Document:

exv10w37

 

EXHIBIT
10.37

WILLIAM BRANIFF

United States Attorney

Southern District of California

940 Front Street

San Diego, California 92101

(619) 557-5610

Attorney for Plaintiff

ELROY H. WOLFF

Sidley & Austin

1722 Eye Street, N.W.

Washington, D.C. 20006

(202) 429-4000

Attorney for Defendant

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF CALIFORNIA

	 	 	 	 	 	 	 
	 

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	UNITED STATES OF AMERICA,

	 	 	)	 	 	CIVIL ACTION NO.
	 

	 	 	)	 	 	 
	Plaintiff,

	 	 	)	 	 	 
	v.

	 	 	)

)	 	 	CONSENT DECREE
	KAUFMAN AND BROAD HOME CORPORATION,

	 	 	)

)	 	 	 
	Defendant.

	 	 	)

)	 	 	 
	 

	 	 	 	 	 	 

     WHEREAS plaintiff, the
United States of America, commenced this action on           , 1991,
by filing the complaint herein; and whereas defendant Kaufman and Broad Home Corporation has waived service of the
summons and complaint; and whereas the parties have been represented by the attorneys whose names appear hereafter; and
whereas plaintiff and defendant have agreed to settlement of this action upon the following terms and condition
and without defendant admitting liability for any of

 

the violations charged or admitting the accuracy of any of the allegations in the complaint;

     Now on the joint motion of plaintiff and defendant,

     IT IS HEREBY ORDERED, ADJUDGED, AND DECREED as follows:

     1. This Court has jurisdiction of the subject matter herein and of the parties hereto. The
complaint states a claim upon which relief may be granted against defendant under Sections 5(1), 9,
13(b) and 16(a)(1) of the Federal Trade Commission Act, 15 U.S.C. §§ 45(1), 49, 53(b) and 56(a)(1).

     2. Defendant is ordered, pursuant to Section 5(1) of the Federal Trade Commission Act, 15
U.S.C § 45(1), to pay a monetary civil penalty in the total amount of $595,000. Such payment shall
be by wire transfer of the funds, in accordance with instructions received from the Office of
Consumer Litigation, Civil Division, U.S. Department of Justice, Washington, D.C. 20530, to the
United States Treasury within ten (10) days of entry of this Consent Decree.

     3. In the event of default in payment, which default continues for ten (10) days beyond the
due date of the payment, interest shall be computed pursuant to 28 U.S.C. § 1961(a). Interest shall
accrue from the date of default to the date of payment.

     4. Defendant
Kaufman and Broad Home Corporation, its successors and assigns, and its officers,
agents, representatives, and employees, directly or through any corporation, subsidiary, division,
or other device, in connection with the production, advertising, offering for sale or sale of
on-site residential housing in or affecting commerce, as

Page 2 of 5

 

“commerce” is defined in the Federal Trade Commission Act, are hereby enjoined from ever violating
any provision of the Commission’s order in FTC Docket No. C-2954, 93 F.T.C. 235 (1979), a copy of
which is attached herewith as Appendix A and made a part of this Consent Decree.

     5. This Court shall retain jurisdiction of this matter for the purpose of enabling any of the
parties to this Consent Decree to apply to the Court at any time for such further orders or
directives as may be necessary or appropriate for the interpretation or modification of this
Consent Decree, for the enforcement of the compliance therewith, or for the punishment of the
violations thereof.

     JUDGMENT IS THEREFORE ENTERED in favor of plaintiff, the United States of America, and against
defendant Kaufman and Broad Home Corporation pursuant to all the terms and conditions recited
above.

DATED: 7-2-91

	 	 	 	 	 
	 	 	 
	 	JUDITH N.KEEP
 	 
	 	United States District Judge 	 
	 	 	 
	 

     The parties, by their respective counsel, hereby consent to the terms and conditions of the Consent
Decree as set forth above and consent to the entry thereof. Each party shall bear its own costs and
attorney’s fees.

Page 3 of 5

 

	 	 	 	 	 
	 	 	FOR THE UNITED STATES

STUART M. GERSON

Assistant Attorney General

Civil Division

WILLIAM BRANIFF

United States Attorney

Southern District of California

 	 
	 	By:  	/s/ JOHN R. NEECE
 	 
	 	 	JOHN R. NEECE 	 
	 	 	Assistant United States Attorney 	 
	 
	 	 	 
	 	  	/s/ JOHN R. FLEDER
 	 
	 	 	JOHN R. FLEDER 	 
	 	 	Director

Office of Consumer Litigation 	 
	 
	 	 	 
	 	  	/s/ DAVID A. LEVITT
 	 
	 	 	DAVID A. LEVITT 	 
	 	 	Attorney

Office of Consumer Litigation

Civil Division

U.S. Department of Justice

Washington, D.C. 20530

(202) 514-6786 	 
	 
	 
	 	 	FOR THE FEDERAL TRADE COMMISSION

 	 
	 	  	/s/ WILLIAM S. SANGER
 	 
	 	 	WILLIAM S. SANGER 	 
	 	 	Associate Director for Enforcement 	 
	 
	 	 	 
	 	  	/s/ JUSTIN DINGFELDER
 	 
	 	 	JUSTIN DINGFELDER 	 
	 	 	Assistant Director 	 

Page 4 of 5

 

	 	 	 	 	 

	 	 	 	 	 
	 	 	 
	 	  	/s/ THOMAS D. MASSIE
 	 
	 	 	THOMAS D. MASSIE 	 
	 	 	Attorney 	 
	 
	 	 	 
	 	  	/s/ ROBERT M. FRISBY
 	 
	 	 	ROBERT M. FRISBY 	 
	 	 	Attorney

Division of Enforcement

Federal Trade Commission

Washington, D.C. 20580

(202) 326-2982 	 
	 
	 
	 	 	FOR THE DEFENDANT

KAUFMAN AND BROAD HOME CORPORATION:

 	 
	 	By:  	/s/ ALBERT Z. PRAW
 	 
	 	 	ALBERT Z. PRAW 	 
	 	 	General Counsel and Senior Vice President 	 
	 
	 
	 	 	SIDLEY & AUSTIN

 	 
	 	By:  	/s/ ELROY H. WOLFF
 	 
	 	 	ELROY H. WOLFF 	 
	 	 	A Member of the Firm
 1722 Eye Street, N.W.

