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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 1-9195
KAUFMAN AND BROAD HOME CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INCORPORATED IN DELAWARE 95-3666267
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10990 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 231-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
COMMON STOCK (PAR VALUE $1.00 PER SHARE) NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE NEW YORK STOCK EXCHANGE
PREFERRED STOCK
DEPOSITARY SHARES, EACH REPRESENTING ONE-FIFTH OF A NEW YORK STOCK EXCHANGE
SHARE OF SERIES B MANDATORY CONVERSION PREMIUM
DIVIDEND PREFERRED STOCK (PAR VALUE $1.00 PER SHARE)
10 3/8% SENIOR NOTES DUE 1999 NEW YORK STOCK EXCHANGE
9 3/8% SENIOR SUBORDINATED NOTES DUE 2003 NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. /X/
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE
COMPANY ON JANUARY 31, 1996 WAS $510,923,456.
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK ON JANUARY 31, 1996 WAS AS FOLLOWS:
Common Stock (par value $1.00 per share) 32,352,736 shares
DOCUMENTS INCORPORATED BY REFERENCE
1995 Annual Report to Shareholders (incorporated into Part II).
Notice of 1996 Annual Meeting of Stockholders
and Proxy Statement (incorporated into Part III).
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a builder of single-family homes with domestic operations in
six western states, and international operations in France, Canada and Mexico.
The Company is the largest home builder in the western United States and among
the largest builders in greater metropolitan Paris, France. The Company builds
and markets innovatively designed homes, generally in medium-sized developments
close to major metropolitan areas, that cater primarily to first-time home
buyers. In France, the Company is also a developer of commercial projects and
high-density residential properties, such as condominium and apartment
complexes. The Company also provides mortgage banking services to its domestic
home buyers through its wholly owned subsidiary, Kaufman and Broad Mortgage
Company ("KBMC").
The Company's business originated in 1957 and was operated through various
subsidiaries of SunAmerica Inc. ("SunAmerica"), previously known as Kaufman and
Broad Inc. or Broad Inc., until 1986. At that time, SunAmerica transferred to
the Company all of the outstanding stock of the subsidiaries then conducting
SunAmerica's on-site housing businesses as well as the stock of KBMC. The
Company shortly thereafter completed an initial public offering of its common
stock, after which SunAmerica continued to own approximately 92.6% of the
Company's outstanding common stock. In 1989, SunAmerica distributed
substantially all of its holdings in the Company's common stock pro-rata to
holders of SunAmerica's common stock. SunAmerica, through one of its wholly
owned subsidiaries, continued to hold certain warrants to purchase shares of the
Company's special common stock, which were subsequently either exercised by the
subsidiary of SunAmerica or repurchased by the Company. No securities were held
by SunAmerica or any of its subsidiaries as of December 1993.
The Company is a Delaware corporation and maintains its principal executive
offices at 10990 Wilshire Boulevard, Los Angeles, California 90024. Its
telephone number is (310) 231-4000. As used herein, the term "Company" refers to
Kaufman and Broad Home Corporation and its subsidiaries, unless the context
indicates otherwise.
MARKETS
The Company's three principal geographic markets are California, other
United States (Nevada, Arizona, Colorado, New Mexico and Utah) and the greater
metropolitan area of Paris, France. To a lesser extent, the Company builds
single-family homes in Toronto, Canada. The Company delivered its first homes in
California in 1963, France in 1970, Toronto in 1971, Nevada in 1993, Arizona and
Colorado in 1994 and New Mexico and Utah in 1995. The Company expects to deliver
its first homes in Dallas and San Antonio, Texas in 1996, as recent domestic
expansion activities have included the purchase of land parcels in Dallas and
the signing of a definitive agreement on January 22, 1996, to acquire San
Antonio, Texas-based Rayco, Ltd. and certain affiliates. Rayco Ltd. is the
largest single-family homebuilder in San Antonio. Although the Rayco, Ltd.
transaction remains subject to certain conditions, completion of the acquisition
is expected to occur on March 1, 1996. The Company also anticipates delivery of
its first homes from its start-up housing operation in Mexico in 1996, as it has
begun to generate a modest level of orders from its project near Mexico City.
To enhance its operating capabilities in regional submarkets, the Company
conducted its domestic homebuilding business in 1995 through eleven divisional
offices and two satellite offices in California and one divisional office in
each of Nevada, Arizona, Colorado, New Mexico and Utah.
California. During the 1980s, the Company benefited from the relative
strength and growth of the California housing market. However, in five of the
last six years, new housing permits issued in the state have declined. The
California housing market was soft in 1995, with new housing permits issued
decreasing approximately 12% in 1995 from 1994. While the Company had generally
maintained a trend of increasing deliveries in California in spite of declines
in housing permits issued, in 1995, for the first time in five years the
Company's deliveries in California fell below prior year levels. The Company
delivered 5,430 new homes in California in 1995, a decrease of approximately 13%
from 1994. This decrease was due to severe weather conditions in California
early in the year combined with the state's
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generally weak economy. In spite of the weak economic conditions in California,
the Company has maintained approximately an eight percent share of the
California housing market since 1993.
In Southern California, the Company concentrates its home building activity
in Los Angeles, Kern, San Bernardino, Riverside, Orange and San Diego counties.
In Northern California, the Company's activities are concentrated in the San
Francisco Bay-San Jose, Monterey Bay, Sacramento, Central Valley and Fresno
regions.
Most of the communities developed by the Company consist of single-family
detached homes primarily focused on the entry-level housing market. These homes
ranged in size from 854 to 4,050 square feet in 1995 and sold at an average
price of $176,800, well below the statewide new home average of $224,100, as a
result of the Company's emphasis on the entry-level market. The Company's 1995
average selling price in California increased from the prior year reflecting a
shift in mix to higher-priced homes and an increase in first-time move-up sales.
Other United States. The prolonged economic downturn in California, the
Company's largest market, has caused the Company to look for opportunities to
expand its domestic operations outside the state. The Company began to implement
its expansion strategy in 1993 with the opening of its Nevada division and since
that time has developed a track record of profitable growth outside of
California. The Company's operations outside of California accounted for
approximately 25% of domestic home deliveries in 1995, a percentage which is
expected to increase as these domestic divisions further establish and solidify
their market positions.
Recent developments in the Company's expansion strategy include its entry
into Texas. The Company recently acquired land parcels in Dallas and has also
signed a definitive agreement to acquire Rayco, Ltd. of San Antonio for
approximately $110 million, comprised of $80 million cash and the assumption of
$30 million of debt. Rayco, Ltd., San Antonio's largest single-family
homebuilder, commanded a market share of approximately 45% in 1995. For the year
ended December 31, 1995, Rayco, Ltd. delivered 2,585 homes, generating revenues
of approximately $235 million. It is expected that the Rayco, Ltd. transaction
will be completed on March 1, 1996. If this acquisition had been included in the
Company's operations during the 1995 year, the Company's other United States
deliveries would have represented approximately 45% of domestic deliveries in
1995.
France. The French residential and commercial real estate markets,
particularly within the greater metropolitan Paris region, where the Company's
operations are concentrated, experienced substantial growth through the second
half of the 1980s, as a strong economy and approaching European market
unification fueled business expansion and individual home purchases. In the
early 1990s, however, the French economy experienced a significant recession
reflecting low consumer confidence, high unemployment and declines in both
consumer and business investments in real estate. The French housing market
continued to prove difficult in 1995 as turbulent economic conditions continued
and home buyers deferred purchases until a key government support program was
instituted in October 1995. Despite the current tenuous economic climate in
France, the Company continues to believe that the greater Paris metropolitan
area, which is the principal population, economic and government center of
France, continues to offer long-term potential for growth in both the Company's
residential and commercial operations.
In 1995, the Company's French operations had a break even year with housing
deliveries decreasing approximately 16% to 574 units in 1995 from 1994, as the
French economy remained weak and high unemployment continued during the
economically disruptive election year. The French home building operations
focused primarily on single-family detached and attached homes in 1995, ranging
in size from 807 to 2,691 square feet with an average selling price of $203,700.
The French commercial operation which has been engaged, directly and through
joint ventures, in developing commercial office buildings in Paris for sale to
institutional investors has become a smaller segment of the French operations in
recent years. With the completion of large projects in prior years, the level of
commercial operations has declined as the market absorbed existing commercial
properties. Although commercial development revenues increased modestly in 1995,
the Company does not expect a significant increase from these levels in 1996 as
high vacancy rates are expected to persist in the French commercial market.
The Company's involvement in its most significant commercial project is as
a member of a consortium, consisting of eight of France's largest financial
institutions and three development firms, that was selected in 1992 to acquire
and redevelop the former Paris headquarters of Esso, the French subsidiary of
the Exxon Corporation, located in the prestigious La Defense quarter of
metropolitan Paris. The Company, with a 7% interest in the project, is a
minority partner in the joint venture and one of the three managing contractors
for the redevelopment work for which it will receive a contractor's fee.
Development of this project has been postponed as the consortium made the
decision to await the recovery of the commercial market and the financial
institutions study other alternatives. However, the Company has
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recently entered into negotiations with the financial institutions whereby the
Company would no longer be part of the consortium or have any involvement or
obligations for the development of the project.
Canada. In addition to its principal markets in the western United States
and France, the Company operates a housing division in Toronto, Canada, which
has been slowly winding down over the past few years. The Company has engaged in
negotiations and expects to enter into a definitive agreement pursuant to which
it will sell all of the issued and outstanding shares of Victoria Wood
Development Corporation Inc., its Canadian subsidiary. If executed as
anticipated, the share purchase and sale agreement will remain subject to the
buyer's due diligence review and certain other conditions.
Mexico. In 1993, the Company determined that the projected growth in the
Mexican economy and a shortage of housing in that country's major metropolitan
areas would represent a unique opportunity for the Company, and on that basis
established a new housing operation in Mexico City. However, recent economic
events, particularly the continuing decline in value of the peso and the
resulting economic recession, have seriously hampered the new home market in
Mexico. These events have slowed an already complex regulatory process and
heightened market uncertainties for new home sales. As a result, although the
Company has opened a single-family home project near Mexico City and has begun
to generate a modest number of orders for homes expected to be delivered in
1996, the Company remains cautious regarding its Mexican operations and
continues to reassess its level of activity in Mexico and the desirability of
expanding its market presence there.
Unconsolidated Joint Ventures. The Company currently participates in the
development, construction and sale of residential properties and commercial
projects through a number of unconsolidated joint ventures. These include joint
ventures in the Los Angeles, Paris and Toronto metropolitan areas.
Selected Market Data. The following table sets forth, for each of the
Company's markets, unit deliveries, average selling price of homes and total
construction revenues for the years ended November 30, 1995, 1994 and 1993
(excluding the effect of unconsolidated joint ventures).
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
---------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
California:
Unit deliveries............................................. 5,430 6,238 5,745
Average selling price....................................... $ 176,800 $ 165,900 $ 163,100
Total construction revenues (in millions)(1)................ $ 971.1 $ 1,048.1 $ 938.3
Other United States:
Unit deliveries............................................. 1,800 834 207
Average selling price....................................... $ 136,300 $ 114,900 $ 109,300
Total construction revenues (in millions)(1)................ $ 247.0 $ 101.1 $ 22.6
France:
Unit deliveries............................................. 574 685 657
Average selling price(2).................................... $ 203,700 $ 182,300 $ 187,800
Total construction revenues (in millions)(1)(2)............. $ 138.6 $ 143.4 $ 219.8
Canada:
Unit deliveries............................................. 53 67 155
Average selling price(2).................................... $ 99,400 $ 97,300 $ 88,300
Total construction revenues (in millions)(1)(2)............. $ 10.2 $ 15.0 $ 19.1
Total:
Unit deliveries............................................. 7,857 7,824 6,764
Average selling price(2).................................... $ 168,900 $ 161,300 $ 162,100
Total construction revenues (in millions)(1)(2)............. $ 1,366.9 $ 1,307.6 $ 1,199.8
</TABLE>
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(1) Total construction revenues include revenues from commercial and residential
development activities and land sales.
(2) Average selling prices and total construction revenues for France and Canada
have been translated into U.S. dollars using weighted average exchange rates
for each period.
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LOCAL EXPERTISE
Management believes that its business requires in-depth knowledge of local
markets in order to acquire land in desirable locations and on favorable terms,
to engage subcontractors, to plan communities keyed to local demand, to
anticipate customer tastes in specific markets and to assess the regulatory
environment. The Company's divisional structure is designed to utilize local
market expertise. The Company has experienced management teams in each of its
regional submarkets. Although the Company has centralized certain functions,
such as marketing, materials purchasing and product development to benefit from
economies of scale, local management continues to exercise considerable autonomy
in identifying land acquisition opportunities, developing sales strategies,
conducting production operations and controlling costs.
In France, the Company has assembled a management team which is highly
experienced in the financing, development, construction and rehabilitation of
commercial and high-density residential projects, as well as single-family
housing. This expertise includes knowledge of local markets and the regulatory
environment.
INNOVATIVE DESIGN AND MARKETING STRATEGY
The Company believes that it has been and continues to be an innovator in
the design of entry-level homes for the first-time buyer. The Company's in-house
architectural services group, whose plans are protected by copyright, has been
successful in creating distinctive design features that are not typically found
in comparably priced homes. The Company is typically able to offer as standard
features vaulted ceilings, kitchen islands, kitchens that open to family rooms,
wall-to-wall carpeting and front-yard landscaping. To an even greater extent
than in the past, the Company is emphasizing space-efficient functionality. One
example of this is the broader use of the Company's unique L'Office(TM) computer
workstation area. The L'Office(TM) (a combination of "loft" and "office") areas
are designed to meet most families' home office needs without using up valuable
bedroom or family room space. In France, the Company created a village concept
through the elimination of front-yard walls and the extensive use of
landscaping. It also introduced to the French market the American concept of a
master bedroom suite, as well as walk-in closets, built-in kitchen cabinetry and
two-car garages. The Company believes that in each of its residential markets,
its value engineering enables it to offer appealing and well-designed homes
without increasing construction costs.
In all of its residential markets, the sale of homes is carried out by the
Company's in-house sales force. The Company markets its homes principally
through the use of fully furnished and landscaped model homes which are
decorated to emphasize the distinctive design features. The Company also markets
its homes through various types of media, including newspaper advertisements,
highway signs and direct mail. In addition, the Company extends its marketing
programs beyond these traditional real estate avenues through the use of
television advertising, off-site telemarketing, and large-scale promotions.
Since 1985, the Company's California divisions have utilized an umbrella
marketing concept, The California Series(R). This concept seeks to increase
brand identification by incorporating certain common features in the marketing
programs of its different development communities and by using "California" in
the names of these communities. The Company has registered this trademark name
and features The California Series(R) designs in its sales brochures and other
promotional material.
In 1995, the Company introduced a television advertising campaign featuring
its celebrity spokesperson, award-winning actor Tom Skerritt, to millions of
potential homebuyers in the western United States. Skerritt is perhaps best
known for his leading role in the CBS television series "Picket Fences" and
movie roles in "Top Gun" and "A River Runs Through It."
COMMUNITY DEVELOPMENT
The community development process generally consists of three phases: land
acquisition; land development; and home construction and sale. The normal
development cycle for a community has in the past ranged from six to 20 months
in California and from 12 to 30 months in France. The development cycle varies
depending on the extent of government approvals required, the size of the
development, the site preparation necessary and marketing results.
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The Company attempts to acquire finished lots within its pricing
parameters, where available, enabling it to deliver completed homes shortly
after acquisition. The total number of lots in the Company's domestic new home
communities vary significantly but typically are comprised of 50 to 250 lots.
These domestic developments usually include three different home designs, and in
1995 generally offered lot sizes ranging from 3,500 to 8,500 square feet. The
Company, in prior years, has also acquired certain developments with total lots
significantly in excess of 250 lots. Such developments are not consistent with
the Company's current investment strategy. Strategies to reduce or eliminate
such developments may be considered. In France, typical single-family
developments are smaller, consisting of approximately 40 lots, with lot sizes
generally ranging from 2,500 to 6,500 square feet.
Land Acquisition and Development. The Company utilizes an in-house staff
of land acquisition specialists at each division who carry out extensive site
selection research and analysis in order to identify properties in desirable
locations consistent with the Company's market strategy. In acquiring land, the
Company considers such factors as: current market conditions, with an emphasis
on the prices of comparable homes in the particular market; proximity to
metropolitan areas; population, industrial and commercial growth patterns;
estimated costs of completed lot development; customer preferences; and
environmental matters. Senior corporate management controls the commitment of
the Company's resources for land acquisition and utilizes a series of specific
financial and budgetary controls in approving acquisition opportunities
identified by division land acquisition personnel. During 1995, the Company
implemented stricter standards for assessing all proposed land purchases based,
in part, upon discounted after tax cash flow internal rate of return
requirements. In addition, all operating divisions are measured for the first
time based upon overall return on investment. Among other things, this focus
will likely result in reductions in new land purchases and inventory investment
in California during 1996 as a step toward improving the Company's overall
return on equity over time. Cash flow available from reduced California
investment will be used to fund the Company's expansion into other western
states as well as reduce overall leverage as measured by the ratio of debt to
total capital.
The following table shows the number of lots owned by the Company in
various stages of development and under option contract in its principal markets
as of November 30, 1995. The following table does not include acreage which has
not yet been approved for subdivision into lots. This excluded acreage includes
1,089 acres owned in the United States and 223 acres owned in other areas.
<TABLE>
<CAPTION>
TOTAL LOTS
HOMES/LOTS IN LAND UNDER LOTS UNDER OWNED OR
PRODUCTION DEVELOPMENT OPTION UNDER OPTION
------------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
California........................ 9,698 11,331 10,338 31,367
Other United States............... 2,046 825 2,515 5,386
France............................ 694 547 373 1,614
Canada and other.................. 153 158 -- 311
------------- ------------- ---------- ------------
Total................... 12,591 12,861 13,226 38,678
=========== ========== ======== ==========
</TABLE>
The Company has focused its domestic efforts on acquiring finished or
partially improved lots, usually under options which are exercised as the lots
are needed. The purchase of finished lots generally allows the Company to begin
delivery of finished homes within six months of the purchase of such lots and
reduces the risks of unforeseen improvement costs and volatile market
conditions. During the early 1990s, the Company made a number of advantageous
purchases of finished lots in California, as many builders were unable to
proceed with projects due to the tight restrictions on the availability of
capital imposed by financial institutions. Although such opportunities were not
as prevalent in the Company's domestic markets in 1995, the Company expects to
continue this strategy into the immediate future to the extent such
opportunities remain available.
While the Company has significantly reduced the proportion of unentitled
and unimproved land purchases, when all acquired property is considered, the
Company has and expects to continue to purchase raw land under options which
require little or no initial payments, or pursuant to purchase agreements in
which the Company's obligations are contingent upon the Company being satisfied
with the feasibility of developing and selling homes. During the option period
of its acquisition agreements, the Company performs technical, environmental,
engineering and entitlement feasibility studies and seeks to obtain necessary
government approvals. The use of option arrangements allows the Company to
evaluate and obtain regulatory approvals for a project, to reduce its financial
commitments, including interest and other carrying costs, and to minimize land
inventories. It also improves the Company's capacity to estimate costs
accurately, an important element in planning communities and pricing homes.
Generally, the Company purchases only amounts sufficient for its expected
production needs and does not purchase land for speculative investment.
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In France, as a result of the continued uncertainty in the French real
estate market, the Company is employing a number of recession-conscious
strategies, including a greater emphasis on the entry-level market segment and
generally more restrictive policies regarding new land acquisition.
Home Construction and Sale. Following the purchase of land and, if
necessary, the completion of the entitlement process, the Company typically
begins marketing the homes and constructing several model homes. The
construction of production homes is generally contingent upon customer orders to
minimize the costs and risks of standing inventory. Due to the Company's
continued domestic expansion overall inventory levels increased in 1995.
The Company acts as the general contractor for its communities and hires
subcontractors for all production. The use of subcontractors enables the Company
to reduce its investment in direct labor costs, equipment and facilities. Where
practical, the Company uses mass production techniques, construction on
contiguous lots, and prepackaged, standardized components and materials to
streamline the on-site production phase. During the early 1990s, the Company
developed a system of national purchasing of certain building materials,
appliances and other items to take advantage of economies of scale and to reduce
costs. At all stages of production, the Company's own administrative and on-site
supervisory personnel coordinate the activities of subcontractors and subject
their work to quality and cost controls.
The Company generally prices its homes only after it has entered into
contracts for the construction of such homes with subcontractors, an approach
which improves its ability to estimate costs accurately.
The Company provides customers with a limited home warranty program
operated by the personnel in each of its divisions to give customers prompt and
efficient post-delivery service. The warranty program covers certain repairs
which may be necessary following new home construction and covers structural
integrity for a period of ten years. In the aggregate, the costs associated with
the Company's warranty program are not material to its operations.
CYCLICALITY
The Company's business, and the housing industry in general, are cyclical.
The Company's operations and markets are affected by local and regional factors
such as local economies, demographic demand for housing, population growth,
property taxes and energy costs, and by national factors such as short and
long-term interest rates, federal mortgage financing programs, federal income
tax provisions and general economic trends. In addition homebuilders are subject
to various risks including availability and cost of land, conditions of supply
and demand in local markets, weather conditions, delays in construction
schedules and the entitlement process. Net orders often vary on a seasonal
basis, with the lowest sales activity typically occurring in the winter months.
The Company's 1995 financial results were particularly affected by certain
factors, including but not limited to the weak economic conditions in California
and France, severe weather conditions in California in early 1995 and a lack of
urgency among potential homebuyers in many of the Company's markets.
BACKLOG
Sales of the Company's homes are made pursuant to standard sales contracts,
which generally require a customer deposit at the time of execution and an
additional payment upon mortgage approval. The Company generally permits
customers to cancel their obligations and obtain refunds of their deposits in
the event mortgage financing is unobtainable within a specified period of time.
Backlog consists of homes for which the Company has entered into a sales
contract but which it has not yet delivered. Ending backlog represents the
number of units in backlog from the previous period plus the number of net
orders (sales made less cancellations) taken during the current period minus
unit deliveries made during the current period. The backlog at any given time
will be affected by cancellations which most commonly result from the inability
of a prospective purchaser to obtain financing. Historically, the Company's
cancellation rates have increased during difficult economic periods. In
addition, as demonstrated by the table below, deliveries of new homes have
typically increased from the first to the fourth quarter in any year.
Accordingly, the Company usually experiences a relatively low backlog of orders
at year end.
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The following table sets forth net orders, unit deliveries and ending
backlog relating to sales of homes and homes under contract for each quarter
during the three-year period ended November 30, 1995.
<TABLE>
<CAPTION>
NET UNIT ENDING
ORDERS DELIVERIES BACKLOG
------ ---------- -------
<S> <C> <C> <C>
Fiscal 1995:
First Quarter.......................... 1,636 1,367 1,285
Second Quarter......................... 2,241 1,875 1,651
Third Quarter.......................... 2,311 2,111 1,851
Fourth Quarter......................... 2,065 2,504 1,412
Fiscal 1994:
First Quarter.......................... 1,684 1,539 1,204
Second Quarter......................... 2,035 1,954 1,285
Third Quarter.......................... 2,078 2,082 1,281
Fourth Quarter......................... 1,984 2,249 1,016
Fiscal 1993:
First Quarter.......................... 1,387 1,067 1,451
Second Quarter......................... 1,752 1,558 1,645
Third Quarter.......................... 1,717 1,885 1,477
Fourth Quarter......................... 1,836 2,254 1,059
</TABLE>
LAND AND RAW MATERIALS
Management believes that the Company's current supply of land is sufficient
for its reasonably anticipated needs, and that it will be able to acquire land
on acceptable terms for future housing developments. The principal raw materials
used in the construction of homes are concrete and forest products. In addition,
the Company uses a variety of other construction materials, including sheetrock
and glass. The Company attempts to maintain efficient operations by utilizing
standardized materials which are commercially available on competitive terms
from a variety of sources. Since 1992, the Company has increasingly utilized
centralized purchasing of certain building materials, appliances and fixtures,
enabling it to benefit from large quantity purchase discounts for its domestic
operations. The Company makes bulk purchases of such products at favorable
prices from suppliers and instructs subcontractors to submit bids based on such
prices.
The principal materials used in the construction of French commercial
buildings are steel, concrete and glass.
LAND SALES
In the normal course of its business, the Company sells land which can be
sold at an advantageous price due to market conditions or does not meet its
marketing needs. This property may consist of land zoned for commercial use
which is part of a larger parcel being developed for single-family homes or in
areas where the Company may consider its inventory to be excessive. The
Company's decisions to maintain or decrease its land ownership position in
certain markets may be impacted by the strength and number of competing
developers entering particular markets at given points in time, the availability
of land in markets served by the Company's housing divisions, and prevailing
market conditions.
CUSTOMER FINANCING -- KAUFMAN AND BROAD MORTGAGE COMPANY
At the Company's communities in the United States, on-site personnel
facilitate sales by offering to arrange financing for prospective customers
through KBMC. Management believes that the ability to offer customers financing
on firm, competitive terms as a part of the sales process is an important factor
in completing sales. The Company typically assists customers in arranging for
guaranteed maximum interest rates at the time of sale even though delivery may
take place in the future.
KBMC's business consists of providing the Company's domestic customers with
competitive financing and coordinating and expediting the loan origination
transaction through the steps of loan application, loan approval and closing.
KBMC has its headquarters in Los Angeles and operates branch offices in Anaheim,
Dublin, Fremont, Fresno, Los
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<PAGE> 9
Angeles, Modesto, Newport Beach, Palmdale, Sacramento, Salinas and San Diego,
California; Las Vegas, Nevada; Phoenix, Arizona; Denver, Colorado; Albuquerque,
New Mexico; and Salt Lake City, Utah.
KBMC's principal sources of revenues are: (i) interest income earned on
mortgage loans during the period they are held by KBMC prior to their sale to
investors; (ii) net gains from the sale of loans; (iii) loan servicing fees; and
(iv) revenues from the sale of the rights to service loans.
KBMC is approved by the Government National Mortgage Association ("GNMA")
as a seller-servicer of Federal Housing Administration ("FHA") and Veterans
Administration ("VA") loans. A portion of the conventional loans originated by
KBMC (i.e., loans other than those insured by FHA or guaranteed by VA) qualify
for inclusion in loan guarantee programs sponsored by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"). KBMC arranges for fixed and adjustable rate, conventional, privately
insured mortgages, FHA-insured or VA-guaranteed mortgages, and mortgages funded
by revenue bond programs of states and municipalities. In fiscal 1995,
approximately 44% of the mortgages originated for the Company's customers were
conventional, (most of which conformed to FNMA and FHLMC guidelines) 36% were
FHA-insured or VA-guaranteed, a portion of which are adjustable rate loans, 15%
were funded by mortgage revenue bond programs and 5% were adjustable rate
mortgages ("ARMs") primarily provided through commitments from institutional
investors. The percentages set forth above change from year to year reflecting
then-current fixed interest rates, introductory rates for ARMs, housing prices
and other economic conditions. In 1995, KBMC originated loans for 80% of the
Company's domestic home deliveries. Generally, KBMC receives an origination fee
of approximately 1% of the principal amount of the loan.
KBMC is a delegated underwriter under the FHA Direct Endorsement and VA
Automatic programs in accordance with criteria established by such agencies.
Additionally, KBMC has delegated underwriting authority from FNMA and FHLMC. As
a delegated underwriter, KBMC may underwrite and close mortgage loans under
programs sponsored by these agencies without their prior approval, which
expedites the loan origination process.
KBMC, like other mortgage bankers, customarily sells nearly all of the
loans that it originates. Loans are sold either individually or in pools to
GNMA, FNMA or FHLMC or against forward commitments to institutional investors,
including banks and savings and loan associations.
For a small percentage of loans, and to the extent required for loans being
held for sale to investors, KBMC services the mortgages that it originates.
Servicing includes collecting and remitting loan payments, accounting for
principal and interest, making inspections of mortgaged premises as required,
monitoring delinquent mortgages and generally administering the loans.
KBMC receives fees for servicing mortgage loans, generally ranging from
.20% per annum to .50% per annum on the declining principal balances of the
loans. KBMC typically sells servicing rights on a regular basis.
The Company also assists its customers in France by arranging financing
through third party lenders, primarily major French banks with which the Company
has established relationships. In some cases, French customers qualify for
certain government-assisted, home financing programs. A second mortgage is
usually handled through a government agency. A home buyer in France may also
have a third mortgage provided through credit unions or other employee groups.
EMPLOYEES
The Company employs a trained staff of land acquisition specialists,
architects, planners, engineers, construction supervisors, marketing and sales
personnel and finance and accounting personnel, supplemented as necessary by
outside consultants, who guide the development of communities from their
conception through the marketing and sale of completed homes.
At January 31, 1996, the Company had approximately 1,220 full-time
employees in its operations, including approximately 130 in KBMC's operations.
COMPETITION AND OTHER FACTORS
The Company's business is highly competitive. It competes primarily on the
basis of price, location, financing, design, reputation, quality and amenities
with numerous housing producers ranging from regional and national firms to
8
<PAGE> 10
small builders. Resales of housing provide additional competition. In certain
markets and at times when housing demand is high, the Company also competes with
other builders to hire subcontractors.
KBMC competes with other mortgage lenders, including mortgage bankers,
savings and loan associations and other financial institutions, in the
origination, sale and servicing of mortgage loans.
Increases in interest rates typically have a negative impact on the
Company's operations in that such increases adversely affect the availability of
home financing to, or qualification for such financing by, the Company's
customers. Conversely, significant reductions in interest rates typically have a
positive effect on the Company's operations.
The Company does not generally finance the development of its domestic
communities with proceeds of loans specifically obtained for, or secured by,
particular communities, i.e., project financing. Instead, financing of the
Company's domestic operations has been primarily generated from results of
operations, public debt and equity financing and borrowings under its $500
million unsecured revolving credit facility with a consortium of domestic and
foreign banks. This revolving credit facility includes a $200 million sublimit
for the Company's mortgage banking operations. Financing of its French
operations has been primarily generated from results of operations and
borrowings from its aggregate $140 million unsecured committed credit lines from
a series of foreign banks. As a result of these diverse external sources of
financing, the Company was not adversely affected by the tight credit conditions
that much of the homebuilding industry experienced during the recent recession,
both domestically and in France.
REGULATION AND ENVIRONMENTAL MATTERS
The housing industry is subject to extensive and complex regulations. The
Company and its subcontractors must comply with various federal, state and local
laws, ordinances, rules and regulations concerning zoning, building design,
construction and similar matters. The operations of the Company are affected by
environmental laws and regulations, including regulations pertaining to
availability of water, municipal sewage treatment capacity, land use, protection
of endangered species, population density and preservation of the natural
terrain and coastlines. These and other requirements could become more
restrictive in the future, resulting in additional time and expense to obtain
approvals for the development of communities.
The Company is also subject to regulations and restrictions by the
governments of France, Canada and Mexico concerning investments in business
operations in those countries by United States companies, none of which has to
date had a material adverse effect on the Company's consolidated operations. The
Company's foreign operations are subject to exchange rate fluctuations, which
affect the Company's financial statements and the reporting of profits and
payment of dividends from foreign subsidiaries, to restrictive foreign
government regulations which may be in effect from time to time and to the terms
of the Foreign Corrupt Practices Act with which it is the strict policy of the
Company to comply. In addition, the Company has received dividends from its
French and Canadian operations without burdensome restrictions, although tax
considerations have limited the amount of such dividends.
KBMC is subject to numerous federal, state and local laws, ordinances,
rules and regulations concerning loans to purchasers of homes as well as Company
eligibility for participation in programs of the VA, FHA, GNMA, FNMA and FHLMC.
The Company entered into a consent order with the Federal Trade Commission
("FTC") in 1979 pursuant to which the Company agreed to provide explicit
warranties on the quality and workmanship of its new homes, follow certain
guidelines in advertising and provide certain disclosures to any prospective
purchaser who visits Company sales offices or model homes. In 1991, the Company
reached a monetary settlement with the FTC, covering alleged violations of the
Company's consent order. The FTC acknowledged that the Company did not admit any
of the allegations and did not impose any additional requirements on the
Company.
The Company currently has policies of using outside environmental
specialists to investigate land considered for acquisition for environmental
risks and requiring disclosure from land sellers of known environmental risks.
Despite these activities, there can be no assurance that the Company will avoid
material liabilities relating to the removal of toxic wastes, site restoration,
monitoring or other environmental matters affecting properties currently or
previously owned by the Company. Costs associated with the use of environmental
consultants are not material to the Company's results of operations. No estimate
of such potential liabilities can be made although the Company may, from time to
time, purchase property which requires modest environmental clean-up costs after
appropriate due diligence. In such instances,
9
<PAGE> 11
the Company takes steps prior to acquisition to assure itself as to the precise
scope of work required and costs associated with removal, site restoration
and/or monitoring, using detailed investigations by environmental consultants.
