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Employment Agreement - KB Home and Bruce Karatz

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                             [KAUFMAN & BROAD LOGO]

December 1, 1995


Mr. Bruce Karatz
Chairman, President and Chief Executive Officer
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard, 7th Floor
Los Angeles, California  90024


         Re:     Employment Agreement


Dear Bruce:

         This letter will confirm our agreement concerning your continued
employment with Kaufman and Broad Home Corporation (the "Company") as follows:

         1.  Employment.  The Company hereby employs you and you hereby accept
employment by the Company in accordance with the terms and provisions of this
Agreement.  You shall be an employee exclusively of the Company and shall serve
the Company to the best of your abilities, devoting your full productive time,
energies, and abilities to the fulfillment of your obligations hereunder.  All
improvements, discoveries, business relationships, corporate opportunities,
management procedures, and goodwill conceived, divested, established,
developed, or perfected by you during the period of your employment and related
in any way to the business of the Company or any of its affiliates shall
promptly be disclosed to and be the exclusive property of the Company.

         2.  Term.  The term of this Agreement shall commence on December 1,
1995, and, subject to earlier termination as provided herein, shall continue for
a term of six years, expiring November 30, 2001, to be automatically extended
year to year thereafter, unless either party shall have given six months' prior
written notice of an intention not to extend.

         3.  Duties and Responsibilities.  You shall be employed as the
Chairman, President and Chief Executive Officer of Kaufman and Broad Home
Corporation, and as such shall have responsibility for the supervision and
management of the world-wide activities of the Company and its subsidiaries. You
shall manage such activities and perform such duties in accordance with your
judgment and in the best interests of the Company and its stockholders, subject
to such policies and directives as promulgated by the Board of Directors of the
Company.
<PAGE>   2
Mr. Bruce Karatz
December 1, 1995
Page 2

         4.  Compensation.  For all services to be rendered by you to the
Company and its affiliates hereunder, including without limitation, services as
an officer, director, or member of any committee, you shall be compensated as
follows:

                 (a)  Base Salary.  You shall receive a fixed base salary,
which shall be payable in semi-monthly installments, in accordance with the
customary payroll practices of the Company.  For the period December 1, 1995 to
November 30, 1996, your base salary shall be at an annual rate of $650,000, and,
commencing December 1, 1996 and annually thereafter, your salary shall be
adjusted in accordance with the judgment and discretion of the Board of
Directors of the Company, provided that in no event shall your base salary
during the term of this Agreement be less than at the annual rate of $650,000.

                 (b)  Incentive Compensation.  You shall be entitled to earn
annual incentive compensation for the fiscal year ending November 30, 1996, and
each subsequent fiscal year during the term hereof.  All incentive compensation,
including restricted stock awards to which you are entitled under this
paragraph, shall be made under and subject to the terms of the Performance-Based
Incentive Plan for Senior Management (the "Plan") which is attached as Appendix
A.  The incentive compensation you shall be entitled to earn is as follows:

                         (i)  An annual cash incentive compensation equal to
         1.25% of the pretax, preincentive income ("PPI") of the Company, as
         defined in Appendix B, provided:

                                  (aa)  No such incentive shall be payable with
                 regard to any fiscal year in which the pretax return on equity
                 ("ROE") of the Company, as defined in Appendix B, is not equal
                 to or greater than ten percent (10%); and

                                  (bb)   In no event shall the amount of the
                 cash incentive to be paid under this subparagraph (i) be
                 greater in any fiscal year than $3,000,000; and

                                  (cc)  As in the past, this formula may be
                 adjusted from time to time.

                          (ii)  An annual special grant of restricted
         stock where the number of restricted shares to be awarded shall be
         determined by dividing the product of .50% times (PPI minus
         $50,000,000) by the average share price determined by averaging the
         high and the low price of the shares of the common stock of the Company
         on the New York Stock Exchange on the date of the grant.  This
         restricted stock shall vest upon your fifty-fifth birthday provided you
         are still employed by the Company at that time and shall vest earlier
         upon your termination of employment due to death, disability (as
         defined in Section 5(b)), involuntary termination of employment by the
         Company without "Cause" (as defined in Section 6(d)), or voluntary
         termination of employment for "Good Reason" (as defined in Section
         6(e)) or upon a sale of the Company (as defined in Section 6(a)).
<PAGE>   3
Mr. Bruce Karatz
December 1, 1995
Page 3


         Except as provided above, restricted stock granted under this
         subparagraph (ii) shall be forfeited upon your voluntary termination of
         employment without "Good Reason" before your fifty-fifth birthday.  The
         terms and conditions of the restricted stock are more fully defined in
         Appendix C.  No fractional shares shall be issued hereunder.  No
         special restricted shares shall be issued with regard to any fiscal
         year in which the Company does not have PPI in excess of $50,000,000.
         This limitation shall not apply to any restricted stock grants which
         you may be entitled to receive pursuant to Section 4(c).

                                  (aa)  In no event shall the aggregate number
                 of shares awarded pursuant to an annual special grant of
                 restricted stock under this subparagraph (ii) during any fiscal
                 year exceed 100,000 shares, plus the Carryover Restricted Stock
                 Amount.  The "Carryover Restricted Stock Amount" is 100,000
                 shares for each fiscal year commencing on or after December 1,
                 1995 and ending prior to the fiscal year for which the special
                 grant of restricted stock is being made, reduced by the number
                 of shares of stock covered by special grants of restricted
                 stock previously made during any fiscal year commencing on or
                 after December 1, 1995.

                                  (bb)   The limits on the aggregate number of
                 shares which may be awarded under subparagraph (ii)(aa) above
                 shall be appropriately adjusted to reflect any change in the
                 shares of the stock of the Company as a result of any stock
                 split, stock dividend, recapitalization, merger, consolidation,
                 reorganization, spin-off, other distribution of stock or
                 property, partial or complete liquidation, or other similar
                 corporate transaction.

                          (iii)  A defined benefit supplemental retirement plan
         ("SERP") which will provide an annual retirement benefit of $492,000
         per year for twenty-five years if you retire at age sixty.  The terms
         and conditions of this SERP are more fully defined in Appendix D.  The
         SERP will be funded with a rabbi trust which may own a life insurance
         policy on your life as described in Appendix D.  The Company will
         contribute $250,000 to the rabbi trust during each fiscal year while
         you are employed by the Company.  The Company shall be obligated to
         pay the SERP benefits in accordance with the terms and conditions of
         the SERP as set forth in Appendix D, irrespective of whether or not
         the annual amounts contributed by the Company to fund the SERP are
         sufficient to meet the Company's entire obligation to pay SERP
         benefits.

                          (iv)  By no later than February 1, 1997, and each
         anniversary thereof, the Personnel, Compensation and Stock Plan
         Committee of the Company's Board of Directors, or its successor
         committee (the "Committee"), will certify the amount of incentive
         compensation to which you are entitled, if any, for the preceding
         fiscal year under subpargraphs (i) and (ii) above.  The grant date of
         any restricted stock awarded
<PAGE>   4
Mr. Bruce Karatz
December 1, 1995
Page 4



         under subparagraph (ii) shall be the effective date of such Committee
         certification.  Promptly following the effective date of the
         certification, the Company will deliver any cash award earned under
         subparagraph (i) and prepare an agreement substantially in the form of
         Appendix C evidencing any restricted stock award earned under
         subparagraph (ii).

                 (c)  Employment Benefits.  You shall also be entitled to
receive during the term of this Agreement all other employee benefits,
including reimbursement for bona fide business expenses, a car leased by you
and paid for by the Company, all automobile expenses, vacations, life and
medical insurance, key man motivational programs, the deferred profit sharing
program, and stock option, restricted stock and similar plans as may be offered
by the Company to its key executive personnel.  You shall further be entitled
to receive up to $35,000 per year to pay for personal financial management
services.  This payment will be in addition to tax and financial counseling
services which will be offered to you on the same basis as offered by the
Company to its key executives.

                 (d)  Extension of Restricted Stock and Stock Options.  Upon
your retirement after you attain age 55, all unvested restricted stock whenever
granted and held by you shall vest.  Upon your retirement after you attain age
55, all stock options granted after January 1, 1996 and held by you shall not
be forfeited but shall be retained by you and shall continue to vest in
accordance with their terms as though you were still employed by the Company
for a period of five years following your retirement.  All such outstanding
stock options will expire at the earlier of their original expiration dates or
five years following your retirement.

         5.  Termination.

                 (a)  Death.  In the event of your death, this Agreement and
all your unearned rights hereunder shall terminate immediately.  In such event,
the Company shall promptly pay to your estate all earned but unpaid incentive
compensation.  In addition, the Company shall pay your estate the current year
incentive compensation as if you survived until November 30 and any amounts due
under the SERP defined in Appendix D.  Any unvested stock options or restricted
stock which you then hold shall become vested upon your death.  Lastly, the
Company shall pay to your estate an additional death benefit equal to two times
the sum of your average annual base salary and the "value of the incentive
compensation earned" (as defined below) for the prior three fiscal years, which
will be payable by the Company in a lump sum to your estate.

         For purposes of Sections 5(a), 5(b), 6(a) and 6(b) of this Agreement,
the "value of the incentive compensation earned" for a fiscal year shall be
determined by multiplying 1.75% times PPI (as defined in Appendix B) for the
applicable fiscal year, provided that the ROE of the Company was equal to or
greater than ten percent (10%) for the applicable fiscal year.  The "value of
the incentive compensation earned" for any fiscal year shall be deemed to be
zero if the
<PAGE>   5
Mr. Bruce Karatz
December 1, 1995
Page 5



ROE of the Company was less than ten percent (10%) for the applicable fiscal
year.

         In lieu of payments to your estate following your death, you may
designate a beneficiary or beneficiaries to whom all payments which may be due
under this Agreement and the SERP will be made in the event of your death.
Such designation shall be made on a form, substantially similar to Appendix E
hereto, delivered to the Company.  You shall have the right to change or revoke
any such designation from time to time by filing a new designation or notice of
revocation with the Company, and no notice to any beneficiary nor consent by
any beneficiary shall be required to effect any such change or revocation.  If
you shall fail to designate a beneficiary before your death, or if no
designated beneficiary survives you, any payments which may be due under this
Agreement following your death will be paid to your estate.

                 (b)  Disability.  In the event you shall become unable to
perform the services contemplated by this Agreement due to a physical or mental
disability for a continuous period of eight weeks or an aggregate of more than
90 days in any 120 day period, the Company may, to the extent consistent with
the federal Family and Medical Leave Act and the California Family Rights Act,
terminate this Agreement by giving written notice of such termination to you.
In the event of any such termination by the Company, the Company shall promptly
pay to you all earned but unpaid incentive compensation.  In addition, the
Company shall pay you the current year incentive compensation as if the
disability did not occur until November 30.  Lastly, the Company shall pay to
you an amount equal to two times the sum of your average annual base salary and
the "value of the incentive compensation earned" (as defined in Section 5(a))
for the prior three fiscal years, reduced by amounts paid under a Company
disability or income replacement plan, in twelve monthly installments following
this termination.  The Company may condition the payments set forth above upon
securing from you an appropriate release of claims under the federal Family and
Medical Leave Act and the California Family Rights Act.

