Document:

exv10w2

 

EXHIBIT 10.2

YOUBET.COM, INC.

EQUITY INCENTIVE PLAN

Establishment and Purpose

     This Youbet.com, Inc. Equity Incentive Plan (the “Plan”) has been adopted by the Board of
Directors of Youbet.com, Inc. (the “Company”) as of April 18, 2005, and will become effective as
of, and subject to, the approval of the Company’s shareholders (the “Effective Date”). The Plan
constitutes an amendment, restatement and continuation of the You Bet International, Inc. 1998
Stock Option Plan, as it existed prior to this restatement.

     The purpose of the Plan is to promote the long-term success of the Company by attracting,
motivating and retaining directors, officers, employees, advisors and consultants of, and others
providing services to, the Company and its affiliates through the use of competitive long-term
incentives which are tied to shareholder value. The Plan seeks to balance the interest of Plan
participants and shareholders by providing incentives in the form of stock options, restricted
stock, performance awards, dividend equivalents, deferred stock and stock appreciation rights, as
well as other stock-based awards.

Article 1

Definitions

The following definitions shall be applicable throughout the Plan:

     (a) “Affiliate” means, in the case of an Incentive Stock Option, a Parent or Subsidiary
entity, including a Parent or Subsidiary which becomes such after adoption of the Plan, and in all
other cases, any entity which is controlled by or which controls the Company.

     (b) “Award” means, individually or collectively, any grant of an award or equity interest in
the Company permitted by Section 4.2 of the Plan.

     (c) “Award Agreement” means a written agreement between the Company and a Participant with
respect to an Award.

     (d) “Board” means the Board of Directors of the Company.

     (e) “Cause” means, except as otherwise provided in any Award Agreement of a Participant, (i)
the repeated and willful failure of a Participant to substantially perform his or her duties after
a written demand for substantial performance is delivered to the Participant that specifically
identifies the manner in which the Company or any Affiliate believes the Participant has not
substantially performed such duties; (ii) any willful or grossly negligent misconduct by the
Participant which is materially injurious to the Company or any Affiliate, monetarily or otherwise;
(iii) a Participant’s conviction of, or plea of no contest to, a felony involving moral turpitude;
or (iv) an illegal act (or omission), or intentional act (or omission) of dishonesty or

 

 

misrepresentation, taken by the Participant which is intended to result in the personal
enrichment of the Participant at the expense of the Company or any Affiliate.

     (f) “Change of Control” means, except as otherwise provided in any Award Agreement of a
Participant:

          (i) the merger or consolidation of the Company into another entity unless the shareholders of
the Company immediately prior to such merger or consolidation own, directly or indirectly, more
than fifty percent (50%) of the total combined voting power of the surviving entity’s outstanding
securities immediately after such merger or consolidation;

          (ii) the sale, transfer or other disposition of all or substantially all of the assets of the
Company other than to a person that directly or indirectly controls, is controlled by or is under
common control with the Company prior to such disposition;

          (iii) the liquidation or dissolution of the Company other than in connection with the merger
or consolidation of the Company with and into another entity if shareholders of the Company
immediately prior to such merger or consolidation own, directly or indirectly, more than fifty
percent (50%) of the total combined voting power of the surviving entity’s outstanding securities
immediately after such merger or consolidation; or

          (iv) the acquisition, directly or indirectly, by any person or related group of persons (other
than the Company, a person that directly or indirectly controls or is controlled by or is under
common control with the Company) of the beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Act of 1934 as amended) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company’s outstanding securities; or

          (v) a change in the composition of the Board over a period of twelve (12) consecutive months
or less such that a majority of the members of the Board cease, by reason of one or more contested
elections of Board membership, to be comprised of individuals who have been nominated for election
as Board members by a majority of the Board members immediately preceding such election.

     (g) “Code” means the Internal Revenue Code of 1986, as amended from time to time. Reference
in the Plan to any section of the Code shall be deemed to include any amendments or successor
provisions to such section and any final or temporary rules or regulations promulgated under such
section.

     (h) “Committee” means the Compensation Committee of the Board or, if no such committee shall
exist, any members of the Board who are selected by the Board to constitute the Committee, or if no
such selection has been made, the entire Board.

     (i) “Company” means Youbet.com, Inc., a Delaware corporation, and any successor corporations
thereto.

- 2 -

 

     (j) “Deferred Stock” means an Award granted pursuant to Section 7.3 of the Plan (i.e., an
Award of Shares to a Participant subject to certain restrictions imposed by the Committee).

     (k) “Dividend Equivalent” means an Award granted pursuant to Section 7.2 of the Plan (i.e., an
Award of the right to payment of dividends with respect to Shares of the Company).

     (l) “Employee” means any individual in an employment relationship with the Company or any
Affiliate.

     (m) “Fair Market Value” means, so long as the Shares are traded on a nationally recognized
exchange or automated dealer quotation system, the closing price of the Shares on that day. If the
Shares are not traded on such an exchange or system and are traded solely on the over-the-counter
market, the Fair Market Value shall be the average of the closing bid and asked prices for the day.
If the Shares are not publicly traded, then Fair Market Value shall mean the value assigned to a
share for a given day by the Committee.

     (n) “GAAP” means accounting principles generally accepted in the United States.

     (o) “Immediate Family” means, with respect to a Participant, the Participant’s spouse or
lineal descendents (including adopted children, stepchildren, grandchildren and lineal decendents)
and the adult spouses of adult lineal descendents.

     (p) “Incentive Stock Option” means an incentive stock option within the meaning of Section
422(b) of the Code.

     (q) “Independent Contractor” means a non-employee director, consultant, advisor or other
individual performing personal services for the Company or any Affiliate. An advisor or consultant
whose services are in connection with the offer or sale of securities in a capital-raising
transaction, or the direct or indirect promotion or maintenance of a market for the Company’s
securities, shall not be an Independent Contractor for purposes of the Plan.

     (r) “Independent Director” means a member of the Board who is both an “outside director,”
within the meaning of Section 162(m) of the Code, and a “non-employee director,” within the meaning
of Rule 16b-3.

     (s) “1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereby.

     (t) “Non-Qualified Option” means an Option that is not an Incentive Stock Option.

     (u) “Option” means a stock option awarded under Article 5 of the Plan and includes both
Non-Qualified Options and Incentive Stock Options to purchase Shares.

     (v) “Optionee” means an individual so designated in an Award Agreement who has been granted an
Option by the Company pursuant to this Plan.

- 3 -

 

     (w) “Parent” means, in the case of an Incentive Stock Option, a corporation with an ownership
interest in the Company as described in Section 424(e) of the Code, and in all other cases, any
entity which controls the Company.

     (x) “Participant” means an individual who has been granted an Award under this Plan.

     (y) “Participating Company” means the Company or any Affiliate, which together shall be
collectively referred to as the “Participating Company Group.”