Washington, D.C. 20006

(202) 429-4000 	 
	 
	 
	 	 	MORGAN, LEWIS & BOCKIUS

 	 
	 	By:  	/s/ CASWELL O. HOBBS
 	 
	 	 	CASWELL O. HOBBS 	 
	 	 	A Member of the Firm

1800 M Street, N.W.

Washington, D.C. 20036

(202) 467-7200 	 

Page 5 of 5

 

	 	 	 	 	 

WILLIAM BRANIFF

United States Attorney

Southern District of California

940 Front Street

San Diego, California 92101

(619) 557-5610

Attorney for Plaintiff

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF CALIFORNIA

	 	 	 	 	 	 	 
	UNITED STATES OF AMERICA,

	 	 	)	 	 	CIVIL ACTION NO.
	 

	 	 	)	 	 	 
	Plaintiff,

	 	 	)	 	 	 
	 

	 	 	)	 	 	COMPLAINT FOR CIVIL
	v.

	 	 	)	 	 	PENALTIES AND OTHER
	 

	 	 	)	 	 	RELIEF
	KAUFMAN AND BROAD HOME CORPORATION,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	Defendant.

	 	 	)	 	 	 

     Plaintiff, the Unites States of America, by its attorney, William Braniff, United States Attorney
for the Southern District of California, acting upon notification and authorization to the Attorney
General of the United States by the Federal Trade Commission (“Commission”), alleges that:

     1. This is an action brought under Sections 5(l), 9, and 13(b), of the Federal Trade Commission Act
(“FTC Act”), 15 U.S.C. §§ 45(l), 49, and 53(b), as amended, to recover from defendant monetary civil
penalties for violations of a final cease and desist order issued by the Commission and to secure
injunctive and other relief.

 

 

Jurisdiction and Venue

     2. This
Court has jurisdiction over this matter under 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355,
under 15 U.S.C. §§ 45(1), 49 and 53(b).

     3. Venue in the
Southern District of California is based on 28 U.S.C. §§ 1391(b) and (c) and
1395(a) and on 15 U.S.C. § 53(b).

Defendant and Its Business

     4. Defendant,
Kaufman and Broad Home Corporation, is a corporation organized, existing, and
doing business under and by virtue of the laws of the State of Delaware and has its office and
principal place of business located at 10877 Wilshire Boulevard, Los Angeles, California 90024.
Defendant is the successor or assign of Kaufman and Broad, Inc.

     5. At all times material herein, Kaufman and Broad Home Corporation and/or Kaufman and Broad,
Inc. have done and transacted business within the Southern District of California.

     6. At all times
material herein, Kaufman and Broad Home Corporation and/or Kaufman
and Broad,
Inc. (hereinafter “K&B) have engaged in the production,
advertising, offering for sale, and sale of
on-site residential housing in or affecting commerce, as “commerce” is defined in Section 4 of
the FTC Act, 15 U.S.C. § 44.

Prior Commission Proceeding

     7. In a Commission proceeding bearing Docket No. C-2954, in which Kaufman and Broad, Inc., was
charged with violating Section 5(a)(1) of the FTC Act, 15
U.S.C. § 45(a)(1), the Commission on

Page 2 of 11

 

February 12, 1979, issued against Kaufman and Broad, Inc., its successors and assigns, a consent
order to cease and desist certain business practices, 93 F.T.C. 235 (1979) (“Commission’s Order”).
The Commission’s Order was served upon Kaufman and Broad, Inc., on February 23, 1979, and became
final and enforceable by operation of law on that date and has remained in full force and effect
ever since that date.

     8. Included in the Commission’s Order are the following provisions which have been final and
enforceable since on or about February 23, 1979:

I

DEFINITIONS

     “On-site residential housing” shall mean housing structures, including lots,
consisting of single family dwelling units or housing structures consisting of multi-family
dwelling units (including condominiums) represented and sold by respondents in the United
States as completely constructed or partially constructed units.

     An “express warranty” as used in this order shall mean any written affirmation of fact
or written promise made or assigned by respondents to a purchaser as part of the
transaction of the sale of a unit of on-site residential housing.

     The “HOW warranty” as used in this order shall mean the warranty issued under the Home
Owners Warranty Corporation’s national home warranty program.

     A “major construction defect” as used in this order shall mean a “major construction
defect” as defined in the Home Owners Warranty Corporation Home Warranty Agreement ...

*      *      *

II

     IT IS ORDERED that respondents Kaufman and Broad, Inc., a corporation, Kaufman and
Broad Homes, Inc., a corporation, and Kaufman and Broad Home Sales, Inc., a corporation,
their successors and assigns, and their officers, and respondents’ agents, representatives
and employees, directly or through

Page 3 of 11

 

any corporation, subsidiary, division or other device, in connection with the conduct and operation
of their business in or affecting commerce as “commerce” is defined in the Federal Trade Commission
Act in the production, advertising, offering for sale or sale of a unit of on-site residential
housing, do cease and desist from :

     l. Selling and delivering any housing unit for use as on-site residential housing which is not
built in accordance with the approved standards or which contains a major construction defect
without taking the necessary action to repair, replace, or to pay the cost of repairing or
replacing the defect in such housing unit in accordance with the provisions of respondents’ express
warranty required under Part III B of this order.

