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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
KAUFMAN AND BROAD HOME CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notice of 1999
KAUFMAN AND BROAD HOME CORPORATION
ANNUAL MEETING OF
STOCKHOLDERS
and
PROXY STATEMENT
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[KAUFMAN AND BROAD LOGO]
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KAUFMAN AND BROAD HOME CORPORATION
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231-4000
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BRUCE KARATZ
Chairman and Chief Executive Officer
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March 1, 1999
Dear Fellow Stockholder:
Your officers and directors join me in inviting you to attend the Annual Meeting
of Stockholders of Kaufman and Broad Home Corporation at 9:00 a.m. on April 1,
1999 at the Company's corporate headquarters in Los Angeles, California.
The matters expected to be acted on at the meeting are described in detail in
the attached Notice of Annual Meeting of Stockholders and Proxy Statement. In
addition to specific agenda items, by attending the meeting you will have an
opportunity to hear about our plans for the future and to meet your officers and
directors. Whether or not you plan to attend, please sign and date the enclosed
Proxy Card and return it as soon as possible in the envelope provided to ensure
that your shares will be represented.
We look forward to seeing you on April 1st.
Sincerely,
/s/ BRUCE KARATZ
BRUCE KARATZ
Chairman and Chief Executive Officer
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[KAUFMAN AND BROAD LOGO]
KAUFMAN AND BROAD HOME CORPORATION
------------------------
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
To Be Held April 1, 1999
To the Holders of the Common Stock
of Kaufman and Broad Home Corporation:
The Annual Meeting of Stockholders of Kaufman and Broad Home Corporation
(the "Company") will be held on Thursday, April 1, 1999 at 9:00 a.m.
Pacific Standard Time at the Company's corporate headquarters,
10990 Wilshire Boulevard, 7th Floor, in Los Angeles, California
for the following purposes:
(1) To elect three Class I Directors, each to serve for a term of three years;
(2) If properly presented, to consider and act upon a stockholder proposal,
which is opposed by the Board of Directors; and
(3) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on February 24, 1999 as
the record date for determination of holders of Common Stock entitled to notice
of, and to vote at, the meeting or any adjournment thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED. YOUR
PROMPT RETURN OF THE PROXY CARD WILL ENSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING AND WILL SAVE THE COMPANY THE
ADDITIONAL EXPENSE OF SOLICITING PROXIES.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ KIMBERLY N. KING
KIMBERLY N. KING
Corporate Secretary and
Corporate Counsel
Los Angeles, California
March 1, 1999
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[KAUFMAN AND BROAD LOGO]
KAUFMAN AND BROAD HOME CORPORATION
10990 Wilshire Boulevard
Los Angeles, California 90024
PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 1, 1999
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GENERAL INFORMATION
Your Board of Directors furnishes this Proxy Statement in connection with its
solicitation of your proxy in the form enclosed to be used at the Company's
Annual Meeting of Stockholders to be held on Thursday, April 1, 1999 (the
"Annual Meeting"), at the time and place and for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. A copy of the Company's
Annual Report to Stockholders for the fiscal year ended November 30, 1998,
including audited financial statements, is also being mailed to stockholders
concurrently with this Proxy Statement. It is anticipated that the mailing to
stockholders of this Proxy Statement and the enclosed Proxy Card will commence
on or about March 1, 1999.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend, please date, sign and promptly return your Proxy Card in the
envelope provided. You may revoke your proxy at any time prior to its exercise
at the Annual Meeting by written notice to the Company's Secretary, and, if you
attend the Annual Meeting, you may vote your shares in person.
Only holders of record of the 47,885,032 shares of Common Stock outstanding at
the close of business on February 24, 1999 will be entitled to vote at the
Annual Meeting. Each holder of Common Stock is entitled to one vote for each
share held. There is no right to cumulative voting.
The representation in person or by proxy of at least a majority of the
outstanding shares entitled to vote is necessary to provide a quorum at the
Annual Meeting. All shares of Common Stock represented by valid proxies received
pursuant to this solicitation and not revoked will be voted in accordance with
the choices specified. Where no specification is made with respect to any item
submitted to a vote, such shares will be voted for the election as directors of
the Company of the three persons named under "Election of Directors" on pages 3
and 4, and against the stockholder proposal. Since the proxy confers
discretionary authority to vote upon other matters that properly may come before
the meeting, shares represented by signed proxies returned to the Company will
be voted in accordance with the judgment of the person or persons voting the
proxies. With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may be specified on the stockholder proposal,
and
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will be counted as present for purposes of voting on the proposal, and will have
the effect of a negative vote because passage of the proposal will require the
affirmative votes of a majority of shares present in person or by proxy and
entitled to vote. Under the rules of the New York Stock Exchange, brokers who
hold shares in street name for customers have the authority to vote on certain
items when they have not received instructions from beneficial owners. Brokers
that do not receive instructions are entitled to vote on the election of
directors, but may not vote on the stockholder proposal. Under applicable
Delaware law, a broker non-vote will have no effect on the outcome of the
election of directors or the stockholder proposal.
The persons named as proxies on the enclosed Proxy Card are Bruce Karatz,
Chairman and Chief Executive Officer, Michael F. Henn, Senior Vice President and
Chief Financial Officer, and Kimberly N. King, Corporate Secretary and Corporate
Counsel.
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PROPOSAL ONE:
ELECTION OF DIRECTORS
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At the Annual Meeting, the Board of Directors will present as nominees and
recommend to stockholders that each of the three persons listed below be elected
as Class I Directors to serve for a three-year term ending at the 2002 Annual
Meeting of Stockholders. Should any of these nominees become unable to serve as
a director prior to the Annual Meeting, the persons named on the enclosed Proxy
Card will, unless otherwise directed, vote for the election of such other person
as the Board of Directors may recommend in place of such nominee.
The Board of Directors has nominated three candidates to stand for re-election
as Class I Directors. A brief summary of each nominee's principal occupation,
business affiliations and other information follows.
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[PHOTO]
JANE EVANS, age 54, is President and Chief Executive Officer of SmartTV, LLC.
From 1991 to 1995 she served as Vice President and General Manager, Home and
Personal Services Division, US West Communications, Inc. From 1987 to 1989 she
was a general partner of Montgomery Securities, and from 1989 until 1991 she was
President and Chief Executive Officer of the InterPacific Retail Group. Ms.
Evans serves as a director of Georgia Pacific, Main Street & Main, Incorporated,
and Philip Morris Companies, Inc. She has been a director of the Company since
1993.
[PHOTO]
JAMES A. JOHNSON, age 55, is Chairman of the Executive Committee of the Board of
Directors of Fannie Mae, a position he has held since January 1999, when he
retired as Chairman and Chief Executive Officer of Fannie Mae. He served as
Chairman and CEO of Fannie Mae beginning in February 1991 and previously served
as its Vice Chairman in 1990. Prior to joining Fannie Mae, Mr. Johnson was
Managing Director of Lehman Brothers, an investment banking firm, from 1985
until 1989. He is Chairman of The John F. Kennedy Center for the Performing
Arts, Chairman of The Brookings Institution, and is a member of The Business
Council. He serves on the boards of The Dayton Hudson Corporation, United
HealthCare Corporation, the Alliance to Save Energy, The Enterprise Foundation,
the National Housing Endowment, the National Alliance to End Homelessness,
Carnegie Corporation of New York and Carnegie Endowment for International Peace.
Mr. Johnson has been a member of the Board of Directors since 1992.
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[PHOTO]
SANFORD C. SIGOLOFF, age 68, has been Chairman, President and Chief Executive
Officer of Sigoloff & Associates, Inc. since 1989 and in 1994 was appointed to
the California State Board of Education by California Governor Pete Wilson. Mr.
Sigoloff was President and Chief Executive Officer of L. J. Hooker Corporation
from 1989 to 1992, and was Chairman, President and Chief Executive Officer of
Wickes Companies, Inc., a retail and wholesale merchandiser, from 1982 to 1988.
Mr. Sigoloff was a Presidential appointee to the United States Holocaust
Memorial Council in Washington, D.C. from 1988 through 1994 and is a Fellow in
the American College of Bankruptcy. Mr. Sigoloff is a director of Digital Video
Systems, Inc., SunAmerica Inc., and Movie Gallery, Inc. Among his many civic
involvements, Mr. Sigoloff is a director of the National Conference of
Christians and Jews and the Center Theatre Group; a trustee of the UCLA
Foundation, the Medical Centers of Cedars-Sinai and Chaim Sheba; a member of the
Executive Committee of the City of Hope and the Executive Board and the Board of
Governors of The American Jewish Committee; and a national trustee and Vice
President of the National Jewish Center for Immunology and Respiratory Medicine.
He is also an adjunct professor at The Anderson Graduate School of Management at
UCLA. Mr. Sigoloff has been a director of the Company or its predecessor company
since 1979.
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The other directors of the Company and their respective principal occupations,
business affiliations and other information for at least the past five years are
as follows.
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[PHOTO]
STEVE BARTLETT, age 51, is a principal shareholder and Chairman of the Board of
Directors of Saranda Corporation, a privately held custom manufacturer of
injection molded plastics located in Phoenix, Arizona. He acquired Saranda,
along with other shareholders, in 1996. From 1976 to 1998, Mr. Bartlett also
owned Meridian Products Corporation, located in Dallas, Texas, which also
manufactured injection molded plastics. Mr. Bartlett served as Mayor of Dallas,
Texas, from December 1991 to June 1995. From 1983 to 1991, he served as a member
of the U.S. Congress, representing Texas' Third Congressional District. Mr.
Bartlett also serves on the Board of IMCO Recycling, Inc., a New York Stock
Exchange-listed company that is the largest processor of recycled aluminum in
the United States. He is Chairman of the Board of the Mercantile Growth Fund,
Inc. and has served as a member of Fannie Mae's National Advisory Council. Mr.
Bartlett was elected by the Company's Board of Directors in February 1998; his
current term expires in 2000.
[PHOTO]
RONALD W. BURKLE, age 46, is the managing partner of The Yucaipa Companies, a
private investment firm that invests primarily its own capital. Yucaipa has
completed 16 acquisitions in the supermarket industry nationwide. The Yucaipa
Companies is the largest shareholder of Fred Meyer, Inc. of Portland, Oregon.