     (z) “Performance Award” means an Award granted to a Participant pursuant to Section 7.1 of the
Plan (i.e., an Award conditioned on the satisfaction of certain performance criteria).

     (aa) “Plan” means the Youbet.com, Inc. Stock Incentive Plan.

     (bb) “Restricted Stock Award” means an Award granted to a Participant pursuant to Article 6 of
the Plan (i.e., an Award of interests in Shares subject to restrictions on continued ownership).

     (cc) “Rule 16b-3” means Securities and Exchange Commission Rule 16b-3 promulgated under the
1934 Act, as such may be amended from time to time, and any successor rule, regulation, or statute
fulfilling the same or similar function.

     (dd) “Shares” means the issued and outstanding shares of common stock of the Company or such
stock as may be changed as contemplated by Article 10 below.

     (ee) “Stock Appreciation Right” means an Award granted to a Participant pursuant to Section
7.4 of the Plan (i.e., an Award equal to the appreciation in the value of a Share).

     (ff) “Subsidiary” means, in the case of an Incentive Stock Option, a corporation in which the
Company has an ownership interest as described in Section 424(f) of the Code, and in all other
cases, any entity controlled by the Company.

Article 2

Administration

     2.1 Plan Administration Generally. The Committee shall have the full, discretionary
authority to administer the Plan. Not in limitation thereof, all questions of interpretation of
the Plan or of any Award granted under the Plan shall be determined by the Committee, in its sole
discretion, and such determinations shall be final and binding upon all persons having an interest
in the Plan and/or any Award.

     2.2 Composition of Committee. The Board shall appoint the members of the Committee.
The Committee should consist solely of two or more Independent Directors. Notwithstanding the
foregoing or any other provision of the Plan, the Committee may (i) delegate to a committee of one
or more members of the Board who are not Independent Directors

- 4 -

 

or to the officers of the Company the authority to grant Awards under the Plan (A) to eligible
persons who are either (I) not then “covered employees,” within the meaning of Section 162(m) of
the Code and are not expected to be “covered employees” at the time of recognition of income
resulting from such award, or (II) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code, or (B) which, in any event, would not be considered qualified
performance-based compensation within the meaning of Section 162(m) of the Code; and/or (ii)
delegate to a committee of one or more members of the Board who are not Independent Directors or to
the Company’s officers the authority to grant Awards under the Plan to eligible persons who are not
then subject to Section 16 of the 1934 Act.

Article 3

Eligibility

     Awards may be granted to any Employee or any Independent Contractor. The Committee shall
determine which persons shall be granted Awards, the terms thereof and the number of Shares for
which an Award may be granted. Awards of Options may be in the form of either Incentive Stock
Options or Non-Qualified Stock Options, but Independent Contractors shall not be eligible to
receive Incentive Stock Options.

Article 4

Shares and Awards Under the Plan

     4.1 Shares Subject to the Plan.

     (a) The maximum number of Shares which may be issued under the Plan shall be Nine Million Two
Hundred Fifty Thousand (9,250,000) Shares, which includes Eight Million, Five Hundred Thousand
(8,500,000) Shares authorized for issuance prior to the Effective Date. In the event that any
outstanding Award for any reason lapses, expires or is terminated or canceled, the Shares allocable
to the unexercised, forfeited, expired or canceled portion of such Award may again be subject to an
Award. In the event a Participant pays the exercise price or purchase price of an Award through
the tender of Shares, or if Shares are tendered or withheld to satisfy any tax withholding
obligation, the number of Shares tendered or withheld shall not be available for additional Awards.
If a Stock Appreciation Right is settled in Shares, the number of Shares available under the Plan
will be reduced by the full number of Shares covered by the Stock Appreciation Right, rather than
by the number of Shares actually issued upon exercise. The Committee shall maintain a record of
Shares subject to outstanding Awards under the Plan and the terms of such Awards, as well as a
record of all Shares issued as a result of such Awards.

     (b) The Company may grant Awards under the Plan in substitution for awards held by employees
of another company who become employees of the Company as a result of merger or consolidation. The
Company may direct that substitute options be granted on such terms and conditions as deemed
appropriate by the Committee, provided such substitution does not otherwise constitute a repricing
of any option awards under GAAP.

- 5 -

 

     4.2 Types of Awards Under the Plan. The Committee, in its sole discretion, may make
the following types of Awards under the Plan:

     (a) Stock Options (Non-Qualified Stock Options and Incentive Stock Options);

     (b) Restricted Stock;

     (c) Performance Awards;

     (d) Dividend Equivalents;

     (e) Deferred Stock;

     (f) Stock Appreciation Rights; and/or

     (g) Bonus and Other Stock-based Awards.

     4.3 Limit on Full Value Awards. Notwithstanding any other provision of the Plan, from
and after the Effective Date the Committee shall not issue Awards, other than Stock Options and
Stock Appreciation Rights (including Stock Options and Stock Appreciation Rights that may qualify
as Performance Awards), in excess of One Hundred Thousand (100,000) Shares. The Share amount in
this Section 4.3 is subject to adjustment under Article 10.

Article 5

Stock Options

     5.1 Terms, Conditions and Form of Options. The Committee shall determine for each
Option the number of Shares for which the Option is granted, whether the Option is to be treated as
an Incentive Stock Option or as a Non-Qualified Stock Option and all other terms and conditions of
the Option not inconsistent with the Plan. Options granted pursuant to the Plan shall comply with
and be subject to the following terms and conditions:

     (a) Option Price. The exercise price for each Option shall be established in the sole
discretion of the Committee, provided it shall not be less than the Fair Market Value of a Share on
the date of grant, and provided further, that the exercise price per Share of an Incentive Stock
Option granted to an Optionee who, at the time of the grant, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of any Participating
Company, within the meaning of section 422(b)(6) of the Code (a “Ten Percent Owner Optionee”),
shall be not less than one hundred ten percent (110%) of the Fair Market Value of a Share on the
date the Option is granted. Notwithstanding the foregoing, an Option may be granted by the
Committee in its discretion with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for another Option in a
manner qualifying with the provisions of Section 424(a) of the Code to the extent applicable.
Nothing hereinabove shall require that any such assumption or modification will result in the
Option having the same characteristics, attributes or tax treatment as the option for which it is
substituted.