To the extent such costs have occurred in the past, the Company believes it may
be able to recover such costs from third parties, including, but not limited to,
the generators of hazardous waste, land sellers or others in the prior chain of
title and/or insurers. Utilizing such policies, the Company anticipates that it
is not likely that environmental clean-up costs will have a material effect on
future results of operations or the Company's financial position. The Company
has not been notified by any governmental agency of any claim that any of the
properties owned or formerly owned by the Company are identified by the
Environmental Protection Agency as being a "Superfund" clean-up site requiring
clean-up costs, which could have a material effect on future results of
operations or the Company's financial position.
ITEM 2. PROPERTIES
The Company's executive offices are in leased premises at 10990 Wilshire
Boulevard, Los Angeles, California. The Company's housing operations are
principally conducted from leased premises located in Anaheim, Bakersfield,
Dublin, Fremont, Fresno, Los Angeles, Modesto, Newport Beach, Palmdale,
Pleasanton, Sacramento, Salinas and San Diego, California; Las Vegas, Nevada;
Phoenix, Arizona; Denver, Colorado; Albuquerque, New Mexico; Salt Lake City,
Utah; Paris, France; Toronto, Canada; and Mexico City, Mexico.
The Company's mortgage banking subsidiaries lease executive offices in Los
Angeles, California and branch offices in Anaheim, Dublin, Fremont, Fresno, Los
Angeles, Modesto, Newport Beach, Palmdale, Sacramento, Salinas and San Diego,
California; Las Vegas, Nevada; Phoenix, Arizona; Denver, Colorado; Albuquerque,
New Mexico; and Salt Lake City, Utah.
The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
ITEM 3. LEGAL PROCEEDINGS
In August 1992, homeowners from the Company's California Meadows community
in Riverside County filed a lawsuit against the Company in Riverside County
Superior Court seeking compensatory and punitive damages and alleging, among
other things, defective construction, breach of warranty, negligence and fraud.
The owners of approximately 115 homes are currently involved in the litigation.
In February 1994, the Company filed cross-complaints against relevant
subcontractors and certain other third parties. The Company believes that it has
acted fairly and responsibly toward all homeowners at that community. Based upon
its thorough investigation of the site, the Company believes that the most
serious allegations in this lawsuit are substantially without merit and has
contested such claims.
The Company is involved in other litigation incidental to its business.
These cases are in various stages of development and, based on reports of
counsel, it is management's opinion that provisions made for potential losses in
the California Meadows and other matters are adequate and any further
liabilities and costs arising out of currently pending litigation will not have
a materially adverse effect upon the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1995 to a vote of
security holders, through the solicitation of proxies or otherwise.
10
<PAGE> 12
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information regarding the executive
officers of the Company as of January 31, 1996:
<TABLE>
<CAPTION>
YEAR
ASSUMED OTHER POSITIONS AND OTHER
PRESENT POSITION AT PRESENT BUSINESS EXPERIENCE WITHIN
NAME AGE JANUARY 31, 1996 POSITION THE LAST FIVE YEARS(1) FROM - TO
- ---------------------- --- ------------------------------ -------- ----------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Bruce Karatz 50 Chairman, President and 1993 President and Chief Executive Officer 1986 - 1993
Chief Executive Officer
Roger B. Menard 54 Executive Vice President 1993 Executive Vice President and President 1992 - 1993
and President of United of California Operations
States Operations President of Kaufman and Broad-South 1985 - 1992
Bay, Inc.
Guy Nafilyan 51 Executive Vice President 1992 President and Chief Executive Officer 1983 - Present
and President of European of Kaufman and Broad France
Operations Senior Vice President 1987 - 1992
Michael F. Henn 47 Senior Vice President and 1994 Executive Vice President, Chief Financial 1986-1994
Chief Financial Officer and Administrative Officer, The Vons
Companies, Inc.
Alan Kaye 42 Senior Vice President, 1996 Vice President, Human Resources 1991 - 1996
Human Resources and and Organizational Planning
Organizational Planning Senior Vice President for 1988 - 1991
Human Resources and Corporate Services,
Columbia Savings & Loan Association
Barton P. Pachino 36 Senior Vice President 1993 Vice President and Corporate Counsel 1991 - 1993
and General Counsel Associate Corporate Counsel 1987 - 1991
Albert Z. Praw 47 Senior Vice President, 1994 Partner in law firm of Sidley & Austin 1992-1994
Real Estate Senior Vice President, General 1989-1992
Counsel and Secretary
Michael L. Woodley 38 Senior Vice President, 1992 Vice President, Architecture 1989 - 1992
Architecture
William R. Hollinger 37 Vice President 1992 Director of Accounting 1988 - 1992
and Controller
Dennis Welsch 39 Vice President 1995 Vice President and Controller 1995
and Treasurer of Kaufman and Broad - South Bay, Inc.
Controller of Kaufman and Broad - 1993-1994
South Bay, Inc.
Vice President, Treasurer A-M Homes 1986-1993
</TABLE>
- ---------------
(1) All positions described were with the Company, unless otherwise indicated.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of January 31, 1996, there were 2,186 holders of record of the Company's
common stock.
Information as to the Company's quarterly stock prices is included on the
inside back cover of the Company's 1995 Annual Report to Stockholders, which is
included as part of Exhibit 13 and is incorporated in this Annual Report on Form
10-K.
Information as to the principal markets on which the Company's common stock
is being traded and quarterly cash dividends is included on the inside back
cover of the Company's 1995 Annual Report to Stockholders, which is included as
part of Exhibit 13 and is incorporated in this Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The Five Year Summary of Kaufman and Broad Home Corporation and its
consolidated subsidiaries for the five-year period ended November 30, 1995 is
included on page 24 in the Company's 1995 Annual Report to Stockholders, which
is included as part of Exhibit 13 and is incorporated in this Annual Report on
Form 10-K. It should be read in conjunction with the consolidated financial
statements included in the Company's 1995 Annual Report to Stockholders which
are also included as part of Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Kaufman and Broad Home Corporation is included on pages 25 through
32 in the Company's 1995 Annual Report to Stockholders, which are included as
part of Exhibit 13 and are incorporated in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Kaufman and Broad Home Corporation
are included on pages 33 through 45 in the Company's 1995 Annual Report to
Stockholders, which are included as part of Exhibit 13 and are incorporated in
this Annual Report on Form 10-K. Reference is made to the Index to Financial
Statements on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The Notice of 1996 Annual Meeting of Stockholders and Proxy Statement,
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
incorporated by reference in this Annual Report on Form 10-K pursuant to General
Instruction G(3) of Form 10-K, provides the information required under Part III
(Items 10, 11, 12 and 13) except for the information regarding the executive
officers of the Company, which is included in Part I on page 11 herein.
12
<PAGE> 14
PART IV
ITEM 14. FINANCIAL STATEMENTS, EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
Reference is made to the index set forth on page F-1 of this Annual
Report on Form 10-K.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------------------
<S> <C>
3.1 Amended Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-6471 on Form S-1, is
incorporated by reference herein.
3.2 Amendment to Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-30140 on Form S-1, is
incorporated by reference herein.
3.3 Certificate of Designation of Series A Participating Cumulative
Preferred Stock, filed as an exhibit to the Company's Registration
Statement No. 33-30140 on Form S-1, is incorporated by reference herein.
3.4 Certificate of Designation of Series B Mandatory Conversion Premium
Dividend Preferred Stock, filed as an exhibit to the Company's
Registration Statement No. 33-59516 on Form S-3, is incorporated by
reference herein.
3.5 Amended Certificate of Designation of Series B Mandatory Conversion
Premium Dividend Preferred Stock, filed as an exhibit to the Company's
Registration Statement No. 33-59516 on Form S-3, is incorporated by
reference herein.
3.6 By-Laws, filed as an exhibit to the Company's Registration Statement No.
33-30140 on Form S-1, is incorporated by reference herein.
4.1 Amended Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-6471 on Form S-1, is
incorporated by reference herein.
4.2 Amendment to Certificate of Incorporation, filed as an exhibit to the
Company's Registration Statement No. 33-30140 on Form S-1, is
incorporated by reference herein.
4.3 By-Laws, filed as an exhibit to the Company's Registration Statement No.
33-30140 on Form S-1, is incorporated by reference herein.
4.4 Rights Agreement between the Company and Bank of America National Trust
and Savings Association, successor-by-merger to Security Pacific
National Bank, as Rights Agent, dated February 21, 1989, filed as an
exhibit to the Company's 1989 Annual Report on Form 10-K, is
incorporated by reference herein.
4.5 Indenture relating to 10 3/8% Senior Notes due 1999 between the Company
and NBD Bank, N.A., dated September 1, 1992, filed as an exhibit to the
Company's Registration Statement No. 33-50732 on Form S-3, is
incorporated by reference herein.
4.6 Specimen of 10 3/8% Senior Notes filed as an exhibit to the Company's
Current Report on Form 8-K, reporting certain exhibits in connection
with the Company's Registration Statement No. 33-50732 on Form S-3 filed
by the Company relating to the registration of 10 3/8% Senior Notes due
1999, is incorporated by reference herein.
4.7 Indenture relating to 9 3/8% Senior Subordinated Notes due 2003 between
the Company and First National Bank of Boston, dated May 1, 1993, filed
as an exhibit to the Company's Registration Statement No. 33-59516 on
Form S-3, is incorporated by reference herein.
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------------------
<S> <C>
4.8 Specimen of 9 3/8% Senior Subordinated Notes filed as an exhibit to the
Registration Statement No. 33-59516 on Form S-3 filed by the Company
relating to the registration of 9 3/8% Senior Subordinated Notes due
2003, is incorporated by reference herein.
10.1 Employment Contract of Bruce Karatz, dated January 4, 1988, filed as an
exhibit to the Company's 1987 Annual Report on Form 10-K, is
incorporated by reference herein.
10.2 1986 Stock Option Plan, filed as an exhibit to the Company's
Registration Statement No. 33-6471 on Form S-1, is incorporated by
reference herein.
10.3 1988 Employee Stock Plan, filed as an exhibit to the definitive Joint
Proxy Statement for the Company's 1989 Special Meeting of Shareholders,
is incorporated by reference herein.
10.4 Consent Order, Federal Trade Commission Docket No. C-2954, dated
February 12, 1979, filed as an exhibit to the Company's Registration
Statement No. 33-6471 on Form S-1, is incorporated by reference herein.
10.5 SunAmerica Inc. Executive Deferred Compensation Plan, approved September
25, 1985, filed as an exhibit to SunAmerica Inc.'s 1985 Annual Report on
Form 10-K, is incorporated by reference herein.
10.6 Directors' Deferred Compensation Plan established effective July 27,
1989, filed as an exhibit to the Company's 1989 Annual Report on Form
10-K, is incorporated by reference herein.
10.7 Settlement with Federal Trade Commission of June 27, 1991, filed as an
exhibit to the Company's Current Report on Form 8-K, dated June 28,
1991, is incorporated by reference herein.
10.8 Indenture relating to 10 3/8% Senior Notes due 1999 between the Company
and NBD Bank, N.A., dated September 1, 1992, filed as an exhibit to the
Company's Registration Statement No. 33-50732 on Form S-3, is
incorporated by reference herein.
10.9 Indenture relating to 9 3/8% Senior Subordinated Notes due 2003 between
the Company and First National Bank of Boston, dated May 1, 1993, filed
as an exhibit to the Company's Registration Statement No. 33-59516 on
Form S-3, is incorporated by reference herein.
10.10 Employment Contract of Roger B. Menard, dated April 6, 1992, filed as an
exhibit to the Company's 1992 Annual Report on Form 10-K, is
incorporated by reference herein.
10.11 1993 Directors' Stock Plan, approved April 1, 1993, filed as an exhibit
to the definitive Proxy Statement for the Company's 1993 Annual Meeting
of Shareholders, is incorporated by reference herein.
10.12 Amendments to the Kaufman and Broad Home Corporation 1988 Employee Stock
Plan dated January 27, 1994, filed as an exhibit to the Company's 1994
Annual Report on Form 10-K, is incorporated by reference herein.
10.13 Employment Agreement of Albert Z. Praw, dated February 20, 1994, filed
as an exhibit to the Company's 1994 Annual Report on Form 10-K, is
incorporated by reference herein.
10.14 Employment Agreement of Michael F. Henn, dated June 7, 1994, filed as an
exhibit to the Company's 1994 Annual Report on Form 10-K, is
incorporated by reference herein.
10.15 Third Amended and Restated Loan Agreement among the Company, Bank of
America National Trust and Savings Association, and the First National
Bank of Chicago, as managing agents, and the banks listed therein, dated
November 21, 1994, filed as an exhibit to the Company's 1994 Annual
Report on Form 10-K, is incorporated by reference herein.
10.16 Letter dated February 16, 1995 amending Employment Contract of Bruce
Karatz, filed as an exhibit to the Company's 1994 Annual Report on Form
10-K, is incorporated by reference herein.
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------------------
<S> <C>
10.17 Letter dated February 27, 1995 amending Employment Contract of Roger B.
Menard, filed as an exhibit to the Company's 1994 Annual Report on Form
10-K, is incorporated by reference herein.
10.18 Kaufman and Broad Home Corporation Performance-Based Incentive Plan for
Senior Management, approved by Stockholders on March 23, 1995.
10.19 Form of Stock Option Agreement under Kaufman and Broad Home Corporation
Performance-Based Incentive Plan for Senior Management.
10.20 Employment Contract of Bruce Karatz, dated December 1, 1995.
10.21 Kaufman and Broad Home Corporation Directors' Restricted Stock Plan.
10.22 Kaufman and Broad Home Corporation Directors' Legacy Program.
11 Statement of Computation of Per Share Earnings.
13 Pages 24 through 45 and the inside back cover of the Company's 1995
Annual Report to Stockholders.
22 Subsidiaries of the Company.
24 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are not
applicable or the required information is shown in the consolidated
financial statements and notes thereto.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1995.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KAUFMAN AND BROAD HOME CORPORATION
By: MICHAEL F. HENN
-------------------------------------
Michael F. Henn
Senior Vice President
and Chief Financial Officer
Dated: February 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
BRUCE KARATZ Chairman, President February 22, 1996
- ---------------------------------------------- and Chief Executive
Bruce Karatz Officer
MICHAEL F. HENN Senior Vice President February 22, 1996
- ---------------------------------------------- and Chief Financial Officer
Michael F. Henn
RONALD W. BURKLE Director February 22, 1996
- ---------------------------------------------
Ronald W. Burkle
JANE EVANS Director February 22, 1996
- ---------------------------------------------
Jane Evans
DR. RAY R. IRANI Director February 22, 1996
- ---------------------------------------------
Dr. Ray R. Irani
ANTOINE JEANCOURT-GALIGNANI Director February 22, 1996
- ---------------------------------------------
Antoine Jeancourt-Galignani
JAMES A. JOHNSON Director February 22, 1996
- ---------------------------------------------
James A. Johnson
GUY NAFILYAN Director February 22, 1996
- ---------------------------------------------
Guy Nafilyan
LUIS G. NOGALES Director February 22, 1996
- ---------------------------------------------
Luis G. Nogales
LESTER POLLACK Director February 22, 1996
- ---------------------------------------------
Lester Pollack
SANFORD C. SIGOLOFF Director February 22, 1996
- ---------------------------------------------
Sanford C. Sigoloff
</TABLE>
16
<PAGE> 18
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the report thereon of
Ernst & Young LLP, dated January 4, 1996, except as to Note 13, as to which the
date is January 22, 1996, all appearing on pages 33 through 45 in the 1995
Annual Report to Stockholders, are incorporated in this Annual Report on Form
10-K between page F-1 and the List of Exhibits Filed. With the exception of the
aforementioned information and the information incorporated in Items 5, 6 and 7,
the 1995 Annual Report to Stockholders is not to be deemed filed as part of this
Annual Report on Form 10-K.
Separate combined financial statements of the Company's unconsolidated
joint venture activities have been omitted because, if considered in the
aggregate, they would not constitute a significant subsidiary as defined by Rule
3-09 of Regulation S-X.
------------------------
<TABLE>
<CAPTION>
PAGE NO. IN
ANNUAL REPORT
TO SHAREHOLDERS
-----------------
<S> <C>
KAUFMAN AND BROAD HOME CORPORATION
Report of Independent Auditors............................................ 45
Consolidated Statements of Income for the years ended November 30, 1995,
1994 and 1993.......................................................... 33
Consolidated Balance Sheets as of November 30, 1995 and 1994.............. 34
Consolidated Statements of Stockholders' Equity for the years ended
November 30, 1995, 1994 and 1993....................................... 35
Consolidated Statements of Cash Flows for the years ended November 30,
1995, 1994 and 1993.................................................... 36
Notes to Consolidated Financial Statements................................ 37 through 44
</TABLE>
The following pages represent pages 24 through 45 and the inside back cover
of the 1995 Annual Report to Stockholders of Kaufman and Broad Home Corporation,
and include the Five Year Summary, Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Consolidated Financial
Statements and related notes thereto, the Report of Independent Auditors,
Stockholder Information and Quarterly Stock Prices. These pages were filed with
the Securities and Exchange Commission as Exhibit 13 to this Annual Report on
Form 10-K.
F-1
<PAGE> 19
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Years ended November 30,
- ------------------------------------------------------------------------------------------------------------------------------
In thousands, except per share amounts 1995 1994 1993 1992 1991
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
CONSTRUCTION:
Revenues $1,366,866 $1,307,570 $1,199,776 $1,052,525 $1,176,386
Operating income 65,531 88,323 86,609 58,897 76,037
Total assets 1,269,208 1,167,136 983,442 987,104 916,002
Mortgages and notes payable 639,575 565,020 313,357 258,147 230,580
===================================================================
MORTGAGE BANKING:
Revenues $ 29,660 $ 28,701 $ 38,078 $ 41,643 $ 44,609
Operating income 9,348 6,003 7,534 4,556 4,436
Total assets 304,971 287,324 355,936 444,656 457,021
Notes payable 151,000 125,000 138,500 143,700 84,000
Collateralized mortgage obligations 84,764 96,731 144,143 222,948 300,894
===================================================================
CONSOLIDATED:
Revenues $1,396,526 $1,336,271 $1,237,854 $1,094,168 $1,220,995
Operating income 74,879 94,326 94,143 63,453 80,473
Net income 29,059 46,550 39,921 28,198 26,520
Total assets 1,574,179 1,454,460 1,339,378 1,431,760 1,373,023
Mortgages and notes payable 790,575 690,020 451,857 401,847 314,580
Collateralized mortgage obligations 84,764 96,731 144,143 222,948 300,894
Convertible subordinated notes 162,022 149,798
Stockholders' equity 415,478 404,747 444,340 318,433 258,106
===================================================================
EARNINGS PER SHARE $ .73 $ 1.16 $ .96 $ .78 $ .80
CASH DIVIDENDS PER COMMON SHARE .30 .30 .30 .30 .30
==============================================================================================================================
</TABLE>
24
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW Revenues are generated from the Company's housing operations in the
western United States, France and Canada; commercial development activities in
France; and domestic mortgage banking operations. The Company's start-up
housing operation in Mexico has yet to produce revenues. Operating results in
1995 were adversely affected by weak housing markets in California and France
as well as severe weather conditions in California in early 1995. Beyond these
markets, the Company continued its profitable expansion of domestic housing
operations in five other western states. Divisions in New Mexico and Utah --
the Company's fourth and fifth entries into new U.S. markets in three years --
delivered their first homes in 1995, contributing to a 115.8% year-over-year
increase in domestic housing deliveries from operations outside of California.
During 1995, the Company continued strategic efforts to reduce overhead costs
and improve operating efficiency. As a result, gross margin and selling,
general and administrative expense ratios improved in each of the last three
quarters of the year.
Total revenues increased to $1.40 billion in 1995, up 4.5% from $1.34
billion in 1994, which had increased 8.0% from revenues of $1.24 billion in
1993. The increase in 1995 reflected higher housing revenues, partially offset
by a decline in revenues from land sales. In 1994, revenues rose due to higher
housing revenues, partially offset by a significant decline in French
commercial development revenues. Included in total revenues are mortgage
banking revenues of $29.7 million in 1995, $28.7 million in 1994 and $38.1
million in 1993.
Net income decreased 37.6% in 1995 to $29.1 million from $46.6 million
in 1994, which had increased 16.6% from the prior year's $39.9 million. Net
income fell in 1995 due to lower earnings from housing operations, as a decline
in earnings from California operations, primarily stemming from continued
weakness in the state's housing market, was only partially offset by an
increase in earnings from domestic operations outside the state. In 1994, the
improvement in net income reflected increased housing volume in the United
States and improved results from French housing operations compared to the year
earlier.
Earnings per share decreased to $.73 in 1995, reflecting lower net
income. Earnings per share increased to $1.16 in 1994 from $.96 in 1993 on
higher earnings and a lower average number of shares outstanding. The Company's
buyback of special common stock and warrants in December 1993 and its exchange
and cancellation of the remaining shares of special common stock on various
dates throughout 1994 reduced the number of shares outstanding for 1994.
CONSTRUCTION
REVENUES Construction revenues increased in 1995 to $1.37 billion from $1.31
billion in 1994, which had increased from $1.20 billion in 1993. The increase
in 1995 primarily reflected higher domestic housing revenues, as a decline in
California housing revenues was more than offset by increased housing revenues
from other U.S. operations (including the Company's first deliveries in New
Mexico and Utah). In 1994, revenues improved primarily due to increased
domestic housing revenues, including initial contributions from the Company's
then newly established divisions in Arizona and Colorado, partially offset by a
reduction in French commercial revenues.
Housing revenues totaled $1.33 billion in 1995, $1.26 billion in 1994
and $1.10 billion in 1993. The Company's 1995 increase in housing revenues
reflected a 4.7% increase in the Company's average selling price as well as a
modest increase in unit volume. In 1994, housing revenues increased on higher
unit volume while the average selling price decreased slightly. California
housing operations accounted for 72.3% of housing revenues in 1995, down from
82.0% in 1994, due to the Company's expansion into New Mexico and Utah during
the year, combined with the maturation of the Nevada, Arizona and Colorado
divisions and the still-stagnant economic conditions in California. California
housing revenues were $959.8 million in 1995, down from $1.03 billion in 1994,
while other U.S. housing revenues increased to $245.4 million in 1995 from
$95.8 million in 1994. In 1994, the Company's California-generated revenues as
a percentage of total housing revenues decreased from 85.4% in 1993 primarily
due to the Company's diversification of its domestic housing business to
Nevada, Arizona, and Colorado.
Housing deliveries increased by 33 units to 7,857 units in 1995,
exceeding the previous Company-wide record of 7,824 units set in 1994.
Deliveries in the United States increased 2.2%, more than offsetting a 16.2%
decline in French deliveries. The increase in domestic unit volume reflected
continued expansion outside of California, with non-California deliveries
increasing to 1,800 units in 1995 from 834 units in 1994, partially offset by a
decline in deliveries from California's soft housing market. California
deliveries, which decreased 13.0% to 5,430 units in 1995 from 6,238 units in
1994, were severely hampered by poor weather early in the year, the effects of
which carried into the second quarter. French unit volume remained depressed by
that country's adverse economic climate as well as the deferral of home
purchases by many buyers anticipating new government incentive programs which
did not take effect until October 1995.
25
<PAGE> 21
RESIDENTIAL QUARTERLY UNIT AND BACKLOG DATA
<TABLE>
<CAPTION>
Unit Other
Deliveries California United States France Canada Total
============================================================================================================================
<S> <C> <C> <C> <C> <C>
1995
First 972 293 102 1,367
Second 1,295 446 110 24 1,875
Third 1,454 511 133 13 2,111
Fourth 1,709 550 229 16 2,504
-------------------------------------------------------------------------
Total 5,430 1,800 574 53 7,857
=========================================================================
1994
First 1,281 136 110 12 1,539
Second 1,560 245 139 10 1,954
Third 1,694 194 176 18 2,082
Fourth 1,703 259 260 27 2,249
-------------------------------------------------------------------------
Total 6,238 834 685 67 7,824
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Net Other
Orders California United States France Canada Total
============================================================================================================================
<S> <C> <C> <C> <C> <C>
1995
First 1,101 374 152 9 1,636
Second 1,397 698 134 12 2,241
Third 1,588 572 138 13 2,311
Fourth 1,342 503 210 10 2,065
-------------------------------------------------------------------------
Total 5,428 2,147 634 44 8,253
=========================================================================
1994
First 1,277 227 171 9 1,684
Second 1,642 180 194 19 2,035
Third 1,683 241 137 17 2,078
Fourth 1,494 248 215 27 1,984
-------------------------------------------------------------------------
Total 6,096 896 717 72 7,781
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Ending
Backlog-- Other
Units California United States France Canada Total
============================================================================================================================
<S> <C> <C> <C> <C> <C>
1995
First 757 280 219 29 1,285
Second 859 532 243 17 1,651
Third 993 593 248 17 1,851
Fourth 626 546 229 11 1,412
=======================================================================
1994
First 766 228 198 12 1,204
Second 848 163 253 21 1,285
Third 837 210 214 20 1,281
Fourth 628 199 169 20 1,016
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
Ending
Backlog-- Other
Value California United States France Canada Total
============================================================================================================================
<S> <C> <C> <C> <C> <C>
In thousands
1995
First $125,870 $38,971 $44,820 $2,958 $212,619
Second 149,796 75,455 48,658 1,666 275,575
Third 191,182 86,096 54,560 1,683 333,521
Fourth 114,207 78,436 50,044 1,122 243,809
============================================================================
1994
First $125,045 $22,704 $32,875 $948 $181,572
Second 132,917 18,428 45,113 2,079 198,537
Third 137,289 27,548 41,546 2,000 208,383
Fourth 104,711 26,743 30,075 2,060 163,589
============================================================================
</TABLE>
Housing deliveries increased in 1994 from 6,764 units in 1993, with
U.S. deliveries up 18.8% and French deliveries up 4.3%. The improvement in
domestic unit volume reflected the Company's expansion in the western United
States. In France, higher unit volume resulted from increased market demand for
the Company's entry-level products in a modestly improved, but still weak
French economy.
The Company's average new home price increased 4.7% to $168,900 in
1995 from $161,300 in 1994, which had decreased .5% from $162,100 in 1993. The
1995 increase was due to higher average selling prices in both the United
States and France, reflecting a shift in product mix to higher priced, urban
in-fill locations and first time move-up sales. In 1994, a modest decline in
the average selling price was primarily due to a reduction in the Company's
domestic average selling price.
In California, the Company's average selling price rose 6.6% to
$176,800 in 1995 from $165,900 in 1994 which increased 1.7% from $163,100 in
1993. The increase in both years reflected a shift in mix toward higher-priced
homes. Average selling prices in other U.S. markets were $136,300 in 1995,
$114,900 in 1994 and $109,300 in 1993. These increases were the result of the
Company's entry into new, higher-priced states in 1995 and 1994. Average
selling prices in France have also fluctuated during the past two years with
changes in product mix. The Company's average selling price in France increased
to $203,700 in 1995 from $182,300 in 1994, which had decreased from $187,800 in
1993.
Revenues from the development of commercial buildings, all of which
are located in metropolitan Paris, totaled $20.5 million in 1995, $17.4 million
in 1994 and $94.2 million in 1993. Although commercial development revenues
increased modestly in 1995, the Company does not expect a significant increase
from these levels in 1996 as high vacancy rates are expected to persist in the
French commercial market. In 1994, the significant decrease in commercial
revenues primarily reflected the Company's completion of large projects in
prior years.
Land sale revenues totaled $18.2 million in 1995, $27.2 million in
1994 and $8.0 million in 1993. Land sale revenues in these periods have
fluctuated based on the Company's decisions to maintain or decrease its land
ownership position in certain markets; the strength and number of competing
developers entering particular markets at given points in time; the
availability of land in markets served by the Company's housing divisions; and
prevailing market conditions.
OPERATING INCOME Operating income decreased by $22.8 million to $65.5 million
in 1995 from $88.3 million in 1994. Operating income, net of minority interests
in pretax income of consol-
26
<PAGE> 22
idated joint ventures, decreased by $22.5 million to $64.9 million in 1995 from
$87.4 million in 1994. This decline reflected lower gross profits from
commercial activities and land sales as well as an increase in selling, general
and administrative expenses. Housing gross profits in 1995 were essentially
flat compared to 1994 on slightly higher unit volume offset by a lower housing
gross margin. Gross profits (excluding profits from land sales) in 1995
decreased by $8.5 million to $242.2 million from $250.7 million in 1994,
largely due to lower gross profits from French commercial operations resulting
from a lower commercial gross profit margin. As a percentage of related
revenues, the Company's gross profit margin (excluding profits from land sales)
was 18.0% in 1995, down from 19.6% in the prior year. The Company's housing
gross margin decreased to 17.9% in 1995 from 19.0% in the prior year, primarily
reflecting a lower gross margin in California. The lower gross margin from
California operations stemmed from the severe and prolonged winter rain storms
in early 1995 which reduced sales volumes and slowed production and from the
large sales incentives which continued to be required throughout the year to
stimulate buying activity in a generally stagnant market. Higher mortgage
interest rates in early 1995 also depressed Company performance. Despite these
obstacles, the Company's California housing gross margin showed steady
improvement from the first through the fourth quarters of 1995 as a rising
proportion of deliveries was generated from more recently opened higher-margin
communities. Assuming market conditions in California do not deteriorate
further, the Company expects its California gross margin to continue to improve
in 1996 on a year-over-year basis as strategies to enhance profitability
implemented during the course of 1995 are anticipated to have a favorable
impact on operating results.
Company-wide profits from land sales decreased by $3.2 million to $5.3
million in 1995 from $8.5 million in 1994 with profit margins from these sales
also down slightly.
Selling, general and administrative expenses increased by $11.0
million in 1995. As a percentage of housing revenues, to which these expenses
are most closely correlated, selling, general and administrative expenses
increased to 13.7% in 1995 from 13.5% in 1994. Selling, general and
administrative expenses rose mainly due to the continued expansion of the
Company's domestic operations outside of California and increased financing
incentives and sales commissions. These increases were partially offset by
ongoing cost reduction programs which contributed to an improving expense ratio
in each of the last three quarters of 1995. In the first quarter of 1995,
selling, general and administrative expenses were 14.6% of housing revenues,
gradually declining to 13.3% by the fourth quarter. With benefits of these
cost-cutting initiatives anticipated to continue, and assuming market
conditions in the Company's principal markets do not deteriorate further, the
Company believes its 1996 selling, general and administrative expense ratio
will be lower than the 1995 level.
In 1994, operating income increased slightly by $1.7 million to $88.3
million from $86.6 million in 1993. Operating income, net of minority
interests, increased by $11.0 million to $87.4 million in 1994 from $76.5
million in 1993. This improvement reflected higher gross profits from housing
sales and land sales, partially offset by higher selling, general and
administrative expenses. Gross profits (excluding profits from land sales) rose
by $22.6 million to $250.7 million in 1994 from $228.1 million in 1993, due to
higher housing unit volume in the United States, partially offset by a decline
in commercial development gross profits. As a percentage of related revenues,
the Company's gross profit margin (excluding profits from land sales) was 19.6%
in 1994, up from 19.1% a year earlier, on a higher residential gross margin
and, to a lesser extent, a higher commercial gross margin. The Company's
housing gross margin increased to 19.0% in 1994 from 18.4% in 1993 primarily
reflecting gross margin improvement in France. The French housing gross margin
improved in 1994 largely due to a lower land-cost basis and a modest
strengthening of the French economy.
Company-wide profits from land sales increased to $8.5 million in 1994
from $1.1 million in 1993.
Selling, general and administrative expenses increased by $28.4
million in 1994, as the Company expanded its operations in the western United
States and commenced operations in Mexico. In addition, higher marketing and
advertising costs and sales incentives were required in the latter half of 1994
to maintain sales momentum in the face of persistent mortgage rate increases
triggered by actions of the Federal Reserve Board. These actions caused the
average thirty-year fixed rate mortgage to increase by more than two percentage
points during the year. In France, the Company continued to reduce selling,
general and administrative expenses to levels commensurate with its
significantly reduced commercial operations. Company-wide selling, general and
administrative expenses as a percentage of housing revenues increased to 13.5%
in 1994 from 13.0% in 1993.
INTEREST INCOME AND EXPENSE Interest income, which is generated from mortgages
receivable, principally from land sales, and from short-term investments,
amounted to $2.1 million in 1995, $2.0 million in 1994 and $3.5 million in
1993. Interest income remained stable in 1995 compared to 1994 reflecting
little change in the interest bearing average balances of short-
27
<PAGE> 23
term investments and mortgages receivable. The reduction in interest income
in 1994 from 1993 reflected lower average balances of short-term investments
and mortgages receivable and the fluctuation in interest rates.
