Exhibit 10.4
KB HOME
1986 STOCK OPTION PLAN
(as amended and restated on October 2, 2008)
          SECTION 1. Purpose. The purpose of the 1986 Stock Option Plan (the
“Plan”) is to promote the success of KB Home (the “Company”) by providing a
method whereby key employees of the Company and its subsidiaries may be
encouraged to invest in the Common Stock of the Company (“Common Stock”) and
thereby increase their proprietary interest in its business, encourage them to
remain in the employ of the Company or its subsidiaries, and increase their
personal interest in the continued success and progress of the Company.
          SECTION 2. Administration. (a) The Board of Directors of the Company
shall designate a committee of not less than three Directors (the “Committee”).
No individual shall become a member of the Committee if he shall have been
eligible to receive options to acquire shares of capital stock of the Company or
any subsidiary at any time during the 12-month period prior to his becoming a
member and no member of the Committee shall be eligible to receive options. The
Committee shall have full power and authority, subject to such orders or
resolutions not inconsistent with the provisions of the Plan as may from time to
time be issued or adopted by the Board of Directors, to grant to eligible
persons options to purchase shares of Common Stock pursuant to the provisions of
the Plan, to fix the exercise price of such options, to interpret the provisions
of the Plan and any option agreements issued under the Plan, and to supervise
the administration of the Plan.
          (b) All decisions made by the Committee pursuant to the provisions of
the Plan and related orders or resolutions of the Board of Directors shall be
final, conclusive and binding on all persons, including the Company,
stockholders, employees and optionees.
          SECTION 3. Stock Options. (a) Grant of Options. Stock options on
shares of Common Stock may be granted to participants by the Committee from time
to time at its sole discretion. Each option shall be evidenced by an option
agreement which shall contain such terms and conditions as may be approved by
the Committee and shall be signed by an officer of the Company and the optionee.
Neither the execution of any option agreement nor the granting of any option
evidenced thereby shall constitute or be evidence of any agreement or other
understanding, express or implied, on the part of the Company or any Subsidiary
to employ an individual for any specific period.
          (b) Shares Subject to the Plan. (1) The shares to be delivered upon
exercise of options granted under the Plan may be made available from the
authorized but unissued shares of the Company or from shares reacquired by the
Company, including shares purchased in the open market or in private
transactions.
          (2) Subject to adjustments made pursuant to the provisions of
paragraph (3) of this Section 3(b), (i) the aggregate number of shares to be
delivered upon exercise of all options which may be granted under the Plan shall
not exceed 2,000,000 shares of Common Stock, $1.00 par value, of the Company. If
an option granted under the Plan shall expire or terminate for any

 

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reason, the shares subject to, but not delivered under, such option shall be
available for other options to the same employee or other employees.
          (3) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Common Stock of the Company, the Committee shall make appropriate
proportional adjustments to any or all of the aggregate number of shares which
may be delivered under the Plan and the number and option price of shares
subject to the outstanding options granted under the Plan (provided that the
number of shares subject to any option shall always be a whole number). Any
adjustment under this Section 3(b)(3) shall be made only to the extent that such
adjustment will not cause a violation of the requirements of Section 409A of the
Internal Revenue Code.
          SECTION 4. Eligibility and Extent of Participation. (a) The employees
eligible to receive options under the Plan shall consist of key employees of the
Company and its subsidiaries. For the purpose of the Plan, the term “subsidiary”
means a corporation 50% or more of the voting power of which is owned by the
Company directly or indirectly through one or more subsidiaries.
          (b) Subject to the limitations of the Plan, the Committee shall, after
such consultation with and consideration of the recommendations of management as
the Committee considers desirable, select from eligible employees those to be
granted options and determine the time when each option shall be granted and the
number of shares subject to each option. Subject to the provisions of paragraph
(b) of Section 3, more than one option may be granted to the same person.
          SECTION 5. Option Price. The price at which shares may be purchased
upon exercise of a particular option shall be as specified by the Committee, in
its sole discretion, at the time such option is granted and shall be set forth
in the applicable option agreement.
          SECTION 6. Exercise of Options. (a) Subject to the provisions of the
Plan with respect to death, retirement and termination of employment, the period
during which each option may be exercised shall be fixed by the Committee in its
sole discretion at the time such option is granted, but in no event shall such
period expire later than fifteen years from the date the option is granted.
          (b) No option granted under the Plan may be exercised until the
expiration of one year of continued employment by the Company or any of its
subsidiaries or affiliates immediately following the date the option is granted
and, except as provided in Section 9, only during the continuance of the
optionee’s employment with the Company or any of its subsidiaries or affiliates.
Subject to the foregoing limitations and unless cancelled prior to exercise,
each option shall be exercisable in installments on a cumulative basis pursuant
to the following schedule, subject to such different or additional terms and
conditions as the Committee may, in its sole discretion, specify in the
applicable option agreement or thereafter:
     (1) 20% on and after the first anniversary of the grant of the option,
     (2) an additional 20% on and after the second anniversary of the grant of
the option,

