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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File No. 33-44914, 33-68564
M/I SCHOTTENSTEIN HOMES, INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-1210837
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 S. High Street, Suite 2410
Columbus, Ohio 43215
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(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: (614) 221-5700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, par value $.01 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 8, 1996, the aggregate market value of voting common stock held
by non-affiliates of the registrant (3,424,300 shares) was approximately
$36,383,000. The number of shares of common stock of M/I Schottenstein Homes,
Inc., outstanding on March 8, 1996 was 8,800,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Annual Report to Shareholders for the year ended December 31, 1995
(Part I and II) Portions of the registrant's Definitive Proxy Statement for the
1996 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A not
later than April 8, 1996 (Part III)
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PART I
ITEM 1. BUSINESS
COMPANY
M/I Schottenstein Homes, Inc. was reincorporated in Ohio in November 1993.
Prior to that date, the Company was a Delaware corporation. As used in this
report, the term "Company" refers to M/I Schottenstein Homes, Inc.; its
subsidiary, M/I Financial Corp. ("M/I Financial") and its predecessors, unless
the context indicates otherwise. The Company maintains its executive offices at
41 South High Street, Suite 2410, Columbus, Ohio 43215 and its telephone number
is (614) 221-5700.
During October 1986, the Company completed a public offering of its Common
Stock and from October 1986 to June 1990, the Company was publicly held, with
Irving E. Schottenstein, Melvin L. Schottenstein and their family trusts owning
approximately 79.0% of the outstanding shares of Common Stock. In June 1990, the
shareholders of the Company approved a merger agreement providing for the merger
of the Company with M/I Homes Acquisition Corp., a corporation formed by Irving
E. Schottenstein, Melvin L. Schottenstein and their family trusts as a vehicle
for acquiring the Company's publicly held Common Stock (the "Going Private
Transaction"). As a result, Irving E. Schottenstein, Melvin L. Schottenstein and
their family trusts became the holders of 100% of the Common Stock. Effective
January 1, 1991, the Company elected to be treated as an S Corporation under the
Internal Revenue Code of 1986, as amended (the "Code") for federal income tax
purposes and comparable state tax laws. As a result of the S Corporation
election, the Company was no longer subject to federal and state income taxation
and its shareholders were taxed on the Company's income directly.
In November 1993, the Company completed a public offering of its Common
Stock, selling 3.3 million shares at an initial public offering price of $14 per
share. At that time, the remaining 62.5% of the Company's outstanding Common
Stock was held by Irving E. Schottenstein, the Estate of Melvin L. Schottenstein
and their family trusts, the former S Corporation shareholders. In conjunction
with the public offering, the Company terminated its S Corporation status
effective November 8, 1993. Accordingly, from that date forward, the Company's
income has been fully subject to federal, state and local taxes.
SEGMENT INFORMATION
The Company operates in two business segments - home-building and financial
services. The home-building operations include the development of land and the
sale and construction of single-family attached and detached homes. The
financial services operations involve the origination of mortgage loans
primarily for purchasers of the Company's homes. The financial information
relating to business segments for the three years ended December 31, 1995,
appearing in exhibit 13 of this Annual Report on Form 10-K, is incorporated by
reference.
HOME-BUILDING
M/I Schottenstein Homes, Inc. is one of the nation's leading home builders.
The Company is engaged in the sale and construction of single family homes
marketed and sold under the M/I Homes and Showcase Homes tradenames. In 1994,
the latest year for which information is available, the Company was the
twentieth largest U.S. home builder (based on total revenue) as ranked by
Builder Magazine. During the year ended December 31, 1995, the Company delivered
2,952 homes with a total sales value of over $505 million.
The Company commenced home-building operations in Columbus, Ohio in 1976
and expanded into and opened a home-building division in Tampa, Florida in 1981.
In 1984 the Company further expanded in Florida by opening home-building
divisions in Palm Beach County and Orlando. The Company opened home-building
divisions in Charlotte and Raleigh, North Carolina in 1985 and 1986,
respectively. The Company opened a home-building division in Nashville,
Tennessee in 1987 and, due to the lack of perceived growth opportunities,
withdrew
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from this market in December 1989. In 1988, the Company established a separate
home-building division for its Showcase product lines in Columbus, Ohio with the
intent of building and marketing semi-custom, upscale homes to more affluent
customers. It was also in 1988 that the Company expanded into and opened
home-building divisions in Cincinnati, Ohio and Indianapolis, Indiana. In 1991,
the Company opened a home-building division in Washington D.C., encompassing
certain D.C. suburbs located in Virginia and Maryland. Due to the growth in the
Washington, D.C. market, the Company split this market into separate Maryland
and Virginia divisions in the first quarter of 1994. In May 1993, the Company
introduced its Horizon line of homes in the Columbus market. This is the
Company's lowest priced line of homes and is targeted primarily at first time
home buyers. Due to the strong sales of this line since its introduction and the
anticipated growth in this segment of the market, the Company established a
separate division for the Horizon line in the Columbus market in 1994. The
Company also introduced this line of entry-level homes in several of its other
markets in 1994 and 1995. The Company is the leading home builder in its core
Columbus market and the Company's Columbus divisions accounted for approximately
40% of the Company's housing revenue in 1995. Each home-building division is
managed by a division manager who is familiar with the unique market
characteristics of their particular division. As commonly occurs in the
home-building industry, it has been the Company's experience that it incurs
substantial losses in a new market for the first two years of operations. With
respect to the Company's nine developing markets, these losses have already been
absorbed in the Company's historical results of operations. In addition, the
Company continues to explore opportunities for expanding into new markets either
by starting a new division or through acquisition.
The Company, on a regional basis, offers up to eight distinct lines of
single family homes ranging in price from the low $80,000's to approximately
$500,000, with an average sales price of homes in Backlog as of December 31,
1995 of $169,000. By offering a wide range of homes, the Company is able to
attract first-time home buyers as well as move-up buyers, many of whom were
previous M/I or Showcase homeowners. The Company seeks to distinguish itself
from its competitors by offering homes that have a higher level of design and
construction quality within a given price range. The Company also believes that
it offers one of the highest levels of customer service in the industry. Based
on the responses to our customer questionnaire, for the fifth year in a row,
more than 95% of the Company's customers would recommend an M/I or Showcase home
to a potential home buyer.
The Company believes that each of its markets has unique characteristics
and must therefore be locally managed with dedicated, on-site management
personnel. Each home-building division is supervised by a division manager who
reports to a regional manager. The Company encourages its regional and division
managers to be entrepreneurial and has accordingly adopted an incentive
compensation structure under which their aggregate compensation is largely
determined on the basis of net income and customer satisfaction in their region
or division.
To enhance the selling process, the Company operates design centers in the
Cincinnati and Columbus markets. The design centers are staffed with interior
design specialists who assist Columbus and Cincinnati customers in selecting
interior and exterior colors as well as standard options and upgrades. In its
other markets, the color selection and option/upgrade process is handled
directly by the companies sales consultants.
FINANCIAL SERVICES
The Company offers fixed and adjustable rate mortgage loans, primarily to
buyers of the Company's homes through its wholly owned subsidiary M/I Financial.
At December 31, 1995, the Company is committed to fund $55.0 million in mortgage
loans to home buyers. Of this total, approximately $6.0 million are adjustable
rate loans and $49.0 million are fixed rate loan commitments. The loans are
granted at current market interest rates and the rate is guaranteed through the
transfer of the title of the home to the buyer (the "Closing"). The Company uses
hedging methods to reduce its exposure to interest rate fluctuations between the
commitment date of the loan and the time the home closes. The method to be used
is determined at the time of the loan commitment based on the market conditions
and alternatives available. The Company's policy requires that there be no
interest rate risk on loans closed waiting to be sold. Also according to the
policy, the pipeline of committed loans is to be hedged at 70 to 95% of the
committed balance which is the balance of loans expected to be closed.
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One of the methods the Company uses to hedge the interest rate risk
relative to unclosed loans is to purchase commitments from outside investors to
acquire the loans at the interest rate at which the loan will be closed. The
cost of these purchase commitments is recorded as an asset and is expensed as
loans are closed under the related commitments. Any remaining unused balance is
expensed when the commitment expires or earlier, if the Company determines that
they will be unable to use the entire commitment prior to its expiration date.
At December 31, 1995, the Company had approximately $36.0 million of commitments
to deliver mortgage loans to outside investors.
The Company hedges its interest rate risk using forward sales of
mortgage-backed securities whereby the Company agrees to sell and later
repurchase similar but not identical mortgage-backed securities. Generally, the
agreements are fixed-coupon agreements whereby the interest rate and maturity
date of both transactions are approximately the same and are established to
correspond with the closing of the fixed interest rate mortgage loan commitments
of the Company. The difference between the two values of the mortgage-backed
securities in the agreements at settlement provide a hedge on the interest rate
risk exposure in the mortgage loan commitments and is included in the gain or
loss on the sale of the loans to third party investors. At December 31, 1995,
these agreements matured within 90 to 120 days. Securities under forward sales
agreements averaged approximately $12.5 million during 1995 and the maximum
amounts outstanding at any month end during 1995 was $16.0 million, the balance
at December 31, 1995. Hedging gains of $456,000 were deferred at year end as the
mortgage loans and commitment contracts qualified for hedge accounting.
To reduce the credit risk associated with accounting losses, which would be
recognized if the counterparties failed completely to perform as contracted, the
Company limits the entities that management can enter into a commitment with to
the primary dealers in the market. The risk of accounting loss is the difference
between the market rate at the time a counterparty fails and the rate the
Company committed to for the mortgage loans and any purchase commitments
recorded with the counterparty.
M/I Financial is currently in the process of opening an office in Raleigh
at which time they will have branches in all of the Company's housing markets,
with the exception of Virginia and Maryland. M/I Financial provided financing
for 1,873 homes in 1995, representing approximately $233.3 million of mortgage
loans originated. The majority of these loans were made to buyers of the
Company's homes. M/I Financial issues commitments to customers and closes both
conventional and government-insured loans in its own name. However, in an effort
to minimize the risk of financing activities, M/I Financial generally sells the
loans it originates to the secondary market which provides the funding within
several days thereafter. The Company retains a small servicing portfolio which
it currently sub-services with a financial institution.
M/I Financial has been approved by the Department of Housing and Urban
Development and the Veterans Administration to originate loans insured by the
FHA and the VA, respectively, and has been approved by the Federal Home Loan
Mortgage Corporation ("FHLMC") and by the Federal National Mortgage Association
("FNMA") as a seller and servicer of mortgages sold to FHLMC and FNMA.
BUSINESS STRATEGY
The Company's business strategy emphasizes the following key areas: (i)
profitability with focus on margins as well as expenses; (ii) having and
continuing to pursue premier locations while maintaining a conservative land
acquisition policy; (iii) maintaining a leadership position in Columbus and
pursing profitable growth strategies in other markets; (iv) superior customer
service; (v) product breadth and innovative design; and (vi) employing an
experienced and entrepreneurial management team. Growth and performance
expectations are always subject to changes in interest rates, the home-building
industry's competitive environment, job growth and consumer confidence. The
Company adapts to these constant changes by focusing on the following strategies
and philosophies that have been key to its success:
(i) Profitability. The overriding business strategy of the company is to
increase profitability and focus on margins in order to enhance shareholder
value. At the same time, the Company remains committed to its core
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business practice of building quality homes and providing superior customer
service. Although, there are times when increasing profits may conflict with
issues of quality and customer service, the Company believes that it has been
particularly successful in striking the proper balance between these vital
Company goals. In order to do this, the Company constantly explores new methods
and procedures designed to improve operating efficiency without sacrificing
quality. In the selling process, the marketing sales efforts of the Company
promote credibility and quality rather than price cutting or so-called "give
aways". In each home building division, significant attention is paid to
improving subdivision absorption as well as revenue enhancement through premiums
and price increases where warranted. Management believes the Company's
long-standing and very conservative policy against "spec" houses allowed the
Company to avoid the significant discounting which may accompany the sale of a
"spec" house. The Company strives to be in locations where the Company is the
primary builder or, if not, the Company seeks to build in communities with other
builders who have similiar risk/return philosophies. The Company is constantly
exploring ways in which to make money without selling additional homes. In
support of this, the Company continues to promote value engineering of its
product lines. The Company strives to grow M/I Financial in the majority of its
markets. The Company is considering two strategies that may be implemented in
1996 to improve profitability. The first strategy is to reduce its tax and legal
liabilities through restructuring. The second strategy is to participate in a
joint venture to capture title insurance profits in certain of its markets. The
implementation of these strategies in 1996 is dependent upon a number of factors
such as possible regulatory approval, administrative costs of the
implementation, and analysis of the level of increased revenue that will be
realized by the Company. Therefore, this objective of improving profitability
during 1996 is a forward-looking statement that is subject to change as the
Company evaluates the effect of the above mentioned factors upon the two
strategies. Finally, the Company will continue to pursue ways to reduce its
overall cost of capital as well as maintain financial flexibility.
(ii) Premier Locations and Conservative Land Acquisition Policy. The
Company understands that the profitability of each of its home building
divisions is largely dependent upon the quality of the division's subdivision
locations. When the market is strong, the good locations truly excel and when
the market weakens, the good locations are usually the last to be affected. The
Company has always been effective at securing good locations and with the recent
internal formation of the Land Committee, the Company believes it will become
even more effective in identifying and acquiring premier locations.
The Company's land development activities and land holdings have increased
significantly in the past few years and the Company expects land holdings to
remain at relatively high levels. However, the Company has always pursued and
continues to pursue a land acquisition policy that it believes is more
conservative than the policies of the other national home builders. The Company
develops its own lots where it can gain a competitive advantage by doing so or
where shortages of qualified land developers make it impractical to purchase the
required lots from outside sources. The Company seeks to limit its investment in
undeveloped land and lots to the amount reasonably expected to be sold in the
next three to four years. All land to be acquired by the Company must be zoned
and serviceable by all necessary utilities prior to being purchased. From time
to time, the Company develops land in joint ventures which, in most cases, are
entirely equity financed. As of December 31, 1995, the Company had an inventory
of 2,141 developed lots, 912 lots under development and 2,281 lots zoned for
future development, including its share of lots owned by its joint ventures. The
Company believes that this level of land inventory, in combination with 5,769
lots that the Company may acquire pursuant to outstanding option and purchase
contracts, is sufficient to meet its anticipated building needs over the next
three to four years.
(iii) Maintaining Leading Position in the Columbus Market and Profitable
Growth Strategies in Other Markets. The Company is the leading builder of
single-family detached homes in the Columbus market. In fact, the Company has
built and delivered the greatest number of single-family detached homes in the
Columbus area during each of the last seven years. In 1995, the Company's market
share in Columbus reached a record setting 25% of the total market and more than
27% of the "under $250,000" market. The Company seeks to maintain its leading
position in this market by continuing to provide high quality homes and superior
customer service. Its success in Columbus has enabled the Company to expand into
new markets that offer significant growth opportunities.
Between 1981 and 1993, the Company expanded into and currently operates
home-building divisions in nine markets outside its original Columbus market.
The Company believes there are significant opportunities to
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improve profitability in these markets through expansion of the Company's
product offerings, the acquisition of land in increasingly desirable locations
and by constructing and selling homes with the same commitment to customer
service that has accounted for the Company's success in its Columbus market. In
addition, the Company continues to explore opportunities for expanding into new
markets whether by starting a new division or through acquisition. In developing
proper growth strategies and goals for its other markets, however, the Company
understands that the unique characteristics of each market significantly impacts
the long-term strategies which the Company elects to pursue. Regardless of the
strategies employed, the Company will continue to focus on profitability rather
than mere market share.
(iv) Superior Customer Service. The Company is committed to providing its
home buyers with a wide array of functional and innovative designs from which to
choose, quality construction utilizing the best building materials and a home
with lasting value at an affordable price. The overriding Company philosophy is
to provide superior service to its customers. The Company has always recognized
that the purchase of a home in most instances represents the single largest
investment ever made by its customers. The Company understands the importance of
a home purchase decision and is sensitive to the fact that many prospective
buyers have little knowledge of home construction and are unsure about how to
choose a home builder and a home. Because of this, virtually every phase of the
Company's operations - from the beginning of the selling process through
construction, closing and service after delivery - is designed to educate and
inform the customer, to involve the customer in the home-building process and to
make the home-building experience more understandable and pleasant. The
Company's selling process focuses on the home's features, benefits, quality and
design (as opposed to merely emphasizing price and square footage). The Company
assists many of its customers with financing and conducts a pre-construction
"builder/buyer" conference with each customer to review the house plans,
introduce the customer to his or her construction supervisor and explain the
construction process. The Company encourages its customers to visit their
homesites during construction and provides free periodic inspections of its
homes after delivery. The Company also offers attractive warranties, including a
20-year transferable major structural warranty. The Company prides itself on the
extraordinary efforts which it undertakes on a daily basis to "put the customer
first" and thereby provide the highest levels of customer service. As a result,
based on the responses to our customer questionnaire, for the fifth year in a
row, more than 95% of the Company's customers would recommend an M/I or Showcase
home to a potential home buyer.
(v) Product Breadth and Innovative Design. The Company offers a wide range
of homes at price points that appeal to both first-time and move-up buyers, as
well as empty nesters. The Company offers more than 200 different floor plans
and elevations in its various product lines. In some instances, the Company
permits customers, at an additional cost, to modify the design of their homes or
add special features. Such modifications are greatly facilitated by the
Company's use of computer-aided design technology. The Company believes that its
homes generally offer a higher level of quality design and construction within a
given price range. It devotes significant resources to the research, design and
development of its homes in order to better meet the needs of the various
housing markets in which the Company operates.
(vi) Management. The Company places high value on and dedicates substantial
resources to assembling the most competent management team at the corporate and
regional levels and within each of its divisions. The Company's success as a
national home builder is in large part due to the skill and experience of the
Company's managers, each of whom possess intimate knowledge of the markets they
manage. The Company encourages its managers to be entrepreneurial and to operate
their regions and divisions as if they were their own and, accordingly, has
adopted an incentive compensation structure under which aggregate compensation
for regional and division managers is determined on the basis of financial
performance and customer satisfaction in their region or division.
SALES AND MARKETING
The Company markets and sells its homes under the M/I and Showcase
tradenames. Home sales are conducted from on-site sales offices in furnished
model homes by the Company's own sales personnel. Every sales consultant is
trained and equipped to fully explain the features and benefits of the Company's
homes, to determine
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which home best suits each customer's needs, to explain the construction process
and to assist the customer in choosing the best financing. Significant attention
is paid to the training and re-training of all sales personnel to assure the
highest levels of professionalism and product knowledge. Overall, the Company
currently employs more than 127 sales consultants and operates approximately 160
model homes across all of its divisions.
The Company advertises in newspapers and in magazines, by direct mail, on
billboards and on radio and television, although the particular marketing medium
used differs from division to division based upon marketing demographics and
other competitive factors. In addition, the Company welcomes independent broker
participation and from time to time, utilizes various promotions and sales
incentives to attract interest from these brokers. The Company's commitment to
quality design and construction and reputation for customer service has also
resulted in a strong referral base and a significant number of repeat buyers.
The Company generally does not commence construction of its homes until it
obtains a sales contract and preliminary oral advice from the customer's lender
that financing will be approved. However, in certain markets, contracts are
sometimes accepted contingent upon the sale of an existing home and construction
is authorized through a certain stage prior to satisfaction of that contingency.
In addition, in all divisions, a limited number of "spec" homes, i.e., homes
started in the absence of an executed contract, are built in order to permit
construction and delivery of homes on an immediate-need basis and to provide
presentation of new product. The Company has always followed a very conservative
policy with respect to the number of spec homes that can be started. Management
strictly controls the number of spec homes that can be built by requiring that
the division manager obtain the Chief Executive Officer's approval prior to
start.
The Company's sales and marketing efforts are further enhanced by the
Company's inspection and warranty programs. Through these programs, the Company
offers a 2-year limited warranty on materials and workmanship and a 20-year
limited warranty against major structural defects. To increase the value of
these warranties, both are transferable in the event of the sale of the home.
Immediately prior to closing and three months after a home is delivered, the
Company inspects each home with the customer to determine if any repairs are
required. At the customer's written request, the Company will also provide a
free one year inspection and again make any necessary repairs. The Company also
passes along to its customers all warranties provided by manufacturers or
suppliers of components installed in each home. The Company's warranty expense
was less than 1.0% of total costs and expenses for each of the years ended
December 31, 1995, 1994, and 1993.
DESIGN AND CONSTRUCTION
The Company devotes significant resources to the research, design and
development of its homes in order to better meet the needs of the various
housing markets in which the Company operates. Virtually all of the Company's
floor plans and elevations are designed by an experienced in-house staff of
qualified professionals using modern computer-aided design technology. The
Company offers more than 200 different floor plans and elevations. These designs
may differ significantly from market to market. For example, in Florida, where
lifestyles tend to be more leisurely and outdoor oriented, home designs tend to
be more open and airy, with palladian windows, arches, gothic columns and
covered lanais. In the Midwest, home design is more traditional.
The construction of each home is supervised by a construction supervisor
employed by the Company who reports to a Company-employed production manager.
Every customer is introduced to their construction supervisor prior to
commencement of home construction at a pre-construction "builder/buyer"
conference. In addition to introducing the customer to their construction
supervisor, the purpose of the "builder/buyer" conference is to review with the
customer the home plans and all relevant construction details and to explain the
construction process and schedule to the customer. Every customer is given a
hard hat at the "builder/buyer" conference as an open invitation to visit the
site at any time during the course of construction. The Company wants the
customer to become involved and better understand the construction of their home
and to see the quality being built into their home. All of this is part of the
Company's philosophy to "put the customer first" and enhance the total
home-building experience.
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All homes are constructed according to standardized designs and meet
applicable Federal Housing Authority (the "FHA") and Veterans Administration
(the "VA") requirements. To allow maximum design flexibility, the Company limits
the use of pre-assembled building components and pre-fabricated structural
assemblies. The efficiency of the building process is enhanced by the Company's
use of standardized materials available from a variety of sources. The Company
has, from time to time, experienced construction delays due to shortages of
materials or subcontractors. Such construction delays may, in turn, delay the
delivery of homes, thereby extending the period of time between the signing of a
purchase contract with respect to a home and the receipt of revenue by the
Company; however, the Company cannot predict the extent to which shortages of
necessary materials or labor may occur in the future. The Company employs
independent subcontractors for the installation of site improvements and the
construction of its homes. Subcontractors are supervised by the Company's
on-site construction supervisors. All subcontractor work is performed pursuant
to written agreements with the Company. Such agreements are generally
short-term, with terms from six to twelve months, provide for a fixed price for
labor and materials and are structured so as to allow for price protection for
the Company's Backlog. The Company seeks to build in large volume with a view
toward reducing the per unit cost of the homes which it sells due to advantages
achieved by lower unit prices paid to subcontractors for labor and materials.
MARKETS
The Company's operations are organized into geographic regions in order to
maximize management and operating efficiencies. Each geographic region comprises
one or more operating divisions for a particular major metropolitan area. The
Company's present divisional operating structure is as follows:
<TABLE>
<CAPTION>
Year
Operations
Region Division Commenced
------ -------- ---------
<S> <C> <C>
Ohio..................... Columbus - Horizon 1994
Columbus - Hallmark/Heritage/Regency 1976
Columbus - Showcase 1988
Cincinnati 1988
Florida.................. Tampa 1981
Orlando 1984
Palm Beach County 1984
Carolina................. Charlotte 1985
Raleigh 1986
Indiana.................. Indianapolis 1988
Washington D. C.......... Virginia 1991
Maryland 1991
</TABLE>
A regional manager is responsible for and oversees all activities within
the divisions contained in their region and the division manager is responsible
for and oversees the activities within their particular division. Each division
manager has one or more sales managers and production managers reporting to
them. The sales manager supervises the sales consultants and the production
manager supervises the construction supervisors.
The home-building industry is highly competitive. The Company competes in
each of the geographic areas in which it operates with numerous other home
builders, ranging from small local to larger regional and national builders and
developers. The Company continually evaluates its markets, focusing on key data
such as population trends, job formation, income levels, housing demand and
supply and home-building competition.
Ohio Region. The Columbus market is a steady market with a stable and
diverse employment base. The Company is the leading home builder in its core
Columbus market based upon home closings, having built and delivered more
single-family detached homes in the Columbus area than any other home builder
during each of the last seven years. The Company seeks to maintain its leading
position in this market by expanding its product offerings and the locations
where it builds homes, while continuing to provide the high quality homes and
superior
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customer service on which the Company's reputation has been built. The Company's
success in Columbus has enabled the Company to expand into new markets which
offer significant growth opportunities.
The Cincinnati division was started in 1988. The Company believes
Cincinnati's market is characterized by a stable economic environment and a
diverse employment base. In 1994 and 1995, the Company introduced its more
affordable Horizon product line in this market in order to compete more
effectively for first time home buyers.
Florida Region. The Company commenced operations in Tampa in 1981. The
Tampa market continues to experience strong building permit activity after a
decline that began in the late 1980s. This increase has been driven by increased
jobs in the services, government and finance industries.
The Company opened the Palm Beach Division in 1984 and recently introduced
its Showcase product line in order to offer homes in more affluent areas of the
County. With the introduction of the Showcase product line and new subdivisions
opened in 1995, the Company believes it is well positioned in this market.