         6.  Payment on Sale of Company; Severance Payments.

                 (a)  Sale of the Company.  If a "Change of Ownership" (as
defined below) of the Company occurs during the term of this Agreement, the
Company shall pay you promptly in cash an amount equal to two times the sum of
your average annual base salary and the "value of the incentive compensation
earned" (as defined in Section 5(a)) for the prior three fiscal years preceding
the fiscal year in which the "Change of Ownership" occurs.  In the event
payment is made under this subparagraph (a), no amount shall be payable under
subparagraph (b) below.

                 (b)  Severance Payment.  If the Company shall terminate your
employment without "Cause" (as defined below) or you shall terminate your
employment for "Good Reason" (as defined below), the Company shall, unless
payment has been previously made to you under subparagraph (a) above, pay you
promptly in cash an amount equal to two times the sum of your average annual
base salary and the "value of the incentive compensation earned" (as defined in
<PAGE>   6
Mr. Bruce Karatz
December 1, 1995
Page 6



Section 5(a)) for the prior three fiscal years preceding the termination of
your employment.

                 (c)  Change of Ownership.  A "Change of Ownership" shall mean
any change in control of the Company of a nature that would be required to be
reported in response to Item 1(a) of the Current Report on Form 10-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Act"); provided that, without
limitation, such a "Change of Ownership" shall be deemed to have occurred if:

                         (i)  a third person, including a "group" as such term
         is used in Section 13(d)(3) of the Act, becomes the beneficial owner,
         directly or indirectly, of 20% or more of the combined voting power of
         the Company's outstanding voting securities ordinarily having the
         right to vote for the election of directors of the Company, unless
         such acquisition of beneficial ownership is approved by a majority of
         the Incumbent Board (as such term is defined in clause (ii) below); or

                         (ii)  individuals who, as of the date hereof,
         constitute the Board of Directors of the Company (the "Board"
         generally and as of the date hereof the "Incumbent Board") cease for
         any reason to constitute at least a majority of the Board, provided
         that any person becoming a director subsequent to the date hereof
         whose election, or nomination for election by the Company's
         shareholders, was approved by a vote of at least three-quarters of the
         directors comprising the Incumbent Board (other than an election or
         nomination of an individual whose initial assumption of office is 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-11 of Regulation 14A promulgated under the Act) shall be,
         for purposes of this Agreement, considered as though such person were
         a member of the Incumbent Board.

         For purposes of any incentive compensation paid to you pursuant to
this Agreement, the definition of "Change of Ownership" set forth herein shall
prevail over the definition of "Change in Ownership", or any similar term,
contained in the Plan, or any other employee compensation plan, under which
such incentive compensation may be granted.

                 (d)  Cause.  "Cause" shall mean (i) an act or acts of
dishonesty taken by you and intended to result in your substantial personal
enrichment at the expense of the Company or (ii) repeated violations by you of
your obligations under this Agreement which are demonstrably willful and
deliberate and which result in material injury to the Company.

                 (e)  Good Reason.  "Good Reason" shall mean (i) a material
diminution in your position or responsibilities, (ii) a material diminution of
your salary, aggregate incentive compensation opportunities (excluding any
reduction in incentive compensation awards due to the economic performance of
the Company) or aggregate benefits or (iii) any required relocation
<PAGE>   7
Mr. Bruce Karatz
December 1, 1995
Page 7



of your office beyond a 50 mile radius from the present location of your
office.

         7.  Exclusive Benefit.  You and the Company have agreed that a primary
material element of this contract is the desire of the Company to insure to
itself and its affiliates the sole and exclusive right to receive the full
benefit of your time, skill, and opportunities until November 30, 2001 or any
later date of termination of this Agreement, as the same may be extended.
Subject only to the Company's payment to you of the compensation provided
hereunder, you have agreed that until said date you will not, as a director,
officer, agent, employee, partner, owner, 5 or more percent shareholder, or
otherwise, enter into or conduct any business venture which may be competitive,
directly or indirectly, with that of the Company or any affiliate.  A business
or activity shall be deemed to be competitive if it is substantially similar to
one engaged in or conducted by the Company or any affiliate and is conducted
within a radius of 150 miles from any location in which such business or
activity is engaged in or conducted by the Company or an affiliate.  It is
understood that passive investments in income producing properties are permitted
by this paragraph. Furthermore, you have agreed that you will not, during the
term of this Agreement or for a period of two years thereafter, employ or seek
to employ any person employed by the Company or any of its affiliates in
connection with any business activities in which you may engage.

         During the performance of your duties on behalf of the Company, you
shall receive and be entrusted with certain confidential and/or secret
information of a proprietary nature.  You shall not discuss or use, during the
term of this employment agreement or any time thereafter, any such information
which is not otherwise publicly available.

         You acknowledge that your extensive experience and knowledge of the
Company and relationship with its employees make the services to be performed
by you hereunder of a special, unusual, and peculiar value to the Company, not
readily replaceable, and that by reason of your continued employment you will
continue to acquire additional confidential information and trade secrets.  The
loss of your services hereunder or the disclosure of such confidential
information and trade secrets or solicitation by you of employees of the
Company cannot be reasonably or adequately compensated for in money damages.
Accordingly, we have agreed that in addition to any other legal remedies
available, the Company shall be entitled to seek equitable relief to enjoin any
violation by you of this Agreement.

8.  Miscellaneous.

                 (a)  The waiver of either party hereto of a breach of any
provision of this Agreement by the other party shall not operate or be
construed to operate as a waiver of any subsequent breach by the other party.

                 (b)  This Agreement contains the entire agreement between you
and the Company
<PAGE>   8
Mr. Bruce Karatz
December 1, 1995
Page 8


concerning your employment during the term hereof.  It may not be changed
orally but only by an agreement, in writing, signed by you and approved by the
Board of Directors of the Company.  Notwithstanding the foregoing, it is
understood that you shall be entitled to receive base salary and incentive
compensation for the fiscal year ending November 30, 1995 in accordance with
your prior Employment Agreement entered into with the Company dated January 4,
1988, as amended on February 16, 1995.

                 (c)  If any of the provisions of this Agreement shall be
unlawful, void, or for any reason unenforceable, they shall be deemed separate
from and in no way affect the validity or enforceability of the remaining
provisions of the Agreement.

                 (d)  This Agreement is entered into in Los Angeles, California
and shall be construed and enforced under the laws of the State of California.

                 (e)  In the event any legal action or arbitration shall be
brought for the enforcement of this Agreement, or because of any alleged
dispute, breach, or default hereunder, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in such legal action or arbitration, in addition to any other relief
to which it or he may be entitled.  Nothing hereunder, however, shall be
construed to authorize filing suit in court with regard to any dispute which is
to be resolved by arbitration pursuant to Section 9 of this Agreement.

                 (f)  The Agreement shall bind and benefit the Company, its
successors and assigns and shall insure to the benefit of and be binding on
you, your heirs, executors and administrators, provided that your duties and
responsibilities hereunder may not be assigned or delegated by you.

                 (g)  All payments made by the Company under this Agreement
shall be subject to normal deductions and withholding to the extent required by
law.

         9.  Arbitration.  In the event that any controversy or dispute between
you and the Company arising out of or relating to the employment relationship,
including, but not limited to any disputes in connection with the validity,
construction, application or enforcement of the terms of this Agreement or the
SERP, occurs, any such controversy or dispute shall be submitted to final and
binding arbitration pursuant to the then most applicable Rules of the American
Arbitration Association; provided, however, that unless the parties otherwise
agree, the arbitration shall be before a single arbitrator selected either by
mutual agreement or, failing agreement, from a list of seven arbitrators
provided by AAA, four of whom shall be retired judges of the Superior or
Appellate Courts of California who are residents of Los Angeles or Orange County
and, if such list exists at the time of the dispute, who are members of the
Independent List of Retired Judges and three of whom shall be members of the
National
<PAGE>   9
Mr. Bruce Karatz
December 1, 1995
Page 9



Academy of Arbitrators, resident in Los Angeles or Orange Counties.  In the
event the parties are unable to agree upon such an arbitrator from such list of
seven, each party shall strike one name in turn with the first to strike being
chosen by lot.  When only one name remains, that person shall be the parties'
arbitrator.  The parties hereto expressly waive their rights, if any, to have
such matters heard by a jury or a judge, whether in state or federal court.

         The cost of the arbitration, including, but not limited to, any
reasonable legal fees or other expenses incident thereto incurred in connection
with such arbitration, shall be determined by the arbitrator(s) and shall be
borne by the nonprevailing party.  During the pendency of any arbitration
concerning the propriety of your termination and up to the date of the
arbitrator's award, you shall participate in all employee benefit programs of
the Company (other than the 401(k) plan) as provided in Section 4(c) above.

         The Company agrees to pay interest on any amounts payable to you under
this Agreement which are not paid within sixty (60) days after the date when
due and on any money judgment which is awarded to you following a proceeding to
enforce any portion of the Agreement from the date that payments should have
been made under this Agreement.  Such interest shall be calculated at the prime
rate offered by Bank of America, or its successor, from the date that payments
should have been made under this Agreement to the time of actual payment.


                                        Very truly yours,

                                        /s/ James A. Johnson
                                        ---------------------------------------
                                        James A. Johnson, Chairman
                                        Personnel, Compensation and
                                        Stock Plan Committee


Agreed this 16th day of November, 1995.

/s/ Bruce Karatz       
---------------------------
Bruce Karatz
<PAGE>   10
                                   APPENDIX A


                       KAUFMAN AND BROAD HOME CORPORATION

             PERFORMANCE-BASED INCENTIVE PLAN FOR SENIOR MANAGEMENT


                 SECTION 1.  Purpose.  The purposes of the Kaufman and Broad
Home Corporation Performance-Based Incentive Plan for Senior Management are to
promote the interests of  Kaufman and Broad Home Corporation (the "Company")
and its stockholders by (i) attracting and retaining exceptional executive
personnel and other key employees of the Company and its Affiliates, as defined
below; (ii) motivating such employees by means of performance-related
incentives to achieve long-range performance goals; (iii) enabling such
employees to participate in the long-term growth and financial success of the
Company; and (iv) qualifying compensation paid under the Plan for deductibility
under Section 162(m) of the Internal Revenue Code.

                 SECTION 2.  Definitions.  As used in the Plan, the following
terms shall have the meanings set forth below:

                 "Affiliate" shall mean (i) any entity that, directly or
indirectly, is controlled by the Company and (ii) any entity in which the
Company has a significant equity interest, in either case as determined by the
Committee.

                 "Award" shall mean any Performance-Based Bonus opportunity
granted under the Plan, as well as any Option, Stock Appreciation Right, award
of Restricted Stock, Restricted Stock Units or Other Stock-Based Award granted
under the Plan or granted in payment or settlement of a Performance-Based
Bonus.

                 "Award Agreement" shall mean any written agreement, contract,
or other instrument or document (which may include, if so designated by the
Committee, an Employment Agreement, as defined herein) evidencing any Award,
which may, but need not, be executed or acknowledged by a Participant.

                 "Board" shall mean the Board of Directors of the Company.