Mr. Burkle serves as Chairman of the Board of Fred Meyer, whose stock is
publicly traded on the New York Stock Exchange. Mr. Burkle serves as Chairman of
the Board of D.A.R.E. America (Drug Abuse Resistance Education); is a member of
the Executive Board for the Medical Sciences of UCLA; is a Trustee of the
National Urban League; and is the Founder and Chairman of the Board of Trustees
of the Ralphs/Food 4 Less Foundation. Mr. Burkle has been a director of the
Company since 1995 and his current term expires in 2001.
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[PHOTO]
DR. RAY R. IRANI, age 64, is Chairman and Chief Executive Officer of Occidental
Petroleum Corporation ("Occidental"). He joined Occidental in 1983 as Chairman
and Chief Executive Officer of Occidental Chemical Corporation, an Occidental
subsidiary, and as Executive Vice President of Occidental. In 1984 he was
elected to the Board of Directors of Occidental and was named President and
Chief Operating Officer. He assumed the responsibilities of Chairman and Chief
Executive Officer, in addition to President, in 1990. Dr. Irani has served as
Chairman of Canadian Occidental Petroleum, an Occidental affiliate, since 1986
and as a director since 1984. An Honorary Fellow of the American Institute of
Chemists, Dr. Irani is a director of the National Association of Manufacturers,
the American Petroleum Institute, the National Committee on United States-China
Relations, Cedars Bank (formerly Bank Audi), and the Jonsson Cancer Center
Foundation/UCLA. He is a member of The President's Export Council, the National
Petroleum Council, the Scientific Research Society of America, the American
Chemical Society, and the Industrial Research Institute. He is a trustee of the
University of Southern California and serves on the CEO Board of Advisors of the
University's School of Business Administration. He is also a trustee of the
American University of Beirut, and St. John's Health Center. Dr. Irani has been
a director of the Company since 1992. His current term will expire in 2001.
[PHOTO]
BRUCE KARATZ, age 53, has been Chairman, President, and Chief Executive Officer
of the Company since 1993. Mr. Karatz joined the Company's predecessor in 1972,
and from 1976 through 1980 he was President of its French homebuilding
subsidiary. From 1980 until the formation of the Company in 1986, Mr. Karatz was
President of Kaufman and Broad Development Group; and from 1986 to 1993 he was
the Company's President and Chief Executive Officer. Mr. Karatz is a director of
Honeywell Inc., National Golf Properties, Inc., and Fred Meyer, Inc. Among his
civic and professional activities, Mr. Karatz is a trustee of the RAND
Corporation; Vice Chairman of the California Business Roundtable; a member of
the Council on Foreign Relations, the Executive Committee of the Board of
Governors of The Music Center of Los Angeles County, the Board of the Los
Angeles World Affairs Council, and the University of Southern California Law
Center Board of Counselors; and Co-Chairman of the Mayor's Alliance for a Safer
L.A. His current term expires in 2000.
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[PHOTO]
RANDALL W. LEWIS, age 47, was elected by the Board of Directors as a director
and a Senior Vice President of the Company in January 1999, upon the Company's
acquisition of substantially all of the homebuilding operations of the Lewis
Homes group of companies ("Lewis Homes"). Prior to the acquisition, Mr. Lewis
was a principal in Lewis Homes, which was one of the largest privately held
homebuilders in the United States based on the number of homes delivered. In his
capacity as Executive Vice President/Director of Marketing of Lewis Homes, Mr.
Lewis supervised all marketing activities for Lewis Homes, including market
research, product selection, pricing, advertising and sales. In addition to his
positions with the Company, Mr. Lewis is an Executive Vice President of Lewis
Operating Corp., which provides management and administrative services to the
commercial, multifamily and other Lewis family businesses that were not part of
the acquisition by the Company. Mr. Lewis serves on the Residential Development
Council of the Urban Land Institute and is an active member of the Sales and
Marketing Council. In addition, he is a past president of the Baldy View Chapter
of the California Building Industry Association, a charter member of the
Institute of Residential Marketing and a life director of the National
Association of Homebuilders. Mr. Lewis' term as a director with the Company will
expire in the year 2000.
[PHOTO]
GUY NAFILYAN, age 54, has been President and Chief Executive Officer of Kaufman
and Broad France, the Company's operation based in Paris, France, and Executive
Vice President and President of European Operations of the Company since April
1992. He was a Senior Vice President of the Company from 1987 to 1992, and from
1983 through 1987 he was President of Kaufman and Broad, S.A. (the predecessor
to Kaufman and Broad France). Mr. Nafilyan has been a director of the Company
since 1987 and his current term expires in 2001.
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[PHOTO]
LUIS G. NOGALES, age 55, is President of Nogales Partners, an acquisition
company, which he founded in 1990. He was Chairman and Chief Executive Officer
of Embarcadero Media, Inc. (a media acquisition company) from 1992 to 1997,
President of Univision (the nation's largest Spanish language television
network) from 1986 to 1988, and Chairman and Chief Executive Officer of United
Press International from 1983 to 1986. He is a director of the Adolph Coors
Company and Southern California Edison Co.; a member of the board of the
Inter-American Dialogue and the Pacific Council on International Policy; a
trustee of The Ford Foundation and former Vice President of the Board of
Trustees of Stanford University. Mr. Nogales has been a director of the Company
since 1995. His current term will expire in 2001.
[PHOTO]
CHARLES R. RINEHART, age 52, is retired Chairman and Chief Executive Officer of
H. F. Ahmanson & Company and its principal subsidiary, Home Savings of America.
Mr. Rinehart joined H. F. Ahmanson in 1989, where he also served on the
Executive Committee of the Board of Directors. From 1983 to 1989, Mr. Rinehart
served as President of Avco Financial Services, where he was appointed Chief
Executive Officer in 1985. Mr. Rinehart is a director of the Federal Home Loan
Bank of San Francisco. His civic and professional activities include serving as
President of the Thrift Institution Advisory Council and on the Board of
Outreach Concern, as well as memberships in Fannie Mae's National Advisory
Council, the Los Angeles Business Advisory Council, the Casualty Actuarial
Society, and the Tustin Public Schools Foundation Campaign Committee. He also
serves on the Advisory Committee of Drug Use is Life Abuse and is a Fellow of
the American Academy of Actuaries. Mr. Rinehart was first elected by the Board
of Directors in 1996; his current term expires in 2000.
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THE BOARD AND ITS COMMITTEES
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The Company's Board of Directors held five regular and four telephonic
meetings during the fiscal year ended November 30, 1998. Management also
periodically conferred with directors between meetings regarding Company
affairs. During 1998, all directors attended 75% or more of the total aggregate
number of meetings of the Board of Directors and meetings of the committees of
the Board on which they served.
During 1998, the Board of Directors was comprised of eight non-employee
directors and two employee directors. The committees of the Board of Directors
consist of the Personnel, Compensation and Stock Plan Committee, the Audit and
Compliance Committee, the Nominating and Corporate Governance Committee and the
Executive Committee. The committees of the Board of Directors are comprised
entirely of non-employee directors, except for the Executive Committee, which
includes one employee director.
PERSONNEL, COMPENSATION AND STOCK PLAN
COMMITTEE
The Personnel, Compensation and Stock Plan Committee of the Board of Directors
reviews and makes recommendations regarding compensation and other employment
benefits for the Company's officers and other members of senior management. The
committee also reviews and approves all awards made under the Company's employee
stock plans, the annual merit increase guidelines for base salaries for all
employees and all officer nominations. The members of the committee are Messrs.
Burkle, Irani, Johnson, and Rinehart. Mr. Johnson is Chairman. The committee
held three meetings during 1998; members were also periodically consulted by
management to discuss compensation or personnel issues between meetings. See the
"Personnel, Compensation and Stock Plan Committee Report on Executive
Compensation" (the "Compensation Committee Report") at pages 15 - 19.
AUDIT AND COMPLIANCE COMMITTEE
The function of the Audit and Compliance Committee of the Board of Directors is
to approve the selection of, and review all services performed by, the Company's
independent auditors; to meet, consult with, and receive reports from the
Company's independent auditors, its financial and accounting staff and its
internal audit department; and to review and take action, or make
recommendations to the Board of Directors, with respect to the scope of the
audit procedures, accounting practices, internal accounting and financial
controls and legal affairs of the Company. The committee held two meetings
during 1998. The committee is comprised of Ms. Evans and Messrs. Bartlett,
Nogales and Sigoloff. Mr. Sigoloff serves as Chairman.
NOMINATING AND CORPORATE GOVERNANCE
COMMITTEE
The Nominating and Corporate Governance Committee of the Board of Directors
considers and makes recommendations to the Board concerning the appropriate size
and needs of the Board, including the annual nomination of directors and
nominees for new directors. The committee reviews and makes recommendations
concerning other policies related to the Board of Directors, including committee
composition, structure and size, and director compensation. The committee
regularly evaluates Board performance to determine ways to enhance Board
effectiveness. The committee also considers and makes recommendations to the
Board concerning corporate governance issues and trends. The
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members of the committee are Ms. Evans and Messrs. Irani, Johnson and Nogales.
Dr. Irani is Chairman of the committee, which had one telephonic and three
regular meetings during the year.
The Nominating and Corporate Governance Committee will consider qualified
nominees for director. Stockholders wishing to make such recommendations should
submit the name of the candidate and the candidate's background and
qualifications to the committee, c/o the Secretary of the Company, 10990
Wilshire Boulevard, Los Angeles, California 90024 not later than January 1 of
the year in which the proposed candidate is to be considered for nomination.
EXECUTIVE COMMITTEE
The Executive Committee has the authority of the Board of Directors between
meetings of the Board of Directors except to the extent that such authority may
be limited by the Company's Bylaws (which do not currently provide for any such
limitation) or by applicable law. The members of the committee are Messrs.
Sigoloff and Karatz; Mr. Sigoloff is Chairman. Dr. Irani serves as alternate
member of the committee in the event Mr. Sigoloff or Mr. Karatz is not available
to act. The committee held one special and two telephonic meetings in 1998, and
also acted periodically by written consent.
COMPENSATION PAID TO BOARD MEMBERS
Directors who are employees of the Company receive no additional compensation
for their service on the Board of Directors. Directors who are not employees of
the Company are paid a quarterly retainer of $5,000, plus $1,500 for each Board
of Directors meeting and $1,000 for each committee meeting attended. If two
committee meetings are attended on the same day, only $500 is paid for
attendance at the second committee meeting. Additionally, each committee
chairman receives a quarterly retainer of $1,250. Directors may defer all or a
portion of their fees until a later specified event, such as retirement.