The Orlando division opened in 1984. Orlando's economy is anchored by the
service industry, representing approximately 33% of total employment. The
Orlando market has traditionally experienced lower unemployment rates than both
the state of Florida and the United States. Home builder competition remains
strong and the Company competes heavily in the areas of price and location. In
1995, the Company introduced its upscale product line in this market in order to
compete more effectively.
Carolina Region. The Company entered Charlotte and Raleigh in 1985 and
1986, respectively. Charlotte continues to grow as a financial center, with
Raleigh also attracting jobs as a leader in the research and development area.
The Company believes that Charlotte and Raleigh both continue to attract
well-educated, higher income level consumers.
Indiana Region. The Company opened the Indianapolis division in 1988. The
Indianapolis market is a growing market noted for an excellent transportation
system and a relatively young population. In 1995, the Company introduced its
Horizon product line in this market to offer more choices for first time home
buyers. This division recorded a record number of New Contracts in 1995,
primarily due to the strong performance of the Horizon product line.
Washington, D.C. Region. The Washington, D.C. division was opened in late
1991. In 1994, operations were split into separate Maryland and Virginia
divisions to more effectively manage this market. Current operations are
primarily located in Fairfax, Prince William and Loudoun Counties in Virginia
and Prince Georges, Montgomery and Anne Arundel Counties in Maryland. The
Company has experienced tremendous success in its Willows subdivision near the
Potomac River in Maryland. The Company will continue to focus on geographic,
product and pricing niches.
PRODUCT LINES
The Company, on a regional basis, offers up to eight distinct product
lines, ranging in price from the low $80,000's to approximately $500,000 and
ranging in square footage from approximately 1,100 to 4,000 square feet.
Essentially, the difference among each of these products lines are the floor
plans, square footage and price and availability of specific features and
options. There are more than 200 different floor plans and elevations across all
product lines. By offering a wide range of homes, the Company is able to attract
first-time home buyers as well as move-up buyers.
9
<PAGE> 10
The Company offers a selective number of its product lines in its divisions
outside of Columbus. However, in the Columbus market, which is the Company's
largest market, the Company offers all of its eight distinct product lines. The
price range and average square footage for these product lines are shown below:
<TABLE>
<CAPTION>
PRODUCT LINE PRICE RANGE SQUARE FOOTAGE
-------------------- --------------------- --------------
<S> <C> <C>
Horizon $ 80,000 - $ 95,000 1,200
Heritage $ 85,000 - $110,000 1,400
Hallmark $110,000 - $145,000 2,000
Regency $145,000 - $185,000 2,450
Showcase Signature $165,000 - $185,000 2,500
Showcase Classic $180,000 - $210,000 2,600
Hampsted $190,000 - $310,000 2,600
Showcase Estates $210,000 and up 2,800
</TABLE>
In addition, the Company offers a line of attached townhomes in the
Maryland and Virginia markets. These homes are marketed primarily to first-time
buyers and range from 1,400 to 2,200 square feet of living space. These homes
utilize wood frame construction and feature exteriors of aluminum with brick
fronts.
In all of the Company's lines of homes, certain options are available to
the purchaser for an additional charge. Major options include fireplaces,
additional bathrooms, and higher quality carpeting, cabinets and appliances. The
options typically are more numerous and significant on the more expensive homes.
In offering its various products, the Company attempts to maintain substantially
the same ratio of revenue to costs and expenses for each of its product lines.
LAND DEVELOPMENT ACTIVITIES
The Company's land development activities and land holdings have increased
significantly in the past few years and the Company expects land holdings to
remain at relatively high levels. However, the Company has always pursued and
continues to pursue a land acquisition policy that it believes is more
conservative than the policies of the other national home builders. The Company
develops its own lots where it can gain a competitive advantage by doing so or
where shortages of qualified land developers make it impractical to purchase the
required lots from outside sources. The Company seeks to limit its investment in
undeveloped land and lots to the amount reasonably expected to be sold in the
next three to four years. Although the Company purchases land and engages in
land development activities primarily for the purpose of furthering its own
home-building activities, in certain markets, the Company has developed land
with the intention of selling a portion of the lots to outside home builders.
To limit its risk in connection with such development, the Company has
primarily acquired land through the use of contingent purchase contracts. All
such contracts require the internal approval of the Company's Land Committee.
These contracts condition the Company's obligation to purchase land upon the
Company's review and approval of zoning, utilities, soil and subsurface
conditions, environmental and wetland conditions, levels of taxation, traffic
patterns, development costs, title matters and other property-related criteria.
In addition, careful attention is paid to the quality of the public school
system. Only after this thorough evaluation has been completed does the Company
make a commitment to purchase undeveloped land. To further reduce its risk in
undertaking land development, the Company generally does not commence technical
and engineering surveys or obtain subdivision and other required governmental
permits and development approvals until all necessary zoning approvals are
obtained.
To diversify its investment in land, the Company occasionally enters into
joint ventures, generally with other home builders. At December 31, 1995, the
Company had interests varying from 33% to 50% in each of 18 joint ventures,
three formed in 1995, three formed in 1994, four of which were formed in 1993,
and eight formed prior to 1993. These joint ventures develop land into lots and,
generally, the Company receives its percentage
10
<PAGE> 11
interest in the joint venture in the form of a distribution of developed
lots. These joint ventures pay to the managing joint venture partner certain
fees for accounting, administrative and construction supervision services
performed by the managing partner in addition to its percentage interest as a
partner in the profits of the joint venture. The Company currently is
responsible for the management of seven of these 18 joint ventures. In most
instances, these joint ventures are entirely equity financed.
In developing lots and land, the Company is required by some municipalities
and other governmental authorities to provide completion bonds for sewer,
streets and other improvements. The Company generally provides letters of credit
in lieu of these completion bonds. At December 31, 1995, $9.8 million of letters
of credit were outstanding for these purposes, as well as $3.3 million of
completion bonds.
AVAILABLE LOTS AND LAND
The Company seeks to balance the economic risk of owning lots and land with
the necessity of having lots available for its homes. At December 31, 1995, the
Company had in inventory 2,137 developed lots and 649 lots under development.
The Company also owned raw land expected to be developed into approximately
1,438 lots.
In addition, at December 31, 1995, the Company's interest in lots held by
its joint ventures consisted of 4 developed lots and 263 lots under development.
The Company also owns interests in raw land held by its joint ventures zoned for
843 lots. It is anticipated that some of the lots owned by the Company and the
joint ventures will be sold to others, including land held through its joint
ventures.
At December 31, 1995, the Company had options and purchase contracts, which
expire over the next three years, to acquire approximately 5,769 lots, including
developed lots and land to be developed into lots, with an aggregate current
purchase price of approximately $145.8 million. Purchase of these properties is
contingent upon satisfaction of certain requirements by the Company and the
sellers, such as zoning approval. The majority of these lot purchase agreements
provide for periodic escalation of the purchase price which, the Company
believes, reflects the developers' carrying cost of the lots. The following
table sets forth the Company's land position in lots (including the Company's
interest in joint ventures) by region at December 31, 1995:
<TABLE>
<CAPTION>
OWNED LOTS
-----------------------------------
Under To Be Lots to be
Region Developed Development Developed Purchased Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ohio and Indiana 933 585 1,428 2,812 5,758
Florida 929 - 258 831 2,018
Carolina 109 126 153 1,548 1,936
Washington, D.C. 170 201 442 578 1,391
------------------------------------------------------------------------------------
Total 2,141 912 2,281 5,769 11,103
====================================================================================
</TABLE>
REGULATION AND ENVIRONMENTAL MATTERS
The home-building industry, including the Company, is subject to various
local, state and federal (including FHA and VA) statutes, ordinances, rules and
regulations concerning zoning, building, design, construction, sales and similar
matters. Such regulation affects construction activities, including types of
construction materials which may be used, certain aspects of building design, as
well as sales activities and other dealings with consumers. The Company also
must obtain certain licenses, permits and approvals from various governmental
authorities for its development activities. In many areas, the Company is
subject to local regulations which impose restrictive zoning and density
requirements in order to limit the number of houses within the
11
<PAGE> 12
boundaries of a particular locality. The Company seeks to reduce the risk from
restrictive zoning and density requirements by the use of contingent land
purchase contracts which require that the land to be purchased by the Company
meet various requirements, including zoning.
The Company may be subject to periodic delays or may be precluded entirely
from developing projects due to building moratoriums, particularly in Florida.
Generally, such moratoriums relate to insufficient water or sewage facilities or
inadequate road capacity within specific market areas or subdivisions.
Moratoriums experienced by the Company have not been of long duration and have
not had a material effect on the Company's business.
Each of the states in which the Company operates has adopted a wide variety
of environmental protection laws. These laws generally regulate developments of
substantial size and which are in or near certain specified geographic areas.
Furthermore, these laws impose requirements for development approvals which are
more stringent than those which land developers would have to meet outside of
these geographic areas.
Increasingly stringent requirements may be imposed on home builders and
developers in the future which may have a significant impact on the Company and
the industry. Although the Company cannot predict the effect of these
requirements, such requirements could result in time-consuming and expensive
compliance programs. In addition, the continued effectiveness of licenses or
permits already granted or development approvals already obtained is dependent
upon many factors, some of which are beyond the Company's control.
EMPLOYEES
At December 31, 1995 the Company employed 712 people (including part-time
employees), of which were 196 employed in sales, 284 in construction and 232 in
management, administrative and clerical positions. The Company considers its
employee relations to be excellent. No employees are represented by a collective
bargaining agreement.
ITEM 2. PROPERTIES
The Company leases all of its offices, including the corporate and division
locations. The Company currently leases a portion of its office space from M/I
Office Development Company, an Ohio general partnership of which the Irving and
Frankie Schottenstein Trust and the Melvin L. Schottenstein Marital Trust are
partners. See "Item 13. Certain Relationships and Related Transactions."
Due to the nature of the Company's business, a substantial amount of
property is held as inventory in the ordinary course of business. See "Item 1.
Business - Available Lots and Land."
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to its business.
Management does not believe that any of this litigation is material to the
financial condition or the results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, no matters were submitted
to a vote of security holders.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is incorporated herein by
reference from the Company's Annual Report to Shareholders for the year ended
December 31, 1995.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by
reference from the Company's Annual Report to Shareholders for the year ended
December 31, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by this item is incorporated herein by
reference from the Company's Annual Report to Shareholders for the year ended
December 31, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by
reference from the Company's Annual Report to Shareholders for the year ended
December 31, 1995.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants during
the two fiscal years ended December 31, 1995.
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by
reference to the Company's definitive proxy statement relating to the 1996
Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the Company's definitive proxy statement relating to the 1996
Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the Company's definitive proxy statement relating to the 1996
Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the Company's definitive proxy statement relating to the 1996
Annual Meeting of Shareholders.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. The following financial statements of M/I
Schottenstein Homes, Inc. and subsidiary have been incorporated herein
by reference as set forth in Item 8 of Part II of this Annual Report on
Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income - Years Ended December 31, 1995, 1994
and 1993
Consolidated Statements of Stockholders' Equity - Years Ended December
31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years Ended December 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
All schedules have been omitted because the required information is
included in the financial statements or notes thereto, the amounts
involved are not significant, or the required matter is not present.
3. Exhibits.
The following exhibits required by Item 601 of Regulation S-K are filed
as part of this report. For convenience of reference the exhibits are
listed according to the numbers appearing in the Exhibit Table to Item
601 of Regulation S-K.
Exhibit Number Description
- -------------- -----------
3.1 Amended and Restated Articles of Incorporation of the
Company, hereby incorporated by reference to Exhibit 3.1 of
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
3.2 Regulations of the Company, hereby incorporated by reference
to Exhibit 3(l) of the Company's Registration Statement on
Form S-1, Commission File No. 33-68564.
3.3 Amendment to the Code of Regulations of the Company, hereby
incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form S-8, Commission File No.
33-76518.
4 Specimen of Stock Certificate, hereby incorporated by
reference to Exhibit 4 of the Company's Registration
Statement on Form S-1, Commission File No. 33-68564.
15
<PAGE> 16
Exhibit Number Description
- -------------- -----------
10.1 Indenture between M/I Schottenstein Homes, Inc., a Delaware
corporation (the "Predecessor") and Ameritrust Company
National Association, as Trustee, including form of
Subordinated Notes due December 1, 2001, hereby incorporated
by reference to Exhibit 4(b) of the Predecessor's
Registration Statement on Form S-4, Commission File No.
33-44914.
10.2 Supplemental Indenture between the Predecessor and
Ameritrust Company National Association, as Trustee, dated
April 22, 1992, including form of Exchange Notes due
December 1, 2001, hereby incorporated by reference to
Exhibit 4(a) of the Predecessor's Registration Statement on
Form S-4, Commission File No. 33-44914.
10.3 Supplemental Indenture between the Company and Society
National Bank, successor by merger to Ameritrust Company
National Association, as Trustee, dated November 8, 1993,
hereby incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
10.4 Exchange Agent Agreement between the Predecessor and
Ameritrust Company National Association dated February 12,
1992, hereby incorporated by reference to Exhibit 10(a) of
the Predecessor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991.
10.5 Executive Deferred Compensation Plan, hereby incorporated by
reference to Exhibit 10(e) of the Predecessor's Annual
Report on Form 10-K for the fiscal year ended December 31,
1989.
10.6 Amendments to the Predecessor's Executive Deferred
Compensation Plan dated March 29, 1991 and June 24, 1992,
hereby incorporated by reference to Exhibit 19(a) of the
Predecessor's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992.
10.7 The Predecessor's Amended and Restated 401(K) Profit Sharing
Plan, consisting of a Savings Plan Adoption Agreement,
Savings Plan and Savings Plan Trust, hereby incorporated by
reference to Exhibit 10(cc) of the Predecessor's Annual
Report on Form 10-K for the fiscal year ended December 31,
1991.
10.8 P.L. 1992 Limited Partnership Certificate and Agreement of
Limited Partnership dated March 25, 1992, hereby
incorporated by reference to Exhibit 10(vv) of the
Predecessor's Registration Statement on Form S-4, Commission
File No. 33-44914.
10.9 Promissory Note issued by P.L. 1992 Limited Partnership to
the Predecessor dated March 27, 1992, hereby incorporated by
reference to Exhibit 10(ww) of the Predecessor's
Registration Statement on Form S-4, Commission File No.
33-44914.
16
<PAGE> 17
Exhibit Number Description
- -------------- -----------
10.10 Promissory Note issued by P.L. 1992 Limited Partnership to
the Company dated December 30, 1994, hereby incorporated by
reference to Exhibit 10.16 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.11 Master Lease Agreement between the Predecessor and M/I
Office Development Company dated August 7, 1992, hereby
incorporated by reference to Exhibit 19(c) of the
Predecessor's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992.
10.12 First Amendment to Master Lease Agreement between the
Predecessor and M/I Office Development Company dated
September 9, 1992, hereby incorporated by reference to
Exhibit 19(b) of the Predecessor's Quarterly Report on Form
10-Q for the quarter ended September 30, 1992.
10.13 Second Amendment to Master Lease Agreement between the
Predecessor and M/I Office Development Company dated October
30, 1992, hereby incorporated by reference to Exhibit 19(c)
of the Predecessor's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992.
10.14 Third Amendment to Master Lease Agreement between the
Predecessor and M/I Office Development Company dated March
4, 1996. (Filed herewith.)
10.15 Cascades 1992 Limited Partnership Certificate and Agreement
of Limited Partnership dated July 20, 1992, hereby
incorporated by reference to Exhibit 10(cc) of the
Predecessor's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
10.16 Promissory Note issued by Cascades 1992 Limited Partnership
to the Predecessor dated October 16, 1992, hereby
incorporated by reference to Exhibit 10(dd) of the
Predecessor's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
10.17 Promissory Note issued by Cascades 1992 Limited Partnership
to the Company dated December 30, 1994, hereby incorporated
by reference to Exhibit 10.22 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.18 Promissory Note issued by Cascades 1992 Limited Partnership
to the Company dated December 30, 1995. (Filed herewith.)
17
<PAGE> 18
Exhibit Number Description
- -------------- -----------
10.19 Revolving Credit Loan, Seasonal Loan and Standby Letter of
Credit Agreement by and among the Company, Bank One,
Columbus, N.A.; The Huntington National Bank; NBD Bank,
N.A.; National City Bank, Columbus and Bank One, Columbus,
N.A., as agent for the banks, dated June 8, 1994, hereby
incorporated by reference to Exhibit 10(a) of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994.
10.20 Amendment No. 1 to Revolving Credit Loan, Seasonal Loan and
Standby Letter of Credit Agreement by and among the Company;
Bank One, Columbus, N.A.; The Huntington National Bank; NBD
Bank, N.A.; National City Bank, Columbus and Bank One,
Columbus, N.A., as agent for the banks, dated September 19,
1994, hereby incorporated by reference to Exhibit 10(a) of
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994.
10.21 Amendment No. 2 to Revolving Credit Loan, Seasonal Loan and
Standby Letter of Credit Agreement by and among the Company;
Bank One, Columbus, N.A.; The Huntington National Bank; NBD
Bank, N.A.; National City Bank, Columbus and Bank One,
Columbus, N.A., as agent for the banks, dated March 29,
1995, hereby incorporated by reference to Exhibit 10.46 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.22 Revolving credit loan, seasonal loan and standby letter of
credit agreement by and among the Company, Bank One,
Columbus, N.A.; The Huntington National Bank; NBD Bank;
National City Bank, Columbus; The First National Bank of
Boston and Bank One, Columbus, N.A., as agent for the banks,
dated September 29, 1995, hereby incorporated by reference
to Exhibit 10.1 of the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1995.
10.23 Promissory Note by and among the Company, M/I Financial
Corp. and Bank One, Columbus, N.A., dated November 5, 1993,
hereby incorporated by reference to Exhibit 19(d) of the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.
10.24 Revolving Credit Agreement by and among the Company; M/I
Financial Corp. and Bank One, Columbus, N.A., dated August
10, 1994, hereby incorporated by reference to Exhibit 10(b)
of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.
10.25 Revolving Credit Agreement by and among the Company; M/I
Financial Corp. and Bank One, Columbus, N.S. dated August 7,
1995, hereby incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995.
18
<PAGE> 19
Exhibit Number Description
- -------------- -----------
10.26 1993 Stock Incentive Plan of the Company, hereby
incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-8, Commission File No.
33-76518.
10.27 Melvin and Irving Schottenstein Family Agreement by and
among the Predecessor, the Company and its then shareholders
of record dated October 7, 1993, hereby incorporated by
reference to Exhibit 10(ww) of the Company's Registration
Statement on Form S-1, Commission File No. 33-68564.
10.28 Company's 1994 President and Chief Executive Officer Bonus
Program, hereby incorporated by reference to Exhibit 10.55
of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.29 Company's 1994 Corporate Executive Vice President Bonus
Program, hereby incorporated by reference to Exhibit 10.56
of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.30 Company's Amended 1994 Corporate Executive Vice President
Bonus Program, hereby incorporated by reference to Exhibit
10.60 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.31 Company's 1994 Senior Vice President and Chief Financial
Officer Bonus Program, hereby incorporated by reference to
Exhibit 10.57 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
10.32 Company's 1994 Senior Vice President and Treasurer Bonus
Program, hereby incorporated by reference to Exhibit 10.58
of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.33 Company's 1994 Senior Vice President/General Counsel Bonus
Program, hereby incorporated by reference to Exhibit 19.1 of
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994.
10.34 Company's 1994 Senior Vice President/Regional Manager Bonus
Program, hereby incorporated by reference to Exhibit 10.59
of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.35 Company's 1994 Division Manager Bonus Program, hereby
incorporated by reference to Exhibit 10.60 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
19
<PAGE> 20
Exhibit Number Description
- -------------- -----------
10.36 Consulting and Separation Agreement between the Company and
Eric J. Schottenstein, dated January 5, 1994, hereby
incorporated by reference to Exhibit 10.61 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
10.37 Executive Employment Agreement by and between the Company
and Irving E. Schottenstein dated August 9, 1994, hereby
incorporated by reference to Exhibit 10(c) of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994.
10.38 Company's 1995 President and Chief Executive Officer Bonus
Program, hereby incorporated by reference to Exhibit 10.68
of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
10.39 Company's 1995 Corporate Executive Vice President Bonus
Program, hereby incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
10.40 Company's 1995 Senior Vice President and Chief Financial
Officer Bonus Program, hereby incorporated by reference to
Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
10.41 Company's 1995 Senior Vice President and General Counsel
Bonus Program, hereby incorporated by reference to Exhibit
10.3 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.
10.42 Company's 1995 Senior Vice President and Treasurer Bonus
Program, hereby incorporated by reference to Exhibit 10.4 of
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
10.43 Company's 1995 Senior Vice President/Regional Manager Bonus
Program, hereby incorporated by reference to Exhibit 10.69
of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
10.44 Company's 1995 Division Manager Bonus Program, hereby
incorporated by reference to Exhibit 10.70 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1994.
10.45 Company's 1996 President and Chief Executive Officer Bonus
Program. (Filed herewith.)
10.46 Company's 1996 Corporate Executive Vice President Bonus
Program. (Filed herewith.)
20
<PAGE> 21
Exhibit Number Description
- -------------- -----------
10.47 Company's 1996 Senior Vice President and Chief Financial
Officer Bonus Program. (Filed herewith.)
10.48 Company's 1996 Senior vice President and General Counsel
Bonus Program. (Filed herewith.)
10.49 Company's 1996 Senior Vice President and Treasurer Bonus
Program. (Filed herewith.)
10.50 Investment Home Compensation Plan dated September 1, 1995,
hereby incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995.
10.51 Limited Liability Company Agreement of Northeast Office
Venture, Limited Liability Company dated November 17, 1995.
(Filed herewith.)
10.52 Lease Agreement by and between the Company and Northeast
Office Venture, Limited Liability Company dated November 17,
1995. (Filed herewith.)
13 Annual Report to Shareholders for the year ended December
31, 1995. (Filed herewith.)
21 Subsidiaries of Company, hereby incorporated by reference to
Exhibit 21 of the Company's Registration Statement of Form
S-1, Commission File No. 33-68564.
23 Consent of Deloitte & Touche LLP. (Filed herewith.)
24 Powers of Attorney. (Filed herewith.)
- ---------------
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
(c) See Item 14(a)(3).
(d) Not applicable.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio on this
29th day of March, 1996.
M/I SCHOTTENSTEIN HOMES, INC.
(Registrant)
By: /s/ IRVING E. SCHOTTENSTEIN
-------------------------------------
Irving E. Schottenstein
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on this 29th of March, 1996.
<TABLE>
<CAPTION>
NAME AND TITLE NAME AND TITLE
-------------- --------------
<S> <C>
/s/ IRVING E. SCHOTTENSTEIN /s/ KERRII B. ANDERSON
- -------------------------------------------- ---------------------------------------------
Irving E. Schottenstein Kerrii B. Anderson
Chairman of the Board, President and Senior Vice President, Chief Financial
Chief Executive Officer Officer and Assistant Secretary
(Principal Executive Officer) (Principal Financial and Accounting Officer)
FRIEDRICH K. M. BOHM* JOHN B. GERLACH*
- -------------------------------------------- ---------------------------------------------
Friedrich K. M. Bohm John B. Gerlach
Director Director
HOLLY S. KASTAN* ERIC J. SCHOTTENSTEIN*
- -------------------------------------------- ---------------------------------------------
Holly S. Kastan Eric J. Schottenstein
Director Director
LENORE G. SCHOTTENSTEIN* ROBERT H. SCHOTTENSTEIN*
- -------------------------------------------- ---------------------------------------------
Lenore G. Schottenstein Robert H. Schottenstein
Director Director
STEVEN SCHOTTENSTEIN* LEWIS R. SMOOT, SR.*
- -------------------------------------------- ---------------------------------------------
Steven Schottenstein Lewis R. Smoot, Sr.
Director Director
</TABLE>
* The above-named Directors of the Registrant execute this report by Irving E.
Schottenstein and Kerrii B. Anderson, their Attorneys-in-Fact, pursuant to
powers of attorney executed by the above-named Directors and filed with the
Securities and Exchange Commission as Exhibit 24 to the report.
By: /s/ IRVING E. SCHOTTENSTEIN
-----------------------------------------
Irving E. Schottenstein, Attorney-in-Fact
By: /s/ KERRII B. ANDERSON
-----------------------------------------
Kerrii B. Anderson, Attorney-in-Fact
22
<PAGE> 1
Exhibit 10.14
LEASE AMENDMENT
This Lease Amendment is entered into this 4th day of March, 1996, by
and between M/I OFFICE DEVELOPMENT COMPANY, an Ohio general partnership
("Landlord"), and M/I SCHOTTENSTEIN HOMES, INC., an Ohio corporation ("Tenant").
W I T N E S S E T H: That,
WHEREAS, Landlord and Tenant have entered into a certain Lease dated
August 2, 1992 (the "Lease"), regarding the office building and land commonly
known as 1855 East Dublin-Granville Road, Columbus, Ohio; and
WHEREAS, Landlord and Tenant now desire to amend the Lease to provide
termination rights as described below.
NOW, THEREFORE, in consideration of the mutual convenants and promises
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree to amend the
terms of the Lease as follows:
1. Landlord and Tenant shall each have the right to terminate the
Lease, provided such termination shall not become effective before September 30,
1996. The party exercising such right of termination shall exercise such right
of termination, if at all, by delivering to the other party, at any time after
September 1, 1996, not less than thirty (30) days prior written notice of its
intent to terminate the Lease.