     *     *     *

     6. Failing to repair, replace or to pay the cost of repairing or replacing any major construction
defect or any other defect in accordance with the provisions of respondents’ express warranty
required under Part III B of this order or in the performance of respondents’ obligations under
Part VII of this order within a reasonable time after receipt of written notice of such defect from
the purchaser or past purchaser of respondents’ on-site residential housing; provided, however,
that:

     (a) Where respondents for any reason are unable to complete such requested repairs within thirty
(30) calendar days after receipt of written notice of such defect from the purchaser or past
purchaser of respondents’ on-site residential housing, respondents shall furnish to such purchaser
or past purchaser (as defined in Part VIII) a written statement setting forth the reason or reasons
why such requested repairs cannot be undertaken or completed within such thirty day period and a
scheduled date on which the requested repairs are, in fact, to be completed within the next sixty
(60) day period.

     (b) Where respondents are or were prevented from completing repairs by scheduled date referred to
in subparagraph 6(a) above due to intervening circumstances beyond their control, such as labor
strike, supplier or subcontractor failure to deliver materials or perform work, or unsuitable
weather conditions, such repairs will be completed within a reasonable period of time not to exceed
sixty (60) days from the date of the termination of the
intervening circumstance.

     (c) Where
respondents for any reason elect not to honor such requests for repairs, respondents
shall,

Page 4 of 11

 

within twenty-one (21) calendar days of receiving such request for repairs, notify the
purchaser or past purchaser in writing why respondents will not honor the request.

*       *       *

III

*       *       *

     B. IT IS FURTHER ORDERED that respondents shall furnish purchasers of each unit of
respondents’ on-site residential housing with a warranty that is substantially identical to the
insurer’s and the warrantor’s undertaking in the Home Owners Warranty Corporation’s Home Warranty
Agreement . . . currently in use . . . and incorporated by reference in this order, including the
procedures for the settlement of disputes, provided that respondents’ undertaking for major
construction defects shall be for a term of at least four years from the commencement date of each
such warranty furnished, and provided further that nothing in this order shall relieve respondents
from complying with the Magnuson-Moss Warranty Act, Section 101
et seq. (15 U.S.C. §§ 2301
et seq.), the rules promulgated thereunder, and interpretations issued by the Federal Trade
Commission in respect thereto.

*       *      *

V

     IT IS FURTHER ORDERED that in connection with the advertising, offering for sale or sale of
on-site residential housing, respondents shall make available to each and every prospective
purchaser who visits respondents’ sales offices or model homes a brochure or a written statement
relating to such housing that will include the following disclosures in a clear, conspicuous and
affirmative manner:

     1. For on-site residential housing not covered by the National Flood Insurance Program
administered by the U.S. Department of Housing and Urban Development, the identity, address and
telephone number of the individual, business firm and government agency that conducted soil tests
on land used in the construction of the residential housing offered for sale. In addition,
respondents shall require their contractors to state in non-technical language to each prospective
purchaser who contacts such contractors whether the land tested is suitable for residential use;

     2. The identity or title, address and telephone number of the responsible public school
district authority who will

Page 5 of 11

 

furnish information relating to the identity and location of schools for the particular housing
unit;

     3. Each room or area of the particular housing unit to be purchased that is not insulated to
retain the same degree of warmth as rooms designed for use as principal living areas;

     4. Each room or area of the particular housing unit to be purchased that is constructed
without waterproofing adequate to render such room or area suitable for use as a habitable living
area;

     5. The most recent official tax rate and estimate obtained from the officially responsible tax
assessing authority and the identity or title, address and telephone number
of such tax assessing authority;

     6. A list containing each and every architectural design, construction feature, appurtenance,
optional item or equipment or other characteristic or feature
exhibited to the particular
purchaser in connection with a model home sample or style offered for sale to such purchaser which
characteristic or feature is not included in the model or style of respondents’ housing unit
offered for sale to such purchaser at the offered or advertised price;

     7. A list containing each and every construction feature, appurtenance, optional item or
equipment or other characteristic or feature exhibited to the particular purchaser in connection
with a model home sample or style offered for sale to such purchaser which characteristic or
feature cannot be included or duplicated in the particular housing unit offered for sale to such
purchaser even upon the payment of an additional charge because of the style, size, location or any
other reason associated with the land or the design of the particular housing unit offered;

     8. A notice that plans and specifications for each home being offered for sale are available
for inspection by prospective purchasers at respondents’ sales offices during normal business
hours; provided that such specifications shall include a full description of the materials and
components used by respondents in the construction of their on-site residential housing; and
provided further, that such description will be satisfied if it substantially includes the type of
information contained in the “Description of Materials” disclosure statements required by the United
States Federal Housing Administration (FHA Form 2005, as amended from time to time) or the United
States Veterans Administration (VA Form 26-1852, as revised from time to time);

Page 6 of 11

 

     9. A notice that
purchasers of respondents’ housing may select any lending institution
of their choice for the purpose of securing a mortgage and are not limited to the lending
institution provided by respondents;

     10. A statement setting forth respondents’ arrangement for repairs and the satisfaction
of warranties or in lieu thereof, a copy of the warranty required by Part III B of this
order that will be furnished with the housing being offered for sale and a statement of the
procedure for settlement of disputes under such warranty.

VI

     IT IS FURTHER ORDERED that respondents shall secure a written acknowledgement from each
purchaser of respondents’ on-site residential housing which shall state the following
information:

     1. That the disclosures referred to in Paragraph V of this order were received.

     2. The date on which the disclosures referred to in Paragraph V of this order were
received.

Residential Housing Developments

     9. In the five years immediately preceding the filing of
this complaint K&B produced, advertised, offered for sale and
sold units of on-site residential housing in 103 residential
housing developments in the State of California, including
Southridge, a development located in the City of Fontana, County
of San Bernardino, State of California.