Directors are reimbursed for travel and other expenses related to attendance at
Board of Directors and committee meetings.
With a view toward further aligning the compensation of the Company's
directors with the equity interests of the Company's stockholders, the Company
maintains the Kaufman and Broad Home Corporation Non-Employee Directors Stock
Unit Plan (the "Directors Stock Unit Plan"). Under the Directors Stock Unit
Plan, each director receives an annual grant of 1,500 deferred Common Stock
units ("Stock Units") as of each Annual Meeting of Stockholders. Under the
Directors Stock Unit Plan, directors may also elect to receive all or a portion
of their Board retainers and meeting fees in Stock Units rather than in cash.
Directors who make this election receive Stock Units valued at 110% of the cash
fees to which they would otherwise have been entitled. The shares of Common
Stock represented by the Stock Units will be distributed in-kind or in cash, at
the election of the participating director, when he or she retires or otherwise
leaves the Board. Directors earn the equivalent of cash dividends on, but do not
have voting or investment power with respect to, the shares of Common Stock
represented by the Stock Units.
In furtherance of the Company's overall support for charitable giving, and in
acknowledgment of the service of the Company's directors, the Company maintains
a Directors' Legacy Program under which the Company will make a charitable
donation to no more than five charitable organizations or educational
institutions of the director's choice upon his or her death. All directors are
eligible to participate in the program. From the inception of the program in
1995 through 1998, the maximum charitable donation the Company was committed
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to make on behalf of any director was $500,000. As of January 1, 1999, the
maximum charitable donation that may be made by the Company was increased to $1
million. Accordingly, directors serving on the Board as of January 1, 1999 vest
in the original $500,000 donation in five equal annual installments of $100,000
commencing with the first anniversary of their initial election to the Board;
these directors must serve on the Board for five consecutive years to be fully
vested in the original donation amount. In addition, commencing January 1, 1999,
Directors serving on the Board as of that date will vest in the increased
charitable donation in annual installments of $200,000, $150,000 and $150,000,
respectively; these directors must serve on the Board through January 1, 2002 to
be fully vested in the additional donation. Directors first elected to the Board
after January 1, 1999 will vest in the full $1 million donation in five equal
annual installments of $200,000; these directors must serve on the Board for
five consecutive years to be fully vested in the program. To be eligible to
receive a donation, a recommended organization must be an educational
institution or charitable organization and must qualify to receive
tax-deductible donations under the Internal Revenue Code. The program is funded
by life insurance contracts maintained by the Company on the lives of the
participating directors. This funding is structured such that the life insurance
proceeds are expected to equal the cost to the Company of maintaining the
program. The program has no direct compensation value to directors or their
families because they do not receive any direct cash or tax savings.
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BENEFICIAL OWNERSHIP OF COMPANY STOCK
------------------------
DIRECTORS AND MANAGEMENT
The following information is furnished as of February 22, 1999 to indicate the
beneficial ownership of the Company's Common Stock by each director and each of
the executive officers named in the Summary Compensation Table (the "Named
Executive Officers") individually, and by all directors, Named Executive
Officers and other executive officers as a group. Unless otherwise indicated,
beneficial ownership is direct and the person indicated has sole voting and
investment power. No director, Named Executive Officer or other executive
officer owns more than 1% of the Company's Common Stock, other than Mr. Karatz
who owns 3.1% and Mr. Lewis who owns 5.1%. As a group, all directors, Named
Executive Officers and other executive officers of the Company own an aggregate
of 10.1% of the Company's Common Stock.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(a - e)
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Steve Bartlett 1,600
Ronald W. Burkle 10,695
Jane Evans 6,636
Dr. Ray R. Irani 17,853
James A. Johnson 29,402
Bruce Karatz 1,491,960
Randall W. Lewis 2,434,924
Guy Nafilyan 187,015
Luis G. Nogales 5,372
Charles R. Rinehart 7,728
Sanford C. Sigoloff 28,152
Albert Z. Praw 88,819
Glen Barnard 50,305
Lisa G. Kalmbach 85,944
Michael F. Henn 116,078
All directors, Named Executive Officers and other
executive officers as a group (22 persons) 4,819,427
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(a) Included are Stock Units held by non-employee directors under the Directors
Stock Unit Plan in the following amounts: Mr. Burkle 10,195; Ms. Evans
5,136; Dr. Irani 5,853; Mr. Johnson 14,402; Mr. Nogales 4,872; Mr. Rinehart
7,728; and Mr. Sigoloff 12,852.
(b) Included are shares of Common Stock subject to acquisition within 60 days of
February 22, 1999 through the exercise of stock options granted under the
Company's employee stock plans in the following amounts: Mr. Karatz
1,191,424; Mr. Praw 56,167; Mr. Barnard 43,666; Ms. Kalmbach 55,754; Mr.
Henn 74,823; and all executive officers as a group, 1,707,481. No
non-employee director holds stock options.
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(c) Included are a total of 217,465 shares of restricted Common Stock granted
under the Company's employee stock plans. As of February 22, 1999, Mr.
Karatz held 87,500, Mr. Nafilyan held 43,750, and Ms. Kalmbach held 2,915
shares of restricted Common Stock under a grant made in 1991. These shares
vest in twelve equal annual installments, the first of which vested in 1994;
full vesting will occur in the year 2005. Mr. Karatz also holds a total of
38,932 shares of restricted Common Stock which were earned pursuant to the
performance-based annual incentive compensation formula in Mr. Karatz'
employment agreement and which will vest, subject to certain conditions, on
his 55th birthday if he is still employed by the Company at that time.
Pursuant to a compensation program adopted in 1997 under which a portion of
their annual incentive bonus is determined by the Company's return on
investment, the following officers also earned the following shares of
restricted Common Stock: Mr. Karatz 9,223; Mr. Praw 2,074; Mr. Barnard 428;
Ms. Kalmbach 3,064; Mr. Henn 1,718; and all executive officers as a group,
28,535. These restricted shares will vest on December 1, 1999, one year from
the date of grant.
(d) Included are shares of Common Stock held in certain trusts as follows: Mr.
Bartlett holds 1,000 shares of Common Stock in a trust of which he is
co-trustee and has a contingent beneficial interest and over which he shares
voting and investment power; Mr. Praw holds 8,522 shares of Common Stock in
a trust of which he is the sole trustee and sole beneficiary and over which
he exercises sole voting and investment power; and Mr. Henn holds 36,049
shares of Common Stock in a trust of which he is co-trustee and has a
contingent beneficial interest and over which he shares voting and
investment power.
(e) Mr. Lewis beneficially owns 2,434,924 shares of Common Stock, of which
110,311 shares are held of record by Mr. Lewis, 1,900,000 shares are held of
record by LH Whitney, LLC, 24,613 shares are held of record by Gitan
Enterprises, Inc. and 400,000 shares are held of record by LHE Platte, LLC.
Except as set forth in a Shareholder Agreement with the Company and other
shareholders described under "Related Party Matters" at pages 28-29, Mr.
Lewis exercises sole voting power and sole investment power over all of the
shares owned of record by Mr. Lewis, LH Whitney, LLC and Gitan Enterprises,
Inc. and has shared voting and investment power with respect to the shares
held of record by LHE Platte, LLC, as a result of his ownership and control
of Coronet Construction of Nevada, Inc., Regal Construction Co., Inc. and
Gitan Enterprises, Inc., which are members of Lewis Holding Company, LLC,
which in turn is a member of LHE Platte, LLC.
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BENEFICIAL OWNERS OF MORE THAN 5 PERCENT
Based on filings made under Section 13(d) and Section 13(g) of the Securities
Exchange Act of 1934, as amended, as of February 22, 1999 the only persons or
entities other than Mr. Randall Lewis known to be beneficial owners of more than
5% of the Company's Common Stock were as follows:
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(A-C) CLASS
------------------------------------ -------------- -------
FMR Corp. 4,885,774 10.2%
82 Devonshire Street
Boston, MA 02109
Robert E. Lewis 3,443,422 7.2%
3325 Ali Baba Lane, Suite 603
Las Vegas, Nevada 89118
Sound Shore Management, Inc. 3,102,100 6.5%
9 Sound Shore Drive
Greenwich, CT 06836
- ---------------
(a) Pursuant to the amendment to Schedule 13G dated February 1, 1999 filed with
the Securities and Exchange Commission by FMR Corp., 4,859,200 of the shares
reported are beneficially owned by Fidelity Management & Research Company,
an investment adviser and a wholly-owned subsidiary of FMR Corp., as a
result of acting as investment advisor to various investment companies
(collectively, the "Fidelity Funds"), and as to which shares FMR Corp., Mr.
Edward C. Johnson 3d and each of the Fidelity Funds exercise sole investment
power but no voting power. Neither FMR Corp. nor Mr. Johnson has sole power
to vote or direct the voting of the shares owned by the Fidelity Funds,
which power resides with the Fidelity Funds' Boards of Trustees. The
remaining 26,547 shares reported are beneficially owned by Fidelity
Management Trust Company, a bank and a wholly-owned subsidiary of FMR Corp.,
as to which each of Mr. Johnson and FMR Corp., through its control of
Fidelity Management Trust Company, has sole investment power and sole voting
power.
(b) Robert E. Lewis is President of the Company's Nevada operations. Pursuant to
the Schedule 13D dated February 22, 1999 filed with the Securities and
Exchange Commission, 130,890 of the shares reported are held of record by
Mr. Lewis, 2,880,783 of the shares reported are held of record by LH Evans,
LLC, 31,749 of the shares reported are held of record by Terrain
Enterprises, LLC and 400,000 of the shares reported are held of record by
LHE Platte, LLC. Except as set forth in the Shareholder Agreement with the
Company and other shareholders described under "Related Party Matters" at
pages 28-29, Mr. Lewis exercises sole voting power and sole investment power
over all of the shares owned of record by Mr. Lewis, LH Evans, LLC and
Terrain Enterprises, LLC and has shared voting and investment power with
respect to the shares held of record by LHE Platte, LLC, as a result of his
ownership and control of Crestview Construction of Nevada, Inc. and Parkside
Construction Co., Inc., which are members of Lewis Holding Company, LLC,
which in turn is a member of LHE Platte, LLC.