2. Except as herein amended and modified, all terms and conditions of
the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
the date first set forth above.
LANDLORD:
M/I OFFICE DEVELOPMENT COMPANY,
an Ohio general partnership
BY: M L Schottenstein Marital Trust,
ITS: general partner
BY: /S/ Lenore Schottenstein
-------------------------------
Lenore Schottenstein
ITS: Trustee
BY: /S/ Eric Schottenstein
-------------------------------
Eric Schottenstein
ITS: Trustee
<PAGE> 2
Signatures of M.L. Schottenstein Marital Trust, continued
BY: /S/ Holly S. Kastan
-------------------------------
Holly S. Kastan
ITS: Trustee
BY: IRVING AND FRANKIE SCHOTTENSTEIN 1994 TRUST
U/A, dated December 22, 1994, its general partner
BY:/S/ Irving E. Schottenstein
--------------------------------
Irving E. Schottenstein
ITS: Trustee
TENANT:
M/I SCHOTTENSTEIN HOMES, INC.
an Ohio corporation
BY: /S/
-------------------------------
ITS: /S/
-------------------------------
<PAGE> 1
EXHIBIT 10.18
PROMISSORY NOTE
Columbus, Ohio
$440,339.01 December 30, 1995
For value received, the undersigned, jointly and severally, if more
than one, promise to pay to the order of M/I SCHOTTENSTEIN HOMES, INC., an Ohio
corporation, at 41 S. High Street, Suite 2410, Columbus, Ohio 43215, or at such
other address as the holder hereof may, from time to time, designate in writing,
the sum of Four Hundred Forty Thousand Three Hundred Thirty-Nine Dollars and
01/100 ($440,339.01) with interest thereon at the rate of the prime rate of
interest as charged by The Huntington National Bank, Columbus, Ohio, to M/I
Schottenstein Homes, Inc., plus one-half percent (1/2%) adjusted as such
interest rate charged to M/I Schottenstein Homes, Inc. is adjusted. The
principal sum and interest shall be due and payable to the holder hereof after
payments in full to Dominion Bank, National Association, or its successor or
assign for any amounts arising out of that certain Loan Agreement dated as of
March 27, 1992 between P. L. 1992 Limited Partnership and said Dominion Bank,
National Association. Payments thereto shall include any obligations relating to
the Acquisition Loan, the Development Loan or the Letter of Credit Loan such
that obligations to such entities shall have been paid in full, provided further
that payment hereunder shall be made in full for principal and interest in
advance of any distributions to the partners of the entity executing this
Agreement.
The full amount of the principal and interest shall be paid on or
before December 31 , 1996.
All or any part of the principal sum and accrued interest may be paid
at any time without penalty.
This Note is not secured by a mortgage on real estate.
Upon default in payment after the same is due, this Note shall, at the
option of the holder hereof, bear interest thereon at a rate of fifteen percent
(15%) per annum and the entire principal hereof then remaining unpaid, together
with all accrued interest, shall, at said holder's option, become immediately
due and payable without any notice or demand.
All persons now or hereafter liable for the payment of the principal or
interest due on this Note, or any part hereof, do hereby expressly waive
presentment for payment, notice of dishonor, protest and notice of protest, and
agree that the time for payment or payments of any part of this Note may be
extended without releasing or affecting their liability on this Note.
This Note is executed in Columbus, Franklin County, Ohio.
CASCADES 1992 LIMITED PARTNERSHIP
BY: THE FABULOUS EIGHT, INC.,
AN OHIO CORPORATION,
GENERAL PARTNER
By:
-----------------------------
Name: Robert H. Schottenstein
Title: President
<PAGE> 1
EXHIBIT 10.45
M/I SCHOTTENSTEIN HOMES, INC.
PERFORMANCE BASED BONUS PROGRAM
CHIEF EXECUTIVE OFFICER
EFFECTIVE JANUARY 1, 1996
This Performance Based Bonus Plan is for the Chief Executive Officer of M/I
Schottenstein Homes, Inc., and shall be administered by a subcommittee of the
Compensation Committee (the "Subcommittee") comprised of all members of the
Compensation Committee who are "Outside Directors", as defined in the Treasury
Regulations promulgated under Section 162(m) of the Internal Revenue Code (the
"Code"). The Subcommittee shall have the authority to prospectively change the
targets of the Plan. The Chief Executive Officer of M/I Schottenstein Homes,
Inc. is eligible to receive up to four times his 1993 base salary of $575,000 as
per the following criteria:
I. ACTUAL PRE-TAX NET INCOME: In the event the actual pre-tax net income
(before charges for a bond redemption) of the Company is equal to
$10,000,000, the Chief Executive Officer will receive a graduating
cents per dollar amount based on the following schedule.
<TABLE>
<CAPTION>
Million Increments greater Cents per Incremental
than or equal to $10,000,000 Million awarded
<S> <C>
$10,000,000.00 - $10,999,999.99 $0.0450 Cents
$11,000,000.00 - $11,999,999.99 $0.0550 Cents
$12,000,000.00 - $12,999,999.99 $0.0650 Cents
$13,000,000.00 - $13,999,999.99 $0.0750 Cents
$14,000,000.00 - $14,999,999.99 $0.0850 Cents
$15,000,000.00 - $15,999,999.99 $0.0600 Cents
$16,000,000.00 - $16,999,999.99 $0.0700 Cents
$17,000,000.00 - $17,999,999.99 $0.0800 Cents
$18,000,000.00 - $18,999,999.99 $0.0500 Cents
$19,000,000.00 - $19,999,999.99 $0.0600 Cents
$20,000,000.00 - $20,999,999.99 $0.0200 Cents
$21,000,000.00 - $21,999,999.99 $0.0225 Cents
$22,000,000.00 - $22,999,999.99 $0.0250 Cents
$23,000,000.00 - $23,999,999.99 $0.0275 Cents
$24,000,000.00 - $24,999,999.99 $0.0325 Cents
$25,000,000.00 - $25,999,999.99 $0.0350 Cents
$26,000,000.00 - $26,999,999.99 $0.0375 Cents
$27,000,000.00 - $27,999,999.99 $0.0400 Cents
$28,000,000.00 - $28,999,999.99 $0.0425 Cents
$29,000,000.00 - $29,999,999.99 $0.0450 Cents
$30,000,000.00 - $30,999,999.99 $0.0475 Cents
$31,000,000.00 - $31,999,999.99 $0.0500 Cents
$32,000,000.00 + $0.0525 Cents
</TABLE>
II. If the actual pre-tax net income of the Company is at least 50% of
Budgeted Net Income and the Company achieves at least a 92% affirmative
response to Question Number 16 on the Customer Questionnaire, the Chief
Executive Officer will receive 17% of his December 31 base salary,
increasing proportionally for each increase in customer affirmative
responses over 92%, to a maximum of 25% of December 31 base salary at a
100% "yes" response level. The Budgeted Net Income shall mean the
amount of the Budgeted Net Income as presented to the Board of
Directors on or before the 90th day of each year.
PAYMENT
Upon the certification by the members of the CEO Compensation Subcommittee that
the objectives and material terms of the plan have been met, payment will be
rendered.
ACKNOWLEDGED:
__________________________________________ _______________
Name Date
1
<PAGE> 1
EXHIBIT 10.46
M/I SCHOTTENSTEIN HOMES, INC.
PERFORMANCE-BASED BONUS PROGRAM
EXECUTIVE VICE PRESIDENT
EFFECTIVE JANUARY 1, 1996
BONUS CRITERIA:
The Executive Vice President is eligible to receive up to three times his
December 31 base salary as per the following criteria:
1. If the pre-tax income (before charges for a bond redemption)
of the Company is at least $10,000,000 a graduating cents per
dollar amount will be awarded as indicated on ATTACHMENT A.
2. If the actual pre-tax net income (before charges for a bond
redemption) of the Company is at least 50% of Budgeted Net
Income and the Corporation achieves at least a 92% affirmative
response to Question Number 16 on the Customer Questionnaire,
the Executive Vice President will receive 17% of his December
31 base salary, increasing proportionally for each increase in
customer affirmative responses over 92%, to a maximum of 25%
of December 31 base salary at a 100% "yes" response level.
PAYMENT:
The bonus is 50% payable at the end of January and 50% payable prior to March 15
of the following year the bonus is earned. The individual must be employed in
this capacity with the Company on the date the bonuses are distributed to
receive a bonus. However, in the event of a promotion or transfer, the bonus
amount will be allocated to time employed in each position. No amounts are
considered due or payable in the event the employment relationship with the
Company is terminated.
THE COMPANY RESERVES THE RIGHT TO REVISE THIS PROGRAM AS IT CONSIDERS NECESSARY.
ACKNOWLEDGED:
______________________________________________ __________
NAME DATE
2
<PAGE> 2
ATTACHMENT A - EXECUTIVE VICE PRESIDENT
Actual Net Income Results Over $10,000,000
<TABLE>
<CAPTION>
=============================================================================================================================
Incremental
Net Income 0.00% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50%
=============================================================================================================================
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10,000,000 $0.0100 $0.0200 $0.0215 $0.0230 $0.0245 $0.0260 $0.0275 $0.0290 $0.0305
- -----------------------------------------------------------------------------------------------------------------------------
$11,000,000 $0.0115 $0.0215 $0.0230 $0.0245 $0.0260 $0.0275 $0.0290 $0.0305 $0.0320
- -----------------------------------------------------------------------------------------------------------------------------
$12,000,000 $0.0130 $0.0230 $0.0245 $0.0260 $0.0275 $0.0290 $0.0305 $0.0320 $0.0335
- -----------------------------------------------------------------------------------------------------------------------------
$13,000,000 $0.0145 $0.0245 $0.0260 $0.0275 $0.0290 $0.0305 $0.0320 $0.0335 $0.0350
- -----------------------------------------------------------------------------------------------------------------------------
$14,000,000 $0.0160 $0.0260 $0.0275 $0.0290 $0.0305 $0.0320 $0.0335 $0.0350 $0.0365
- -----------------------------------------------------------------------------------------------------------------------------
$15,000,000 $0.0175 $0.0275 $0.0290 $0.0305 $0.0320 $0.0335 $0.0350 $0.0365 $0.0380
- -----------------------------------------------------------------------------------------------------------------------------
$16,000,000 $0.0190 $0.0290 $0.0305 $0.0320 $0.0335 $0.0350 $0.0365 $0.0380 $0.0395
- -----------------------------------------------------------------------------------------------------------------------------
$17,000,000 $0.0205 $0.0305 $0.0320 $0.0335 $0.0350 $0.0365 $0.0380 $0.0395 $0.0410
- -----------------------------------------------------------------------------------------------------------------------------
$18,000,000 $0.0405 $0.0490 $0.0505 $0.0520 $0.0535 $0.0550 $0.0565 $0.0580 $0.0595
- -----------------------------------------------------------------------------------------------------------------------------
$19,000,000 $0.0455 $0.0540 $0.0555 $0.0570 $0.0585 $0.0600 $0.0615 $0.0630 $0.0645
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================
Incremental
Net Income 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
======================================================================================================
<C> <C> <C> <C> <C> <C> <C> <C>
$10,000,000 $0.0320 $0.0335 $0.0350 $0.0365 $0.0380 $0.0395 $0.0410
- ------------------------------------------------------------------------------------------------------
$11,000,000 $0.0335 $0.0350 $0.0365 $0.0380 $0.0395 $0.0410 $0.0425
- ------------------------------------------------------------------------------------------------------
$12,000,000 $0.0350 $0.0365 $0.0380 $0.0395 $0.0410 $0.0425 $0.0440
- ------------------------------------------------------------------------------------------------------
$13,000,000 $0.0365 $0.0380 $0.0395 $0.0410 $0.0425 $0.0440 $0.0455
- ------------------------------------------------------------------------------------------------------
$14,000,000 $0.0380 $0.0395 $0.0410 $0.0425 $0.0440 $0.0455 $0.0470
- ------------------------------------------------------------------------------------------------------
$15,000,000 $0.0395 $0.0410 $0.0425 $0.0440 $0.0455 $0.0470 $0.0485
- ------------------------------------------------------------------------------------------------------
$16,000,000 $0.0410 $0.0425 $0.0440 $0.0455 $0.0470 $0.0485 $0.0500
- ------------------------------------------------------------------------------------------------------
$17,000,000 $0.0425 $0.0440 $0.0455 $0.0470 $0.0485 $0.0500 $0.0515
- ------------------------------------------------------------------------------------------------------
$18,000,000 $0.0610 $0.0625 $0.0640 $0.0655 $0.0670 $0.0685 $0.0700
- ------------------------------------------------------------------------------------------------------
$19,000,000 $0.0660 $0.0675 $0.0690 $0.0705 $0.0720 $0.0735 $0.0750
======================================================================================================
</TABLE>
3
<PAGE> 1
EXHIBIT 10.47
M/I SCHOTTENSTEIN HOMES, INC.
PERFORMANCE BASED BONUS PROGRAM
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
EFFECTIVE JANUARY 1, 1996
The Senior Vice President and Chief Financial Officer is eligible to receive up
to 125% of December 31 base salary as per the following criteria:
ACTUAL PRE-TAX NET INCOME: Provided the actual pre-tax net income
(before charges for a bond redemption) of the Corporation equals
$10,000,000, the Senior Vice President and Chief Financial Officer will
receive a designated percentage of December 31 base salary as indicated
by the following schedule:
<TABLE>
<CAPTION>
Actual Pre-tax December 31 Base Salary
Income Results Percentage
-------------- ----------
<S> <C>
$10,000,000.00 - $12,999,999.99 30%
$13,000,000.00 - $13,999,999.99 35%
$14,000,000.00 - $14,999,999.99 40%
$15,000,000.00 - $15,999,999.99 45%
$16,000,000.00 - $16,999,999.99 55%
$17,000,000.00 - $17,999,999.99 65%
$18,000,000.00 - $18,999,999.99 75%
$19,000,000.00 - $19,999,999.99 100%
-------------------------------
$20,000,000.00 - $20,999,999.99 110%
------------------------------- ----
$21,000,000.00 - $21,999,999.99 115%
------------------------------- ----
$22,000,000.00 - $22,999,999.99 120%
------------------------------- ----
$23,000,000.00 + 125%
---------------- ----
</TABLE>
PAYMENT
Bonuses are 50% payable at the end of January and 50% payable by March 15 of the
following year the bonus is earned. The individual must be employed in this
capacity with the Company on the date bonuses are distributed to receive a
bonus. However, in the event of a promotion or transfer, the bonus will be
allocated to time employed with each position. No amounts are considered due or
payable in the event the employment relationship with the Company is terminated.
THE COMPANY RESERVES THE RIGHT TO REVISE THIS PROGRAM AS IT CONSIDERS NECESSARY.
ACKNOWLEDGED:
_______________________________________________________ ____________
Name Date
5
<PAGE> 1
EXHIBIT 10.48
M/I SCHOTTENSTEIN HOMES, INC.
PERFORMANCE BASED BONUS PROGRAM
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL
EFFECTIVE JANUARY 1, 1996
The Senior Vice President and General Counsel is eligible to receive up to 115%
of December 31 base salary as per the following criteria:
ACTUAL PRE-TAX NET INCOME: Provided the actual pre-tax net income
(before charges for a bond redemption) of the Corporation equals
$10,000,000, the Senior Vice President and General Counsel will receive
a designated percentage of December 31 base salary as indicated by the
following schedule:
<TABLE>
<CAPTION>
Actual Pre-tax December 31 Base Salary
Income Results Percentage
-------------- ----------
<S> <C>
$10,000,000.00 - $12,999,999.99 20%
$13,000,000.00 - $13,999,999.99 25%
$14,000,000.00 - $14,999,999.99 30%
$15,000,000.00 - $15,999,999.99 35%
$16,000,000.00 - $16,999,999.99 40%
$17,000,000.00 - $17,999,999.99 50%
$18,000,000.00 - $18,999,999.99 55%
$19,000,000.00 - $19,999,999.99 85%
-------------------------------
$20,000,000.00 - $20,999,999.99 100%
------------------------------- ----
$21,000,000.00 - $21,999,999.99 105%
------------------------------- ----
$22,000,000.00 - $22,999,999.99 110%
------------------------------- ----
$23,000,000.00 + 115%
---------------- ----
</TABLE>
PAYMENT
Bonuses are 50% payable at the end of January and 50% payable by March 15 of the
following year the bonus is earned. The individual must be employed in this
capacity with the Company on the date bonuses are distributed to receive a
bonus. However, in the event of a promotion or transfer, the bonus will be
allocated to time employed with each position. No amounts are considered due or
payable in the event the employment relationship with the Company is terminated.
THE COMPANY RESERVES THE RIGHT TO REVISE THIS PROGRAM AS IT CONSIDERS NECESSARY.
ACKNOWLEDGED:
_______________________________________________________ ________________
Name Date
6
<PAGE> 1
EXHIBIT 10.49
M/I SCHOTTENSTEIN HOMES, INC.
PERFORMANCE BASED BONUS PROGRAM
SENIOR VICE PRESIDENT AND
TREASURER
EFFECTIVE JANUARY 1, 1996
The Senior Vice President and Treasurer is eligible to receive up to 115% of
December 31 base salary as per the following criteria:
ACTUAL PRE-TAX NET INCOME: Provided the actual pre-tax net income
(before charges for a bond redemption) of the Corporation equals
$10,000,000, the Senior Vice President and Treasurer will receive a
designated percentage of December 31 base salary as indicated by the
following schedule:
<TABLE>
<CAPTION>
Actual Pre-tax December 31 Base Salary
Income Results Percentage
-------------- ----------
<S> <C>
$10,000,000.00 - $12,999,999.99 20%
$13,000,000.00 - $13,999,999.99 25%
$14,000,000.00 - $14,999,999.99 30%
$15,000,000.00 - $15,999,999.99 35%
$16,000,000.00 - $16,999,999.99 40%
$17,000,000.00 - $17,999,999.99 50%
$18,000,000.00 - $18,999,999.99 55%
$19,000,000.00 - $19,999,999.99 85%
--------------------------------
$20,000,000.00 - $20,999,999.99 100%
------------------------------- ----
$21,000,000.00 - $21,999,999.99 105%
------------------------------- ----
$22,000,000.00 - $22,999,999.00 110%
------------------------------- ----
$23,000,000.00 + 115%
---------------- ----
</TABLE>
PAYMENT
Bonuses are 50% payable at the end of January and 50% payable by March 15 of the
following year the bonus is earned. The individual must be employed in this
capacity with the Company on the date bonuses are distributed to receive a
bonus. However, in the event of a promotion or transfer, the bonus will be
allocated to time employed with each position. No amounts are considered due or
payable in the event the employment relationship with the Company is terminated.
THE COMPANY RESERVES THE RIGHT TO REVISE THIS PROGRAM AS IT CONSIDERS NECESSARY.
ACKNOWLEDGED:
____________________________________________________________ ____________
Name Date
7
<PAGE> 1
EXHIBIT 10.51
LIMITED LIABILITY COMPANY AGREEMENT
OF
NORTHEAST OFFICE VENTURE, LIMITED LIABILITY COMPANY
A DELAWARE LIMITED LIABILITY COMPANY
AMONG
THE GEORGETOWN COMPANY,
LIMITED OVAL OFFICE I, INC.
AND
M/I SCHOTTENSTEIN HOMES, INC.
DATED, EXECUTED AND DELIVERED: ________ __, 1995
TO BE EFFECTIVE: SEPTEMBER 5, 1995
THE INTERESTS CREATED BY THIS AGREEMENT HAVE NOT BEEN AND WILL NOT BE REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR WITH THE SECURITIES AUTHORITIES OF ANY STATE
UNDER ANY STATE SECURITIES LAWS. AS A CONSEQUENCE, THE INTERESTS MAY NOT BE
SOLD, ASSIGNED, CONVEYED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED BY A
HOLDER THEREOF EXCEPT: (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
REGISTERING THE INTERESTS UNDER THE SECURITIES ACT AND/OR UNDER APPLICABLE STATE
SECURITIES LAWS, OR (2) PURSUANT TO AN OPINION OF COUNSEL WHICH HAS BEEN
OBTAINED BY SUCH HOLDER AND WHICH IS SATISFACTORY TO THE MANAGER, OR PURSUANT TO
SUCH OTHER EVIDENCE WHICH HAS BEEN OBTAINED BY THE HOLDER AND WHICH IS
SATISFACTORY TO THE MANAGER, THAT SUCH REGISTRATION UNDER THE SECURITIES ACT
AND/OR UNDER APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED FOR SUCH HOLDER TO
LAWFULLY EFFECT SUCH SUBSEQUENT SALE, ASSIGNMENT, CONVEYANCE, PLEDGE,
HYPOTHECATION OR OTHER TRANSFER.
10/16/95
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
ARTICLE I
DEFINITIONS
<S> <C>
1.1 Definitions...............................................................................1
ARTICLE II
FORMATION AND NAME; BUSINESS OFFICE; REGISTERED OFFICE AND REGISTERED AGENT;
PURPOSE; PARTNERSHIP STATUS; POWERS; AND TERM
2.1 Formation and Name........................................................................10
2.2 Business Office...........................................................................11
2.3 Registered Office and Registered Agent....................................................11
2.4 Purpose...................................................................................11
2.5 Partnership Status........................................................................11
2.6 Powers....................................................................................11
2.7 Term......................................................................................12
ARTICLE III
MEMBERS AND CAPITAL
3.1 Members...................................................................................12
3.2 No Priority Among Members.................................................................13
3.3 No Interest on Capital Contributions; No Withdrawal of Capital............................13
3.4 Capital Accounts..........................................................................13
3.5 No Requirement to Restore Deficit in Capital Account......................................13
3.6 Subsequent Contributions..................................................................13
3.7 Loans by Members..........................................................................17
3.8 Representations of Members................................................................17
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 Allocation of Operating Profits and Operating Losses......................................18
4.2 Allocations of Profits and Losses from a Capital Transaction..............................18
4.3 Special Allocations and Other Provisions Relating to Allocations..........................18
4.4 Distributions of Net Cash Receipts........................................................23
4.5 Distributions of Proceeds From Capital Transactions When Company Not Liquidated...........24
4.6 Distributions of Liquidation Proceeds Upon Liquidation....................................24
4.7 Distributions in Kind on Liquidation......................................................25
4.8 Certain Provisions of the Act Superseded..................................................25
</TABLE>
-i-
<PAGE> 3
<TABLE>
ARTICLE V
POWER, AUTHORITY, RIGHTS, DUTIES AND OBLIGATIONS OF THE MANAGER
<S> <C>
5.1 Management of Company.....................................................................26
5.2 Construction of the Improvements..........................................................26
5.3 The Lease.................................................................................28
5.4 Operating and Capital Improvement Budgets.................................................29
5.5 Construction Loan and Permanent Loan......................................................31
5.6 Specific Rights and Powers of Manager.....................................................32
5.7 Agreements; Laws and Permits..............................................................33
5.8 Approval of Members.......................................................................33
5.9 Compensation of the Manager...............................................................35
5.10 Other Activities of Members..............................................................35
5.11 Indemnification..........................................................................36
5.12 Tax Matters Member.......................................................................36
5.13 Property Management Agent................................................................36
5.14 Certain Provisions of the Act Superseded.................................................37
ARTICLE VI
RIGHTS, DUTIES AND OBLIGATIONS OF MEMBERS
6.1 Rights of Members Other Than the Manager to Participate in the Management or
Control of the Business...................................................................37
6.2 Limited Liability of Members..............................................................37
6.3 Meetings..................................................................................37
6.4 Consent of the Members....................................................................37
ARTICLE VII
TRANSFERS OF INTERESTS OR RETIREMENT; FIRST OFFER PROVISIONS; PURCHASE RIGHTS UPON DEFAULT;
CONTINUATION AFTER RETIREMENT OF MEMBERS
7.1 Limitations on Transfers and Retirement; Certain Permitted Transfers......................38
7.2 Right of First Offer......................................................................39
7.3 Purchase Rights Upon Default..............................................................43
7.4 Additional Restrictions on Assignments or Transfers.......................................44
7.5 Requirements for Substitution.............................................................45
7.6 Obligations and Rights of Transferees.....................................................45
7.7 Distributions and Allocations in Respect of Transferred Percentage Interests..............46
7.8 Continuation After Retirement of Member..................................................46
7.9 Restrictions Reasonable...................................................................46
7.10 Certain Provisions of the Act Superseded.................................................47
</TABLE>
-ii-
<PAGE> 4
<TABLE>
ARTICLE VIII
REMOVAL OF MANAGER; ADMISSION OF SUBSTITUTE MANAGER
<S> <C>
8.1 Removal of Manager........................................................................47
8.2 Admission of Substitute Manager...........................................................47
8.3 Manager Upon Purchase of Certain Percentage Interests.....................................47
ARTICLE IX
PROCEDURE ON DISSOLUTION
9.1 Liquidation...............................................................................48
9.2 Operations During Liquidation.............................................................48
9.3 Time for Liquidation......................................................................48
9.4 Manager Not Liable for Return of Capital Contributions....................................48
9.5 Termination...............................................................................48
ARTICLE X
BOOKS AND RECORDS; BANK ACCOUNTS
10.1 Maintenance of Books and Accounting Method...............................................49
10.2 Fiscal Year..............................................................................49
10.3 Reports to the Members...................................................................49
10.4 Inspection by Members....................................................................50
10.5 Banking..................................................................................50
10.6 Tax Elections; Special Basis Adjustments.................................................50
10.7 Cost Segregation Analysis................................................................50
ARTICLE XI
AMENDMENTS
11.1 Unanimous Consent of the Members.........................................................51
ARTICLE XII
GENERAL PROVISIONS
12.1 No Third Party Beneficiaries.............................................................51
12.2 Non-Waiver...............................................................................51
12.3 Additional Documents and Instruments.....................................................51
12.4 Severability.............................................................................51
12.5 Notices and Consents.....................................................................52
12.6 Entire Agreement.........................................................................53
12.7 Provisions Binding.......................................................................53
12.8 Captions.................................................................................53
12.9 Definitions..............................................................................53
12.10 Counterparts............................................................................53
</TABLE>
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<TABLE>
<S> <C>
12.11 Word Meanings...........................................................................53
12.12 Applicable Law..........................................................................54
12.13 Choice of Venue and Consent to Jurisdiction and Venue...................................54
</TABLE>
SCHEDULE A--Members, Capital Contributions and Interests SCHEDULE B--Legal
Description of the Land SCHEDULE C--Form of Certificate of Formation SCHEDULE
D--Location of Certain Real Property in Proximity to the Land SCHEDULE
E--Preliminary Budget
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LIMITED LIABILITY COMPANY AGREEMENT OF
NORTHEAST OFFICE VENTURE, LIMITED LIABILITY COMPANY
THIS LIMITED LIABILITY COMPANY AGREEMENT OF NORTHEAST OFFICE VENTURE,
LIMITED LIABILITY COMPANY (this "Agreement"), dated,
executed and delivered as of the ___ day of ________, 1995, to be effective
September 5, 1995, by and among The Georgetown Company, a New York general
partnership ("Georgetown"), Limited Oval Office I, Inc., a Delaware corporation
("Limited"), and M/I Schottenstein Homes, Inc., an Ohio corporation ("M/I").