Plan 3 Homes

     10. Commencing in 1983 and continuing for some period of
time thereafter, K&B built and sold a number of substantially
identical two story single family homes in Tracts numbered 7503,
17734, 18502 and 18574 located in the City of Riverside, County
of Riverside, State of California, and in Tracts numbered 11804

Page 7 of 11

 

and 12859 located in the City of Corona, County of Riverside, State of California (generally
referred to a Plan 3 homes).

First Cause of Action

     11. K&B
sold and delivered with a major construction defect a number of the above-described Plan 3
homes for use as on-site residential housing yet failed to take the necessary action to repair,
replace, or to pay the cost of repairing or replacing the defect in those housing units in
accordance with the provisions of K&B’s express warranty that was required under Part III B of the
Commission’s Order, thereby violating Part II 1 of the Commission’s Order.

Second Cause of Action

     12. K&B failed to repair, replace or to pay the cost of repairing or replacing major construction
defects under the terms of K&B’s express warranty required under Part III B of the Commission’s
Order within a reasonable period of time after receipt of a written request for warranty service
from the purchasers of a number of the Plan 3 homes, thereby violating Part II 6 of the
Commission’s Order.

Third Cause of Action

     13. K&B
failed to repair, replace or to pay the cost of repairing or replacing defects under the
terms of K&B’s express warranty required under Part III B of the Commission’s Order within a
reasonable period of time after receipt of a written request for warranty service from the
purchasers of a substantial number of units of K&B’s on-site residential housing in the

Page 8 of 11

 

Southridge development, thereby violating Part II 6 of the Commission’s Order.

Fourth Cause of Action

     14. K&B, in connection with the advertising, offering for
sale or sale of on-site residential housing, failed to make
available to numerous prospective purchasers who visited K&B’s
sales offices or model homes in K&B’s on-site residential housing
developments the disclosures required under Part V of the Commission’s Order, thereby violating Part V of the Commission’s Order.

Fifth Cause of Action

     15. K&B did not secure from numerous purchasers of K&B’s
on-site residential housing in a number of the residential
housing developments the written acknowledgement of the receipt
of one or more of the disclosures required by Part V of the
Commission’s Order, thereby violating Part VI of the Commission’s Order.

Violations Charged

     16. Each unit of on-site residential housing in which K&B in the five years prior to the
filing of the complaint failed to comply with the Commission’s Order in one or more of the ways
described above, except with respect to the Fourth and Fifth Causes of Action, constitutes a
separate violation of the Commission’s Order for which plaintiff seeks a civil penalty.

     17. Each prospective purchaser or purchaser of on-site residential housing with respect to
whom K&B in the five years prior to the filing of the complaint failed to comply with the

Page 9 of 11

 

Commission’s Order in the way described in the Fourth and Fifth Causes of Action constitutes a
separate violation of the Commission’s Order for which plaintiff seeks a civil penalty.

Prayer

     WHEREFORE, plaintiff respectfully requests that this Court pursuant to 15 U.S.C §§ 45(1),
49, and 53(b) and the Court’s own equity powers:

     1. Enter judgment against defendant and in favor of plaintiff for each violation charged in
this complaint;

     2. Award
plaintiff monetary civil penalties from defendant for the violations alleged in this
complaint;

     3. Enjoin defendant
from further violations of the Commission’s Order in Docket No. C-2954; and

     4. Award plaintiff such other and further relief as the Court may deem just and proper.

Dated: ____________________

	 	 	 	 	 
	 	 	STUART M. GERSON

Assistant Attorney General

Civil Division

WILLIAM BRANIFF

United States Attorney

Southern District of California

 	 
	 	By:  	/s/ JOHN R. NEECE
 	 
	 	 	JOHN R. NEECE 	 
	 	 	Assistant United States Attorney

Southern District of California

940 Front Street

San Diego, California 92101 	 
	 

Page 10 of 11

 

OF COUNSEL:

	 	 	 
	 

	 	/s/ JOHN R. FLEDER
	 

	 	 
	WILLIAM S. SANGER

	 	JOHN R. FLEDER
	Associate Director for

	 	Director
	        Enforcement

	 	Office of Consumer Litigation
	 
	JUSTIN DINGFELDER
	 	 
	Assistant Director

	 	/s/ DAVID LEVITT
	 

	 	 
	Division of Enforcement

	 	DAVID LEVITT
	 

	 	Attorney
	THOMAS D. MASSIE

	 	Office of Consumer Litigation
	Attorney

	 	U.S. Department of Justice
	Division of Enforcement

	 	P.O. Box 386
	 

	 	Washington, D.C. 20044
	ROBERT M. FRISBY

	 	(202) 514-6786
	Attorney
	 	 
	Division of Enforcement
	 	 
	Federal Trade Commission
	 	 
	Washington, D.C. 20580
	 	 

Page 11 of 11exv10w38

 

EXHIBIT 10.38

KAUFMAN AND BROAD HOME CORPORATION

1988 EMPLOYEE STOCK PLAN

(as amended on January 27, 1994)

     SECTION 1. Purpose. The purpose of the 1988 Employee Stock Plan (the “Plan”) is to promote the
success of Kaufman and Broad Home Corporation (the “Company”) by providing a method whereby key
employees of the Company and its subsidiaries and certain other individuals may be encouraged to
invest in the Common Stock, $1.00 par value, of the Company (“Common Stock”), increase their
proprietary interest in its business, remain in the employ of the Company or its subsidiaries, and
increase their personal interests in the continued success and progress of the Company.

     SECTION 2. Definitions. As used in this Plan, the following terms shall have the indicated
meanings:

     (a) Award: An award of restricted shares under Section 7 and, except for
purposes of Section 7, a Stock Unit Award granted pursuant to Section 8.

     (b) Board: The board of directors of Kaufman and Broad Home Corporation.