                 "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 the Company (as of the date hereof, the "Incumbent Board") cease
for any reason to constitute at least a majority of the directors constituting
the Board, 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 Exchange 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
<PAGE>   11
majority of the Board 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-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Plan, considered as though such person were a member of the Incumbent
Board, or (2) the Board (a majority of which shall consist of directors who are
members of the Incumbent Board) has determined that a Change of Ownership, for
purposes of this Plan, shall have occurred.  If any of the events enumerated in
clauses (1) or (2) occur, the Board shall determine the effective date of the
Change of Ownership resulting therefrom, for purposes of the Plan.

                 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.

                 "Committee" shall mean a committee of the Board designated by
the Board to administer the Plan and composed of not less than the minimum
number of persons from time to time required by Rule 16b-3, each of whom (i) to
the extent necessary to comply with Rule 16b-3 only, is a "disinterested
person" within the meaning of Rule 16b-3 and (ii) to the extent necessary to
comply with Section 162(m) only, is an "outside director" within the meaning of
Section 162(m).  Until otherwise determined by the Board, the Compensation
Committee designated by the Board shall be the Committee under the Plan.

                 "Company" shall mean Kaufman and Broad Home Corporation,
together with any successor thereto.

                 "Employment Agreement" shall mean (i) with respect to Awards
relating to performance in fiscal year 1995, an agreement between the Company
and a Participant, the effectiveness or continuing effectiveness of which is
contingent upon approval, or approval of the Plan, by the Company's
stockholders, which approval shall satisfy all applicable requirements of
Section 162(m) and (ii) with respect to Awards relating to performance in any
fiscal year of the Company after fiscal year 1995, an agreement between the
Company and a Participant entered into prior to the end of the first fiscal
quarter of such fiscal year.

                 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

                 "Fair Market Value" shall mean the fair market value of the
property or other item being valued, as determined by the Committee in its sole
discretion.

                 "Incentive Stock Option" shall mean a right to purchase Shares
from the Company that is granted under Section 7 of the Plan and that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.

                 "Non-Qualified Stock Option" shall mean a right to purchase
Shares from the Company that is granted under Section 7 of the Plan and that is
not intended to be an Incentive Stock Option.
<PAGE>   12
                 "Officer" shall mean, at any time, an individual who is an
officer of the Company or any of its subsidiaries.

                 "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option and shall include a Restoration Option.

                 "Other Stock-Based Award" shall mean any right granted under
Section 10 of the Plan.

                 "Participant" shall mean any Officer selected by the Committee
to receive an Award under the Plan.

                 "Performance-Based Bonus" shall mean a bonus opportunity
awarded in accordance with Section 6 of the Plan.

                 "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.

                 "Plan" shall mean this Kaufman and Broad Home Corporation
Performance-Based Incentive Plan for Senior Management.

                 "QDRO" shall mean a qualified domestic relations order meeting
such requirements as the Committee shall determine, in its sole discretion.

                 "Restoration Option" shall mean an Option granted pursuant to
Section 7(e) of the Plan.

                 "Restricted Stock" shall mean any Share granted under Section
9 of the Plan.

                 "Restricted Stock Unit" shall mean any unit granted under
Section 9 of the Plan.

                 "Rule 16b-3" shall mean Rule 16b-3 as promulgated and
interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time.

                 "Section 162(m)" shall mean Section 162(m) of the Code and the
rules and other authorities thereunder promulgated by the Internal Revenue
Service of the Department of the Treasury.

                 "SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the Staff thereof.

                 "Shares" shall mean shares of the Common Stock,
<PAGE>   13
$1 par value, of the Company, or such other securities of the Company as may be
designated by the Committee from time to time.

                 "Stock Appreciation Right" shall mean any right granted under
Section 8 of the Plan.

                 "Substitute Awards" shall mean Awards granted in assumption
of, or in substitution for, outstanding awards previously granted by a company
acquired by the Company or with which the Company combines.

                 SECTION 3.  Administration.

                 (a)  Authority of Committee.  The Plan shall be administered
by the Committee.  Subject to the terms of the Plan and applicable law, and in
addition to other express powers and authorizations conferred on the Committee
by the Plan, the Committee shall have full power and authority to:  (i)
designate Participants; (ii) determine the type or types of Awards to be
granted to an eligible Officer; (iii) determine the number of Shares to be
covered by, or with respect to which payments, rights, or other matters are to
be calculated in connection with, Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or
suspended and the method or methods by which Awards may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) recommend to the
Board any amendment, alteration, suspension, discontinuance or termination of
the Plan, and subject to the shareholder approval requirement set forth in
Section 11(a) to take any such action not required by applicable law to be
taken by the Board, (ix) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (x) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.

                 (b)  Committee Discretion Binding.  Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations, and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Award, any
stockholder and any Officer.
<PAGE>   14
                 SECTION 4.  Award Limits.

                 (a)  Plan Shares.  Subject to adjustment as provided in
Section 4(c), the number of Shares with respect to which Awards may be granted
under the Plan shall be 1,000,000.  If, after the effective date of the Plan,
any Shares covered by an Award denominated in Shares granted under the Plan, or
to which such an Award relates, are forfeited, or if such an Award is settled
for cash or otherwise terminates or is canceled without the delivery of Shares,
then the Shares covered by such Award, or to which such Award relates, or the
number of Shares otherwise counted against the aggregate number of Shares with
respect to which Awards may be granted, to the extent of any such settlement,
forfeiture, termination or cancellation, shall again become Shares with respect
to which Awards may be granted.  In the event that any Option or other Award
granted hereunder is exercised through the delivery of Shares or in the event
that withholding tax liabilities arising from such Award are satisfied by the
withholding of Shares by the Company, the number of Shares available for Awards
under the Plan shall be increased by the number of Shares so surrendered or
withheld.

                 (b)  Individual Stock-Based Awards.  Subject to adjustment
as provided in Section 4(c), no Participant may receive stock-based Awards
under the Plan in any calendar year that relate to more than 100,000 Shares
(which number shall not be subject to reduction by any Restoration Options
granted to such Participant during such calendar year); provided, however, that
such number may be increased with respect to any Participant by any Shares
available for grant to such Participant in accordance with this Paragraph 4(b)
in any prior years that were not granted in such prior years.  No provision of
this Paragraph 4(b) shall be construed as limiting the amount of any cash-based
Award which may be granted to any Participant.

                 (c)  Adjustments.  In the event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number of Shares or other securities of the Company (or number and kind
of other securities or property) with respect to which Awards may be granted,
(ii) the number of Shares or other securities of the Company (or number and
kind of other securities or property) subject to outstanding Awards, and (iii)
the grant or exercise price with respect to any Award, or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award; provided, in each case, that (A) with respect to Awards of Incentive
Stock Options no such adjustment shall be authorized to the extent that such
authority would cause the Plan to fail to qualify under Section 422(b)(1) of
the Code, as from time to time amended and (B) with respect to any Award no
such adjustment shall be authorized to the extent that such authority would be
inconsistent with the Plan's meeting the requirements of Section 162(m) of the
Code, as from time to time amended.
<PAGE>   15
                 (d)  Substitute Awards.  Any Shares underlying Substitute
Awards shall not, except in the case of Shares with respect to which Substitute
Awards are granted to individuals who are officers or directors of the Company
for purposes of Section 16 of the Exchange Act or any successor section
thereto, be counted against the Shares available for Awards under the Plan.

                 (e)  Sources of Shares Deliverable Under Awards.  Any Shares
delivered pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of Shares acquired by the Company on the open market or
otherwise.

                 (f)      Cash Award Limits.  (i) Any Participant who is the
Chief Executive Officer at the time of payment of an Award (other than a
stock-based Award) shall be eligible to be paid in any calendar year an amount
not in excess of $3,000,000 in respect of any such cash Award under the Plan,
(ii) no Participant other than a Participant described in clause (i) of this
Paragraph 4(f) shall be eligible to be paid in any calendar year more than
$2,000,000 in respect of any such cash Award.  No provision of this Paragraph
4(f) shall be construed as limiting the number of stock-based Awards that a
Participant may receive.

                 SECTION 5.  Eligibility.  Any Officer, including any Officer
who is a director of the Company or any Affiliate, who is not a member of the
Committee, shall be eligible to be designated a Participant.

                 SECTION 6.  Performance-Based Bonuses.

                 (a)      At such times and in such manner as may be prescribed
by Section 162(m), the Committee may select Participants and award to such
Participants the opportunity to earn a Performance-Based Bonus, which will be
contingent upon the Company's attainment of performance goals selected by the
Committee.

                 (b)  Performance goals which may be employed by the Committee
for purposes of a Performance-Based Bonus awarded under Paragraph (a) will
include pre-tax income, after-tax income, cash flow, return on equity, return
on capital, earnings per share, unit volume, net sales or service quality, as
determined in accordance with GAAP, if applicable, which goals may relate to
the Company as a whole or, if applicable, to the performance of one or more
specific divisions or Affiliates.

                 (c)      Notwithstanding Paragraphs (a) and (b), the formula
for determining a Performance-Based Bonus to any Participant may, if so
determined by the Committee, be governed by the terms of an Employment
Agreement applicable to such Participant.

                 (d)      Performance-Based Bonuses awarded under Paragraph (a)
may be paid in cash, other Awards or any combination thereof, and the form of
payment may be governed, as to any Participant, by an Employment Agreement
applicable to such Participant.
<PAGE>   16
                 SECTION 7.  Stock Options.

                 (a)   Grant.  Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Officers to
whom Options shall be granted, the number of Shares to be covered by each
Option, the option price therefor and the conditions and limitations applicable
to the exercise of the Option.  The Committee shall have the authority to grant
Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant
both types of options.  In the case of Incentive Stock Options, the terms and
conditions of such grants shall be subject to and comply with such rules as may
be prescribed by Section 422 of the Code, as from time to time amended, and any
regulations implementing such statute.

                 (b)  Exercise Price.  The Committee in its sole discretion
shall establish the exercise price at the time each Option is granted, which
exercise price shall be not less than the Fair Market Value of the Shares
subject to the Option on the date of grant of the Option.

                 (c)  Exercise.  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 Award Agreement or thereafter.  The
Committee may impose such 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.

                 (d)  Payment.  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, if and to the extent permitted by the Committee, by exchanging Shares owned
by the Participant (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
Shares so tendered to the Company as of the date of such tender is at least
equal to such option price plus the related amount of any taxes required to be
withheld by the Company in connection with such exercise, to the extent such
withholding taxes are then ascertainable.  If the amount of such taxes is not
ascertainable at the time of the notice of exercise, such amount shall be
tendered by you to the Company as soon as the same shall become ascertainable
and shall be communicated to you by the Company.

                 (e)  Restoration Options.  In the event that any Participant
delivers Shares in payment of the exercise price of any Option granted
hereunder in accordance with Section 7(d), or in the event that the withholding
tax liability arising upon exercise of any Option by a Participant is satisfied
through the withholding by the Company of Shares otherwise deliverable upon
exercise of the Option, the Committee shall have the authority to grant or
provide for the automatic grant of a Restoration Option to such Participant.
The grant of a Restoration Option shall be subject to the satisfaction of such
conditions or criteria as the Committee in its sole discretion shall establish
from time to time.  A Restoration Option shall entitle the holder thereof to
purchase a number of Shares equal to the number of such Shares so delivered or
withheld upon exercise of the original Option, in the discretion of the
Committee.  A Restoration Option shall have a per share exercise price of not
less than the Fair Market Value of the Shares subject to such Restoration
Option on the date of
<PAGE>   17
grant thereof and such other terms and conditions as the Committee in its sole
discretion shall determine.