W I T N E S S E T H:
WHEREAS, the Members desire to enter into this Agreement, to cause a
certificate of formation to be filed with the Secretary of State of the State of
Delaware to form a limited liability company under the laws of the State of
Delaware and to reflect certain agreements among themselves;
WHEREAS, this Agreement shall constitute the "limited liability company
agreement" of the Company within the meaning of that term as used in the Act;
NOW, THEREFORE, it is mutually agreed as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
ACCOUNTANTS means such firm of independent certified public accountants
as may be unanimously selected from time to time by the Members.
ACT means the Delaware Limited Liability Company Act, Delaware Code
Title 6, Sections 18-101, et seq., as the same may be amended from time to time,
or the corresponding provisions of any subsequent Delaware law governing limited
liability companies.
ADJUSTED CAPITAL ACCOUNT DEFICIT means the deficit balance, if any, in a
Member's Capital Account at the time in question, after (i) reducing the amount
of such deficit by the amount, if any, of such Member's deficit restoration
obligation and by the amount, if any, that such Member is deemed to be obligated
to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Allocation Regulations, and (ii) increasing the amount of
such deficit by the amount, if any, of the items described in paragraphs (4),
(5) and (6) of Section 1.704-1(b)(2)(ii)(d) of the Allocation Regulations. The
determination of a Member's Adjusted Capital Account Deficit is
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made for purposes of Section 1.704-1(b)(2)(ii)(d) of the Allocation Regulations
and shall be made consistently therewith.
AFFILIATE, in reference to a Person, means (i) any other Person directly
or indirectly controlling, controlled by or under common control with such
Person, (ii) any other Person owning or controlling ten percent (10%) or more of
the outstanding voting securities of such Person, (iii) any officer, director,
member, manager or partner of such Person and (iv) if such Person is an officer,
director, member, manager or partner of any Entity, any Entity for which such
Person acts in any such capacity.
AGREEMENT means this Limited Liability Company Agreement, as the same
may be modified, amended, supplemented and/or restated from time to time in
accordance with its terms and applicable law.
ALLOCATION REGULATIONS means the Income Tax Regulations promulgated
under Code Section 704(b) (regarding partners' distributive shares of
partnership tax items), as currently in effect, and as modified and clarified by
amendment, successor regulation, ruling, court decision or other Income Tax
Regulation relating to partners' distributive shares.
APPRAISED VALUE has the meaning specified in Section 7.3(b).
BANKRUPTCY, in reference to a Member, means that event and date when:
(i) such Member makes an assignment for the benefit of creditors; (ii) such
Member files a voluntary petition in bankruptcy; (iii) such Member is
adjudicated a bankrupt or insolvent; (iv) such Member files a petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law, or
regulation; (v) such Member files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against it in
any proceeding of the type referred to in clause (iv); (vi) such Member seeks,
consents to, or acquiesces in the appointment of a trustee, receiver, or
liquidator of such Member or of all or any substantial part of its property;
(vii) ninety (90) days or more have elapsed after the commencement of any
proceeding against such Member seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law,
or regulation, if the proceeding has not been dismissed prior thereto; (viii)
ninety (90) days or more have elapsed after the appointment without its consent
or acquiescence of a trustee, receiver, or liquidator of such Member or of all
or any substantial part of its property, if such appointment has not been
vacated or stayed prior thereto; or (ix) ninety (90) days have elapsed after the
expiration of any such stay, if such appointment has not been vacated.
BASE AMOUNT has the meaning specified in Section 3.6(b)(iii).
BUILDING means the building to be constructed by the Company on the Land
as part of the Improvements and the Tenant Improvements, to be leased to M/I
pursuant to the Lease, as more particularly provided in this Agreement, together
with all alterations and additions thereto and all restorations and replacements
thereof.
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CAPITAL ACCOUNT has the meaning specified in Section 3.4.
CAPITAL CONTRIBUTION means the total amount of cash and/or property
contributed or agreed to be contributed to the Company by each Member as shown
in Schedule A which is attached hereto and made a part hereof, as such Schedule
A may be modified, supplemented or amended from time to time in accordance with
this Agreement and applicable law, exclusive of any interest paid with respect
to deferred installments of such amounts, plus any other contributions to the
capital of the Company made by a Member pursuant to the terms of this Agreement,
in respect of the interest of such Member in the Company. Any reference in this
Agreement to the Capital Contribution of a Member shall include a Capital
Contribution previously made by any predecessor Member with respect to the
Company interest owned by such Member.
CAPITAL PROCEEDS means the proceeds received by the Company as the
result of a Capital Transaction.
CAPITAL TRANSACTION means any of the following events: (a) a refinancing
or recasting of any Mortgage Loan or any secondary financing of the Property or
any portion thereof; (b) a sale (other than sales of personal property being
replaced with like property), lease (other than of space in the Property in the
ordinary course of business), condemnation award or other disposition of all or
part of the Property; (c) the receipt of insurance proceeds by the Company
(other than proceeds of rental or business interruption insurance) as a result
of the occurrence of a casualty; or (d) any other event of a capital nature
resulting in the receipt by the Company of revenues other than in the ordinary
course of business.
CASH NEEDS has the meaning specified in Section 3.6.
CASH NEEDS CONTRIBUTION has the meaning specified in Section 3.6(a).
CASH NEEDS NOTICE has the meaning specified in Section 3.6(a).
CERTIFICATE OF FORMATION means the Certificate of Formation of the
Company filed with the Secretary of State of the State of Delaware on September
5, 1995 as required by Section 18-201 of the Act, in the form attached hereto as
Schedule C and made a part hereof, as amended and/or restated from time to time
in accordance with the terms of this Agreement and applicable law.
CODE means the Internal Revenue Code of 1986, as amended, or the
corresponding provisions of any subsequent federal income tax law.
COMPANY means Northeast Office Venture, Limited Liability Company, a
Delaware limited liability company.
COMPANY MINIMUM GAIN means "partnership minimum gain" as set forth in
Sections 1.704-2(b)(2) and 1.704-2(d) of the Allocation Regulations.
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COMPLETION DATE means the date on which the Improvements shall have been
substantially completed in accordance with the terms of the Lease.
CONSTRUCTION LOAN means the construction loan that will provide the debt
financing for the construction of the Improvements and the landscaping of the
Property, referred to in Section 5.5.
CONSTRUCTION MANAGER has the meaning specified in Section 5.2(d).
CONTRIBUTION AGREEMENT means that certain Capital Contribution and Real
Estate Purchase and Sale Agreement, dated as of even date herewith, among
Limited, Georgetown and M/I pursuant to which Georgetown and M/I shall
contribute cash and Limited shall contribute cash together with the Land and the
Other Interests to the Company.
CONTRIBUTING MEMBER has the meaning specified in Section 3.6(b).
DEFAULT AMOUNT has the meaning specified in Section 3.6(b)(v).
DEFAULT PURCHASE RIGHT has the meaning specified in Section 7.3(a).
DESIGN ARCHITECT has the meaning specified in Section 5.2(b).
DEVELOPMENT AGREEMENT means that certain Development Agreement, dated as
of even date herewith, between MORSO Holding Co., a Delaware corporation, and
the Company.
DEVELOPMENT BUDGET has the meaning specified in Section 5.2(f).
DEVELOPMENT EXPENSES means the following costs and expenses incurred by
the Company and approved in advance by all of the Members in connection with the
development, construction and completion of the Improvements and the landscaping
of the Property:
(i) costs and expenses incurred in connection with the
acquisition of the Land and the Other Interests pursuant to the terms of the
Contribution Agreement (including, without limitation, title insurance, survey
fees, recording fees, closing fees and brokerage fees with non-affiliated
brokers);
(ii) costs and expenses incurred in connection with the obtaining
of the Construction Loan and the Permanent Loan, including, without limitation,
for each such loan, closing fees and other charges or expenses of the lender
payable by the Company in respect of such loan, appraisal fees, deposits,
recording taxes and charges, title insurance premiums, fees and disbursements of
lenders' attorneys and similar expenses;
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(iii) architects', engineers', consultants', attorneys',
accountants' and other experts' fees and disbursements incurred in connection
with the formation of the Company, the obtaining of zoning, building code and
other requisite variances, licenses, permits and approvals and the development,
design, construction, mortgaging and leasing of the Improvements and the
landscaping of the Property;
(iv) all costs of labor (including, without limitation, salaries,
fringe benefits and bonuses) and materials incurred in connection with the
construction of the Improvements (including, without limitation, tenant
improvement costs or allowances provided to tenants in connection with the
construction and installation of tenant improvements) and the landscaping of the
Property;
(v) real estate taxes, insurance premiums and interest and other
charges payable under the Construction Loan or the Permanent Loan;
(vi) interest payable under loans (other than the Construction
Loan and the Permanent Loan) prior to the commencement date under the Lease; and
(vii) any other costs and expenses that are usually and
customarily incurred in connection with the development, construction and
leasing of office space in the Columbus, Ohio metropolitan area.
DUE DATE has the meaning specified in Section 3.6(b).
ELECTING MEMBER has the meaning specified in Section 7.2(a).
ENTITY means any limited liability company, general partnership, limited
partnership, corporation, joint venture, trust, real estate investment trust,
business trust, estate or association.
FIRST OFFER CLOSING has the meaning specified in Section 7.2(d).
FIRST OFFER CLOSING DATE has the meaning specified in Section 7.2(d).
FIRST OFFER INTEREST has the meaning specified in Section 7.2(a).
FIRST OFFER PERIOD has the meaning specified in Section 7.2(a).
FIRST OFFER PRICE has the meaning specified in Section 7.2(c).
FIRST OFFER PROCEDURES has the meaning specified in Section 7.2(a).
FPAA has the meaning specified in Section 5.12.
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GOVERNMENTAL AUTHORITIES shall mean all federal, state, county,
municipal and local governments, and all departments, commissions, boards,
bureaus, agencies and offices thereof, having or claiming jurisdiction over all
or any portion of the Property.
IMPROVEMENTS means all of the following now or hereafter erected in, on,
over or under the Land: all buildings (including, without limitation, the
Building), structures and improvements, together with all walkway and road
improvements, parking areas and facilities, landscaping improvements of whatever
nature, utility and sewerage lines and all apparatus, machinery, devices,
fixtures, appurtenances and equipment for the proper operation and maintenance
of the foregoing and all alterations and additions thereto and restorations and
replacements thereof; provided, however, that the Improvements shall not include
the Tenant Improvements.
INCAPACITY means, with respect to any Member who is an individual, any
adjudication by a court of competent jurisdiction of such Member's incompetence
to manage his person or his estate.
INCOME TAX REGULATIONS means those regulations promulgated under the
Code. Whenever reference is made to any Income Tax Regulation, unless otherwise
specified, such reference shall be deemed to include any amendments or successor
regulations thereto.
INITIATING NOTICE has the meaning specified in Section 7.2(a).
LAND means that certain real property located in Franklin County, Ohio
and more particularly described on Schedule B attached hereto and made a part
hereof, and any and all other real property hereafter acquired by the Company.
LAWS means all present and future laws, ordinances, statutes,
administrative and judicial orders, rules, regulations and requirements of all
Governmental Authorities that may be applicable to the Property or any portion
thereof.
LEASE means the lease, dated as of even date herewith, between the
Company, as landlord, and M/I, as tenant, pursuant to which M/I will lease
virtually all of the Property, as it may be amended from time to time.
LOSSES means the net losses of the Company for federal income tax
purposes (or as may be otherwise required to comply with the Allocation
Regulations) as determined as of the close of the Company's fiscal year and,
when the context requires, related items of deduction or loss, tax preference,
credits and depreciation, provided that "Losses" shall include items described
in Code Section 705(a)(2)(B) or required by the Income Tax Regulations to be
treated as so described.
MANAGER means Georgetown, so long as it is the Manager in accordance
with this Agreement, and any Member admitted as a substitute Manager as provided
herein. In the event there is at any time more than one Manager, unless the
context otherwise requires, the term "Manager" shall refer to any one Manager
and to all such Managers.
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MEMBER means each Person identified as a Member on Schedule A hereto, as
such Schedule A may be modified, supplemented or amended from time to time in
accordance with this Agreement and applicable law, and any Person who may be
admitted as an additional or Substitute Member as provided herein. Unless the
context otherwise requires, the term "Member" shall refer to any one Member and
to all such Members.
MEMBER LOAN shall mean a loan made by a Member to the Company in
accordance with the provisions of this Agreement.
MEMBER NONRECOURSE DEBT means "partner nonrecourse debt" as set forth in
Section 1.704-2(b)(4) of the Allocation Regulations.
MEMBER NONRECOURSE DEBT MINIMUM GAIN means "partner nonrecourse debt
minimum gain" as set forth in Sections 1.704-2(i)(2) and (3) and 1.704-2(d) of
the Allocation Regulations.
MORTGAGE means any mortgage or deed of trust encumbering the Property or
any portion thereof in accordance with the terms of this Agreement, as the same
may be amended or modified. The term "Mortgage" also shall mean and include the
note secured by such mortgage or deed of trust, any collateral security
documents, including, without limitation, financing statements, security
agreements and any assignments of leases and rents, executed in connection with
such mortgage or deed of trust, and the loan agreement, if any, pursuant to
which such documents were executed.
MORTGAGE LOAN means any loan secured by a Mortgage.
NET CASH RECEIPTS means the cash from all operations of the Company (but
not including Capital Proceeds or Capital Contributions) after the payment of
all expenses (including, without limitation, all administrative, asset
management and management fees) and other disbursements (including, without
limitation, capital investments in the Property and interest and principal
payments on loans -- excluding Member Loans) except that (i) amounts expended or
reserved for capital improvements, reasonable working capital needs, contingent
or unforeseen liabilities, replacement of equipment, fixtures and personalty,
amounts paid into replacement reserves, and sinking funds, all as determined by
the Manager, shall be reserved and deducted; and (ii) expenses paid out of a
reserve, to the extent previously deducted under clause (i), shall be added.
NON-CONTRIBUTING MEMBER has the meaning specified in Section 3.6(b).
NONRECOURSE DEDUCTIONS has the meaning set forth in Sections
1.704-2(b)(1) and 1.704-2(c) of the Allocation Regulations. The amount of
Nonrecourse Deductions for a Company fiscal year equals the excess, if any, of
the net increase, if any, in the amount of Company Minimum Gain during that
fiscal year over the aggregate amount of any distributions during that fiscal
year of proceeds of a
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Nonrecourse Liability that are allocable to an increase in Company Minimum
Gain, determined according to the provisions of Sections 1.704-2(b)(1) and
1.704-2(c) of the Allocation Regulations.
NONRECOURSE LIABILITY has the meaning set forth in Section 1.704-2(b)(3)
of the Allocation Regulations and Section 1.752-1(a)(2) of the Income Tax
Regulations.
OPERATING LOSSES means Losses from Company operations and not from
Capital Transactions.
OPERATING PROFITS means Profits from Company operations and not from
Capital Transactions.
OPTION ELECTION NOTICE has the meaning specified in Section 7.2(b).
OTHER INTERESTS means all of Limited's right, title and interest in and
to all leases, contracts, agreements, permits, plans, specifications, drawings,
studies, reports, assessments, security and other deposits and other tangible
and intangible personal property pertaining to the Land.
OTHER MEMBER has the meaning specified in Section 7.2(b).
PERCENTAGE INTERESTS means the interests in the Company of the Members,
representing the Capital Contributions and the percentage interests as set forth
on Schedule A attached hereto, including such Members' respective shares of, and
rights to receive distributions and allocations of, the business, property,
assets, capital, profits and losses of the Company, subject to and as provided
in this Agreement and the Act. The holder of a Percentage Interest shall have no
right to participate in the management of the business and affairs of the
Company under the terms of this Agreement unless such holder is also a Member.
PERMANENT LOAN means the permanent Mortgage Loan that will refinance the
Construction Loan, referred to in Section 5.5.
PERMITS means all certificates of occupancy, licenses, authorizations,
variances, permits and approvals required pursuant to all applicable Laws or
otherwise necessary for the lawful construction, use, occupancy and operation of
the Property.
PERSON means any natural person or Entity.
PERSONALTY means all apparatus, machinery, devices, utility facilities,
fixtures, appurtenances, equipment, furniture, furnishings, appliances and other
items of personal property used in connection with the operation, maintenance
and occupancy of the Improvements, the Tenant Improvements and/or the Land now
or hereafter owned or leased by the Company.
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PHASE I WORK means the work identified as "Infrastructure" in the
Development Agreement.
PLANS has the meaning specified in Section 5.2(e).
PRELIMINARY BUDGET has the meaning specified in Section 5.2(a) and is
attached hereto and made a part hereof as Schedule E.
PRIME RATE means the prime commercial lending rate of interest announced
from time to time by Bank One , Columbus, N.A.
PROFITS means the net profits of the Company for federal income tax
purposes (or as may otherwise be required to comply with the Allocation
Regulations) as determined as of the close of the Company's fiscal year, and,
when the context requires, related items of income or gain, provided that
Profits shall include income exempt from tax.
PROJECT ARCHITECT has the meaning specified in Section 5.2(c).
PROPERTY means the Land, the Improvements, the Tenant Improvements and
the Personalty.
PURCHASE OPTION has the meaning specified in Section 7.2(b).
PURCHASING MEMBER has the meaning specified in Section 7.2(d).
REQUESTED CONTRIBUTION has the meaning specified in Section 3.6(a).
REQUESTED FUNDS has the meaning specified in Section 3.6(a).
RETIREMENT means, with respect to any Member: (i) the death, Incapacity,
or Bankruptcy of such Member; (ii) the Member's retirement, resignation,
expulsion or other withdrawal from the Company; (iii) the assignment by the
Member of all of the Member's Percentage Interest in compliance with this
Agreement (other than (A) an assignment merely of its right to receive
distributions or (B) a pledge, hypothecation, or other collateral assignment of
its rights before the time such pledge, hypothecation or other collateral
assignment becomes absolute); (iv) if such Member is a trustee of a trust, the
termination of the trust but not merely the substitution of a new trustee; (v)
if such Member is a corporation, the filing of a certificate of dissolution, or
its equivalent, for said corporation, or the revocation of its charter; (vi) if
such Member is a separate limited liability company or partnership, the
dissolution and termination of such separate limited liability company or
partnership; or (vii) if such Member is an estate, the distribution by the
fiduciary of the estate's entire interest in the Company.
SECRETARY OF STATE means the Secretary of State of the State of
Delaware.
SECTION 7.3(A) NOTICE DATE has the meaning specified in Section 7.3(b).
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SELLING MEMBER has the meaning specified in Section 7.2(d).
STATED VALUATION PRICE has the meaning specified in Section 7.2(a).
SUBSTITUTE MEMBER means any Person who acquires a Percentage Interest
from a Member and is admitted to the Company as a Member.
TAX MATTERS MEMBER has the meaning specified in Section 5.12.
TENANT DEFAULT PERIOD has the meaning specified in Section 6.4(b).
TENANT IMPROVEMENTS has the meaning specified in the Lease.
TOTAL BUDGETED DEVELOPMENT EXPENSES shall mean the aggregate amount of
Development Expenses specified in the Development Budget including, without
limitation, the amount allocated to "contingency."
UNCONTROLLABLE EXPENSE has the meaning specified in Section 5.4(c).
ARTICLE II
FORMATION AND NAME; BUSINESS OFFICE; REGISTERED OFFICE AND REGISTERED AGENT;
PURPOSE; PARTNERSHIP STATUS; POWERS; AND TERM
2.1 FORMATION AND NAME. The Company was formed upon the execution by the
Manager and the filing of the original Certificate of Formation with the
Secretary of State in accordance with the provisions of the Act, under the name
of Northeast Office Venture, Limited Liability Company. The Members hereby
approve the Certificate of Formation and ratify the execution, delivery and
filing of the Certificate of Formation by the Manager. Promptly after the filing
of the Certificate of Formation in the Office of the Secretary of State and the
execution and delivery of this Agreement, the Manager shall duly complete and
file with the Ohio Secretary of State an Application for Registration of Foreign
Limited Liability Company (Form LFA) in respect of the Company. The Company
shall not engage in, transact or do business in any jurisdiction other than the
State of Ohio, without the consent of all of the Members. The Manager shall,
from time to time, execute or cause to be executed all such additional
applications, certificates, registrations, or other documents, and cause to be
performed all such filing, recording, publishing, or other acts as may be
necessary to comply with the requirements of law applicable to the formation and
operation of the Company under the laws of the State of Delaware and the
operation of the Company as a foreign limited liability company in the State of
Ohio.
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2.2 BUSINESS OFFICE. The business office of the Company at which its
books and records shall be kept shall be maintained at 667 Madison Avenue, 23rd
Floor, New York, New York 10021, or at such other location as the Manager may
from time to time determine. The Manager shall provide written notice to the
Members of any change in the location of the business office of the Company.
2.3 REGISTERED OFFICE AND REGISTERED AGENT. The registered office of the
Company required by the Act to be maintained in the State of Delaware shall be
the office of the registered agent named in the Certificate of Formation or such
other office as the Manager may from time to time determine and designate in the
manner required by law. The registered agent of the Company required by the Act
shall be the registered agent named in the Certificate of Formation or such
other registered agent as may from time to time be determined and designated by
the Manager in the manner required by law. The Manager shall provide written
notice to the Members of any change in such registered office or registered
agent of the Company.
2.4 PURPOSE. The purposes of the Company are to acquire, invest in,
develop, construct, rehabilitate, maintain, operate, lease, improve, repair,
replace, hold, mortgage, encumber, own, sell, convert, exchange, manage,
finance, refinance and otherwise deal with the Property.
2.5 PARTNERSHIP STATUS. It is intended that the Company be treated as a
partnership for federal and state income tax purposes (but not for non-tax
purposes). Accordingly, this Agreement shall be construed in a manner that
ensures the Company's classification as a partnership for federal and state
income tax purposes at all times, and any provision of this Agreement that would
have the effect of preventing the Company from being classified as a partnership
for federal and state income tax purposes shall be null and void. The Members
shall take all actions, and execute, acknowledge and deliver all documents,
which in the judgment of the Manager, or in the opinion of counsel satisfactory
to the Manager, are necessary or desirable to obtain and/or maintain the
Company's classification as a partnership for such purposes at all times.
2.6 POWERS. In furtherance of the Company's purposes, the Company shall
have all powers of a limited liability company under the Act, including, without
limitation, the powers:
(a) to acquire, improve, develop, construct, rehabilitate,
repair, replace, mortgage, hold, sell, own, lease, operate, maintain, convert,
exchange, and otherwise deal with the Property and any other real and/or
personal property now or hereafter acquired by the Company and in interests
therein as may be necessary or desirable to carry out the development,
construction, rehabilitation, operation, leasing and maintenance of any of the
Property and/or the purposes of the Company;
(b) to borrow money, including (but not limited to) loans from
any Members or Affiliates of Members, to further the purposes of the Company; to
issue evidences of indebtedness in respect thereof and to secure the same by
deed of trust, mortgage or pledge or grant of lien on or other security interest
in the Property or any other assets of the Company;
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(c) to refinance, prepay (in whole or in part), recast, modify,
renew, extend and/or restructure any Mortgage Loan or any other indebtedness of
the Company and to execute any documents in connection therewith;
(d) to employ management agents, including Affiliates of any of
the Members, to manage the Property, and to pay compensation for such services;
(e) to operate, provide and manage such other businesses and
services as the Manager determines to be necessary or desirable in connection
with any of the Property or the purposes of the Company; and
(f) to do all things, carry on any activities and enter into,
perform, modify, supplement or terminate any contracts necessary, in connection
with or incidental to the furtherance of the purposes of the Company, so long as
such things, activities and contracts may be lawfully done, carried on or
entered into by the Company under the laws of the State of Delaware and under
the terms of this Agreement.