     (b) Exercise Period of Options. The Committee shall have the power to set the time or
times within which each Option shall be exercisable, or the event or events upon the occurrence of
which all or a portion of each Option shall be exercisable, and the term of each Option; provided,
however, that (i) no Incentive Stock Option shall be exercisable after the expiration of ten (10)
years after the date such Incentive Stock Option is granted, and (ii) no

- 6 -

 

Incentive Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the date such Incentive Stock Option is granted. Unless
otherwise specifically provided in an Award Agreement, no Option shall be exercisable after the
date the Optionee’s service (as an Employee or Independent Contractor) with the Participating
Company Group is terminated for Cause. Unless otherwise specifically provided in an Award
Agreement, an Incentive Stock Option shall terminate and cease to be exercisable as an Incentive
Stock Option no later than three (3) months after the date on which the Optionee’s employment with
the Participating Company Group terminates (for reasons other than for Cause), unless the
Optionee’s employment with the Participating Company Group shall have terminated as a result of the
Optionee’s death, in which event the Incentive Stock Option shall terminate and cease to be
exercisable as an Incentive Stock Option no later than twelve (12) months from the date of the
Optionee’s death.

     (c) Payment of Option Price. Payment of the exercise price for the number of Shares
being purchased pursuant to any Option shall be made in any manner permitted by the Committee,
including, but not limited to: (i) payment in cash, (ii) by check or cash equivalent, (iii) with
the consent of the Committee, by delivery or attestation of ownership of a number of Shares which
have been owned by the Optionee for at least six months (or such other period as necessary to
prevent an accounting charge) with a Fair Market Value equal to the exercise price, (iv) with the
consent of the Committee, by delivery of a stock power and instructions to a broker to sell a
sufficient number of Shares subject to the Option to pay such exercise price, (v) such other
consideration as the Committee determines is consistent with the Plan and applicable law, or (vi)
with the consent of the Committee, any combination of the foregoing methods. Any Shares used to
exercise Options to purchase Shares (including Shares withheld upon the exercise of an Option to
pay the exercise price of the Option) shall be valued in accordance with procedures established by
the Committee. If the Committee, in its discretion, permits the consideration to be paid through a
broker-dealer sale and remittance procedure, the Committee may require the Optionee (I) to provide
irrevocable written instructions to a designated brokerage firm to effect the immediate sale of a
sufficient number of the purchased Shares to pay the Company, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate Option exercise price payable for the
purchased Shares and/or all applicable Federal and State income and employment taxes required to be
withheld by the Company in connection with such purchase, (II) to provide written directives to the
Company to deliver the certificates for the purchased Shares directly to such brokerage firm in
order to complete the sale transaction, and (III) to provide irrevocable instructions to the
brokerage firm to remit such sale proceeds to the Company.

     (d) $100,000 Limitation. The aggregate Fair Market Value, determined as of the date
on which an Incentive Stock Option is granted, of the Shares with respect to which Incentive Stock
Options are first exercisable during any calendar year (under this Plan or under any other plan of
the Participating Company Group) by any Optionee shall not exceed $100,000 or such other limitation
imposed under Section 422 of the Code. If such limitation would be exceeded with respect to an
Optionee for a calendar year, the Incentive Stock Option shall be deemed a Non-Qualified Stock
Option to the extent of such excess.

     (e) Annual Limit. No individual may be granted in any calendar year Options to
purchase more than 1,000,000 Shares. The Share amount in this Section 5.1(e) is subject to

- 7 -

 

adjustment under Article 10. This annual limit does not apply to any Awards other than
Options; the annual limitation for these other Awards is set forth in Section 7.6.

     5.2 Effect of Change in Stock Subject to Plan. The Committee shall make appropriate
adjustments in the number and class of Shares subject to the Plan and to any outstanding Options
and in the exercise price of any outstanding Options in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification, or like change in the capital structure of the
Company. Notwithstanding the foregoing, such adjustments shall be made to prevent the dilution or
enlargement of the rights granted under the Options as a result of any of the foregoing events.
Adjustments (if any) made by the Committee shall be final and binding on the Optionee as well as
his or her successors, heirs or assigns.

Article 6

Restricted Stock

     6.1 Awards of Restricted Stock. Awards of Restricted Stock may be granted under the
Plan in such form and on such terms and conditions as the Committee may from time to time approve,
including, without limitation, restrictions on the sale, assignment, transfer or other disposition
or encumbrance of such Shares during the Restricted Period (as defined in Section 6.2) and the
requirement that the Participant forfeit such Shares back to the Company without any consideration
paid by the Company therefor upon failure to satisfy within the Restricted Period the requirements
set forth in the Award Agreement. Restricted Stock may be granted alone or in addition to other
Awards under the Plan. The grant of any Restricted Stock by the Company shall be evidenced by an
Award Agreement.

     6.2 Restricted Period. The Committee shall establish the Restricted Period with
respect to each Award of Restricted Stock. The Committee may, in its sole discretion, at the time
an Award of Restricted Stock is made, prescribe conditions for the lapse or termination of all or a
portion of the restrictions upon the satisfaction prior to the expiration of the Restricted Period
of the requirements set forth in the Award Agreement. The Committee also may, in its sole
discretion, shorten or terminate the Restricted Period or waive any conditions for the lapse or
termination of restrictions with respect to all or any portion of the Restricted Stock.

     Except as otherwise provided in a Participant’s Award Agreement, a Participant shall cease
vesting in all or any portion of a Restricted Stock Award as of the date his or her services for
the Participating Company Group terminate, for whatever reason, and any Awards that are not vested
as of the date of such termination shall be forfeited; provided the Committee may, in its
discretion, provide that a Participant whose services for the Participating Company Group are
terminated for any reason, other than Cause (including as a result of death or disability) and/or
following a Change of Control, may vest in all or any portion of his Restricted Stock Award. Any
Restricted Stock Award not so vested shall be forfeited.

     6.3 Rights of Holders of Restricted Stock. Except as otherwise provided in the Award
Agreement or except as otherwise provided in this Plan, the Participant shall be the owner of the
Restricted Stock and shall have all the rights of a shareholder, including the right to receive
dividends paid on such Restricted Stock and the right to vote such Restricted Stock.

- 8 -

 

     6.4 Delivery of Restricted Stock. Restricted Stock awarded to a Participant under the
Plan may be held under the Participant’s name in a book entry account maintained by the Company or,
if not so held, stock certificates for Restricted Stock awarded pursuant to the Plan may be
registered in the name of the Participant and issued and deposited, together with a stock power
endorsed in blank, with the Company or an agent appointed by the Company and shall bear an
appropriate legend restricting the transferability thereof. Subject to Section 8.5 below, a
Participant shall be entitled to delivery of stock certificates only when he or she becomes vested
in accordance with the terms of his or her Restricted Stock Award.

     6.5 Forfeitures. Any Shares of Restricted Stock which are forfeited shall become the
property of the Company and shall again immediately become available for award under the Plan, and
all of the rights of such Participant to such Restricted Stock and all rights as a stockholder with
respect to such shares shall terminate without further obligation on the part of the Company.

