EXHIBIT 10.42
AMENDED AND RESTATED KB HOME 1999 INCENTIVE PLAN
STOCK APPRECIATION RIGHTS AGREEMENT
(FISCAL YEAR 2009)
     This Stock Appreciation Rights Agreement (this “Agreement”) is made on
October 2, 2008 (the “Grant Date”) between KB Home, a Delaware corporation (the
“Company”), and [NAME] (the “Participant”). Capitalized terms used in this
Agreement and not defined herein have the respective meanings given them in the
Amended and Restated KB Home 1999 Incentive Plan, as amended on October 2, 2008
(the “Plan”).
     WHEREAS, the Company desires to grant the Participant cash-settled Stock
Appreciation Rights (the “Award”) pursuant to Section 8 of the Plan;
     WHEREAS, the Award is intended, if the Participant is a Covered Employee,
to constitute Qualified Performance-Based Compensation and a Performance-Based
Award granted pursuant to Section 11 of the Plan; and
     WHEREAS, the Award is intended to constitute a “stock appreciation right”
not providing for the deferral of compensation under, and is therefore exempt
from, Section 409A of the Code.
     NOW, THEREFORE, in consideration of the foregoing, the Company and the
Participant enter into this Agreement as follows:
A G R E E M E N T
     1. Grant. Subject to the terms of the Plan and this Agreement, the Company
hereby grants to the Participant an Award calculated by reference to an
aggregate of [# RIGHTS] stock appreciation rights (the “Rights”). Subject to the
limitations set forth in Section 5, each Right entitles the Participant to
receive the positive difference, if any, between the grant price of $19.90 (the
“Grant Price”) and the Fair Market Value of a share of common stock, $1.00 par
value per share, of the Company (“Common Stock”) on the date of exercise (the
“Spread”). The Award is intended to constitute Qualified Performance-Based
Compensation, a “stock appreciation right” under Section 409A, and, if the
Participant is a Covered Employee, a Performance-Based Award. The Rights may be
exercised, and the Award may be paid, only as provided under this Agreement.
     2. Rights Vesting and Forfeiture.

  (a)   Normal Rights Vesting. Subject to the limitations set forth in
Section 5, the Rights granted under this Agreement will vest and may be
exercised in accordance with the following vesting schedule if the Participant
is employed by the Company or its Subsidiaries on the respective dates indicated
below:

          On or After       Rights Subject to Exercise October 2, 2009      
33-1/3% of Rights October 4, 2010   an additional   33-1/3% of Rights October 3,
2011   an additional   33-1/3% of Rights

  (b)   Forfeiture. Except as provided in Section 3 below with respect to the
Participant’s Retirement and subject to Section 2(a) above and Section 4 below,
the Participant will immediately forfeit all rights, title and interests in and
to any portion of the Rights that have not vested on the date the Participant’s
employment with the Company or its Subsidiaries is terminated.

 

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     3. Accelerated Rights Vesting. Notwithstanding Section 2 above, subject to
the limitations set forth in Section 5, 100% of the Rights granted hereunder
will vest and become immediately exercisable upon a Change of Ownership of the
Company, as provided under the applicable terms of the Plan, or upon the
Participant’s Retirement. “Retirement” means severance from employment with the
Company or its Subsidiaries for any reason other than a leave of absence,
termination for cause, death or disability, at such time as the sum of the
Participant’s age and years of service with the Company or its Subsidiaries
equals at least 65 or more, provided that the Participant is then at least
55 years of age. The Company will have the sole right to determine whether the
Participant’s severance from employment constitutes a Retirement.
     4. Rights Termination. Vested Rights will cease to be exercisable and will
expire and terminate to the extent not exercised upon the date (the “Expiration
Date”) that is the earlier of (i) the close of business on the tenth anniversary
of the Grant Date and (ii) the dates set forth below in this Section 4.

  (a)   Employment Termination Other Than For Cause or Retirement. If the
Participant’s employment with the Company or its Subsidiaries is terminated for
any reason other than for cause or Retirement (in each case, as determined by
the Company), the date that is 90 calendar days after the date of such
termination.     (b)   Employment Termination for Cause. If the Participant’s
employment with the Company or its Subsidiaries is terminated for cause (as
determined by the Company), the date that is 5 calendar days after the date of
such termination.     (c)   Death. In the event of the Participant’s death
(i) while the Participant is employed by the Company or its Subsidiaries,
(ii) within 90 days of the date the Participant’s employment with the Company or
its Subsidiaries is terminated for any reason other than for cause or Retirement
(in each case, as determined by the Company) or (iii) in the event of the
Participant’s Retirement (as determined by the Company) prior to the date set
forth in clause (i) of the first sentence of this Section 4, the first
anniversary of the date of death.