2.7 TERM. The term of the Company shall commence with the filing
of the Certificate of Formation with the office of the Secretary of State. The
Company shall continue until dissolved upon the occurrence of the earliest of:
(a) December 31, 2046; (b) the passage of 90 days from the sale or other
disposition of all or substantially all of the assets of the Company unless the
Members elect to continue the Company for the sole purpose of collecting the
proceeds of such sale or other disposition; (c) the Retirement of a Member
unless the Company is continued as provided in Section 7.8; (d) the unanimous
written agreement of all Members to dissolve the Company; (e) at any time when
there are less than two (2) Members of the Company, unless the Company's
business is continued pursuant to Section 7.8 and the sole remaining Member
admits an additional or Substitute Member to the Company; or (f) the entry of a
judicial decree of dissolution; and shall terminate as soon as the winding up of
its affairs upon such dissolution has been completed. The provisions of this
Section 2.7 are intended to and shall, to the fullest extent permitted by law,
supersede the provisions of the Act regarding the dissolution of limited
liability companies.
ARTICLE III
MEMBERS AND CAPITAL
3.1 MEMBERS. The Members have contributed to the capital of the Company
the amount of cash and/or property set forth opposite their respective names in
Schedule A in consideration for their respective interests in the Company as set
forth in Schedule A and as described herein. The Members agree that the fair
value of the portion of the Land and the Other Interests to be contributed by
Limited to the Company pursuant to the Contribution Agreement is equal to the
amount designated as such on Exhibit A. Subject to the provisions of Section
3.6, no further contribution of capital shall be required of any Member. To and
until the Completion
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Date, the obligations of Limited under this Agreement shall be guaranteed by an
Affiliate of Limited satisfactory to Georgetown and M/I.
3.2 NO PRIORITY AMONG MEMBERS. No Member shall have priority over any
other Member either as to the return of its original Capital Contribution or as
to distributions by the Company, except as specifically provided in this
Agreement.
3.3 NO INTEREST ON CAPITAL CONTRIBUTIONS; NO WITHDRAWAL OF CAPITAL. No
interest shall be paid by the Company to any Member with respect to any Capital
Contribution. Except as otherwise specifically set forth in this Agreement, no
Member shall have the right to (a) demand or receive property other than cash in
return for its Capital Contribution or as distributions of income, (b) withdraw
any part of its Capital Contribution (regardless of whether or not such Member
has withdrawn from the Company), or (c) receive any funds or property of the
Company.
3.4 CAPITAL ACCOUNTS. A single Capital Account shall be established,
determined and maintained for each Member on the books and records of the
Company in accordance with the provisions of the Allocation Regulations. The
property of the Company shall be revalued on the books of the Company in any
case in which such revaluation is required by the Allocation Regulations and may
be revalued in any case where such revaluation is permitted by the Allocation
Regulations and such revaluation is determined to be appropriate by all of the
Members. In the event any Company property is revalued on the books of the
Company in accordance with the Allocation Regulations, the Members' Capital
Accounts shall be adjusted in accordance with the Allocation Regulations to
reflect such revaluations and for allocations to them of Profits and Losses, and
items thereof, as computed for book purposes, with respect to such property. In
the event the property of the Company is revalued on the books of the Company,
all Company property shall be valued for such purpose at its fair market value,
as determined by all of the Members.
3.5 NO REQUIREMENT TO RESTORE DEFICIT IN CAPITAL ACCOUNT. Nothing
contained in this Agreement shall be construed to require any Member to restore
any deficit in its Capital Account.
3.6 SUBSEQUENT CONTRIBUTIONS. It is understood that the Company may from
time to time require funds following the date of this Agreement to meet its Cash
Needs for the ongoing operation, maintenance, development and improvement of the
Property. As used herein, "Cash Needs" of the Company shall mean and include any
cash needs or requirements of the Company subsequent to the date of this
Agreement: (i) for which sufficient funds are not available to it from (a) gross
revenues generated by the Company's operations, (b) Mortgage Loans and other
loans made to the Company, (c) contributions made by the Members to the capital
of the Company pursuant to Section 3.1 and (d) reserves set aside to meet such
needs and (ii) which have been or are to be incurred by the Manager on behalf of
the Company within the scope of its authority under this Agreement and are
necessary to meet operating expenses, leasing expenses, construction costs and
other capital expenses and other items which, in accordance with generally
accepted accounting principles, are capitalized and not expensed, to repay the
principal and interest on the Construction Loan, the Permanent Loan and other
loans made to the Company in
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accordance with the provisions hereof and to pay any other expenses or
obligations on behalf of the Company. In order to help ensure that the Company
will have funds in amounts sufficient to meet its Cash Needs at all times from
and after the date of this Agreement, the Members hereby agree as follows:
(a) Determination of Cash Needs by Members and Notice to Members.
If at any time the Members unanimously determine, in the exercise of reasonable
business judgment and good faith, that funds are required to meet Cash Needs of
the Company, the Manager shall, subject to the provisions of Section 5.8, use
its best efforts to arrange for the Company to borrow from third parties all of
the required funds, such borrowing preferably to be on a nonrecourse basis (and,
if not, on a recourse basis) to the Members (and any Affiliates thereof) and
otherwise on terms reasonably acceptable to all of the Members. If and to the
extent that the Members unanimously determine in good faith that the required
funds cannot be borrowed on such terms, the Manager shall, by notice (the "Cash
Needs Notice") to the Members, specify the amount of what the Members
unanimously believe to be the Cash Needs of the Company (the "Requested Funds")
at such time for the period mentioned below and call upon each Member to advance
to the Company its proportionate share, determined in proportion to each
Member's respective Percentage Interests at the time the Cash Needs Notice is
given, of the Requested Funds (each Member's "Requested Contribution"). The Cash
Needs Notice given to the Members shall be accompanied by documentation
reasonably confirming the actual or estimated amount of such Cash Needs of the
Company (in the amount of the Requested Funds) for the period for which such
demand is being made and itemizing how the Requested Funds will be applied.
Within twenty (20) days after the date of the Cash Needs Notice, each Member
shall advance as a capital contribution to the Company its Requested
Contribution. Any funds advanced by any Member to the Company pursuant to this
Section 3.6(a) and not refunded to such Member shall, subject to the provisions
of Section 3.6(b) below, constitute contributions to the capital of the Company
("Cash Needs Contributions").
(b) Remedies for Failure to Advance Funds. If in any instance any
Member (including any guarantor of such Member's obligations hereunder) shall
fail to advance all or any part of its Requested Contribution by the twentieth
(20th) day (the "Due Date" with respect to such Requested Contribution) after
the date of the Cash Needs Notice that calls for such advance, then the Member
that has failed to make such advance in full shall be deemed the
"Non-Contributing Member". In such event, each of the other Members (the
"Contributing Members") that have advanced at least the full amount of their
respective Requested Contributions, shall have the following rights and remedies
(which rights and remedies, except as otherwise provided herein, shall be the
only rights and remedies available to the Contributing Members with respect to
such failure by the Non-Contributing Member):
(i) Election of Remedies. This Section 3.6(b) provides
alternative courses of action by Contributing Members in the case of a failure
by a Member to make an advance called for under a Cash Needs Notice. If there is
more than one Non-Contributing Member, any Contributing Member need not elect
the same alternative with respect to each
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<PAGE> 20
Non-Contributing Member. If there is more than one Contributing Member electing
an alternative with respect to a Non-Contributing Member, the Contributing
Members making such election must each elect the same alternative with respect
to the unpaid funds payable by such Non-Contributing Member without any
obligation to elect such alternative with respect to any other Non-Contributing
Member. If there is more than one Contributing Member that so elects, then each
Contributing Member shall provide an equal amount of the funds to be loaned or
contributed, as the case may be, pursuant to the provisions of this Section
3.6(b), unless such Contributing Members elect otherwise pursuant to a written
agreement.
(ii) Election of Total Refund in the Event of Total
Failure to Advance. If the Non-Contributing Member shall have advanced none of
its share of the Requested Funds on or before the Due Date, each Contributing
Member shall be relieved of any obligation to advance any portion of its
Requested Contribution and shall be entitled, if it so elects, to receive a
refund from the Company of all amounts that it may theretofore have advanced to
the Company pursuant to the Cash Needs Notice.
(iii) Election of Partial Refund in the Event of Partial
Failure to Advance. If the Non-Contributing Member shall have advanced part, but
not all, of its Requested Contribution on or before the Due Date, each
Contributing Member shall be relieved of any obligation to advance any portion
of its share of the Requested Funds in excess of the amount calculated by
multiplying its Percentage Interest by the Base Amount (as defined below) and
shall be entitled, if it so elects, to receive a refund from the Company of all
amounts that it may theretofore have advanced to the Company pursuant to the
Cash Needs Notice in excess of the amount calculated by multiplying its
Percentage Interest by the Base Amount. As used herein, the term "Base Amount"
shall mean the amount of the Requested Funds actually contributed by the
Non-Contributing Member on or before the Due Date, divided by the Percentage
Interest of the Non-Contributing Member.
(iv) Election of Right to Advance Funds as a Member Loan.
Provided a Contributing Member has advanced an amount equal to its Requested
Contribution, such Contributing Member shall be entitled, but shall not be
obligated, within sixty (60) days after the date of the Cash Needs Notice, to
advance to the Company (it being understood that any refund to which a
Contributing Member is entitled pursuant to Section 3.6(b)(ii) or 3.6(b)(iii)
above, as applicable, which such Contributing Member does not elect to receive
shall constitute an advance to the Company for the purposes of this Section
3.6(b)(iv)) an amount equal to all or any part of the excess of (i) the
Requested Funds over (ii) the Base Amount, if any, and such advance shall
constitute a Member Loan to the Company, which Member Loan shall bear interest,
compounded annually, at an annual rate equal to the Prime Rate plus 5% and shall
be repayable in accordance with Sections 4.4, 4.5 and 4.6. At any time after a
Member Loan has been made by such Contributing Member (whether or not such
Contributing Member has given the thirty (30) day notice provided for in Section
3.6(b)(v) below, and if such notice has been given, prior to the expiration of
the thirty (30) day period provided for in such Section 3.6(b)(v)), the
Non-Contributing Member may make the curative payment to such Contributing
Member
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provided for in the first sentence of Section 3.6(b)(v) below with the
consequences set forth in such Section.
(v) Conversion of Member Loan to Percentage Interests;
Termination of Certain Rights. Subject to the last sentence of this Section
3.6(b)(v), if a Contributing Member has made a Member Loan by virtue of the
provisions of Section 3.6(b)(iv), it may, at its option, exercisable by such
Contributing Member's giving at least thirty (30) days' notice to the
Non-Contributing Member at any time after the later to occur of the date on
which such Contributing Member has so made a Member Loan and the Due Date, elect
to convert the outstanding amount of such Member Loan (the "Default Amount")
into a Cash Needs Contribution to the Company in the amount of the Default
Amount and, if the Non-Contributing Member fails within such thirty (30) day
period to pay to such Contributing Member an amount equal to the Default Amount,
together with the accrued and unpaid interest thereon, then, effective as of the
expiration of such thirty (30) day period:
(A) the Default Amount shall be converted from a
Member Loan into a Cash Needs Contribution;
(B) the Percentage Interest of the
Non-Contributing Member shall be decreased by the full and fractional number of
percentage points equal to the quotient achieved when the Default Amount is
divided by $12,500, and the Percentage Interest of the Contributing Member
converting such Member Loan shall be increased by the same full and fractional
number of percentage points; and
(C) all rights of the Non-Contributing Member to
consent to or approve of any action, except (I) to consent to the admission of
Substitute Members pursuant to Section 7.5(b) and (II) to consent to the
continuation of the Company's business and reformation of the Company following
the Retirement of a Member pursuant to Section 7.8, shall be suspended.
Any interest that has accrued on such Member Loan prior to its conversion to a
Cash Needs Contribution shall be paid to the Contributing Member making such
Member Loan in accordance with Sections 4.4, 4.5 and 4.6. If the
Non-Contributing Member pays to such Contributing Member an amount equal to the
Default Amount, together with the accrued and unpaid interest thereon, within or
prior to the commencement of the thirty (30) day period provided for in this
Section 3.6(b)(v), the Default Amount shall constitute a Cash Needs Contribution
of the Non-Contributing Member.
(vi) General Provisions. The provisions of this Section
3.6(b) shall be applicable each time that any Member shall fail to advance
pursuant to Section 3.6(a) all or any portion of its Requested Contribution on
or before the Due Date.
(c) No Other Capital Contributions Required. Except as expressly
provided in this Article III, no Member shall be required to make any Capital
Contributions or loans to the
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<PAGE> 22
Company. In no event shall any Member have any personal liability for the making
of any Capital Contributions or loans pursuant to this Agreement, it being
agreed that the sole remedies for a Member's failure to make any such Capital
Contributions or loans shall be those provided for in this Article III.
3.7 LOANS BY MEMBERS. Any Member may, but is not obligated to, loan to
the Company such sums as the Manager determines to be appropriate for the
conduct of the Company's business, upon the written consent of all of the
Members. Any such Member Loans shall be made on such terms and for such
maturities as are consented to by all of the Members.
3.8 REPRESENTATIONS OF MEMBERS
(a) Each Member represents and warrants to each other Member and
the Company as follows: (i) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (ii) it has
full power and authority to execute, deliver and perform its obligations under
this Agreement; (iii) it has duly authorized, executed and delivered this
Agreement and has duly authorized the performance of its obligations under this
Agreement; and (iv) its authorization, execution, delivery and performance under
this Agreement do not and will not conflict with any organizational document,
agreement or law applicable to it or by which it is bound.
(b) Each Member further represents and warrants to the Company
that it is acquiring its Percentage Interest for its own account and not with a
view toward the gifting, distribution or resale thereof, and each Member agrees
that it will not sell or offer to sell all or any portion of its Percentage
Interest, or negotiate in respect thereof with any person or persons whomsoever,
so as thereby to bring the transaction in which it acquired its Percentage
Interest or any other offering of interests in the Company within the provisions
of Section 5 of the Securities Act of 1933, as amended, or the registration
requirement of any other federal or state securities statute.
(c) Each Member further represents and warrants to each other
Member and the Company that (i) it has been given access to all information
concerning the Company, the Land, the Other Interests and the terms and
conditions of the Percentage Interest it is purchasing hereby; (ii) it and its
separate counsel have had the opportunity to fully negotiate the terms and
conditions of this Agreement; (iii) it understands and acknowledges that the
Percentage Interest it is purchasing hereby are speculative securities and
involve a high degree of risk and that no federal or state agency has made any
finding or determination as to the fairness for public or private investment in,
nor any recommendations or endorsement of, such Percentage Interest as an
investment; (iv) it has such knowledge and experience in business and financial
matters that it is capable of evaluating the merits and risks of an investment
in such Percentage Interest; and (v) its financial situation is such that it can
afford the risks of an investment in such Percentage Interest.
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<PAGE> 23
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 ALLOCATION OF OPERATING PROFITS AND OPERATING LOSSES. Except as
otherwise specifically provided herein to the contrary, Operating Profits and
Operating Losses for any fiscal year shall be allocated to the Members in
proportion to their respective Percentage Interests.
4.2 ALLOCATIONS OF PROFITS AND LOSSES FROM A CAPITAL TRANSACTION.
(a) Allocation of Profits from a Capital Transaction. After
giving effect to any special allocations pursuant to Section 4.3 and any
allocations of Operating Profits and Operating Losses pursuant to Section 4.1,
Profits from a Capital Transaction shall be allocated in the following order of
priority:
(i) First, to the Members with deficit Capital Account
balances, if any, pro rata in accordance with such deficit balances, until all
of such deficit balances are increased to zero;
(ii) Thereafter, to the Members in proportion to their
respective Percentage Interests.
(b) Allocation of Losses from a Capital Transaction. After giving
effect to any special allocations pursuant to Section 4.3, Losses from a Capital
Transaction shall be allocated in the following order of priority:
(i) First, to the Members with positive Capital Account
balances, if any, pro rata in accordance with such balances, until all such
positive balances are reduced to zero; and
(ii) Thereafter, to the Members in proportion to their
respective Percentage Interests.
4.3 SPECIAL ALLOCATIONS AND OTHER PROVISIONS RELATING TO ALLOCATIONS.
In the event of any conflict between the general allocation provisions set forth
in Sections 4.1 and 4.2 and the provisions of this Section 4.3, the provisions
of this Section 4.3 shall be controlling.
(a) Company Minimum Gain Chargeback. Notwithstanding any other
provision of this Article IV, if there is a net decrease in Company Minimum Gain
during any Company fiscal year, the minimum gain chargeback requirement of
Section 1.704-2(f) of the Allocation Regulations shall apply and this Section
4.3(a) shall be interpreted consistently therewith. To the extent permitted by
such Section of the Allocation Regulations and for purposes of this Section
4.3(a) only, each Member's Adjusted Capital Account Deficit shall be
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determined prior to any other allocations pursuant to this Article IV with
respect to such fiscal year and without regard to any net decrease in Member
Nonrecourse Debt Minimum Gain during such fiscal year.
(b) Chargeback of Member Nonrecourse Debt Minimum Gain.
Notwithstanding any other provision of this Article IV except Section 4.3(a), if
there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
a Member Nonrecourse Debt during any fiscal year, the chargeback of "partner
nonrecourse debt minimum gain" requirement of Section 1.704-2(i)(4) of the
Allocation Regulations shall apply and this Section 4.3(b) shall be interpreted
consistently therewith. This Section 4.3(b) is intended to comply with the
"partner minimum gain chargeback requirement" in such Section of the Allocation
Regulations and shall be interpreted consistently therewith. Solely for purposes
of this Section 4.3(b), each Member's Adjusted Capital Account Deficit shall be
determined prior to any other allocations pursuant to this Article IV with
respect to such fiscal year, other than allocations pursuant to Section 4.3(a)
hereof.
(c) Qualified Income Offset. In the event any Member's unexpected
receipt of any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Allocation Regulations causes such Member to have (or increases) an Adjusted
Capital Account Deficit, items of Company income and gain shall be specially
allocated to each such Member in an amount and manner sufficient to eliminate,
to the extent required by the Allocation Regulations, the Adjusted Capital
Account Deficit of such Member as quickly as possible, provided that an
allocation pursuant to this Section 4.3(c) shall be made only if and to the
extent that such Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in this Article IV have been tentatively made as
if this Section 4.3(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Member has a
deficit Capital Account at the end of any Company fiscal year which is in excess
of the sum of (i) such Member's deficit restoration obligation, if any, and (ii)
the amount, if any, such Member is deemed to be obligated to restore pursuant to
the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Allocation Regulations, each such Member shall be specially allocated items of
Company income and gain in the amount of such excess as quickly as possible,
provided that an allocation pursuant to this Section 4.3(d) shall be made only
if and to the extent that such Member would have a deficit Capital Account in
excess of such sum after all other allocations provided for in this Article IV
have been made as if Section 4.3(c) hereof and this Section 4.3(d) were not in
the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
year or other period shall be allocated (with the Members intending to satisfy
the reasonable consistency requirement contained in the Allocation Regulations
as a result of this allocation) to the Members in proportion to their respective
Percentage Interests.
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<PAGE> 25
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any fiscal year or other period shall be specially allocated to
the Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in
accordance with Allocation Regulations Section 1.704-2.
(g) Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Allocation Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Members in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Allocation Regulations.
(h) Curative Allocations.
(i) The "Regulatory Allocations" consist of the "Basic
Regulatory Allocations," as defined in Section 4.3(h)(ii) hereof, the
"Nonrecourse Regulatory Allocations," as defined in Section 4.3(h)(iii) hereof,
and the "Member Nonrecourse Regulatory Allocations," as defined in Section
4.3(h)(iv) hereof.
(ii) The "Basic Regulatory Allocations" consist of
allocations pursuant to Sections 4.3(c), (d) and (g) hereof. Notwithstanding any
other provision of this Agreement, other than the Regulatory Allocations, the
Basic Regulatory Allocations shall be taken into account in allocating items of
income, gain, loss and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other items and the Basic
Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Basic Regulatory
Allocations had not occurred. For purposes of applying the foregoing sentence,
allocations pursuant to this Section 4.3(h)(ii) shall only be made with respect
to allocations pursuant to Section 4.3(g) hereof to the extent the Manager
reasonably determines that such allocations will otherwise be inconsistent with
the economic agreement among the parties to this Agreement.
(iii) The "Nonrecourse Regulatory Allocations" consist of
all allocations pursuant to Sections 4.3(a) and (e) hereof. Notwithstanding any
other provision of this Agreement, other than the Regulatory Allocations, the
Nonrecourse Regulatory Allocations shall be taken into account in allocating
items of income, gain, loss, and deduction among the Members so that, to the
extent possible, the net amount of such allocations of other items and the
Nonrecourse Regulatory Allocations to each Member shall be equal to the net
amount that would have been allocated to each such Member if the Nonrecourse
Regulatory Allocations had not occurred. For purposes of applying the foregoing
sentence (A) no allocations pursuant to this Section 4.3(h)(iii) shall be made
prior to the calendar year during which there is a net decrease in
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Company Minimum Gain, and then only to the extent necessary to avoid any
potential economic distortions caused by such net decrease in Company Minimum
Gain, and (B) allocations pursuant to this Section 4.3(h)(iii) shall be deferred
with respect to allocations pursuant to Section 4.3(e) hereof to the extent the
Manager reasonably determines that such allocations are likely to be offset by
subsequent allocations pursuant to Section 4.3(a) hereof.
(iv) The "Member Nonrecourse Regulatory Allocations"
consist of all allocations pursuant to Section 4.3(b) and (f) hereof.
Notwithstanding any other provision of this Agreement, other than the Regulatory
Allocations, the Member Nonrecourse Regulatory Allocations shall be taken into
account in allocating items of income, gain, loss, and deduction among the
Members so that, to the extent possible, the net amount of such allocations of
other items and the Member Nonrecourse Regulatory Allocations to each Member
shall be equal to the net amount that would have been allocated to each such
Member if the Member Nonrecourse Regulatory Allocations had not occurred. For
purposes of applying the foregoing sentence (A) no allocations pursuant to this
Section 4.3(h)(iv) shall be made with respect to allocations pursuant to Section
4.3(f) relating to a particular Member Nonrecourse Debt prior to the calendar
year during which there is a net decrease in Member Nonrecourse Debt Minimum
Gain attributable to such Member Nonrecourse Debt, and then only to the extent
necessary to avoid any potential economic distortions caused by such net
decrease in Member Nonrecourse Debt Minimum Gain, and (B) allocations pursuant
to this Section 4.3(h)(iv) shall be deferred with respect to allocations
pursuant to Section 4.3(f) hereof relating to a particular Member Nonrecourse
Debt to the extent the Manager reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 4.3(b) hereof.
(v) The Manager shall have reasonable discretion, with
respect to each calendar year, to (A) apply the provisions of Section
4.3(h)(ii), (iii) and (iv) hereof in whatever order is likely to minimize the
economic distortions that might otherwise result from the Regulatory
Allocations, and (B) divide all allocations pursuant to Sections 4.3(h)(ii),
(iii) and (iv) hereof among the Members in a manner that is likely to minimize
such economic distortions.
(i) Manager's Fees. If the deduction of all or any part of any
fee paid by the Company to the Manager or its Affiliates is disallowed by
recharacterizing such fee as a distribution to such Manager, the Manager shall
be, to the extent permitted by the Code, allocated items of Company income and
gain for the taxable year in which such disallowed deduction was claimed by the
Company in the amount of such disallowed deduction.
(j) Section 704(c) Override.
(i) In accordance with Code Section 704(c) and the Income
Tax Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its value at the time of contribution to the Company.
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<PAGE> 27
(ii) In the event that the book value of any Company
property is adjusted in accordance with the Allocation Regulations, subsequent
allocations of income, gain, loss and deduction with respect to such property
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its book value in the same manner as under
Section 704(c) of the Code and the Income Tax Regulations thereunder, to the
extent required by the Allocation Regulations.
(iii) Any elections or other decisions relating to such
allocations shall be made by the Manager, based upon the advice of the
Accountants, in a manner consistent with the Allocation Regulations and in a
manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section and Code Section 704(c) are solely for tax
purposes and shall not be taken into account for purposes of determining
"Profits" or "Losses" or adjustments to Capital Accounts.
(k) Special Allocation Relative to Interest. Subject to the other
provisions of this Section 4.3, any Company deduction or basis increase arising
from or in connection with any interest which is deemed to have been paid by the
Company to a Member in connection with any funds contributed to the Company by
such Member, whether as Member or in its separate capacity, shall be allocated
to such Member for all tax, accounting and other purposes.
(l) Tax Credits. The basis (or cost) of any Company Code Section
38 property shall be allocated among the Members in accordance with Section
1.46-3(f)(2)(i) of the Income Tax Regulations. All tax credits (other than the
investment tax credit) shall be allocated among the Members in accordance with
applicable law.