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     (3) an additional 20% on and after the third anniversary of the grant of
the option,
     (4) an additional 20% on and after the fourth anniversary of the grant of
the option, and
     (5) the remaining 20% on and after the fifth anniversary of the grant of
the option.
          (c) The Committee may impose such other conditions with respect to the
exercise of options, including without limitation any conditions relating to the
application of federal or state securities laws, as it may deem necessary or
advisable.
          (d) No shares shall be delivered pursuant to any exercise of an option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in cash, or its equivalent, or by exchanging shares of
Company stock owned by the optionee (which are not the subject of any pledge or
other security interest), or by a combination of the foregoing, provided that
the combined value of all cash and cash equivalents and the fair market value of
any such stock so tendered to the Company, valued as of the date of such tender,
is equal to such option price. No optionee or the legal representative, legatee
or distributee of an optionee, shall be deemed to be a holder of any shares
subject to any option prior to the issuance of such shares upon exercise of such
option.
          (e) Notwithstanding the foregoing, unless otherwise specifically
determined by the Committee at the time of grant, all options theretofore
granted and not fully exercisable shall become exercisable in full upon the
happening of any of the following events: (i) a tender or exchange offer for
Common Stock (other than such an offer by the Company) shall have been
consummated and following the consummation thereof the offeror (or any “group”,
as defined in Section 13(d)(3) of the Securities Exchange Act, of which the
offeror is a member) shall be the owner of shares of the Company with respect to
which 25% or more of the total number of votes for the election of directors may
be cast, (ii) the shareholders of the Company shall have approved an agreement
providing for a transaction for the exchange of at least a majority of the
outstanding Common Stock for cash or property or securities (other than common
stock of the Company) or for the sale or other disposition of all or
substantially all of the assets of the Company. Options which become fully
exercisable by reason of events specified in clauses (i) or (ii) shall remain
exercisable for 90 days following the date on which they become so exercisable,
after which they will revert to being exercisable in accordance with their other
terms, provided, however, that no option which has previously been exercised or
has expired or otherwise terminated shall become exercisable by virtue of this
paragraph nor shall this paragraph permit exercise of any option during the
portion, if any, of such 90 day period which follows the termination or
expiration of any such option. As used in this paragraph, the term “offeror”
includes any person controlling, controlled by or under common control with the
offeror.
          (f) Anything herein to the contrary notwithstanding, no shares shall
be issued pursuant to any exercise of an option to the extent that upon issuance
of such shares the Company would cease to be an includible corporation in an
affiliated group of which KB Home

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is also an includible corporation (all as described in Section 1504 of the
Internal Revenue Code). To the extent that the Company shall be so precluded
from issuing shares upon the exercise of an option, the optionee shall be
entitled to receive either (i) shares reacquired by the Company as contemplated
by Section 3(b) hereof, (ii) a cash sum equal to the amount by which the fair
market value of the shares which the optionee would otherwise be entitled to
receive, valued as of the date of such exercise, exceeds the option price of
such shares, net of applicable withholding taxes, plus any amount tendered by
the optionee at the time of exercise, or (iii) a combination of (i) and (ii), as
the Committee shall determine in its sole discretion.
          SECTION 7. Financing of Shares Upon Exercise. If requested by the
optionee at the time of exercise of an option, the Committee may in its sole
discretion provide financing by the Company to the optionee for the purchase of
such shares. Unless otherwise determined by the Committee in accordance with
subparagraph 7(g), such financing shall be upon the following terms and
conditions:
          (a) Amount. Loans may be made in an amount no greater than the lesser
of (i) the exercise price, or (ii) 50% of the fair market value of the Common
Stock purchased on the date of exercise of the option, or (iii) such amount as
may be permitted by law or regulation.
          (b) Interest Rate. The principal amount of each such loan shall bear
interest at a floating rate equal to 1% over the minimum commercial lending rate
charged by Morgan Guaranty Trust Company of New York, as the same may change
from time to time, or any lesser rate required by applicable law.
          (c) Repayment. A payment on account of interest shall be due on the
November 30 following the borrowing in an amount equal to the lesser of (i) 3%
per annum on the then outstanding balance of such loan or (ii) the aggregate
amount of all cash dividends received by the optionee on the Common Stock so
financed during the period from date of option exercise. Accrued unpaid interest
on December 1 of each year shall be added to principal of the loan. Principal
and all accrued unpaid interest thereon shall be due and payable upon the first
to occur of (1) the date the optionee sells or otherwise transfers such shares,
(2) the date the optionee ceases employment with the Company or any subsidiary
or affiliate, or (3) the expiration of 12 months from the date of the borrowing.
          (d) Security. Such loans shall be recourse obligations of the optionee
secured by the pledge of the shares so financed.
          (e) Documentation. In connection with such loan, the optionee shall
execute such documents, promissory notes and pledge and security agreements with
the Company and shall take such further and other action as the Committee may
deem necessary or appropriate.
          (f) General Restrictions. Such financing shall be subject to all legal
requirements and restrictions pertinent thereto, including, if applicable,
Regulation G as promulgated by the Federal Reserve Board. The grant of any
option by the Committee shall in no way obligate the Company or the Committee to
provide any financing whatsoever upon the exercise of any option.