Interest expense results principally from borrowings to finance land
purchases, housing inventory, and other operating and capital needs. In 1995,
interest expense, net of amounts capitalized, increased to $27.5 million from
$17.8 million in 1994, reflecting higher average indebtedness, a higher overall
effective borrowing rate than in 1994 and a lower percentage of interest
capitalized. The Company's average debt level increased as inventory levels
grew due to continued expansion. In addition, the Company's effective borrowing
rate rose as a result of interest rate increases implemented by the Federal
Reserve Board throughout 1994 and into early 1995. In 1994, interest expense,
net of amounts capitalized, increased to $17.8 million from $16.8 million in
the prior year, reflecting higher average indebtedness and a higher overall
effective borrowing rate than in 1993. The average debt level rose as the
Company increased inventory levels in conjunction with continued domestic
expansion and executed the buyback of special common stock and warrants in
December 1993.
MINORITY INTERESTS IN PRETAX INCOME OF CONSOLIDATED JOINT VENTURES The Company
conducts a portion of both its residential and commercial development
activities through majority-owned partnerships, primarily in France, which are
fully consolidated in the accompanying financial statements. As a result,
operating income has been reduced by minority interests in the pretax income of
these partnerships of $.6 million in 1995, $.9 million in 1994 and $10.2
million in 1993. Minority interests decreased both years on declining profit
contributions from the Company's consolidated commercial development projects.
Minority interests are expected to remain at low levels in 1996, consistent
with the Company's reduced level of development activities in a generally
depressed French commercial market.
EQUITY IN PRETAX LOSS OF UNCONSOLIDATED JOINT VENTURES The Company's
unconsolidated joint venture activities, located in the Los Angeles, Paris and
Toronto metropolitan areas, posted combined revenues of $33.9 million in 1995,
$82.7 million in 1994 and $6.4 million in 1993. Of these amounts, revenues from
commercial activities in France accounted for $5.9 million in 1995, $34.0
million in 1994 and $2.6 million in 1993. These unconsolidated joint ventures
generated combined pretax losses of $20.5 million in 1995, $35.7 million in
1994 and $30.8 million in 1993. The losses in 1995 and 1994 primarily consisted
of selling, general, administrative and interest expenses from a single French
multi-family residential project, as well as reserves taken in 1995 on a
commercial development project. The loss in 1993 primarily resulted from
selling, general, administrative and interest expenses incurred on a large
project under construction prior to the recognition of related revenues. The
Company's share of pretax losses from these joint ventures totaled $3.5 million
in 1995, $3.7 million in 1994, and $6.3 million in 1993. These amounts have
declined over the three year period due to the combined effect of changes in
joint venture activity and the Company's proportionate share of related losses,
as well as the amount and timing of management fees recognized.
MORTGAGE BANKING
INTEREST INCOME AND EXPENSE The Company's mortgage banking operations
principally consist of providing financing to purchasers of homes sold by the
Company's domestic housing operations through the origination of residential
mortgages. The mortgage banking operations also realize revenues from the sale
of such mortgages and related servicing rights to outside financial
institutions. Prior to 1989, substantially all such mortgages were pledged for
collateralized mortgage obligations. Accordingly, interest income is earned
primarily from mortgage-backed securities held for long-term investment as
collateral, while interest expense results mainly from the associated
collateralized mortgage obligations.
Interest income decreased to $15.6 million in 1995 from $17.0 million
in 1994, and $24.2 million in 1993, while interest expense also declined to
$14.8 million in 1995 from $17.2 million in 1994, and $25.1 million in 1993.
These amounts decreased primarily due to the declining balances of outstanding
mortgage-backed securities and related collateralized mortgage obligations,
stemming from both regularly scheduled, monthly principal amortization and the
prepayment of mortgage collateral. These balances, and the related interest
income and expense, will continue to decline, as the Company's practice of
participating in collateralized mortgage financings was discontinued in 1988
due to market conditions and tax law changes. Combined interest income and
expense resulted in net interest income of $.8 million in 1995 and net interest
expense of $.2 million in 1994 and $.9 million in 1993. These differences
reflect variations in mortgage production mix; movements in short-term versus
long-term interest rates; and the amount, timing and rates of return on interim
reinvestments of monthly principal amortization and prepayments.
OTHER MORTGAGE BANKING REVENUES Other mortgage banking revenues, which
principally consist of gains on sales of mortgages and servicing rights and, to
a lesser extent, mortgage servicing fees, totaled $14.1 million in 1995, $11.7
million in 1994 and
28
<PAGE> 24
$13.9 million in 1993. The increase in these revenues in 1995 reflected higher
gains on the sales of mortgages and servicing rights due to a higher volume of
mortgage originations -- resulting from higher housing unit volume in the
United States -- and a more favorable mix of fixed to variable rate loans. In
1994, the decrease in other mortgage banking revenues primarily reflected lower
gains on the sales of both servicing rights and mortgages.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for
mortgage banking operations amounted to $5.5 million in 1995 and 1994, and $5.4
million in 1993. Despite increased mortgage production volume in 1995, general
and administrative expenses remained flat compared to 1994 levels due to the
Company's successful cost containment efforts which extended to lending
operations. General and administrative expenses increased in 1994 largely due
to higher mortgage production levels, which rose in line with domestic unit
deliveries, and the opening of new branches as part of the Company's domestic
expansion.
INCOME TAXES
The Company's income tax expense totaled $16.4 million in 1995, $27.3 million
in 1994 and $24.4 million in 1993. These amounts represented effective income
tax rates of approximately 36.1% in 1995, 37.0% in 1994 and 37.9% in 1993. The
effective tax rate declined over the two-year period as a result of greater
utilization of affordable housing investment credits. Pretax income for
financial reporting purposes and taxable income for income tax purposes
historically have differed primarily due to the impact of state income taxes,
foreign tax rate differences, intercompany dividends and the use of affordable
housing credits.
In 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The impact of the
adoption on the Company's financial position and results of operations was not
significant.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate cash to
fund its operating and investing activities. Historically, the Company has
funded its construction and mortgage banking activities with internally
generated cash flows and external sources of debt and equity financing. In
1995, operating, investing and financing activities used net cash of $11.4
million; in 1994, these activities used net cash of $20.3 million.
Operating activities in 1995 used $52.9 million, while 1994 operating
activities used $111.1 million. The Company's uses of cash in 1995 included a
net investment of $80.3 million in inventories (excluding $36.1 million of
inventories acquired through seller financing), an increase of $14.7 million in
receivables and $18.8 million of other operating uses. The use of cash was
partially offset by earnings of $29.1 million, various noncash items deducted
from net income and a $26.7 million increase in accounts payable, accrued
expenses and other liabilities. Consistent with its continued domestic
expansion, inventories increased, primarily in the United States, where they
rose 11.6% to $901.4 million at November 30, 1995 from $807.5 million at
year-end 1994.
In 1994, the use of operating cash included net investments of $137.6
million in inventories (excluding $27.1 million of inventories acquired through
seller financing) and $26.3 million in payments to reduce accounts payable,
accrued expenses and other liabilities. The use of cash was partially offset by
earnings of $46.6 million and various noncash items deducted from net income.
In 1994, inventories substantially increased, principally in the United States,
rising to $807.5 million at November 30, 1994 from $633.0 million at year-end
1993, as the Company accelerated its domestic expansion, while sales rates
slowed in the latter half of the year.
Cash provided by investing activities totaled $10.0 million in 1995
and $37.5 million in 1994, primarily from $13.8 million and $49.7 million,
respectively, in proceeds from mortgage-backed securities paid off during the
year within the mortgage banking operations. These proceeds were used largely
to pay down the collateralized mortgage obligations for which the
mortgage-backed securities had served as collateral.
Financing activities in 1995 and 1994 resulted in a net cash inflow of
$31.5 million and $53.3 million, respectively. In 1995, cash was provided by
$64.3 million in net proceeds from borrowings. These cash inflows were
partially offset by payments on collateralized mortgage obligations of $13.3
million, the funds for which were provided by receipts on mortgage-backed
securities; and $19.6 million of cash dividend payments. The Company's
debt-to-capital ratio increased to 60.6% in 1995 from 58.3% in 1994 reflecting
additional financing required for the higher level of inventories resulting
from domestic expansion.
Financing activities in 1994 provided $211.0 million in net proceeds
from borrowings, partially offset by the purchase of the Company's special
common stock and warrants for $73.7 million; payments on collateralized
mortgage obligations of $49.3 million, the funds for which were provided by
receipts on mortgage-backed securities; and $19.6 million of cash dividend
payments.
In order to simplify its capital structure, the Company commenced a
tender offer in 1993 to purchase all of the 5.1
29
<PAGE> 25
million outstanding shares of its special common stock at a price of $19 per
share. The offer expired on December 7, 1993 with 2.3 million shares tendered.
In addition, on December 23, 1993, the Company purchased the remaining 2.4
million warrants to purchase shares of special common stock at a price equal to
the tender offer price per share less the $6.96 per warrant exercise price.
Subsequent to the expiration of the tender offer, the remaining 2.8 million
outstanding shares of special common stock were exchanged by the Company at a
ratio of .95 shares of common stock for each share of special common stock on
various dates in 1994. There were no outstanding shares of special common
stock at November 30, 1994. The purchase of special common stock and warrants
was largely responsible for an increase in the Company's debt-to-capital ratio
to 58.3% in 1994 from 41.4% in 1993.
External sources of financing for the Company's construction
activities include its domestic unsecured revolving credit facility, other
domestic and foreign bank lines, third-party secured financings, and the public
debt and equity markets. Substantial unused lines of credit remain available
for the Company's future use, if required, and are centered mainly in its
domestic unsecured revolving credit facility. Terms under this facility, as
amended in November 1994, provide for a $500 million commitment with a $200
million sublimit for the Company's mortgage banking operations through December
31, 1997. As of November 30, 1995, there was $197.0 million available under the
revolving credit facility for the Company's future use. In addition, under the
Company's French unsecured financing agreements, $81.3 million was available in
the aggregate at November 30, 1995. Depending upon available terms, the Company
also finances certain land acquisitions with borrowings from land sellers and
other third parties. At November 30, 1995, the Company had outstanding
seller-financed notes payable of $43.7 million secured primarily by the
underlying property which had a carrying value of $73.3 million.
The Company uses capital resources primarily for land purchases, land
development and housing construction. The Company typically manages its
investments in land by purchasing property under options and other types of
conditional contracts whenever possible, and similarly controls its investment
in housing inventories by carefully managing the timing of the production
process. The Company's inventories are geographically diverse and primarily
located in desirable areas within targeted growth markets principally oriented
toward entry-level purchasers. In 1995, the Company focused on continued
expansion of its domestic operations outside of California, while becoming more
selective with regard to investment in California where the economy remains
weak.
During 1995, the Company implemented stricter standards for assessing
all proposed land purchases based in part upon discounted after tax cash flow
internal rate of return requirements. In addition, all operating divisions are
measured for the first time based upon overall return on investment. Among
other things, this focus will likely result in reductions in new land purchases
and inventory investment in California during 1996 as a step toward improving
the Company's overall return on equity over time. Cash flow available from
reduced California investment will be used to fund the Company's expansion into
other western states as well as reduce overall leverage as measured by the
ratio of debt to total capital.
The principal sources of liquidity for the Company's mortgage banking
operations are internally generated funds from the sales of mortgages and
related servicing rights. Mortgages originated by the mortgage banking
operations are generally sold in the secondary market within 60 days of
origination. External sources of financing for these operations include a $200
million sublimit within the Company's $500 million revolving credit facility
and a $120 million asset-backed commercial paper facility. The $200 million
sublimit on the revolving credit facility is available to fund mortgage banking
operations only to the extent that borrowings under the agreement for
construction operations do not exceed $300 million.
Debt service on the Company's collateralized mortgage obligations is
funded by receipts from mortgage-backed securities. Such funds are expected to
be adequate to meet future debt-payment schedules for the collateralized
mortgage obligations and therefore these securities have virtually no impact on
the capital resources and liquidity of the mortgage banking operations.
The Company believes it has adequate resources and sufficient credit
line facilities to satisfy its current and reasonably anticipated future
requirements for funds to acquire capital assets and land, to construct homes,
to fund its mortgage banking operations, and to meet other needs of its
business, both on a short and long-term basis.
NEW ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. This
new pronouncement is effective for fiscal years beginning after December 15,
1995.
30
<PAGE> 26
The Company plans to adopt the provisions of this pronouncement during 1996.
The Company has not analyzed the impact of this pronouncement on the financial
statements, although adoption may result in a non-cash charge to earnings which
may have a material effect on the Company's financial position or results of
operations.
OUTLOOK
The Company's domestic operating results in 1995 reflected its ongoing
expansion outside of California and included the Company's first housing
deliveries from new divisions based in Albuquerque, New Mexico and Salt Lake
City, Utah. Operations outside of California have generally produced successful
results as evidenced by rapidly growing contributions from the Company's five
non-California housing divisions. These operations produced 24.9% of domestic
deliveries in 1995, up sharply from 11.8% in 1994. The Company expects to
further expand and re-position its domestic operations in 1996 through more
selective investment in California, where the housing market remains soft, as
well as continued investment in other western states where the Company has
developed a recent track record of profitable growth. Overall, the Company
believes domestic operating results will improve in 1996 as its newer divisions
develop market positions and existing operations further penetrate their
markets. Nonetheless, significant challenges remain within the domestic
operating environment. These include a continuing weak housing market in
California, where approximately two-thirds of the Company's 1995 deliveries
were generated, and a lack of urgency among potential home buyers in many of
the Company's markets.
The Company is cautiously optimistic that economic conditions for
housing in California will improve based on more favorable general economic and
employment forecasts; however, in view of the last five years of adverse
conditions, any California housing recovery will likely be slow to develop. In
addition, the timing of any such improvements in California's new housing
market remains uncertain. To better position itself domestically, particularly
in California, the Company implemented a series of initiatives in 1995 designed
to improve overall domestic profitability in 1996 and beyond. These
initiatives, which were intended to improve gross margins and reduce overhead
expenses, included a greater focus on maximizing rates of return in lieu of
maximizing market share, more selective investment in land in California and
greater emphasis on the sale of high-margin amenities. The Company also
consolidated several divisions in California during 1995 and reduced staffing
levels where appropriate. Other initiatives involved the continued
simplification and standardization of home designs to lower construction costs,
better regulation of quarterly production cycles and benchmarking of overhead
costs. In general, the Company intends to maintain its rigorous pursuit of
greater operating efficiencies, a leaner cost structure and an emphasis on
return-on-investment concepts in assessing new investments. The initial results
of these efforts were apparent in the Company's improving quarterly gross
margins and expense ratios as the 1995 year progressed, trends which the
Company believes will continue during 1996.
The French housing market proved difficult in 1995 as the economy was
plagued by recession and high unemployment during an economically disruptive
election year, while home buyers deferred purchases through much of the year in
anticipation of a key government support program to assist home buyers
introduced in October 1995. Although the general uncertainty surrounding the
direction of the French economy continued into early 1996, the installation of
a new French government in mid-1995 followed by the implementation of the new
government program could improve the Company's housing sales volumes and
housing profitability in Paris during 1996. French commercial activities are
likely to remain at or below 1995 levels as the market continues to absorb
existing properties in a period of high vacancy rates. Notwithstanding the
possibilities of a more favorable economic climate, generally weak market
conditions may persist in France throughout 1996 and the Company remains
cautious in its business outlook.
In Mexico, where a start-up operation has yet to deliver its first
homes, the Company continues to closely monitor the unsettled economic
environment. The new home market in Mexico remains seriously hampered by the
continuing decline in value of the peso and the economic recession this
devaluation has created. These events have slowed an already complex regulatory
process and heightened consumer concerns about new home purchases. In spite of
these turbulent conditions, demand for housing in Mexico remains substantial
and the Company has begun to generate a modest level of orders which it
believes should result in 1996 deliveries. Nevertheless, the Company remains
cautious regarding these operations and continues to reassess its level of
activity in Mexico and the desirability of expanding its market presence there.
The Company continues to benefit in all of its operations from the
strength of its capital position, which has allowed it to finance expansion,
re-engineer product lines and diversify into strong new home building markets.
The Company's strong capital position has also helped enable it to maintain
overall profitability during troubled economic times in California and France,
where the lingering effects of severe recessions continue
31
<PAGE> 27
to inhibit demand for affordable new housing. The Company believes it is
particularly well-positioned to capitalize on any sustained improvement in the
economies of California and France and has established strategies to help
maximize future performance even under continued challenging economic
conditions.
At November 30, 1995, the Company had outstanding sales contracts of
1,412 units in residential backlog, representing aggregate future revenues of
approximately $243.8 million. Year-end 1995 backlog levels increased from the
1,016 units in residential backlog representing aggregate future revenues of
$163.6 million at year-end 1994. Substantially all homes included in backlog
are expected to be delivered during 1996. However, cancellations could occur,
particularly if market conditions deteriorate or interest rates rise, thereby
decreasing backlog and related future revenues.
In the United States, the Company's residential backlog at November
30, 1995 totaled 1,172 units, up 41.7% from 827 units at year-end 1994. This
increase was primarily attributable to domestic operations outside of
California. In California, residential unit backlog was essentially flat at 626
units compared to 628 units a year earlier, while non-California backlog rose
174.4% to 546 units at November 30, 1995 from 199 units at November 30, 1994.
Net orders for non-California U.S. operations increased to 503 units in the
fourth quarter of 1995, from 248 units in the year-earlier quarter. Net orders
in California decreased 10.2% during the same period. Since year end, net order
rates have improved sharply in California, up 17.7% in the first two months of
1996 compared to the same period of 1995. Total domestic net orders for the
first two months of 1996 increased 25.8% versus the same period of 1995.
In France, the residential backlog at November 30, 1995 totaled 229
units, up 35.5% from 169 units at year-end 1994. Net orders in the fourth
quarter of 1995 were comparable to the year-earlier period at 210 versus 215
units. For the year, however, net orders decreased 11.6% to 634 units from 717
units in 1994. In the first two months of 1996, net orders in France declined
35.2% compared to the same period a year ago. Given the decreased level of the
Company's commercial development activities, the backlog associated with these
operations declined to a value of approximately $10.8 million at November 30,
1995 from $31.1 million at year-end 1994.
In light of higher year-end backlog levels, improved recent domestic
order trends and the maturation of the Company's non-California domestic
divisions, the Company currently anticipates higher overall delivery volumes
for full year 1996 when compared to full year 1995. Assuming stable or
improving business conditions, interest rates and consumer confidence in its
major markets, the Company believes an anticipated increase in delivery volumes
coupled with the ongoing benefits of its strategic profitability and cost
control initiatives will result in improved operating income and earnings per
share in 1996 compared to 1995.
POTENTIAL ACQUISITION
On January 22, 1996, the Company entered into a definitive agreement to acquire
San Antonio, Texas-based Rayco, Ltd. and certain affiliates for approximately
$110 million, comprised of $80 million cash and the assumption of $30 million
of debt. Rayco, Ltd., San Antonio's largest single-family homebuilder,
currently commands approximately a 45% market share. For the year ended
December 31, 1995, Rayco, Ltd. delivered 2,585 homes, generating revenues of
approximately $235 million. Although the transaction remains subject to certain
conditions, completion of this acquisition is expected to occur on March 1,
1996. If the acquisition is consummated as anticipated, the results of Rayco
Ltd.'s operations will be included in the Company's consolidated financial
statements from the date of acquisition, with the Company expecting the
transaction to be accretive to earnings per share beginning in the second
quarter.
The acquisition of Rayco, Ltd. represents a major stride forward in
the Company's expansion strategy -- Texas would be the Company's sixth
non-California U.S. market. San Antonio is the ninth largest city in the United
States and has ranked among the top ten cities in the nation in both job
creation and economic growth for the past several years.
IMPACT OF INFLATION
The Company's business is significantly affected by general economic
conditions, particularly by the impact of inflation and the generally
associated adverse effect on interest rates. Although inflation rates have been
low in recent years, rising inflation would likely have a long-term impact on
the Company's revenues and earning power by reducing demand for homes as a
result of correspondingly higher interest rates. In periods of high inflation,
the rising costs of land, construction, labor, interest and administrative
expenses have often been recoverable through increased selling prices, although
this has not always been possible because of high mortgage interest rates and
competitive factors in the marketplace. In recent years, however, inflation has
had no significant adverse impact on the Company, as cost increases have not
exceeded the average rate of inflation.
32
<PAGE> 28
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended November 30,
- -------------------------------------------------------------------------------------------------------------------
In thousands, except per share amounts 1995 1994 1993
===================================================================================================================
<S> <C> <C> <C>
TOTAL REVENUES $1,396,526 $1,336,271 $1,237,854
==========================================
CONSTRUCTION:
Revenues $1,366,866 $1,307,570 $1,199,776
Construction and land costs (1,119,405) (1,048,323) (970,595)
Selling, general and administrative expenses (181,930) (170,924) (142,572)
------------------------------------------
Operating income 65,531 88,323 86,609
Interest income 2,140 2,026 3,477
Interest expense, net of amounts capitalized (27,501) (17,849) (16,840)
Minority interests in pretax income of consolidated
joint ventures (584) (917) (10,156)
Equity in pretax loss of unconsolidated joint ventures (3,475) (3,736) (6,303)
------------------------------------------
Construction pretax income 36,111 67,847 56,787
------------------------------------------
MORTGAGE BANKING:
Revenues:
Interest income 15,555 16,978 24,188
Other 14,105 11,723 13,890
------------------------------------------
29,660 28,701 38,078
Expenses:
Interest (14,821) (17,151) (25,147)
General and administrative (5,491) (5,547) (5,397)
------------------------------------------
Mortgage banking pretax income 9,348 6,003 7,534
------------------------------------------
Total pretax income 45,459 73,850 64,321
Income taxes (16,400) (27,300) (24,400)
------------------------------------------
NET INCOME $ 29,059 $ 46,550 $ 39,921
==========================================
EARNINGS PER SHARE $ .73 $ 1.16 $ .96
===================================================================================================================
</TABLE>
See accompanying notes.
33
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30,
- -----------------------------------------------------------------------------------------------------------------
In thousands, except shares 1995 1994
=================================================================================================================
<S> <C> <C>
ASSETS
CONSTRUCTION:
Cash and cash equivalents $24,793 $49,497
Trade and other receivables 111,620 114,921
Inventories 1,059,179 942,713
Investments in unconsolidated joint ventures 21,154 25,314
Other assets 52,462 34,691
--------------------------------
1,269,208 1,167,136
--------------------------------
MORTGAGE BANKING:
Cash and cash equivalents 18,589 5,311
Receivables
First mortgages and mortgage-backed securities 97,672 110,223
First mortgages held under commitment of sale and other receivables 181,764 164,365
Other assets 6,946 7,425
--------------------------------
304,971 287,324
--------------------------------
TOTAL ASSETS $1,574,179 $1,454,460
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION:
Accounts payable $156,097 $146,179
Accrued expenses and other liabilities 90,237 72,845
Mortgages and notes payable 639,575 565,020
--------------------------------
885,909 784,044
--------------------------------
MORTGAGE BANKING:
Accounts payable and accrued expenses 9,661 10,293
Notes payable 151,000 125,000
Collateralized mortgage obligations secured by
mortgage-backed securities 84,764 96,731
--------------------------------
245,425 232,024
--------------------------------
Deferred income taxes 24,448 31,373
--------------------------------
Minority interests in consolidated joint ventures 2,919 2,272
--------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock--$1.00 par value; authorized, 10,000,000 shares:
Series A participating cumulative preferred stock; none outstanding
Series B convertible preferred stock; 1,300,000 shares outstanding 1,300 1,300
Common stock--$1.00 par value; authorized, 100,000,000 shares;
32,346,736 and 32,378,217 shares outstanding at November 30, 1995
and 1994, respectively 32,347 32,378
Paid-in capital 188,839 188,970
Retained earnings 190,749 181,282
Cumulative foreign currency translation adjustments 2,243 817
--------------------------------
TOTAL STOCKHOLDERS' EQUITY 415,478 404,747
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,574,179 $1,454,460
=================================================================================================================
</TABLE>
See accompanying notes.
34
<PAGE> 30
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended November 30, 1995, 1994 and 1993
---------------------------------------------------------------------------------------------
Series B
Convertible Special Foreign Total
Preferred Common Common Paid-in Retained Currency Stockholders'
In thousands Stock Stock Stock Capital Earnings Translation Equity
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1992 $29,488 $5,123 $150,536 $129,761 $3,525 $318,433
Net income 39,921 39,921
Dividends on Series B
convertible preferred stock (4,940) (4,940)
Dividends on common and
special common stock (10,404) (10,404)
Issuance of Series B convertible
preferred stock $1,300 107,870 109,170
Exercise of employee stock options 223 1,669 1,892
Cancellation of restricted stock (110) (1,305) (1,415)
Foreign currency translation
adjustments (8,317) (8,317)
-----------------------------------------------------------------------------------------
Balance at November 30, 1993 1,300 29,601 5,123 258,770 154,338 (4,792) 444,340
-----------------------------------------------------------------------------------------
Net income 46,550 46,550
Dividends on Series B convertible
preferred stock (9,880) (9,880)
Dividends on common and special
common stock (9,726) (9,726)
Exercise of employee stock options 125 1,406 1,531
Purchase of special common stock
and warrants (2,332) (71,345) (73,677)
Exchange of special common
stock for common stock 2,652 (2,791) 139
Foreign currency translation
adjustments 5,609 5,609
-----------------------------------------------------------------------------------------
Balance at November 30, 1994 1,300 32,378 188,970 181,282 817 404,747
-----------------------------------------------------------------------------------------
Net income 29,059 29,059
Dividends on Series B convertible
preferred stock (9,880) (9,880)
Dividends on common stock (9,712) (9,712)
Exercise of employee stock options 17 103 120
Cancellation of restricted stock (48) (234) (282)
Foreign currency translation
adjustments 1,426 1,426
-----------------------------------------------------------------------------------------
Balance at November 30, 1995 $1,300 $32,347 $ $188,839 $190,749 $2,243 $415,478
===================================================================================================================================
</TABLE>
See accompanying notes.
35
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended November 30,
- -------------------------------------------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
===============================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $29,059 $46,550 $39,921
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Equity in pretax loss of unconsolidated joint ventures 3,475 3,736 6,303
Minority interests in pretax income of consolidated joint ventures 584 917 10,156
Amortization of discounts and issuance costs 1,765 2,276 9,680
Depreciation and amortization 6,274 3,408 2,617
Provision for deferred income taxes (6,925) 4,498 (42,057)
Change in:
Receivables (14,664) (13,836) 63,874
Inventories (80,317) (137,594) (44,151)
Accounts payable, accrued expenses and other liabilities 26,680 (26,314) 15,684
Other, net (18,801) 5,279 (5,099)
--------------------------------------
Net cash provided (used) by operating activities (52,870) (111,080) 56,928
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated joint ventures 685 (5,329) (1,233)
Net originations of mortgages held for long-term investment (253) (442) (1,538)
Payments received on first mortgages and mortgage-backed securities 13,786 49,687 84,015
Other, net (4,252) (6,447) (2,499)
-------------------------------------
Net cash provided by investing activities 9,966 37,469 78,745
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) credit agreements and other
short-term borrowings 92,358 215,476 (51,114)
Proceeds from issuance of senior subordinated notes 173,603
Payments on collateralized mortgage obligations (13,296) (49,259) (81,363)
Payments on mortgages, land contracts and other loans (28,055) (4,460) (81,429)
Redemption of convertible subordinated notes (168,760)
Payments from (to) minority interests in consolidated joint ventures 63 (15,177) (11,254)
Proceeds from issuance of Series B convertible preferred stock 109,170
Purchase of special common stock and warrants (73,677)
Payments of cash dividends (19,592) (19,606) (15,344)
-------------------------------------
Net cash provided (used) for financing activities 31,478 53,297 (126,491)
-------------------------------------
Net increase (decrease) in cash and cash equivalents (11,426) (20,314) 9,182
Cash and cash equivalents at beginning of year 54,808 75,122 65,940
-------------------------------------
Cash and cash equivalents at end of year $43,382 $54,808 $75,122
=====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $42,032 $36,034 $39,319
Income taxes paid 17,275 45,270 23,230
=====================================
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Cost of inventories acquired through seller financing $36,149 $27,054 $8,900
==============================================================================================================================
</TABLE>
See accompanying notes.
36
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS Kaufman and Broad Home Corporation (the Company) is a regional
builder of single-family homes with domestic operations throughout the western
United States, and international operations in France, Canada and Mexico. In
France, the Company is also a developer of commercial and high-density
residential projects. Through its mortgage banking subsidiary, Kaufman and
Broad Mortgage Company, the Company provides mortgage banking services to its
domestic home buyers.
BASIS OF PRESENTATION The consolidated financial statements include the
accounts of the Company and all significant majority-owned or controlled
subsidiaries and joint ventures. All significant intercompany transactions have
been eliminated. Investments in unconsolidated joint ventures in which the
Company has less than a controlling interest are accounted for using the equity
method.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt
instruments and other short-term investments purchased with a maturity of three
months or less to be cash equivalents.
CONSTRUCTION OPERATIONS Inventories are stated at the lower of cost or
estimated net realizable value for each parcel or subdivision. Estimated net
realizable value is based upon the net sales proceeds anticipated in the normal
course of business, less estimated costs to complete or improve the property to
the condition used in determining the estimated selling price.
Housing and other real estate sales are recognized when all conditions
precedent to closing have been fulfilled. In France, sales of apartments,
condominiums and commercial buildings to investors are recognized using the
percentage of completion method which is generally based on costs incurred as a
percentage of estimated total costs of individual projects. Revenues recognized
in excess of amounts billed are classified as receivables. Amounts received
from investors in excess of revenues recognized, if any, are classified as
other liabilities.
Construction and land costs are comprised of direct and allocated
costs including estimated future costs for warranties and amenities. Land, land
improvements and other common costs are generally allocated equally to units
within a parcel or subdivision. Land and land development costs generally
include related interest and property taxes incurred until development is
substantially completed or deliveries have begun within a subdivision.
MORTGAGE BANKING OPERATIONS Principal and interest payments received on
mortgage-backed securities are invested in short-term securities maturing on
the next debt service date of the collateralized mortgage obligations for which
the securities are held as collateral. Such payments are restricted to the
payment of the debt service on the collateralized mortgage obligations.
First mortgages and mortgage-backed securities consist of securities
held for long-term investment and are valued at amortized cost. First mortgages
held under commitment of sale are valued at the lower of aggregate cost or
market. Market is principally based on public market quotations or outstanding
commitments obtained from investors to purchase first mortgages receivable.
INCOME TAXES In 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
impact of the adoption on the Company's financial position and results of
operations was not significant.
Income taxes are provided for at rates applicable in the countries in
which the income is earned. Provision is made currently for United States
federal income taxes on earnings of foreign subsidiaries which are not expected
to be reinvested indefinitely.
EARNINGS PER SHARE The computation of earnings per share is based on the
weighted average number of common shares, special common shares, equivalent
Series B Convertible Preferred Shares and common share equivalents outstanding
during each year. The Series B Convertible Preferred Shares are considered
common stock due to their mandatory conversion into common stock, and the
related dividends are not deducted from net income for purposes of calculating
earnings per share. Common share equivalents include dilutive stock options and
warrants using the treasury stock method. Earnings per share were based on the
weighted average number of common shares, special common shares, equivalent
Series B Convertible Preferred Shares and common share equivalents outstanding
of 39,757,000 in 1995, 40,026,000 in 1994 and 41,547,000 in 1993.
If, for purposes of calculating earnings per share, the Series B
Convertible Preferred Shares were excluded from the weighted average shares
outstanding and the related dividends deducted from net income, the computation
would have resulted in earnings per share of $.58 in 1995, $1.09 in 1994 and
$.93 in 1993.
37
<PAGE> 33
RECENT ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The provisions of this statement are
effective for fiscal years beginning after December 15, 1995. The Company has
not assessed the impact on the financial statements. However, the future
adoption of this statement may have a material effect on the Company's
financial position or results of operations.
RECLASSSIFICATIONS Certain amounts in the consolidated financial statements of
prior years have been reclassified to conform to the 1995 presentation.
NOTE 2. RECEIVABLES
CONSTRUCTION Trade receivables amounted to $48,699,000 and $43,057,000 at
November 30, 1995 and 1994, respectively. Included in these amounts are
unbilled receivables due from investors on French apartment, condominium and
commercial building sales accounted for using the percentage of completion
method, totaling $8,478,000 at November 30, 1995 and $14,267,000 at November
30, 1994. The investors are contractually obligated to remit payments against
their unbilled balances. Other receivables of $62,921,000 at November 30, 1995
and $71,864,000 at November 30, 1994 included mortgages receivable, escrow
deposits and amounts due from municipalities and utility companies.