(m) Tax Credit Recapture. In the event Company Code Section 38
property is disposed of during any taxable year, Profits for such taxable year
(and, to the extent such Profits are insufficient, Profits for subsequent
taxable years) in an amount equal to the excess, if any, of (i) the reduction in
the adjusted tax basis (or cost) of such property pursuant to Code Section
50(c), over (ii) any increase in the adjusted tax basis of such property
pursuant to Code Section 50(c) caused by the disposition of such property, shall
be excluded from the Profits allocated pursuant to Sections 4.1(a) and 4.2(a)
hereof and shall instead be allocated among the Members in proportion to their
respective shares of such excess, determined pursuant to Sections 4.3(n) and
4.3(o) hereof. In the event more than one item of such property is disposed of
by the Company, the foregoing sentence shall apply to such items in the order in
which they are disposed of by the Company, so that Profits equal to the entire
amount of such excess with respect to the first such property disposed of shall
be allocated prior to any allocations with respect to the second such property
disposed of, and so forth.
(n) Basis Increases. In the event the adjusted tax basis of any
Code Section 38 property that has been placed in service by the Company is
increased pursuant to Code Section 50(c), such increase shall be specially
allocated among the Members (as an item in the
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nature of income or gain) in the same proportions as the investment tax credit
that is recaptured with respect to such property is shared among the Members.
(o) Basis Reductions. Any reduction in the adjusted tax basis (or
cost) of Company Code Section 38 property pursuant to Code Section 50(c) shall
be specially allocated among the Members (as an item in the nature of expenses
or losses) in the same proportions as the basis (or cost) of such property is
allocated pursuant to Section 1.46-3(f)(2)(i) of the Income Tax Regulations.
(p) Varying Interests, Tax Accounting Conventions. In the event
Members are admitted to the Company on different dates during any fiscal year,
the Profits, Losses or any other items allocated to the Members for each such
fiscal year shall be determined on a daily, monthly or other basis, as
determined by the Manager using any permissible method under Code Section 706
and the Income Tax Regulations thereunder.
(q) Excess Nonrecourse Liabilities. Solely for purposes of
determining a Member's proportionate share of the "excess nonrecourse
liabilities" of the Company within the meaning of Section 1.752-3(a)(3) of the
Income Tax Regulations, the Members' interests in Company profits shall be (with
the Members intending to satisfy the reasonable consistency requirement
contained in the Allocation Regulations) in proportion to their respective
Percentage Interests.
(r) Treatment of Certain Distributions. To the extent permitted
by Sections 1.704-2(h) and 1.704-2(i)(6) of the Allocation Regulations, the
Manager shall endeavor to treat distributions of Net Cash Receipts or Capital
Proceeds as having been made from the proceeds of a Nonrecourse Liability or a
Member Nonrecourse Debt only to the extent that such distributions would cause
or increase an Adjusted Capital Account Deficit for any Member.
(s) Effect. The Members are aware of the consequences of the
allocations made by this Article IV and hereby agree to be bound by the
provisions of this Article IV in reporting their shares of Company income and
loss for income tax purposes and otherwise.
4.4 DISTRIBUTIONS OF NET CASH RECEIPTS. Net Cash Receipts for each
fiscal year (or fractional portion thereof), if any, shall be distributed among
the Members within twenty (20) days after the close of each calendar quarter, or
more frequently in the Manager's sole discretion, in the following order of
priority:
(a) First, as interest to Members having outstanding Member
Loans, in proportion to the amount of interest owed to each Member, until the
Members shall have received amounts equal to the total amounts of accrued and
unpaid interest owed on such Member Loans;
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(b) Second, as principal to Members having outstanding Member
Loans, in proportion to the amount of principal owed to each Member, until the
Members shall have received amounts equal to the total principal balances owed
on such Member Loans; and
(c) Thereafter, the balance thereof to the Members in proportion
to their respective Percentage Interests.
4.5 DISTRIBUTIONS OF PROCEEDS FROM CAPITAL TRANSACTIONS WHEN COMPANY NOT
LIQUIDATED. If, as a result of a Capital Transaction that does not result in the
liquidation of the Company, the Company obtains Capital Proceeds, such Capital
Proceeds shall be distributed, after payment of such debts and liabilities of
the Company (excluding Member Loans), as may be determined by the Manager, in
the following order of priority:
(a) First, as interest to Members having outstanding Member
Loans, in proportion to the amount of interest owed to each Member, until the
Members shall have received amounts equal to the total amounts of accrued and
unpaid interest owed on such Member Loans;
(b) Second, as principal to Members having outstanding Member
Loans, in proportion to the amount of principal owed to each Member, until the
Members shall have received amounts equal to the total principal balances owed
on such Member Loans; and
(c) Thereafter, to the Members in proportion to their respective
Percentage Interests.
4.6 DISTRIBUTIONS OF LIQUIDATION PROCEEDS UPON LIQUIDATION. Upon the liquidation
of the Company, the Manager shall attempt to liquidate the assets of the Company
and the proceeds of such liquidation shall be applied and distributed in the
following order of priority:
(a) First, to the payment of the debts and liabilities of the
Company (excluding Member Loans) and the expenses of liquidation;
(b) Second, to the setting up of reserves that the Manager
determines are reasonably necessary to pay all contingent, conditional or
unmatured claims and obligations that are known to the Company and all claims
and obligations that are known to the Company but with respect to which the
claimant or obligee is unknown. Such reserves may be paid over by the Manager to
any attorney at law or other party selected by the Manager, as escrow agent to
be held for disbursement in payment of any of the aforementioned liabilities or
obligations, or at the expiration of such period as shall be deemed advisable by
the Manager, for distribution in accordance with clauses (c) through (e) of this
Section 4.6;
(c) Third, as interest to Members having outstanding Member
Loans, in proportion to the amount of interest owed to each Member, until the
Members shall have received amounts equal to the total amounts of accrued and
unpaid interest owed on such Member Loans;
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(d) Fourth, as principal to Members having outstanding Member
Loans, in proportion to the amount of principal owed to each Member, until the
Members shall have received amounts equal to the total principal balances owed
on such Member Loans; and
(e) Thereafter, to the Members in accordance with their
respective positive Capital Account balances, determined after all allocations
pursuant to Sections 4.1 through 4.3 (including, without limitation, allocations
to reflect the gain or loss recognized upon the sale of the Property) and all
distributions pursuant to Sections 4.4 and 4.5 have been made, but before any
distributions pursuant to this Section 4.6(e) are made.
4.7 DISTRIBUTIONS IN KIND ON LIQUIDATION. Upon the liquidation of the
Company, to the extent the Company's assets are not sold or otherwise disposed
of, such assets (if any) may, at the unanimous direction of the Members, be
distributed in kind to the Members as follows: the value of such assets shall be
appraised (by an appraiser selected by the Members) to determine the Profits and
Losses that would have resulted if such assets had been sold; the Capital
Account of each Member shall be debited or credited with such Member's
respective share of the hypothetical gains or losses resulting from such assumed
sales in the same manner as such Capital Account would have been debited or
credited on the actual disposition of such assets; and such assets shall be
distributed in accordance with the Members' Capital Account balances as thus
adjusted, each Member taking an undivided interest in such assets subject to a
pro rata share of the Company's liabilities.
4.8 CERTAIN PROVISIONS OF THE ACT SUPERSEDED. The provisions of this
Agreement regarding allocations and distributions among the Members are intended
to and should, to the fullest extent permitted by law, supersede the provisions
of the Act regarding allocations and distributions.
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ARTICLE V
POWER, AUTHORITY, RIGHTS, DUTIES AND OBLIGATIONS OF THE
MANAGER
5.1 MANAGEMENT OF COMPANY.
(a) Authority of M/I Under Lease. The Members acknowledge that
M/I is the tenant under the Lease and that, pursuant to the provisions of the
Lease, M/I shall have the authority and obligations with respect to the
maintenance and operation of the Building and the other matters as set forth in
the Lease.
(b) Authority of Manager to Manage Company's Business. Except as
otherwise specifically limited herein, the Manager shall have the exclusive
right to manage the Company's business. Accordingly, except as otherwise
specifically limited in this Agreement or under applicable law, the Manager
shall: (i) manage the affairs and business of the Company; (ii) exercise the
authority and powers granted to the Company; and (iii) otherwise act in all
other matters on behalf of the Company. No contract, obligation or liability of
any kind or type may be entered into on behalf of the Company by any Member
other than the Manager. The Manager shall take all actions which shall be
necessary or appropriate to accomplish the Company's purposes in accordance with
the terms of this Agreement. The Manager is hereby designated and named a
"manager" of the Company, within the meaning of Section 18-101(10) of the Act.
5.2 CONSTRUCTION OF THE IMPROVEMENTS. The Manager shall use its best
efforts on behalf of the Company to cause the Improvements to be constructed
and completed in accordance with the terms of the Lease. For the purposes of
this Section 5.2, the use of the term "best efforts" by the Manager shall not
require the Manager to advance any of its funds on behalf of the Company where
it is not otherwise obligated to furnish such funds under the terms of this
Agreement. Such duties of the Manager shall be performed in accordance with
and shall include, but not be limited to, the following:
(a) Preliminary Budget. Attached hereto as Schedule E is a
preliminary budget (the "Preliminary Budget"), which has been approved by all of
the Members as providing the preliminary understanding of the viability of the
development of the Improvements.
(b) Design Architect. The Manager shall retain, on behalf of the
Company, the firm of Gensler and Associates (the "Design Architect") to be the
design architect for the Improvements. The Design Architect shall be retained
upon such terms and conditions and for such compensation as all of the Members
shall have approved in advance. The Members shall use their best efforts and due
diligence to cooperatively and collaboratively review, refine and ultimately
approve in writing such terms, conditions and compensation. M/I agrees to
retain, at the Company's cost as a Development Expense, the Design Architect to
be the design architect for the Tenant Improvements.
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(c) Project Architect. The Manager shall retain, on behalf of the
Company, the firm of NBBJ (the "Project Architect") to prepare the construction
drawings for the Improvements. The Project Architect shall be retained upon such
terms and conditions and for such compensation as all of the Members shall have
approved in advance. The Members shall use their best efforts and due diligence
to cooperatively and collaboratively review, refine and ultimately approve in
writing such terms, conditions and compensation. M/I agrees to retain, at the
Company's cost as a Development Expense, the Project Architect to prepare the
construction drawings for the Tenant Improvements.
(d) Construction Manager. The Manager shall retain, on behalf of
the Company, the joint venture Gillbane and Smoot (the "Construction Manager"),
to serve as the construction manager for the construction of the Improvements.
The Construction Manager shall be retained upon such terms and conditions and
for such compensation as all of the Members shall have approved in advance. The
Members shall use their best efforts and due diligence to cooperatively and
collaboratively review, refine and ultimately approve in writing such terms,
conditions and compensation. M/I agrees to retain, at the Company's cost as a
Development Expense, the Construction Manager to serve as the construction
manager for the construction of the Tenant Improvements.
(e) Plans. The Manager shall deliver or caused to be delivered to
the Members proposed plans and specifications for the Improvements and for the
Tenant Improvements. Such proposed plans and specifications shall (i) include,
without limitation, the siting, schematic design and specifications for facade
materials for the Building and the other Improvements and the Tenant
Improvements, (ii) to the satisfaction of Limited, be complementary in siting,
design and materials and consistent in quality and design to the building
proposed to be built by Limited (or an affiliate of Limited) and intended to be
located as shown on Schedule D attached hereto and made a part hereof and (iii)
in all respects provide for the construction of a first class office building.
The Members shall use their best efforts and due diligence to cooperatively and
collaboratively review, refine and ultimately approve in writing such proposed
plans and specifications. The proposed plans and specifications for the
Improvements and the Tenant Improvements approved by all of the Members shall be
referred to herein as the "Plans".
(f) Development Budget; Right of Manager to Pay Development
Expenses. Following the approval of the Plans by all of the Members, the Manager
shall prepare and deliver to each of the Members a proposed development budget.
Such proposed development budget shall be in substantially the same form as the
Preliminary Budget and shall require the approval of each of the Members. The
Members shall use their best efforts and due diligence to cooperatively and
collaboratively review, refine and ultimately approve in writing such proposed
development budget; provided, however, that such final approval shall not occur
unless and until all of the Members have reviewed and approved final contracts
for engineering services for the Improvements, final contracts for the services
to be provided to the Company by the Design Architect, the Project Architect and
the Construction Manager, and contracts with subcontractors accounting for not
less than ninety percent (90%) of the labor and materials necessary
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to construct the Improvements. The proposed development budget approved by all
of the Members shall be referred to herein as the "Development Budget". Upon
such approval of the Development Budget by the Members, the Manager shall have
the right, without further consent or approval by the Members, to incur or pay
the expenses set forth in such approved Development Budget. After approval of
the Development Budget by all of the Members, subject to the provisions of
Section 5.2(g) below, the Manager may at any time reallocate a portion of any
line-item therein to any other such line-item; provided, however, that, without
the written consent of all of the Members, (i) no such reallocation may result
in any increase in the Total Budgeted Development Expenses and (ii) no such
reallocation may result in the amount set forth in any particular line item
(including the "contingency") being increased or decreased by more than five
percent (5%).
(g) Changes to Plans. All proposed changes in or additions to the
Plans shall be submitted by the Manager to the Members for their approval. No
proposed changes to the Plans shall be adopted, accepted or implemented without
the prior approval of all of the Members. The Members shall use their best
efforts and due diligence to cooperatively and collaboratively review, refine
and ultimately approve in writing such proposed changes to the Plans.
(h) Retention of Agents. Upon obtaining prior approval of all of
the Members, the Manager may retain, on behalf of the Company, such Persons as
all of the Members shall deem advisable in connection with the construction of
the Improvements and the landscaping of the Property, including, without
limitation, attorneys, engineers and contractors, on such terms and for such
compensation as all of the Members shall determine; provided, however, that the
Manager shall not employ any affiliate of any Member except as described in
Section 5.10.
5.3 THE LEASE. The Manager shall, on behalf of the Company, enter into
the Lease of the Building with M/I. The Manager will not, without the prior
consent of Limited: (i) modify, amend, renew or grant any consent or waiver
under the Lease, (ii) grant rent concessions or discount rents (except as
specifically provided for in the Lease), (iii) accept a surrender of the Lease,
(iv) exercise any right or option granted to the landlord thereunder to cancel
all or any part of the term of the Lease or fail to take any reasonable action
that may terminate any option of the tenant thereunder to cancel the Lease or
(v) approve any assignment of the Lease or any subletting of all or any portion
of the premises demised under the Lease. The Manager shall: (a) on behalf of the
Company, perform, observe and discharge the obligations of the landlord under
the Lease and enforce or secure the performance, observance and discharge of the
obligations of the tenant to be performed, observed or discharged under the
Lease, (b) give prompt notice to Limited of each breach or alleged breach by the
landlord or the tenant under the Lease, together with a true and complete copy
of each notice of default or demand and each summons or other legal process and
each pleading prepared by or on behalf of the landlord and each pleading
received from the tenant with respect to any such breach and (c) on behalf of
the Company, appear in and defend any action or proceeding arising out of or in
connection with the Lease or the rents and other amounts payable thereunder.
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5.4 OPERATING AND CAPITAL IMPROVEMENT BUDGETS.
(a) Preparation and Submission of Proposed Operating and Capital
Budgets. Not later than sixty (60) days prior to the commencement of each fiscal
year of the Company, commencing November 1, 1996, the Manager shall prepare or
cause to be prepared and submit to the Members a proposed operating budget and a
proposed capital improvement budget with respect to the Property for such fiscal
year. The proposed operating budget shall set forth the projected income and
receipts from the Property for such fiscal year and the operating expenses to be
incurred during such year, such operating expenses to be set forth in reasonable
detail with each category of expense listed on a separate line. The proposed
capital improvement budget shall set forth in reasonable detail a description of
all capital improvements, repairs, replacements and alterations (i.e.,
improvements, repairs, replacements or additions, the cost of which may not be
deducted as an expense but must be capitalized and amortized over the life of
such improvements, repairs, replacements or alterations, but not including
therein any tenant improvement work) that the Manager proposes to make in and to
the Property during such fiscal year and the estimated cost of each.
(b) Approval of Operating Budgets by Members. Within twenty (20)
days after such submission of the proposed operating budget to the Members, each
Member shall send to the Manager a notice containing the approval of such
proposed operating budget or the disapproval of such proposed operating budget
and the specific detailed reasons for such disapproval. If within such twenty
(20) day period a Member does not send to the Manager any such notice approving
the proposed operating budget or disapproving the proposed operating budget and
setting forth the specific detailed reasons for such disapproval, then such
Member shall be deemed to have approved the proposed operating budget. If within
such twenty (20) day period a Member sends the Manager a notice disapproving the
proposed operating budget and setting forth the specific detailed reasons
therefor, the Manager shall use its reasonable efforts to revise the proposed
operating budget in order to address the reasons specified by such Member for
its disapproval of the proposed operating budget and shall then submit the
revised proposed operating budget to each Member for its approval. The Manager
and the Members shall repeat the process described in this Section 5.4(b) until
such proposed operating budget is approved or deemed approved by all of the
Members. The Manager shall be deemed to have approved any proposed operating
budget (or, as the case may be, any revised proposed operating budget) submitted
to the Member pursuant to this Section 5.4(b).
(c) Right of Manager to Pay Operating Expenses; Uncontrollable
Expenses. Upon such approval of an operating budget by all of the Members, the
Manager shall have the right, without further consent or approval by the
Members, to incur and pay the operating expenses set forth in such approved
budget, provided that in the case of any operating expense that is not an
Uncontrollable Expense, the Manager shall not have the right to incur or pay the
same if it exceeds by
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more than five percent (5%) the amount set forth on the appropriate line for the
category of expense involved in the approved operating budget or if an
expenditure will cause the aggregate amount of operating expenses that are not
Uncontrollable Expenses to exceed by more than five percent (5%) the aggregate
amount of such operating expenses provided for in the approved operating budget.
As used in this Section 5.4, the term "Uncontrollable Expenses" shall mean an
item of expense, the amount of which is not within the power of the Manager to
control and shall include, by way of illustration and without limitation, real
estate taxes, utility charges, and debt service under loans permitted hereunder
or otherwise approved by all of the Members. If at any time the Manager desires
to incur an operating expense that is not provided for in the approved operating
budget, the Manager shall not incur such expense without the prior approval of
all of the Members. If at any time it becomes evident to the Manager that the
cost of any operating expense that is not an Uncontrollable Expense will exceed
by more than five percent (5%) the amount set forth in respect thereof in the
approved operating budget, or the amount of all such expenses will exceed by
more than five percent (5%) the aggregate amount budgeted therefor in such
operating budget, the Manager shall not incur the operating expense in question
or, as applicable, any of such operating expenses without the approval of all of
the Members. Notwithstanding the foregoing, however, if in the reasonable
good-faith judgment of the Manager any operating expense not provided for in the
approved operating budget, the cost of which in any single instance does not
exceed $10,000, must at any time be undertaken immediately in order to protect
the Property or any portion thereof or to avoid accident or injury to Persons or
their property, the Manager shall be free to incur such operating expense
without regard to the approved operating budget and without first securing the
approval of the Members, but the Manager shall notify the Members promptly (and
in no event later than one (1) full day after the Manager first becomes aware of
the condition requiring the measures in question and of the need for such
measures) of any condition requiring any of the aforesaid measures.
(d) Approval of Capital Budgets by Members. Within twenty (20)
days after such submission of the proposed capital improvement budget to each
Member, each Member shall send to the Manager a notice containing the approval
of such capital improvement budget or the disapproval of such proposed capital
improvement budget and the specific detailed reasons for such disapproval. If,
within such twenty (20) day period a Member does not send to the Manager a
notice approving the proposed capital improvement budget or disapproving the
proposed capital improvement budget and setting forth the specific detailed
reasons for such disapproval, then such Member shall be deemed to have approved
the proposed capital budget. If within such twenty (20) day period a Member
sends the Manager a notice disapproving the proposed capital improvement budget
and setting forth the specific detailed reasons therefor, the Manager shall use
its reasonable efforts to revise the proposed capital improvement budget in
order to address the reasons specified by such Member for its disapproval of the
proposed capital improvement budget and shall then submit the revised proposed
capital improvement budget to each Member for its approval. The Manager and the
Members shall repeat the process described in this Section 5.4(d) until such
proposed capital budget is approved or deemed approved by all of the Members.
The Manager shall be deemed to have approved any proposed capital improvement
budget (or, as the case may be, any revised proposed capital improvement budget)
submitted to the Members pursuant to this Section 5.4(d).
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(e) Right of Manager to Pay Capital Expenses. Upon such approval
of a capital improvement budget by all of the Members, the Manager shall have
the right, without further consent or approval by the Members, to make the
capital improvements, repairs, replacements and alterations set forth in such
budget and to pay the cost thereof, and pay the capital improvement expenses set
forth in such approved budget, provided that the cost of any such capital
improvement, repair, replacement or alteration does not exceed by more than five
percent (5%) the amount thereof set forth for such item in the approved capital
improvement budget, and provided, further that the cost of all such capital
improvements, repairs, replacements and alterations does not exceed by more than
five percent (5%) the aggregate amount set forth in such capital improvement
budget. If at any time the Manager desires to make a capital improvement,
repair, replacement or alteration that is not provided for in the approved
capital budget, the Manager shall not proceed with such improvement, repair,
replacement or alteration without the prior approval of all of the Members. If
at any time it becomes evident to the Manager that the cost of any capital
improvement, repair, replacement or alteration provided for in the approved
capital improvement budget will exceed by more than five percent (5%) the amount
budgeted therefor in the approved capital improvement budget, or that the
aggregate amount of the cost of all capital improvements, repairs, replacements
and alterations provided for in such budget will exceed by more than five
percent (5%) the aggregate amount budgeted therefor in the approved capital
improvement budget, the Manager shall not proceed further with the making of
such improvement, repair, replacement or alteration or, as applicable, with any
of such capital improvements, repairs, replacements or alterations without the
approval of all of the Members. Notwithstanding the foregoing, however, if in
the reasonable good-faith judgment of the Manager any capital improvement,
repair, replacement or alteration, the cost of which in any single instance does
not exceed $10,000, must at any time be undertaken immediately in order to
protect the Property or any portion thereof or to avoid accident or injury to
Persons or their property, the Manager shall be free to make such capital
improvement, repair, replacement or alteration without regard to the approved
capital improvement budget and without first securing the approval of the
Members, but the Manager shall notify each Member promptly (and in no event
later than one (l) full day after the Manager first becomes aware of the
condition requiring the measures in question and of the need for such measures)
of any condition requiring any of the aforesaid measures.
(f) Failure to Agree on Operating Budget. In the event that the
Members are unable to agree on any operating budget for any fiscal year, or on
any item therein, (i) any items in such operating budget which have been so
approved shall become operative immediately and (ii) with respect to any other
item of such operating budget, the Manager shall be entitled to expend in
respect of such item, until such time as the dispute in question shall be
otherwise resolved, an amount (on an annual basis) equal to the amount for the
corresponding item in the operating budget for the then-current year.
5.5 CONSTRUCTION LOAN AND PERMANENT LOAN. Subject to the provisions
of Section 5.8 hereof:
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(a) The Manager shall use its best efforts to obtain a commitment
for and to close a Construction Loan. The Construction Loan shall be in such
amount and on such other terms and conditions as shall be approved by all of the
Members. The Members shall collaborate in good faith and in a timely manner to
approve such amount, terms and conditions.
(b) The Manager shall use its best efforts to obtain a commitment
for and to close a Permanent Loan. The Permanent Loan shall be in such amount
and on such other terms and conditions as shall be approved by all of the
Members. The Members shall collaborate in good faith and in a timely manner to
approve such amount, terms and conditions.
(c) The Manager, on behalf of the Company, shall execute the
Mortgages in respect of the Construction Loan and the Permanent Loan, when and
as required by the commitments for same. With respect to each of the
Construction Loan and the Permanent Loan and any other loan entered into by the
Company in accordance with the provisions hereof, following the closing of each
such loan, the Manager: (i) shall not, without the prior consent of all of the
Members, modify or amend any provision of the Mortgage in respect of such loan,
(ii) on behalf of the Company, shall perform, observe and discharge the
obligations of the Company under the Mortgage in respect of such a loan, (iii)
shall give to the Members prompt notice of each breach or alleged breach by the
Company or the lender under the Mortgage in respect of such loan, together with
a true and complete copy of each notice of default or demand and each summons or
other legal process and each pleading prepared by or on behalf of the Company
and each notice of default or demand and each summons or other legal process and
each pleading received from such lender and (iv) on behalf of the Company, shall
appear in and defend any action or proceeding arising out of or in connection
with the Mortgage in respect of such loan.