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          (g) Amendments. Subject only to the restrictions set forth in
subparagraph 7(f), the Committee may, in its sole discretion, provide Company
financing, or assist in arranging other financing, for optionees upon the
exercise of options upon such other terms and conditions as it may deem to be
appropriate or advisable.
          SECTION 8. Transferability of Options. An option granted under the
Plan may not be transferred except by will or the laws of descent and
distribution and, during the lifetime of the person to whom granted, may be
exercised only by such person.
          SECTION 9. Death, Retirement and Termination of employment. Subject to
the condition that no option may be exercised in whole or in part after the
expiration of the option period specified in the applicable option agreement:
          (a) Upon the death of any optionee while employed or within the
three-month period referred to in clause (b) below, the person or persons to
whom such optionee’s right, under the option are transferred by will or the laws
of descent and distribution may, prior to the expiration of twelve months after
the date of such optionee’s death, purchase any or all of the shares with
respect to which such optionee was entitled to exercise such option immediately
prior to his death;
          (b) Upon termination of employment for any reason, including
retirement, an optionee may, prior to the expiration of three months after the
date of such termination, purchase any or all of the shares with respect to
which such optionee was entitled to exercise such option immediately prior to
such termination; and
          (c) Upon expiration of the twelve month or three month periods
described in subparagraphs 9(a) and 9(b), as the case may be, the options of an
optionee who has died or terminated employment shall be cancelled to the extent
not theretofore cancelled or exercised.
          (d) For purposes of this Plan, termination of employment shall not be
deemed to occur upon the transfer of any optionee from the employ of the Company
to the employ of any subsidiary or affiliate. For purposes of this subparagraph
9(d), “affiliate” means (1) any entity 50% or more of the voting interest in
which is owned, directly or indirectly, by an entity which owns, directly or
indirectly, 50% or more of the voting interest in the Company and (2) any entity
which owns, directly or indirectly, 50% or more of the voting interest in the
Company.
          SECTION 10. Delivery of Shares. No shares shall be delivered pursuant
to any exercise of an option until the requirements of such laws and regulations
as may be deemed by the Committee to be applicable thereto are satisfied.
          SECTION 11. Withholding. Prior to the delivery of certificates for
shares, the Company shall have the right to require a payment from a participant
to cover any applicable withholding taxes due in connection with the exercise of
an option.
          SECTION 12. Amendments, Suspension or Discontinuance. The Board of
Directors may amend, suspend, or discontinue the Plan, and may, except upon the
happening of an event described in Section 6(e), cancel any option granted
pursuant to the Plan prior to the time any portion of such option becomes
exercisable pursuant to the applicable option

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agreement, but except as permitted by paragraph (b) (3) of Section 3, may not,
without the prior approval of the stockholders of the Company, make any
amendment which operates (a) to abolish the Committee, change the qualification
of its members or withdraw the administration of the Plan from its supervision,
(b) to make any material change in the class of eligible employees as defined in
the Plan, (c) to increase the total number of shares which may be delivered on
exercise of options granted under the Plan, or (d) to extend the maximum option
period or the period during which options may be granted under the Plan.
          SECTION 13. Term of Plan. The Plan shall become effective on the date
it is approved and adopted by the Board of Directors of the Company, subject to
the approval of the Plan by shareholders of the Company. No award shall be
granted under the Plan after the date that is ten (10) years after the date on
which the Plan was approved by the Company’s shareholders or after such earlier
date as the Committee may decide, in its sole discretion.

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