(c) Pursuant to the Schedule 13G dated January 22, 1999 filed with the
Securities and Exchange Commission by Sound Shore Management, Inc. ("Sound
Shore"), Sound Shore, an investment adviser, has sole investment power with
respect to all shares which are reported as beneficially owned, sole voting
power with respect to 2,688,700 shares, shared voting power with respect to
98,000 shares and no voting power with respect to 315,400 shares.
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PERSONNEL, COMPENSATION AND STOCK PLAN
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
------------------------
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company views executive compensation as a key element to motivate the
Company's executives to build stockholder wealth and to achieve the Company's
annual business plan. To this end, the Company's executive compensation
philosophy is based on a total compensation approach, which requires constant
analysis of both annual and long-term compensation and which is intended to:
- - link compensation to the creation of stockholder value;
- - reward contributions that further the Company's mission by aligning individual
performance objectives with the Company's performance objectives;
- - balance compensation elements to encourage the achievement of both short-term
business plans and long-term strategic objectives; and
- - attract, retain and motivate executives of the highest quality.
Under the Company's total compensation approach, annual incentive compensation
is typically determined by the pre-tax, pre-incentive profit and return on
investment of the Company (or a particular business unit). Long-term
compensation awards are determined by the Company's cumulative earnings per
share and the Company's (or a particular business unit's) average return on
investment over a specified period of years. Additionally, in determining the
level of annual and long-term compensation, qualitative data are analyzed to
ensure that qualitative achievements are fully recognized. This total
compensation approach puts a large portion of executives' compensation "at risk"
based on the Company's performance, as well as their individual performance. The
Personnel, Compensation and Stock Plan Committee (the "Compensation Committee")
believes that this is a balanced approach that motivates the Company's
executives to continually improve the Company's performance.
The Company's performance continued to further improve in 1998 over a
successful 1997: total revenues increased 30% over 1997; diluted earnings per
share increased 60% over 1997; unit deliveries increased 33% over 1997; and 1998
year-end backlog value increased 50% over 1997. In addition, the trading price
of the Company's Common Stock on the New York Stock Exchange increased 28%
during calendar year 1998. Improved results were largely achieved through the
Company's excellent continued progress on four major strategies adopted in 1997:
accelerated growth; implementation of the Company's process-driven operational
business model, "KB2000"; establishment of optimum local market positions in its
major markets; and focus on strategic acquisitions. The Company's 1998 results
were also assisted by improved market conditions in California and France, two
of the Company's principal markets.
COMPENSATION IN 1998
The following generally describes how the Company's executive officers and, in
particular, the Named Executive Officers, were paid in 1998. Please see the
compensation tables at pages 23-27 for a detailed presentation of compensation
earned by the Named Executive Officers in 1998. The
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specifics of Chief Executive Officer compensation are addressed separately in
this report.
Base Salaries. Base salaries are viewed as compensation for an executive's
ongoing contribution to the performance of the business units for which he or
she is responsible. Increases in executive base salaries are made by reference
to the Compensation Committee's assessment of each executive's contribution to
the Company's business and by reference to the Company-wide budget for base
salary increases. Executive base salaries are targeted to be competitive with
average base salaries paid to executives with comparable responsibilities at
other companies in the real estate sector.
Base salaries for all Company employees were increased by 4.3% on average in
1998. This increase was authorized by the Compensation Committee in light of the
Company's improved performance, and by general reference to national trends
across industries. Individual base salary increases are determined by individual
performance and contribution levels and ranged from 0% to 15% in 1998, excluding
promotional increases. Base salary increases for the Named Executive Officers in
1998 were consistent with the Company-wide increase and the Company's merit
distribution philosophy.
In keeping with the Company's total compensation approach, base salaries,
coupled with annual incentive awards, are targeted to be competitive with the
upper quartiles of base salaries and incentive awards made to executives with
comparable responsibilities at other companies in the real estate sector.
Annual Incentive Awards. Annual incentives are paid in cash and restricted
shares of the Company's Common Stock and are intended to reward executives for
improved short-term performance by the Company. In general, annual cash
incentive awards paid to executives are determined by the pre-incentive, pre-tax
profit of the business operations for which they are responsible, but may be
increased or decreased depending upon the return on investment from those
operations (the "ROI Modifier"). This approach is intended to motivate
executives to improve the Company's overall performance in a balanced manner.
In 1998, certain officers, including Ms. Kalmbach and Messrs. Barnard, Karatz,
and Praw earned annual cash incentive awards based upon a specific percentage of
the Company's (or a particular business unit's) pre-incentive, pre-tax profit,
as adjusted by the ROI Modifier. Annual incentive bonuses for certain other
executives, including Mr. Henn, were determined by a combination of a percentage
participation in the Company's (or a particular business unit's) pre-incentive,
pre-tax profit, as adjusted by the ROI Modifier, and the Compensation
Committee's assessment of their individual job performance.
In the event the annual cash incentive compensation earned by Ms. Kalmbach and
Messrs. Barnard and Praw exceeds a specified level, or the annual incentive
compensation of any executive, including the Named Executive Officers, increases
as a result of the ROI Modifier, such compensation will be paid in shares of
restricted Common Stock rather than in cash. Accordingly, as a result of the ROI
Modifier, each of the Named Executive Officers received shares of restricted
Common Stock in 1998. Please see the "Summary Compensation Table" at pages
23 - 24 for the shares of restricted Common Stock earned by the Named Executive
Officers in 1998 pursuant to the ROI Modifier.
Because cash incentive compensation earned by the Company's executive officers
is largely determined by the Company's performance, executive officers earned
more cash incentive compensation in 1998 than they did in 1997 as a result of
the Company's improved performance. Of the total
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cash compensation earned by the Named Executive Officers in 1998, 69% was from
incentives determined by the Company's performance, up from 61% in 1997.
Long-Term Incentive Compensation. Long-term incentive compensation is generally
awarded in the form of stock option grants, as well as Performance Unit awards
under the Company's Unit Performance Program.
By providing executives with an ownership stake in the Company, stock options
are intended to align executive interests with stockholder interests and to
motivate executives to continually improve the long-term performance of the
Company. As shown in the table entitled "Option/SAR Grants in Last Fiscal Year"
on page 25, in 1998 original stock option grants were made to each of the Named
Executive Officers.
In early 1998, the Committee adopted an Executive Stock Ownership Policy,
designed to further the Company's strategy of closely aligning the interests of
management and shareholders. The policy requires senior corporate and divisional
managers to achieve ownership levels of the Company's Common Stock equal to one
to four times their annual salary, depending on their position. Executives must
meet their required ownership levels within three years of becoming subject to
the policy, and must thereafter sustain those levels throughout their employment
with the Company.
In order to achieve their required ownership levels, in 1998, each of Ms.
Kalmbach and Messrs. Henn, Karatz and Praw exercised options previously awarded
in the ordinary course under the Company's employee stock incentive plans.
Although certain shares were sold in the transactions to cover taxes and the
exercise price of the options, each executive's share ownership increased
significantly on a net basis, with the Named Executive Officers' ownership, as a
group, increasing by approximately 160,315 shares in total during the year.
Subsequent to the exercises, each participating executive received replacement
options at then-current fair market value for a portion of the options
exercised.
In 1998, the Compensation Committee also made awards of Performance Units
under the Unit Performance Program, which was implemented in 1996. This
incentive compensation program is intended to motivate senior management toward
improving the Company's long-term performance by providing long-term incentive
compensation that is tied to specified long-term performance objectives for the
Company. Participants in the Unit Performance Program include all executive
officers, division presidents and certain other senior managers.
The value of Performance Units awarded under the Unit Performance Program is
measured over the period that the Performance Unit is outstanding by (i) the
Company's cumulative earnings per share and (ii) the average return on
investment of the specific operations for which the participating executive is
responsible. The weighting of both factors, as well as the individual
performance targets for each executive, are established on an annual basis by
the Compensation Committee. For all Performance Units awarded in 1998, earnings
per share will determine 75% of the value of the award and return on investment
will determine 25% of the value of the award. Performance Unit payouts, if any,
may be paid in cash or in stock or stock equivalents, at the discretion of the
Compensation Committee. It is the Compensation Committee's current intention to
pay out Performance Units in stock or stock equivalents only. Please see
"Long-Term Incentive Plans -- Awards in Last Fiscal Year" at page 27 for the
Performance Units granted to each Named Executive Officer in 1998.
17
22
The value of Performance Units awarded under the Unit Performance Program are
realized, if at all, three years after the date of award. Performance Units
awarded at the beginning of fiscal 1996 vested at the end of fiscal 1998 and
were paid out in shares of the Company's Common Stock, underscoring the
Compensation Committee's commitment to aligning executive interests with
stockholder interests through increasing the levels of stock ownership by the
Company's executives. Please see "Summary Compensation Table" at pages 23-24 for
the shares of Common Stock issued to each Named Executive Officer upon the
vesting of their Performance Units in 1998.
In addition, in 1997 the Compensation Committee approved a separate long-term
incentive plan for executives of Kaufman and Broad France, the Company's
subsidiary based in Paris, France. This plan, under which participants have
received options to purchase shares of Kaufman and Broad France, is intended to
motivate the participants to enhance the value of the Company's French
operations. Employees of Kaufman and Broad France do not participate in the Unit
Performance Program.
Compensation of Chief Executive Officer in 1998. In keeping with the Company's
compensation objectives, Mr. Karatz' compensation is largely driven by cash and
stock-based incentives that are directly tied to the Company's financial
performance. Mr. Karatz entered into a new employment agreement with the Company
in 1996. The agreement provides that the Board of Directors may, in its
discretion, increase or decrease Mr. Karatz' base salary from time to time,
provided that any decrease does not fall below a specified minimum salary. Mr.
Karatz' base salary in 1998 was $775,000. Mr. Karatz also received an annual
incentive bonus of cash and restricted Common Stock in 1998, the amount of which
was determined by a formula based on the Company's pre-incentive, pre-tax profit
and return on investment. All incentive compensation paid to Mr. Karatz under
his employment agreement is made under and subject to the limitations set forth
in the Performance-Based Incentive Plan for Senior Management and the 1998 Stock
Incentive Plan, both of which have been approved by the Company's stockholders
and are designed to qualify incentive compensation in excess of $1 million paid
to the Named Executive Officers for a tax deduction under Section 162(m) of the
Internal Revenue Code ("Section 162(m)"). Under his employment agreement Mr.