5.6 SPECIFIC RIGHTS AND POWERS OF MANAGER. In addition to the rights and
powers of the Manager provided for in Sections 5.1, 5.2, 5.3, 5.4 and 5.5, and
subject to the limitations provided in such Sections, and the approval rights of
the Members set forth in Section 5.8 hereof and except as otherwise specifically
limited in this Agreement or under applicable law, the Manager shall have all
specific rights and powers required for the management of the business of the
Company including, without limitation, the right to do the following:
(a) Operate, maintain, repair and improve the Property;
(b) Incur all reasonable expenditures and pay all obligations of
the Company;
(c) Execute any and all documents or instruments of any kind
which the Manager deems necessary or appropriate to achieve the purposes of the
Company, including, without limitation, contracts, agreements, leases,
subleases, easements, deeds, notes, Mortgages and other documents or instruments
of any kind or character or amendments of any such documents or instruments;
(d) Purchase or lease equipment for Company purposes;
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(e) Borrow money from individuals, banks and other lending
institutions for any Company purpose, and mortgage or pledge all or any portion
of the Property; to secure or provide for the repayment of such loans; obtain
replacements of any Mortgage or Mortgages in whole or in part, refinance,
recast, modify, extend or consolidate any Mortgage affecting all or any portion
of Property;
(f) Procure and maintain, at the expense of the Company and with
responsible companies, such insurance as may be available in such amounts and
covering such risks as are appropriate in the reasonable judgment of the
Manager;
(g) Employ and dismiss from employment any and all Company
employees, agents, independent contractors, attorneys and accountants; and
(h) Supervise the preparation and filing of all Company tax
returns.
5.7 AGREEMENTS; LAWS AND PERMITS. Without limiting the provisions of
Section 5.3 or Section 5.5 hereof and subject to the availability of required
funds to the Company, the Manager shall cause the Company to comply with all
agreements entered into by the Company or by which the Company is bound and all
Laws and Permits applicable to the Company.
5.8 APPROVAL OF MEMBERS. Notwithstanding any contrary provision of this
Article V, but subject to Section 6.4(b), the Manager shall not take any of the
following actions without first obtaining the consent of all of the Members in
accordance with the provisions of Section 6.4(a):
(a) sell, exchange, transfer, convey, assign, lease or otherwise
dispose of, or encumber the Property or any portion thereof (other than pursuant
to the Lease entered into in compliance with the provisions hereof);
(b) enter into any management, leasing or brokerage agreement for
the Property or any portion thereof, modify, amend or revise in any material
respect to extend, renew, cancel or terminate any such management, leasing or
brokerage agreement or change or suffer or permit to be changed the agent under
any such management, leasing or brokerage agreement;
(c) acquire any real property other than the Property, including,
without limitation, leases of real property, or any personal property other than
the personal or other personal property necessary or desirable for the operation
and maintenance of the Property;
(d) agree to a settlement of any proceeding brought for the
taking of all or any portion of the Property in condemnation or by eminent
domain or to a sale of all or any portion of the Property in lieu of such taking
in condemnation or by eminent domain;
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(e) borrow any money (including, without limitation, the
Construction Loan and the Permanent Loan) (excluding any Member Loan made by
virtue of the provisions of Section 3.6(b)(iv));
(f) place any Mortgage or deed of trust on the Property or any
portion thereof, or prepay, extend, refinance, modify or amend any Mortgage
covering the Property or any portion thereof;
(g) demolish the whole or any part of any Improvement or Tenant
Improvement; construct any addition to any Improvement or Tenant Improvement or
any new Improvements or Tenant Improvements; undertake any repair, restoration,
alteration, betterment, or rebuilding of any Improvement or Tenant Improvement
(including, without limitation after any casualty) other than in accordance with
Section 5.4 (regarding capital improvement budgets); reduce the amount of
rentable area in the Property; reduce the parking area or the number of parking
spaces or the landscaping on the Property; or alter the architectural appearance
of any of the Improvements or the Tenant Improvements;
(h) change the nature of the business of the Company or enter
into any business other than or in addition to that contemplated by this
Agreement;
(i) take advantage on behalf of the Company of any federal or
state bankruptcy or insolvency law or similar law for the relief of debtors;
(j) make any loan from the Company to a Member or any Affiliate
of a Member;
(k) cause the formation of any corporation, partnership, limited
liability company or other subsidiary entity owned or controlled by the Company;
(l) make investments, other than the temporary investment of
working capital as provided for in Section 10.5 in the ordinary course of
business;
(m) initiate in the name or on the account of the Company any
lawsuit or other judicial proceeding other than in connection with proceedings
concerning the Lease or the tenant thereunder;
(n) establish any reserves from Net Cash Receipts or Capital
Proceeds (it being understood that any reserve provided for in an approved
budget shall be deemed for this purpose to have been approved by the Members);
(o) commit or suffer any acts which would make it impossible to
carry out the operation of the business of the Company, change or reorganize the
Company into any other legal form or dissolve or voluntarily terminate the
Company;
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(p) admit to the Company a new additional or Substitute Member
except as otherwise specifically provided for in this Agreement;
(q) amend this Agreement or the Certificate of Formation (except
as provided in Section 11.1); or
(r) engage, transact or do business in any jurisdiction other
than the State of Ohio.
5.9 COMPENSATION OF THE MANAGER. The Manager shall not receive any
compensation for its services as Manager hereunder. Notwithstanding the
preceding sentence, however, the Company shall pay to the Manager, on an annual
basis, the amount of out-of-pocket costs and expenses incurred in the
performance of its duties hereunder, as set forth in the operating budgets in
effect from time to time under Section 5.4.
5.10 OTHER ACTIVITIES OF MEMBERS.
(a) The Manager shall devote to the Company such of its time and
render such services as may be required for the efficient conduct of the
business of the Company, to carry out the purpose of this Agreement, and to
maintain the Property as a first-class office building and to attempt to
maximize the profits resulting from the ownership thereof.
(b) Any Member, any Affiliates and any officer, director,
shareholder, member, manager, employee or agent of any Member or any Affiliates
may lend money to and transact other business with the Company and may engage in
or possess an interest in other business ventures of every nature and
description, independently or with others, including, but not limited to, those
competitive with the business of the Company. Neither the Company nor the other
Members shall have any rights in and to such independent ventures or the income
or profits derived therefrom nor shall any Member assert any claim with respect
thereto on the opportunities therefrom.
(c) The Members or their Affiliates may serve as asset manager
and/or mortgage broker for the Company and/or as management agent of the
Property. No compensation or fees shall be paid to the Members or their
Affiliates except as described in this Agreement. The Members or their
Affiliates may receive compensation for any goods or services rendered to the
Company provided the amount of such compensation is not more than the amount the
Company would be required to pay to unrelated Persons for comparable goods or
services. Any payment to be made to a Member or one of its Affiliates for such
goods or services shall be disclosed to the Members and approved by all of the
Members in advance of the service being rendered or the goods being provided.
Upon such disclosure and approval, no Member shall be entitled to any share of
such payment, except to the extent made or received in violation of this
Agreement.
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5.11 INDEMNIFICATION. The Company shall, to the fullest extent
permitted under the Act and other applicable law, indemnify any Person who is a
party, or is threatened to be made a party, to any threatened, pending or
completed civil, criminal, administrative or investigative action, suit or
proceeding because such Person is or was a Manager, Member, officer, employee or
agent of the Company or is or was serving at the request of the Company as a
member, manager, director, trustee, partner, officer, employee or agent of
another limited liability company, corporation, partnership, joint venture,
trust or other enterprise, against costs, claims, damages, losses, judgments,
fines and expenses (including without limitation, reasonable attorneys' fees,
filing fees, court reporters' fees and transcript costs) actually and reasonably
incurred by such Person in connection with such action, suit or proceeding if
such Person's act or omission giving rise to any claim for indemnification under
this Section 5.11 was not occasioned by such Person's fraud, willful misconduct,
gross negligence or intent to cause injury to the Company or by such Person's
reckless disregard for the best interests of the Company, and in respect of any
criminal action or proceeding, such Person had no reasonable basis to believe
such Person's conduct was unlawful. Notwithstanding the foregoing, the Company
shall not indemnify a Member in respect of a dispute among the Members, or any
of them, arising out of this Agreement.
5.12 TAX MATTERS MEMBER. The "Tax Matters Member" (referred to as the
"tax matters partner" in Section 6231(a)(7) of the Code), shall be designated in
writing from time to time by the Manager and, initially, shall be Georgetown.
The Tax Matters Member shall represent the Company and the Members, at Company
expense, in any administrative or judicial proceeding with the Internal Revenue
Service, at the direction of all of the Members. Any other Member may, at its
own expense, participate in such proceeding to the extent permitted by the Code.
If an administrative proceeding results in the issuance of a "final partnership
administrative adjustment" ("FPAA"), as that term is used in Sections 6223 et
seq. of the Code, the Tax Matters Member, at the direction of all of the
Members, shall determine whether the Company shall seek judicial review of such
FPAA. If the Tax Matters Member determines that the Company shall not seek
judicial review, it shall promptly notify all the other Members of this
determination and each Member shall be entitled, at its own expense, to pursue
whatever rights it may have under the Code. Any amounts paid by the Tax Matters
Member on behalf of the Company in connection with any administrative or
judicial proceeding shall be considered a loan to the Company, and not a
contribution to capital. The Tax Matters Member shall not be liable to the
Company or the other Members for any action it takes or fails to take in
connection with any such judicial or administrative proceeding, including,
without limitation, the agreement to or failure to agree to a settlement or the
extension of, or failure to extend the relevant statutes of limitations, unless
such action or failure constitutes willful misconduct, fraud, gross negligence
or breach of a fiduciary duty to the Company or any of the other Members. The
Members shall use their best efforts and due diligence to cooperatively and
collaboratively advise and direct the Tax Matters Member in the performance of
its obligations under this Section 5.12.
5.13 PROPERTY MANAGEMENT AGENT. The Members, acting unanimously, shall
have the right, from time to time, to select a property management agent to
manage the Property. The terms of any property management agreement shall be
determined by the unanimous consent of the Members.
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5.14 CERTAIN PROVISIONS OF THE ACT SUPERSEDED. The provisions of this
Agreement regarding the management of the Company are intended to and shall, to
the fullest extent permitted by law, supersede the provisions of the Act
regarding the management of a limited liability company.
ARTICLE VI
RIGHTS, DUTIES AND OBLIGATIONS OF MEMBERS
6.1 RIGHTS OF MEMBERS OTHER THAN THE MANAGER TO PARTICIPATE IN THE
MANAGEMENT OR CONTROL OF THE BUSINESS. Except as specifically set forth in this
Agreement, the Members shall have the right and power to participate in the
management and control of the Company, its business and its affairs. However,
the Members other than the Manager shall have no right or power to control or
supervise, and no duty or responsibility for, the filing of any tax return or
the making of any tax payment for or on behalf of the Company or any of its
officers or employees; and shall have no duty or obligation to be responsible
for the execution of the Company's fiscal responsibilities.
6.2 LIMITED LIABILITY OF MEMBERS. Subject to the provisions of the Act,
the liability of a Member for the debts and obligations of the Company shall be
limited to the amount of its Capital Contribution, and no Member shall be
obligated to contribute money to the Company or to otherwise answer for an
obligation of the Company beyond its obligation to pay its Capital Contribution,
except to the extent required by law.
6.3 MEETINGS. Members holding one third (1/3rd) or more of the
Percentage Interests may by written notice to the Manager call a meeting of all
the Members. Upon receipt of a written request for such a meeting, the Manager
shall promptly, and in any event not later than five (5) days after receipt of
such request, fix a place and time for such meeting, and shall notify each
Member thereof in writing. Such notice shall state the purpose for which the
meeting is to be held. Such meeting shall be held at a place convenient to the
Members in Franklin County, Ohio. Such meeting shall be held not less than ten
(10) nor more than twenty (20) days after receipt of a request for a meeting.
6.4 CONSENT OF THE MEMBERS.
(a) General. Subject to Section 6.4(b), the unanimous written
consent of the Members shall be required with respect to the matters referred to
in Section 5.8. Such consent may be withheld by any Member, in its sole and
absolute discretion, for any reason or for no reason at all. In the event that
the Manager proposes to undertake on behalf of the Company any of such matters,
the Manager shall give notice to the Members of such proposal, setting forth the
material terms and conditions of such proposal and requesting a consent of each
Member thereto. Within fifteen (15) days following receipt of such notice, each
Member shall deliver a written response to the Manager either consenting to such
proposal or refusing to consent to such proposal. A Member shall be deemed to
have given its consent if (a) such consent is given in a vote (either in person
or by proxy) at a meeting
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of the Members called and held in accordance with the provisions of Section 6.3,
(b) such consent is delivered in writing to the Manager or (c) the Manager has
not received written notice from such Member expressly withholding such consent
within fifteen (15) days after a notice is sent to such Member seeking its
consent.
(b) Override During Tenant Default Period. Notwithstanding
anything to the contrary set forth in this Agreement, during a Tenant Default
Period, as defined below, all rights of M/I to consent to or approve of any
action except those identified in the next sentence shall be suspended, and the
provisions providing for such suspended consent or approval rights shall be
deemed to apply only to the Members other than M/I or the successor to M/I's
Percentage Interest. The following rights of M/I shall not be suspended during a
Tenant Default Period: (i) the right to consent to the admission of Substitute
Members pursuant to Section 7.5(b), (ii) the right to consent to the
continuation of the Company's business and reformation of the Company following
the Retirement of a Member pursuant to Section 7.8 and (iii) the right to
receive notice of any action requiring the consent or approval of all Members
hereunder. A "Tenant Default Period" shall mean any period or periods of time
commencing upon the occurrence of a Lease Default, as defined in the following
sentence, and ending upon the cure of such Lease Default. As used in the
foregoing sentence only, a "Lease Default" shall mean either: (A) M/I's failure
pursuant to the Lease to pay rent and/or real estate taxes and assessments on
the Property as the same become due and payable (after the expiration of all
notice and cure periods as provided in the Lease) (a "Monetary Default"); or (B)
as to any default other than a Monetary Default (a "Nonmonetary Default"),
agreement between the Company and M/I that a Nonmonetary Default has occurred
or, absent such agreement, then a final, unappealable determination by a court
of competent jurisdiction that a Nonmonetary Default has occurred; provided,
however, that notwithstanding the foregoing provisions to the contrary, M/I
shall have no right, from and after the occurrence of an alleged Nonmonetary
Default, to consent or approve any action whereby the Company, in its reasonable
discretion, expends funds or takes actions to preserve, repair or maintain the
Company's assets or their value (including, without limitation, payments for
taxes, assessments, insurance and utilities), to avoid the imposition of liens,
to preserve tax abatement status for the Property, to comply with lender
requirements, to comply with laws or to cure a default under the Lease by the
Company.
ARTICLE VII
TRANSFERS OF INTERESTS OR RETIREMENT; FIRST OFFER PROVISIONS; PURCHASE RIGHTS
UPON DEFAULT; CONTINUATION AFTER RETIREMENT OF MEMBERS
7.1 LIMITATIONS ON TRANSFERS AND RETIREMENT; CERTAIN PERMITTED
TRANSFERS.
(a) General Prohibition. Except as otherwise provided in this
Section 7.1 or in Section 7.2, a Member may not sell, pledge, assign or
otherwise transfer all or any portion of its Percentage Interest, without
obtaining the unanimous written consent of the other Members, which consent may
be withheld at their discretion for any reason or for no reason at all. Any
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attempt to do so in contravention of this Agreement shall be void. Other than in
connection with a transfer or assignment and the admission of a Substitute
Member in its place in accordance with this Article VII, a Member may not
voluntarily Retire as a Member of the Company without the unanimous written
consent of the other Members. Neither the death nor the dissolution of the
Member, nor the commencement of proceedings for the Bankruptcy, insolvency or
receivership of the Member, whether voluntary or involuntary, shall be deemed a
"voluntary" Retirement by such Member for purposes of this Section 7.1(a), and
the Company shall have no rights or claims for damages against such Member on
account thereof.
(b) Certain Permitted Transfers.
(i) To Certain Commonly Controlled Persons. Each Member
may assign or otherwise transfer all, but not less than all, of its Percentage
Interest to a Person directly or indirectly controlling, controlled by or under
common control with such Member without having to comply with Sections 7.1(a) or
7.2, provided that (A) the provisions of Section 7.4 are complied with in
respect of such assignment or transfer, (B) the admission of a Substitute Member
remains subject to the provisions of Section 7.5 and (C), in the case of
assignments or transfers by Georgetown and its successors only, either or both
of Marshall Rose or Edgar A. Lampert shall be a meaningful principal of or
participant in the assignee or transferee. For purposes of this Section
7.1(b)(i) only, "control" of a Person by a Person shall mean the ownership by
the controlling Person of at least fifty percent (50%) of the legal and
beneficial interests of the Person controlled. The assigning or transferring
Member shall provide the other Members with at least thirty (30) days written
notice of any such proposed assignment or transfer.
(ii) By Limited. On and after the Completion Date,
Limited may assign or otherwise transfer all, but not less than all, of its
Percentage Interest to a Person to whom Limited and/or its Affiliates are
concurrently transferring all or substantially all of the property identified on
Schedule D attached hereto, without having to comply with Sections 7.1(a) or
7.2, provided that (A) the provisions of Section 7.4 are complied with in
respect of such assignment or transfer, (B) the admission of a Substitute Member
remains subject to the provisions of Section 7.5, (C) the assignment or transfer
is made for fair market value, and (D) M/I and Georgetown each are provided the
opportunity to concurrently assign or transfer their respective Percentage
Interests on the same terms and conditions to the assignee or transferee or, at
the election of Limited, to Limited or its designee.
(iii) Between the Members. On and after the Completion
Date, each Member may assign or otherwise transfer all, but not less than all,
of its Percentage Interest to any other Member without having to comply with
Sections 7.1(a), 7.2 and 7.5, provided that the provisions of Section 7.4 are
complied with in respect of such assignment or transfer.
7.2 RIGHT OF FIRST OFFER.
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(a) General. During the period of time commencing on the date
which is the first day of the twenty-seventh month after the Completion Date,
and ending upon the termination of the Company (the "First Offer Period"), each
Member shall have the option to initiate the procedures provided for in this
Section 7.2 (the "First Offer Procedures"). The First Offer Procedures shall be
initiated upon the giving by a Member to all of the other Members of an
Initiating Notice during the First Offer Period. As used in this Section 7.2,
the term "Initiating Notice" shall mean a notice to the effect that the Member
giving such notice (the "Electing Member" as to such notice) desires to initiate
the First Offer Procedures and containing (i) a statement to the effect that the
Electing Member offers to sell such Member's Percentage Interests and such
Member's interest in any Member Loans made by such Member (such Member's "First
Offer Interest"), (ii) a statement of the value (as determined by the Electing
Member), in United States Dollars, of the assets of the Company upon which the
Electing Member agrees to permit to be based the calculation of the purchase
price of First Offer Interests to be purchased and sold in accordance with the
First Offer Procedures (the "Stated Valuation Price"), and (iii) the additional
terms of sale upon which the Electing Member offers to sell its First Offer
Interest.
(b) Options of Other Members. Upon the giving of an Initiating
Notice, the Members to whom such Initiating Notice was given (the "Other
Members") thereupon shall have an irrevocable option to purchase the interests
offered to be sold in the corresponding Initiating Notice, each on the terms and
subject to the conditions set forth in this Section 7.2 (the "Purchase Option").
Each Other Member may exercise the Purchase Option by giving to the Electing
Member, within thirty (30) days of the giving by the Electing Member of the
corresponding Initiating Notice, a notice to the effect that such Other Member
desires to exercise the Purchase Option (an "Option Election Notice"). If more
than one of the Other Members gives an Option Election Notice, then each such
Other Member shall be deemed to have elected to purchase the portion of the
First Offer Interest that bears the same proportion to the entire First Offer
Interest as the Percentage Interest of such Offeree Member bears to the
aggregate of the Percentage Interests of all the Offeree Members making such
election.
(c) Calculation of First Offer Price. The purchase price to be
paid for a First Offer Interest (the "First Offer Price" in respect of such
First Offer Interest) shall be calculated in accordance with this Section
7.2(c). The First Offer Price in respect of a Member's First Offer Interest
shall be that amount which would be distributed to such Member pursuant to
Section 4.6 assuming hypothetically that the assets of the Company were sold for
the Stated Valuation Price and the proceeds of such sale were applied and
distributed in accordance with said Section 4.6. Upon the giving of an
Initiating Notice, the Manager promptly shall engage, on behalf of and at the
expense of the Company, the Company's then-serving Accountants to determine the
First Offer Price of the Electing Member's First Offer Interest in accordance
with this Section 7.2, and to give notice of such determination to each Member.
Such determination shall take into account any then-pending but uneffected
conversions of Member Loans into Cash Needs Contributions, in accordance with
the provisions of Sections 3.6(b)(v), as if such conversions had been effected.
Such determination shall identify any Member Loan as to which no election to so
convert such Member Loan to a Cash Needs Contribution has then been made, and
shall assume that none of
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such Member Loans will be so converted. If for any reason notice of such
determination is not given to the Members within twenty-one (21) days of the
giving of the Initiating Notice, the Electing Member shall have the option to
engage, on behalf of and at the expense of the Company, any
nationally-recognized firm of independent public accountants for such purpose.
If the Electing Member so engages a nationally-recognized firm of independent
public accountants for such purpose, the Electing Member shall give to the other
Members notice to that effect. At the corresponding First Offer Closing (as
defined in Section 7.2(d)), the First Offer Price shall be adjusted to take into
account any conversions of Member Loans to Cash Needs Contributions effected
subsequent to, and not taken to account in, the determinations referred to in
this Section 7.2(c). The failure of the First Offer Price to be so determined
shall not affect the obligations of the Members set forth in this Section 7.2.
(d) Closing of First Offer Purchase and Sale. The closing of the
purchase and sale of a First Offer Interest upon the exercise of a Purchase
Option (a "First Offer Closing") shall be consummated in accordance with the
provisions of this Section 7.2(d). A First Offer Closing shall be consummated at
the business office of the Company at 10:00 a.m., Columbus, Ohio local time, on
the First Offer Closing Date. As used in this Agreement, the term "First Offer
Closing Date" in reference to a First Offer Closing shall mean the date
designated as such in a notice given by the Member (or jointly by the Members,
if more than one) required to purchase a First Offer Interest at such First
Offer Closing (each, a "Purchasing Member") to the Member required to sell the
First Offer Interest at such First Offer Closing (the "Selling Member");
provided that such date shall be a date which is no sooner than thirty (30) days
and no later than ninety (90) days after the date on which the corresponding
Option Election Notice is given. In the event that no such notice is given, the
First Offer Closing Date shall be the date which is the ninetieth (90th) day
after the date on which the corresponding Option Election Notice is given. At
the First Offer Closing, (i) each Purchasing Member shall pay to the Selling
Member its share of the First Offer Price in respect of the First Offer Interest
to be purchased and sold, calculated in accordance with Section 7.2(c) of this
Agreement, in United States Dollars and in the form of a good bank-certified or
cashier's check drawn on an institution reasonably satisfactory to the Selling
Member or, at the direction of the Selling Member, by wire transfer to an
account designated by the Selling Member, and (ii) the Selling Member shall
effectively transfer to the order of each Purchasing Member its share of the
Selling Member's First Offer Interest in accordance with the First Offer
Procedures, free and clear of all liens or encumbrances of any kind. At, and
subsequent to, the First Offer Closing, each Member and the Company shall
execute, deliver and acknowledge any and all documents, agreements, and
statements and certificates concerning factual matters, and shall take or
refrain from taking actions, as shall be reasonable, necessary or appropriate in
connection with the consummation of the First Offer Closing in accordance with
the provisions of this Section 7.2.
(e) Right to Transfer. In the event that the Electing Member does
not receive within the time limits set forth in Section 7.2(b) above any Option
Election Notice from any of the Other Members, then the Electing Member shall
thereupon be free to sell and assign the First Offer Interest to any Person at a
price not less than the First Offer Price and on terms not less
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favorable to the Electing Member than the terms described in the Option Election
Notice for a period of one hundred eighty (180) days following the earlier of
(i) the expiration of the thirty (30) day period during which the Other Members
may deliver an Option Election Notice and (ii) the receipt by the Electing
Member of any notice or notices from all of the Other Members rejecting such
offer contained in the Initiating Notice, provided that (A) the provisions of
Section 7.4 are complied with in respect of such assignment and (B) the
admission of a Substitute Member remains subject to the provisions of Section
7.5. Each Member and the Company shall execute, deliver and acknowledge any and
all documents, agreements, and statements and certificates concerning factual
matters, and shall take or refrain from taking actions, as shall be commercially
reasonable, necessary or appropriate in connection with the consummation of the
sale or assignment by the Electing Member of the First Offer Interest in
accordance with the provisions of this Section 7.2. If such sale and assignment
is not consummated within such one hundred eighty (180) day period, the Electing
Member shall not have the right to sell or assign the First Offer Interest
without once again complying with the provisions of this Section 7.2.
(f) Additional Provisions Governing First Offer Procedures. The
provisions of this Section 7.2(f) shall govern the First Offer Procedures
notwithstanding any contrary provision or effect of this Agreement.
(i) Effect of Conflict With Loan Agreement. The Company
shall provide to each Member a copy of each agreement entered into by the
Company in accordance with the provisions of this Agreement providing for a loan
to the Company by a lender other than a Member. If the implementation of the
First Offer Procedures would conflict with or cause a default under any such
agreement, a Member desiring to implement the First Offer Procedures shall have
obtained the consent or waiver of the lender under each such agreement to the
implementation of the First Offer Procedures prior to giving an Initiating
Notice.
(ii) Effect of Default by Lessee Under Lease. M/I shall
not give an Initiating Notice during a Tenant Default Period, and any such
notice given by M/I during a Tenant Default Period and purporting to be an
Initiating Notice shall be void and of no effect whatsoever.