At November 30, 1995 and 1994, receivables were net of allowances for
doubtful accounts of $3,034,000 and $3,269,000, respectively.
MORTGAGE BANKING First mortgages and mortgage-backed securities consisted of
loans of $7,187,000 at November 30, 1995 and $6,934,000 at November 30, 1994
and mortgage-backed securities of $90,485,000 and $103,289,000 at November 30,
1995 and 1994, respectively. The mortgage-backed securities serve as collateral
for related collateralized mortgage obligations. The property covered by the
mortgages underlying the mortgage-backed securities are single-family
residences. Issuers of the mortgage-backed securities are the Government
National Mortgage Association and Federal National Mortgage Association. The
first mortgages and mortgage-backed securities bore interest at an average rate
of 8-3/5% and 8-7/8% at November 30, 1995 and 1994, respectively (with rates
ranging from 7% to 13% for both years).
Mortgages were net of discounts of $4,353,000 at November 30, 1995 and
$6,243,000 at November 30, 1994. These discounts, which primarily represent
loan origination discount points and acquisition price discounts, are deferred
as an adjustment to the carrying value of the related first mortgages and
mortgage-backed securities and amortized into interest income using the
interest method.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" effective December 1, 1994. In accordance with this
pronouncement, the Company's mortgage-backed securities held for long-term
investment have been classified as held-to-maturity and are stated at amortized
cost, adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in interest income. There was no
impact on the Company's financial position or results of operations from the
adoption of this pronouncement. The total gross unrealized gains and gross
unrealized losses on the mortgage-backed securities were $6,175,000 and $0,
respectively at November 30, 1995.
NOTE 3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
November 30,
- -----------------------------------------------------------------------------------------------------
In thousands 1995 1994
=====================================================================================================
<S> <C> <C>
Homes, lots and improvements in production $ 803,926 $712,563
Land under development 255,253 230,150
-------------------------------
Total inventories $1,059,179 $942,713
=====================================================================================================
</TABLE>
Land under development primarily consists of parcels on which 50% or
less of estimated development costs have been incurred.
The impact of capitalizing interest costs on consolidated pretax
income is as follows:
<TABLE>
<CAPTION>
Years ended November 30,
- ------------------------------------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
========================================================================================================================
<S> <C> <C> <C>
Interest incurred $64,629 $45,410 $41,272
Interest expensed (27,501) (17,849) (16,840)
---------------------------------------------
Interest capitalized 37,128 27,561 24,432
Interest amortized (18,508) (16,156) (17,617)
---------------------------------------------
Net impact on consolidated pretax income $18,620 $11,405 $ 6,815
========================================================================================================================
</TABLE>
38
<PAGE> 34
NOTE 4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The Company participates in a number of joint ventures in which it has less
than a controlling interest. These joint ventures are based primarily in France
and Canada and are engaged in the development, construction and sale of
residential properties and commercial projects. Combined condensed financial
information concerning the Company's unconsolidated joint venture activities
follows:
<TABLE>
<CAPTION>
November 30,
- -----------------------------------------------------------------------------------------------------
In thousands 1995 1994
=====================================================================================================
<S> <C> <C>
Cash $ 2,426 $ 5,530
Receivables 9,407 16,987
Inventories 874,624 856,239
Other assets 5,854 5,955
-----------------------------
Total assets $892,311 $884,711
=============================
Mortgages and notes payable $630,006 $631,353
Other liabilities 98,539 142,619
Equity of:
The Company 21,154 25,314
Others 142,612 85,425
-----------------------------
Total liabilities and equity $892,311 $884,711
=====================================================================================================
</TABLE>
The joint ventures finance land and inventory investments primarily
through a variety of borrowing arrangements. The Company typically does not
guarantee these financing arrangements.
<TABLE>
<CAPTION>
Years ended November 30,
- -------------------------------------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
=========================================================================================================================
<S> <C> <C> <C>
Revenues $ 33,917 $ 82,734 $ 6,404
Cost of sales (49,289) (102,981) (16,160)
Other expenses, net (5,108) (15,434) (20,992)
----------------------------------------------
Total pretax loss $(20,480) $(35,681) $(30,748)
==============================================
The Company's share of pretax loss $ (3,475) $ (3,736) $ (6,303)
=========================================================================================================================
</TABLE>
The Company's share of pretax loss includes management fees earned
from the unconsolidated joint ventures.
NOTE 5. MORTGAGES AND NOTES PAYABLE
CONSTRUCTION Mortgages and notes payable consist of the following (interest
rates are as of November 30):
<TABLE>
<CAPTION>
November 30,
- -----------------------------------------------------------------------------------------------------
In thousands 1995 1994
=====================================================================================================
<S> <C> <C>
Unsecured domestic borrowings with banks under a revolving
credit agreement (7% to 7-1/10% in 1995 and 6-4/5% in 1994) $250,000 $100,000
Other unsecured domestic borrowings with banks due within
one year (6-3/5% to 6-7/8% in 1995 and 6-1/8% to
6-5/8% in 1994) 13,000 110,100
Unsecured French borrowings (6-3/8% to 7-1/5% in 1995
and 6% to 7% in 1994) 59,011 45,553
Mortgages and land contracts due to land sellers
and other loans (6-3/5% to 59-2/5% in 1995 and
6% to 26-3/10% in 1994) 43,715 35,621
Senior notes due 1999 at 10-3/8% 100,000 100,000
Senior subordinated notes due 2003 at 9-3/8% 173,849 173,746
-----------------------------
Total mortgages and notes payable $639,575 $565,020
=====================================================================================================
</TABLE>
Terms under the domestic unsecured revolving credit agreement with
various banks dated December 24, 1992 and scheduled to expire in 1995 provided
for a $350,000,000 commitment. On November 21, 1994, the agreement was amended,
increasing the revolving credit facility to $500,000,000 with a $200,000,000
sublimit for the Company's mortgage banking operations. This facility has a
three-year term expiring on December 31, 1997. As of November 30, 1995, the
entire amount of the revolving credit facility was committed and $197,000,000
was available for the Company's future use. The agreement provides for interest
on borrowings at either the applicable bank reference rate or the London
Interbank Offered Rate plus an applicable spread and an annual commitment fee
based on the unused portion of the commitment.
Under the terms of the revolving credit agreement, the Company is
required, among other things, to maintain certain financial statement ratios
and a minimum net worth and is subject to limitations on acquisitions,
inventories, indebtedness, dividend payments and repurchases of stock. Under
the conditions of the agreement, retained earnings of $71,554,000 were
available for payment of cash dividends or stock repurchases at November 30,
1995.
39
<PAGE> 35
The Company's French subsidiaries have lines of credit with various
banks which totaled $140,339,000 at November 30, 1995 and have various
committed expiration dates through December 1996. These lines of credit provide
for interest on borrowings at either the French Federal Funds Rate or the Paris
Interbank Offered Rate plus an applicable spread.
The weighted average interest rate on aggregate unsecured borrowings,
excluding the senior and senior subordinated notes, was 6-9/10% and 6-1/2% at
November 30, 1995 and 1994, respectively.
On August 11, 1992, the Company filed a registration statement with
the Securities and Exchange Commission under which the Company could offer for
sale from time to time up to $200,000,000 of unsecured debt securities. On
September 8, 1992, the Company, pursuant to this registration statement, issued
$100,000,000 of 10-3/8% senior notes, due September 1, 1999, with interest
payable semi-annually. The Company may redeem, in whole or in part, at any time
on or after September 1, 1997, 100% of the principal amount of the notes.
On April 26, 1993, the Company issued $175,000,000 principal amount of
9-3/8% senior subordinated notes at 99.202%. The notes are due May 1, 2003 with
interest payable semi-annually. The notes represent unsecured obligations of
the Company and are subordinated to all existing and future senior indebtedness
of the Company. The Company may redeem the notes, in whole or in part, at any
time on or after May 1, 2000 at 100% of their principal amount.
The 10-3/8% senior notes and 9-3/8% senior subordinated notes contain
certain restrictive covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, make certain
investments, create certain liens, engage in mergers, consolidations, or sales
of assets, or engage in certain transactions with officers, directors and
employees.
Principal payments on senior and senior subordinated notes, mortgages,
land contracts and other loans are due as follows: 1996, $33,025,000; 1997,
$1,761,000; 1998, $1,067,000; 1999, $100,068,000; 2000, $158,000; and
thereafter, $181,485,000.
Assets (primarily inventories) having a carrying value of
approximately $73,338,000 are pledged to collateralize mortgages, land
contracts and other secured loans.
MORTGAGE BANKING Notes payable include the following (interest rates are as of
November 30):
<TABLE>
<CAPTION>
November 30,
-----------------------------
In thousands 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable secured by trust deed notes (7-1/8% in 1995
and 6-4/5% in 1994) $40,000 $21,000
Advances under asset-backed commercial paper
facility (5-9/10% in 1995 and 5-3/4% in 1994) 111,000 104,000
-----------------------------
Total notes payable $151,000 $125,000
=====================================================================================================
</TABLE>
First mortgages receivable have historically been financed through a
$230,000,000 collateralized revolving warehouse credit facility and a
$120,000,000 asset-backed commercial paper facility (the Commercial Paper
Facility). On November 21, 1994, the collateralized revolving warehouse credit
facility was replaced with the amended revolving credit agreement which
contains a $200,000,000 sublimit (the Revolving Warehouse Facility) for
financing the mortgage banking operations. This Revolving Warehouse Facility
provides for interest on borrowings at either the applicable bank reference
rate or the Federal Funds rate plus an applicable spread and an annual
commitment fee based on the unused portion of the commitment.
The Commercial Paper Facility expires on September 15, 1997 and
provides for an annual commitment fee based on the unused portion of the
commitment. Interest rates charged under the Commercial Paper Facility reflect
those available in commercial paper markets plus an applicable spread on
amounts borrowed.
There are no compensating balance requirements under either facility.
These facilities are collateralized by first mortgages held under commitment of
sale and are repayable from proceeds on the sales of first mortgages.
The terms of these facilities include financial covenants which, among
other things, require the maintenance of certain financial statement ratios and
a minimum tangible net worth and limit indebtedness of the mortgage banking
operations (excluding indebtedness to the Company) to a maximum of
$320,000,000. This maximum may be further limited as the $200,000,000 sublimit
on the Revolving Warehouse Facility is available to fund mortgage banking
operations only to the extent that borrowings under the amended revolving
credit agreement for construction operations do not exceed $300,000,000.
Collateralized mortgage obligations represent bonds issued to third
parties which are collateralized by mortgage-backed
40
<PAGE> 36
securities with substantially the same terms. At November 30, 1995, the
collateralized mortgage obligations bore interest at rates ranging from 8% to
12-1/4% with stated principal maturities ranging from 3 to 30 years. Actual
maturities are dependent on the rate at which the underlying mortgage-backed
securities are repaid. No collateralized mortgage obligations have been issued
since 1988.
NOTE 6. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires companies to disclose the estimated
fair value of their financial instruments. The estimated fair value of
financial instruments has been determined based on available market information
and appropriate valuation methodologies. However, judgement is necessarily
required in interpreting market data to develop the estimates of fair value. In
that regard, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
The carrying values and fair values of the Company's financial
instruments, except for those financial instruments for which the carrying
values approximate fair values, are summarized as follows:
<TABLE>
<CAPTION>
November 30,
--------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
In thousands Value Value Value Value
=================================================================================================================================
<S> <C> <C> <C> <C>
Construction:
Financial liabilities
10-3/8% Senior notes $100,000 $101,875 $100,000 $ 99,000
9-3/8% Senior subordinated notes 173,849 171,063 173,746 155,094
Mortgage banking:
Financial assets
Mortgage-backed securities 90,485 96,660 103,289 104,149
Financial liabilities
Collateralized mortgage obligations
secured by mortgage-backed securities 84,764 97,597 96,731 97,395
=================================================================================================================================
</TABLE>
The Company used the following methods and assumptions in estimating
fair values:
Cash and cash equivalents; borrowings under the domestic revolving
credit facility, French lines of credit and Commercial Paper Facility; first
mortgages and first mortgages held under commitment of sale and other
receivables: The carrying amounts reported approximate fair values.
Senior notes and senior subordinated notes: The fair values of the
Company's senior notes and senior subordinated notes are estimated based on
quoted market prices.
Mortgage-backed securities and collateralized mortgage obligations
secured by mortgage-backed securities: The fair values of these financial
instruments were based on quoted market prices for the same or similar issues.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies include the usual obligations of housing
producers for the completion of contracts and those incurred in the ordinary
course of business. The Company is also involved in litigation incidental to
its business, the disposition of which should have no material effect on the
Company's financial position or results of operations.
NOTE 8. STOCKHOLDERS' EQUITY
PREFERRED STOCK On January 11, 1989, the Company adopted a Stockholder Rights
Plan and declared a dividend distribution of one preferred share purchase right
for each outstanding share of common stock. Under certain circumstances, each
right entitles the holder to purchase 1/100th of a share of a new Series A
Participating Cumulative Preferred Stock at a price of $30.00, subject to
certain antidilution provisions. The rights are not exercisable until the
earlier to occur of (i) 10 days following a public announcement that a person
or group has acquired 20% or more of the aggregate votes entitled from all
shares of common stock and special common stock or (ii) 10 days following the
commencement of a tender offer for 20% or more of the aggregate votes entitled
from all shares of common stock and special common stock. In the event the
Company is acquired in a merger or other business combination transaction, or
50% or more of the Company's assets or earning power is sold, each right will
entitle its holder to receive, upon exercise, common stock of the acquiring
company having a market value of twice the exercisable price of the right. At
the option of the Company, the rights are redeemable prior to becoming
exercisable at $.01 per right. Unless previously redeemed, the rights will
expire on March 7, 1999. Until a right is exercised, the holder will have no
rights as a stockholder of the Company, including the right to vote or receive
dividends.
In 1993, the Company issued 6,500,000 depositary shares, each
representing a one-fifth ownership interest in a share of Series B Mandatory
Conversion Premium Dividend Preferred Stock (the Series B Convertible Preferred
Shares). Dividends are cumulative and payable quarterly in arrears at an annual
dividend rate of $1.52 per depositary share. On the
41
<PAGE> 37
mandatory conversion date of April 1, 1996, each of the outstanding depositary
shares will convert, upon the automatic conversion of the Series B Convertible
Preferred Shares, into one share of the Company's common stock, subject to
adjustment in certain events. The Company may call any or all of the
outstanding depositary shares prior to the mandatory conversion date at a call
price initially equal to $27.12, declining to $23.66 by February 1, 1996, and
equal to $23.46 thereafter, payable in shares of common stock having a market
price equal to the applicable call price, plus an amount in cash equal to all
accrued and unpaid dividends. The depositary shares are not convertible into
common stock at the holders' option. The depositary shares were issued at
$17.375 per share and have a liquidation preference price per depositary share
equal to the issuance price.
SPECIAL COMMON STOCK In connection with its restructuring in 1989, the Company
issued warrants (the Warrants) to certain subsidiaries of SunAmerica Inc., the
Company's former parent. The Warrants give the holder the right to purchase, at
any time prior to March 1, 1999, up to 7,500,000 shares of special common stock
at an exercise price of $6.96 per share. The rights of the special common stock
are generally identical to the rights of the common stock except that the
holder of special common stock is entitled to one-tenth of a vote per share on
all matters to be voted on by stockholders.
In 1992, the Company issued in a public offering 5,123,000 shares of
the special common stock in connection with the exercise of the Warrants. On
November 8, 1993, the Company commenced a tender offer to purchase all of the
outstanding shares of its special common stock at a price of $19 per share. The
offer expired on December 7, 1993 with 2,331,785 shares of special common stock
tendered. In addition, on December 23, 1993, the Company purchased the
remaining 2,377,000 Warrants at a price equal to the tender offer price per
share less the $6.96 per Warrant exercise price. The total consideration paid
for these transactions was $73,677,000, including related costs.
The remaining 2,791,215 outstanding shares of special common stock
were exchanged by the Company at a ratio of .95 shares of common stock for each
share of special common stock on various dates throughout 1994.
NOTE 9. EMPLOYEE BENEFIT AND STOCK PLANS
Benefits are provided to most employees under the Company's 401(k) Savings Plan
under which contributions by employees are partially matched by the Company.
The aggregate cost of this plan to the Company was $1,795,000 in 1995,
$1,734,000 in 1994 and $1,135,000 in 1993.
The Kaufman and Broad Home Corporation 1988 Employee Stock Plan (the
1988 Plan) provides that stock options, associated limited stock appreciation
rights, restricted shares of common stock and stock units may be awarded to
eligible individuals for periods of up to 15 years. The 1988 Plan replaced all
existing employee stock plans.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
Years ended November 30,
-----------------------------------------------
1995 1994 1993
========================================================================================================
<S> <C> <C> <C>
Options outstanding at beginning of year 2,044,718 2,191,268 2,154,568
Granted 512,000 52,000 331,000
Exercised (17,000) (125,000) (223,000)
Cancelled (133,000) (73,550) (71,300)
-----------------------------------------------
Options outstanding at end of year 2,406,718 2,044,718 2,191,268
===============================================
Options exercisable at end of year 1,646,768 1,614,068 1,604,418
Options available for grant at end of year 1,268,581 954,100 1,443,600
Price range of options exercised $3.50-$12.38 $3.50-$16.13 $3.50-$16.13
Price range of options outstanding $3.50-$22.94 $3.50-$22.94 $3.50-$19.06
========================================================================================================
</TABLE>
The Company records proceeds from the exercise of stock options as
additions to common stock and paid-in capital. The tax benefit, if any, is
recorded as additional paid-in capital.
In 1991, the Board of Directors approved the issuance of restricted
stock awards under the 1988 Plan of up to an aggregate 600,000 shares of common
stock to certain officers and key employees. Restrictions lapse each year
through May 10, 2005 on specified portions of the shares awarded to each
participant so long as the participant has remained in the continuous employ of
the Company. Restricted stock awards issued in 1991 totaled 575,000 shares
with 48,000 and 110,000 of these shares being cancelled in 1995 and 1993,
respectively.
42
<PAGE> 38
NOTE 10. INCOME TAXES
The components of pretax income are as follows:
<TABLE>
<CAPTION>
Years ended November 30,
- -----------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
===============================================================================================
<S> <C> <C> <C>
Domestic $45,393 $72,352 $72,295
Foreign 66 1,498 (7,974)
---------------------------------------
Total pretax income $45,459 $73,850 $64,321
===============================================================================================
</TABLE>
The components of the provisions for income taxes are as follows:
<TABLE>
<CAPTION>
In thousands Total Federal State Foreign
==================================================================================================
<S> <C> <C> <C> <C>
1995
Currently payable $22,569 $16,700 $2,634 $ 3,235
Deferred (6,169) (3,729) (2,440)
------------------------------------------------
Total income tax expense $16,400 $12,971 $2,634 $795
================================================
1994
Currently payable $30,835 $24,931 $5,000 $904
Deferred (3,535) (3,603) 68
------------------------------------------------
Total income tax expense $27,300 $21,328 $5,000 $972
================================================
1993
Currently payable $45,078 $22,789 $4,084 $18,205
Deferred (20,678) 171 (20,849)
------------------------------------------------
Total income tax expense $24,400 $22,960 $4,084 $(2,644)
==================================================================================================
</TABLE>
Deferred income taxes result from temporary differences in the
financial and tax bases of assets and liabilities. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
November 30,
------------------------------
In thousands 1995 1994
===============================================================================================================
<S> <C> <C>
Deferred tax liabilities:
Installment sales $ 4,840 $ 2,678
Bad debt and other reserves 1,758 4,046
Depreciation and amortization 5,465 6,273
Capitalized expenses 23,479 22,460
Partnerships and joint ventures 4,511 4,041
Computer equipment leases 6,573 10,040
Repatriation of foreign subsidiaries 25,961 30,638
Other 3,579 4,643
-----------------------------
Total deferred tax liabilities 76,166 84,819
-----------------------------
Deferred tax assets:
Warranty, legal and other accruals 9,194 6,772
Depreciation and amortization 1,281 475
Capitalized expenses 8,383 6,723
Affordable housing credits 2,111 2,111
Foreign tax credits 38,339 43,345
Net operating losses 943 596
Other 4,243 6,626
Valuation allowance (12,776) (13,202)
-----------------------------
Total deferred tax assets 51,718 53,446
-----------------------------
Net deferred tax liabilities $24,448 $31,373
===============================================================================================================
</TABLE>
Net operating loss carryforwards expire in 1999 and 2000. The Company
expects that the entire deferred tax benefit of the tax loss carryforwards will
be recognized in future periods.
Income taxes computed at the statutory United States federal income
tax rate and income tax expense provided in the financial statements differ as
follows:
<TABLE>
<CAPTION>
Years ended November 30,
-------------------------------------
In thousands 1995 1994 1993
============================================================================================================
<S> <C> <C> <C>
Amount computed at statutory rate $15,911 $25,848 $22,461
Increase (decrease) resulting from:
California franchise taxes, net of
federal income tax benefit 1,712 3,250 2,658
Differences in foreign tax rates 2,042 550 430
Intercompany dividends 391 139
Affordable housing credits (2,387) (1,179) (1,005)
Other, net (878) (1,560) (283)
-------------------------------------
Total income tax expense $16,400 $27,300 $24,400
============================================================================================================
</TABLE>
The Company has commitments to invest $5,732,000 over three years in
affordable housing partnerships which are scheduled to provide tax credits.
The Company had foreign tax credit carryforwards at November 30, 1995
of $5,421,000 for United States federal income tax purposes which expire in
1996 through 2000.
43
<PAGE> 39
The undistributed earnings of foreign subsidiaries, which the Company
plans to invest indefinitely and for which no United States federal income
taxes have been provided, totaled $42,030,000 at November 30, 1995. If these
earnings were currently distributed, the resulting withholding taxes payable
would be $3,024,000.
NOTE 11. GEOGRAPHICAL AND SEGMENT INFORMATION
Geographical and segment information follows:
<TABLE>
<CAPTION>
Operating Identifiable
In thousands Revenues Income Assets
================================================================================================================
<S> <C> <C> <C>
1995
Construction:
California $ 971,132 $51,428 $ 852,753
Other United States 246,958 12,308 139,875
France 138,616 4,700 235,031
Other 10,160 (2,905) 41,549
--------------------------------------------------------
Total construction 1,366,866 65,531 1,269,208
Mortgage banking 29,660 9,348 304,971
--------------------------------------------------------
Total $1,396,526 $74,879 $1,574,179
========================================================
1994
Construction:
California $1,048,050 $81,149 $ 836,783
Other United States 101,129 4,145 69,448
France 143,422 5,019 210,686
Other 14,969 (1,990) 50,219
--------------------------------------------------------
Total construction 1,307,570 88,323 1,167,136
Mortgage banking 28,701 6,003 287,324
--------------------------------------------------------
Total $1,336,271 $94,326 $1,454,460
========================================================
1993
Construction:
California $ 938,561 $78,323 $ 714,358
Other United States 22,623 627 22,529
France 219,802 8,082 210,328
Other 18,790 (423) 36,227
--------------------------------------------------------
Total construction 1,199,776 86,609 983,442
Mortgage banking 38,078 7,534 355,936
--------------------------------------------------------
Total $1,237,854 $94,143 $1,339,378
================================================================================================================
</TABLE>
A director of the Company served between 1981 and 1993 as chairman and
chief executive officer of a French bank, which in 1989 formed a joint venture
controlled by the Company. The joint venture acquired and subsequently sold, to
a group of international investors, a commercial building in Paris, France,
under a five-year redevelopment agreement, with the bank financing the
acquisition and redevelopment of the property. The project, completed in 1993,
generated commercial revenues of $63,141,000 in 1993, representing 5% of total
revenues.
NOTE 12. QUARTERLY RESULTS (UNAUDITED)
Quarterly results for the years ended November 30, 1995 and 1994 follow:
<TABLE>
<CAPTION>
In thousands, except per
share amounts First Second Third Fourth
==================================================================================================================
<S> <C> <C> <C> <C>
1995
Revenues $229,832 $315,493 $372,314 $478,887
Operating income 5,922 13,102 19,269 36,586
Pretax income 685 6,091 10,863 27,820
Net income 435 3,841 6,863 17,920
Earnings per share .01 .10 .17 .45
===================================================
1994
Revenues $256,879 $326,021 $348,850 $404,521
Operating income 17,819 23,005 22,954 30,548
Pretax income 14,054 17,847 17,084 24,865
Net income 8,854 11,247 10,784 15,665
Earnings per share .22 .28 .27 .39
==================================================================================================================
</TABLE>
NOTE 13. SUBSEQUENT EVENT
On January 22, 1996, the Company entered into a definitive agreement to acquire
Rayco, Ltd. and certain affiliates for approximately $110,000,000, comprised of
$80,000,000 in cash and the assumption of $30,000,000 in debt. Rayco, Ltd., a
regional builder of single-family homes in San Antonio, Texas, delivered 2,585
homes, generating revenues of approximately $235,000,000 for the year ended
December 31, 1995. Although the transaction remains subject to certain
conditions, completion of this acquisition is expected on March 1, 1996. If the
acquisition is consummated as anticipated, the results of Rayco, Ltd.'s
operations will be included in the Company's consolidated financial statements
from the date of acquisition.
44
<PAGE> 40
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders' of Kaufman and Broad Home Corporation
We have audited the accompanying consolidated balance sheets of Kaufman and
Broad Home Corporation as of November 30, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended November 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Kaufman and Broad Home Corporation at November 30, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended November 30, 1995, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
January 4, 1996, except as to Note 13, as to
which the date is January 22, 1996
REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated financial statements are the responsibility of
management. The statements have been prepared in conformity with generally
accepted accounting principles. Estimates and judgments of management based on
its current knowledge of anticipated transactions and events are made to
prepare the financial statements as required by generally accepted accounting
principles. Management relies on internal accounting controls, among other
things, to produce records suitable for the preparation of financial
statements.
The responsibility of our external auditors for the financial
statements is limited to their expressed opinion on the fairness of the
consolidated financial statements taken as a whole. Their examination is
performed in accordance with generally accepted auditing standards which
include tests of our accounting records and internal accounting controls and
evaluation of estimates and judgments used to prepare the financial statements.
The Company employs a staff of internal auditors whose work includes evaluating
and testing internal accounting controls.
An audit committee of outside members of the Board of Directors
periodically meets with management, the external auditors and the internal
auditors to evaluate the scope of auditing activities and review results. Both
the external and internal auditors have the unrestricted opportunity to
communicate privately with the audit committee.
/s/ MICHAEL F. HENN
Michael F. Henn
Senior Vice President and
Chief Financial Officer
January 4, 1996
45
<PAGE> 41
STOCKHOLDER INFORMATION
<TABLE>
<CAPTION>
Special
Common Stock Common Stock
--------------------------------------------
Stock Prices High Low High Low
============================================================================================
<S> <C> <C> <C> <C>
1995
First Quarter $14-3/4 $12-1/8
Second Quarter 15-7/8 11-1/8
Third Quarter 16 13-1/8
Fourth Quarter 13-3/8 10-7/8
============================================
1994
First Quarter $25-1/2 $20 $22-1/4 $18-1/2
Second Quarter 24-5/8 16-1/4 21-3/4 14
Third Quarter 16-1/4 13 * *
Fourth Quarter 16-1/2 12-1/4
============================================================================================
</TABLE>
*Following the suspension of trading on the New York Stock Exchange on May 31,
1994, the special common stock was de-listed by the New York Stock Exchange and
de-registered by the Securities and Exchange Commission on August 9, 1994.
Subsequently, the Company completed the exchange for all remaining outstanding
shares.
DIVIDEND DATA
Kaufman and Broad Home Corporation paid a quarterly cash dividend of $.075 per
common share in 1995 and 1994.
ANNUAL STOCKHOLDERS' MEETING
The annual stockholders' meeting will be held in the Dynasty Room at the
Westwood Marquis Hotel in Los Angeles, California, at 9:00 a.m. on Thursday,
March 28, 1996.
STOCK EXCHANGE LISTINGS
The common stock (ticker symbol: KBH) is listed on the New York Stock Exchange
and is also traded on the Boston, Cincinnati, Midwest, Pacific and Philadelphia
Exchanges.
TRANSFER AGENT
Chemical Mellon Shareholder Services
Los Angeles, California
INDEPENDENT AUDITORS
Ernst & Young LLP
Los Angeles, California
FORM 10-K
The Company's Form 10-K filed with the Securities and Exchange Commission may
be obtained without charge by writing to the Investor Relations Department,
Kaufman and Broad Home Corporation.
HEADQUARTERS
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
Fax (310) 231-4222
<PAGE> 42
LIST OF EXHIBITS FILED
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ------------------------------------------------------------------ ---------------
<C> <S> <C>
10.18 Kaufman and Broad Home Corporation Performance-Based Incentive
Plan for Senior Management, approved by Stockholders on March 23,
1995..............................................................
10.19 Form of Stock Option Agreement under Kaufman and Broad Home
Corporation Performance-Based Incentive Plan for Senior
Management........................................................
10.20 Employment Contract of Bruce Karatz, dated December 1, 1995.......
10.21 Kaufman and Broad Home Corporation Directors' Restricted Stock
Plan..............................................................
10.22 Kaufman and Broad Home Corporation Directors' Legacy Program......
11 Statement of Computation of Per Share Earnings....................
13 Pages 24 through 45 and the inside back cover of the Company's
1995
Annual Report to Stockholders.....................................
22 Subsidiaries of the Company.......................................
24 Consent of Independent Auditors...................................
27 Financial Data Schedule...........................................
</TABLE>
<PAGE> 1
EXHIBIT 10.18
KAUFMAN AND BROAD HOME CORPORATION
PERFORMANCE-BASED INCENTIVE PLAN FOR SENIOR MANAGEMENT
SECTION 1. Purpose. The purposes of the Kaufman and Broad
Home Corporation Performance-Based Incentive Plan for Senior Management are to
promote the interests of Kaufman and Broad Home Corporation (the "Company")
and its stockholders by (i) attracting and retaining exceptional executive
personnel and other key employees of the Company and its Affiliates, as defined
below; (ii) motivating such employees by means of performance-related
incentives to achieve long-range performance goals; (iii) enabling such
employees to participate in the long-term growth and financial success of the
Company; and (iv) qualifying compensation paid under the Plan for deductibility
under Section 162(m) of the Internal Revenue Code.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or
indirectly, is controlled by the Company and (ii) any entity in which the
Company has a significant equity interest, in either case as determined by the
Committee.
"Award" shall mean any Performance-Based Bonus opportunity
granted under the Plan, as well as any Option, Stock Appreciation Right, award
of Restricted Stock, Restricted Stock Units or Other Stock-Based Award granted
under the Plan or granted in payment or settlement of a Performance-Based
Bonus.
"Award Agreement" shall mean any written agreement, contract,
or other instrument or document (which may include, if so designated by the
Committee, an Employment Agreement, as defined herein) evidencing any Award,
which may, but need not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Ownership" shall be deemed to have occurred if
either (1) individuals who, as of the effective date of this Plan, constitute
the Board of the Company (as of the date hereof, the "Incumbent Board") cease
for any reason to constitute at least a majority of the directors constituting
the Board, provided that any person becoming a director subsequent to the
effective date of this Plan whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least three-quarters (3/4)
of the then directors who are members of the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is
(A) in connection with the acquisition by a third person, including a "group"
as such term is used in Section 13(d)(3) of the Exchange Act, of beneficial
ownership, directly or indirectly, of 20% or more of the combined voting
securities ordinarily having the right to vote for the election of directors of
the Company (unless such acquisition of beneficial ownership was approved by a
majority of the Board who are members of the Incumbent Board), or (B) in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Plan, considered as though such person were a member of the Incumbent
Board, or (2) the Board (a majority of which shall consist of directors who are
members of the Incumbent Board) has determined that a Change of Ownership, for
purposes of this Plan, shall have occurred. If any of the events enumerated in
clauses (1) or (2) occur, the Board shall determine the effective date of the
Change of Ownership resulting therefrom, for purposes of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean a committee of the Board designated by
the Board to administer the Plan and composed of not less than the minimum
number of persons from time to time required by Rule 16b-3, each of whom (i) to
the extent necessary to comply with Rule 16b-3 only, is a "disinterested
person" within the
<PAGE> 2
meaning of Rule 16b-3 and (ii) to the extent necessary to comply with Section
162(m) only, is an "outside director" within the meaning of Section 162(m).
Until otherwise determined by the Board, the Compensation Committee designated
by the Board shall be the Committee under the Plan.
"Company" shall mean Kaufman and Broad Home Corporation,
together with any successor thereto.