Karatz is also entitled to receive other benefits afforded to other executives
of the Company and, accordingly, in 1998 Mr. Karatz received a discretionary
award of 200,000 stock options and 350 Performance Units under the Unit
Performance Program in accordance with the principles described above. Mr.
Karatz also received an aggregate of 256,152 reimbursement options for shares
used to pay the exercise price and tax liability associated with the exercise of
options pursuant to the Company's Executive Stock Ownership Policy.
POLICY ON DEDUCTIBILITY OF COMPENSATION
The Company intends to comply with the requirements of Section 162(m) with
respect to maintaining tax deductibility for all executive compensation, except
in circumstances when the Compensation Committee believes that such compliance
would not be in the best interests of the Company or its stockholders. The
Company believes that all executive officer compensation paid in 1998 met the
deductibility requirements of Section 162(m).
PERSONNEL, COMPENSATION AND STOCK PLAN
COMMITTEE
The Compensation Committee is responsible for setting the compensation strategy
of the Company. The Compensation Committee establishes and monitors principal
executive compensation pro-
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grams, including those covering the Named Executive Officers. For each of the
Company's executive officers, the Compensation Committee approves annual base
salary, annual incentive bonus awards, and long-term incentive awards. The
Compensation Committee also approves all officer nominations and annual merit
increase guidelines for all Company employees. The Compensation Committee is
composed entirely of non-employee directors.
This report is respectfully submitted by the members of the Compensation
Committee:
James A. Johnson, Chairman
Ronald W. Burkle
Dr. Ray R. Irani
Charles R. Rinehart
The above Compensation Committee Report and the Common Stock Price Performance
graphs set forth on page 20 shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
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KAUFMAN AND BROAD HOME CORPORATION
COMMON STOCK PRICE PERFORMANCE
------------------------
The graphs below compare the cumulative total return(a) of Kaufman and Broad
Home Corporation, the S&P 500 Index, the S&P Homebuilding Index and the Dow
Jones Home Construction Index(b) for each of the last five and two fiscal
year-end periods, respectively. The Dow Jones Home Construction Index and the
two year graph are presented for informational purposes only.
LAST FIVE FISCAL YEARS
KAUFMAN AND BROAD DOW JONES HOME S&P HOMEBUILDING
HOME CONSTRUCTION INDEX S&P 500 INDEX
----------------- -------------- ---------------- -------------
1993 100 100 100 100
1994 65 69 56 101
1995 67 112 81 128
1996 68 106 82 177
1997 117 161 121 227
1998 137 159 135 281
LAST TWO FISCAL YEARS
KAUFMAN AND BROAD DOW JONES HOME S&P HOMEBUILDING
HOME CONSTRUCTION INDEX S&P 500 INDEX
----------------- -------------- ---------------- -------------
'1996' 100 100 100 100
'1997' 171 152 149 129
'1998' 202 150 166 159
The above graphs are based upon the Common Stock and index prices calculated
as of the last trading day before December 1st for each of the fiscal year-end
periods presented. The Company's November 30, 1998 closing Common Stock price on
the New York Stock Exchange was $25.188 per share. On February 22, 1999, the
Company's Common Stock closed at $23.0625 per share. The performance of the
Company's Common Stock depicted in the graphs above represents past performance
only and is not indicative of future performance.
(a) Total return assumes $100 invested at market close on November 30, 1993 and
November 30, 1996, respectively, in the Company, the S&P 500 Index, the S&P
Homebuilding Index, and the Dow Jones Home Construction Index including
reinvestment of dividends.
(b) The four companies that comprise the S&P Homebuilding Index are: Centex
Corporation, Fleetwood Enterprises, Inc., Pulte Corporation and the Company.
The nine companies that comprise the Dow Jones Home Construction Index are:
Centex Corporation, Champion Enterprises, Inc., Clayton Homes, Inc., Lennar
Corporation, Oakwood Homes Corporation, Pulte Corporation, Toll Brothers,
Inc., Walter Industries, Inc. and the Company.
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EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
------------------------
EMPLOYMENT AGREEMENTS
Mr. Karatz is employed under an agreement that provides for a term through
November 30, 2001 and will thereafter be automatically renewed for a one-year
period each December 1st, subject to the right of Mr. Karatz or the Company to
terminate on six months' prior notice. In the event Mr. Karatz's employment is
terminated prior to expiration of the agreement as a result of a "change of
ownership" of the Company or termination of his employment without cause, he
will receive a payment equal to two times his average annual compensation for
the prior three fiscal years. Mr. Karatz's is entitled to receive similar
benefits in the event his employment is terminated as a result of death or
disability.
The annual incentive bonus formula in Mr. Karatz's employment agreement
provides him with an opportunity to earn an annual cash incentive bonus in an
amount equal to 1.25% of the Company's pre-incentive, pre-tax profit. The
formula further provides that no such bonus will be paid in any year in which
the Company does not achieve a specified pre-tax return on equity and, if paid,
such bonus may not exceed a specified dollar amount. The bonus formula in the
agreement also includes an opportunity to earn an annual award of restricted
Common Stock. The number of shares of restricted Common Stock awarded each year,
if any, is determined by dividing (i) the product of .50% times the Company's
pre-incentive, pre-tax profit in excess of $50,000,000 by (ii) the average
trading price of the Company's Common Stock on the date of grant. No annual
bonus of restricted Common Stock will be awarded to Mr. Karatz pursuant to this
formula in any year in which the Company does not generate pre-incentive,
pre-tax profit exceeding $50,000,000 and, if such level is exceeded, there is a
specified limit on the number of shares that may be awarded. The shares of
restricted Common Stock awarded pursuant to this formula will vest, subject to
certain conditions, on October 10, 2000, his 55th birthday, if he is still
employed by the Company at that time. In 1997, along with certain other key
executives of the Company, Mr. Karatz's annual incentive bonus formula was
revised by the Compensation Committee to include an ROI Modifier. Any increases
in Mr. Karatz's annual incentive bonus as a result of the ROI Modifier are to be
paid in shares of restricted Common Stock that vest one year from the date of
grant; any decreases are to be deducted from Mr. Karatz's annual cash incentive
bonus. Please see the Compensation Committee Report at page 16 for a description
of the ROI Modifier.
Under his agreement, Mr. Karatz is entitled to a specified minimum annual base
salary, which is subject to annual adjustment in the discretion of the Board of
Directors. Mr. Karatz is also entitled to a nonqualified retirement arrangement
pursuant to which he will receive an annual pension of $492,000, payable for 25
years, if he continues in the employment of the Company until age 60. If Mr.
Karatz retires before or after age 60, he will be entitled to a lesser or
greater amount, as the case may be, pursuant to an actuarially defined formula
based on the returns from continuing annual contributions by the Company to a
retirement trust. Based on this formula, if Mr. Karatz retires after age 60, his
annual pension will increase by varying amounts, but at an average annual rate
of 13.7%. The retirement arrangement is structured so that upon Mr. Karatz's
death, the Company will recover 105% of the after-tax cost to the Company of his
retirement benefit. The retirement arrangement also
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contemplates certain benefits prior to retirement in the event of death,
disability, or a "change in control" of the Company.
No other Named Executive Officer has an employment agreement with the Company.
CHANGE IN CONTROL ARRANGEMENTS
Under the Kaufman and Broad Home Corporation 1988 Employee Stock Plan, the
Kaufman and Broad Home Corporation Performance-Based Incentive Plan for Senior
Management and the Kaufman and Broad Home Corporation 1998 Stock Incentive Plan,
all outstanding stock options will become fully exercisable and all restrictions
on outstanding shares of restricted Common Stock or other awards shall lapse
upon a "change of ownership" of the Company. A change of ownership will be
deemed to occur if (i) current members of the Board of Directors or other
directors elected by three-quarters of the current members or their respective
replacements (excluding certain individuals who took office in connection with
an acquisition of 20% or more of the Company's voting securities or in
connection with an election contest) cease to represent a majority of the Board
or (ii) the Board determines that a change of ownership has occurred.
The Kaufman and Broad Home Corporation Unit Performance Program, which is
administered under the Company's stockholder approved employee stock plans,
provides that upon a change of ownership, each outstanding Performance Unit will
be paid in cash at the target level. The Kaufman and Broad France Incentive Plan
provides that in the event of a change of ownership, all outstanding options
shall become fully exercisable.
The Kaufman and Broad Home Corporation Directors Stock Unit Plan provides that
upon a change of ownership, all outstanding Stock Units will be paid in cash or
shares of Common Stock, in accord with the prior election made by each
participating director. The Kaufman and Broad Home Corporation Directors' Legacy
Program provides that upon a change of ownership of the Company, all
participating directors shall become immediately vested under the program, and
the Company shall create an irrevocable trust into which it shall transfer
sufficient assets (including the directors' life insurance policies) to make the
designated charitable contributions for the participating directors.
The Company also maintains a non-qualified Executive Deferred Compensation
Plan. From 1985 to 1992, pursuant to the plan Mr. Karatz deferred receipt of a
certain amount of pre-tax income, plus a Company matching contribution, until
retirement, termination or certain other events, including a "change in
control." A change in control is defined in the plan to include the acquisition
by a person or "group" (as defined) of 25% or more of the Company's voting
power, a transaction which results in a change in a majority of the
then-incumbent Board or the Company ceasing to be publicly owned. No new
contributions to the Executive Deferred Compensation Plan may be made, but the
Company continues to pay interest on prior contributions still held in the plan.
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EXECUTIVE COMPENSATION
------------------------
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the total compensation
earned by each of the Named Executive Officers for the fiscal years ended
November 30, 1998, 1997 and 1996.