     5. Rights Exercise and Payment. To exercise any number of the Rights that
have vested, and to be entitled to payment of any portion of the Award, the
Company must receive written notice of exercise specifying the number of Rights
to be exercised. The Rights will be deemed exercised upon receipt of the
exercise notice attached as Exhibit A (the “Exercise Notice”). Upon exercise of
any number of the Rights that have vested, the Spread will be determined by the
Fair Market Value per share of the Common Stock on the date the Exercise Notice
is received by the Company and will be paid in cash as soon as reasonably
practicable following such receipt; provided however, that in the event that the
aggregate amount of cash payable to the Participant in respect of any and all
Award(s) under the Plan (including, but not limited to, any phantom stock
awards) in any fiscal year of the Company would exceed (i) $5,000,000 if the
Participant is the Chief Executive Officer at the time of such payment or (ii)
$3,000,000 if the Participant is not described in clause (i) of this Section 5,
the Rights shall not be exercisable with respect to such excess amount until
such time that such portion of the Rights could be exercised without exceeding
the applicable limit, subject to the provisions of Section 4. The Company has
the authority to deduct or withhold an amount sufficient to satisfy applicable
federal, state, local and foreign taxes (including the Participant’s FICA
obligation) required by law to be withheld with respect to any taxable event
arising from the exercise of any vested Rights or payment of any portion of the
Award.
     6. No Stockholder Rights. The Participant, and any Permitted Transferee (as
defined in Section 10 hereof), will not be deemed to be a holder of or possess
any stockholder rights with respect to any shares of Common Stock based on the
Rights granted hereunder.
     7. Adjustments. In the event of any of the transactions described in
Section 13(a) of the Plan, the Committee shall adjust or revise the Award in
accordance with the terms of the Plan; provided that such an adjustment of the
Award shall be made only to the extent that such adjustment will not cause a
violation of Section 409A.

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     8. California Law. This Agreement will be construed, administered and
enforced in accordance with the laws of the State of California.
     9. Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties with respect to the subject matter of this
Agreement, and supersedes all prior and contemporaneous oral and written
agreements and understandings relating to such subject matter. THE PARTICIPANT
ACKNOWLEDGES AND AGREES TO BE BOUND TO, AND THAT THE AWARD AND THE RIGHTS ARE
GRANTED SUBJECT TO, ALL OF THE TERMS AND CONDITIONS OF THE PLAN, INCLUDING ANY
TERMS, RULES OR DETERMINATIONS MADE BY THE COMMITTEE PURSUANT TO ITS
ADMINISTRATIVE AUTHORITY UNDER THE PLAN, AND THAT IN THE EVENT OF ANY CONFLICT
BETWEEN THIS AGREEMENT AND THE PLAN, THE PLAN WILL PREVAIL.
     10. Non-Transferability. None of this Agreement, the Award or the Rights
may be assigned by the Participant by operation of law or otherwise, except that
vested Rights may be transferred upon death by will or by the laws of descent
and distribution to members of the Participant’s family or to trusts or other
entities whose beneficiaries are members of the Participant’s family. Any
purported assignment by the Participant that is not permitted hereunder shall be
null and void. This Agreement shall, however, be binding upon the successors and
assigns of the Company.
     11. No Obligation. Neither the execution and delivery hereof nor the
granting of the Award or the Rights will constitute or be evidence of any
agreement or understanding, express or implied, on the part of the Company or
any of its Subsidiaries to employ or continue the employment of the Participant
for any period or in any capacity.
     12. Notice. Any notice given hereunder to the Company will be addressed to
the Company, attention: Senior Vice President, Human Resources, or a designee or
successor thereof, and any notice given hereunder to the Participant will be
addressed to the Participant at his or her address as shown on the records of
the Company.
     13. Section 409A. The Award and the Rights thereunder are intended to
constitute “stock appreciation rights” that do not constitute “nonqualified
deferred compensation” within the meaning of Section 409A and are therefore
exempt from Section 409A. This Agreement shall be interpreted in accordance with
Section 409A, to the extent applicable, including without limitation any
Treasury Regulations or other Department of Treasury guidance that may be issued
or amended after the date hereof. In the event that, following the date hereof,
the Committee determines that the Award or the Rights may be subject to
Section 409A, including such Department of Treasury guidance as may be issued
after the date hereof, the Committee may, in its discretion, adopt such
amendments to the Plan or this Agreement or adopt such other policies and
procedures (including amendments, policies and procedures with retroactive
effect), or take any other actions, as the Committee determines are necessary or
appropriate to (i) exempt the Award and the Rights from Section 409A and/or
preserve the intended tax treatment of the benefits provided with respect to the
Award and the Rights, or (ii) comply with the requirements of Section 409A;
provided that no such amendment may change the Performance Goal with respect to
any person who is a Covered Employee.
     14. Rescission. This Agreement, the Award and the Rights will be subject to
rescission by the Company if an original of this Agreement executed by the
Participant is not received by the Company within four weeks of the Grant Date.
[Continued on the next page]

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     IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the
Participant have executed this Agreement as of the day and year first above
written.

            KB HOME

      By:   Jeffrey T. Mezger         Chief Executive Officer and President     
          PARTICIPANT:

      By:           [NAME]             

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EXHIBIT A
EXERCISE NOTICE
STOCK APPRECIATION RIGHTS
KB Home
Attn: Senior Vice President, Human Resources
     Please be advised that I elect to exercise _________ vested Rights granted
to me by KB Home under and subject to the terms and provisions of Amended and
Restated KB Home 1999 Incentive Plan and the Stock Appreciation Rights Agreement
dated _______________, 200[___].
Name:

Address:

 
 
Social Security #:
Date:
Signature:
Received by KB Home this ___day of _______________, ______.

                  By:           Its:        

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