     (c) Code: The Internal Revenue Code of 1986, as amended.

     (d) Committee: The Personnel, Compensation and Stock Option Committee of
the Board.

     (e) Company: Kaufman and Broad Home Corporation and its Subsidiaries.

     (f) Lapsing Formula: With reference to a particular Award under Section 7, a
formula or schedule, and such other conditions as may be imposed, determined by the
Committee and set forth in a Stock Restriction Agreement, as a basis for establishing the
number of shares of Stock which may be released from the restrictions of an Award. A
Lapsing Formula may differ from Participant to Participant and from Award to Award.

     (g) Limited Stock Appreciation Right: A right granted pursuant to Section 6(b) to
receive cash in certain circumstances with respect to a related Option.

     (h) Option: A right to buy Common Stock granted pursuant to Section 6(a).

     (i) Option Agreement: The agreement reflecting the grant of an Option pursuant to Section
6(a).

     (j) Participant: A key employee or other individual selected to participate in this Plan
pursuant to its terms.

 

 

     (k) Performance Objectives: With reference to a particular Award under Section 7, the
threshold Performance Objective, target Performance Objective and super Performance Objective
pertaining thereto, as determined by the Committee and specified in the applicable Stock
Restriction Agreement, which objectives are the criteria established by the Committee which may
accelerate the release of shares of Common Stock from the restrictions of such Award and its
Lapsing Formula. The Performance Objectives may differ from Participant to Participant and from
Award to Award.

     (1) Performance Period: With reference to a particular Award under Section 7, the period of
time within which the Performance Objectives are to be achieved, as determined by the Committee and
specified in the applicable Stock Restriction Agreement. The Performance Period may differ from
Participant to Participant and from Award to Award.

     (m) Plan: The Kaufman and Broad Home Corporation 1988 Employee Stock Plan, as it may be
amended from time to time.

     (n) Stock Restriction Agreement: With reference to a particular Award, the agreement
between the Company and the Participant containing the restrictions set forth in Section
7(e), the Lapsing Formula and the Performance Objectives.

     (o) Stock Unit Award: An award granted under Section 8.

     (p) Subsidiary: A subsidiary of Kaufman and Broad Home Corporation within the meaning of
Section 425(f) of the Code.

     (q) Tax Date: The date on which taxes of any kind are required by law to be withheld
with respect to shares of Common Stock subject to an Option or Award.

     SECTION 3. Administration.

     (a) 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, to grant to eligible persons Awards, Options and Limited Stock Appreciation Rights with
respect to shares of Common Stock pursuant to the provisions of the Plan, to fix the exercise price
and other terms of such Options, to fix the terms of any Award in a manner consistent with the
terms of Section 7, to prescribe, amend and rescind rules and regulations, if any, relating to the
Plan, to interpret the provisions of the Plan, Stock Restriction Agreements and Option Agreements
issued under the Plan, to amend such Option Agreements and Stock Restriction Agreements from time
to time subject to the provisions of the Plan, and to supervise the administration of the Plan. No
individual shall become a member of the Committee if he or she shall have been eligible to receive
Awards or Options to acquire shares of capital stock of the Company or any subsidiary at any time
during the 12-month period prior to becoming a member and no member of the Committee shall be

 

 

eligible to receive Awards or Options.

     (b) All decisions made by the Committee pursuant to the provisions of the Plan
and related orders or resolutions of the Board shall be final, conclusive and binding on
all persons, including the Company, stockholders, employees and optionees.

     (c) Each person who is or shall have been a member of the Committee or of the
Board shall be indemnified and held harmless by the Company from any loss, cost,
liability or expense that may be imposed upon or reasonably incurred by him or her in
connection with any claim, action, suit or proceeding to which he or she may be a party
by reason of any action taken or any failure to act under the Plan. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to which
such persons may be entitled under the Company’s Articles of Incorporation or Bylaws,
or as a matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.

     SECTION 4. Shares Subject to the Plan.

     (a) The shares to be delivered upon exercise of Options granted under the Plan or
pursuant to Awards 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.

     (b) Subject to adjustments made pursuant to the provisions of Section 4(c), the
aggregate number of shares to be delivered pursuant to Awards and upon exercise of
all Options which may be granted under the Plan shall not exceed 3,000,000 shares of
Common Stock. If an Option or Award granted under the Plan shall expire or terminate
for any reason, other than by reason of the exercise of an associated Limited Stock
Appreciation Right, or if an Award is forfeited, the shares subject to but not delivered
under such Option or forfeited Award shall be available for other Awards or Options
and associated Limited Stock Appreciation Rights granted to the same Participant or
other Participants.

     (c) In the event that the Committee shall determine that any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value, or other
similar corporate event affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made available to
Participants under this Plan, then the Committee shall, in its sole discretion, subject to
approval by the Board, and in such manner as the Committee may deem equitable,
adjust any or all of (1) the number and kind of shares which thereafter may be awarded

3

 

or optioned and sold or made the subject of Limited Stock Appreciation Rights under the Plan, (2)
the number and kind of shares subject to outstanding Options and Awards, and Limited Stock
Appreciation Rights, and (3) the option price with respect to any of the foregoing and/or, if
deemed appropriate, make provision for a cash payment to a Participant, including to reflect such
an event occurring prior to an Award, the grant of which was intentionally deferred in anticipation
of such event; provided, however, that the number of shares subject to any Option or Award shall
always be a whole number.

     SECTION 5. Eligibility and Extent of Participation.

     (a) The persons eligible to receive Awards, Options and associated Limited Stock
Appreciation Rights under the Plan shall consist of key employees of the Company and
other individuals who, in the Committee’s judgment, can make substantial
contributions to the Company’s long-term profitability and value.