"Employment Agreement" shall mean (i) with respect to Awards
relating to performance in fiscal year 1995, an agreement between the Company
and a Participant, the effectiveness or continuing effectiveness of which is
contingent upon approval, or approval of the Plan, by the Company's
stockholders, which approval shall satisfy all applicable requirements of
Section 162(m) and (ii) with respect to Awards relating to performance in any
fiscal year of the Company after fiscal year 1995, an agreement between the
Company and a Participant entered into prior to the end of the first fiscal
quarter of such fiscal year.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the fair market value of the
property or other item being valued, as determined by the Committee in its sole
discretion.
"Incentive Stock Option" shall mean a right to purchase Shares
from the Company that is granted under Section 7 of the Plan and that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
"Non-Qualified Stock Option" shall mean a right to purchase
Shares from the Company that is granted under Section 7 of the Plan and that is
not intended to be an Incentive Stock Option.
"Officer" shall mean, at any time, an individual who is an
officer of the Company or any of its subsidiaries.
"Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option and shall include a Restoration Option.
"Other Stock-Based Award" shall mean any right granted under
Section 10 of the Plan.
"Participant" shall mean any Officer selected by the Committee
to receive an Award under the Plan.
"Performance-Based Bonus" shall mean a bonus opportunity
awarded in accordance with Section 6 of the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Plan" shall mean this Kaufman and Broad Home Corporation
Performance-Based Incentive Plan for Senior Management.
"QDRO" shall mean a qualified domestic relations order meeting
such requirements as the Committee shall determine, in its sole discretion.
"Restoration Option" shall mean an Option granted pursuant to
Section 7(e) of the Plan.
"Restricted Stock" shall mean any Share granted under Section
9 of the Plan.
"Restricted Stock Unit" shall mean any unit granted under
Section 9 of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and
interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time.
<PAGE> 3
"Section 162(m)" shall mean Section 162(m) of the Code and the
rules and other authorities thereunder promulgated by the Internal Revenue
Service of the Department of the Treasury.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the Staff thereof.
"Shares" shall mean shares of the Common Stock, $1 par value,
of the Company, or such other securities of the Company as may be designated by
the Committee from time to time.
"Stock Appreciation Right" shall mean any right granted under
Section 8 of the Plan.
"Substitute Awards" shall mean Awards granted in assumption
of, or in substitution for, outstanding awards previously granted by a company
acquired by the Company or with which the Company combines.
SECTION 3. Administration.
(a) Authority of Committee. The Plan shall be administered
by the Committee. Subject to the terms of the Plan and applicable law, and in
addition to other express powers and authorizations conferred on the Committee
by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be
granted to an eligible Officer; (iii) determine the number of Shares to be
covered by, or with respect to which payments, rights, or other matters are to
be calculated in connection with, Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or
suspended and the method or methods by which Awards may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) recommend to the
Board any amendment, alteration, suspension, discontinuance or termination of
the Plan, and subject to the shareholder approval requirement set forth in
Section 11(a) to take any such action not required by applicable law to be
taken by the Board, (ix) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (x) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Committee Discretion Binding. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations, and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Award, any
stockholder and any Officer.
<PAGE> 4
SECTION 4. Award Limits.
(a) Plan Shares. Subject to adjustment as provided in
Section 4(c), the number of Shares with respect to which Awards may be granted
under the Plan shall be 1,000,000. If, after the effective date of the Plan,
any Shares covered by an Award denominated in Shares granted under the Plan, or
to which such an Award relates, are forfeited, or if such an Award is settled
for cash or otherwise terminates or is canceled without the delivery of Shares,
then the Shares covered by such Award, or to which such Award relates, or the
number of Shares otherwise counted against the aggregate number of Shares with
respect to which Awards may be granted, to the extent of any such settlement,
forfeiture, termination or cancellation, shall again become Shares with respect
to which Awards may be granted. In the event that any Option or other Award
granted hereunder is exercised through the delivery of Shares or in the event
that withholding tax liabilities arising from such Award are satisfied by the
withholding of Shares by the Company, the number of Shares available for Awards
under the Plan shall be increased by the number of Shares so surrendered or
withheld.
(b) Individual Stock-Based Awards. Subject to adjustment
as provided in Section 4(c), no Participant may receive stock-based Awards
under the Plan in any calendar year that relate to more than 100,000 Shares
(which number shall not be subject to reduction by any Restoration Options
granted to such Participant during such calendar year); provided, however, that
such number may be increased with respect to any Participant by any Shares
available for grant to such Participant in accordance with this Paragraph 4(b)
in any prior years that were not granted in such prior years. No provision of
this Paragraph 4(b) shall be construed as limiting the amount of any cash-based
Award which may be granted to any Participant.
(c) Adjustments. In the event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number of Shares or other securities of the Company (or number and kind
of other securities or property) with respect to which Awards may be granted,
(ii) the number of Shares or other securities of the Company (or number and
kind of other securities or property) subject to outstanding Awards, and (iii)
the grant or exercise price with respect to any Award, or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award; provided, in each case, that (A) with respect to Awards of Incentive
Stock Options no such adjustment shall be authorized to the extent that such
authority would cause the Plan to fail to qualify under Section 422(b)(1) of
the Code, as from time to time amended and (B) with respect to any Award no
such adjustment shall be authorized to the extent that such authority would be
inconsistent with the Plan's meeting the requirements of Section 162(m) of the
Code, as from time to time amended.
(d) Substitute Awards. Any Shares underlying Substitute
Awards shall not, except in the case of Shares with respect to which Substitute
Awards are granted to individuals who are officers or directors of the Company
for purposes of Section 16 of the Exchange Act or any successor section
thereto, be counted against the Shares available for Awards under the Plan.
(e) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of Shares acquired by the Company on the open market or
otherwise.
(f) Cash Award Limits. (i) Any Participant who is the
Chief Executive Officer at the time of payment of an Award (other than a
stock-based Award) shall be eligible to be paid in any calendar year an amount
not in excess of $3,000,000 in respect of any such cash Award under the Plan,
(ii) no Participant other than a Participant described in clause (i) of this
Paragraph 4(f) shall be eligible to be paid in any calendar year more than
$2,000,000 in respect of any such cash Award. No provision of this Paragraph
4(f) shall be construed as limiting the number of stock-based Awards that a
Participant may receive.
<PAGE> 5
SECTION 5. Eligibility. Any Officer, including any Officer
who is a director of the Company or any Affiliate, who is not a member of the
Committee, shall be eligible to be designated a Participant.
SECTION 6. Performance-Based Bonuses.
(a) At such times and in such manner as may be prescribed
by Section 162(m), the Committee may select Participants and award to such
Participants the opportunity to earn a Performance-Based Bonus, which will be
contingent upon the Company's attainment of performance goals selected by the
Committee.
(b) Performance goals which may be employed by the Committee
for purposes of a Performance-Based Bonus awarded under Paragraph (a) will
include pre-tax income, after-tax income, cash flow, return on equity, return
on capital, earnings per share, unit volume, net sales or service quality, as
determined in accordance with GAAP, if applicable, which goals may relate to
the Company as a whole or, if applicable, to the performance of one or more
specific divisions or Affiliates.
(c) Notwithstanding Paragraphs (a) and (b), the formula
for determining a Performance-Based Bonus to any Participant may, if so
determined by the Committee, be governed by the terms of an Employment
Agreement applicable to such Participant.
(d) Performance-Based Bonuses awarded under Paragraph (a)
may be paid in cash, other Awards or any combination thereof, and the form of
payment may be governed, as to any Participant, by an Employment Agreement
applicable to such Participant.
SECTION 7. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Officers to
whom Options shall be granted, the number of Shares to be covered by each
Option, the option price therefor and the conditions and limitations applicable
to the exercise of the Option. The Committee shall have the authority to grant
Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant
both types of options. In the case of Incentive Stock Options, the terms and
conditions of such grants shall be subject to and comply with such rules as may
be prescribed by Section 422 of the Code, as from time to time amended, and any
regulations implementing such statute.
(b) Exercise Price. The Committee in its sole discretion
shall establish the exercise price at the time each Option is granted, which
exercise price shall be not less than the Fair Market Value of the Shares
subject to the Option on the date of grant of the Option.
(c) Exercise. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter. The
Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of federal or
state securities laws, as it may deem necessary or advisable.
(d) Payment. No Shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option price therefor is
received by the Company. Such payment may be made in cash, or its equivalent,
or, if and to the extent permitted by the Committee, by exchanging Shares owned
by the Participant (which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that the combined
value of all cash and cash equivalents and the Fair Market Value of any such
Shares so tendered to the Company as of the date of such tender is at least
equal to such option price plus the related amount of any taxes required to be
withheld by the Company in connection with such exercise, to the extent such
withholding taxes are then ascertainable. If the amount of such taxes is not
ascertainable at the time of the notice of exercise, such amount shall be
tendered by you to the Company as soon as the same shall become ascertainable
and shall be communicated to you by the Company.
<PAGE> 6
(e) Restoration Options. In the event that any Participant
delivers Shares in payment of the exercise price of any Option granted
hereunder in accordance with Section 7(d), or in the event that the withholding
tax liability arising upon exercise of any Option by a Participant is satisfied
through the withholding by the Company of Shares otherwise deliverable upon
exercise of the Option, the Committee shall have the authority to grant or
provide for the automatic grant of a Restoration Option to such Participant.
The grant of a Restoration Option shall be subject to the satisfaction of such
conditions or criteria as the Committee in its sole discretion shall establish
from time to time. A Restoration Option shall entitle the holder thereof to
purchase a number of Shares equal to the number of such Shares so delivered or
withheld upon exercise of the original Option, in the discretion of the
Committee. A Restoration Option shall have a per share exercise price of not
less than the Fair Market Value of the Shares subject to such Restoration
Option on the date of grant thereof and such other terms and conditions as the
Committee in its sole discretion shall determine.
SECTION 8. Stock Appreciation Rights.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Officers to
whom Stock Appreciation Rights shall be granted, the number of Shares to be
covered by each Stock Appreciation Right Award, the grant price thereof and the
conditions and limitations applicable to the exercise thereof. Stock
Appreciation Rights may be granted in tandem with another Award, in addition to
another Award, or freestanding and unrelated to another Award. Stock
Appreciation Rights granted in tandem with or in addition to an Award may be
granted either at the same time as the Award or at a later time.
(b) Exercise and Payment. A Stock Appreciation Right shall
entitle the Participant to receive an amount equal to the excess of the Fair
Market Value of a Share on the date of exercise of the Stock Appreciation Right
over the grant price thereof, provided that the Committee may for
administrative convenience determine that, with respect to any Stock
Appreciation Right which is not related to an Incentive Stock Option and which
can only be exercised for cash during limited periods of time in order to
satisfy the conditions of Rule 16b-3, the exercise of such Stock Appreciation
Right for cash during such limited period shall be deemed to occur for all
purposes hereunder on the day during such limited period on which the Fair
Market Value of the Shares is the highest. Any such determination by the
Committee may be changed by the Committee from time to time and may govern the
exercise of Stock Appreciation Rights granted prior to such determination as
well as Stock Appreciation Rights thereafter granted. The Committee shall
determine whether a Stock Appreciation Right shall be settled in cash, Shares
or a combination of cash and Shares.
(c) Other Terms and Conditions. Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall determine, at or
after the grant of a Stock Appreciation Right, the term, methods of exercise,
methods and form of settlement, and any other terms and conditions of any Stock
Appreciation Right. Any such determination by the Committee may be changed by
the Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as well as
Stock Appreciation Rights granted or exercised thereafter. The Committee may
impose such conditions or restrictions on the exercise of any Stock
Appreciation Right as it shall deem appropriate.
SECTION 9. Restricted Stock.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Officers to
whom Shares of Restricted Stock shall be granted, the number of Shares of
Restricted Stock to be granted to each Participant, the duration of the period
during which, and the conditions under which, the Restricted Stock may be
forfeited to the Company, and the other terms and conditions of such Awards.
Notwithstanding any other provision of this Plan to the contrary, the period
during which such Awards may be forfeited to the Company shall not terminate
prior to the third anniversary of the date of grant of such Award; provided,
however, that the Committee may determine to have such period terminate after
the first anniversary of the date of grant of any such Award if the Committee
has established conditions for the earning of such Award that relate to
performance of the Company or one or more divisions or units thereof. Subject
to the preceding sentence, once established, such performance vesting criteria
may be changed, adjusted or amended during the term of an Award.
<PAGE> 7
(b) Transfer Restrictions. Shares of Restricted Stock may
not be sold, assigned, transferred, pledged or otherwise encumbered, except as
provided in the Plan or the applicable Award Agreements. Certificates issued
in respect of Shares of Restricted Stock shall be registered in the name of the
Participant and deposited by such Participant, together with a stock power
endorsed in blank, with the Company. Upon the lapse of the restrictions
applicable to such Shares of Restricted Stock, the Company shall deliver such
certificates to the Participant or the Participant's legal representative.
(c) Dividends and Distributions. Dividends and other
distributions paid on or in respect of any Shares of Restricted Stock may be
paid directly to the Participant, or may be reinvested in additional Shares of
Restricted Stock, as determined by the Committee in its sole discretion.
SECTION 10. Change of Ownership. Notwithstanding anything to
the contrary in this Plan, unless otherwise specifically determined by the
Committee at the time of grant, all Options theretofore granted and not fully
exercisable shall become exercisable in full and the restrictions on any other
outstanding Awards shall lapse upon the occurrence of a Change of Ownership.
SECTION 11. Other Stock-Based Awards. The Committee shall
have authority to grant to any Officer an "Other Stock-Based Award", which
shall consist of any right which is (i) not an Award described in Sections 6
through 9 above and (ii) an Award of Shares or an Award denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities convertible into
Shares), as deemed by the Committee to be consistent with the purposes of the
Plan; provided that any such rights must comply, to the extent deemed desirable
by the Committee, with Rule 16b-3 and applicable law. Subject to the terms of
the Plan and any applicable Award Agreement, the Committee shall determine the
terms and conditions of any such Other Stock-Based Award.
SECTION 12. Amendment and Termination.
(a) Amendments to the Plan. Subject to the authority of the
Committee as set forth in Section 3, the Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from Section
16(b) of the Exchange Act, for which or with which the Board deems it necessary
or desirable to qualify or comply. Notwithstanding anything to the contrary
herein, the Committee may amend the Plan in such manner as may be necessary so
as to have the Plan conform with local rules and regulations in any
jurisdiction outside the United States.
(b) Amendments to Awards. The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Award theretofore granted, prospectively or
retroactively; provided that any such waiver, amendment, alteration,
suspension, discontinuance, cancellation or termination that would adversely
affect the rights of any Participant or any holder or beneficiary of any Award
theretofore granted shall not to that extent be effective without the consent
of the affected Participant, holder or beneficiary; and provided further that
no outstanding Option may be amended to decrease the per Share exercise price
thereof, except in accordance with Section 4(c).
(c) Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(c) hereof) affecting the Company,
any Affiliate, or the financial statements of the Company or any Affiliate, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
Plan's meeting the requirements of Section 162(m) of the Code, as from time to
time amended.
<PAGE> 8
(d) Cancellation. Any provision of this Plan or any Award
Agreement to the contrary notwithstanding, the Committee may cause any Award
granted hereunder to be canceled in consideration of a cash payment or
alternative Award made to the holder of such canceled Award equal in value to
the Fair Market Value of such canceled Award.
SECTION 13. General Provisions.
(a) Dividend Equivalents. In the sole and complete
discretion of the Committee, an Award, whether made as an Other Stock-Based
Award under Section 10 or as an Award granted pursuant to Sections 6 through 9
hereof, may provide the Participant with dividends or dividend equivalents,
payable in cash, Shares, other securities or other property on a current or
deferred basis.
(b) Nontransferability. No Award shall be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant, except by will or the laws of descent and distribution, provided,
however, that an Award may be transferable, to the extent set forth in the
applicable Award Agreement, (i) if such Award Agreement provisions do not
disqualify such Award for exemption under Rule 16b-3, or (ii) if such Award is
not intended to qualify for exemption under such rule.
(c) No Rights to Awards. Except as may be provided in an
Employment Agreement, no Officer, Participant or other Person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Employees, Participants, or holders or beneficiaries of Awards.
The terms and conditions of Awards need not be the same with respect to each
recipient.
(d) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan pursuant to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable Federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(e) Delegation. Subject to the terms of the Plan and
applicable law, the Committee may delegate to one or more officers or managers
of the Company or any Affiliate, or to a committee of such officers or
managers, the authority, subject to such terms and limitations as the Committee
shall determine, to grant Awards to, or to cancel, modify or waive rights with
respect to, or to alter, discontinue, suspend, or terminate Awards held by,
Officers who are not officers or directors of the Company for purposes of
Section 16 of the Exchange Act, or any successor section thereto, or who are
otherwise not subject to such Section.
(f) Withholding. A Participant may be required to pay to the
Company or any Affiliate and the Company or any Affiliate shall have the right
and is hereby authorized to withhold from any Award, from any payment due or
transfer made under any Award or under the Plan or from any compensation or
other amount owing to a Participant the amount (in cash, Shares, other
securities, other Awards or other property) of any applicable withholding taxes
in respect of an Award, its exercise, or any payment or transfer under an Award
or under the Plan and to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for the payment of such
taxes. The Committee may provide for additional cash payments to holders of
Awards to defray or offset any tax arising from the grant, vesting, exercise or
payments of any Award.
<PAGE> 9
(g) Award Agreements. Each Award hereunder shall be
evidenced by an Award Agreement which shall be delivered to the Participant and
shall specify the terms and conditions of the Award and any rules applicable
thereto, including but not limited to the effect on such Award of the death,
retirement or other termination of employment of a Participant.
(h) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other compensation arrangements, which may, but need
not, provide for the grant of bonuses, options, restricted stock, Shares and
other types of Awards provided for hereunder (subject to shareholder approval
if such approval is required), and such arrangements may be either generally
applicable or applicable only in specific cases.
(i) No Right to Employment. The grant of an Award shall not
be construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate. Further, the Company or an Affiliate may at any
time dismiss a Participant from employment, free from any liability or any
claim under the Plan, unless otherwise expressly provided in the Plan or in any
Award Agreement.
(j) No Rights as Stockholder. Subject to the provisions of
the applicable Award, no Participant or holder or beneficiary of any Award
shall have any rights as a stockholder with respect to any Shares to be
distributed under the Plan until he or she has become the holder of such
Shares. Notwithstanding the foregoing, in connection with each grant of
Restricted Stock hereunder, the applicable Award shall specify if and to what
extent the Participant shall not be entitled to the rights of a stockholder in
respect of such Restricted Stock.
(k) Governing Law. The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan and any Award
Agreement shall be determined in accordance with the laws of the State of
California, except to the extent that the General Corporation Law of the State
of Delaware shall be applicable to the Company.
(l) Severability. If any provision of the Plan or any Award
is or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction, Person or Award and the remainder of the
Plan and any such Award shall remain in full force and effect.
(m) Other Laws. The Committee may refuse to issue or
transfer any Shares or other consideration under an Award if, acting in its
sole discretion, it determines that the issuance or transfer of such Shares or
such other consideration might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the Exchange
Act, and any payment tendered to the Company by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant, holder or beneficiary. Without limiting
the generality of the foregoing, no Award granted hereunder shall be construed
as an offer to sell securities of the Company, and no such offer shall be
outstanding, unless and until the Committee in its sole discretion has
determined that any such offer, if made, would be in compliance with all
applicable requirements of the U.S. federal securities laws and any other laws
to which such offer, if made, would be subject.
(n) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or
a fiduciary relationship between the Company or any Affiliate and a Participant
or any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(o) No Fractional Shares. No fractional Shares shall be
issued or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional Shares
or any rights thereto shall be canceled,
<PAGE> 10
terminated, or otherwise eliminated.
(p) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
SECTION 13. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of
December 1, 1994, subject to approval by the shareholders of the Company within
one year thereafter.
(b) Expiration Date. No Incentive Stock Option shall be
granted under the Plan after November 30, 2004. Unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award granted
hereunder may, and the authority of the Board or the Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such Award or to waive any
conditions or rights under any such Award shall, continue after the authority
for grant of new Awards hereunder has been exhausted.
<PAGE> 1
EXHIBIT 10.19
KAUFMAN AND BROAD HOME CORPORATION
PERFORMANCE BASED INCENTIVE PLAN FOR SENIOR MANAGEMENT
STOCK OPTION AGREEMENT
This agreement dated the ___ of: ___________, 199__
WITNESSETH:
1. Pursuant to the provisions of the Kaufman and Broad Home Corporation
Performance- Based Incentive Plan for Senior Management (the "Plan"), Kaufman
and Broad Home Corporation (the "Company") on the date set forth above has
granted to ____________________ (the "Optionee"), an option (the "Option") to
purchase from the Company an aggregate of __________ shares of Common Stock,
$1.00 par value, of the Company ("Common Stock"), at the purchase price of
$________ per share, the Option to be exercisable as hereinafter provided. A
copy of the Plan is attached hereto and made a part hereof.
2. Subject to the terms and conditions of the Plan and action taken
pursuant to the Plan, both of which may modify the terms hereof, the shares may
be purchased in accordance with the following schedule. If the Optionee is
employed by the Company or its subsidiaries on the date indicated:
<TABLE>
<CAPTION>
On or After Shares Subject to Purchase
----------- --------------------------
<S> <C>
___________________ 20% of Grant
___________________ 20% of Grant
___________________ 20% of Grant
___________________ 20% of Grant
___________________ 20% of Grant
</TABLE>
Any exercise of the Option shall be made by giving the Company written notice
of exercise specifying the number of shares to be purchased. The notice of
exercise shall be accompanied by tender to the Company of cash, or its
equivalent, or of shares of the Company stock owned by the Optionee (which are
not the subject of any pledge or other security interest), or of a combination
of the foregoing, provided that the combined value of all such cash and cash
equivalents and the fair market value of any such stock so tendered to the
Company, valued as of the date of such tender, is equal to the full purchase
price of said shares plus the related amount of any taxes required to be
withheld by the Company in connection with such exercise, to the extent such
withholding taxes are then ascertainable. If the amount of such taxes is not
ascertainable at the time of the notice of exercise, such amount shall be
tendered by the Optionee to the Company as soon as the same shall become
ascertainable and shall be communicated to the Optionee by the Company.
<PAGE> 2
3. Without limiting the generality of paragraph 1 hereof, it is
understood and agreed that the Option is subject to the following conditions:
(a) the Option shall not in any event be exercisable
after the earlier of (1) the close of business on __________ or (2) three
months after the termination of the Optionee's employment with the Company or
its subsidiaries.
(b) the Option shall not be transferred except by will or
the laws of descent and distribution and, during the lifetime of the Optionee,
shall be exercised only by the Optionee; and
(c) neither the Optionee nor any legal representative,
legatee, or distributee of the Optionee shall be deemed to be a holder of or
possess any stockholder rights with respect to any shares subject to the Option
prior to the issuance of such shares upon exercise of the Option.
(d) Notwithstanding subparagraph (a) of this paragraph,
in the event of the death of the Optionee while the Optionee is employed by
KBHC or its subsidiaries or three months thereafter, the option herein will
terminate one year from the date of death.
4. Neither the execution and delivery hereof nor the granting of
the Option shall constitute or be evidence of any agreement or understanding,
express or implied, on the part of the Company or any of its subsidiaries to
employ or continue the employment of the Optionee for any period.
5. In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Common Stock of the Company, such adjustment shall be made in the
number and option price of the shares subject to the Option as may be
determined to be appropriate by the Committee.
6. The Optionee agrees that prior to any sale of the shares
purchased pursuant to the Option, the Optionee will notify the Company in order
to enable it to take any steps required by the Securities Act of 1933 in
connection with such sale and further agrees that he will not complete any such
sale until he has been advised by the Company that such steps have been taken.
7. Any notice given hereunder to the Company shall be addressed
to the Company, attention Vice President, Human Resources, and any notice given
hereunder to the Optionee shall be addressed to him at his address as shown on
the records of the Company.
8. The Optionee agrees to be bound by the terms and conditions
hereof and of the Plan.
<PAGE> 3
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and
the Optionee have executed this Agreement in duplicate as of the day and year
first above written.
KAUFMAN AND BROAD HOME CORPORATION
By________________________________
[ ]
OPTIONEE
___________________________________
[ ]
<PAGE> 1
EXHIBIT 10.20
[KAUFMAN & BROAD LOGO]
December 1, 1995
Mr. Bruce Karatz
Chairman, President and Chief Executive Officer
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard, 7th Floor
Los Angeles, California 90024
Re: Employment Agreement
Dear Bruce:
This letter will confirm our agreement concerning your continued
employment with Kaufman and Broad Home Corporation (the "Company") as follows:
1. Employment. The Company hereby employs you and you hereby accept
employment by the Company in accordance with the terms and provisions of this
Agreement. You shall be an employee exclusively of the Company and shall serve
the Company to the best of your abilities, devoting your full productive time,
energies, and abilities to the fulfillment of your obligations hereunder. All
improvements, discoveries, business relationships, corporate opportunities,
management procedures, and goodwill conceived, divested, established,
developed, or perfected by you during the period of your employment and related
in any way to the business of the Company or any of its affiliates shall
promptly be disclosed to and be the exclusive property of the Company.
2. Term. The term of this Agreement shall commence on December 1,
1995, and, subject to earlier termination as provided herein, shall continue for
a term of six years, expiring November 30, 2001, to be automatically extended
year to year thereafter, unless either party shall have given six months' prior
written notice of an intention not to extend.
3. Duties and Responsibilities. You shall be employed as the
Chairman, President and Chief Executive Officer of Kaufman and Broad Home
Corporation, and as such shall have responsibility for the supervision and
management of the world-wide activities of the Company and its subsidiaries. You
shall manage such activities and perform such duties in accordance with your
judgment and in the best interests of the Company and its stockholders, subject
to such policies and directives as promulgated by the Board of Directors of the
Company.
<PAGE> 2
Mr. Bruce Karatz
December 1, 1995
Page 2
4. Compensation. For all services to be rendered by you to the
Company and its affiliates hereunder, including without limitation, services as
an officer, director, or member of any committee, you shall be compensated as
follows:
(a) Base Salary. You shall receive a fixed base salary,
which shall be payable in semi-monthly installments, in accordance with the
customary payroll practices of the Company. For the period December 1, 1995 to
November 30, 1996, your base salary shall be at an annual rate of $650,000, and,
commencing December 1, 1996 and annually thereafter, your salary shall be
adjusted in accordance with the judgment and discretion of the Board of
Directors of the Company, provided that in no event shall your base salary
during the term of this Agreement be less than at the annual rate of $650,000.
(b) Incentive Compensation. You shall be entitled to earn
annual incentive compensation for the fiscal year ending November 30, 1996, and
each subsequent fiscal year during the term hereof. All incentive compensation,
including restricted stock awards to which you are entitled under this
paragraph, shall be made under and subject to the terms of the Performance-Based
Incentive Plan for Senior Management (the "Plan") which is attached as Appendix
A. The incentive compensation you shall be entitled to earn is as follows:
(i) An annual cash incentive compensation equal to
1.25% of the pretax, preincentive income ("PPI") of the Company, as
defined in Appendix B, provided:
(aa) No such incentive shall be payable with
regard to any fiscal year in which the pretax return on equity
("ROE") of the Company, as defined in Appendix B, is not equal
to or greater than ten percent (10%); and
(bb) In no event shall the amount of the
cash incentive to be paid under this subparagraph (i) be
greater in any fiscal year than $3,000,000; and
(cc) As in the past, this formula may be
adjusted from time to time.
(ii) An annual special grant of restricted
stock where the number of restricted shares to be awarded shall be
determined by dividing the product of .50% times (PPI minus
$50,000,000) by the average share price determined by averaging the
high and the low price of the shares of the common stock of the Company
on the New York Stock Exchange on the date of the grant. This
restricted stock shall vest upon your fifty-fifth birthday provided you
are still employed by the Company at that time and shall vest earlier
upon your termination of employment due to death, disability (as
defined in Section 5(b)), involuntary termination of employment by the
Company without "Cause" (as defined in Section 6(d)), or voluntary
termination of employment for "Good Reason" (as defined in Section
6(e)) or upon a sale of the Company (as defined in Section 6(a)).
<PAGE> 3
Mr. Bruce Karatz
December 1, 1995
Page 3
Except as provided above, restricted stock granted under this
subparagraph (ii) shall be forfeited upon your voluntary termination of
employment without "Good Reason" before your fifty-fifth birthday. The
terms and conditions of the restricted stock are more fully defined in
Appendix C. No fractional shares shall be issued hereunder. No
special restricted shares shall be issued with regard to any fiscal
year in which the Company does not have PPI in excess of $50,000,000.
This limitation shall not apply to any restricted stock grants which
you may be entitled to receive pursuant to Section 4(c).
(aa) In no event shall the aggregate number
of shares awarded pursuant to an annual special grant of
restricted stock under this subparagraph (ii) during any fiscal
year exceed 100,000 shares, plus the Carryover Restricted Stock
Amount. The "Carryover Restricted Stock Amount" is 100,000
shares for each fiscal year commencing on or after December 1,
1995 and ending prior to the fiscal year for which the special
grant of restricted stock is being made, reduced by the number
of shares of stock covered by special grants of restricted
stock previously made during any fiscal year commencing on or
after December 1, 1995.
(bb) The limits on the aggregate number of
shares which may be awarded under subparagraph (ii)(aa) above
shall be appropriately adjusted to reflect any change in the
shares of the stock of the Company as a result of any stock
split, stock dividend, recapitalization, merger, consolidation,
reorganization, spin-off, other distribution of stock or
property, partial or complete liquidation, or other similar
corporate transaction.
(iii) A defined benefit supplemental retirement plan
("SERP") which will provide an annual retirement benefit of $492,000
per year for twenty-five years if you retire at age sixty. The terms
and conditions of this SERP are more fully defined in Appendix D. The
SERP will be funded with a rabbi trust which may own a life insurance
policy on your life as described in Appendix D. The Company will
contribute $250,000 to the rabbi trust during each fiscal year while
you are employed by the Company. The Company shall be obligated to
pay the SERP benefits in accordance with the terms and conditions of
the SERP as set forth in Appendix D, irrespective of whether or not
the annual amounts contributed by the Company to fund the SERP are
sufficient to meet the Company's entire obligation to pay SERP
benefits.
(iv) By no later than February 1, 1997, and each
anniversary thereof, the Personnel, Compensation and Stock Plan
Committee of the Company's Board of Directors, or its successor
committee (the "Committee"), will certify the amount of incentive
compensation to which you are entitled, if any, for the preceding
fiscal year under subpargraphs (i) and (ii) above. The grant date of
any restricted stock awarded
<PAGE> 4
Mr. Bruce Karatz
December 1, 1995
Page 4
under subparagraph (ii) shall be the effective date of such Committee
certification. Promptly following the effective date of the
certification, the Company will deliver any cash award earned under
subparagraph (i) and prepare an agreement substantially in the form of
Appendix C evidencing any restricted stock award earned under
subparagraph (ii).
(c) Employment Benefits. You shall also be entitled to
receive during the term of this Agreement all other employee benefits,
including reimbursement for bona fide business expenses, a car leased by you
and paid for by the Company, all automobile expenses, vacations, life and
medical insurance, key man motivational programs, the deferred profit sharing
program, and stock option, restricted stock and similar plans as may be offered
by the Company to its key executive personnel. You shall further be entitled
to receive up to $35,000 per year to pay for personal financial management
services. This payment will be in addition to tax and financial counseling
services which will be offered to you on the same basis as offered by the
Company to its key executives.
(d) Extension of Restricted Stock and Stock Options. Upon
your retirement after you attain age 55, all unvested restricted stock whenever
granted and held by you shall vest. Upon your retirement after you attain age
55, all stock options granted after January 1, 1996 and held by you shall not
be forfeited but shall be retained by you and shall continue to vest in
accordance with their terms as though you were still employed by the Company
for a period of five years following your retirement. All such outstanding
stock options will expire at the earlier of their original expiration dates or
five years following your retirement.
5. Termination.
(a) Death. In the event of your death, this Agreement and
all your unearned rights hereunder shall terminate immediately. In such event,
the Company shall promptly pay to your estate all earned but unpaid incentive
compensation. In addition, the Company shall pay your estate the current year
incentive compensation as if you survived until November 30 and any amounts due
under the SERP defined in Appendix D. Any unvested stock options or restricted
stock which you then hold shall become vested upon your death. Lastly, the
Company shall pay to your estate an additional death benefit equal to two times
the sum of your average annual base salary and the "value of the incentive
compensation earned" (as defined below) for the prior three fiscal years, which
will be payable by the Company in a lump sum to your estate.
