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Exhibit 99.1
Employment Agreement
This Agreement is
entered into by and between Jeffrey T. Mezger (the "Executive") and
KB Home, a Delaware corporation (the "Company") as of
February 28, 2007 (the "Effective Date").
1. Duties and Scope of
Employment . For the term of this Agreement ("Employment"), the
Company agrees to employ the Executive in the positions of
President and Chief Executive Officer. The Executive shall report
directly to the Company’s Board of Directors (the "Board").
The Executive shall have such duties, authority and
responsibilities that are commensurate with his being the
Company’s most senior executive officer. The Executive shall
also serve as a member of the Board. During his Employment, the
Executive shall devote substantially his full business efforts and
time to the Company and, so long as such activities do not
interfere with the performance of his responsibilities to the
Company under this Agreement, the Executive may engage in civic and
charitable activities and serve on the boards of directors (or
managers or trustees) of civic or charitable organizations and,
subject to the consent of the Board, may serve on the board of
directors of corporations or other businesses. The
Executive’s primary work place shall be at the
Company’s corporate headquarters in Los Angeles,
California.
2. Cash and Incentive Compensation.
(a)
Salary . The Company shall pay the Executive as compensation
for his services a base salary at a gross annual rate of not less
than $1,000,000. Such salary shall be payable in accordance with
the Company’s standard payroll procedures but the Executive
shall receive pro-rata payments of his annual base salary no less
frequently than once per month. The annual compensation specified
in this Subsection (a), together with any increases in such
compensation that the Company may grant from time to time, is
referred to in this Agreement as "Base Compensation."
(b)
Incentive Bonuses . The Executive shall be eligible to
receive an annual fiscal year incentive bonus that the Board or
Management Development and Compensation Committee of the Board (the
"Committee") shall determine and award in its discretion on terms
and conditions no less favorable than the terms and conditions
generally applicable to the Company’s other senior executive
officers (collectively, the "Peer Executives"). Such incentive
bonus shall be awarded based upon the achievement of specific
milestones that will be determined by the Committee in consultation
with the Executive no later than 90 days after the start of
each fiscal year. Payment for each year’s bonus actually
earned shall be made to the Executive no later than the fifteenth
day of the third month after the end of the applicable fiscal year
and any such earned bonus shall be fully paid to Executive even if
Executive is no longer employed by the Company after the end of the
applicable performance year.
(c)
Promotion Stock Option Grant . At a future meeting of the
Committee, the Committee shall grant the Executive a stock option
under the Amended and Restated KB Home 1999 Incentive Plan (the
"Promotion Option") to purchase shares of the Company’s
common stock. The Promotion Option shall have a grant date value of
$4,000,000 as measured in accordance with Financial Accounting
Statement 123R ("FAS 123R"). The per share
exercise price of such Option shall be equal to the fair market
value of a share of Company common stock on the date of grant. The
Promotion Option shall be governed by the terms set forth in this
Section 2(c) and in that certain Option Agreement attached as
Exhibit A.
(d)
Long-Term Incentive Compensation . With respect to 2007, at
a future meeting of the Committee, the Committee shall grant to the
Executive, pursuant to the Amended and Restated KB Home 1999
Incentive Plan, 54,000 shares of Company’s common stock (the
"Performance Share Grant") and also a stock option to purchase
shares of the Company’s common stock with a total option
grant date value of $4,000,000 as measured in accordance with FAS
123(R) (the "Second Option"). With the exception of the number of
shares subject to each option, the Second Option shall have the
same terms and conditions as the Option. The Performance Shares
shall be governed by the terms set forth in those certain
resolutions of the Committee of even date herewith. With respect to
years after 2007 during the Term of Employment, at the discretion
of the Committee, the Executive shall be entitled to participate in
the Company’s long term incentive compensation arrangements
on terms and conditions no less favorable than the terms and
conditions generally applicable to the Peer Executives, as in
effect from time to time.