     (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 persons those Participants to be
granted Options and Awards and determine the time when each Option and Award
shall be granted, the number of shares subject to each Option and Award and whether
Limited Stock Appreciation Rights should be granted in connection with such Option,
the number of shares for each Award and the restrictions associated with such Award.
Subject to the provisions of Section 4, both Options and Awards may be granted to the
same Participant.

     SECTION 6. Grants of Options and Limited Stock Appreciation Rights.

     (a) Grant of Options. 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) Grant of Limited Stock Appreciation Rights in the Event of Change of
Ownership. If deemed by the Committee to be in the best interests of the Company, any
Option granted on or after the effective date of the Plan may include a Limited Stock
Appreciation Right at the time of grant of the Option; also, the Committee may grant a
Limited Stock Appreciation Right with respect to any unexercised Option at any time
after granting such Option prior to the end of its term, provided such Option was

4

 

granted after the effective date of the Plan. Such Limited Stock Appreciation Rights shall be
subject to such terms and conditions not inconsistent with the Plan as the Committee shall
impose, provided that:

(1) A Limited Stock Appreciation Right shall be exercisable only during the
91 day period specified in the last sentence of Section 9(a), provided, however,
that no Limited Stock Appreciation Right shall be exercisable by an officer of the
Company within six months of the date of its grant; and

(2) A Limited Stock Appreciation Right shall, upon its exercise, entitle the
optionee to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the “Offer Price per Share” (as
such term is hereinafter defined) shall exceed the exercise price of the associated
Option, multiplied by the number of shares of Common Stock with respect to
which such Limited Stock Appreciation Right shall have been exercised. Upon
the exercise of a Limited Stock Appreciation Right, any associated Option shall
cease to be exercisable to the extent of the shares of Common Stock with respect
to which such Limited Stock Appreciation Right was exercised. Upon the
exercise or termination of an associated Option, any related Limited Stock
Appreciation Right shall terminate to the extent of the shares of Common Stock
with respect to which such associated Option was exercised or terminated.

The term “Offer Price per Share” as used in this Section 6(b) shall mean with respect to a
Limited Stock Appreciation Right the higher of (i) the fair market value per share of Common
Stock on the date of exercise of such Limited Stock Appreciation Right or (ii) the highest
price per share for Common Stock paid or to be paid in the transaction, if any, giving rise
to the event specified in clauses (1) or (2) (as the case may be) of Section 9(a) which
triggered the exercisability of such Limited Stock Appreciation Right. For purposes of
clause (ii) above, any securities or property which are part of the consideration paid or to
be paid in such transactions shall be valued in determining the Offer Price per Share at the
highest of (A) the valuation placed on such securities or property by the company, person or
other entity engaging in such transaction, or (B) the valuation placed on such securities or
property by the Committee.

(c) Option Price. (1) The price at which each share of Common Stock 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 not be less than 100% of the fair
market value of a share of Common Stock at the time such Option is granted, provided,
however, that in the event that an optionee is required to make a payment pursuant to
paragraph (c)(3) below prior to receiving such Option, the exercise price per share of
Common Stock of such

5

 

Option shall not be less than 100% of the fair market value of a share of Common Stock at the time
such Option is granted less the purchase price per share of Common Stock of such Option. The Option
exercise price shall be set forth in the applicable Option Agreement.

(2) The Committee may, in its discretion, at any time or from time to time, by the adoption of a
written resolution to such effect, reduce the stated exercise or option price for any or all
Options then outstanding, but in no event shall such price be so reduced to a price which is less
than the fair market value of the shares of Common Stock which are subject to such Option or
Options on the date such resolution is adopted.

(3) If the Committee, in its discretion, shall deem it desirable, the grant of an Option may be
made conditional upon the receipt of a payment therefore by the optionee. Such condition and the
terms and conditions as to its satisfaction shall be set forth in the applicable Option Agreement
which may also provide for the reimbursement to the optionee of any part or all of such payment
under such circumstances as may be specified in such Option Agreement.

(d) Exercise. (1) Each Option shall be exercisable at such times and subject to such terms and
conditions as the Committee may, in its sole discretion, specify in the applicable Option Agreement
or thereafter, provided, however, that in no event may any Option granted hereunder be exercisable
after the expiration of 15 years from the date of such grant. Subject to the foregoing, each Option
Agreement shall specify the effect thereon of the death, retirement or other termination of
employment of the optionee. In addition, the Committee may impose such other conditions with
respect to the exercise of Options, including without limitation, any relating to the application
of Federal or state securities laws, as it may deem necessary or advisable.

(2) 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 Common 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
Common Stock so tendered to the Company, valued as of the date of such tender, is at least 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.

6

 

     (e) Transferability of Options. An Option granted under the Plan, and any related Limited
Stock Appreciation Right, 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 7. Awards.

     (a) Grant of Restricted Stock Awards.

(1) Selection of Participants. Subject to the terms of this Plan, the Committee shall select
those Participants to whom Awards shall be granted for each Performance Period. Awards shall
generally be made at the beginning of a Performance Period but may, in the Committee’s
discretion, be made from time to time during the term of a Performance Period.

(2) Award of Shares. The Committee shall determine the number of shares of Common Stock
covered by each Award. After the close of, and, if appropriate, during the term of, each
Performance Period, and at appropriate times based on the Lapsing Formula the Committee
shall determine whether the restrictions set forth in Section 7(e) hereof shall lapse with
respect to a portion or all of the shares covered by an Award.

(3) Form of Instrument. Each Award shall be made pursuant to a Stock Restriction Agreement
in a form prescribed by the Committee. Such instrument shall specify the restrictions set
forth in Section 7(e), a Lapsing Formula, a Performance Period and the Performance
Objectives which, if achieved during the Performance Period with respect to which they were
awarded, shall cause acceleration of the lapsing of restrictions imposed upon all or part of
the shares covered by an Award.

