for the Company
shall include service performed both for the Company and for any
other corporation that is a member of the same “controlled
group” of corporations as the Company under Section 414(b) of
the Code or any other trade or business (such as a
partnership)_that is under common control with the Company as
determined under Section 414(c) of the Code, in each case as
modified by Treasury Regulation Section 1.409A-1(h)(3)
and substituting “at least 50 percent” for
“at least 80 percent” each place it appears in
Section 1563(a) of the Code or Treasury
Regulation Section 1.414(c)-2..
(N) “
Specified Employee ” shall mean any Participant who is
determined to be a “key employee” (as defined under
Section 416(i) of the Code without regard to paragraph
(5) thereof) for the applicable period, as determined annually
by the Committee in accordance with the methodology specified by
resolution of the Board or the Management Development and
Compensation Committee of the Board and in accordance with
Section 1.409A-1(i) of the Treasury Regulations.
2.
Effective Date of Plan . The original effective date of
the Plan was October 4, 2001, and the effective date of the
amendment and restatement of the Plan is January 1, 2009 (the
“Effective Date”). The Plan shall remain in effect
until the earlier of (i) such time as the Company has
discharged all of its obligations hereunder, or (ii) the date
of the termination of
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the Plan
pursuant to Section 10.3 hereof.
(A) Prior to
the date of a Change in Control, the Plan shall be interpreted,
administered and operated by the Personnel, Compensation and Stock
Plan Committee of the Board; on and after the date of a Change in
Control, the Plan shall be interpreted, administered and operated
by a committee appointed by a committee of individuals appointed by
the Personnel, Compensation and Stock Plan Committee of the Board
as such Committee is constituted immediately prior to the Change in
Control. In each case, subject to the terms of the Plan, the
Committee shall have complete authority, in its sole discretion
subject to the express provi
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