exv10w40



 





Exhibit 10.40



KB HOME

AMENDED AND RESTATED 1999 INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT



     This Stock Option Agreement (this “Agreement”) is made on October 4, 2007 (the “Grant Date”)
between KB Home, a Delaware corporation (the “Company”), and Jeffrey T. Mezger (“Optionee”).
Capitalized terms used in this Agreement and not defined herein have the respective meanings given
them in the KB Home Amended and Restated 1999 Incentive Plan (the “Plan”).


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 Optionee an option (“Option”) to purchase from the Company an aggregate of 137,500 shares
of common stock, $1.00 par value per share, of the Company (“Common Stock”) at the purchase price
of $28.10 per share. The Option is intended to be a Non-Qualified Stock Option. The Option may be
exercised, and the shares of Common Stock subject to the Option (the “Option Shares”) may be
purchased, only as provided under this Agreement. A copy of the prospectus describing the Plan is
included herewith, and available upon request, and is made a part hereof.



     2. Option Vesting and Exercise. The Option may be exercised in accordance with the
following vesting schedule if Optionee is employed by the Company or its Subsidiaries on the
respective dates indicated below:



	 	 	 	 	 
	On or After	 	 	 	Shares Subject to Purchase
	October 4, 2008
	 	 	 	33 1/3% of Option
	October 4, 2009
	 	an additional
	 	33 1/3% of Option
	October 4, 2010
	 	an additional
	 	33 1/3% of Option






     To exercise any portion of the Option that has vested, the Company must receive both written
notice of exercise specifying the number of Option Shares to be purchased and payment for the full
purchase price of such Option Shares plus the corresponding amount of any taxes the Company is
required to withhold in connection with such exercise. The purchase price for such Option Shares
and any corresponding tax withholding amounts may be paid in, or in any combination of, cash, cash
equivalents or shares of Common Stock that are not subject to any pledge, other security interest
or other applicable restriction under the Plan. Such Option Shares will be issued, in whole shares
only, by or on behalf of the Company as soon as practicable upon the Company’s or its agent’s
receipt of the full purchase price for such Option Shares and all corresponding tax withholding
amounts.



     Except as provided in Section 3 below and subject to Section 4 below, Optionee will
immediately forfeit all rights, title and interests in and to any portion of the Option that has
not vested on the date Optionee’s employment with the Company and its Subsidiaries is terminated.



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     3. Accelerated Option Vesting. Notwithstanding Section 2 above, the entire Option
granted hereunder will vest and become immediately exercisable upon (i) a Change in Control or an
Involuntary Termination in connection with the Change in Control (including if such Involuntary
Termination occurs within the period beginning three months before and ending 15 months after a
Change in Control) (as such terms are defined in the February 28, 2007 employment agreement by and
between the Company and Optionee (the “Employment Agreement”)), (ii) a Change of Ownership of the
Company only if the successor entity does not assume the Option or substitute an equivalent right
for the Option, or (iii) upon Optionee’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 Optionee’s age and years of service with the
Company or its Subsidiaries equals at least 65 or more, provided that Optionee is then at least 55
years of age. The Company will have the sole right to determine whether Optionee’s severance from
employment constitutes a Retirement. In addition, the vesting of this Option will accelerate on
Optionee’s termination as if Optionee had continued employment for an additional (x) 24 months
after the termination date if there is an Involuntary Termination and Optionee is entitled to
receive the payments in Section 6(a) of his Employment Agreement and (y) 12 months after the
termination date if such termination is due to Optionee’s death or Disability (as defined in the
Employment Agreement).



     4. Option Termination. The Option will cease to be exercisable and will expire and
terminate to the extent not exercised upon 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 Optionee’s
employment with the Company or its Subsidiaries is terminated for any reason other than for
cause, death or Retirement (in each case, as determined by the Company), the date that is 90
calendar days after the date of such termination; provided that if the
termination is an Involuntary Termination and Optionee is entitled to receive the payments
in Section 6(a) of his Employment Agreement, then the date that is 36 months after the date
of such termination.




     (b) Employment Termination For Cause. If Optionee’s employment with the
Company or its Subsidiaries is terminated for cause (as determined by the Company), the date
that is five calendar days after the date of such termination.