                 SECTION 8.  Stock Appreciation Rights.

                 (a)  Grant.  Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Officers to
whom Stock Appreciation Rights shall be granted, the number of Shares to be
covered by each Stock Appreciation Right Award, the grant price thereof and the
conditions and limitations applicable to the exercise thereof.  Stock
Appreciation Rights may be granted in tandem with another Award, in addition to
another Award, or freestanding and unrelated to another Award.  Stock
Appreciation Rights granted in tandem with or in addition to an Award may be
granted either at the same time as the Award or at a later time.

                 (b)  Exercise and Payment.  A Stock Appreciation Right shall
entitle the Participant to receive an amount equal to the excess of the Fair
Market Value of a Share on the date of exercise of the Stock Appreciation Right
over the grant price thereof, provided that the Committee may for
administrative convenience determine that, with respect to any Stock
Appreciation Right which is not related to an Incentive Stock Option and which
can only be exercised for cash during limited periods of time in order to
satisfy the conditions of Rule 16b-3, the exercise of such Stock Appreciation
Right for cash during such limited period shall be deemed to occur for all
purposes hereunder on the day during such limited period on which the Fair
Market Value of the Shares is the highest.  Any such determination by the
Committee may be changed by the Committee from time to time and may govern the
exercise of Stock Appreciation Rights granted prior to such determination as
well as Stock Appreciation Rights thereafter granted.  The Committee shall
determine whether a Stock Appreciation Right shall be settled in cash, Shares
or a combination of cash and Shares.

                 (c)  Other Terms and Conditions.  Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall determine, at or
after the grant of a Stock Appreciation Right, the term, methods of exercise,
methods and form of settlement, and any other terms and conditions of any Stock
Appreciation Right.  Any such determination by the Committee may be changed by
the Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as well as
Stock Appreciation Rights granted or exercised thereafter.  The Committee may
impose such conditions or restrictions on the exercise of any Stock
Appreciation Right as it shall deem appropriate.

                 SECTION 9.  Restricted Stock.

                 (a)  Grant.  Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Officers to
whom Shares of Restricted Stock shall be granted, the number of Shares of
Restricted Stock to be granted to each Participant, the duration of the period
during which, and the conditions under which, the Restricted Stock may be
forfeited to the Company, and the other terms and conditions of such Awards.
Notwithstanding any other provision of this Plan to the contrary, the period
during which such Awards may be forfeited to the
<PAGE>   18
Company shall not terminate prior to the third anniversary of the date of grant
of such Award; provided, however, that the Committee may determine to have such
period terminate after the first anniversary of the date of grant of any such
Award if the Committee has established conditions for the earning of such Award
that relate to performance of the Company or one or more divisions or units
thereof.  Subject to the preceding sentence, once established, such performance
vesting criteria may be changed, adjusted or amended during the term of an
Award.

                 (b)  Transfer Restrictions.  Shares of Restricted Stock may
not be sold, assigned, transferred, pledged or otherwise encumbered, except as
provided in the Plan or the applicable Award Agreements.  Certificates issued
in respect of Shares of Restricted Stock shall be registered in the name of the
Participant and deposited by such Participant, together with a stock power
endorsed in blank, with the Company.  Upon the lapse of the restrictions
applicable to such Shares of Restricted Stock, the Company shall deliver such
certificates to the Participant or the Participant's legal representative.

                 (c)  Dividends and Distributions.  Dividends and other
distributions paid on or in respect of any Shares of Restricted Stock may be
paid directly to the Participant, or may be reinvested in additional Shares of
Restricted Stock, as determined by the Committee in its sole discretion.

                 SECTION 10.  Change of Ownership.  Notwithstanding anything to
the contrary in this Plan, unless otherwise specifically determined by the
Committee at the time of grant, all Options theretofore granted and not fully
exercisable shall become exercisable in full and the restrictions on any other
outstanding Awards shall lapse upon the occurrence of a Change of Ownership.

                 SECTION 11.  Other Stock-Based Awards.  The Committee shall
have authority to grant to any Officer an "Other Stock-Based Award", which
shall consist of any right which is (i) not an Award described in Sections 6
through 9 above and (ii) an Award of Shares or an Award denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities convertible into
Shares), as deemed by the Committee to be consistent with the purposes of the
Plan; provided that any such rights must comply, to the extent deemed desirable
by the Committee, with Rule 16b-3 and applicable law.  Subject to the terms of
the Plan and any applicable Award Agreement, the Committee shall determine the
terms and conditions of any such Other Stock-Based Award.

                 SECTION 12.  Amendment and Termination.

                 (a)  Amendments to the Plan.  Subject to the authority of the
Committee as set forth in Section 3, the Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from Section
16(b) of the Exchange Act, for which or
<PAGE>   19
with which the Board deems it necessary or desirable to qualify or comply.
Notwithstanding anything to the contrary herein, the Committee may amend the
Plan in such manner as may be necessary so as to have the Plan conform with
local rules and regulations in any jurisdiction outside the United States.

                 (b)  Amendments to Awards.  The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Award theretofore granted, prospectively or
retroactively; provided that any such waiver, amendment, alteration,
suspension, discontinuance, cancellation or termination that would adversely
affect the rights of any Participant or any holder or beneficiary of any Award
theretofore granted shall not to that extent be effective without the consent
of the affected Participant, holder or beneficiary; and provided further that
no outstanding Option may be amended to decrease the per Share exercise price
thereof, except in accordance with Section 4(c).

                 (c)  Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events.  The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(c) hereof) affecting the Company,
any Affiliate, or the financial statements of the Company or any Affiliate, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
Plan's meeting the requirements of Section 162(m) of the Code, as from time to
time amended.

                 (d)  Cancellation.  Any provision of this Plan or any Award
Agreement to the contrary notwithstanding, the Committee may cause any Award
granted hereunder to be canceled in consideration of a cash payment or
alternative Award made to the holder of such canceled Award equal in value to
the Fair Market Value of such canceled Award.

                 SECTION 13.  General Provisions.

                 (a)  Dividend Equivalents.  In the sole and complete
discretion of the Committee, an Award, whether made as an Other Stock-Based
Award under Section 10 or as an Award granted pursuant to Sections 6 through 9
hereof, may provide the Participant with dividends or dividend equivalents,
payable in cash, Shares, other securities or other property on a current or
deferred basis.

                 (b)  Nontransferability.  No Award shall be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant, except by will or the laws of descent and distribution, provided,
however, that an Award may be transferable, to the extent set forth in the
applicable Award Agreement, (i) if such Award Agreement provisions do not
disqualify such Award for exemption under Rule 16b-3, or (ii) if such Award is
not intended to qualify for exemption under such rule.
<PAGE>   20
                 (c)  No Rights to Awards.  Except as may be provided in an
Employment Agreement, no Officer, Participant or other Person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Employees, Participants, or holders or beneficiaries of Awards.
The terms and conditions of Awards need not be the same with respect to each
recipient.

                 (d)  Share Certificates.  All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan pursuant to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable Federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.

                 (e)  Delegation.  Subject to the terms of the Plan and
applicable law, the Committee may delegate to one or more officers or managers
of the Company or any Affiliate, or to a committee of such officers or
managers, the authority, subject to such terms and limitations as the Committee
shall determine, to grant Awards to, or to cancel, modify or waive rights with
respect to, or to alter, discontinue, suspend, or terminate Awards held by,
Officers who are not officers or directors of the Company for purposes of
Section 16 of the Exchange Act, or any successor section thereto, or who are
otherwise not subject to such Section.

                 (f)  Withholding.  A Participant may be required to pay to the
Company or any Affiliate and the Company or any Affiliate shall have the right
and is hereby authorized to withhold from any Award, from any payment due or
transfer made under any Award or under the Plan or from any compensation or
other amount owing to a Participant the amount (in cash, Shares, other
securities, other Awards or other property) of any applicable withholding taxes
in respect of an Award, its exercise, or any payment or transfer under an Award
or under the Plan and to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for the payment of such
taxes.  The Committee may provide for additional cash payments to holders of
Awards to defray or offset any tax arising from the grant, vesting, exercise or
payments of any Award.

                 (g)  Award Agreements.  Each Award hereunder shall be
evidenced by an Award Agreement which shall be delivered to the Participant and
shall specify the terms and conditions of the Award and any rules applicable
thereto, including but not limited to the effect on such Award of the death,
retirement or other termination of employment of a Participant.

                 (h)  No Limit on Other Compensation Arrangements.  Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other compensation arrangements, which may, but need
not, provide for the grant of bonuses, options, restricted stock, Shares and
other types of Awards provided for hereunder (subject to shareholder
<PAGE>   21
approval if such approval is required), and such arrangements may be either
generally applicable or applicable only in specific cases.

                 (i)  No Right to Employment.  The grant of an Award shall not
be construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate.  Further, the Company or an Affiliate may at any
time dismiss a Participant from employment, free from any liability or any
claim under the Plan, unless otherwise expressly provided in the Plan or in any
Award Agreement.

                 (j)  No Rights as Stockholder.  Subject to the provisions of
the applicable Award, no Participant or holder or beneficiary of any Award
shall have any rights as a stockholder with respect to any Shares to be
distributed under the Plan until he or she has become the holder of such
Shares.  Notwithstanding the foregoing, in connection with each grant of
Restricted Stock hereunder, the applicable Award shall specify if and to what
extent the Participant shall not be entitled to the rights of a stockholder in
respect of such Restricted Stock.

                 (k)  Governing Law.  The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan and any Award
Agreement shall be determined in accordance with the laws of the State of
California, except to the extent that the General Corporation Law of the State
of Delaware shall be applicable to the Company.

                 (l)  Severability.  If any provision of the Plan or any Award
is or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform the 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, such provision shall
be stricken as to such jurisdiction, Person or Award and the remainder of the
Plan and any such Award shall remain in full force and effect.

                 (m)  Other Laws.  The Committee may refuse to issue or
transfer any Shares or other consideration under an Award if, acting in its
sole discretion, it determines that the issuance or transfer of such Shares or
such other consideration might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the Exchange
Act, and any payment tendered to the Company by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant, holder or beneficiary.  Without limiting
the generality of the foregoing, no Award granted hereunder shall be construed
as an offer to sell securities of the Company, and no such offer shall be
outstanding, unless and until the Committee in its sole discretion has
determined that any such offer, if made, would be in compliance with all
applicable requirements of the U.S. federal securities laws and any other laws
to which such offer, if made, would be subject.

                 (n)  No Trust or Fund Created.  Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or
a fiduciary relationship between the Company or any Affiliate and a Participant
or any other Person.  To the extent that any Person
<PAGE>   22
acquires a right to receive payments from the Company or any Affiliate pursuant
to an Award, such right shall be no greater than the right of any unsecured
general creditor of the Company or any Affiliate.