(e)
Other Equity Terms . With respect to years after 2007 during
the Term of Employment, at the discretion of the Committee, the
Executive shall be entitled to participate in the Company’s
equity compensation plans on terms and conditions no less favorable
than the terms and conditions generally applicable to the Peer
Executives, as in effect from time to time, and shall be eligible
to receive grants of Company equity (the Promotion Option, Second
Option, Performance Share Grant and any new equity grants to
Executive on or after the Effective Date (but not any equity grants
outstanding immediately prior to the Effective Date) shall
collectively be referred to herein as "Compensatory Equity"), as
determined by Committee, in its discretion from time to time. All
grants of Compensatory Equity to the Executive shall be:
(i) issued pursuant to a KB Home stockholder-approved employee
stock plan (the "Equity Plans"), (ii) issued by the Board (or
its committee of non-employee directors) in accordance with
Rule 16b-3(d)(1) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and (iii) made pursuant to an
effective registration statement filed with the Securities and
Exchange Commission in accordance with the Securities Act of 1933,
as amended ("Securities Act") and the Company shall use
commercially reasonable efforts to maintain the effectiveness of
such registration statement for so long as the Executive is still
holding any Compensatory Equity. Accelerated vesting of
Compensatory Equity may be credited: (x) pursuant to the terms of
this Agreement and in addition (y) pursuant to the terms of
the Equity Plans and any applicable Compensatory Equity agreement.
If Executive’s Service is terminated due to his death or
Disability, then an additional one year of vesting shall be
credited to all outstanding Compensatory Equity, effective as of
the date of such termination. While the Company’s common
stock (or successor stock) is publicly traded, the Executive may
elect to establish a trading plan in accordance with
Rule 10b5-1 of the Exchange Act and in accordance with the
Company’s insider trading policies and stock ownership
guidelines. Executive shall be permitted at his election to satisfy
his tax withholding obligations on each vesting date of the
restricted stock grants (or settlement dates of stock units) via
share withholding with the shares that are surrendered to the
Company valued at their then fair market value as of the applicable
vesting date(s). In the event that an Involuntary Termination,
Change in Control, or Executive’s death or Disability (each a
"Triggering Event") occurs before the formal grant of the Promotion
Option, Second Option
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and/or Performance Share Grant (collectively, the "2007 Equity
Awards") then any such yet-to-be granted 2007 Equity Award shall be
automatically granted by the Committee under the Amended and
Restated KB Home 1999 Incentive Plan immediately prior to the
earliest such Triggering Event.
(f)
Retirement Plan Benefits. The Executive shall be entitled to
participate in the KB Home Retirement Plan in effect as of the
Effective Date. Pursuant to this plan, the Executive shall be
entitled to an annual base retirement benefit from the Company as
provided in the applicable agreement in an amount of $450,000 per
year plus annual cost of living increases as determined each year
by the Committee. The accrued annual benefit for Executive as of
February 9, 2006 was $463,500.
(g)
Employee Benefits. The Executive shall also be eligible to
participate in any employee benefits plans or equity compensation
plans or arrangements (collectively, "Employee Benefits Plans")
maintained or offered by the Company on terms and conditions no
less favorable than the terms and conditions generally applicable
to the Peer Executives. This Agreement shall not adversely affect
the Executive’s existing rights and entitlements under the
Employee Benefits Plans.
(h)
Service Definition . For purposes of this Agreement and the
Executive’s Compensatory Equity, "Service" shall mean service
by the Executive as an employee, director and/or consultant of the
Company (or any subsidiary or parent or affiliated entity of the
Company).
3. Vacation and
Indemnification.
(a)
Vacation . During his Employment, the Executive shall accrue
at least four weeks paid vacation annually in accordance with the
Company’s standard vacation policies as they relate to senior
executive officers.
(b)
Indemnification . The Company shall indemnify the Executive
to the maximum extent permitted by applicable law and the
Company’s bylaws with respect to the Executive’s
Service and the Executive shall also be covered under a directors
and officers liability insurance policy(ies) paid for by the
Company during his Employment. The Company shall maintain directors
and officers liability insurance for the Executive’s benefit
on terms and conditions no less favorable than the terms and
conditions generally applicable to the Peer Executives and the
members of the Board and shall use its commercially reasonable
efforts to maintain at least $50 million of non-rescindable
side A liability coverage on the Executive under its directors and
officers liability insurance policies during Employment and through
at least the fifth anniversary of the Executive’s termination
of Service. The Company’s obligations under this Section 3(b)
shall survive termination of Executive’s Service and also
termination or expiration of this Agreement.