Article 7

Additional Awards

     7.1 Performance Awards. The Committee is authorized, in its sole discretion, to grant
Performance Awards to Participants on the following terms and conditions:

     (a) Awards and Conditions. A Performance Award shall confer upon the Participant
rights, valued as determined by the Committee, and payable to, or exercisable by, the Participant
to whom the Performance Award is granted, in whole or in part, as determined by the Committee,
conditioned upon the achievement of performance criteria determined by the Committee. Performance
criteria may be any of the following: net revenue, total revenue, handle, economic value-added
operating income before provisions for LIFO accounting, taxes, contributions to the Company’s
profit sharing plan and executive bonuses; cash flow return on investment; sales revenue; operating
cash flow; pre-tax earnings; earnings; profit; earnings before taxes; earnings before interest,
depreciation, taxes and amortization; working capital; return on equity; net income; operating
income; revenue; earnings per share and stock price, stock price/earnings; return on assets (or
total assets); return on earnings assets; operating expenses; selling, general and administrative
expenses; inventory (or inventory turnover); debt; profit margin (net income/sales); accounts
receivable (accounts receivable turnover, collection periods); write-offs; cash; cost of goods
sold; liquidity (current assets/current liabilities); and debt to equity ratio.

     (b) Other Terms. A Performance Award shall be denominated in Shares and may be
payable in cash, Shares, other Awards, or other property, and shall have such other terms as shall
be determined by the Committee.

     (c) Performance-Based Awards. Performance Awards, as well as performance-based
Restricted Stock under Article 6, and certain other Share-based Awards subject to performance
criteria, are intended to be “qualified performance-based compensation” within the meaning of
Section 162(m) of the Code and shall be paid solely on account of the attainment of one or more
preestablished, objective performance goals within the meaning of Section 162(m) and the

- 9 -

 

regulations thereunder. The performance goal(s) shall be selected by the Committee from the
performance criteria set forth in Subsection 7.1(a), above. A performance goal need not be based
on an increase or positive result.

     The payout of any such Award to a Participant may be reduced, but not increased, based on the
degree of attainment of other performance criteria not specified in Subsection 7.1(a), or otherwise
at the discretion of the Committee, as may be provided in the Award Agreement.

     7.2 Dividend Equivalents. The Committee is authorized, in its sole discretion, to
grant Dividend Equivalents to Participants. These Awards shall consist of the right to the payment
of amounts equal to the value of dividends that may be paid with respect to Shares in the future.
The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or
shall be deemed to have been reinvested in additional Shares or Awards, or otherwise reinvested.

     7.3 Deferred Stock. The Committee is authorized, in its sole discretion, to grant
Deferred Stock to Participants, on the following terms and conditions:

     (a) Award and Restrictions. Subject to Section 8.6, delivery of Shares will occur
upon expiration of the deferral period specified in the Award Agreement by the Committee (or, if
permitted by the Committee, as elected by the Participant). In addition, Deferred Stock shall be
subject to such restrictions as the Committee may impose, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times, separately or in combination, in
installments, or otherwise, as the Committee shall determine and set forth in the Award Agreement.

     (b) Forfeiture. Except as otherwise determined by the Committee, upon termination of
the Participant’s service (as an Employee or Independent Contractor) with the Participating Company
Group for any reason other than Cause during the applicable deferral period, as provided in the
Award Agreement, all Deferred Stock that is at that time subject to deferral (other than a deferral
at the election of the Participant) shall be forfeited; provided, that the Committee may provide,
in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture
conditions relating to Deferred Stock will be waived in whole or in part, and the Committee may in
other cases waive in whole or in part the forfeiture of Deferred Stock.

     7.4 Stock Appreciation Rights. The Committee is authorized, in its sole discretion,
to grant Stock Appreciation Rights to Participants on the following terms and conditions:

     (a) Right to Payment. A Stock Appreciation Right shall confer on the Participant to
whom it is granted a right to receive payment in cash or Shares (at the discretion of the
Committee), upon exercise of a Stock Appreciation Right, an amount equal to the excess of (i) the
Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine in
the case of any such right, other than one related to an Incentive Stock Option, the Fair Market
Value of one Share at any time during a specified period before or after the date of exercise or a
Change of Control) over (ii) the grant price of the Stock Appreciation Right as determined by the
Committee as of the date of grant of the Stock Appreciation Right.

- 10 -

 

     (b) Other Terms. The Committee shall determine the time or times at which a Stock
Appreciation Right may be exercised in whole or in part, the method of exercise, method of
settlement, form of consideration payable in settlement, method by which Shares (if any) will be
delivered or deemed to be delivered to Participants, and any other terms and conditions of any
Stock Appreciation Right. Such Stock Appreciation Rights shall be evidenced by an Award Agreement
in such form as the Committee shall from time to time approve.

     7.5 Bonus and Other Stock-Based Awards. The Committee is authorized, in its sole
discretion, to grant to Participants such other Awards that are denominated or payable in, valued
in whole or in part by reference to, or otherwise based on or related to, Shares, as deemed by the
Committee to be consistent with the purposes of the Plan, including without limitation, Shares
awarded purely as a “bonus” and not subject to any restrictions or conditions, convertible or
exchangeable debt securities, other rights convertible or exchangeable into Shares, purchase
rights, and Awards valued by reference to the value of Shares or the value of securities of or the
performance of a Participating Company. The Committee shall determine the terms and conditions of
such Awards, which may include performance criteria. Shares delivered pursuant to an Award in the
nature of a purchase right granted under this Section 7.5 shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms, including, without
limitation, cash, Shares, other Awards, or other property, as the Committee shall determine.

     7.6 Maximum Individual Awards. No individual may be granted in any calendar year more
than 1,000,000 Shares subject to any combination of Performance Awards, Restricted Stock, or other
Share-based Awards (excluding Options) subject to performance criteria. The Share amounts in this
Section 7.6 are subject to adjustment under Article 10 and are subject to the Plan maximum under
Article 4.

Article 8

Additional Provisions Applicable to Awards

     8.1 Award Agreements. Each Award granted hereunder shall be evidenced by a written
Award Agreement that shall specify the number of Shares subject to the Award, the installments, if
any, in which the Award shall vest and become exercisable, the date of the expiration of such
Award, and such other terms and conditions as the Committee shall determine.

     8.2 Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted under the
Plan, may in the sole discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award granted under the Plan. If an Award is granted
in substitution for another Award, the Committee shall require the surrender of such other Award in
consideration for the grant of the new Award. The Committee shall not grant any Award in
substitution for any Option, Stock Appreciation Right or similar Award if the effect of such
substitution would constitute a repricing of the Option under GAAP. Awards granted in addition to
or in tandem with other Awards may be granted either as of the same time as or a different time
from the grant of such other Awards, provided such grant does not constitute a repricing of an
Option under GAAP.

- 11 -

 

     8.3 Term of Awards. The term of each Award shall be for such period as may be
determined by the Committee; provided, that in no event shall the term of any Award granted under
this Plan exceed a period of ten years from the date of its grant.