     (b) Lapsing Formula and Performance Objectives. Each Award shall be subject to a Lapsing
Formula pursuant to which the restrictions set forth in Section 7(e) shall lapse, unless such
restrictions have earlier lapsed as to all or part of the shares due to achievement of Performance
Objectives during the Performance Period. Each Award shall be subject to Performance Objectives
which may be achieved by the Company during the Performance Period With respect to which the Award
is made. Performance Objectives may relate to separate performance objectives for the Company or
any Subsidiary or for any division, department or operation of the Company or any subsidiary.
Notwithstanding anything else in this Plan to the contrary, the restrictions set forth in Section
7(e) shall not lapse with respect to a Restricted Stock Award prior to the third anniversary of the
date of grant of such Award; provided, however, that the Committee may determine to have the
restrictions set forth in Section 7(e) lapse after the first

7

 

anniversary of the date of grant of an Award if the Committee has established Performance
Objectives for such Award. Subject to the preceding sentence, once established, Performance
Objectives and Lapsing Formulas may be changed, adjusted or amended during the term of a
Performance Period or thereafter.

     (c) Rights with Respect to Shares. Subject to Section 7(d), each Participant to whom an Award
has been made shall have absolute ownership of such shares including the right to vote the same and
to receive dividends and other distributions thereon, subject, however, to the terms, conditions
and restrictions described in this Plan and in the Stock Restriction Agreement.

     (d) Escrow. Shares of Common Stock issued pursuant to an Award shall be held in escrow by the
Company until such time as the Committee shall have determined that the restrictions set forth in
Section 7(e) shall have lapsed or until the shares subject to such Award are forfeited pursuant to
Section 7(e)(2).

     (e) Restrictions Applicable to Awards. Each Stock Restriction Agreement under this Plan shall
contain the following terms, conditions and restrictions and such additional terms, conditions and
restrictions as may be determined by the Committee:

Until the restrictions set forth in this Section 7(e) shall lapse pursuant to Section 7(f), shares
of Common Stock awarded to a Participant pursuant to each Award:

(1) shall not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed
of, and

(2) except as otherwise set forth in the Stock Restriction Agreement, shall be forfeited and
returned to the Company, and all rights of the Participant to such shares shall terminate
without any payment of consideration by the Company, If the Participant’s continuous
employment with or other service to the Company upon which an Award is based shall terminate
with or without cause or as a result of any event or for any other reason.

(f) Lapse of Restrictions.

(1) Lapse of Restrictions Due to Achievement of Performance Objectives. As soon as
practicable after the close of each Performance Period or prior thereto, if the Committee in
its discretion deems it appropriate, the Committee shall determine whether the Performance
Objectives established for such Performance Period have been achieved. Each Participant who
has received an Award shall be notified as to whether the Performance Objectives established
for the Performance Period have been achieved and the number of shares, if any, of

8

 

Common Stock with respect to which the restrictions of Section 7(e) have lapsed.

(2) Lapse of Restrictions Based on Lapsing Schedule. As to any shares covered by an Award as
to which the restrictions imposed by Section 7(e) have not lapsed pursuant to paragraph (1)
of this Section 7(f), such restrictions shall lapse in accordance with the Lapsing Formula
for such Award.

     (g) Restrictive Legends. Certificates for shares of Common Stock delivered pursuant to Awards
shall bear an appropriate legend referring to the terms, conditions and restrictions described in
this Plan and in the applicable Stock Restriction Agreement. Any attempt to dispose of any such
shares of Common Stock in contravention of the terms, conditions and restrictions described in this
Plan or in the applicable Stock Restriction Agreement shall be ineffective. Any shares of Common
Stock of the Company or other property, including cash, received by a Participant as a dividend or
as a result of any stock split, combination, exchange of shares, reorganization, merger,
consolidation or similar event with respect to shares of Common Stock received pursuant to an Award
shall have the same status and bear the same legend and be held in escrow pursuant to Section 7(d)
as the shares received pursuant to the Award unless otherwise determined by the Committee at the
time of such event.

     (h) Designation of Beneficiaries. A Participant may designate a beneficiary or beneficiaries
to receive such Participant’s Common Stock hereunder in the event of such Participant’s death, and
may, at any time and from time to time, change any such beneficiary designation. All beneficiary
designations and changes therein shall be in writing and shall be effective only if and when
delivered to the Committee during the lifetime of the Participant.

     (i) The Committee may make adjustments or modifications, and its determination thereof shall
be conclusive, in the Lapsing Formula, Performance Objectives or Performance Period to give effect
to the intent of this Plan in connection with any event affecting the performance criteria
established as the Performance Objectives, including without limitation, any reorganization,
recapitalization, merger, consolidation, offering of additional shares of Common Stock or other
change in the Company’s shareholders’ equity by means other than earnings, or any similar event. No
such adjustment shall be made if it would reduce the benefits otherwise accruing to existing
Participants under the Plan.

     SECTION 8. Stock Unit Awards.

     (a) Grant of Stock Unit Awards. In addition to granting Options, Limited Stock Appreciation
Rights and Awards of restricted shares under Section 7, the Committee

9

 

shall have authority to grant to Participants Stock Unit Awards which can be in the form of Common
Stock or units, the value of which is based, in whole or in part, on the value of Common Stock.
Subject to the provisions of the Plan, including Section 8(b) below, Stock Unit Awards shall be
subject to such terms, restrictions, conditions, vesting requirements and payment rules (all of
which are sometimes, hereinafter collectively referred to as “rules”) as the Committee may
determine in its sole discretion, all such rules applicable to a particular Stock Unit Award to be
reflected in writing and furnished to the Participant at the time of grant. The rules need not be
identical for each Stock Unit Award.

     (b) Rules. In the sole discretion of the Committee, a Stock Unit Award may be granted subject
to the following rules:

(1) Any shares of Common Stock which are part of a Stock Unit Award may not be assigned,
sold, transferred, pledged or otherwise encumbered prior to the date on which the shares are
issued or, if later, the date provided by the Committee at the time of the Award.