     (c) Death. In the event of Optionee’s death (i) while Optionee is employed by
the Company or its Subsidiaries, (ii) within 90 days of the date Optionee’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 Optionee’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 (unless
Optionee would have longer to exercise this Option pursuant to the proviso to Section 4(a)
above).



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     5. No Stockholder Rights. Optionee, and any Permitted Transferee (as defined in
Section 11 hereof), will not be deemed to be a holder of or possess any stockholder rights with
respect to any Option Shares prior to the issuance of such Option Shares upon exercise of the
Option as provided in this Agreement.



     6. Additional Restrictions. The Company may impose such restrictions, conditions or
limitations as it determines appropriate as to the timing and manner of any resales or other
transfers of any Option Shares, including (a) restrictions under an insider trading policy, (b)
stock ownership requirements, (c) restrictions designed to delay and/or coordinate the timing and
manner of sales of Options Shares following a public offering of the Company’s Common Stock and (d)
the required use of a specified brokerage firm for such resales or other transfers.



     7. Adjustments. In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other event described in Section 13(a) of the Plan, such
adjustment will be made to the number, type and purchase price of the Option Shares, and to the
terms and conditions hereof, as and to the extent the Committee determines to be appropriate (in
its sole discretion).



     8. California Law. This Agreement will be construed, administered and enforced in
accordance with the laws of the State of California. This Agreement and the Option will be subject
to rescission by the Company if an executed original of this Agreement is not received by the
Company within 90 days of its transmittal to Optionee.



     9. Conformity to Securities Laws. Optionee acknowledges that the Plan and this
Agreement are intended to conform to the extent necessary with all provisions of the Securities Act
of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended,
and any and all regulations and rules promulgated in each case thereunder by the Securities and
Exchange Commission. Notwithstanding anything herein to the contrary, the Plan will be
administered, and the Option Shares will be issued, in such a manner as to conform to the
requirements and limitations of such laws, rules and regulations. To the extent permitted by
applicable law, the Plan and this Agreement will be deemed amended to the extent necessary to
conform to such laws, rules and regulations. Without limiting the generality of the foregoing,
Optionee agrees that prior to any sale of Option Shares, Optionee will notify the Company in order
to enable it to take any steps required by the Securities Act in connection with such sale and
further agrees that he or she will not complete any such sale until he or she has been advised by
the Company that such steps have been taken.



     10. 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. OPTIONEE ACKNOWLEDGES AND AGREES TO BE BOUND TO, AND THAT THE OPTION IS 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.



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     11. Non-Transferability. The Option may not be transferred (in whole or in part)
except by will or the laws of descent and distribution and except by gift or a domestic relations
order to members of Optionee’s family or to trusts or other entities whose beneficiaries or
beneficial owners are Optionee or members of Optionee’s family (each, a “Permitted Transferee”).
During Optionee’s lifetime, unless the Option is transferred to a Permitted Transferee in
accordance with this Section 11, only Optionee may exercise the Option as provided in this
Agreement. Subject to such conditions and procedures as the Company may require, a Permitted
Transferee may exercise the Option during Optionee’s lifetime.



     12. No Obligation. Neither the execution and delivery hereof nor the granting of the
Option 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 Optionee for
any period or in any capacity.



     13. Notice. Any notice given hereunder to the Company will be addressed to the
Company, attention Senior Vice President, Human Resources, and any notice given hereunder to
Optionee will be addressed to Optionee at his or her address as shown on the records of the
Company.



     14. Section 409A. Notwithstanding any other provision of the Plan or this Agreement,
the Plan and this Agreement will be interpreted in accordance with, and incorporate the terms and
conditions required by, Section 409A of the Code (together with any Department of Treasury
regulations and other interpretive guidance issued thereunder, including, without limitation, any
such regulations or other guidance that 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 comply with the
requirements of Section 409A of the Code.



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



	 	 	 	 	 
	 	KB HOME


 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
 
 
	 	OPTIONEE:


 	 
	 	
 	 
	 	Jeffrey T. Mezger 	 
	 	 	 
	 




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