                 (o)  No Fractional Shares.  No fractional Shares shall be
issued or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional Shares
or any rights thereto shall be canceled, terminated, or otherwise eliminated.

                 (p)      Headings.  Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference.  Such
headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.

                 SECTION 13.  Term of the Plan.

                 (a)  Effective Date.  The Plan shall be effective as of
December 1, 1994, subject to approval by the shareholders of the Company within
one year thereafter.

                 (b)  Expiration Date.  No Incentive Stock Option shall be
granted under the Plan after November 30, 2004.   Unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award granted
hereunder may, and the authority of the Board or the Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such Award or to waive any
conditions or rights under any such Award shall, continue after the authority
for grant of new Awards hereunder has been exhausted.
<PAGE>   23
                                   APPENDIX B


PPI.  Total consolidated revenues of the Company and related entities less
total associated consolidated expenses for a given fiscal year determined in
accordance with generally accepted accounting principles, exclusive of all
income taxes and incentive compensation costs.

ROE.  A ratio, stated as a percentage, which measures the Company's return on
equity, or the Company's profitability for a given period as it relates to its
shareholders' capital investments.  The percentage is calculated by dividing
the Company's consolidated pretax income for a given fiscal year by the average
consolidated shareholders' equity balance.  The average consolidated
shareholders' equity balance is one-half the sum of the Company's consolidated
shareholders' equity balance at the beginning of the given year plus the
Company's consolidated shareholders' equity balance at the end of the same
year.
<PAGE>   24

                                   APPENDIX C

                           STOCK RESTRICTION AGREEMENT

                  THIS STOCK RESTRICTION AGREEMENT (this "Agreement") is made as
of _________, ____ (herein the "Effective Date") by and between KAUFMAN AND
BROAD HOME CORPORATION, a Delaware corporation (the "Company") and Bruce Karatz
(the "Participant") pursuant to the terms and conditions of the EMPLOYMENT
AGREEMENT dated December 1, 1995 by and between the Company and Participant (the
"Employment Agreement") and the KAUFMAN AND BROAD HOME CORPORATION
PERFORMANCE-BASED INCENTIVE PLAN FOR SENIOR MANAGEMENT (the "Plan").

                                  R E C I T A L

         Pursuant to a performance-based formula set forth in Subsection 4
(b)(iii) of the Employment Agreement, the Company has agreed to make certain
annual awards of the Company's common stock, par value $1.00 per share
("Stock"), to Participant, subject to certain restrictions set forth herein, in
the Employment Agreement and in the Plan. By action of the Personnel,
Compensation and Stock Plan Committee (the "Committee"), in accord with the
formula set forth in the Employment Agreement, the Company desires to award the
Participant shares of Stock under the Plan.

                                A G R E E M E N T

                  In consideration of the provisions contained in this Agreement
and with reference to the foregoing Recital, the Company and the Participant
agree as follows:

         1.      AWARD. Concurrently with the execution of this Agreement, the
Company shall issue to Participant ______ shares of Stock (the "Award"), 
subject to the terms and conditions set forth in this Agreement. The 
certificate(s) representing shares of Stock granted pursuant to the Award 
shall not be delivered to the Participant until the lapse of the restrictions on
transferability in accordance with Paragraph 2 of this Agreement and Subsection
4(b)(iii) of the Employment Agreement. Prior to such lapse, the certificate(s)
shall be held by the Company in escrow pursuant to Section 9(b) of the Plan,
together with a stock power duly endorsed in blank by Participant. Following the
lapse of the restrictions, the Company shall deliver to the Participant as soon
as practicable certificate(s) representing those shares as to which restrictions
have lapsed.

         2.       LAPSE OF RESTRICTIONS/FORFEITURE. The restrictions imposed by
this Agreement and the Employment Agreement with respect to the shares of Stock
covered by this Award shall lapse on October 10, 2000, the fifty-fifth (55th)
birthday of Participant, provided that he is still employed by the Company at
that time; such restrictions shall lapse earlier upon Participant's
<PAGE>   25
termination of employment due to death, disability (as defined in Section 5(b)
of the Employment Agreement), involuntary termination of employment by the
Company without "Cause" (as defined in Section 6(d) of the Employment
Agreement), voluntary termination of employment for "Good Reason" (as defined in
Section 6(e) of the Employment Agreement) or upon a sale of the Company (as
defined in Section 6(a) of the Employment Agreement). The shares of Stock
covered by this Award shall be forfeited upon the Participant's voluntary
termination of employment without "Good Reason" before Participant's fifty-fifth
(55th) birthday.

         3.       DIVIDENDS. Cash dividends or other distributions paid on or in
respect of any shares of Stock subject to the Award shall be paid directly to
Participant at the same time any such dividends or distributions are paid to
holders of shares of Stock that are not restricted and are freely tradeable
("Other Holders"). Any stock or other non-cash distributions issued on or in
respect of any shares of Stock subject to the Award shall be issued at the same
time any such distributions are issued to Other Holders, but shall be held in
escrow and shall be subject to the same restrictions as the shares of Stock
subject to the Award.

         4.       TAX WITHHOLDING ELECTION. At Participant's discretion, he may
direct the Company to withhold shares of Stock otherwise deliverable upon the
lapse of restrictions on the Award to satisfy any withholding tax liability that
may arise upon such lapse of restrictions, provided that such Stock withholding
complies with Section 16(b) of the Securities Exchange Act of 1934, as amended,
and the rules promulgated thereunder.

         5.       ADJUSTMENTS. As contemplated Subsection 4(b)(ii)(bb) of the
Employment Agreement and Section 4(c) of the Plan, in the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, or other change
in corporate structure affecting the Stock, such adjustment shall be made in the
number of shares of Stock granted pursuant to the Award as may be determined to
be appropriate by the Company's Board of Directors, or the Personnel,
Compensation and Stock Plan Committee of the Company's Board of Directors, or
any successor committee.

         6.       INTERPRETATION. The Award made to the Participant hereunder
made is pursuant to and subject to the terms of the Plan and the Employment
Agreement, both of which are incorporated herein by this reference. Nothing
herein shall be construed as amending or otherwise contradicting the terms of
the Employment Agreement or the Plan; in the event of a contradiction between
the terms of this Agreement and the terms of the Employment Agreement or the
Plan, the terms of Employment Agreement or the Plan, as the case may be, shall
prevail.

         7.       NO ASSIGNMENT. This Agreement may not be assigned by
Participant by operation of law or otherwise. Notwithstanding, this Agreement
shall be binding upon and shall inure to the benefit of the personal
representatives, heirs, legatees, successors and assigns of the Company and
Participant.
<PAGE>   26
         8.       GOVERNING LAW. This Agreement and the legal relations between
the parties shall be governed by and construed in accordance with the laws of
the State of California.

         9.       NOTICES. Any notice given hereunder to the Company shall be
addressed to the Company, attention Vice President, Human Resources, and any
notice given hereunder to the Participant shall be addressed to him at his
address as shown on the records of the Company.

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

                                    KAUFMAN AND BROAD HOME CORPORATION

                                    By:
                                       --------------------------------
                                        [Name]
                                        [Title]

                                    PARTICIPANT


                                    -----------------------------------
                                        Bruce Karatz



                                    Social Security Number: 476-48-5027
<PAGE>   27
                                   APPENDIX D

                     KAUFMAN AND BROAD HOME CORPORATION
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                     (Effective December 1, 1995)


<PAGE>   28
KAUFMAN AND BROAD HOME CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective December 1, 1995)



CONTENTS

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

SECTION                                                                     PAGE
                                                                      
           ARTICLE I. THE PLAN

   1.1     Establishment of the Plan                                           1
   1.2     Purpose                                                             1

           ARTICLE II. DEFINITIONS

   2.1     Definitions                                                         2
   2.2     Gender and Number                                                   3

           ARTICLE III. PARTICIPATION

   3.1     Eligibility for Participation                                       4
   3.2     Date of Participation                                               4
   3.3     Duration of Participation                                           4

           ARTICLE IV. SUPPLEMENTAL RETIREMENT BENEFITS

   4.1     Supplemental Retirement Benefits                                    5
   4.2     Determination of Normal, Postponed, and Early Retirement Benefits   5
   4.3     Determination of Vested Retirement Benefits                         5
   4.4     Commencement, Form, and Duration                                    6

           ARTICLE V. DISABILITY BENEFITS

   5.1     Eligibility                                                         7
   5.2     Amount of Disability Benefit                                        7

           ARTICLE VI. PRE-RETIREMENT DEATH BENEFITS

   6.1     Eligibility                                                         8
   6.2     Amount of Pre-Retirement Death Benefit                              8




                                       i


<PAGE>   29
KAUFMAN AND BROAD HOME CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective December 1, 1995)



CONTENTS

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

SECTION                                                                     PAGE
                                                                      
           ARTICLE VII. OPTIONAL FORMS OF BENEFIT

   7.1     Lump Sum Option                                                     9
   7.2     Payment Upon Financial Hardship                                     9

           ARTICLE VIII. CHANGE IN CONTROL

   8.1     Lump Sum Option Upon Change in Control                             10
   8.2     Amount of Lump Sum Benefit                                         10
   8.3     Definition                                                         10

           ARTICLE IX. TRUST

   9.1     Establishment of the Trust                                         12
   9.2     Contributions                                                      12
   9.3     Payment of Benefits                                                12

           ARTICLE X. ADMINISTRATION

   10.1    Administration                                                     13
   10.2    Decisions and Actions of Committee                                 13
   10.3    Rules and Records of the Committee                                 13
   10.4    Employment of Agents                                               13
   10.5    Agent for Service of Legal Process                                 13
   10.6    Plan Expenses                                                      14
   10.7    Indemnification                                                    14
   10.8    Tax Withholding                                                    14
   10.9    Claims Procedure                                                   14

           ARTICLE XI. MISCELLANEOUS

   11.1    Rights Against the Company                                         16
   11.2    Rights Under the Company's Retirement Plans                        16
   11.3    Payment of Benefits to Incompetent                                 16
   11.4    Missing Person                                                     16
   11.5    Amendment or Termination                                           17




                                       ii
<PAGE>   30
KAUFMAN AND BROAD HOME CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective December 1, 1995)



CONTENTS

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

SECTION                                                                     PAGE
                                                                      
   11.6    Merger or Consolidation of Plan and Trust                          17
   11.7    Controlling Law/Arbitration                                        17
   11.8    Rights to Trust Fund Assets                                        17
   11.9    Nontransferability                                                 18
   11.10   Illegality of Particular Provision                                 18

           EXHIBIT I

           Annual Retirement and Disability Benefits                          19

           EXHIBIT II

           Annual Termination Benefits Starting at Age 55
           Lump Sum Amount at Termination of Employment                       20

           EXHIBIT III

           Lump Sum Benefits                                                  21

           EXHIBIT IV

           Death and Disability Benefits Before Early Retirement Age          22



                                      iii


<PAGE>   31
ARTICLE I. THE PLAN

1.1 ESTABLISHMENT OF THE PLAN

Kaufman and Broad Home Corporation hereby establishes an unfunded supplemental
executive retirement plan for the benefit of Mr. Bruce Karatz, the Chairman,
President, and Chief Executive Officer of Kaufman and Broad Home Corporation.
This plan is effective as of December 1, 1995 and shall be known as the Kaufman
and Broad Home Corporation Supplemental Executive Retirement Plan.