(2) Stock Unit Awards may provide for the payment of cash consideration by the person to
whom such Award is granted or provide that the Award, and Common Stock to be issued in
connection therewith, if applicable, shall be delivered without the payment of cash
consideration, provided that for any Common Stock to be purchased in connection with a Stock
Unit Award the purchase price shall be at least 50% of the fair market value of such Common
Stock on the date such Award is granted.

(3) Stock Unit Awards may relate in whole or in part to certain performance criteria
established by the Committee at the time of grant.

(4) Stock Unit Awards may provide for deferred payment schedules, vesting over a specified
period of employment, the payment (on a current or deferred basis) of dividend equivalent
amounts, with respect to the number of shares of Common Stock covered by the Award, and
elections by the employee to defer the payment of the Award or the lifting of restrictions
on the Award, if any.

(5) In such circumstances as the Committee may deem advisable, the Committee may waive or
otherwise remove, in whole or in part, any restrictions or limitation to which a Stock Unit
Award was made subject at the time of grant.

     SECTION 9. Special Rules.

     (a) Notwithstanding anything to the contrary in this Plan, unless otherwise

10

 

specifically determined by the Committee at the time of grant, all Options theretofore granted and
not fully exercisable shall become exercisable in full and the restrictions on all outstanding
Awards shall lapse upon the occurrence of a Change of Ownership. A “Change of Ownership” shall be
deemed to have occurred if either (1) individuals who, as of the effective date of this Plan,
constitute the Board of Directors of the Company (the “Board of Directors” generally and as of the
date hereof the “Incumbent Board”) cease for any reason to constitute at least a majority of the
directors constituting the Board of Directors, provided that any person becoming a director
subsequent to the effective date of this Plan whose election, or nomination for election by the
Company’s shareholders, was approved by a vote of at least three-quarters (3/4) of the then
directors who are members of the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is (A) in connection with the acquisition by a third
person, including a “group” as such term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the “Act”), of beneficial ownership, directly or indirectly, of 20% or more of
the combined voting securities ordinarily having the right to vote for the election of directors of
the Company (unless such acquisition of beneficial ownership was approved by a majority of the
Board of Directors who are members of the Incumbent Board), or (B) in connection with an actual or
threatened election contest relating to the election of the directors of the Company, as such terms
are used in Rule 14a-ll of Regulation 14A promulgated under the Act) shall be, for purposes of this
Plan, considered as though such person were a member of the Incumbent Board, or (2) the Board of
Directors (a majority of which shall consist of directors who are members of the Incumbent Board)
has determined that a Change of Ownership triggering the exercisability of Options and the lapse of
restrictions on Awards as described in this Section 9 shall have occurred. Options which become
fully exercisable by reason of events specified in clauses (1) or (2) 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 original terms, provided, however, that no Option which
has previously been exercised or has expired or otherwise terminated shall become exercisable by
virtue of this Section nor shall this Section 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.

     (b) For purposes of this Plan and any Option or Award hereunder, 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 Plan, “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 of Common Stock shall be delivered

11

 

pursuant to an Award or 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. Financing and Withholding.

     (a) Withholding of Taxes. As a condition to the making of an Award, to the lapse of the
restrictions pertaining to an Award, or to the delivery of shares in connection with the exercise
of an Option, the Company may require the Participant to pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any taxes of any kind required by law to be
withheld with respect to such shares of Common Stock.

     (b) Financing. If requested by a Participant who exercises an Option or who has received
shares of Common Stock pursuant to an Award, the Committee may in its discretion provide financing
to the Participant in a principal amount sufficient for the purchase of shares of Common Stock
pursuant to such Option exercise or to pay the amount of taxes required by law to be withheld with respect to such Option exercise
or such receipt of shares of Common Stock. Any such loan shall be subject to all legal
requirements, and restrictions pertinent thereto, including if applicable, Regulation G promulgated
by the Federal Reserve Board. The grant of an Option or Award shall in no way obligate the Company
or the Committee to provide any financing whatsoever upon the lapse of restrictions on shares or
the exercise of such Option.

     (c) Withholding of Shares.

(1) If requested by a Participant who acquires shares of Common Stock upon the exercise of
an Option or who has received Common Stock pursuant to an Award with respect to which the
restrictions shall have lapsed, the Committee may in its discretion permit the Participant
to satisfy any tax withholding obligations, in whole or in part, by having the Company
withhold a portion of such shares with a value equal to the amount of taxes required by law
to be withheld.

(2) Requests by a Participant to have shares of Common Stock withheld shall be (A) made
prior to the Tax Date and (B) irrevocable. In addition, in the event the Participant is an
officer or director of the Company within the meaning of Section 16 of the Act, such
requests must be made either six months prior to the Tax Date or in a ten day period
beginning on the third day following the release of the Company’s quarterly or annual
earnings statement.

     SECTION 12. Amendments, Suspension or Discontinuance. The Board of

12

 

Directors may amend, suspend or discontinue the Plan. Notwithstanding the foregoing, except as
permitted by Section 4(c), the Board may not, without prior approval of the shareholders 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 din the class of eligible persons as defined in the Plan, (c) to increase the total
number of shares of Common Stock which may be delivered in respect of Awards or on exercise of
Options granted under the Plan, (d) to extend the maximum option period or the period which Options
or Awards may be granted under the Plan or (e) to reduce the minimum permissible option exercise
price.

     SECTION 13. Term of Plan. The Plan shall become effective on the date it is approved and
adopted by the Board, subject to its subsequent approval by shareholders of the Company. No Option
or award shall be granted under the Plan after the date that is fifteen (15) years after the date
on which the Plan is approved by the Company’s shareholders or after such earlier date as the
Committee may decide, in its sole discretion.

13

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