     8.4 Form of Payment Under Awards. Subject to the terms of the Plan and any applicable
Award Agreement, payments to be made by a Participating Company upon the grant or exercise of an
Award may be made in such forms as the Committee shall determine, including without limitation,
cash, Shares, other Awards, or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Such payments may include, without limitation, provisions
for the payment or crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents in respect of installment or deferred payments
denominated in Shares.

     8.5 Issuance of Shares.

     (a) As soon as practicable after the settlement of any Award, including full payment for the
Shares purchased pursuant thereto and the satisfaction of any withholding-tax liability arising
with respect to the settlement of any such Award, the Company shall duly issue such Shares to the
Participant and shall cause to be delivered to the Participant a stock certificate or certificates
representing such Shares and bearing such restrictive legends as the Committee may deem necessary
or appropriate to ensure compliance with the Plan and all applicable laws, rules and regulations.

     (b) Notwithstanding anything to the contrary contained herein, the Company may, in its
discretion, defer the issuance and delivery of Shares otherwise deliverable hereunder until
completion of the process of listing the Shares on a national exchange or the filing, registration
or other qualification of the Shares under any state or federal law, rule or regulation as the
Company may deem appropriate, provided that the Company diligently pursues such listing,
registration or qualification. The Company may require any Participant to make such
representations and furnish such information as the Company may deem appropriate in connection with
the issuance or delivery of Shares, in compliance with all applicable laws, rules and regulations.

     (c) The Committee may impose such restrictions on any Shares issued in settlement of any Award
as it may deem advisable, including without limitation restrictions under applicable federal
securities laws, under the requirements of any stock exchange or market upon which such Shares are
then listed and/or traded, under any blue-sky or state securities laws applicable to such Shares
and under any applicable stockholders’ or other agreement.

     8.6 Taxes and Withholding.

     (a) As a precondition to the delivery of any Shares or other payment in settlement of any
Award, the Company shall have the right and authority to deduct or withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy federal, state and local
taxes, domestic or foreign, that are required by law to be withheld by the Company or any Affiliate
upon delivery of Shares or other payment under any Award. The Participant may discharge such
obligation in whole or in part with respect to the minimum withholding-tax liability arising upon

- 12 -

 

the settlement of any Award (but no more than such minimum) (a) by transferring and delivering
to the Company previously owned Shares, which shall be valued at their Fair Market Value on the
date of transfer; (b) with the prior approval of the Committee, by authorizing the Company in
writing to deduct and retain Shares, valued at their Fair Market Value, as of the date of exercise,
from the Shares otherwise to be issued upon settlement; (c) with the prior approval of the
Committee, by any combination of the foregoing methods of payment; or (d) with the prior approval
of the Committee, by any other method acceptable to the Committee.

     (b) A Participant who files an election with the Internal Revenue Service to include the Fair
Market Value of any Award in gross income at such time as may be permitted under Code Section 83(b)
shall promptly furnish the Company with a copy of such election together with the amount of any
federal, state, local or other taxes, domestic or foreign, required to be withheld with respect to
such election.

     8.7 Awards Non-Transferable. During the lifetime of the Participant, the rights under
any Incentive Stock Option shall be exercisable only by the Participant. No Award shall be sold,
assigned, transferred, made subject to gift, mortgaged, pledged, encumbered or otherwise disposed
of by the Participant, except the Participant may transfer an Award by will or by the laws of
descent and distribution, and the Committee may permit an Award other than an Incentive Stock
Option to be transferable to members of the Participant’s Immediate Family or to a trust,
partnership or other entity for the benefit of the Participant and/or any member of the
Participant’s Immediate Family.

     8.8 Term. No Awards shall be granted under this Plan more than ten (10) years after
the Effective Date.

Article 9

Change of Control

     9.1 Effect of Change of Control. Upon the consummation of a Change of Control, if the
surviving corporation or the purchaser, to the extent applicable, does not assume the obligations
of the Company under the Plan, then irrespective of the vesting provisions contained in individual
Award Agreements, all Awards shall become vested and, with respect to any Award that is an Option
or Stock Appreciation Right, immediately exercisable in full and each Participant will be afforded
an opportunity to exercise his or her Options or Stock Appreciation Right, immediately prior to the
consummation of the Change of Control (and conditioned upon the consummation of the Change of
Control) so that they can participate in the transaction if they so desire. To the extent that the
Plan is assumed by the successor corporation or its parent company, a Change of Control will have
no effect on the vesting or exercisability of outstanding Awards except to the extent otherwise
provided in the individual Award Agreement.

     9.2 Authority to Vary Terms of Awards. The Committee may, in its sole discretion,
provide in each Award Agreement the treatment or disposition of any Award upon a Change of Control,
including, without limitation, providing for: vesting upon the occurrence of a Change of Control;
that an Award shall not become vested upon a Change of Control; vesting upon termination of
personal services following a Change of Control; vesting upon termination of

- 13 -

 

personal services in anticipation of a Change of Control; the surrender or substitution of any
Award for consideration in connection with a Change of Control; or the payment of any amounts in
connection with any Awards as the result of a Change of Control.

Article 10

Changes in Capital Structure

     In the event that the Company hereafter declares a dividend payable in, or subdivides or
combines Shares, or engages in a recapitalization, reorganization, merger, consolidation, split-up,
transfer of assets, combination or exchange of Shares, Change of Control or any other event
affecting the Shares, the Committee shall make appropriate adjustment in the number (including
without limitation the aggregate numbers specified in Section 4.1(a), Section 4.3, Section 5.1(e)
and Section 7.6) and kind of Shares that are or may become subject to Awards granted or to be
granted hereunder, and in the exercise price of Options or Awards granted hereunder, and shall take
such other action as in its judgment shall be necessary or appropriate to equitably preserve each
Participant’s rights with respect to such Awards substantially proportionate to his or her
respective rights existing prior to such event. The decision of the Committee with respect to any
matter referred to in this Article 10 shall be conclusive and binding upon each Participant. The
Company shall give each Participant written notice of any adjustments to an Award of the
Participant or the terms and conditions thereof made pursuant to this Article 10. Nothing herein
is intended to preserve an Participant’s equity interest in the Company against dilution resulting
from the issuance of additional securities by the Company subsequent to the grant of an Award.

Article 11

Beneficiary Designation

     Each Participant may, from time to time, designate a beneficiary or beneficiaries (who may be
named contingently or successively) who shall acquire the Participant’s rights under the Plan in
case the Participant dies before exercising all of such rights. A Participant may designate such
beneficiary or beneficiaries by giving the Company written notice thereof in a form prescribed by
or acceptable to the Company. Except to the extent the Participant otherwise directs, each such
designation shall revoke all prior designations by the Participant, and such notice shall be
effective only when given to the Company (including postmarked) during the Participant’s lifetime.
In the absence of an effective designation or if all duly designated beneficiaries predecease the
Participant (or fail to survive the Participant by at least ten business days), any rights
remaining unexercised at the Participant’s death shall be exercised by his or her estate. In the
event of a Participant’s death, all actions that he or she would otherwise be entitled to take
under the Plan may be taken by his or her beneficiary or estate, as the case may be, and all
references in this Plan to “Optionee” or “Participant” shall, under such circumstances, be deemed
to include such beneficiary or estate.