For purposes of Sections 5(a), 5(b), 6(a) and 6(b) of this Agreement,
the "value of the incentive compensation earned" for a fiscal year shall be
determined by multiplying 1.75% times PPI (as defined in Appendix B) for the
applicable fiscal year, provided that the ROE of the Company was equal to or
greater than ten percent (10%) for the applicable fiscal year. The "value of
the incentive compensation earned" for any fiscal year shall be deemed to be
zero if the
<PAGE> 5
Mr. Bruce Karatz
December 1, 1995
Page 5
ROE of the Company was less than ten percent (10%) for the applicable fiscal
year.
In lieu of payments to your estate following your death, you may
designate a beneficiary or beneficiaries to whom all payments which may be due
under this Agreement and the SERP will be made in the event of your death.
Such designation shall be made on a form, substantially similar to Appendix E
hereto, delivered to the Company. You shall have the right to change or revoke
any such designation from time to time by filing a new designation or notice of
revocation with the Company, and no notice to any beneficiary nor consent by
any beneficiary shall be required to effect any such change or revocation. If
you shall fail to designate a beneficiary before your death, or if no
designated beneficiary survives you, any payments which may be due under this
Agreement following your death will be paid to your estate.
(b) Disability. In the event you shall become unable to
perform the services contemplated by this Agreement due to a physical or mental
disability for a continuous period of eight weeks or an aggregate of more than
90 days in any 120 day period, the Company may, to the extent consistent with
the federal Family and Medical Leave Act and the California Family Rights Act,
terminate this Agreement by giving written notice of such termination to you.
In the event of any such termination by the Company, the Company shall promptly
pay to you all earned but unpaid incentive compensation. In addition, the
Company shall pay you the current year incentive compensation as if the
disability did not occur until November 30. Lastly, the Company shall pay to
you an amount equal to two times the sum of your average annual base salary and
the "value of the incentive compensation earned" (as defined in Section 5(a))
for the prior three fiscal years, reduced by amounts paid under a Company
disability or income replacement plan, in twelve monthly installments following
this termination. The Company may condition the payments set forth above upon
securing from you an appropriate release of claims under the federal Family and
Medical Leave Act and the California Family Rights Act.
6. Payment on Sale of Company; Severance Payments.
(a) Sale of the Company. If a "Change of Ownership" (as
defined below) of the Company occurs during the term of this Agreement, the
Company shall pay you promptly in cash an amount equal to two times the sum of
your average annual base salary and the "value of the incentive compensation
earned" (as defined in Section 5(a)) for the prior three fiscal years preceding
the fiscal year in which the "Change of Ownership" occurs. In the event
payment is made under this subparagraph (a), no amount shall be payable under
subparagraph (b) below.
(b) Severance Payment. If the Company shall terminate your
employment without "Cause" (as defined below) or you shall terminate your
employment for "Good Reason" (as defined below), the Company shall, unless
payment has been previously made to you under subparagraph (a) above, pay you
promptly in cash an amount equal to two times the sum of your average annual
base salary and the "value of the incentive compensation earned" (as defined in
<PAGE> 6
Mr. Bruce Karatz
December 1, 1995
Page 6
Section 5(a)) for the prior three fiscal years preceding the termination of
your employment.
(c) Change of Ownership. A "Change of Ownership" shall mean
any change in control of the Company of a nature that would be required to be
reported in response to Item 1(a) of the Current Report on Form 10-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Act"); provided that, without
limitation, such a "Change of Ownership" shall be deemed to have occurred if:
(i) a third person, including a "group" as such term
is used in Section 13(d)(3) of the Act, becomes the beneficial owner,
directly or indirectly, of 20% or more of the combined voting power of
the Company's outstanding voting securities ordinarily having the
right to vote for the election of directors of the Company, unless
such acquisition of beneficial ownership is approved by a majority of
the Incumbent Board (as such term is defined in clause (ii) below); or
(ii) individuals who, as of the date hereof,
constitute the Board of Directors of the Company (the "Board"
generally and as of the date hereof the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to
the election of the Directors of the Company, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Act) shall be,
for purposes of this Agreement, considered as though such person were
a member of the Incumbent Board.
For purposes of any incentive compensation paid to you pursuant to
this Agreement, the definition of "Change of Ownership" set forth herein shall
prevail over the definition of "Change in Ownership", or any similar term,
contained in the Plan, or any other employee compensation plan, under which
such incentive compensation may be granted.
(d) Cause. "Cause" shall mean (i) an act or acts of
dishonesty taken by you and intended to result in your substantial personal
enrichment at the expense of the Company or (ii) repeated violations by you of
your obligations under this Agreement which are demonstrably willful and
deliberate and which result in material injury to the Company.
(e) Good Reason. "Good Reason" shall mean (i) a material
diminution in your position or responsibilities, (ii) a material diminution of
your salary, aggregate incentive compensation opportunities (excluding any
reduction in incentive compensation awards due to the economic performance of
the Company) or aggregate benefits or (iii) any required relocation
<PAGE> 7
Mr. Bruce Karatz
December 1, 1995
Page 7
of your office beyond a 50 mile radius from the present location of your
office.
7. Exclusive Benefit. You and the Company have agreed that a primary
material element of this contract is the desire of the Company to insure to
itself and its affiliates the sole and exclusive right to receive the full
benefit of your time, skill, and opportunities until November 30, 2001 or any
later date of termination of this Agreement, as the same may be extended.
Subject only to the Company's payment to you of the compensation provided
hereunder, you have agreed that until said date you will not, as a director,
officer, agent, employee, partner, owner, 5 or more percent shareholder, or
otherwise, enter into or conduct any business venture which may be competitive,
directly or indirectly, with that of the Company or any affiliate. A business
or activity shall be deemed to be competitive if it is substantially similar to
one engaged in or conducted by the Company or any affiliate and is conducted
within a radius of 150 miles from any location in which such business or
activity is engaged in or conducted by the Company or an affiliate. It is
understood that passive investments in income producing properties are permitted
by this paragraph. Furthermore, you have agreed that you will not, during the
term of this Agreement or for a period of two years thereafter, employ or seek
to employ any person employed by the Company or any of its affiliates in
connection with any business activities in which you may engage.
During the performance of your duties on behalf of the Company, you
shall receive and be entrusted with certain confidential and/or secret
information of a proprietary nature. You shall not discuss or use, during the
term of this employment agreement or any time thereafter, any such information
which is not otherwise publicly available.
You acknowledge that your extensive experience and knowledge of the
Company and relationship with its employees make the services to be performed
by you hereunder of a special, unusual, and peculiar value to the Company, not
readily replaceable, and that by reason of your continued employment you will
continue to acquire additional confidential information and trade secrets. The
loss of your services hereunder or the disclosure of such confidential
information and trade secrets or solicitation by you of employees of the
Company cannot be reasonably or adequately compensated for in money damages.
Accordingly, we have agreed that in addition to any other legal remedies
available, the Company shall be entitled to seek equitable relief to enjoin any
violation by you of this Agreement.
8. Miscellaneous.
(a) The waiver of either party hereto of a breach of any
provision of this Agreement by the other party shall not operate or be
construed to operate as a waiver of any subsequent breach by the other party.
(b) This Agreement contains the entire agreement between you
and the Company
<PAGE> 8
Mr. Bruce Karatz
December 1, 1995
Page 8
concerning your employment during the term hereof. It may not be changed
orally but only by an agreement, in writing, signed by you and approved by the
Board of Directors of the Company. Notwithstanding the foregoing, it is
understood that you shall be entitled to receive base salary and incentive
compensation for the fiscal year ending November 30, 1995 in accordance with
your prior Employment Agreement entered into with the Company dated January 4,
1988, as amended on February 16, 1995.
(c) If any of the provisions of this Agreement shall be
unlawful, void, or for any reason unenforceable, they shall be deemed separate
from and in no way affect the validity or enforceability of the remaining
provisions of the Agreement.
(d) This Agreement is entered into in Los Angeles, California
and shall be construed and enforced under the laws of the State of California.
(e) In the event any legal action or arbitration shall be
brought for the enforcement of this Agreement, or because of any alleged
dispute, breach, or default hereunder, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in such legal action or arbitration, in addition to any other relief
to which it or he may be entitled. Nothing hereunder, however, shall be
construed to authorize filing suit in court with regard to any dispute which is
to be resolved by arbitration pursuant to Section 9 of this Agreement.
(f) The Agreement shall bind and benefit the Company, its
successors and assigns and shall insure to the benefit of and be binding on
you, your heirs, executors and administrators, provided that your duties and
responsibilities hereunder may not be assigned or delegated by you.
(g) All payments made by the Company under this Agreement
shall be subject to normal deductions and withholding to the extent required by
law.
9. Arbitration. In the event that any controversy or dispute between
you and the Company arising out of or relating to the employment relationship,
including, but not limited to any disputes in connection with the validity,
construction, application or enforcement of the terms of this Agreement or the
SERP, occurs, any such controversy or dispute shall be submitted to final and
binding arbitration pursuant to the then most applicable Rules of the American
Arbitration Association; provided, however, that unless the parties otherwise
agree, the arbitration shall be before a single arbitrator selected either by
mutual agreement or, failing agreement, from a list of seven arbitrators
provided by AAA, four of whom shall be retired judges of the Superior or
Appellate Courts of California who are residents of Los Angeles or Orange County
and, if such list exists at the time of the dispute, who are members of the
Independent List of Retired Judges and three of whom shall be members of the
National
<PAGE> 9
Mr. Bruce Karatz
December 1, 1995
Page 9
Academy of Arbitrators, resident in Los Angeles or Orange Counties. In the
event the parties are unable to agree upon such an arbitrator from such list of
seven, each party shall strike one name in turn with the first to strike being
chosen by lot. When only one name remains, that person shall be the parties'
arbitrator. The parties hereto expressly waive their rights, if any, to have
such matters heard by a jury or a judge, whether in state or federal court.
The cost of the arbitration, including, but not limited to, any
reasonable legal fees or other expenses incident thereto incurred in connection
with such arbitration, shall be determined by the arbitrator(s) and shall be
borne by the nonprevailing party. During the pendency of any arbitration
concerning the propriety of your termination and up to the date of the
arbitrator's award, you shall participate in all employee benefit programs of
the Company (other than the 401(k) plan) as provided in Section 4(c) above.
The Company agrees to pay interest on any amounts payable to you under
this Agreement which are not paid within sixty (60) days after the date when
due and on any money judgment which is awarded to you following a proceeding to
enforce any portion of the Agreement from the date that payments should have
been made under this Agreement. Such interest shall be calculated at the prime
rate offered by Bank of America, or its successor, from the date that payments
should have been made under this Agreement to the time of actual payment.
Very truly yours,
/s/ James A. Johnson
---------------------------------------
James A. Johnson, Chairman
Personnel, Compensation and
Stock Plan Committee
Agreed this 16th day of November, 1995.
/s/ Bruce Karatz
- ---------------------------
Bruce Karatz
<PAGE> 10
APPENDIX A
KAUFMAN AND BROAD HOME CORPORATION
PERFORMANCE-BASED INCENTIVE PLAN FOR SENIOR MANAGEMENT
SECTION 1. Purpose. The purposes of the Kaufman and Broad
Home Corporation Performance-Based Incentive Plan for Senior Management are to
promote the interests of Kaufman and Broad Home Corporation (the "Company")
and its stockholders by (i) attracting and retaining exceptional executive
personnel and other key employees of the Company and its Affiliates, as defined
below; (ii) motivating such employees by means of performance-related
incentives to achieve long-range performance goals; (iii) enabling such
employees to participate in the long-term growth and financial success of the
Company; and (iv) qualifying compensation paid under the Plan for deductibility
under Section 162(m) of the Internal Revenue Code.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or
indirectly, is controlled by the Company and (ii) any entity in which the
Company has a significant equity interest, in either case as determined by the
Committee.
"Award" shall mean any Performance-Based Bonus opportunity
granted under the Plan, as well as any Option, Stock Appreciation Right, award
of Restricted Stock, Restricted Stock Units or Other Stock-Based Award granted
under the Plan or granted in payment or settlement of a Performance-Based
Bonus.
"Award Agreement" shall mean any written agreement, contract,
or other instrument or document (which may include, if so designated by the
Committee, an Employment Agreement, as defined herein) evidencing any Award,
which may, but need not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Ownership" shall be deemed to have occurred if
either (1) individuals who, as of the effective date of this Plan, constitute
the Board of the Company (as of the date hereof, the "Incumbent Board") cease
for any reason to constitute at least a majority of the directors constituting
the Board, provided that any person becoming a director subsequent to the
effective date of this Plan whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least three-quarters (3/4)
of the then directors who are members of the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is
(A) in connection with the acquisition by a third person, including a "group"
as such term is used in Section 13(d)(3) of the Exchange Act, of beneficial
ownership, directly or indirectly, of 20% or more of the combined voting
securities ordinarily having the right to vote for the election of directors of
the Company (unless such acquisition of beneficial ownership was approved by a
<PAGE> 11
majority of the Board who are members of the Incumbent Board), or (B) in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Plan, considered as though such person were a member of the Incumbent
Board, or (2) the Board (a majority of which shall consist of directors who are
members of the Incumbent Board) has determined that a Change of Ownership, for
purposes of this Plan, shall have occurred. If any of the events enumerated in
clauses (1) or (2) occur, the Board shall determine the effective date of the
Change of Ownership resulting therefrom, for purposes of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean a committee of the Board designated by
the Board to administer the Plan and composed of not less than the minimum
number of persons from time to time required by Rule 16b-3, each of whom (i) to
the extent necessary to comply with Rule 16b-3 only, is a "disinterested
person" within the meaning of Rule 16b-3 and (ii) to the extent necessary to
comply with Section 162(m) only, is an "outside director" within the meaning of
Section 162(m). Until otherwise determined by the Board, the Compensation
Committee designated by the Board shall be the Committee under the Plan.
"Company" shall mean Kaufman and Broad Home Corporation,
together with any successor thereto.
"Employment Agreement" shall mean (i) with respect to Awards
relating to performance in fiscal year 1995, an agreement between the Company
and a Participant, the effectiveness or continuing effectiveness of which is
contingent upon approval, or approval of the Plan, by the Company's
stockholders, which approval shall satisfy all applicable requirements of
Section 162(m) and (ii) with respect to Awards relating to performance in any
fiscal year of the Company after fiscal year 1995, an agreement between the
Company and a Participant entered into prior to the end of the first fiscal
quarter of such fiscal year.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the fair market value of the
property or other item being valued, as determined by the Committee in its sole
discretion.
"Incentive Stock Option" shall mean a right to purchase Shares
from the Company that is granted under Section 7 of the Plan and that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
"Non-Qualified Stock Option" shall mean a right to purchase
Shares from the Company that is granted under Section 7 of the Plan and that is
not intended to be an Incentive Stock Option.
<PAGE> 12
"Officer" shall mean, at any time, an individual who is an
officer of the Company or any of its subsidiaries.
"Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option and shall include a Restoration Option.
"Other Stock-Based Award" shall mean any right granted under
Section 10 of the Plan.
"Participant" shall mean any Officer selected by the Committee
to receive an Award under the Plan.
"Performance-Based Bonus" shall mean a bonus opportunity
awarded in accordance with Section 6 of the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Plan" shall mean this Kaufman and Broad Home Corporation
Performance-Based Incentive Plan for Senior Management.
"QDRO" shall mean a qualified domestic relations order meeting
such requirements as the Committee shall determine, in its sole discretion.
"Restoration Option" shall mean an Option granted pursuant to
Section 7(e) of the Plan.
"Restricted Stock" shall mean any Share granted under Section
9 of the Plan.
"Restricted Stock Unit" shall mean any unit granted under
Section 9 of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and
interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time.
"Section 162(m)" shall mean Section 162(m) of the Code and the
rules and other authorities thereunder promulgated by the Internal Revenue
Service of the Department of the Treasury.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the Staff thereof.
"Shares" shall mean shares of the Common Stock,
<PAGE> 13
$1 par value, of the Company, or such other securities of the Company as may be
designated by the Committee from time to time.
"Stock Appreciation Right" shall mean any right granted under
Section 8 of the Plan.
"Substitute Awards" shall mean Awards granted in assumption
of, or in substitution for, outstanding awards previously granted by a company
acquired by the Company or with which the Company combines.
SECTION 3. Administration.
(a) Authority of Committee. The Plan shall be administered
by the Committee. Subject to the terms of the Plan and applicable law, and in
addition to other express powers and authorizations conferred on the Committee
by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be
granted to an eligible Officer; (iii) determine the number of Shares to be
covered by, or with respect to which payments, rights, or other matters are to
be calculated in connection with, Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or
suspended and the method or methods by which Awards may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) recommend to the
Board any amendment, alteration, suspension, discontinuance or termination of
the Plan, and subject to the shareholder approval requirement set forth in
Section 11(a) to take any such action not required by applicable law to be
taken by the Board, (ix) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (x) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Committee Discretion Binding. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations, and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Award, any
stockholder and any Officer.
<PAGE> 14
SECTION 4. Award Limits.
(a) Plan Shares. Subject to adjustment as provided in
Section 4(c), the number of Shares with respect to which Awards may be granted
under the Plan shall be 1,000,000. If, after the effective date of the Plan,
any Shares covered by an Award denominated in Shares granted under the Plan, or
to which such an Award relates, are forfeited, or if such an Award is settled
for cash or otherwise terminates or is canceled without the delivery of Shares,
then the Shares covered by such Award, or to which such Award relates, or the
number of Shares otherwise counted against the aggregate number of Shares with
respect to which Awards may be granted, to the extent of any such settlement,
forfeiture, termination or cancellation, shall again become Shares with respect
to which Awards may be granted. In the event that any Option or other Award
granted hereunder is exercised through the delivery of Shares or in the event
that withholding tax liabilities arising from such Award are satisfied by the
withholding of Shares by the Company, the number of Shares available for Awards
under the Plan shall be increased by the number of Shares so surrendered or
withheld.
(b) Individual Stock-Based Awards. Subject to adjustment
as provided in Section 4(c), no Participant may receive stock-based Awards
under the Plan in any calendar year that relate to more than 100,000 Shares
(which number shall not be subject to reduction by any Restoration Options
granted to such Participant during such calendar year); provided, however, that
such number may be increased with respect to any Participant by any Shares
available for grant to such Participant in accordance with this Paragraph 4(b)
in any prior years that were not granted in such prior years. No provision of
this Paragraph 4(b) shall be construed as limiting the amount of any cash-based
Award which may be granted to any Participant.
(c) Adjustments. In the event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number of Shares or other securities of the Company (or number and kind
of other securities or property) with respect to which Awards may be granted,
(ii) the number of Shares or other securities of the Company (or number and
kind of other securities or property) subject to outstanding Awards, and (iii)
the grant or exercise price with respect to any Award, or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award; provided, in each case, that (A) with respect to Awards of Incentive
Stock Options no such adjustment shall be authorized to the extent that such
authority would cause the Plan to fail to qualify under Section 422(b)(1) of
the Code, as from time to time amended and (B) with respect to any Award no
such adjustment shall be authorized to the extent that such authority would be
inconsistent with the Plan's meeting the requirements of Section 162(m) of the
Code, as from time to time amended.
<PAGE> 15
(d) Substitute Awards. Any Shares underlying Substitute
Awards shall not, except in the case of Shares with respect to which Substitute
Awards are granted to individuals who are officers or directors of the Company
for purposes of Section 16 of the Exchange Act or any successor section
thereto, be counted against the Shares available for Awards under the Plan.
(e) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of Shares acquired by the Company on the open market or
otherwise.
(f) Cash Award Limits. (i) Any Participant who is the
Chief Executive Officer at the time of payment of an Award (other than a
stock-based Award) shall be eligible to be paid in any calendar year an amount
not in excess of $3,000,000 in respect of any such cash Award under the Plan,
(ii) no Participant other than a Participant described in clause (i) of this
Paragraph 4(f) shall be eligible to be paid in any calendar year more than
$2,000,000 in respect of any such cash Award. No provision of this Paragraph
4(f) shall be construed as limiting the number of stock-based Awards that a
Participant may receive.
SECTION 5. Eligibility. Any Officer, including any Officer
who is a director of the Company or any Affiliate, who is not a member of the
Committee, shall be eligible to be designated a Participant.
SECTION 6. Performance-Based Bonuses.
(a) At such times and in such manner as may be prescribed
by Section 162(m), the Committee may select Participants and award to such
Participants the opportunity to earn a Performance-Based Bonus, which will be
contingent upon the Company's attainment of performance goals selected by the
Committee.
(b) Performance goals which may be employed by the Committee
for purposes of a Performance-Based Bonus awarded under Paragraph (a) will
include pre-tax income, after-tax income, cash flow, return on equity, return
on capital, earnings per share, unit volume, net sales or service quality, as
determined in accordance with GAAP, if applicable, which goals may relate to
the Company as a whole or, if applicable, to the performance of one or more
specific divisions or Affiliates.
(c) Notwithstanding Paragraphs (a) and (b), the formula
for determining a Performance-Based Bonus to any Participant may, if so
determined by the Committee, be governed by the terms of an Employment
Agreement applicable to such Participant.
(d) Performance-Based Bonuses awarded under Paragraph (a)
may be paid in cash, other Awards or any combination thereof, and the form of
payment may be governed, as to any Participant, by an Employment Agreement
applicable to such Participant.
<PAGE> 16
SECTION 7. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Officers to
whom Options shall be granted, the number of Shares to be covered by each
Option, the option price therefor and the conditions and limitations applicable
to the exercise of the Option. The Committee shall have the authority to grant
Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant
both types of options. In the case of Incentive Stock Options, the terms and
conditions of such grants shall be subject to and comply with such rules as may
be prescribed by Section 422 of the Code, as from time to time amended, and any
regulations implementing such statute.
(b) Exercise Price. The Committee in its sole discretion
shall establish the exercise price at the time each Option is granted, which
exercise price shall be not less than the Fair Market Value of the Shares
subject to the Option on the date of grant of the Option.
(c) Exercise. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter. The
Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of federal or
state securities laws, as it may deem necessary or advisable.
(d) Payment. No Shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option price therefor is
received by the Company. Such payment may be made in cash, or its equivalent,
or, if and to the extent permitted by the Committee, by exchanging Shares owned
by the Participant (which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that the combined
value of all cash and cash equivalents and the Fair Market Value of any such
Shares so tendered to the Company as of the date of such tender is at least
equal to such option price plus the related amount of any taxes required to be
withheld by the Company in connection with such exercise, to the extent such
withholding taxes are then ascertainable. If the amount of such taxes is not
ascertainable at the time of the notice of exercise, such amount shall be
tendered by you to the Company as soon as the same shall become ascertainable
and shall be communicated to you by the Company.
(e) Restoration Options. In the event that any Participant
delivers Shares in payment of the exercise price of any Option granted
hereunder in accordance with Section 7(d), or in the event that the withholding
tax liability arising upon exercise of any Option by a Participant is satisfied
through the withholding by the Company of Shares otherwise deliverable upon
exercise of the Option, the Committee shall have the authority to grant or
provide for the automatic grant of a Restoration Option to such Participant.
The grant of a Restoration Option shall be subject to the satisfaction of such
conditions or criteria as the Committee in its sole discretion shall establish
from time to time. A Restoration Option shall entitle the holder thereof to
purchase a number of Shares equal to the number of such Shares so delivered or
withheld upon exercise of the original Option, in the discretion of the
Committee. A Restoration Option shall have a per share exercise price of not
less than the Fair Market Value of the Shares subject to such Restoration
Option on the date of
<PAGE> 17
grant thereof and such other terms and conditions as the Committee in its sole
discretion shall determine.
SECTION 8. Stock Appreciation Rights.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Officers to
whom Stock Appreciation Rights shall be granted, the number of Shares to be
covered by each Stock Appreciation Right Award, the grant price thereof and the
conditions and limitations applicable to the exercise thereof. Stock
Appreciation Rights may be granted in tandem with another Award, in addition to
another Award, or freestanding and unrelated to another Award. Stock
Appreciation Rights granted in tandem with or in addition to an Award may be
granted either at the same time as the Award or at a later time.
(b) Exercise and Payment. A Stock Appreciation Right shall
entitle the Participant to receive an amount equal to the excess of the Fair
Market Value of a Share on the date of exercise of the Stock Appreciation Right
over the grant price thereof, provided that the Committee may for
administrative convenience determine that, with respect to any Stock
Appreciation Right which is not related to an Incentive Stock Option and which
can only be exercised for cash during limited periods of time in order to
satisfy the conditions of Rule 16b-3, the exercise of such Stock Appreciation
Right for cash during such limited period shall be deemed to occur for all
purposes hereunder on the day during such limited period on which the Fair
Market Value of the Shares is the highest. Any such determination by the
Committee may be changed by the Committee from time to time and may govern the
exercise of Stock Appreciation Rights granted prior to such determination as
well as Stock Appreciation Rights thereafter granted. The Committee shall
determine whether a Stock Appreciation Right shall be settled in cash, Shares
or a combination of cash and Shares.
(c) Other Terms and Conditions. Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall determine, at or
after the grant of a Stock Appreciation Right, the term, methods of exercise,
methods and form of settlement, and any other terms and conditions of any Stock
Appreciation Right. Any such determination by the Committee may be changed by
the Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as well as
Stock Appreciation Rights granted or exercised thereafter. The Committee may
impose such conditions or restrictions on the exercise of any Stock
Appreciation Right as it shall deem appropriate.
SECTION 9. Restricted Stock.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Officers to
whom Shares of Restricted Stock shall be granted, the number of Shares of
Restricted Stock to be granted to each Participant, the duration of the period
during which, and the conditions under which, the Restricted Stock may be
forfeited to the Company, and the other terms and conditions of such Awards.
Notwithstanding any other provision of this Plan to the contrary, the period
during which such Awards may be forfeited to the
<PAGE> 18
Company shall not terminate prior to the third anniversary of the date of grant
of such Award; provided, however, that the Committee may determine to have such
period terminate after the first anniversary of the date of grant of any such
Award if the Committee has established conditions for the earning of such Award
that relate to performance of the Company or one or more divisions or units
thereof. Subject to the preceding sentence, once established, such performance
vesting criteria may be changed, adjusted or amended during the term of an
Award.
(b) Transfer Restrictions. Shares of Restricted Stock may
not be sold, assigned, transferred, pledged or otherwise encumbered, except as
provided in the Plan or the applicable Award Agreements. Certificates issued
in respect of Shares of Restricted Stock shall be registered in the name of the
Participant and deposited by such Participant, together with a stock power
endorsed in blank, with the Company. Upon the lapse of the restrictions
applicable to such Shares of Restricted Stock, the Company shall deliver such
certificates to the Participant or the Participant's legal representative.
(c) Dividends and Distributions. Dividends and other
distributions paid on or in respect of any Shares of Restricted Stock may be
paid directly to the Participant, or may be reinvested in additional Shares of
Restricted Stock, as determined by the Committee in its sole discretion.
SECTION 10. Change of Ownership. Notwithstanding anything to
the contrary in this Plan, unless otherwise specifically determined by the
Committee at the time of grant, all Options theretofore granted and not fully
exercisable shall become exercisable in full and the restrictions on any other
outstanding Awards shall lapse upon the occurrence of a Change of Ownership.
SECTION 11. Other Stock-Based Awards. The Committee shall
have authority to grant to any Officer an "Other Stock-Based Award", which
shall consist of any right which is (i) not an Award described in Sections 6
through 9 above and (ii) an Award of Shares or an Award denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities convertible into
Shares), as deemed by the Committee to be consistent with the purposes of the
Plan; provided that any such rights must comply, to the extent deemed desirable
by the Committee, with Rule 16b-3 and applicable law. Subject to the terms of
the Plan and any applicable Award Agreement, the Committee shall determine the
terms and conditions of any such Other Stock-Based Award.
SECTION 12. Amendment and Termination.
(a) Amendments to the Plan. Subject to the authority of the
Committee as set forth in Section 3, the Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from Section
16(b) of the Exchange Act, for which or
<PAGE> 19
with which the Board deems it necessary or desirable to qualify or comply.
Notwithstanding anything to the contrary herein, the Committee may amend the
Plan in such manner as may be necessary so as to have the Plan conform with
local rules and regulations in any jurisdiction outside the United States.
(b) Amendments to Awards. The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Award theretofore granted, prospectively or
retroactively; provided that any such waiver, amendment, alteration,
suspension, discontinuance, cancellation or termination that would adversely
affect the rights of any Participant or any holder or beneficiary of any Award
theretofore granted shall not to that extent be effective without the consent
of the affected Participant, holder or beneficiary; and provided further that
no outstanding Option may be amended to decrease the per Share exercise price
thereof, except in accordance with Section 4(c).
(c) Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(c) hereof) affecting the Company,
any Affiliate, or the financial statements of the Company or any Affiliate, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
Plan's meeting the requirements of Section 162(m) of the Code, as from time to
time amended.
(d) Cancellation. Any provision of this Plan or any Award
Agreement to the contrary notwithstanding, the Committee may cause any Award
granted hereunder to be canceled in consideration of a cash payment or
alternative Award made to the holder of such canceled Award equal in value to
the Fair Market Value of such canceled Award.
SECTION 13. General Provisions.
(a) Dividend Equivalents. In the sole and complete
discretion of the Committee, an Award, whether made as an Other Stock-Based
Award under Section 10 or as an Award granted pursuant to Sections 6 through 9
hereof, may provide the Participant with dividends or dividend equivalents,
payable in cash, Shares, other securities or other property on a current or
deferred basis.
(b) Nontransferability. No Award shall be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant, except by will or the laws of descent and distribution, provided,
however, that an Award may be transferable, to the extent set forth in the
applicable Award Agreement, (i) if such Award Agreement provisions do not
disqualify such Award for exemption under Rule 16b-3, or (ii) if such Award is
not intended to qualify for exemption under such rule.
<PAGE> 20
(c) No Rights to Awards. Except as may be provided in an
Employment Agreement, no Officer, Participant or other Person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Employees, Participants, or holders or beneficiaries of Awards.
The terms and conditions of Awards need not be the same with respect to each
recipient.
(d) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan pursuant to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable Federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(e) Delegation. Subject to the terms of the Plan and
applicable law, the Committee may delegate to one or more officers or managers
of the Company or any Affiliate, or to a committee of such officers or
managers, the authority, subject to such terms and limitations as the Committee
shall determine, to grant Awards to, or to cancel, modify or waive rights with
respect to, or to alter, discontinue, suspend, or terminate Awards held by,
Officers who are not officers or directors of the Company for purposes of
Section 16 of the Exchange Act, or any successor section thereto, or who are
otherwise not subject to such Section.
(f) Withholding. A Participant may be required to pay to the
Company or any Affiliate and the Company or any Affiliate shall have the right
and is hereby authorized to withhold from any Award, from any payment due or
transfer made under any Award or under the Plan or from any compensation or
other amount owing to a Participant the amount (in cash, Shares, other
securities, other Awards or other property) of any applicable withholding taxes
in respect of an Award, its exercise, or any payment or transfer under an Award
or under the Plan and to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for the payment of such
taxes. The Committee may provide for additional cash payments to holders of
Awards to defray or offset any tax arising from the grant, vesting, exercise or
payments of any Award.
(g) Award Agreements. Each Award hereunder shall be
evidenced by an Award Agreement which shall be delivered to the Participant and
shall specify the terms and conditions of the Award and any rules applicable
thereto, including but not limited to the effect on such Award of the death,
retirement or other termination of employment of a Participant.
(h) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other compensation arrangements, which may, but need
not, provide for the grant of bonuses, options, restricted stock, Shares and
other types of Awards provided for hereunder (subject to shareholder
<PAGE> 21
approval if such approval is required), and such arrangements may be either
generally applicable or applicable only in specific cases.
(i) No Right to Employment. The grant of an Award shall not
be construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate. Further, the Company or an Affiliate may at any
time dismiss a Participant from employment, free from any liability or any
claim under the Plan, unless otherwise expressly provided in the Plan or in any
Award Agreement.
(j) No Rights as Stockholder. Subject to the provisions of
the applicable Award, no Participant or holder or beneficiary of any Award
shall have any rights as a stockholder with respect to any Shares to be
distributed under the Plan until he or she has become the holder of such
Shares. Notwithstanding the foregoing, in connection with each grant of
Restricted Stock hereunder, the applicable Award shall specify if and to what
extent the Participant shall not be entitled to the rights of a stockholder in
respect of such Restricted Stock.
(k) Governing Law. The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan and any Award
Agreement shall be determined in accordance with the laws of the State of
California, except to the extent that the General Corporation Law of the State
of Delaware shall be applicable to the Company.
(l) Severability. If any provision of the Plan or any Award
is or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction, Person or Award and the remainder of the
Plan and any such Award shall remain in full force and effect.