4. Business Expenses.
During his Employment, the Executive shall be authorized to incur
necessary and reasonable travel, entertainment and other business
expenses in connection with his duties hereunder. The Company shall
promptly reimburse the Executive for
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such expenses upon presentation of appropriate supporting
documentation, all in accordance with the Company’s generally
applicable policies.
5. Term of
Employment.
(a)
Basic Rule . This Agreement shall have a term that initially
is scheduled to end on November 30, 2009 (the "End Date") with
an annual option to extend such term. Commencing on May 30, 2009,
this Agreement and the End Date shall be on an annual basis
automatically extended by one year unless the Company or the
Executive gives the other party written notice of its desire to not
extend the Agreement at least six months prior to the initial End
Date or any extension thereof.
(b)
Employment . The Company may terminate the Executive’s
Employment with or without Cause, by giving the Executive
30 days advance notice in writing. The Executive may terminate
his Employment by giving the Company 30 days advance notice in
writing. The Executive’s Employment shall terminate
automatically in the event of his death.
(c)
Rights Upon Termination . Upon the termination of the
Executive’s Employment for any reason, the Executive shall be
entitled to the compensation, benefits and reimbursements described
in this Agreement for the period ending as of the end of the
effective date of the termination (the "Termination Date") and the
Company shall make the following payments to the Executive on his
Termination Date: (i) all unpaid salary and unpaid vacation
accrued through the Termination Date, (ii) any accrued, unpaid
bonuses for any fiscal year of the Company ended prior to the
Termination Date and (iii) any unreimbursed business expenses.
The Executive may also be eligible for other post-Employment
payments and benefits as provided in this Agreement or pursuant to
other agreements or plans with the Company. Upon the Termination
Date, the Executive shall have no further rights to receive
compensation or benefits from the Company except as set forth in
Section 6 and pursuant to the terms of any benefit plans
(including without limitation any equity compensation plans) of the
Company in which the Executive is a participant.
6. Termination
Benefits.
(a)
Severance Pay . If there is an Involuntary Termination (as
defined below) of the Executive’s Employment, subject to the
Executive’s execution, delivery and non-revocation of a
mutual release substantially in the form of Exhibit B (the
"Release"), the Company shall pay the Executive cash in an amount
equal to the sum of two times the Executive’s then annual
Base Compensation and two times the Executive’s average
annual incentive bonus earned for the three fiscal years prior to
the fiscal year of the Termination Date (the "Average Bonus"), not
to exceed $6 million in the aggregate (the "Cash Severance").
While the Cash Severance and other termination benefits in
Sections 6(a), (b) and (c) will be timely provided
to Executive conditioned upon his execution and non-revocation of
the Release (whether or not the Company timely executes and
delivers the Release to Executive), the effectiveness of
Executive’s Release will be conditioned upon the
Company’s similar execution and delivery of the Release to
Executive. For purposes of calculating the Average Bonus:
(i) any payments that were made in the form of restricted
stock or other equity awards shall be valued as of their respective
dates of grant and measured in accordance with the method used by
the
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Company to determine their value for purposes of its financial
statements and (ii) if the Termination Date occurs within the
first 75 days of a fiscal year, then the bonus amount used for
the fiscal year immediately preceding the fiscal year of the
Termination Date (the "Prior Fiscal Year") shall be no less than
the average bonus earned for the two fiscal years preceding the
Prior Fiscal Year. In addition, the Executive shall receive a cash
payment equal to a pro-rata portion of the Average Bonus for the
fiscal year of his termination of employment, with the pro-rata
amount based on the number of calendar days that the Executive was
an employee during such fiscal year divided by 365, provided,
however, that no such payment shall be made if the Company’s
pre-tax income for the four fiscal quarters ending immediately
prior to the Termination Date, in the aggregate, is negative.
Subject to the terms of the Release, all amounts payable under this
Section 6(a) shall be made in a single lump sum payment to the
Executive within thirty (30) days after the Termination Date.
The Executive sha
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