- 14 -

 

Article 12

Rights of Participants

     No Participant shall acquire any rights as a stockholder of the Company hereunder unless and
until, and except to the extent that, a stock certificate representing Shares duly earned by such
Participant pursuant to any Option or other Award has been issued to such Participant or the
Restricted Stock Award confers such rights on the Participant. Nothing in this Plan or any Award
Agreement shall confer upon any Participant any right to continue in the employment of the
Participating Company Group, or to serve as an Independent Contractor, or interfere in any way with
the right of a Participating Company to terminate the Participant’s employment or Independent
Contractor relationship at any time. Unless specifically provided otherwise, no grant of an Award
shall be deemed salary or compensation for the purpose of computing benefits under any employee
benefit plan or other arrangement of a Participating Company for the benefit of its employees
unless the Participating Company shall specifically determine otherwise. No Participant shall have
any claim to an Award unless and until it is actually granted under the Plan, an Award Agreement is
delivered to the Participant, and if applicable, the Participant has complied with any
prerequisites for such Award (including, but not limited to, countersigning the Award Agreement, if
applicable). To the extent that any person acquires a right to receive cash payments from the
Company under the Plan, such right shall, except as otherwise provided by the Committee, be no
greater than the right of an unsecured general creditor of the Company. All cash payments to be
made hereunder shall be paid from the general funds of the Company, and no special or separate fund
shall be established and no segregation of assets shall be made to assure payment of such amounts,
except as otherwise provided by the Committee.

Article 13

Amendment, Modification and Termination

     13.1 Amendment. The Board may at any time suspend or terminate the Plan, and may
amend it from time to time in such respects as the Board may deem advisable, provided that such
amendment, suspension or termination complies with all applicable state and federal requirements
and requirements of any stock exchange on which the Shares are then listed, including any
applicable requirement that the Plan or an amendment to the Plan be approved by the shareholders.
The Board shall not amend the Plan to permit a transaction that would have the effect of repricing
an Option or Stock Appreciation Right under GAAP without obtaining shareholder approval of such
amendment.

     13.2 Awards Previously Granted. No amendment, modification, suspension or termination
of the Plan (including this amendment and restatement of the Plan) shall automatically change the
terms of any Awards issued prior to the effective date of such amendment, modification, suspension
or termination of the Plan, which Awards shall continue to be subject to the terms of the Plan
prior to such effective date and the terms of the outstanding Award Agreements. Notwithstanding
the preceding sentence, (i) the Committee may modify the form, terms and conditions of any
outstanding Award (to the extent consistent with the terms of the Plan) in such manner, not
materially adverse to the Participant, as the Committee in its discretion may determine, and (ii)
with respect to any Participant subject to foreign tax laws or regulations, the Committee may vary
the form, terms and conditions of any Option or Award (to the extent consistent with the terms of
the Plan) as the Committee in its discretion may deem necessary or advisable to allow the
Participant to qualify for favorable tax treatment under such foreign tax laws or regulations.

- 15 -

 

Article 14

Indemnification

     No member of the Board or the Committee (or any delegate thereof) shall be personally liable
by reason of any contract or other instrument executed by such member (or on behalf of such member)
in his or her capacity as a member of the Board or Committee or by reason of any mistake of
judgment made by him or her in good faith in such capacity. The Company shall indemnify each
employee, officer or director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated and shall hold such
person harmless against any loss, liability, claim, cost or expense (including reasonable
attorneys’ fees and any sum paid in settlement of a claim with the approval of the Committee)
incurred by or asserted against such person as a result of or arising out of any act or omission to
act in connection with the Plan, unless arising out of such person’s fraud or bad faith. The right
of indemnification provided for in this Article 14 shall be in addition to any rights of
indemnification to which such person may be entitled under the certificate of incorporation or
bylaws of the Company, as a matter of law or otherwise, or any power that the Company may have to
indemnify such person or hold him or her harmless.

Article 15

Successors

     All obligations of the Company under the Plan with respect to Awards granted hereunder shall
be binding on any successor to the Company and shall survive any purchase, merger, consolidation or
other disposition of all or substantially all of the business and/or assets of the Company.

Article 16

Miscellaneous

     16.1 Applicable Law. The Plan and the grant of Awards hereunder shall be subject to
all applicable federal and state laws, rules, and regulations and to such approvals by any United
States government or regulatory agency as may be required. To the extent not preempted by federal
law, this Plan and all actions taken hereunder shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in such State, without
regard to its rules concerning conflicts of laws.

     16.2 Severability. If any provision of this Plan or an Award Agreement is or becomes
or is deemed invalid, illegal, or unenforceable in any jurisdiction, or would disqualify the Plan
or any Award Agreement under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws or if it cannot be construed or deemed
amended without, in the determination of the Committee, materially altering the intent of the Plan
or the Award Agreement, it shall be stricken and the remainder of the Plan or the Award Agreement
shall remain in full force and effect.

- 16 -

 

     16.3 Gender and Number. Except when otherwise indicated by the context, references
herein to one gender shall include the other gender, and references herein to the singular or
plural shall include the plural or singular.

     16.4 Headings. The headings of the Articles and Sections of the Plan are for
convenience of reference only and shall not be considered in interpreting or construing the Plan.

- 17 -

 

     IN WITNESS WHEREOF, the undersigned officer of the Company certifies that the foregoing Plan
was duly adopted by the Board as of the date first written above, subject to and conditioned upon
approval of the Plan by the Company’s shareholders, which
approval was obtained at the Company’s annual meeting of
shareholders on June 2, 2005.

	 	 	 	 	 
	 	YOUBET.COM, INC.

 	 
	 	By:  	
/s/ Charles R. Bearchell	 
	 	Title: 	Chief Financial Officer	 
	 	 		 
	 

- 18 -<PAGE>
                                                                    EXHIBIT 4.24

THIS NOTE IS A GLOBAL SECURITY REFERRED TO IN THE INDENTURE HEREINAFTER REFERRED
TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF. THIS NOTE
IS EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE
DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITORY.