1.2 PURPOSE

The purpose of this Plan is to provide retirement income to Mr. Karatz to
supplement the benefits provided under the tax-qualified retirement plans
maintained by the Kaufman and Broad Home Corporation. This Plan is intended to
satisfy the supplemental retirement provisions of section 4(b)(iii) of the
employment agreement between Mr. Karatz and the Kaufman and Broad Home
Corporation dated December 1, 1995.


                                       1

<PAGE>   32
ARTICLE II. DEFINITIONS

2.1 DEFINITIONS

Whenever capitalized in this document, the following terms shall have the
meanings set forth below unless otherwise expressly provided.

(a)   "ACTUARIAL EQUIVALENT" shall mean a single sum value of a monthly benefit
      amount otherwise payable, calculated using an interest rate assumption of
      seven percent.

(b)   "BENEFICIARY" shall mean the person or persons designated by the
      Participant to receive benefits in the event of the death of the
      Participant. In the event that the Participant failed to designate a
      beneficiary, or if for any reason such designation shall be legally
      ineffective, or if all designated beneficiaries predecease him or die
      simultaneously with him, distribution to which the Participant would have
      been entitled shall be made to the Participant's surviving spouse or, if
      none, to the Participant's estate.

(c)   "BOARD" shall mean the Board of Directors of Kaufman and Broad Home
      Corporation.

(d)   "CHANGE IN CONTROL" shall mean a change in ownership of the Company, as
      described in Article VIII.

(e)   "CODE" shall mean the Internal Revenue Code of 1986, as amended. 

(f)   "COMMITTEE" shall mean the Personnel, Compensation and Stock Plan
      Committee of the Board which shall administer the Plan.

(g)   "COMPANY" shall mean Kaufman and Broad Home Corporation, and any successor
      thereto.

(h)   "DISABILITY" shall mean any physical or mental condition which occurs for
      a continuous period of at least eight weeks, or an aggregate of more than
      90 days in any 120-day period, and which results in a Termination of
      Employment of the Participant.

(i)   "EARLY RETIREMENT AGE" shall mean the Participant's fifty-fifth birthday.

(j)   "NORMAL RETIREMENT AGE" shall mean the Participant's sixtieth birthday.

(k)   "PARTICIPANT" shall mean Mr. Bruce Karatz, Chairman, President, and Chief
      Executive Officer of the Company.

(l)   "PLAN" shall mean the Kaufman and Broad Home Corporation Supplemental
      Executive Retirement Plan.

(m)   "TERMINATION OF EMPLOYMENT" shall mean termination of employment with the
      Company, whether voluntary or involuntary. The Participant's termination
      of employment will be deemed to occur when the Participant ceases to be a
      full-time employee of the


                                       2

<PAGE>   33
      Company, even though the Participant may continue to serve as Chairman of
      the Board or as a consultant to the Company.

(n)   "TRUST" shall mean the legal entity organized pursuant to the Trust
      Agreement between the Company and the Trustee to hold and administer the
      Trust Fund in which any contributions made by the Company are to be held,
      invested, and disbursed to, or for the benefit of, the Participant or his
      Beneficiary.

(o)   "TRUST AGREEMENT" shall mean the agreement in the nature of a trust
      entered into between the Company and Trustee.

(p)   "TRUST FUND" shall mean the assets of every kind and description held in
      the Trust pursuant to the Trust Agreement.

(q)   "TRUSTEE" shall mean the entity, not affiliated with the Company, acting
      as the trustee under the Trust Agreement at the time of reference.

2.2 GENDER AND NUMBER

Unless the context clearly requires otherwise, the masculine pronoun whenever
used shall include the feminine pronoun, and the singular shall include the
plural.


                                       3

<PAGE>   34
ARTICLE III. PARTICIPATION

3.1 ELIGIBILITY FOR PARTICIPATION

Mr. Bruce Karatz shall the only employee of the Company eligible to participate
in this Plan.

3.2 DATE OF PARTICIPATION

Participation shall commence December 1, 1995.

3.3 DURATION OF PARTICIPATION

Subject to the provisions of section 11.5, participation in this Plan shall
continue while the Participant is an employee of the Company, whether or not
there is in effect an employment agreement between the Participant and the
Company, and thereafter for so long as he is entitled to receive any benefits
hereunder.




                                       4

<PAGE>   35
ARTICLE IV. SUPPLEMENTAL RETIREMENT BENEFITS

4.1 SUPPLEMENTAL RETIREMENT BENEFITS

Upon Termination of Employment with the Company for reasons other than death or
disability, the Participant shall be entitled to a retirement benefit under this
Plan.

(a)   NORMAL RETIREMENT. If the Participant has a Termination of Employment at
      his Normal Retirement Age, he shall be entitled to a normal retirement
      benefit from this Plan, determined in accordance with section 4.2.

(b)   POSTPONED RETIREMENT. If the Participant continues employment beyond his
      Normal Retirement Age, he shall upon his Termination of Employment be
      entitled to a postponed retirement benefit from this Plan, determined in
      accordance with section 4.2.

(c)   EARLY RETIREMENT. If the Participant has a Termination of Employment at or
      after his Early Retirement Age but before his Normal Retirement Age, he
      shall be entitled to an early retirement benefit from this Plan,
      determined in accordance with section 4.2.

(d)   VESTED RETIREMENT. If the Participant has a Termination of Employment
      prior to his Early Retirement Age, he shall be entitled to a vested
      retirement benefit from this Plan, determined in accordance with section
      4.3.

4.2 DETERMINATION OF NORMAL, POSTPONED, AND EARLY RETIREMENT BENEFITS

The monthly amount of the Participant's normal retirement benefit, postponed
retirement benefit, or early retirement benefit shall be one-twelfth of the
amount determined pursuant to Exhibit I, based on the Participant's actual age
at commencement of benefits.

4.3 DETERMINATION OF VESTED RETIREMENT BENEFITS

The monthly amount of the Participant's vested retirement benefit shall be
one-twelfth of the amount determined pursuant to Exhibit II, based on the
Participant's actual age at Termination of Employment. In the event of
Termination of Employment prior to attaining age 52, the Participant shall
receive a lump sum amount determined pursuant to Exhibit II, which shall be
payable within 30 days of the Participant's Termination of Employment.


                                       5

<PAGE>   36
4.4 COMMENCEMENT, FORM, AND DURATION

Retirement benefit payments under this Plan shall commence upon the first of the
month following the later of Termination of Employment or attainment of Early
Retirement Age. Benefit payments shall be made monthly for a period of 25 years
(300 monthly payments). In the event of the Participant's death while receiving
monthly payments, the remaining payments shall be made monthly to the
Participant's Beneficiary.

                                       6

<PAGE>   37
ARTICLE V. DISABILITY BENEFITS

5.1 ELIGIBILITY

If the Participant incurs a Disability while employed by the Company, he shall
be entitled to a disability benefit from this Plan, determined in accordance
with section 5.2.

5.2 AMOUNT OF DISABILITY BENEFIT

(a)   DISABILITY PRIOR TO EARLY RETIREMENT AGE. If the Participant incurs a
      Disability prior to Early Retirement Age, the amount of his disability
      benefit shall be determined pursuant to Exhibit IV, based on the
      Participant's actual age at his Termination of Employment due to
      Disability. The benefit shall be paid to the Participant in a lump sum,
      within 30 days of the Participant's Termination of Employment.

(b)   DISABILITY ON OR AFTER EARLY RETIREMENT AGE. If the Participant incurs a
      Disability on or after Early Retirement Age, the amount of his disability
      benefit shall be determined pursuant to Exhibit I, based on the
      Participant's actual age at his Termination of Employment due to
      Disability. The payment of benefits shall commence upon the first of the
      month following the Participant's Termination of Employment. Benefit
      payments shall be made monthly for a period of 25 years (300 monthly
      payments). In the event of the Participant's death while receiving monthly
      payments, the remaining payments shall be made monthly to the
      Participant's Beneficiary.


                                       7

<PAGE>   38
ARTICLE VI. PRE-RETIREMENT DEATH BENEFITS

6.1 ELIGIBILITY

If the Participant dies while employed by the Company, his Beneficiary shall be
entitled to a death benefit from this Plan, determined in accordance with
section 6.2.

6.2 AMOUNT OF PRE-RETIREMENT DEATH BENEFIT

(a)   DEATH PRIOR TO EARLY RETIREMENT AGE. If the Participant dies prior to
      Early Retirement Age, the amount of death benefit payable to his
      Beneficiary shall be determined pursuant to Exhibit IV, based on the
      Participant's actual age at death. The benefit shall be paid to the
      Beneficiary in a lump sum, within 30 days of the Participant's death.

(b)   DEATH ON OR AFTER EARLY RETIREMENT AGE. If the Participant dies on or
      after Early Retirement Age, the amount of death benefit payable to his
      Beneficiary shall be determined pursuant to Exhibit I, based on the
      Participant's actual age at death. The payment of benefits to his
      Beneficiary shall commence upon the first of the month following the
      Participant's death and shall be made monthly for a period of 25 years
      (300 monthly payments).


                                       8

<PAGE>   39
ARTICLE VII. OPTIONAL FORMS OF BENEFIT

7.1 LUMP SUM OPTION

(a)   ELECTION. In lieu of the monthly benefits otherwise payable to the
      Participant or his Beneficiary under section 4.2, section 4.3, section
      5.2(b), or section 6.2(b), the Participant or his Beneficiary, as
      applicable, may elect to receive a lump sum payment. Such election may be
      made prior to the commencement of monthly benefits or at any time during
      the period of monthly payments. This election will result in a significant
      penalty to the Participant or his Beneficiary, since the amount of the
      lump sum payment determined under section 7.1(b) is substantially less
      than the Actuarial Equivalent of the monthly benefits which would
      otherwise be payable to the Participant or his Beneficiary.

(b)   AMOUNT. The lump sum amount shall be determined using Exhibit III. The
      lump sum amount shall be based on (i) the actual age of the Participant at
      the earlier of his Termination of Employment or death, and (ii) the actual
      age of the Participant at the time he elects the lump sum option, or if
      the election is made by the Beneficiary following the Participant's death,
      the age the Participant would have attained had he survived to the date of
      the election by the Beneficiary.

(c)   PAYMENT. The lump sum benefit shall be paid within 30 days of the election
      by the Participant or Beneficiary.

7.2 PAYMENT UPON FINANCIAL HARDSHIP

In the event that the Participant incurs a financial hardship after the
commencement of monthly benefits under section 4.4 or section 5.2(b), he may
request that the Committee authorize payment of his remaining benefits in a lump
sum. The Committee shall not authorize such payment unless it determines that
there is an unforeseeable emergency that is caused by an event beyond the
control of the Participant, and such emergency would result in severe financial
hardship to the Participant if the lump sum payment is not authorized. If
authorized, the amount of the lump sum payment shall be the Actuarial Equivalent
value of the remaining monthly payments. Such lump sum payment shall be paid to
the Participant as soon as practicable following authorization by the Committee.