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------------------
------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
FISCAL COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
NAME AND POSITION YEAR SALARY($) BONUS($) ($)(A) AWARDS($)(B) SARS(#) ($)(C) ($)(D)
- ---------------------------------------------------------------------------------------------------------------------------
Bruce Karatz
Chairman, President 1998 $768,750 $1,919,588 --0-- $997,732 456,152 $450,000 $72,068
and Chief 1997 695,838 1,184,125 --0-- 383,507 100,000 300,000 58,616
Executive Officer 1996 650,000 976,413 --0-- 140,565 50,000 --0-- 53,503
- ---------------------------------------------------------------------------------------------------------------------------
Albert Z. Praw
Senior Vice
President 1998 250,000 697,313 --0-- 101,110 71,500 225,000 15,000
and Regional 1997 250,000 321,027 --0-- 52,580 --0-- 150,000 15,000
General Manager 1996 311,000 187,200 --0-- --0-- 45,000 --0-- 17,075
- ---------------------------------------------------------------------------------------------------------------------------
Glen Barnard
Senior Vice
President 1998 250,000 626,749 --0-- 10,968 45,000 112,500 13,750
and Regional 1997 250,000 291,134 --0-- 41,228 --0-- 75,000 9,000
General Manager 1996 219,166 150,339 --0-- --0-- 35,000 --0-- 5,850
- ---------------------------------------------------------------------------------------------------------------------------
Lisa G. Kalmbach
Senior Vice
President 1998 250,000 486,488 --0-- 121,622 79,754 112,500 15,000
and Regional 1997 250,000 712,429 --0-- 168,564 --0-- 75,000 14,750
General Manager 1996 143,090 505,587 --0-- --0-- 35,000 --0-- 7,685
- ---------------------------------------------------------------------------------------------------------------------------
Michael F. Henn
Senior Vice
President 1998 353,333 357,492 --0-- 89,373 83,490 225,000 21,200
and Chief 1997 333,083 249,528 --0-- 33,682 40,000 150,000 19,985
Financial Officer 1996 311,000 214,698 --0-- --0-- 20,000 --0-- 17,160
- ---------------------------------------------------------------------------------------------------------------------------
(a) The Named Executive Officers listed in this table receive certain personal
benefits; however, such benefits do not exceed the lesser of $50,000 or 10%
of such officer's salary and bonus for any of the years reported.
(b) As part of his 1998 incentive compensation, Mr. Karatz received a grant of
20,159 shares of restricted Common Stock pursuant to the performance-based
incentive compensation formula in his employment agreement. The shares of
restricted Common Stock vest, subject to certain conditions, upon Mr.
Karatz' 55th birthday if he is still employed by the Company at that time.
The value of the award is based on the average trading price of the
Company's Common Stock on the New York Stock Exchange on the date of grant
(February 4, 1999).
In 1998, the Named Executive Officers received the following awards of
restricted Common Stock as a result of the ROI Modifier: Mr. Karatz 18,728
shares; Mr. Praw 3,946 shares; Mr. Barnard 428 shares;
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Ms. Kalmbach 4,746 shares; and Mr. Henn 3,488 shares. The value of these
awards was determined by reference to the average trading price of the
Company's Common Stock on the New York Stock Exchange on the date of grant
(December 1, 1998). The actual number of shares delivered to certain of the
Named Executive Officers was less than the amount shown because shares were
withheld for income tax purposes.
(c) Payouts in 1998 under the Company's long-term incentive program, the Unit
Performance Program, were made in shares of Common Stock. Accordingly, in
1998 the Named Executive Officers earned the following payouts under the
Unit Performance Program: Mr. Karatz 17,561 shares; Mr. Praw 8,780 shares;
Mr. Barnard 4,390 shares; Ms. Kalmbach 4,390 shares; and Mr. Henn 8,780
shares. The actual number of shares delivered to certain of the Named
Executive Officers was less than the amount shown because shares were
withheld for income tax purposes.
(d) These amounts represent the Company's aggregate contributions to the
Company's 401(k) Savings Plan, Supplemental Nonqualified Deferred
Compensation Plan and the amount of interest earned on the Executive
Deferred Compensation Plan at a rate in excess of 120% of the applicable
federal rate. In fiscal 1998, the Named Executive Officers accrued the
following respective amounts under such plans: Mr. Karatz $9,000, $37,125
and $25,943; Mr. Praw $9,000, $6,000 and -$0-; Mr. Barnard $9,000, $4,750
and -$0-; Ms. Kalmbach $9,000, $6,000 and -$0-; and Mr. Henn $9,000, $12,200
and -$0-.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table summarizes information relating to stock option grants,
including original grants and "reimbursement" option grants pursuant to the
Company's Executive Stock Ownership Policy, during 1998 to the Named Executive
Officers. All options granted are for shares of the Company's Common Stock. No
stock appreciation rights have been granted at any time under the Company's
employee stock plans.
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATE OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(D)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(C) DATE 5%($) 10%($)
- -------------------------------------------------------------------------------------------------------------
Bruce Karatz 200,000(a) 15.2% $21.590 12/5/12 $4,658,812 $13,719,358
239,356(b) 18.2 23.740 5/28/13 6,130,806 18,054,114
16,796(b) 1.3 30.811 11/13/13 558,347 1,644,231
- -------------------------------------------------------------------------------------------------------------
Albert Z. Praw 35,000(a) 2.7 21.590 12/5/12 815,292 2,446,481
27,937(b) 2.1 23.740 5/28/13 715,571 2,107,228
8,563(b) 0.6 30.811 11/13/13 284,659 838,268
- -------------------------------------------------------------------------------------------------------------
Glen Barnard 45,000(a) 3.4 21.590 12/5/12 1,048,233 3,086,855
- -------------------------------------------------------------------------------------------------------------
Lisa G. Kalmbach 35,000(a) 2.7 21.590 12/5/12 815,292 2,446,481
29,754(b) 2.3 23.740 5/28/13 762,112 2,244,281
15,000(a) 1.1 24.688 6/1/13 399,549 1,176,599
- -------------------------------------------------------------------------------------------------------------
Michael F. Henn 45,000(a) 3.4 21.590 12/5/12 1,048,233 3,086,855
35,606(b) 2.7 23.740 5/28/13 912,003 2,685,685
2,884(b) 0.2 30.811 11/13/13 95,872 282,327
- --------------------------------------------------------------------------------
(a) Shares reported are original option grants and are exercisable in
cumulative 33% installments commencing one year from the date of grant,
with full vesting occurring on the third anniversary of the date of grant.
(b) Shares reported are "reimbursement" option grants in connection with the
Company's Executive Stock Ownership Policy, which was adopted in early 1998.
The Executive Stock Ownership Policy requires the Named Executive Officers
and certain other Company executives to attain specified levels of stock
ownership within three years. Executives may receive reimbursement options
to the extent original grant options are exercised to acquire shares in
accordance with the Executive Stock Ownership Policy, and some of the shares
acquired are sold to pay for the exercise price and tax liability.
Executives receive that number of reimbursement options equal to the number
of shares sold to cover the exercise price and the
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tax liability; the reimbursement options are fully vested on the date of
grant and have an exercise price equal to the market value on the date of
grant. Reimbursement option grants are made only in connection with the
exercise of an original option grant, and are not available with respect to
the exercise of a reimbursement option. Further, the reimbursement option
feature is available only for options exercised to increase share ownership
in compliance with the Executive Stock Ownership Policy; grants of such
options will cease to be made once a participating executive achieves his or
her target Common Stock ownership level.
(c) All options were granted at market value on the date of grant. The term
"market value" as used with respect to this table was computed as the
average of the high and low stock prices for the Company's Common Stock on
the New York Stock Exchange on the date of grant. The exercise price and tax
withholding obligations related to exercise may be paid by delivery of
already owned shares or by withholding a number of the underlying shares,
subject to certain conditions.
(d) Gains are net of the option exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation over
the 15-year term of the options. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock,
overall stock market conditions, as well as the optionholders' continued
employment through the vesting period. The amounts reflected in this table
may not necessarily be achieved, or may be exceeded.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUE
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR END(#) FISCAL YEAR END($)(B)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
Bruce Karatz 384,029 $6,003,525 1,071,424 316,667 $16,923,257 $2,038,470
Albert Z. Praw 48,666 604,329 36,500 71,334 40,453 554,927
Glen Barnard --0-- --0-- 26,666 63,334 320,402 377,443
Lisa G. Kalmbach 39,183 350,253 40,087 68,334 155,861 346,963
Michael F. Henn 49,333 510,174 38,490 95,667 51,557 726,046
- --------------------------------------------------------------------------------
(a) Represents the difference between the market value of the Company's Common
Stock at exercise minus the exercise price of the options.
(b) Represents the difference between the $25.188 closing price of the Company's
Common Stock on November 30, 1998 on the New York Stock Exchange and the
exercise price of the options.
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LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The following table provides information on long-term incentive awards granted
in 1998 to the Named Executive Officers under the Unit Performance Program.
Please also see the Compensation Committee Report at pages 15 - 19.
ESTIMATED FUTURE PAYOUT IN SHARES
NUMBER OF OF COMMON STOCK
PERFORMANCE ----------------------------------------
NAME UNITS(#)(A) PERFORMANCE PERIOD THRESHOLD(#)(B) TARGET(#) MAXIMUM(#)
- -------------------------------------------------------------------------------------------------
Bruce Karatz 350 12/1/97 - 11/30/00 8,107 16,214 24,318
Albert Z. Praw 200 12/1/97 - 11/30/00 4,632 9,264 13,896
Glen Barnard 200 12/1/97 - 11/30/00 4,632 9,264 13,896
Lisa G. Kalmbach 200 12/1/97 - 11/30/00 4,632 9,264 13,896
Michael F. Henn 200 12/1/97 - 11/30/00 4,632 9,264 13,896
- --------------------------------------------------------------------------------
(a) At the beginning of fiscal 1998, the Company awarded Performance Units
under the UPP for the fiscal 1998 - 2000 performance period. Each
Performance Unit represents the opportunity to receive an award payable in
shares of Common Stock. The target award for each Performance Unit is 46.32
shares of Common Stock. The actual number of shares awarded at the end of
the performance period will depend upon the Company's cumulative EPS
(weighted at 75%) and average ROI (weighted at 25%) during the performance
period. The target number of shares will be awarded if a specified,
targeted cumulative EPS and average ROI are achieved for the period. The
threshold number of shares (23.16 shares per Performance Unit), equal to
50% of the target number, will be awarded if a specified minimum cumulative
EPS and average ROI are achieved for the period. Achievement of either the
specified minimum cumulative EPS or average ROI, but not both, would result
in a smaller payout than the threshold number of shares. The maximum number
of shares (69.48 shares per Performance Unit), equal to 150% of the target
number, will be awarded if the specified maximum cumulative EPS and average
ROI for the period are achieved or exceeded. The dollar value of any payout
in shares will depend on the number of shares awarded at the end of the
performance period and the market value of the Common Stock at that time.
(b) No award will be made upon the vesting of a Performance Unit if neither the
specified minimum cumulative earnings per share nor the specified minimum
average return on investment is achieved for the 1998 - 2000 performance
period.