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

No. R-02                                   Principal Amount:  $150,000,000
CUSIP No. 48666KAM1                        (or such other principal amount
ISIN No. US48666KAM18                      as is set forth on Schedule A hereto)

                                     KB Home

                          6 1/4% Senior Notes due 2015

         KB Home, a Delaware corporation (hereinafter called the "Company",
which term includes any successor corporation under the Indenture referred to
below), for value received, hereby promises to pay to Cede & Co., or registered
assigns, the principal sum of ONE HUNDRED FIFTY MILLION DOLLARS ($150,000,000)
or such other principal amount as is set forth on Schedule A hereto on June 15,
2015, and to pay interest thereon from June 2, 2005, or from the most recent
date to which interest has been paid or duly provided for, semiannually in
arrears on June 15 and December 15 of each year (each, an "Interest Payment
Date"), commencing December 15, 2005, and at Maturity, at the rate of 6 1/4% per
annum, until the principal hereof is paid or duly made available for payment.
Interest on this Note shall be calculated on the basis of a 360-day year
consisting of twelve 30-day months. The interest so payable and punctually paid
or duly provided for on any Interest Payment Date will, as provided in such
Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the June 1 or December 1 (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest which is payable, but is not punctually paid or duly
provided for, on any Interest Payment Date shall forthwith cease to be payable
to the Person who was the Holder hereof on the relevant Regular Record Date by
virtue of having been such Holder, and may be paid to the Person in whose name
this Note (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to the Holder of this
Note not less than 10 days prior to such Special Record Date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in such
Indenture.

         Payment of the principal of and premium, if any, and interest on this
Note will be made at the Office or Agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that, at the
option of the Company, interest may be paid by check mailed to the

<PAGE>

address of the Person entitled thereto as such address shall appear in the
Security Register or by transfer to an account maintained by the payee with a
bank located in the United States; and provided, further, that if this Note is a
global Note registered in the name of a Depository or its nominee, then,
anything in the Indenture or the Notes to the contrary notwithstanding, payments
of the principal of and premium, if any, and interest on this Note shall be made
by wire transfer.

         This Note is one of a duly authorized issue of Securities of the
Company (herein called the "Notes") issued and to be issued in one or more
series under an Indenture dated as of January 28, 2004 (the "Original
Indenture"), as amended and supplemented by the First Supplemental Indenture
dated as of January 28, 2004 (the "First Supplemental Indenture"), and by the
Second Supplemental Indenture dated as of June 30, 2004 (the "Second
Supplemental Indenture"; the Original Indenture, as amended and supplemented by
the First Supplemental Indenture and the Second Supplemental Indenture and all
other indentures supplemental thereto, is herein called the "Indenture"), each
among the Company, the Guarantors and SunTrust Bank, as trustee (herein called
the "Trustee", which term includes any successor trustee under the Indenture),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Guarantors, the Trustee and the
Holders of the Notes, and the terms upon which the Notes are, and are to be,
authenticated and delivered. This Note is one of the series designated on the
face hereof, currently limited (subject to exceptions provided in the Indenture
and subject to the right of the Company to reopen such series for issuance of
additional Securities of such series upon the terms and subject to the
conditions specified in the Indenture) in aggregate principal amount to
$450,000,000.

         Payments of principal of and premium, if any, and interest on the Notes
are fully, irrevocably and unconditionally guaranteed, jointly and severally, by
the Guarantors on the terms and subject to the limitations set forth in the
Indenture. A Guarantor may be released from its obligations under the Indenture
and those obligations may be reinstated, all on the terms and subject to the
conditions set forth in the Indenture.

         The Notes may be redeemed, in whole or from time to time in part, at
the Company's option on any date (each, a "Redemption Date") at a Redemption
Price equal to the greater of: (a) 100% of the principal amount of the Notes to
be redeemed, and (b) the sum of the present values of the remaining scheduled
payments of principal and interest on the Notes to be redeemed (exclusive of
interest accrued to the applicable Redemption Date) discounted to such
Redemption Date on a semiannual basis, assuming a 360-day year consisting of
twelve 30-day months, at the Treasury Rate plus 35 basis points, plus, in the
case of both clause (a) and (b) above, accrued and unpaid interest on the
principal amount of the Notes being redeemed to such Redemption Date.
Notwithstanding the foregoing, installments of interest on Notes whose Stated
Maturity is on or prior to the relevant Redemption Date will be payable to the
Holders of such Notes (or one or more Predecessor Securities) registered as such
at the close of business on the relevant Regular Record Date according to their
terms and the provisions of the Indenture.

         As used in this Note, the following terms have the meanings set forth
below:

         "Treasury Rate" means, with respect to any Redemption Date for the
Notes:

         (a)  the yield, under the heading that represents the average for the
              immediately preceding week, appearing in the most recently
              published statistical release designated "H.15(519)" or any
              successor publication which is published weekly by the Board of
              Governors of the Federal Reserve System and which establishes
              yields on actively traded United States Treasury securities
              adjusted to constant maturity under the caption "Treasury Constant
              Maturities," for the maturity corresponding to the Comparable
              Treasury Issue (if no maturity is within three months before or
              after the Final Maturity Date for the Notes, yields for the two
              published maturities most closely corresponding to the Comparable
              Treasury Issue shall be determined and the Treasury Rate shall be
              interpolated or extrapolated from such yields on a straight-line
              basis, rounding to the nearest month); or

         (b)  if such release (or any successor release) is not published during
              the week preceding the calculation date or does not contain such
              yields, the rate per annum equal to the semiannual equivalent
              yield to maturity of the Comparable Treasury Issue, calculated
              using a price for the Comparable Treasury Issue (expressed as a
              percentage of its principal amount) equal to the Comparable
              Treasury Price for such Redemption Date.

                                       2
<PAGE>

The Treasury Rate shall be calculated on the third Business Day preceding the
applicable Redemption Date. As used in the immediately preceding sentence and in
the definition of "Reference Treasury Dealer Quotations" below, the term
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which
is not a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to close.

         "Comparable Treasury Issue" means, with respect to any Redemption Date
for the Notes, the United States Treasury security selected by the Independent
Investment Banker as having a maturity comparable to the remaining term of the
Notes to be redeemed that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the remaining term of the Notes to be
redeemed.

         "Independent Investment Banker" means, with respect to any Redemption
Date for the Notes, UBS Securities LLC and its successors or, if such firm or
any successor to such firm, as the case may be, is unwilling or unable to select
the Comparable Treasury Issue, an independent investment banking institution of
national standing appointed by the Trustee after consultation with the Company.

         "Comparable Treasury Price" means, with respect to any Redemption Date
for the Notes:

         (a)  the average of four Reference Treasury Dealer Quotations for such
              Redemption Date, after excluding the highest and lowest such
              Reference Treasury Dealer Quotations, or

         (b)  if the Trustee obtains fewer than four such Reference Treasury
              Dealer Quotations, the average of all such quotations.

         "Reference Treasury Dealer" means UBS Securities LLC and its successors
(provided, however, that if such firm or any such successor, as the case may be,
shall cease to be a primary U.S. Government securities dealer in New York City
(a "Primary Treasury Dealer"), the Trustee, after consultation with the Company,
will substitute therefor another Primary Treasury Dealer) and three other
Primary Treasury Dealers selected by the Trustee after consultation with the
Company.