                                       9

<PAGE>   40
ARTICLE VIII. CHANGE IN CONTROL

8.1 LUMP SUM OPTION UPON CHANGE IN CONTROL

In the event of a Change in Control (as defined below) prior to the commencement
of payment of benefits under this Plan, the Participant may elect to receive an
immediate lump sum payment in lieu of all benefits otherwise payable to the
Participant or his Beneficiary under this Plan. Such election may be made at any
time prior to commencement of payment of benefits under this Plan. This election
will result in a significant penalty to the Participant, since the amount of the
lump sum benefit provided under section 8.2 is substantially less than the
Actuarial Equivalent of the monthly benefits which may otherwise be payable to
the Participant.

8.2 AMOUNT OF LUMP SUM BENEFIT

The amount of the lump sum benefit payable to the Participant pursuant to
section 8.1 shall be the amount determined pursuant to Exhibit III, based on the
Participant's actual age at the time of the Participant's election to receive a
lump sum benefit, which age shall also be considered the Participant's
termination age for the purpose of applying Exhibit III to this benefit. The
lump sum benefit shall be paid to the Participant within 30 days of the election
by the Participant.

8.3 DEFINITION

For purposes of this Article VIII, the following definition applies:

(a)   CHANGE IN CONTROL. A "Change in Control" shall mean any change in control
      of the Company of a nature that would be required to be reported in
      response to Item 1(a) of the Current Report on Form 10-K, as in effect on
      December 1, 1995, pursuant to section 13 or 15(d) of the Securities
      Exchange Act of 1934 (the "Act"); provided that, without limitation, such
      a "Change of Ownership" shall be deemed to have occurred if:

      (1)   a third person, including a "group" as such term is used in section
            13(d)(3) of the Act, becomes the beneficial owner, directly or
            indirectly, of 20 percent or more of the combined voting power of
            the Company's outstanding voting securities ordinarily having the
            right to vote for the election of directors of the Company unless
            such acquisition of beneficial ownership is approved by a majority
            of the Incumbent Board (as such term is defined in paragraph (2)
            below); or


                                       10

<PAGE>   41
      (2)   individuals who, as of December 1, 1995, constitute the Board (as of
            December 1, 1995, the "Incumbent Board") cease for any reason to
            constitute at least a majority of the Board, provided that any
            person becoming a director subsequent to December 1, 1995 whose
            election, or nomination for election by the Company's shareholders,
            was approved by a vote of at least three-quarters of the directors
            comprising the Incumbent Board (other than an election or nomination
            of an individual whose initial assumption of office is 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-11 of Regulation 14A promulgated under the Act) shall be,
            for purposes of this Article, considered as though such person were
            a member of the Incumbent Board.


                                       11

<PAGE>   42
ARTICLE IX. TRUST

9.1 ESTABLISHMENT OF THE TRUST

The Company shall establish a Trust as a part of the Plan in order to implement
and carry out the provisions of the Plan and to finance the benefits under the
Plan. The Company shall establish the Trust by entering into a Trust Agreement
with a Trustee selected by the Committee. The Trust shall be an irrevocable
grantor Trust within the meaning of Code sections 671 through 677, and the
Company shall be treated as the owner of the Trust. It is intended that the
Trust shall be in such form as may be necessary for the Plan to be deemed
unfunded for purposes of the Employee Retirement Income Security Act of 1974, as
amended.

The Trust shall maintain a Trust Fund. The administration and management of the
Trust Fund shall be set forth in the Trust Agreement, the terms of which shall
be consistent with the provisions of this Plan. Nothing in the Trust Agreement
shall impair the rights of the Participant and his Beneficiary nor shall the
agreement limit the obligations of the Company under this Plan.

9.2 CONTRIBUTIONS

The Company shall make an annual contribution to the Trust Fund of $250,000. The
first contribution shall be made January 1, 1996 and thereafter a contribution
shall be made each January 1 (including, if necessary, years after the
Participant has a Termination of Employment) until the Trust Fund holds assets
sufficient to satisfy all obligations for benefits under this Plan.

9.3 PAYMENT OF BENEFITS

The benefits under this Plan shall be paid from the Trust Fund. To the extent
the Trust Fund is insufficient to pay all required benefits under the Plan,
payment of benefits shall be made from the general assets of the Company.


                                       12

<PAGE>   43
ARTICLE X. ADMINISTRATION

10.1 ADMINISTRATION

The Plan shall be administered by the Committee. The Committee shall be
authorized to construe and interpret all of the provisions of the Plan, to adopt
procedures and practices concerning the administration of the Plan, and to make
any determinations necessary hereunder, which shall be binding and conclusive on
all parties. The Committee may appoint one or more individuals and delegate such
of its power and duties as it deems desirable to any such individual, in which
case every reference herein made to the Committee shall be deemed to mean or
include the individuals as to matters within their jurisdiction.

10.2 DECISIONS AND ACTIONS OF COMMITTEE

The Committee may act at a meeting or in writing without a meeting. All
decisions and actions of the Committee shall be made by vote of the majority,
including actions in writing taken without a meeting.

10.3 RULES AND RECORDS OF THE COMMITTEE

The Committee may make such rules and regulations in connection with its
administration of the Plan as are consistent with the terms and provisions
hereof. The Committee shall keep a record of the Participant's name, address,
social security number, benefit commencement date, and the amount of benefit.

10.4 EMPLOYMENT OF AGENTS

The Committee may employ agents, including without limitation, accountants,
actuaries, consultants, or attorneys, to exercise and perform the powers and
duties of the Committee as the Committee delegates to them, and to render such
services to the Committee as the Committee may determine, and the Committee may
enter into agreements setting forth the terms and conditions of such service.

10.5 AGENT FOR SERVICE OF LEGAL PROCESS

The Chairman of the Committee shall serve as agent for service of legal process.


                                       13

<PAGE>   44
10.6 PLAN EXPENSES

The Company shall pay all expenses reasonably incurred in the administration of
the Plan and Trust; provided, however, that the Trustee may pay such expenses
from the assets of the Trust, to the extent such expenses have not been paid by
the Company. In such event the Company shall reimburse the Trustee promptly for
any such expenses paid by the Trustee from the Trust. The members of the
Committee shall serve without compensation for their services as such, but all
expenses of the Committee shall be paid by the Company. No employee of the
Company shall receive compensation from the Plan regardless of the nature of his
services to the Plan.

10.7 INDEMNIFICATION

To the extent permitted by law, the Committee and all agents and representatives
of the Committee shall be indemnified by the Company and saved harmless against
any claims, and the expenses of defending against such claims, resulting from
any action or conduct relating to the administration of the Plan except claims
arising from gross negligence, willful neglect, or willful misconduct.

10.8 TAX WITHHOLDING

The Company or Trustee shall withhold from any payment to the Participant or
Beneficiary any federal, state, or local taxes required by law to be withheld
with respect to such payment.

10.9 CLAIMS PROCEDURE

(a)   SUBMISSION OF CLAIMS. Claims for benefits under the Plan shall be
      submitted in writing to the Committee or to an individual designated by
      the Committee for this purpose.

(b)   DENIAL OF CLAIM. If any claim for benefits is wholly or partially denied,
      the claimant shall be given written notice within 90 days following the
      date on which the claim is filed, which notice shall set forth

      (1)   the specific reason or reasons for the denial;

      (2)   specific reference to pertinent Plan and Trust provisions on which
            the denial is based;

      (3)   a description of any additional material or information necessary
            for the claimant to perfect the claim and an explanation of why such
            material or information is necessary; and

      (4)   an explanation of the Plan's claim review procedure.


                                       14

<PAGE>   45
      If special circumstances require an extension of time for processing the
      claim, written notice of an extension shall be furnished to the claimant
      prior to the end of the initial period of 90 days following the date on
      which the claim is filed. Such an extension may not exceed a period of 90
      days beyond the end of said initial period.

      If the claim has not been granted, and if written notice of the denial of
      the claim is not furnished within 90 days following the date on which the
      claim is filed, the claim shall be deemed denied for the purpose of
      proceeding to the claim review procedure.

(c)   CLAIM REVIEW PROCEDURE.  The claimant or his authorized representative
      shall have 60 days after receipt of written notification of denial of a
      claim to request a review of the denial by making written request to the
      Committee (or its delegate), and may review pertinent documents and submit
      issues and comments in writing within such 60-day period.

      Not later than 60 days after receipt of the request for review, the
      Committee shall render and furnish to the claimant a written decision
      which shall include specific reasons for the decision, and shall make
      specific references to pertinent Plan and Trust provisions on which it is
      based. If special circumstances require an extension of time for
      processing, the decision shall be rendered as soon as possible, but not
      later than 120 days after receipt of the request for review, provided that
      written notice and explanation of the delay are given to the claimant
      prior to commencement of the extension. Such decision by the Committee
      shall not be subject to further review. If a decision on review is not
      furnished to a claimant within the specified time period, the claim shall
      be deemed to have been denied on review.


                                       15

<PAGE>   46
ARTICLE XI. MISCELLANEOUS

11.1 RIGHTS AGAINST THE COMPANY

Neither the establishment of the Plan, nor any modification thereof, nor any
payments hereunder, shall be construed to give the Participant the right to be
retained in the employ of the Company or to interfere with the right of the
Company to discharge the Participant at any time, subject to the terms of any
employment agreement between the Participant and the Company.

11.2 RIGHTS UNDER THE COMPANY'S OTHER RETIREMENT PLANS

Nothing in this Plan shall be construed to limit, broaden, restrict, grant, or
otherwise affect any rights of the Participant or a Beneficiary under the
Company's other retirement plans, nor grant any additional rights or benefits to
the Participant or a Beneficiary under the Company's other retirement plans, nor
in any way to limit, modify, repeal, or otherwise affect the Company's or its
Board's  right to amend or modify any such retirement plan.

11.3 PAYMENT OF BENEFITS TO INCOMPETENT

If the Committee receives evidence that 

(a)   a person entitled to receive any benefit under the Plan is legally,
      physically, or mentally incompetent to receive such benefit and to give a
      valid release therefore, and

(b)   another person or an institution is then maintaining or has custody of
      such person and no guardian, committee, or other representative of the
      estate of such person has been duly appointed by a court of competent
      jurisdiction,

the payment of such benefit may be made to such other person or institution as
the Committee may determine. Any such payment shall be a payment on behalf of
such person and shall, to the extent thereof, be a complete discharge of any
liability under the Plan to such person, and neither the Company, the Trustee,
nor any member of the Board or the Committee shall be liable to any person or
individual by reason of such payment.

11.4 MISSING PERSON

In the event any benefit shall become payable to any person or upon his death to
his legal representative and, if after written notice from the Committee mailed
to such person's last-known address as shown in the Company's records, such
person or his legal representative shall not have


                                       16

<PAGE>   47

presented himself to the Committee within six years after the mailing of such
notice, then the Committee may, in its sole discretion, distribute such amount,
including any benefit thereafter becoming due to such person or legal
representative, among the spouse and blood relatives of such person. Payments
made in good faith to any person, to a person's legal representative, or to any
individual(s) who have, on the presentation of reasonable proof, established to
the satisfaction of the Committee that he is the spouse or blood relative of
such person, shall, to the extent of such payments, be a complete discharge of
all obligations arising pursuant to the Plan, and neither the Company, the
Trustee, nor any member of the Board or the Committee shall be liable to any
person or individual by reasons of such payments.