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RELATED PARTY MATTERS
------------------------
LEWIS HOMES ACQUISITION
On January 7, 1999, the Company acquired substantially all of the homebuilding
assets of the Lewis Homes group of companies ("Lewis Homes"). Prior to the
acquisition, Lewis Homes was one of the largest privately held homebuilders in
the United States based on the number of homes delivered. The purchase price
included the issuance of 7,886,686 shares of the Company's Common Stock, of
which 2,034,924 shares are beneficially owned by Mr. Randall W. Lewis and
3,043,422 shares are beneficially owned by Mr. Robert E. Lewis. Mr. Randall
Lewis, Mr. Robert Lewis, other members of the Lewis family and a former senior
executive officer of Lewis Homes share beneficial ownership of an additional
400,000 shares. The remaining 2,408,340 shares of Common Stock issued by the
Company in connection with the Lewis Homes acquisition are beneficially owned by
other members of the Lewis family and the former senior executive officer of
Lewis Homes. As of the close of the acquisition, Mr. Randall Lewis was elected a
Senior Vice President of the Company, and Mr. Robert Lewis was elected President
of the Company's Nevada operations.
Shareholder Agreement. In connection with the Lewis Homes purchase agreement
(the "Purchase Agreement"), the Company and the various individuals and entities
that are recordholders of the shares of Common Stock issued in the acquisition,
including Mr. Randall Lewis and Mr. Robert Lewis (the "Lewis Shareholders"),
entered into a Shareholder Agreement (the "Shareholder Agreement"). Pursuant to
the Shareholder Agreement, among other things, the Company agreed to elect a
designee of the Lewis Shareholders to serve on the Company's Board of Directors
until the Company's Annual Meeting of Shareholders in 2000 (the "2000 Annual
Meeting"). In accordance with the Shareholder Agreement, effective January 7,
1999, Mr. Randall Lewis was elected to the Company's Board of Directors.
If for any reason Mr. Randall Lewis shall become unable or shall otherwise
cease to serve as a director before the 2000 Annual Meeting, the Lewis
Shareholders will be entitled to designate another person, among certain persons
specified in the Shareholder Agreement, to complete the term and the Company is
obligated to use its best efforts to cause the Board to elect such designee to
complete the term.
Under the Shareholder Agreement, the Lewis Shareholders have agreed to vote
all shares of the Company's Common Stock beneficially owned by them in
accordance with the recommendations of the Company's Board of Directors. This
agreement regarding voting will be suspended if and for as long as (i) the
aggregate beneficial ownership of the Company's Common Stock by the Lewis
Shareholders falls below 10% or (ii) the Company's Board does not nominate the
Lewis Shareholders' designee for election at the 2000 Annual Meeting or a
subsequent annual meeting at which directors of the designee's class are
nominated for election. The Company's Board of Directors is not obligated to
nominate Mr. Randall Lewis, or any other designee of the Lewis Shareholders, for
reelection at the 2000 Annual Meeting.
The Shareholder Agreement also provides that no Lewis Shareholder may offer,
sell or transfer any shares of Common Stock issued in the acquisition without
offering the Company the right of first refusal, except in compliance with
certain exceptions set forth in the Shareholder Agreement. This agreement
regarding share transfers will be suspended if and for so long as (i) the
aggregate
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beneficial ownership of the Company's Common Stock by the Lewis Shareholders
falls below 5% or (ii) their aggregate beneficial ownership is between 5% and
10%, and the Company's Board does not nominate the Lewis Shareholders' designee
for election at the 2000 Annual Meeting or a subsequent annual meeting at which
directors of the designee's class are nominated for election.
The shares of Common Stock held by the Lewis Shareholders are "restricted"
shares and may not be resold without a registration statement or in compliance
with Securities and Exchange Commission regulations that limit the number of
shares that may by resold without registration in a given period. The Company
has agreed to file a registration statement for the sale of the shares held by
the Lewis Shareholders in three increments at the Lewis Shareholders' request
from July 1, 2000 (or in limited circumstances after July 1, 1999) to July 1,
2002.
Real Property Purchase and Option Agreements. Under the Purchase Agreement, the
Company has a right of first refusal through January 7, 2003 to purchase certain
residential properties that may be developed by the Lewises in California or
Nevada. As of February 22, 1999, the Company had not exercised its right with
respect to any such properties.
The Lewises retained ownership of certain residential properties, including
Sierra Lakes, a 2,000-lot master plan community in Fontana, California. The
Lewises have granted the Company options to purchase over a period of no more
than ten years all of the approximately 2,000 lots anticipated to be developed
in Sierra Lakes. The Company made a $5 million deposit against these options,
which deposit will be incrementally offset against the purchase price of the
lots, if and to the extent the Company exercises its options. As of February 22,
1999, the Company had not exercised any options to purchase lots in the Sierra
Lakes community. Mr. Randall Lewis and Mr. Robert Lewis directly or indirectly
own approximately 3% and 4%, respectively, of the Lewises' interest in the
Sierra Lakes project. Other members of the Lewis family and a former senior
executive officer of Lewis Homes own the balance of the ownership interests in
the Sierra Lakes project.
The Company has entered into certain other option and purchase agreements to
acquire residential properties developed in California and Nevada by the
Lewises. On an aggregate basis, the Company may acquire a total of approximately
940 lots under these agreements. If the Company acquires all of the lots under
these agreements, the aggregate purchase price for all lots will be
approximately $37 million. As of February 22, 1999, the Company had not acquired
any lots under these agreements. The Company has deposited approximately
$274,000 under one of the option agreements, which deposit will be incrementally
offset against the purchase price of the lots acquired under that agreement, if
and to the extent the Company determines to exercise its options. Mr. Randall
Lewis and Mr. Robert Lewis directly or indirectly have a weighted average
ownership interest of 35% and 11%, respectively, in such properties. Other
members of the Lewis family and a former senior executive officer of Lewis Homes
own the balance of the ownership interests in such properties.
All of the foregoing real property purchase and option agreements were
negotiated at arm's length as part of the Lewis Homes acquisition. The Company
believes that such agreements are on terms that are at least as favorable to the
Company as those obtained by the Company in similar arms-length agreements with
unrelated third parties.
Employment and Consulting Agreements. Mr. Randall Lewis has entered into an
employment with the Company that provides for a one year
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34
term commencing January 7, 1999. The agreement further provides that he shall
receive a monthly salary of $20,000 and an annual bonus and other benefits on a
level comparable to other senior officers of the Company.
Mr. Robert Lewis has entered into an employment agreement with the Company
that provides for a two year term commencing January 7, 1999. The agreement
further provides that he shall receive annual compensation of $230,000 and an
annual bonus and other benefits on a level comparable to other senior officers
of the Company.
Mr. Richard Lewis, a brother of Mr. Randall Lewis and Mr. Robert Lewis, has
entered into a non-employee consulting agreement with the Company under which he
is engaged to assist the Company in identifying, entitling and developing land
suitable for single family residential construction by the Company. The
agreement provides for a one year term commencing January 7, 1999 and a monthly
retainer of $15,000.
OTHER RELATED PARTY TRANSACTIONS
Through its mortgage banking subsidiary, the Company offers home mortgage loans
to its employees and directors. These mortgage loans are made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other customers and do not involve
more than the normal risk of collectability. Such loans are typically promptly
sold to third-party mortgage purchasers.
In 1998, James A. Johnson, a director of the Company, purchased a home from
the Company as a residence for a family member. The purchase price paid for the
home was $152,748. Mr. Johnson received no preferential terms or discounts in
connection with his purchase of the home.
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35
PROPOSAL TWO:
STOCKHOLDER PROPOSAL
------------------------
Amalgamated Bank of New York LongView Collective Investment Fund, 11-15 Union
Square, New York, NY 10003, the beneficial owner of 10,100 shares of Common
Stock is and has notified the Company that it intends to present a proposal at
the Company's 1999 Annual Meeting of Stockholders. The proposal is set forth
below along with the Company's reasons for recommending a vote AGAINST the
proposal. The Board of Directors and the Company accept no responsibility for
the accuracy of the proposal or the proponent's supporting statement.
STOCKHOLDER PROPOSAL
"RESOLVED: The stockholders of Kaufman & Broad Home Corporation request that the
board of directors take the necessary steps in accordance with Delaware law to
declassify the board of directors so that all directors are elected annually,
such declassification to be carried out in a manner that does not affect the
unexpired terms of directors previously elected."
STATEMENT OF PROPOSING STOCKHOLDER
"The election of directors is the primary avenue for shareholders to influence
corporate governance policies and to hold management accountable for its
implementation of those policies. We believe that classification of the board of
directors, which results in only a portion of the board being elected annually,
is not in the best interests of our Company and its stockholders.
"We therefore urge our fellow shareholders to support declassification of the
Company's board of directors, which is divided into three classes with
approximately one-third of the directors elected annually to three-year terms.
Eliminating this classification system would require each director to stand for
election annually and would give shareholders an opportunity to register their
views on the performance of the board collectively and each director
individually. We believe that electing directors in this manner is one of the
best methods available to shareholders to ensure that the Company will be
managed in a manner that is in the best interest of stockholders.
"We believe that this step is warranted both as a matter of sound corporate
governance and also in light of the disappointing return in recent years.
Kaufman & Broad's stock price has lagged behind the S&P 500 index over the last
five years, as well as the overall return of its peers among the eight-firm Down
[sic] Jones Home Construction Index.
"A number of companies have declassified boards. We regard as unfounded the
concern expressed by some that the annual election of all directors could leave
companies without experienced directors in the event that all incumbents are
voted out by stockholders. In the unlikely event that stockholders do vote to
replace all directors, such a decision would express shareholder dissatisfaction
with the incumbent directors and reflect the need for change.
"WE URGE YOU TO VOTE FOR THIS RESOLUTION!"
RECOMMENDATION OF THE BOARD OF DIRECTORS AGAINST THE PROPOSAL
At a Special Meeting of the Company's Stockholders in 1989, the holders of more
than 96 percent of the shares of Common Stock represented at the
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36
meeting approved the institution of a classified board of directors. The reasons
for supporting a classified board are as valid today as they were in 1989.
The Board believes that a classified board continues to benefit the Company,
its stockholders and those with whom the Company does business by permitting all
to rely on the consistency and continuity of corporate policy. At the same time,
annual elections, in which a third of the Board is elected each year, offer
stockholders a regular opportunity to renew and reinvigorate corporate
decision-making while maintaining the basic integrity of corporate policy year
to year for the benefit of all who rely on it.