(m) Other Laws. The Committee may refuse to issue or
transfer any Shares or other consideration under an Award if, acting in its
sole discretion, it determines that the issuance or transfer of such Shares or
such other consideration might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the Exchange
Act, and any payment tendered to the Company by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant, holder or beneficiary. Without limiting
the generality of the foregoing, no Award granted hereunder shall be construed
as an offer to sell securities of the Company, and no such offer shall be
outstanding, unless and until the Committee in its sole discretion has
determined that any such offer, if made, would be in compliance with all
applicable requirements of the U.S. federal securities laws and any other laws
to which such offer, if made, would be subject.
(n) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or
a fiduciary relationship between the Company or any Affiliate and a Participant
or any other Person. To the extent that any Person
<PAGE> 22
acquires a right to receive payments from the Company or any Affiliate pursuant
to an Award, such right shall be no greater than the right of any unsecured
general creditor of the Company or any Affiliate.
(o) No Fractional Shares. No fractional Shares shall be
issued or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional Shares
or any rights thereto shall be canceled, terminated, or otherwise eliminated.
(p) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
SECTION 13. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of
December 1, 1994, subject to approval by the shareholders of the Company within
one year thereafter.
(b) Expiration Date. No Incentive Stock Option shall be
granted under the Plan after November 30, 2004. Unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award granted
hereunder may, and the authority of the Board or the Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such Award or to waive any
conditions or rights under any such Award shall, continue after the authority
for grant of new Awards hereunder has been exhausted.
<PAGE> 23
APPENDIX B
PPI. Total consolidated revenues of the Company and related entities less
total associated consolidated expenses for a given fiscal year determined in
accordance with generally accepted accounting principles, exclusive of all
income taxes and incentive compensation costs.
ROE. A ratio, stated as a percentage, which measures the Company's return on
equity, or the Company's profitability for a given period as it relates to its
shareholders' capital investments. The percentage is calculated by dividing
the Company's consolidated pretax income for a given fiscal year by the average
consolidated shareholders' equity balance. The average consolidated
shareholders' equity balance is one-half the sum of the Company's consolidated
shareholders' equity balance at the beginning of the given year plus the
Company's consolidated shareholders' equity balance at the end of the same
year.
<PAGE> 24
APPENDIX C
STOCK RESTRICTION AGREEMENT
THIS STOCK RESTRICTION AGREEMENT (this "Agreement") is made as
of _________, ____ (herein the "Effective Date") by and between KAUFMAN AND
BROAD HOME CORPORATION, a Delaware corporation (the "Company") and Bruce Karatz
(the "Participant") pursuant to the terms and conditions of the EMPLOYMENT
AGREEMENT dated December 1, 1995 by and between the Company and Participant (the
"Employment Agreement") and the KAUFMAN AND BROAD HOME CORPORATION
PERFORMANCE-BASED INCENTIVE PLAN FOR SENIOR MANAGEMENT (the "Plan").
R E C I T A L
Pursuant to a performance-based formula set forth in Subsection 4
(b)(iii) of the Employment Agreement, the Company has agreed to make certain
annual awards of the Company's common stock, par value $1.00 per share
("Stock"), to Participant, subject to certain restrictions set forth herein, in
the Employment Agreement and in the Plan. By action of the Personnel,
Compensation and Stock Plan Committee (the "Committee"), in accord with the
formula set forth in the Employment Agreement, the Company desires to award the
Participant shares of Stock under the Plan.
A G R E E M E N T
In consideration of the provisions contained in this Agreement
and with reference to the foregoing Recital, the Company and the Participant
agree as follows:
1. AWARD. Concurrently with the execution of this Agreement, the
Company shall issue to Participant ______ shares of Stock (the "Award"),
subject to the terms and conditions set forth in this Agreement. The
certificate(s) representing shares of Stock granted pursuant to the Award
shall not be delivered to the Participant until the lapse of the restrictions on
transferability in accordance with Paragraph 2 of this Agreement and Subsection
4(b)(iii) of the Employment Agreement. Prior to such lapse, the certificate(s)
shall be held by the Company in escrow pursuant to Section 9(b) of the Plan,
together with a stock power duly endorsed in blank by Participant. Following the
lapse of the restrictions, the Company shall deliver to the Participant as soon
as practicable certificate(s) representing those shares as to which restrictions
have lapsed.
2. LAPSE OF RESTRICTIONS/FORFEITURE. The restrictions imposed by
this Agreement and the Employment Agreement with respect to the shares of Stock
covered by this Award shall lapse on October 10, 2000, the fifty-fifth (55th)
birthday of Participant, provided that he is still employed by the Company at
that time; such restrictions shall lapse earlier upon Participant's
<PAGE> 25
termination of employment due to death, disability (as defined in Section 5(b)
of the Employment Agreement), involuntary termination of employment by the
Company without "Cause" (as defined in Section 6(d) of the Employment
Agreement), voluntary termination of employment for "Good Reason" (as defined in
Section 6(e) of the Employment Agreement) or upon a sale of the Company (as
defined in Section 6(a) of the Employment Agreement). The shares of Stock
covered by this Award shall be forfeited upon the Participant's voluntary
termination of employment without "Good Reason" before Participant's fifty-fifth
(55th) birthday.
3. DIVIDENDS. Cash dividends or other distributions paid on or in
respect of any shares of Stock subject to the Award shall be paid directly to
Participant at the same time any such dividends or distributions are paid to
holders of shares of Stock that are not restricted and are freely tradeable
("Other Holders"). Any stock or other non-cash distributions issued on or in
respect of any shares of Stock subject to the Award shall be issued at the same
time any such distributions are issued to Other Holders, but shall be held in
escrow and shall be subject to the same restrictions as the shares of Stock
subject to the Award.
4. TAX WITHHOLDING ELECTION. At Participant's discretion, he may
direct the Company to withhold shares of Stock otherwise deliverable upon the
lapse of restrictions on the Award to satisfy any withholding tax liability that
may arise upon such lapse of restrictions, provided that such Stock withholding
complies with Section 16(b) of the Securities Exchange Act of 1934, as amended,
and the rules promulgated thereunder.
5. ADJUSTMENTS. As contemplated Subsection 4(b)(ii)(bb) of the
Employment Agreement and Section 4(c) of the Plan, in the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, or other change
in corporate structure affecting the Stock, such adjustment shall be made in the
number of shares of Stock granted pursuant to the Award as may be determined to
be appropriate by the Company's Board of Directors, or the Personnel,
Compensation and Stock Plan Committee of the Company's Board of Directors, or
any successor committee.
6. INTERPRETATION. The Award made to the Participant hereunder
made is pursuant to and subject to the terms of the Plan and the Employment
Agreement, both of which are incorporated herein by this reference. Nothing
herein shall be construed as amending or otherwise contradicting the terms of
the Employment Agreement or the Plan; in the event of a contradiction between
the terms of this Agreement and the terms of the Employment Agreement or the
Plan, the terms of Employment Agreement or the Plan, as the case may be, shall
prevail.
7. NO ASSIGNMENT. This Agreement may not be assigned by
Participant by operation of law or otherwise. Notwithstanding, this Agreement
shall be binding upon and shall inure to the benefit of the personal
representatives, heirs, legatees, successors and assigns of the Company and
Participant.
<PAGE> 26
8. GOVERNING LAW. This Agreement and the legal relations between
the parties shall be governed by and construed in accordance with the laws of
the State of California.
9. NOTICES. Any notice given hereunder to the Company shall be
addressed to the Company, attention Vice President, Human Resources, and any
notice given hereunder to the Participant shall be addressed to him at his
address as shown on the records of the Company.
IN WITNESS WHEREOF, the Company, by its duly authorized
officer, and the Participant have duly executed and delivered this Agreement as
of the date first above written.
KAUFMAN AND BROAD HOME CORPORATION
By:
--------------------------------
[Name]
[Title]
PARTICIPANT
-----------------------------------
Bruce Karatz
Social Security Number: ###-##-####
<PAGE> 27
APPENDIX D
KAUFMAN AND BROAD HOME CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective December 1, 1995)
<PAGE> 28
KAUFMAN AND BROAD HOME CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective December 1, 1995)
<TABLE>
<CAPTION>
CONTENTS
- --------------------------------------------------------------------------------
SECTION PAGE
<S> <C> <C>
ARTICLE I. THE PLAN
1.1 Establishment of the Plan 1
1.2 Purpose 1
ARTICLE II. DEFINITIONS
2.1 Definitions 2
2.2 Gender and Number 3
ARTICLE III. PARTICIPATION
3.1 Eligibility for Participation 4
3.2 Date of Participation 4
3.3 Duration of Participation 4
ARTICLE IV. SUPPLEMENTAL RETIREMENT BENEFITS
4.1 Supplemental Retirement Benefits 5
4.2 Determination of Normal, Postponed, and Early Retirement Benefits 5
4.3 Determination of Vested Retirement Benefits 5
4.4 Commencement, Form, and Duration 6
ARTICLE V. DISABILITY BENEFITS
5.1 Eligibility 7
5.2 Amount of Disability Benefit 7
ARTICLE VI. PRE-RETIREMENT DEATH BENEFITS
6.1 Eligibility 8
6.2 Amount of Pre-Retirement Death Benefit 8
</TABLE>
i
<PAGE> 29
KAUFMAN AND BROAD HOME CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective December 1, 1995)
<TABLE>
<CAPTION>
CONTENTS
- --------------------------------------------------------------------------------
SECTION PAGE
<S> <C> <C>
ARTICLE VII. OPTIONAL FORMS OF BENEFIT
7.1 Lump Sum Option 9
7.2 Payment Upon Financial Hardship 9
ARTICLE VIII. CHANGE IN CONTROL
8.1 Lump Sum Option Upon Change in Control 10
8.2 Amount of Lump Sum Benefit 10
8.3 Definition 10
ARTICLE IX. TRUST
9.1 Establishment of the Trust 12
9.2 Contributions 12
9.3 Payment of Benefits 12
ARTICLE X. ADMINISTRATION
10.1 Administration 13
10.2 Decisions and Actions of Committee 13
10.3 Rules and Records of the Committee 13
10.4 Employment of Agents 13
10.5 Agent for Service of Legal Process 13
10.6 Plan Expenses 14
10.7 Indemnification 14
10.8 Tax Withholding 14
10.9 Claims Procedure 14
ARTICLE XI. MISCELLANEOUS
11.1 Rights Against the Company 16
11.2 Rights Under the Company's Retirement Plans 16
11.3 Payment of Benefits to Incompetent 16
11.4 Missing Person 16
11.5 Amendment or Termination 17
</TABLE>
ii
<PAGE> 30
KAUFMAN AND BROAD HOME CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective December 1, 1995)
<TABLE>
<CAPTION>
CONTENTS
- --------------------------------------------------------------------------------
SECTION PAGE
<S> <C> <C>
11.6 Merger or Consolidation of Plan and Trust 17
11.7 Controlling Law/Arbitration 17
11.8 Rights to Trust Fund Assets 17
11.9 Nontransferability 18
11.10 Illegality of Particular Provision 18
EXHIBIT I
Annual Retirement and Disability Benefits 19
EXHIBIT II
Annual Termination Benefits Starting at Age 55
Lump Sum Amount at Termination of Employment 20
EXHIBIT III
Lump Sum Benefits 21
EXHIBIT IV
Death and Disability Benefits Before Early Retirement Age 22
</TABLE>
iii
<PAGE> 31
ARTICLE I. THE PLAN
1.1 ESTABLISHMENT OF THE PLAN
Kaufman and Broad Home Corporation hereby establishes an unfunded supplemental
executive retirement plan for the benefit of Mr. Bruce Karatz, the Chairman,
President, and Chief Executive Officer of Kaufman and Broad Home Corporation.
This plan is effective as of December 1, 1995 and shall be known as the Kaufman
and Broad Home Corporation Supplemental Executive Retirement Plan.
1.2 PURPOSE
The purpose of this Plan is to provide retirement income to Mr. Karatz to
supplement the benefits provided under the tax-qualified retirement plans
maintained by the Kaufman and Broad Home Corporation. This Plan is intended to
satisfy the supplemental retirement provisions of section 4(b)(iii) of the
employment agreement between Mr. Karatz and the Kaufman and Broad Home
Corporation dated December 1, 1995.
1
<PAGE> 32
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS
Whenever capitalized in this document, the following terms shall have the
meanings set forth below unless otherwise expressly provided.
(a) "ACTUARIAL EQUIVALENT" shall mean a single sum value of a monthly benefit
amount otherwise payable, calculated using an interest rate assumption of
seven percent.
(b) "BENEFICIARY" shall mean the person or persons designated by the
Participant to receive benefits in the event of the death of the
Participant. In the event that the Participant failed to designate a
beneficiary, or if for any reason such designation shall be legally
ineffective, or if all designated beneficiaries predecease him or die
simultaneously with him, distribution to which the Participant would have
been entitled shall be made to the Participant's surviving spouse or, if
none, to the Participant's estate.
(c) "BOARD" shall mean the Board of Directors of Kaufman and Broad Home
Corporation.
(d) "CHANGE IN CONTROL" shall mean a change in ownership of the Company, as
described in Article VIII.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" shall mean the Personnel, Compensation and Stock Plan
Committee of the Board which shall administer the Plan.
(g) "COMPANY" shall mean Kaufman and Broad Home Corporation, and any successor
thereto.
(h) "DISABILITY" shall mean any physical or mental condition which occurs for
a continuous period of at least eight weeks, or an aggregate of more than
90 days in any 120-day period, and which results in a Termination of
Employment of the Participant.
(i) "EARLY RETIREMENT AGE" shall mean the Participant's fifty-fifth birthday.
(j) "NORMAL RETIREMENT AGE" shall mean the Participant's sixtieth birthday.
(k) "PARTICIPANT" shall mean Mr. Bruce Karatz, Chairman, President, and Chief
Executive Officer of the Company.
(l) "PLAN" shall mean the Kaufman and Broad Home Corporation Supplemental
Executive Retirement Plan.
(m) "TERMINATION OF EMPLOYMENT" shall mean termination of employment with the
Company, whether voluntary or involuntary. The Participant's termination
of employment will be deemed to occur when the Participant ceases to be a
full-time employee of the
2
<PAGE> 33
Company, even though the Participant may continue to serve as Chairman of
the Board or as a consultant to the Company.
(n) "TRUST" shall mean the legal entity organized pursuant to the Trust
Agreement between the Company and the Trustee to hold and administer the
Trust Fund in which any contributions made by the Company are to be held,
invested, and disbursed to, or for the benefit of, the Participant or his
Beneficiary.
(o) "TRUST AGREEMENT" shall mean the agreement in the nature of a trust
entered into between the Company and Trustee.
(p) "TRUST FUND" shall mean the assets of every kind and description held in
the Trust pursuant to the Trust Agreement.
(q) "TRUSTEE" shall mean the entity, not affiliated with the Company, acting
as the trustee under the Trust Agreement at the time of reference.
2.2 GENDER AND NUMBER
Unless the context clearly requires otherwise, the masculine pronoun whenever
used shall include the feminine pronoun, and the singular shall include the
plural.
3
<PAGE> 34
ARTICLE III. PARTICIPATION
3.1 ELIGIBILITY FOR PARTICIPATION
Mr. Bruce Karatz shall the only employee of the Company eligible to participate
in this Plan.
3.2 DATE OF PARTICIPATION
Participation shall commence December 1, 1995.
3.3 DURATION OF PARTICIPATION
Subject to the provisions of section 11.5, participation in this Plan shall
continue while the Participant is an employee of the Company, whether or not
there is in effect an employment agreement between the Participant and the
Company, and thereafter for so long as he is entitled to receive any benefits
hereunder.
4
<PAGE> 35
ARTICLE IV. SUPPLEMENTAL RETIREMENT BENEFITS
4.1 SUPPLEMENTAL RETIREMENT BENEFITS
Upon Termination of Employment with the Company for reasons other than death or
disability, the Participant shall be entitled to a retirement benefit under this
Plan.
(a) NORMAL RETIREMENT. If the Participant has a Termination of Employment at
his Normal Retirement Age, he shall be entitled to a normal retirement
benefit from this Plan, determined in accordance with section 4.2.
(b) POSTPONED RETIREMENT. If the Participant continues employment beyond his
Normal Retirement Age, he shall upon his Termination of Employment be
entitled to a postponed retirement benefit from this Plan, determined in
accordance with section 4.2.
(c) EARLY RETIREMENT. If the Participant has a Termination of Employment at or
after his Early Retirement Age but before his Normal Retirement Age, he
shall be entitled to an early retirement benefit from this Plan,
determined in accordance with section 4.2.
(d) VESTED RETIREMENT. If the Participant has a Termination of Employment
prior to his Early Retirement Age, he shall be entitled to a vested
retirement benefit from this Plan, determined in accordance with section
4.3.
4.2 DETERMINATION OF NORMAL, POSTPONED, AND EARLY RETIREMENT BENEFITS
The monthly amount of the Participant's normal retirement benefit, postponed
retirement benefit, or early retirement benefit shall be one-twelfth of the
amount determined pursuant to Exhibit I, based on the Participant's actual age
at commencement of benefits.
4.3 DETERMINATION OF VESTED RETIREMENT BENEFITS
The monthly amount of the Participant's vested retirement benefit shall be
one-twelfth of the amount determined pursuant to Exhibit II, based on the
Participant's actual age at Termination of Employment. In the event of
Termination of Employment prior to attaining age 52, the Participant shall
receive a lump sum amount determined pursuant to Exhibit II, which shall be
payable within 30 days of the Participant's Termination of Employment.
5
<PAGE> 36
4.4 COMMENCEMENT, FORM, AND DURATION
Retirement benefit payments under this Plan shall commence upon the first of the
month following the later of Termination of Employment or attainment of Early
Retirement Age. Benefit payments shall be made monthly for a period of 25 years
(300 monthly payments). In the event of the Participant's death while receiving
monthly payments, the remaining payments shall be made monthly to the
Participant's Beneficiary.
6
<PAGE> 37
ARTICLE V. DISABILITY BENEFITS
5.1 ELIGIBILITY
If the Participant incurs a Disability while employed by the Company, he shall
be entitled to a disability benefit from this Plan, determined in accordance
with section 5.2.
5.2 AMOUNT OF DISABILITY BENEFIT
(a) DISABILITY PRIOR TO EARLY RETIREMENT AGE. If the Participant incurs a
Disability prior to Early Retirement Age, the amount of his disability
benefit shall be determined pursuant to Exhibit IV, based on the
Participant's actual age at his Termination of Employment due to
Disability. The benefit shall be paid to the Participant in a lump sum,
within 30 days of the Participant's Termination of Employment.
(b) DISABILITY ON OR AFTER EARLY RETIREMENT AGE. If the Participant incurs a
Disability on or after Early Retirement Age, the amount of his disability
benefit shall be determined pursuant to Exhibit I, based on the
Participant's actual age at his Termination of Employment due to
Disability. The payment of benefits shall commence upon the first of the
month following the Participant's Termination of Employment. Benefit
payments shall be made monthly for a period of 25 years (300 monthly
payments). In the event of the Participant's death while receiving monthly
payments, the remaining payments shall be made monthly to the
Participant's Beneficiary.
7
<PAGE> 38
ARTICLE VI. PRE-RETIREMENT DEATH BENEFITS
6.1 ELIGIBILITY
If the Participant dies while employed by the Company, his Beneficiary shall be
entitled to a death benefit from this Plan, determined in accordance with
section 6.2.
6.2 AMOUNT OF PRE-RETIREMENT DEATH BENEFIT
(a) DEATH PRIOR TO EARLY RETIREMENT AGE. If the Participant dies prior to
Early Retirement Age, the amount of death benefit payable to his
Beneficiary shall be determined pursuant to Exhibit IV, based on the
Participant's actual age at death. The benefit shall be paid to the
Beneficiary in a lump sum, within 30 days of the Participant's death.
(b) DEATH ON OR AFTER EARLY RETIREMENT AGE. If the Participant dies on or
after Early Retirement Age, the amount of death benefit payable to his
Beneficiary shall be determined pursuant to Exhibit I, based on the
Participant's actual age at death. The payment of benefits to his
Beneficiary shall commence upon the first of the month following the
Participant's death and shall be made monthly for a period of 25 years
(300 monthly payments).
8
<PAGE> 39
ARTICLE VII. OPTIONAL FORMS OF BENEFIT
7.1 LUMP SUM OPTION
(a) ELECTION. In lieu of the monthly benefits otherwise payable to the
Participant or his Beneficiary under section 4.2, section 4.3, section
5.2(b), or section 6.2(b), the Participant or his Beneficiary, as
applicable, may elect to receive a lump sum payment. Such election may be
made prior to the commencement of monthly benefits or at any time during
the period of monthly payments. This election will result in a significant
penalty to the Participant or his Beneficiary, since the amount of the
lump sum payment determined under section 7.1(b) is substantially less
than the Actuarial Equivalent of the monthly benefits which would
otherwise be payable to the Participant or his Beneficiary.
(b) AMOUNT. The lump sum amount shall be determined using Exhibit III. The
lump sum amount shall be based on (i) the actual age of the Participant at
the earlier of his Termination of Employment or death, and (ii) the actual
age of the Participant at the time he elects the lump sum option, or if
the election is made by the Beneficiary following the Participant's death,
the age the Participant would have attained had he survived to the date of
the election by the Beneficiary.
(c) PAYMENT. The lump sum benefit shall be paid within 30 days of the election
by the Participant or Beneficiary.
7.2 PAYMENT UPON FINANCIAL HARDSHIP
In the event that the Participant incurs a financial hardship after the
commencement of monthly benefits under section 4.4 or section 5.2(b), he may
request that the Committee authorize payment of his remaining benefits in a lump
sum. The Committee shall not authorize such payment unless it determines that
there is an unforeseeable emergency that is caused by an event beyond the
control of the Participant, and such emergency would result in severe financial
hardship to the Participant if the lump sum payment is not authorized. If
authorized, the amount of the lump sum payment shall be the Actuarial Equivalent
value of the remaining monthly payments. Such lump sum payment shall be paid to
the Participant as soon as practicable following authorization by the Committee.
9
<PAGE> 40
ARTICLE VIII. CHANGE IN CONTROL
8.1 LUMP SUM OPTION UPON CHANGE IN CONTROL
In the event of a Change in Control (as defined below) prior to the commencement
of payment of benefits under this Plan, the Participant may elect to receive an
immediate lump sum payment in lieu of all benefits otherwise payable to the
Participant or his Beneficiary under this Plan. Such election may be made at any
time prior to commencement of payment of benefits under this Plan. This election
will result in a significant penalty to the Participant, since the amount of the
lump sum benefit provided under section 8.2 is substantially less than the
Actuarial Equivalent of the monthly benefits which may otherwise be payable to
the Participant.
8.2 AMOUNT OF LUMP SUM BENEFIT
The amount of the lump sum benefit payable to the Participant pursuant to
section 8.1 shall be the amount determined pursuant to Exhibit III, based on the
Participant's actual age at the time of the Participant's election to receive a
lump sum benefit, which age shall also be considered the Participant's
termination age for the purpose of applying Exhibit III to this benefit. The
lump sum benefit shall be paid to the Participant within 30 days of the election
by the Participant.
8.3 DEFINITION
For purposes of this Article VIII, the following definition applies:
(a) CHANGE IN CONTROL. A "Change in Control" shall mean any change in control
of the Company of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 10-K, as in effect on
December 1, 1995, pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Act"); provided that, without limitation, such
a "Change of Ownership" shall be deemed to have occurred if:
(1) a third person, including a "group" as such term is used in section
13(d)(3) of the Act, becomes the beneficial owner, directly or
indirectly, of 20 percent or more of the combined voting power of
the Company's outstanding voting securities ordinarily having the
right to vote for the election of directors of the Company unless
such acquisition of beneficial ownership is approved by a majority
of the Incumbent Board (as such term is defined in paragraph (2)
below); or
10
<PAGE> 41
(2) individuals who, as of December 1, 1995, constitute the Board (as of
December 1, 1995, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any
person becoming a director subsequent to December 1, 1995 whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Act) shall be,
for purposes of this Article, considered as though such person were
a member of the Incumbent Board.
11
<PAGE> 42
ARTICLE IX. TRUST
9.1 ESTABLISHMENT OF THE TRUST
The Company shall establish a Trust as a part of the Plan in order to implement
and carry out the provisions of the Plan and to finance the benefits under the
Plan. The Company shall establish the Trust by entering into a Trust Agreement
with a Trustee selected by the Committee. The Trust shall be an irrevocable
grantor Trust within the meaning of Code sections 671 through 677, and the
Company shall be treated as the owner of the Trust. It is intended that the
Trust shall be in such form as may be necessary for the Plan to be deemed
unfunded for purposes of the Employee Retirement Income Security Act of 1974, as
amended.
The Trust shall maintain a Trust Fund. The administration and management of the
Trust Fund shall be set forth in the Trust Agreement, the terms of which shall
be consistent with the provisions of this Plan. Nothing in the Trust Agreement
shall impair the rights of the Participant and his Beneficiary nor shall the
agreement limit the obligations of the Company under this Plan.
9.2 CONTRIBUTIONS
The Company shall make an annual contribution to the Trust Fund of $250,000. The
first contribution shall be made January 1, 1996 and thereafter a contribution
shall be made each January 1 (including, if necessary, years after the
Participant has a Termination of Employment) until the Trust Fund holds assets
sufficient to satisfy all obligations for benefits under this Plan.
9.3 PAYMENT OF BENEFITS
The benefits under this Plan shall be paid from the Trust Fund. To the extent
the Trust Fund is insufficient to pay all required benefits under the Plan,
payment of benefits shall be made from the general assets of the Company.
12
<PAGE> 43
ARTICLE X. ADMINISTRATION
10.1 ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall be
authorized to construe and interpret all of the provisions of the Plan, to adopt
procedures and practices concerning the administration of the Plan, and to make
any determinations necessary hereunder, which shall be binding and conclusive on
all parties. The Committee may appoint one or more individuals and delegate such
of its power and duties as it deems desirable to any such individual, in which
case every reference herein made to the Committee shall be deemed to mean or
include the individuals as to matters within their jurisdiction.
10.2 DECISIONS AND ACTIONS OF COMMITTEE
The Committee may act at a meeting or in writing without a meeting. All
decisions and actions of the Committee shall be made by vote of the majority,
including actions in writing taken without a meeting.
10.3 RULES AND RECORDS OF THE COMMITTEE
The Committee may make such rules and regulations in connection with its
administration of the Plan as are consistent with the terms and provisions
hereof. The Committee shall keep a record of the Participant's name, address,
social security number, benefit commencement date, and the amount of benefit.
10.4 EMPLOYMENT OF AGENTS
The Committee may employ agents, including without limitation, accountants,
actuaries, consultants, or attorneys, to exercise and perform the powers and
duties of the Committee as the Committee delegates to them, and to render such
services to the Committee as the Committee may determine, and the Committee may
enter into agreements setting forth the terms and conditions of such service.
10.5 AGENT FOR SERVICE OF LEGAL PROCESS
The Chairman of the Committee shall serve as agent for service of legal process.
13
<PAGE> 44
10.6 PLAN EXPENSES
The Company shall pay all expenses reasonably incurred in the administration of
the Plan and Trust; provided, however, that the Trustee may pay such expenses
from the assets of the Trust, to the extent such expenses have not been paid by
the Company. In such event the Company shall reimburse the Trustee promptly for
any such expenses paid by the Trustee from the Trust. The members of the
Committee shall serve without compensation for their services as such, but all
expenses of the Committee shall be paid by the Company. No employee of the
Company shall receive compensation from the Plan regardless of the nature of his
services to the Plan.
10.7 INDEMNIFICATION
To the extent permitted by law, the Committee and all agents and representatives
of the Committee shall be indemnified by the Company and saved harmless against
any claims, and the expenses of defending against such claims, resulting from
any action or conduct relating to the administration of the Plan except claims
arising from gross negligence, willful neglect, or willful misconduct.
10.8 TAX WITHHOLDING
The Company or Trustee shall withhold from any payment to the Participant or
Beneficiary any federal, state, or local taxes required by law to be withheld
with respect to such payment.
10.9 CLAIMS PROCEDURE
(a) SUBMISSION OF CLAIMS. Claims for benefits under the Plan shall be
submitted in writing to the Committee or to an individual designated by
the Committee for this purpose.
(b) DENIAL OF CLAIM. If any claim for benefits is wholly or partially denied,
the claimant shall be given written notice within 90 days following the
date on which the claim is filed, which notice shall set forth
(1) the specific reason or reasons for the denial;
(2) specific reference to pertinent Plan and Trust provisions on which
the denial is based;
(3) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(4) an explanation of the Plan's claim review procedure.
14
<PAGE> 45
If special circumstances require an extension of time for processing the
claim, written notice of an extension shall be furnished to the claimant
prior to the end of the initial period of 90 days following the date on
which the claim is filed. Such an extension may not exceed a period of 90
days beyond the end of said initial period.
If the claim has not been granted, and if written notice of the denial of
the claim is not furnished within 90 days following the date on which the
claim is filed, the claim shall be deemed denied for the purpose of
proceeding to the claim review procedure.
(c) CLAIM REVIEW PROCEDURE. The claimant or his authorized representative
shall have 60 days after receipt of written notification of denial of a
claim to request a review of the denial by making written request to the
Committee (or its delegate), and may review pertinent documents and submit
issues and comments in writing within such 60-day period.
Not later than 60 days after receipt of the request for review, the
Committee shall render and furnish to the claimant a written decision
which shall include specific reasons for the decision, and shall make
specific references to pertinent Plan and Trust provisions on which it is
based. If special circumstances require an extension of time for
processing, the decision shall be rendered as soon as possible, but not
later than 120 days after receipt of the request for review, provided that
written notice and explanation of the delay are given to the claimant
prior to commencement of the extension. Such decision by the Committee
shall not be subject to further review. If a decision on review is not
furnished to a claimant within the specified time period, the claim shall
be deemed to have been denied on review.
15
<PAGE> 46
ARTICLE XI. MISCELLANEOUS
11.1 RIGHTS AGAINST THE COMPANY
Neither the establishment of the Plan, nor any modification thereof, nor any
payments hereunder, shall be construed to give the Participant the right to be
retained in the employ of the Company or to interfere with the right of the
Company to discharge the Participant at any time, subject to the terms of any
employment agreement between the Participant and the Company.
11.2 RIGHTS UNDER THE COMPANY'S OTHER RETIREMENT PLANS
Nothing in this Plan shall be construed to limit, broaden, restrict, grant, or
otherwise affect any rights of the Participant or a Beneficiary under the
Company's other retirement plans, nor grant any additional rights or benefits to
the Participant or a Beneficiary under the Company's other retirement plans, nor
in any way to limit, modify, repeal, or otherwise affect the Company's or its
Board's right to amend or modify any such retirement plan.
11.3 PAYMENT OF BENEFITS TO INCOMPETENT
If the Committee receives evidence that
(a) a person entitled to receive any benefit under the Plan is legally,
physically, or mentally incompetent to receive such benefit and to give a
valid release therefore, and
(b) another person or an institution is then maintaining or has custody of
such person and no guardian, committee, or other representative of the
estate of such person has been duly appointed by a court of competent
jurisdiction,
the payment of such benefit may be made to such other person or institution as
the Committee may determine. Any such payment shall be a payment on behalf of
such person and shall, to the extent thereof, be a complete discharge of any
liability under the Plan to such person, and neither the Company, the Trustee,
nor any member of the Board or the Committee shall be liable to any person or
individual by reason of such payment.
11.4 MISSING PERSON
In the event any benefit shall become payable to any person or upon his death to
his legal representative and, if after written notice from the Committee mailed
to such person's last-known address as shown in the Company's records, such
person or his legal representative shall not have
16
<PAGE> 47
presented himself to the Committee within six years after the mailing of such
notice, then the Committee may, in its sole discretion, distribute such amount,
including any benefit thereafter becoming due to such person or legal
representative, among the spouse and blood relatives of such person. Payments
made in good faith to any person, to a person's legal representative, or to any
individual(s) who have, on the presentation of reasonable proof, established to
the satisfaction of the Committee that he is the spouse or blood relative of
such person, shall, to the extent of such payments, be a complete discharge of
all obligations arising pursuant to the Plan, and neither the Company, the
Trustee, nor any member of the Board or the Committee shall be liable to any
person or individual by reasons of such payments.
11.5 AMENDMENT OR TERMINATION
The Plan may be amended or terminated, in whole or in part, at any time by
written action of the Board and with the prior written consent of the
Participant (or his Beneficiary or Beneficiaries following the Participant's
death). No such amendment or termination shall reduce or diminish the right of
the Participant or Beneficiary to receive any benefit accrued hereunder prior to
the date of such amendment or termination.
11.6 MERGER OR CONSOLIDATION OF PLAN AND TRUST
Neither the Plan nor the Trust may be merged or consolidated with, nor may its
assets or liabilities be transferred to, any other plan or trust without the
prior written consent of the Participant (or his Beneficiary or Beneficiaries
following the Participant's death).