         "Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date for the Notes, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such Redemption Date.

         "Final Maturity Date" means June 15, 2015.

         Notice of any redemption by the Company will be mailed at least 30 days
but not more than 60 days before any Redemption Date to each Holder of Notes to
be redeemed. If less than all the Notes are to be redeemed at the option of the
Company, the Trustee will select, in such manner as it deems fair and
appropriate, the Notes (or portions thereof) to be redeemed. Unless the Company
defaults in payment of the Redemption Price (including, without limitation,
interest, if any, accrued to the applicable Redemption Date), on and after the
applicable Redemption Date interest will cease to accrue on the Notes or
portions thereof called for redemption on such Redemption Date.

         If an Event of Default with respect to the Notes shall occur and be
continuing, the principal of and accrued and unpaid interest on the Notes may be
declared due and payable in the manner and with the effect provided in the
Indenture.

         The Indenture permits, with certain exceptions as therein provided, the
2amendment thereof and the modification of the rights and obligations of the
Company and the Guarantors and the rights of the Holders of the Securities of
each series issued under the Indenture at any time by the Company, the
Guarantors and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the Securities at the time

                                       3
<PAGE>

Outstanding of each series affected thereby. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities of any series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company and the Guarantors with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Notes
issued upon the registration of transfer hereof or in exchange herefor or in
lieu hereof, whether or not notation of such consent or waiver is made upon this
Note.

         No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Note, at the time, place and rate, and in the coin or currency,
herein and in the Indenture prescribed.

         As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Security
Register upon surrender of this Note for registration of transfer at the Office
or Agency of the Company maintained for the purpose in any place where the
principal of and interest on this Note are payable, duly endorsed, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by the Holder hereof or by his
attorney duly authorized in writing, and thereupon one or more new Notes, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

         The Notes are issuable only in fully registered form without coupons in
the denominations of $1,000 and integral multiples of $1,000 in excess thereof.
As provided in the Indenture and subject to certain limitations set forth
therein, the Notes are exchangeable for a like aggregate principal amount of
Notes of authorized denominations as requested by the Holders surrendering the
same.

         No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith, other than
in certain cases provided in the Indenture.

         Prior to due presentment of this Note for registration of transfer, the
Company, the Guarantors, the Trustee and any agent of the Company, any Guarantor
or the Trustee may treat the Person in whose name this Note is registered as the
owner hereof for all purposes, whether or not this Note shall be overdue, and
none of the Company, the Guarantors or the Trustee nor any such agent shall be
affected by notice to the contrary.

         The Indenture contains provisions whereby (i) the Company and the
Guarantors may be discharged from their obligations with respect to the Notes
(subject to certain exceptions) or (ii) the Company may be released from its
obligations under specified covenants and agreements in the Indenture, in each
case if the Company irrevocably deposits with the Trustee money and/or
Government Obligations sufficient to pay and discharge the entire indebtedness
on all Notes, and satisfies certain other conditions, all as more fully provided
in the Indenture. In addition, the Indenture shall cease to be of further effect
(subject to certain exceptions) with respect to the Notes when (1) either (A)
all Notes previously authenticated and delivered have been delivered (subject to
certain exceptions) to the Trustee for cancellation, or (B) all Notes (i) have
become due and payable or (ii) will become due and payable at their Stated
Maturity within one year or (iii) are to be called for redemption within one
year and, in the case of (i), (ii) or (iii) above, the Company has irrevocably
deposited with the Trustee money in an amount sufficient to pay and discharge
the entire indebtedness on all such Notes not theretofore delivered to the
Trustee for cancellation in respect of principal, premium, if any, and interest
to the date of such deposit (if such Notes have become due and payable) or to
the Stated Maturity or Redemption Date thereof, as the case may be, and (2) the
Company satisfies certain other conditions, all as more fully provided in the
Indenture.

         This Note shall be governed by and construed in accordance with the
laws of the State of New York.

         All terms used in this Note which are defined in the Indenture and not
defined herein shall have the meanings assigned to them in the Indenture.

         Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee under the

                                       4
<PAGE>

Indenture by the manual signature of one of its authorized signatories, this
Note shall not be entitled to any benefits under the Indenture (including,
without limitation, the Guarantees) or be valid or obligatory for any purpose.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       5
<PAGE>
         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signatures of its duly authorized officers.

Dated:  June 27, 2005

KB HOME

By:  SPECIMEN                               By:  SPECIMEN
     ----------------------------------          -------------------------------
     Name:    Kimberly N. King                   Name:  Kelly Masuda
     Title:   Vice President and                 Title: Senior Vice President,
              Corporate Secretary                        Capital Markets and
                                                         Treasurer

TRUSTEE'S CERTIFICATE OF
AUTHENTICATION

This is one of the Securities of the
series designated therein referred to
in the within-mentioned Indenture.

SUNTRUST BANK, as Trustee

By:  SPECIMEN
     ----------------------------------
     Authorized Signatory

                                       6
<PAGE>
                                  ABBREVIATIONS

        The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

                      TEN COM--as tenants in common
                      TEN ENT--as tenants by the entireties
                      JT TEN--as joint tenants with right of survivorship
                              and not as tenants in common
                      UNIF GIFT MIN ACT -- ________Custodian_________
                                            (Cust)           (Minor)

                                          under the Uniform Gift to Minors Act

                                          --------------------------------------
                                                        (State)

    Additional abbreviations may also be used though not in the above list.

                     --------------------------------------

FOR VALUE RECEIVED, the undersigned registered holder hereby sell(s), assign(s)
and transfer(s) unto

      PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

               --------------------------------------------------

               --------------------------------------------------

--------------------------------------------------------------------------------
             PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE

--------------------------------------------------------------------------------
the within security and all rights thereunder, hereby irrevocably constituting
and appointing

___________________________________________________________________Attorney to
transfer said security on the books of the Company with full power of
substitution in the premises.

Dated:                                       Signed:
      -----------------------------                 ----------------------------

        Notice: The signature to this assignment must correspond with the name
as it appears upon the face of the within security in every particular, without
alteration or enlargement or any change whatever.

                                       7
<PAGE>
                                   SCHEDULE A

      The initial principal amount of this global Note is One Hundred Fifty
Million Dollars ($150,000,000). The following increases or decreases in the
principal amount of this global Note have been made:

<TABLE>
<CAPTION>
                                                                Principal amount of
                 Amount of increase     Amount of decrease in   this global Note       Signature of
                 in principal amount    principal amount of     following such         authorized signatory
Date made        of this global Note    this global Note        decrease or increase   of Trustee
---------        -------------------    ----------------------  --------------------   --------------------
<S>              <C>                    <C>                     <C>                    <C>

----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------
</TABLE>

                                       8

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}]]