11.5 AMENDMENT OR TERMINATION

The Plan may be amended or terminated, in whole or in part, at any time by
written action of the Board and with the prior written consent of the
Participant (or his Beneficiary or Beneficiaries following the Participant's
death). No such amendment or termination shall reduce or diminish the right of
the Participant or Beneficiary to receive any benefit accrued hereunder prior to
the date of such amendment or termination.

11.6 MERGER OR CONSOLIDATION OF PLAN AND TRUST

Neither the Plan nor the Trust may be merged or consolidated with, nor may its
assets or liabilities be transferred to, any other plan or trust without the
prior written consent of the Participant (or his Beneficiary or Beneficiaries
following the Participant's death).

11.7 CONTROLLING LAW/ARBITRATION

Any disputes under the Plan shall be settled in accordance with the provisions
of the employment agreement then in effect between the Company and the
Participant or, if the Participant has had a Termination of Employment from the
Company, the most recent employment agreement in effect between the Company and
the Participant. The provisions of the Plan shall be construed, interpreted,
administered, and enforced according to the laws of the State of California and
all applicable Federal laws.

11.8 RIGHTS TO TRUST FUND ASSETS

The Participant shall not have any right to, or interest in, any assets of the
Trust Fund upon his Termination of Employment or otherwise, except as provided
in the Plan, and then only to the extent of the benefits payable under the Plan
out of the assets of the Trust Fund.


                                       17

<PAGE>   48
11.9 NONTRANSFERABILITY

In no event shall the Company or Trustee make any payment under this Plan to any
assignee or creditor of the Participant or Beneficiary, except as otherwise
required by law. Prior to the time of a payment hereunder, the Participant or
Beneficiary shall have no rights by way of anticipation or otherwise to assign
or otherwise dispose of any interest under this Plan, nor shall rights be
assigned or transferred by operation of law.

11.10 ILLEGALITY OF PARTICULAR PROVISION

The illegality of any particular provision of this document shall not affect the
other provisions, and the document shall be construed in all respects as if such
invalid provision were omitted.

                                       18

<PAGE>   49


                                   EXHIBIT I

                   ANNUAL RETIREMENT AND DISABILITY BENEFITS


                                             Annual
                                             Benefit
                          Age                 (000)
                          ---                -------
                                          
                          55                 $   137

                          56                     203

                          57                     262

                          58                     329

                          59                     410

                          60                     492

                          61                     576

                          62                     662

                          63                     767

                          64                     879

                          65                     974

                          66                   1,085

                          67                   1,219

                          68                   1,379

                          69                   1,561

                          70                   1,772

                          Interpolate between ages.




                                       19


<PAGE>   50




                                   EXHIBIT II

                 ANNUAL TERMINATION BENEFITS STARTING AT AGE 55


                                         Annual
                                        Benefit
                          Age             (000)
                          ---           -------
                                     
                          52               $ 48

                          53                 77

                          54                107

                          55                137

                          Interpolate between ages.



                  LUMP SUM AMOUNT AT TERMINATION OF EMPLOYMENT

                                              Lump
                                               Sum
                          Age                (000)
                          ---                -----
                                          
                          50                  $106

                          51                   410

                          52                   500
                          Interpolate between ages.




                                  20

<PAGE>   51
                                  EXHIBIT III
                            Lump Sum Benefits (000)



Termination                                                Lump Sum Election Age (000)
   Age        50      51      52      53      54      55      56      57      58      59      60      61      62      63      64
   ---        --      --      --      --      --      --      --      --      --      --      --      --      --      --      --  
                                                                                 
   50         $101    $108    $116    $124    $132    $142    $139    $137    $134    $132    $129    $126    $122    $119    $115
   51                  360     385     412     441     472     465     457     448     439     429     419     407     395     383
   52                          411     440     470     503     495     487     478     468     456     446     435     422     408
   53                                  705     755     808     795     781     767     751     734     716     697     677     655
   54                                        1,049   1,122   1,104   1,086   1,065   1,043   1,020     995     969     940     910
   55                                                1,437   1,414   1,390   1,364   1,336   1,306   1,274   1,240   1,204   1,165
   56                                                        2,129   2,095   2,059   2,021   1,980   1,936   1,888   1,838   1,784
   57                                                                2,748   2,704   2,658   2,608   2,555   2,498   2,437   2,372
   58                                                                        3,451   3,396   3,338   3,275   3,208   3,137   3,060
   59                                                                                4,300   4,232   4,159   4,082   3,998   3,909
   60                                                                                        5,160   5,079   4,991   4,898   4,798
   61                                                                                                6,041   5,946   5,844   5,734
   62                                                                                                        6,943   6,833   6,716
   63                                                                                                                8,044   7,917
   64                                                                                                                        9,219
   65
   66
   67
   68
   69
   70


Termination                                             Lump Sum Election Age
   Age        65      66      67       68      69      70      71      72      73      74      75      76       77      78      79
   ---        --      --      --       --      --      --      --      --      --      --      --      --       --      --      --
   50         $111    $106    $102     $97     $91     $85     $79     $73     $65     $58     $50     $41     $32     $22     $11
   51          369     354     338     322     304     284     264     242     218     193     166     137     106      73      38
   52          393     378     361     343     324     303     281     258     233     206     177     146     113      78      40
   53          631     606     579     550     520     487     452     414     373     330     284     235     182     125      65
   54          877     842     805     765     722     676     627     575     519     459     395     326     253     174      90
   55        1,123   1,078   1,030     979     925     866     803     736     664     588     506     418     324     223     115
   56        1,726   1,664   1,598   1,527   1,451   1,370   1,283   1,190   1,091     985     871     749     619     479     330
   57        2,302   2,228   2,148   2,062   1,971   1,873   1,768   1,656   1,536   1,408   1,271   1,124     967     799     619
   58        2,978   2,891   2,797   2,697   2,590   2,475   2,352   2,220   2,080   1,929   1,768   1,596   1,411   1,214   1,003
   59        3,814   3,712   3,603   3,486   3,361   3,227   3,084   2,931   2,767   2,592   2,404   2,203   1,989   1,759   1,513
   60        4,691   4,577   4,454   4,323   4,183   4,033   3,872   3,701   3,517   3,320   3,110   2,885   2,644   2,386   2,111
   61        5,617   5,492   5,358   5,215   5,061   4,897   4,722   4,534   4,333   4,117   3,887   3,641   3,377   3,096   2,794
   62        6,590   6,456   6,312   6,158   5,993   5,817   5,628   5,426   5,211   4,979   4,732   4,468   4,185   3,882   3,558
   63        7,781   7,636   7,480   7,313   7,135   6,944   6,740   6,521   6,287   6,037   5,769   5,483   5,176   4,848   4,497
   64        9,073   8,917   8,751   8,572   8,381   8,176   7,958   7,724   7,473   7,205   6,919   6,612   6,283   5,932   5,556
   65       10,216  10,054   9,881   9,696   9,498   9,287   9,060   8,818   8,558   8,281   7,984   7,666   7,326   6,963   6,573
   66               11,380  11,200  11,007  10,801  10,581  10,345  10,093   9,823   9,534   9,225   8,894   8,540   8,161   7,756
   67                       12,785  12,583  12,367  12,135  11,888  11,623  11,339  11,036  10,711  10,364   9,992   9,595   9,169
   68                               14,463  14,235  13,990  13,728  13,448  13,148  12,828  12,484  12,117  11,724  11,304  10,854
   69                                       16,372  16,113  15,836  15,540  15,223  14,884  14,520  14,132  13,716  13,272  12,796
   70                                               18,585  18,291  17,977  17,640  17,280  16,895  16,483  16,042  15,570  15,066


Termination                                             Lump Sum Election Age
   Age        80      81      82      83      84      85      86      87      88      89      90      91      92      93      94
   ---        --      --      --      --      --      --      --      --      --      --      --      --      --      --      --
   50
   51
   52
   53
   54
   55
   56         171
   57         426     220
   58         777     535     277
   59       1,250     968     667     345
   60       1,816   1,500   1,162     801     414
   61       2,471   2,126   1,756   1,360     937     484
   62       3,211   2,840   2,443   2,018   1,564   1,077     557
   63       4,122   3,720   3,290   2,830   2,338   1,812   1,248     645
   64       5,154   4,724   4,263   3,771   3,244   2,680   2,076   1,430     739
   65       6,157   5,711   5,234   4,724   4,178   3,594   2,969   2,300   1,585     819
   66       7,322   6,859   6,362   5,831   5,263   4,655   4,004   3,308   2,563   1,766     913
   67       8,714   8,227   7,706   7,148   6,551   5,913   5,229   4,498   3,716   2,879   1,984   1,025
   68      10,373   9,858   9,307   8,717   8,086   7,411   6,689   5,916   5,089   4,204   3,257   2,244   1,160
   69      12,287  11,742  11,159  10,535   9,867   9,153   8,389   7,571   6,697   5,760   4,759   3,687   2,540   1,313
   70      14,525  13,947  13,329  12,667  11,959  11,201  10,390   9,523   8,595   7,602   6,539   5,402   4,185   2,883   1,490


                           Interpolate between ages.

                                      21

<PAGE>   52


                                   EXHIBIT IV

           DEATH AND DISABILITY BENEFITS BEFORE EARLY RETIREMENT AGE


                                           Lump Sum
                            Age               (000)
                            ---            --------
                                        
                            50               $  259

                            51                  536

                            52                  832

                            53                1,149

                            54                1,488

                            55                1,851

                            Interpolate between ages.



                                       22

<PAGE>   53




                                   APPENDIX E

                           DESIGNATION OF BENEFICIARY

         In the event of my death, I, Bruce Karatz, hereby designate the Bruce
and Janet Karatz Trust dated January 14, 1988, Bruce E. Karatz and Janet D.
Karatz Trustees, my beneficiary to whom shall be transferred all payments or
other benefits to which I may be entitled under my employment agreement dated
December 1, 1995 with Kaufman and Broad Home Corporation ("KBHC") and under the
KBHC Supplemental Executive Retirement Plan. In the event my designated
beneficiary cannot receive such a payment, I hereby designate Janet Karatz as my
alternate beneficiary. In the event there shall arise a conflict between the
terms of this designation and any other expression of my testamentary intent, I
understand and agree that KBHC may determine to transfer all of the
above-referenced payments or benefits to my estate rather than the beneficiary
designated herein.

         I have hereunto set my hand this 1st day of December, 1995.

                                         /s/Bruce Karatz
                                         --------------------------------------
                                                   Bruce Karatz
                                         /s/Michael F. Henn
                                         --------------------------------------
                                                   Witness (signature)
                                         Michael F. Henn
                                         --------------------------------------
                                                   Witness (print name)
                                                12/1/95
                                         --------------------------------------
                                                   Date

KAUFMAN AND BROAD HOME CORPORATION

Acknowledged:
/s/Alan Kaye
------------------------------
Name:ALAN KAYE
Title:VICE PRESIDENT, HUMAN RESOURCES
Date:DECEMBER 1, 1995