11.7 CONTROLLING LAW/ARBITRATION
Any disputes under the Plan shall be settled in accordance with the provisions
of the employment agreement then in effect between the Company and the
Participant or, if the Participant has had a Termination of Employment from the
Company, the most recent employment agreement in effect between the Company and
the Participant. The provisions of the Plan shall be construed, interpreted,
administered, and enforced according to the laws of the State of California and
all applicable Federal laws.
11.8 RIGHTS TO TRUST FUND ASSETS
The Participant shall not have any right to, or interest in, any assets of the
Trust Fund upon his Termination of Employment or otherwise, except as provided
in the Plan, and then only to the extent of the benefits payable under the Plan
out of the assets of the Trust Fund.
17
<PAGE> 48
11.9 NONTRANSFERABILITY
In no event shall the Company or Trustee make any payment under this Plan to any
assignee or creditor of the Participant or Beneficiary, except as otherwise
required by law. Prior to the time of a payment hereunder, the Participant or
Beneficiary shall have no rights by way of anticipation or otherwise to assign
or otherwise dispose of any interest under this Plan, nor shall rights be
assigned or transferred by operation of law.
11.10 ILLEGALITY OF PARTICULAR PROVISION
The illegality of any particular provision of this document shall not affect the
other provisions, and the document shall be construed in all respects as if such
invalid provision were omitted.
18
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT I
ANNUAL RETIREMENT AND DISABILITY BENEFITS
Annual
Benefit
Age (000)
--- -------
<S> <C>
55 $ 137
56 203
57 262
58 329
59 410
60 492
61 576
62 662
63 767
64 879
65 974
66 1,085
67 1,219
68 1,379
69 1,561
70 1,772
Interpolate between ages.
</TABLE>
19
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT II
ANNUAL TERMINATION BENEFITS STARTING AT AGE 55
Annual
Benefit
Age (000)
--- -------
<S> <C>
52 $ 48
53 77
54 107
55 137
Interpolate between ages.
</TABLE>
<TABLE>
<CAPTION>
LUMP SUM AMOUNT AT TERMINATION OF EMPLOYMENT
Lump
Sum
Age (000)
--- -----
<S> <C>
50 $106
51 410
52 500
Interpolate between ages.
</TABLE>
20
<PAGE> 51
EXHIBIT III
Lump Sum Benefits (000)
<TABLE>
<CAPTION>
Termination Lump Sum Election Age (000)
Age 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64
--- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $101 $108 $116 $124 $132 $142 $139 $137 $134 $132 $129 $126 $122 $119 $115
51 360 385 412 441 472 465 457 448 439 429 419 407 395 383
52 411 440 470 503 495 487 478 468 456 446 435 422 408
53 705 755 808 795 781 767 751 734 716 697 677 655
54 1,049 1,122 1,104 1,086 1,065 1,043 1,020 995 969 940 910
55 1,437 1,414 1,390 1,364 1,336 1,306 1,274 1,240 1,204 1,165
56 2,129 2,095 2,059 2,021 1,980 1,936 1,888 1,838 1,784
57 2,748 2,704 2,658 2,608 2,555 2,498 2,437 2,372
58 3,451 3,396 3,338 3,275 3,208 3,137 3,060
59 4,300 4,232 4,159 4,082 3,998 3,909
60 5,160 5,079 4,991 4,898 4,798
61 6,041 5,946 5,844 5,734
62 6,943 6,833 6,716
63 8,044 7,917
64 9,219
65
66
67
68
69
70
<CAPTION>
Termination Lump Sum Election Age
Age 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79
--- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
50 $111 $106 $102 $97 $91 $85 $79 $73 $65 $58 $50 $41 $32 $22 $11
51 369 354 338 322 304 284 264 242 218 193 166 137 106 73 38
52 393 378 361 343 324 303 281 258 233 206 177 146 113 78 40
53 631 606 579 550 520 487 452 414 373 330 284 235 182 125 65
54 877 842 805 765 722 676 627 575 519 459 395 326 253 174 90
55 1,123 1,078 1,030 979 925 866 803 736 664 588 506 418 324 223 115
56 1,726 1,664 1,598 1,527 1,451 1,370 1,283 1,190 1,091 985 871 749 619 479 330
57 2,302 2,228 2,148 2,062 1,971 1,873 1,768 1,656 1,536 1,408 1,271 1,124 967 799 619
58 2,978 2,891 2,797 2,697 2,590 2,475 2,352 2,220 2,080 1,929 1,768 1,596 1,411 1,214 1,003
59 3,814 3,712 3,603 3,486 3,361 3,227 3,084 2,931 2,767 2,592 2,404 2,203 1,989 1,759 1,513
60 4,691 4,577 4,454 4,323 4,183 4,033 3,872 3,701 3,517 3,320 3,110 2,885 2,644 2,386 2,111
61 5,617 5,492 5,358 5,215 5,061 4,897 4,722 4,534 4,333 4,117 3,887 3,641 3,377 3,096 2,794
62 6,590 6,456 6,312 6,158 5,993 5,817 5,628 5,426 5,211 4,979 4,732 4,468 4,185 3,882 3,558
63 7,781 7,636 7,480 7,313 7,135 6,944 6,740 6,521 6,287 6,037 5,769 5,483 5,176 4,848 4,497
64 9,073 8,917 8,751 8,572 8,381 8,176 7,958 7,724 7,473 7,205 6,919 6,612 6,283 5,932 5,556
65 10,216 10,054 9,881 9,696 9,498 9,287 9,060 8,818 8,558 8,281 7,984 7,666 7,326 6,963 6,573
66 11,380 11,200 11,007 10,801 10,581 10,345 10,093 9,823 9,534 9,225 8,894 8,540 8,161 7,756
67 12,785 12,583 12,367 12,135 11,888 11,623 11,339 11,036 10,711 10,364 9,992 9,595 9,169
68 14,463 14,235 13,990 13,728 13,448 13,148 12,828 12,484 12,117 11,724 11,304 10,854
69 16,372 16,113 15,836 15,540 15,223 14,884 14,520 14,132 13,716 13,272 12,796
70 18,585 18,291 17,977 17,640 17,280 16,895 16,483 16,042 15,570 15,066
<CAPTION>
Termination Lump Sum Election Age
Age 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94
--- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
50
51
52
53
54
55
56 171
57 426 220
58 777 535 277
59 1,250 968 667 345
60 1,816 1,500 1,162 801 414
61 2,471 2,126 1,756 1,360 937 484
62 3,211 2,840 2,443 2,018 1,564 1,077 557
63 4,122 3,720 3,290 2,830 2,338 1,812 1,248 645
64 5,154 4,724 4,263 3,771 3,244 2,680 2,076 1,430 739
65 6,157 5,711 5,234 4,724 4,178 3,594 2,969 2,300 1,585 819
66 7,322 6,859 6,362 5,831 5,263 4,655 4,004 3,308 2,563 1,766 913
67 8,714 8,227 7,706 7,148 6,551 5,913 5,229 4,498 3,716 2,879 1,984 1,025
68 10,373 9,858 9,307 8,717 8,086 7,411 6,689 5,916 5,089 4,204 3,257 2,244 1,160
69 12,287 11,742 11,159 10,535 9,867 9,153 8,389 7,571 6,697 5,760 4,759 3,687 2,540 1,313
70 14,525 13,947 13,329 12,667 11,959 11,201 10,390 9,523 8,595 7,602 6,539 5,402 4,185 2,883 1,490
</TABLE>
Interpolate between ages.
21
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT IV
DEATH AND DISABILITY BENEFITS BEFORE EARLY RETIREMENT AGE
Lump Sum
Age (000)
--- --------
<S> <C>
50 $ 259
51 536
52 832
53 1,149
54 1,488
55 1,851
Interpolate between ages.
</TABLE>
22
<PAGE> 53
APPENDIX E
DESIGNATION OF BENEFICIARY
In the event of my death, I, Bruce Karatz, hereby designate the Bruce
and Janet Karatz Trust dated January 14, 1988, Bruce E. Karatz and Janet D.
Karatz Trustees, my beneficiary to whom shall be transferred all payments or
other benefits to which I may be entitled under my employment agreement dated
December 1, 1995 with Kaufman and Broad Home Corporation ("KBHC") and under the
KBHC Supplemental Executive Retirement Plan. In the event my designated
beneficiary cannot receive such a payment, I hereby designate Janet Karatz as my
alternate beneficiary. In the event there shall arise a conflict between the
terms of this designation and any other expression of my testamentary intent, I
understand and agree that KBHC may determine to transfer all of the
above-referenced payments or benefits to my estate rather than the beneficiary
designated herein.
I have hereunto set my hand this 1st day of December, 1995.
/s/Bruce Karatz
--------------------------------------
Bruce Karatz
/s/Michael F. Henn
--------------------------------------
Witness (signature)
Michael F. Henn
--------------------------------------
Witness (print name)
12/1/95
--------------------------------------
Date
KAUFMAN AND BROAD HOME CORPORATION
Acknowledged:
/s/Alan Kaye
- ------------------------------
Name:ALAN KAYE
Title:VICE PRESIDENT, HUMAN RESOURCES
Date:DECEMBER 1, 1995
<PAGE> 1
EXHIBIT 10.21
KAUFMAN AND BROAD HOME CORPORATION
DIRECTORS' RESTRICTED STOCK PLAN
SECTION 1. PURPOSE. The purpose of the Kaufman and Broad Home
Corporation Directors' Restricted Stock Plan (the "Plan") is to promote the
success of Kaufman and Broad Home Corporation (the "Company") and enhancing the
stock ownership of directors of the Company by providing a method whereby
directors who are not employees of the Company or any of its affiliated
companies (a "Participant") may elect to receive their annual Board and
Committee Chairman retainers (an "Annual Retainer") and/or meeting fees
("Meeting Fees") in restricted shares of the Company's Common Stock, par value
$1.00 per share ("Common Stock").
SECTION 2. FEES. Each Participant shall be given an opportunity by
the Company on an annual basis to elect (an "Annual Election") to receive his or
her Annual Retainer and/or Meeting Fees in restricted shares of Common Stock as
follows:
A. ANNUAL RETAINER. If selected, the value of the
restricted shares of Common Stock payable in lieu of an Annual Retainer shall
equal 110% of the amount of the Annual Retainer and shall be paid in one grant
as soon as practicable after the Company's Annual Meeting of Stockholders at the
beginning of the Director Year, with the number of shares granted determined by
the Fair Market Value (as defined in Section 5 hereof) on the date of such
Annual Meeting of the Stockholders.
B. MEETING FEES. If selected, the value of shares of Common
Stock payable in lieu of the Meeting Fees earned during a Director Year shall
equal 110% of the amount of such Meetings Fees and shall be paid as soon as
practicable after the Company's Annual Meeting of Stockholders at the end of the
Director Year, with the number of shares granted being determined by the Fair
Market Value on the date of said Annual Meeting of Stockholders.
C. ALL FEES. If a Participant elects to receive his or her
Annual Retainer and Meeting Fees in shares of Common Stock, the number of such
shares shall be determined as provided in this Section 2, and will be paid in
one grant as soon as possible after each Annual Meeting of Stockholders, with
the Annual Retainer being paid for the ensuing Director Year and the Meeting
Fees being paid for the preceding Director Year.
<PAGE> 2
SECTION 3. SHARE RESTRICTIONS. All Restricted Shares issued to a
Participant in lieu of cash payments for the Annual Retainer and/or Meeting Fees
shall be subject to the restriction that they may not be sold or transferred
until the earliest to occur of the following:
A. five years shall lapse from the date the applicable
shares are credited to the Participant's account (the "Restriction Period");
B. the Participant's death or disability;
C. the Participant retires from the Board at the mandatory
retirement age;
D. the Participant, after being nominated to the Board, is
not elected by the shareholders in an election for the Board;
E. the Board determines that the Participant will not be
nominated for election to the Board;
F. the Participant's service on the Board terminates because
of his or her resignation at the request of the Nominating Committee of the
Board or his or her removal by action of the Company's stockholders;
G. the Participant's service on the Board terminates because
the Participant has taken a position with a governmental agency in public
service that does not permit membership on the board of directors of a
publicly-held corporation; or
H. the occurrence of a Change in Ownership as defined in the
Company's 1988 Employee Stock Plan, or any successor plan thereto.
All shares of Common Stock subject to the forgoing restrictions are
herein referred to as "Restricted Shares."
SECTION 4. LAPSING AND FORFEITURE. In the event the restrictions on
Restricted Shares lapse upon the occurrence of any of the events specified in
Section 3 hereof, a certificate for the applicable shares of Common Stock, free
and clear of all restrictions, will be delivered to the Participant soon as
practicable thereafter. If the Participant's service on the Board terminates
prior to the end of the Restriction Period for any reason other than those
identified in Section 3 hereof, including voluntary resignation, the Participant
shall immediately forfeit the shares to the Company.
<PAGE> 3
SECTION 5. SHARE CERTIFICATES, VOTING AND OTHER RIGHTS.
A. SHARE CERTIFICATES. The certificates for Restricted
Shares issued under Section 4 hereof may be registered in the name of the
Participant, or in the name of the Participant and one other individual as joint
tenants, and shall be held by the Company during the Restriction Period. Any
dividends, or distributions, payable in cash or in kind with respect to the
Restricted Shares that have been issued, shall be paid to the Participant. All
Restricted Shares issued hereunder shall be fully paid and non-assessable and
the Participant shall have all voting rights with respect thereto. The Company
shall pay all original issue taxes with respect to the issue of shares and all
other fees and expenses necessarily incurred by Company in connection therewith.
B. FAIR MARKET VALUE. "Fair Market Value" means, as of any
valuation date, the median of the high and low trading price of Kaufman and
Broad Home Corporation Common Stock, par value $1.00 per share, as quoted in the
New York Stock Exchange Composite Transactions on such date, as reported in the
Wall Street Journal (or, if there is no reported sale on such date, on the last
preceding date on which any reported sale occurred).
C. FRACTIONS OF SHARES. The Company shall not issue
fractions of shares. Whenever under the terms of the Plan, a fractional share
would otherwise be required to be issued, the Participant shall be paid in cash
for such fractional share; or for Participants electing to receive Meeting Fees
in stock, the unpaid amount shall be added to the fees for the next quarterly
period.
D. GENERAL RESTRICTIONS. The issuance of Common Stock
underlying the Restricted Shares or the delivery of certificates for such shares
to Participants under the Plan shall be subject to the requirement that, if at
any time the General Counsel or Corporate Secretary of the Company shall
reasonably determine, in his or her discretion, that the listing, registration,
or qualification of such Common Stock upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental body, is
necessary or desirable as a condition of, or on connection with, the issuance or
payment or delivery shall not take place unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not reasonably acceptable to the General Counsel or Corporate
Secretary.
E. SHARES AVAILABLE. Shares of Common Stock issuable under
the Plan shall be acquired by the Company on the open market or shall be taken
from authorized but unissued or treasury shares of the Company, as shall from
time to time be necessary for issuance pursuant to the Plan.
<PAGE> 4
F. CHANGE IN CAPITAL STRUCTURE. In the event of any change
in the Common Stock by reason of any stock dividend, split, combination of
shares, exchange of shares, warrants or rights offering to purchase Common Stock
at a price below its fair market value, reclassification, recapitalization,
merger, consolidation or other change in capitalization, appropriate adjustment
shall be made by the Company in the number and kind of shares subject to the
Plan and any other relevant provisions of the Plan, whose determination shall be
binding and conclusive on all persons.
SECTION 6. TAXES. No income will be recognized by a Participant
at the time of issuance of Restricted Shares, unless an election under Internal
Revenue Code Section 83(b) is made by the Participant. The Company shall be
authorized to withhold from any payment due under the Plan the amount of
withholding taxes, if any, due in respect of an award hereunder, unless other
provisions satisfactory to the Company shall have been made for the payment of
such taxes.
SECTION 7. MISCELLANEOUS
A. ADMINISTRATION. Except as may be specifically provided
elsewhere herein, the Plan shall be administered by the Nominating and Corporate
Governance Committee of the Board (the "Nominating Committee"), which shall have
full authority to construe and interpret the Plan, to establish, amend and
rescind rules and regulations relating to the Plan, and to take all such actions
and make all such determinations in connection with the Plan as it may deem
necessary or desirable. The Nominating Committee may from time to time make
such amendments to the Plan, or an award made hereunder, as it may deem proper,
necessary, and in the best interests of the Company.
B. RIGHTS OF DIRECTORS. Nothing in the plan shall confer
upon any Participant any right to serve on the Board for any period of time or
to continue his or her current or any other rate of compensation.
C. GOVERNING LAW. The Plan and all actions taken thereunder
shall be governed and construed in accordance with the laws of the State of
Delaware.
<PAGE> 1
EXHIBIT 10.22
KAUFMAN AND BROAD HOME CORPORATION
DIRECTORS' LEGACY PROGRAM
1. PURPOSE OF THE PROGRAM
The Kaufman and Broad Home Corporation Director's Charitable Award
Program (the "Program") allows each eligible Director of Kaufman and
Broad Home Corporation (the "Company") to recommend that the Company
make a donation of up to $500,000 to the eligible tax-exempt
organization(s) (the "Donee(s)") selected by the Director, with the
donation to be made in the Director's name in ten equal annual
installments, with the first installment to be made as soon as is
practicable after the Director's death. The purpose of the Program is
to recognize the interest of the Company and its Directors in
supporting worthy educational institutions and other charitable
organizations.
2. ELIGIBILITY
All persons who were serving as Directors of the Company as of January
1, 1995, shall be eligible to participate in the Program. All
Directors who join the Company's Board of Directors after that date
shall be immediately eligible to participate in the Program upon
election to the Board. However, the Nominating Committee of the Board
of Directors may, in its good faith discretion, deny participation to a
Director if it determines that it would not be in the Company's best
interest for the Director to participate, whether due to excessive cost
or other circumstances.
3. RECOMMENDATION OF DONATION
When a Director becomes eligible to participate in the Program, he or
she shall make a written recommendation to the Company, on a form
approved by the Company for this purpose, designating the Donee(s)
which he or she intends to be the recipient(s) of the Company donation
to be made on his or her behalf. A Director may revise or revoke any
such recommendation prior to this or her death by singing a new
recommendation form and submitting it to the Company.
4. AMOUNT AND TIMING OF DONATION
Each eligible Director may choose one organization to receive a Company
donation of $500,000 or up to five organizations to receive donations
aggregating $500,000. Each recommended organization must be
recommended to receive a donation of at least $100,000. The donation
will be made by the Company in ten equal annual installments, with the
first installment to be made as soon as is practicable after the
Director's death. If a Director recommends more than one organization
to receive a donation, each will receive a prorate portion of each
annual installment. Each annual installment payment will be
<PAGE> 2
divided among the recommended organizations in the same proportions as
the total donation amount has been allocated among the organizations by
the Director.
5. DONEES
In order to be eligible to receive a donation, a recommended
organization must initially, and at the time a donation is to be made,
qualify to receive tax deductible donations under the Internal Revenue
Code, and be reviewed and approved by the Nominating Committee of the
Board of Directors of the Company. A recommendation will be approved
unless it is determined, in the exercise of good faith judgment, that a
donation to the organization would be detrimental to the best interests
of the Company. A Director's private foundation is not eligible to
receive donations under the Program. If an organization recommended by
a Director ceases to qualify as a Donee, and if the Director does not
submit a form to change the recommendation before his or her death, the
amount recommended to be donated to the organization will instead be
donated to the Director's remaining recommended qualified Donee(s) on a
prorated basis. If none of the recommended organizations qualify, the
donation will be made to the organization(s) selected by the Company.
6. VESTING
The amount of the donation made on a Director's behalf will be
determined based on the Directors' months of Board service, in
accordance with the following vesting schedule:
<TABLE>
<CAPTION>
Months of Service Donation Amount
----------------- ---------------
<S> <C>
Less than 12 $ 0
12-23 100,000
24-35 200,000
36-47 300,000
48-59 400,000
60 or more 500,000
</TABLE>
Notwithstanding this vesting schedule, a Director will be entitled to a
donation amount of $500,000 in the event (a) he or she dies or becomes
disabled while serving as a Director, (b) if not an employee of the
Company, he or she retires at the recommended retirement age for
non-employee directors, or (c) if an employee of the Company, he or she
retires on or after his or her normal retirement date.
<PAGE> 3
For persons who were serving as Directors as of January 1, 1995, Board
service prior to that date will count as vesting service. If a
Director recommends more than one organization to receive aggregate
donations of $500,000, and if the applicable vested donation amount is
less than $500,000, the actual donation amount will be divided among
those organizations in the same proportions as the total donation
amount has been allocated among the organizations by the Director.
7. FUNDING AND PROGRAM ASSETS
The Company may fund the Program or it may choose not to fund the
Program. If the Company elects to fund the Program in any manner,
neither the Directors nor their recommended Donee(s) shall have any
rights or interests in any assets of the Company identified for such
purpose. Nothing contained in the Program shall create, or be deemed
to create, a trust, actual or constructive, for the benefit of a
Director or any Donee recommended by a Director to receive a donation,
or shall give, or be deemed to give, any Director or recommended Donee
any interest in any assets of the Program or the Company. If the
Company elects to fund the Program through life insurance policies, a
participating Director agrees to cooperate and fulfill the enrollment
requirements necessary to obtain insurance on his or her life.
8. AMENDMENT OR TERMINATION
The Board of Directors of the Company may, at any time, without the
consent of the Directors participating in the Program, amend, suspend,
or terminate the Program.
9. CHANGE OF OWNERSHIP
Notwithstanding any contrary provisions in Section 7 or Section 8, if
there is a Change of Ownership of the Company, all participants serving
as Directors at the time of the Change of Ownership shall immediately
become vested in the Program, and the Program shall thereafter be
irrevocable with respect to all participants in the Program at the time
of the Change of Ownership. In addition, the Company shall immediately
create an irrevocable trust to make the anticipated Program donations,
and shall immediately transfer to the trust sufficient assets (which
may include insurance policies) to make all the Program donations in
respect to the individuals who were participants immediately before the
of Ownership. For the purpose of the Program, the term "Change of
Ownership" shall have the same meaning as is defined for the term in
Section 9 of the Company's 1988 Employee Stock Plan, or any successor
plan thereto.
<PAGE> 4
10. ADMINISTRATION
The Program shall be administered by the Nominating Committee of the
Board of Directors of the Company. The Committee shall have plenary
authority in its discretion, but subject to the provisions of the
Program, to prescribe, amend, and rescind rules, regulations and
procedures relating to the Program. The determinations of the
Committee on the foregoing matters shall be conclusive and binding on
all interested parties.
11. GOVERNING LAW
The Program shall be construed and enforced according to the laws of
California, and all provisions thereof shall be administered according
to the laws of said state.
12. EFFECTIVE DATE
The Program effective date is January 1, 1995. The recommendation of a
Director will not be effective until he or she completes the Program
enrollment requirements.
<PAGE> 1
EXHIBIT 11
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY:
Net income.............................................. $29,059,000 $46,550,000 $39,921,000
========== ========== ==========
Weighted average common shares outstanding.............. 32,386,000 32,449,000 34,606,000
Weighted average Series B convertible preferred
shares(1)............................................. 6,500,000 6,500,000 4,345,000
Common share equivalents:
Stock options......................................... 871,000 1,077,000 1,234,000
Warrants.............................................. 1,362,000
----------- ----------- -----------
39,757,000 40,026,000 41,547,000
========== ========== ==========
PRIMARY EARNINGS PER SHARE(3)........................... $ .73 $ 1.16 $ .96
========== ========== ==========
FULLY DILUTED:
Net income.............................................. $29,059,000 $46,550,000 $39,921,000
========== ========== ==========
Weighted average common shares outstanding.............. 32,386,000 32,449,000 34,606,000
Weighted average Series B convertible preferred
shares(1)............................................. 6,500,000 6,500,000 4,345,000
Common share equivalents:
Stock options......................................... 871,000 1,077,000 1,310,000
Warrants.............................................. 1,501,000
----------- ----------- -----------
39,757,000 40,026,000 41,762,000
========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE(2)(3).................. $ .73 $ 1.16 $ .96
========== ========== ==========
</TABLE>
- ------------
(1) Each of the 1,300,000 Series B convertible preferred shares is convertible
into five shares of common stock. The 6,500,000 equivalent shares of common
stock are weighted for the period outstanding.
(2) Fully diluted earnings per share is not disclosed in the Company's
consolidated financial statements since the maximum dilutive effect is not
material.
(3) If, for purposes of calculating primary and fully diluted earnings per
share, the Series B convertible preferred shares were excluded from the
weighted average shares outstanding and the related dividends deducted from
net income, the computations would have resulted in both primary and fully
diluted earnings per share of $.58 in 1995, $1.09 in 1994 and $.93 in 1993.
<PAGE> 1
EXHIBIT 13
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
PAGES 24 THROUGH 45 AND THE INSIDE BACK COVER OF THE COMPANY'S 1995 ANNUAL
REPORT TO STOCKHOLDERS
This exhibit is incorporated in this Annual Report on Form 10-K between
page F-1 and the List of Exhibits Filed.
<PAGE> 1
EXHIBIT 22
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
The following subsidiaries of the Company were included in the November 30,
1995 consolidated financial statements:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
NAME OF COMPANY OF THE COMPANY
------------------------
<S> <C>
Arizona Corporations
Kaufman and Broad of Arizona, Inc. .................. 100
Kaufman and Broad Home Sales of Arizona, Inc. ....... 100
California Corporations
Affordable Multi-Family, Inc. ....................... 100
BKJ Construction Company, Inc. ...................... 100
Cable Associates, Inc. .............................. 100
Custom Decor, Inc. .................................. 100
First Northern Builders Servicing, Inc. ............. 100
Fullerton Affordable Housing, Inc. .................. 100
KBASW Mortgage Acceptance Corporation................ 100
KBI/Mortgage Acceptance Corporation.................. 100
KBRAC IV Mortgage Acceptance Corporation............. 100
K&B Multi-Housing Advisors, Inc. .................... 100
KBMH Construction, Inc. ............................. 100
Kaufman and Broad -- Central Valley, Inc. ........... 100
Kaufman and Broad Coastal, Inc. ..................... 100
Kaufman and Broad Communities, Inc. ................. 100
Kaufman and Broad Development Group.................. 100
Kaufman and Broad Embarcadero, Inc. ................. 100
Kaufman and Broad of Fresno, Inc. ................... 100
Kaufman and Broad Home Sales, Inc. .................. 100
Kaufman and Broad Insurance Agency, Inc. ............ 100
Kaufman and Broad International, Inc. ............... 100
Kaufman and Broad Land Company....................... 100
Kaufman and Broad Land Development
Venture, Inc. ..................................... 100
Kaufman and Broad -- Monterey Bay, Inc............... 100
Kaufman and Broad -- Moreno/Perris Valleys, Inc. .... 100
Kaufman and Broad Multi-Family, Inc. ................ 100
Kaufman and Broad Multi-Housing Advisors, Inc........ 100
Kaufman and Broad Multi-Housing Group, Inc........... 100
Kaufman and Broad of Northern California, Inc. ...... 100
Kaufman and Broad North Stockton, Inc. .............. 100
Kaufman and Broad Properties......................... 100
Kaufman and Broad of Sacramento, Inc. ............... 100
Kaufman and Broad of San Diego, Inc. ................ 100
Kaufman and Broad -- South Bay, Inc. ................ 100
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
NAME OF COMPANY OF THE COMPANY
------------------------
<S> <C>
Kaufman and Broad of Southern California, Inc. ...... 100
Kaufman and Broad of Texas, Inc. .................... 100
Kaufman and Broad of Utah, Inc....................... 100
Kent Land Company.................................... 100
Kingsbay Escrow Company.............................. 100
Multi-Housing Investments, Inc. ..................... 100
Colorado Corporation
Kaufman and Broad of Colorado, Inc. ................. 100
Delaware Corporations
International Mortgage Acceptance Corporation........ 100
Kaufman and Broad Development Company................ 100
Kaufman and Broad Limited............................ 100
Illinois Corporations
Kaufman and Broad of Illinois, Inc. ................. 100
Kaufman and Broad Mortgage Company................... 100
Massachusetts Corporation
Kaufman and Broad Homes, Inc. ....................... 100
Michigan Corporation
Keywick, Inc. ....................................... 100
Minnesota Corporation
Kaufman and Broad Custom Homes, Inc.................. 100
Nevada Corporation
Kaufman and Broad of Nevada, Inc. ................... 100
New Mexico Corporations
Mesa Vista Homes, Inc. .............................. 100
Oppel Jenkins of Albuquerque, Inc. .................. 100
New York Corporation
Kaufman and Broad Homes of Long Island, Inc. ........ 100
Texas Corporations
Oppel Jenkins Development, Inc. ..................... 100
Oppel Jenkins of El Paso, Inc. ...................... 100
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY THE
COMPANY OR A SUBSIDIARY
NAME OF COMPANY OF THE COMPANY
------------------------
<S> <C>
Canadian Corporations
Davisville Investments Co., Ltd...................... 100
Heatherwoods Development Corporation ................ 100
Hillside Village Limited ............................ 100
Margreen Investments, Inc............................ 100
Meadowstream Development Limited .................... 100
Mississauga Management Ltd. ......................... 100
Victoria Wood Development Corporation, Inc.
(Milton) .......................................... 100
Victoria Wood Development Corporation, Inc.
(Ontario) ......................................... 100
Victoria Wood Development Corporation, Inc.
(Pickering) ....................................... 100
Victoria Wood Development Corporation, Inc. (York)... 100
Victoria Wood Limited ............................... 100
806628 Ontario, Inc.................................. 100
French Corporations
Bati Service Development S.A.R.L. ................... 100
Bati Service Promotion S.A. ......................... 100
GIE KB............................................... 100
Kaufman and Broad Developpement S.A. ................ 99.4
Kaufman and Broad France S.A......................... 100
Kaufman and Broad Investissements S.A.R.L............ 100
Kaufman and Broad Liberty S.A.R.L.................... 100
Kaufman and Broad Maisons Individuelles S.A.......... 99.94
Kaufman and Broad Rehabilitation S.A.R.L............. 99.94
Kaufman and Broad Renovation S.A..................... 99.4
Kaufman and Broad Residences S.A.R.L................. 100
Millet S.A........................................... 100
LMP Chancy S.A....................................... 100
German Corporation
Kaufman and Broad GmbH............................... 100
Mexican Corporations
Kaufman y Broad de Mexico............................ 100
Kaufman y Broad Asesoria Administrativa.............. 100
</TABLE>
The following subsidiary of the Company was not consolidated in the
November 30, 1995 consolidated financial statements, but rather was carried on
the equity method of accounting:
<TABLE>
<S> <C>
Canadian Corporation
Barchester Investments Limited....................... 50
</TABLE>
<PAGE> 1
EXHIBIT 24
KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of
Kaufman and Broad Home Corporation
We consent to the incorporation by reference in the Registration Statements
on Form S-8 pertaining to the 1986 Stock Option Plan (No. 33-11692) and the 1988
Employee Stock Plan (No. 33-28624) of Kaufman and Broad Home Corporation of our
report dated January 4, 1996, except as to Note 13, as to which the date is
January 22, 1996 with respect to the consolidated financial statements of
Kaufman and Broad Home Corporation included in the Annual Report (Form 10-K) for
the year ended November 30, 1995.
ERNST & YOUNG LLP
Los Angeles, California
February 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<CASH> 43,382
<SECURITIES> 97,672<F1>
<RECEIVABLES> 293,384
<ALLOWANCES> 0
<INVENTORY> 1,059,179
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,574,179
<CURRENT-LIABILITIES> 0
<BONDS> 358,613<F2>
0
1,300
<COMMON> 32,347
<OTHER-SE> 381,831
<TOTAL-LIABILITY-AND-EQUITY> 1,574,179
<SALES> 1,366,866
<TOTAL-REVENUES> 1,396,526
<CGS> 1,119,405
<TOTAL-COSTS> 1,134,226<F3>
<OTHER-EXPENSES> 187,421<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,501
<INCOME-PRETAX> 45,459
<INCOME-TAX> 16,400
<INCOME-CONTINUING> 29,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,059
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0<F5>
<FN>
<F1>Marketable securities are comprised of first mortgages and mortgage-backed
securities which are held for long-term investment. The mortgage-backed
securities serve as collateral for related collateralized mortgage obligations.
<F2>Bonds are comprised of senior and senior subordinated notes and collateralized
mortgage obligations.
<F3>Total Costs include interest expense on the collateralized mortgage
obligations, as the associated interest income generated from the
mortgage-backed securities is included in Total Revenues.
<F4>Other Expenses are comprised of selling, general and administrative expenses.
<F5>Fully diluted earnings per share is not disclosed in the Company's consolidated
financial statements since the maximum dilutive effect is not material.
</FN>
</TABLE>