A classified board also reduces the possibility of a sudden and disruptive
acquisition of control of the Company. In the event of a hostile takeover
attempt, the fact that approximately two-thirds of the directors have terms of
more than one year would encourage a person seeking control of the Company to
initiate arm's-length discussions with management and the Board, who are in a
position to negotiate a transaction that is most favorable to all stockholders.
For these reasons, approximately 60% of Fortune 500 companies provide for the
staggered election of directors. This percentage has not changed significantly
in recent years.
Further, the performance of the Company's Common Stock has improved, as
evidenced in the Performance Graphs on page 20. Indeed, OVER THE LAST TWO FISCAL
YEARS, THE COMPANY'S COMMON STOCK HAS OUTPERFORMED THE S&P 500 BY 27% AND THE
DOW JONES HOME CONSTRUCTION INDEX BY 35%.
If approved, the proposal would serve as a recommendation to the Board of
Directors to take the necessary steps to eliminate the classified Board. To
effect declassification would require that the Board approve the repeal of the
classified board provision in the Company's Certificate of Incorporation.
Thereafter, in accordance with the terms approved by the Company's stockholders
in 1989, the favorable vote at a stockholders' meeting of the holders of at
least 80% of the then-outstanding shares of voting stock of the Company would be
required.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE
FOREGOING STOCKHOLDER PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL
BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE.
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OTHER MATTERS
------------------------
COMPENSATION COMMITTEE INTERLOCKS
In the ordinary course of its business, the Company's mortgage banking
subsidiary sells mortgages it has originated to Fannie Mae. The Company believes
that terms under which it sells mortgages to Fannie Mae are similar to those
afforded to other companies in the mortgage origination business. Mr. James A.
Johnson is Chairman of the Executive Committee of the Board of Directors of
Fannie Mae and is Chairman of the Compensation Committee of the Company's Board
of Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Based upon its review of Forms 3, 4 and 5 and any amendments thereto furnished
to the Company in compliance with Section 16 of the Securities Exchange Act of
1934, as amended, all such Forms were filed on a timely basis by the Company's
reporting persons during 1998, except that a Form 5 for Ms. Kalmbach reporting
an option grant was filed late by 13 days.
FINANCIAL STATEMENTS
The Company's audited consolidated financial statements and notes thereto,
including selected financial information and management's discussion and
analysis of financial condition and results of operations for the fiscal year
ended November 30, 1998 are included at pages 25 through 63 of the Company's
1998 Annual Report to Stockholders, which is being mailed to stockholders
concurrently with this Proxy Statement. Additional copies of the Annual Report
are available without charge upon request. The financial statements, the report
of independent auditors thereon, selected financial information, and
management's discussion and analysis of financial condition and results of
operations in the Annual Report are incorporated by reference herein.
INDEPENDENT ACCOUNTANTS
The firm of Ernst & Young LLP served as the Company's independent auditors for
1998. This firm has advised the Company that it has no direct or indirect
financial interest in the Company. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting, with the opportunity to make a
statement should they desire to do so, and will be available to respond to
appropriate questions from stockholders.
OTHER BUSINESS
The Board of Directors knows of no business other than that described herein
that will be presented for consideration at the Annual Meeting. If, however,
other business shall properly come before the Annual Meeting, the persons named
in the enclosed form of proxy intend to vote the shares represented by properly
delivered proxies on such matters in accordance with their judgment in the best
interest of the Company.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL
MEETING
Any proposal of a stockholder intended to be presented at the Company's 2000
Annual Meeting of Stockholders must be received by the Company for inclusion in
the Proxy Statement and form of proxy for that meeting no later than November 1,
1999. Further, management proxies for the Company's 2000 Annual Meeting of
Stockholders will use their discretionary voting authority with respect to any
proposal presented at the meeting by a
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stockholder who does not provide the Company with written notice of such
proposal prior to January 19, 2000.
COST AND METHOD OF PROXY SOLICITATION
The entire cost of preparing, assembling, printing and mailing the Notice of
Meeting, this Proxy Statement, and the proxy itself, and the cost of soliciting
proxies relating to the meeting will be borne by the Company. In addition to use
of the mails, proxies may be solicited by officers, directors, and other regular
employees of the Company by telephone, facsimile, or personal solicitation, and
no additional compensation will be paid to such individuals. The Company will,
if requested, reimburse banks, brokerage houses, and other custodians, nominees
and certain fiduciaries for their reasonable expenses incurred in mailing proxy
material to their principals. The Company will use the services of Georgeson &
Company Inc., a professional soliciting organization, to assist in proxy
solicitation and in distributing proxy materials to institutions, brokerage
houses, custodians, nominees and other fiduciaries. The Company estimates the
costs for such services will not exceed $5,000.
By Order of the Board of Directors,
Kimberly N. King
Corporate Secretary and
Corporate Counsel
March 1, 1999
Los Angeles, California
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39
[KAUFMAN AND BROAD LOGO]
KAUFMAN AND BROAD HOME CORPORATION
10990 Wilshire Boulevard
Los Angeles, California 90024
40
PROXY
KAUFMAN AND BROAD HOME CORPORATION
ANNUAL MEETING OF STOCKHOLDERS APRIL 1, 1999
CONFIDENTIAL INSTRUCTIONS TO FIDELITY MANAGEMENT TRUST COMPANY
TRUSTEE FOR THE KAUFMAN AND BROAD HOME CORPORATION
AMENDED AND RESTATED 401(k) SAVINGS PLAN
Receipt of proxy material for the above Annual Meeting is
acknowledged. I instruct you to vote (in person or by proxy) all shares of
Common Stock of Kaufman and Broad Home Corporation (the "Company") held by you
for my account under the Company's Amended and Restated 401(k) Savings Plan at
the Company's Annual Meeting of Stockholders to be held on April 1, 1999 at
9:00 a.m., and at all adjournments thereof, on the matters as indicated on the
reverse side of this card and in your discretion on any other matters that may
come before the Annual Meeting and as to which discretionary authority is
permitted by applicable law. If this card is signed and returned, but no choice
is specified, I instruct you to vote this proxy in accordance with the Board of
Directors' recommendation FOR Proposal 1 and AGAINST Proposal 2, and upon such
other business as may come before the Annual Meeting.
PLEASE MARK, DATE AND SIGN THESE INSTRUCTIONS AND RETURN THEM PROMPTLY,
EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)
- -------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
41
Please mark
your votes as ---
indicated in X
this example. ---
FOR WITHHOLD
THE BOARD OF DIRECTORS RECOMMENDS (Except as AUTHORITY THE BOARD OF DIRECTORS
A VOTE FOR PROPOSAL 1: marked to to vote for RECOMMENDS A VOTE
the contrary) nominees listed AGAINST PROPOSAL 2: FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS in Class I --- --- 2. STOCKHOLDER PROPOSAL --- --- ---
Nominees: Jane Evans concerning declassi-
James A. Johnson --- --- fication of election --- --- ---
Sanford C. Sigoloff of directors
(INSTRUCTION: to withhold authority to vote for any The undersigned hereby acknowledges receipt of the
individual nominee, strike a line through the Notice of Annual Meeting and Proxy Statement for
nominee's name in the list above.) such meeting, dated March 1, 1999.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title. If
more than one trustee, all should sign. All joint
owners should sign. If a corporation, sign in full
corporate name by President, or other authorized
officer. If a partnership, sign in partnership
name by authorized person.
IMPORTANT INFORMATION IS CONTAINED ON THE OTHER
SIDE OF THIS CARD. PLEASE READ BOTH SIDES OF
THIS CARD, SIGN, DATE AND RETURN YOUR
INSTRUCTION CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
Signature(s)_________________________________________________________________________________________ Date _______________, 1999
(Please sign EXACTLY as your name appears hereon.)
- ----------------------------------------------------------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
_______________________________________________________________________________
INSTRUCTION CARD KAUFMAN AND BROAD HOME CORPORATION
_______________________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS APRIL 1, 1999
_______________________________________________________________________________
Dear Fellow Employee:
Just a reminder, your vote and your investment in Kaufman and Broad
Home Corporation are very important. Please complete and return your
Confidential Instruction Card to the Trustee for tabulation by no later than
March 29, 1999 to ensure that your vote is counted.
Bruce Karatz
Chairman and
Chief Executive Officer
42
PROXY
KAUFMAN AND BROAD HOME CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 1, 1999
The undersigned hereby appoints Bruce Karatz, Michael F. Henn and
Kimberly N. King, and each of them, as proxies with full power of substitution
and revocation, to vote all of the shares of Kaufman and Broad Home Corporation
Common Stock the undersigned is entitled to vote at the Kaufman and Broad Home
Corporation Annual Meeting of Stockholders to be held on April 1, 1999, or at
any adjournment thereof, upon the Proposals set forth on the reverse side of
this Proxy Card and described in the accompanying Proxy Statement, and upon
such other business as may properly come before the meeting or any adjournment
thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER IF NO DIRECTION IS INDICATED, IT
WILL BE VOTED FOR PROPOSAL 1 AND AGAINST PROPOSAL 2, AND ON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
43
Please mark
your votes as ---
indicated in X
this example. ---
FOR WITHHOLD
THE BOARD OF DIRECTORS RECOMMENDS (Except as AUTHORITY THE BOARD OF DIRECTORS
A VOTE FOR: marked to to vote for RECOMMENDS A VOTE
the contrary) nominees listed AGAINST: FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS in Class I --- --- 2. STOCKHOLDER PROPOSAL --- --- ---
Nominees: Jane Evans concerning declassi-
James A. Johnson --- --- fication of election --- --- ---
Sanford C. Sigoloff of directors
(INSTRUCTION: to withhold authority to vote for any The undersigned hereby acknowledges receipt of the
individual nominee, strike a line through the Notice of Annual Meeting and Proxy Statement for
nominee's name in the list above.) such meeting, dated March 1, 1999.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title. If
more than one trustee, all should sign. All joint
owners should sign. If a corporation, sign in full
corporate name by President, or other authorized
officer. If a partnership, sign in partnership
name by authorized person.
IMPORTANT INFORMATION IS CONTAINED ON THE OTHER
SIDE OF THIS CARD. PLEASE READ BOTH SIDES OF
THIS CARD, SIGN, DATE AND RETURN YOUR
PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
Signature(s)_________________________________________________________________________________________ Date _______________, 1999
(Please sign EXACTLY as your name appears hereon.)
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