(iii) Effect of Pending Cash Needs Contributions. The
First Offer Procedures shall be subject to the provisions of Section 3.6(b)(v).
Accordingly, in the event that the Selling Member has elected to convert a
Member Loan to a Cash Needs Contribution in accordance with Section 3.6(b)(v)
and such conversion remains uneffected during the period following the giving of
an Initiating Notice, the implementation of the First Offer Procedures shall
take into account the effect of Section 3.6(v)(5) as applied to such conversion.
In the event that any such conversion remains uneffected at the time of a First
Offer Closing scheduled in accordance with this Section 7.2, such First Offer
Closing shall be deferred until the business day following the date on which
such conversion has been effected.
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(iv) Effect of Pending Default Purchase Right. No Member
shall give an Initiating Notice during any period in which Limited or Georgetown
are entitled to exercise the Default Purchase Right pursuant to Section 7.3, any
such notice given by a Member during such period and purporting to be an
Initiating Notice shall be void and of no effect whatsoever, and the First Offer
Procedures shall be suspended during such period.
(v) Waiver, Modification and Amendment Permitted. Any of
the provisions of this Section 7.2 may be waived, modified or amended by a
written instrument executed by all of the Members.
7.3 PURCHASE RIGHTS UPON DEFAULT.
(a) Purchase Rights Upon Event of Default Under Lease. Upon the
occurrence of an Event of Default, as that term is defined in the Lease, which
is undisputed between the tenant under the Lease and the Company or which has
been determined to have occurred pursuant to a final, unappealable decision by a
court of competent jurisdiction, each of Limited and Georgetown shall have the
right (but not the obligation), at any time thereafter, to purchase and to
receive an assignment of the entire Percentage Interest of M/I for an aggregate
purchase price equal to the Appraised Value, as defined in Section 7.3(b), of
the Company, multiplied by the Percentage Interest of M/I (a "Default Purchase
Right"). If either Limited or Georgetown desires to elect to exercise its
Default Purchase Right, such electing Member shall notify the other Member in
writing of its decision, and such other Member shall within twenty (20) days
thereafter notify the electing Member of its decision whether or not to exercise
its Default Purchase Right. If both Limited and Georgetown elect to exercise
their respective Default Purchase Rights, each of Limited and Georgetown shall
be entitled to purchase the portion of the Percentage Interest of M/I that bears
the same proportion to the entire Percentage Interest of M/I as the Percentage
Interest of such Member bears to the aggregate of the Percentage Interests of
Limited and Georgetown, for a purchase price equal to a proportionate amount of
the Appraised Value of the Company, multiplied by the Percentage Interest of
M/I. Each electing Member shall give to M/I a notice that such Member has
elected to purchase the Percentage Interest of M/I.
(b) Determination of Appraised Value. The "Appraised Value" of
the Company shall be the value which M/I and the electing Member(s),
collectively, shall assign to the Company. If the Members do not agree on such a
value within twenty (20) days after the date of the giving of the notice (or the
later of the notices, if more than one is given) referred to in the final
sentence of Section 7.3(a) (the "Section 7.3(a) Notice Date"), the Appraised
Value shall be the amount which would be distributed to all of the Members
pursuant to Section 4.6 assuming hypothetically that the assets of the Company
were sold for their fair market value, as determined by an appraiser mutually
chosen by all of the Members. If the Members do not mutually agree on an
appraiser within forty (40) days after the Section 7.3(a) Notice Date, the
Appraised Value shall be the average of the two (2) closest amounts assigned as
the Appraised Value by three (3) appraisers, one of whom is appointed by M/I,
one of whom is appointed by the electing Member(s) and one of whom is chosen by
the other two appraisers. If the appraisers chosen by
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M/I and the electing Member(s) do not mutually agree on the third appraiser
within sixty (60) days after the Section 7.3(a) Notice Date, the Manager shall
promptly thereafter, and in any event within eighty (80) days after the Section
7.3(a) Notice Date, formally request that the Administrative Law Judge of the
Court of Common Pleas of Franklin County, Ohio select an appraiser for this
purpose. The appraiser authorized under this Section 7.3(b) to assign a value to
the Company shall have no more than forty-five (45) days from their final
selection or appointment to prepare and deliver such appraisals to the Members.
The costs of appraisal, if any, shall be borne fifty percent (50%) by M/I and
fifty percent (50%) by the electing Member(s).
(c) Closing of Purchase Option Under Section 7.3. The closing of
a purchase of the Percentage Interest of M/I pursuant to this Section 7.3 shall
be consummated at the business office of the Company at 10:00 a.m., Columbus,
Ohio local time on the date agreed upon by the Members (or, in the absence of
such agreement, the first business day which is at least twenty (20) days after
the date the Appraised Value is determined). At the closing, each electing
Member shall pay to M/I its share of (or, if applicable, the entire) purchase
price determined under Sections 7.3(a) and (b), and M/I shall effectively
transfer to the order of such electing Member(s) its Percentage Interest, free
and clear of all liens or encumbrances of any kind. At, and subsequent to,
closing, each Member and the Company shall execute, deliver and acknowledge any
and all documents, agreements, and statements and certificates, and shall take
or refrain from taking actions, as shall be commercially reasonable, necessary
or appropriate in connection with the consummation of the transfer(s)
contemplated by this Section 7.3.
7.4 ADDITIONAL RESTRICTIONS ON ASSIGNMENTS OR TRANSFERS.
Notwithstanding anything in this Article VII to the contrary, the following
additional restrictions apply to the Percentage Interests:
(a) No Member shall make any assignment or transfer of any
Percentage Interests if the assignment or transfer would, when considered with
all other assignments and transfers during the same applicable twelve-month
period, cause a termination of the Company for federal income tax purposes.
(b) No Member shall make any assignment or transfer of any
Percentage Interests to a minor or to an incompetent; except that an assignment
or transfer may be made to a trustee, custodian or guardian for the benefit of a
minor or an incompetent, if such assignment or transfer is effected in
accordance with applicable law. No Member shall make an assignment to a
tax-exempt entity under Section 168(h) of the Code.
(c) No Member shall make any assignment or transfer of any
Percentage Interests unless such Member gives a copy of this Agreement to the
assignee or transferee before such assignment or transfer is effected.
(d) The Manager may require, as a condition to the assignment or
transfer of any Percentage Interests, that the assigning or transferring Member
and/or the assignee or
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transferee (i) assume all costs incurred by the Company in connection therewith;
and (ii) furnish reasonable assurances to the Manager, including the provision
of any factual information and/or legal opinions satisfactory in all respects to
the Manager, that such assignment or transfer complies in all respects with
applicable federal and state securities laws.
7.5 REQUIREMENTS FOR SUBSTITUTION. Notwithstanding anything in this
Article VII to the contrary, upon the assignment or other transfer of any
Percentage Interests, no assignee shall have the right to become a Substitute
Member in place of its assignor unless the conditions of Sections 7.1 and 7.4
have been satisfied and:
(a) The assignor has evidenced in a written instrument of
assignment its intention that the assignee be admitted as a Substitute Member
pursuant to the provisions hereof;
(b) The unanimous written consent of the Members has been
obtained, which consent may be withheld by any Member, in its sole and absolute
discretion, for any reason or for no reason at all; provided that the consent
requirement of this Section 7.5(b) shall not apply to any assignee intending to
become a Substitute Member in connection with a transfer or assignment by
Limited or M/I described in Section 7.1(b)(i) or (ii) if Limited and M/I, in the
aggregate, do not own eighty percent (80%) or more of all interests in the
capital, income, gain, loss, deduction or credit of the Company;
(c) The assignee has adopted and agreed in writing to be bound by
all of the provisions hereof, as the same may have been amended;
(d) The assignee shall have paid all reasonable legal fees and a
reasonable handling fee to the Manager to cover administrative charges in
connection with such assignment and substitution; and
(e) All documents reasonably required by the Manager to effect
the substitution of the assignee as a Member shall have been executed.
When and if all of the provisions of this Section 7.5 have been complied with,
the assignee shall thereupon become a Member of the Company. It is understood
and agreed by and among the Members that an assignment or transfer between the
Members pursuant to Section 7.1(b)(iii) need not comply with this Section 7.5.
7.6 OBLIGATIONS AND RIGHTS OF TRANSFEREES. Whether or not a Person who
acquires an interest in the Company has accepted in writing the terms and
provisions of this Agreement and assumed in writing the obligations hereunder of
its predecessor in interest, such Person shall be deemed, by such acquisition of
such interest, to have agreed to be subject to and bound by all the obligations
of this Agreement with the same effect as any predecessor in interest of such
Person. A Person acquiring an interest in the Company shall have only such
rights and shall be subject to all the obligations as provided in this
Agreement, and, without limiting the foregoing, such Person shall not
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have the right to have the value of its interest ascertained or receive the
value of such interest or, in lieu thereof, profits attributable to any right in
the Company, except as set forth in this Agreement.
7.7 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED PERCENTAGE
INTERESTS. If any Percentage Interest is sold, assigned or transferred during
any accounting period in compliance with the provisions of this Article VII,
Profits, Losses, each item thereof and all other items attributable to such
Percentage Interest for such period shall be divided and allocated between the
transferor and the transferee by taking into account their varying interests
during the period in accordance with Code Section 706(d), using any conventions
permitted by law and selected by the Manager. Unless otherwise determined by the
Manager, all distributions made on or before the date thirty (30) days following
the date on which the Company receives written notice of such transfer
(accompanied by the transfer documents) shall be made to the transferor, and all
distributions made thereafter shall be made to the transferee. Solely for
purposes of making such allocations and distributions, the Company shall
recognize such transfer not later than the end of the calendar month during
which it is given notice of such transfer, provided that if the Company does not
receive a notice stating the date such Percentage Interest or interest was
transferred and such other information as the Manager may reasonably require
within thirty (30) days after the end of the accounting period during which the
transfer occurs, then, at the Manager's option, all of such items shall be
allocated, and all distributions shall be made, to the Person who, according to
the books and records of the Company, on the last day of the accounting period
during which the transfer occurs, was the owner of the Percentage Interest or
interest. Neither the Company nor the Manager shall incur any liability for
making allocations and distributions in accordance with the provisions of this
Section 7.7, whether or not the Manager or the Company has knowledge of any
transfer of ownership of any Percentage Interest.
7.8 CONTINUATION AFTER RETIREMENT OF MEMBER. The Company shall be
dissolved upon the Retirement of a Member; provided, however, that the Company
and its business shall be continued (and the Company reformed) after such
Retirement if the unanimous written consent of the remaining Members has been
obtained, which consent may be withheld by any Member, in its sole and absolute
discretion, for any reason or for no reason at all. In the event that the
Company's business has been validly continued as provided in the preceding
sentence, such business shall be continued in the form of a successor limited
liability company, which shall be deemed constituted and continued on the terms
and conditions set forth in this Agreement, except as may be modified by
agreement of the Members; and the assets of the Company shall not be liquidated.
The successor limited liability company shall be deemed to have acquired by
contribution the assets of the Company and the interest of each Member in the
Company, subject to the liabilities and obligations of the Company. Each Member
hereby agrees to execute and deliver all documents necessary to effectuate the
purposes of this Section.
7.9 RESTRICTIONS REASONABLE. Each Member acknowledges and agrees that
the restrictions on the transfer of Percentage Interests imposed by this
Agreement are imposed to accomplish legitimate purposes of the Company, and that
such restrictions are not more restrictive than necessary to accomplish those
purposes.
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7.10 CERTAIN PROVISIONS OF THE ACT SUPERSEDED. The provisions of this
Agreement regarding the Retirement of a Member and the transfer of Percentage
Interests are intended to and shall, to the fullest extent permitted by law,
supersede the provisions of the Act regarding the withdrawal of a member, in
respect of each Member.
ARTICLE VIII
REMOVAL OF MANAGER;
ADMISSION OF SUBSTITUTE MANAGER
8.1 REMOVAL OF MANAGER. Subject to Section 8.3, the Manager may be
removed as Manager upon the unanimous written direction of the Members other
than the Manager, for any reason or no reason at all.
8.2 ADMISSION OF SUBSTITUTE MANAGER. Subject to Section 8.3: (a) a
substitute Manager shall be chosen by the Members other than the removed Manager
upon the removal or Retirement of the Manager, and shall succeed to all the
rights, powers, authority, duties and obligations of such Manager as set forth
in this Agreement immediately upon its admission as a Manager in the Company;
(b) a Manager must also be a Member; and (c) a substitute Manager shall be
admitted as Manager and as a Member on such terms and conditions as shall be
determined with the unanimous written consent of the Members other than the
removed Manager, which consent may be withheld by any of such Members, in its
sole and absolute discretion, for any reason or for no reason at all.
8.3 MANAGER UPON PURCHASE OF CERTAIN PERCENTAGE INTERESTS.
(a) Limited. In the event that Limited acquires the Percentage
Interest of Georgetown or M/I pursuant to Section 7.1(b)(iii) or otherwise, the
Members agree that Limited shall thereupon become the Manager without any
further action and thereafter, notwithstanding Section 8.1, Limited may not be
removed as Manager pursuant to Section 8.1.
(b) M/I. In the event that M/I acquires the Percentage Interest
of Georgetown or Limited pursuant to Section 7.1(b)(iii) or otherwise, the
Members agree that M/I shall thereupon become the Manager without any further
action and thereafter, notwithstanding Section 8.1, M/I may not be removed as
Manager pursuant to Section 8.1.
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ARTICLE IX
PROCEDURE ON DISSOLUTION
9.1 LIQUIDATION. Upon the dissolution of the Company, unless the
Company is continued or reformed as provided in this Agreement, the Manager
shall proceed to liquidate the Company and to apply and distribute the proceeds
of liquidation as set forth in Sections 4.6 and 4.7.
9.2 OPERATIONS DURING LIQUIDATION. Upon the determination that the
Company is to be dissolved and liquidated, the business of the Company during
the period of liquidation shall be carried on by the Manager, or if there be no
Manager, by a designee of the Members, who shall possess all the powers of the
Manager to the extent necessary to wind up the business and affairs of the
Company.
9.3 TIME FOR LIQUIDATION. In the event the Company is "liquidated"
within the meaning of the Allocation Regulations, distributions shall be made
pursuant to Section 4.6 in compliance with the timing requirements of the
Allocation Regulations; provided, however, that if, in the opinion of counsel
satisfactory to the Manager, failure to comply with the Allocation Regulations
would not cause the allocations of Profits and Losses (or any item thereof) to
the respective Members to lack substantial economic effect within the meaning of
Section 704(b) of the Code, then distributions need not be made in compliance
with the timing requirements of the Allocation Regulations. With the approval of
the Manager, distributions pursuant to the preceding sentence may be distributed
to a trust established for the benefit of the Members for the purposes of
liquidating Company assets, collecting amounts owed to the Company, and paying
any contingent or unforeseen liabilities or obligations of the Company in
accordance with Section 4.6(b). The assets of any such trust shall be
distributed to the Members from time to time, in the reasonable discretion of
the trustee(s) thereof with the consent of the Manager in the same proportions
as the amount distributed to such trust by the Company would otherwise have been
distributed to the Members pursuant to this Agreement. The trustee(s) of such
trust (and any successors) may be designated by the Manager. Subject to
compliance with the foregoing, a reasonable amount of time shall be allowed for
the orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors so as to enable the Manager to minimize the losses
which might otherwise be attendant upon such liquidation.
9.4 MANAGER NOT LIABLE FOR RETURN OF CAPITAL CONTRIBUTIONS. The Manager
shall not be personally liable for any distribution required pursuant to this
Agreement unless such failure to distribute is caused by the gross negligence,
fraud or willful misconduct of the Manager, and such distribution shall be made
solely from available Company assets, if any.
9.5 TERMINATION. Upon compliance with the foregoing distribution plan
(including payment over to an escrow agent or trustee, if deemed appropriate by
the Manager and if there be sufficient funds therefor), the Company shall cease
to be such, and the Manager shall execute, acknowledge and cause to be filed a
certificate of cancellation of the Company with the Secretary of State,
including the name of the Company and the effective date of its dissolution
subject to and in accordance with applicable law.
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ARTICLE X
BOOKS AND RECORDS; BANK ACCOUNTSACCOUNTS
10.1 MAINTENANCE OF BOOKS AND ACCOUNTING METHOD. The Manager shall keep
or cause to be kept the following: (i) a current list of the full names, in
alphabetical order, and last known business or residence addresses of all
Members; (ii) a copy of the Certificate of Formation, including any amendments
thereof and any written powers of attorney relating to the execution thereof;
(iii) a copy of this Agreement, including any amendments thereof and any written
powers of attorney relating to the execution thereof; (iv) copies of federal,
state and local income tax returns and reports of the Company for the three most
recent years; (v) copies of any financial statements of the Company for the
three most recent years; and the other information required to be made available
to the Members pursuant to the Act, including Section 18-305 thereof. Such books
and records shall be maintained at the principal place of business of the
Company and be available upon reasonable notice, at reasonable times, for
inspection and examination by the Members or their duly authorized agents or
representatives in accordance with and subject to the provisions of the Act.
Such books and records shall be consistent with the rules set forth in Section
3.4 of this Agreement. The books and records of the Company shall be kept in
accordance with generally accepted accounting principles and consistent with
federal tax accounting principles prescribed in the Code.
10.2 FISCAL YEAR. The fiscal year of the Company shall be the calendar
year.
10.3 REPORTS TO THE MEMBERS.
(a) During the period commencing on the formation of the Company
and terminating at the close of the Company's second fiscal year, not less often
than quarterly, the Manager shall cause to be prepared (at the Company's
expense) a statement of the financial affairs of the Company (including a
balance sheet, income statement and cash flow statement) and shall submit copies
of such statement to each Member. Thereafter, the Manager shall cause to be
prepared (at the Company's expense) and submitted to the Members such statements
on an annual basis; provided, however, that upon the reasonable request of a
Member, the Manager shall cause to be prepared such statements on a more
frequent basis. The annual financial statements shall be audited and certified
by the Accountants.
(b) The Manager shall cause to be prepared and distributed to
each Member (at the Company's expense), on or before February 28 of each year,
the Member's Schedule K-1 (Form 1065) and all other information reasonably
necessary for the preparation of such Member's federal, state and local tax
returns. No cause of action shall accrue to any Member under this Section 10.3
if the Manager shall have acted in good faith in attempting to meet its
obligations under this Section yet failed to deliver the required statements,
reports, returns or information within the specified period.
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(c) The Manager shall cause to be prepared and sent to each
Member quarterly status reports concerning the operations of the Property.
(d) The Accountants shall be selected from time to time upon the
unanimous consent of the Members.
10.4 INSPECTION BY MEMBERS. Each Member and its representatives shall
have the right, at the expense of the Member taking such action or on whose
behalf such action is being taken, to inspect and examine all books, records,
files and other documents of the Company at all reasonable times during normal
business hours at the offices of the Company. Each Member and its
representatives also shall have the right, in connection with an examination of
the Company to interview the employees of the Manager or the Company in respect
to Company activities, and to interview any other Person (including, without
limitation, the Manager), and the employees thereof, which acts for or has
custody or control of records or documents of the Company. In addition, the
Members shall have the right to obtain from the Manager from time to time upon
reasonable demand: (i) true and full information regarding the state of the
business and financial condition of the Company and any other information
regarding the affairs of the Company; (ii) the documents described in Section
10.1 hereof; and (iii) any other information regarding the affairs of the
Company as is just and reasonable.
10.5 BANKING. All funds of the Company shall be deposited in such bank
account or accounts as shall be established and designated by the Manager.
Withdrawals from any such bank account shall be made upon such signature or
signatures as the Manager may designate. All deposits and other funds not needed
in the operation of the business of the Company and not distributed to the
Members may be invested in deposits that are fully insured by the Federal
Deposit Insurance Corporation or in money market funds rated in the highest
rating category for such funds by a nationally-recognized rating service.
10.6 TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS. The Manager shall, at
the direction of all of the Members, make all tax elections on behalf of the
Company. In the event of a transfer of all or any part of the interest of any
Member for an amount in excess of the adjusted basis for such interest for
federal income tax purposes, the Manager may elect at the direction of all of
the Members, pursuant to Section 754 of the Code (or corresponding provisions of
succeeding law), to enable an adjustment to be made to the basis of the
Property. Any costs incurred by the Company in connection with such Section 754
election shall be borne by the Member seeking a transfer of its interest. Any
adjustments made pursuant to an election under Section 754 shall affect only the
successor in interest to the transferring Member. Each Member will furnish the
Company with all information necessary to give effect to such election.
10.7 COST SEGREGATION ANALYSIS. The Members hereby agree to cause the
Company to engage the services of an appropriate professional firm to prepare a
cost segregation analysis of the Improvements for the purpose of properly
segregating, for income tax depreciation purposes, those
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assets which are subject to depreciation over a shorter period than that
available for the Building, in order to maximize the income tax deductions
available to the Company.
ARTICLE XI
AMENDMENTS
11.1 UNANIMOUS CONSENT OF THE MEMBERS. The provisions of this Agreement
and the Certificate of Formation may be amended only upon the unanimous written
consent of the Members. The consent of any Member to such amendment shall be
deemed to have been given if (a) such consent is given in a vote (either in
person or by proxy) at a duly called meeting of the Members, (b) such consent is
delivered in writing to the Manager or (c) the Manager has not received a
written notice from such Member expressly withholding such consent within
fifteen (15) days after a notice is sent to such Member seeking its consent.
ARTICLE XII
GENERAL PROVISIONS
12.1 NO THIRD PARTY BENEFICIARIES. None of the provisions of this
Agreement shall be construed as existing for the benefit of any creditor of the
Company or as being enforceable by any party not a signatory hereto. There shall
be no third party beneficiaries of this Agreement.
12.2 NON-WAIVER. No provision of this Agreement shall be deemed to have
been waived unless such waiver is contained in a written notice given by the
party granting such waiver to the party claiming such waiver and no such waiver
shall be deemed to be a waiver of any other or further obligation or liability
of the party or parties in whose favor the waiver was given or a waiver by any
party not executing such waiver of any of its rights.
12.3 ADDITIONAL DOCUMENTS AND INSTRUMENTS. The parties shall execute
and deliver to each other such other and further documents and instruments as
may be necessary to carry out the purposes of this Agreement and which are
required by the Manager, or any federal, state or local governmental agency
having jurisdiction over the Property or the Company.
12.4 SEVERABILITY. If any provision or provisions of this Agreement (or
any part thereof) or the application thereof to any particular facts or
circumstances shall be illegal and unenforceable by reason of any statute or
rule of law, or shall be deemed null and void pursuant to Section 2.5 of this
Agreement, the remaining provisions (or parts thereof) of this Agreement or the
application of the particular provision or provisions (or parts thereof) to
other facts or circumstances shall not be affected thereby and shall remain in
full force and effect. It is the intention of the provisions of this Section to
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make clear that the agreement of the parties to this Agreement is that this
Agreement shall be enforced insofar as it may be enforced consistent with
applicable statutes and rules of law.
12.5 NOTICES AND CONSENTS. Except as otherwise specifically set forth
in this Agreement, all notices, demands, requests, consents or approvals given,
required or permitted to be given hereunder, shall be contained in writing and
shall be deemed sufficiently given if actually received or if hand delivered or
sent by recognized overnight delivery service or by certified mail, postage
prepaid and return receipt requested, addressed to the parties at the addresses
set forth below:
If to Georgetown:
The Georgetown Company
667 Madison Avenue
23rd Floor
New York, NY 10021
Attention: Controller
If to Limited:
Limited Oval Office I, Inc.
Three Limited Parkway
Columbus, Ohio 43230
Attention: Real Estate Legal Department
with a copy to:
John P. Wellner, Esq.
Vorys, Sater, Seymour and Pease
52 East Gay Street
P.O. Box 1008
Columbus, Ohio 43216-1008
If to M/I:
M/I Schottenstein Homes, Inc.
41 South High Street
Suite 2410
Columbus, Ohio 43215
Attention: General Counsel
With a copy to:
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Daniel J. Kayne, Esq.
Schottenstein, Zox & Dunn
41 South High Street
Suite 2600
Columbus, Ohio 43215
or to such other address as the recipient shall have previously notified the
sender of in writing, and shall be deemed received upon actual receipt (unless
sent by certified mail, in which event such notice shall be deemed to have been
received three (3) business days after the date of mailing).
12.6 ENTIRE AGREEMENT. This Agreement and each of the exhibits and/or
schedules annexed hereto, each of which is made a part hereof by this reference,
constitute the entire limited liability company agreement of the Company within
the meaning of the Act and contain the entire understanding and agreement
between the parties upon the subject matter of this Agreement and may only be
amended or changed in a writing as provided in Article XI. Any prior
understandings and agreements between the parties are merged herein, except only
as herein otherwise expressly stated.
12.7 PROVISIONS BINDING. This Agreement shall inure to the benefit of
and be binding upon the parties and their respective heirs, executors,
administrators, successors and assigns and any additional or substitute Manager
or Member (except as may otherwise be specifically provided herein).
12.8 CAPTIONS. The table of contents and captions set forth herein are
for convenience and reference only and are not intended to modify, limit,
describe or affect in any way the contents, scope or intent of this Agreement.
12.9 DEFINITIONS. All terms used herein which are defined in this
Agreement shall have the meaning set forth in this Agreement, unless the context
clearly indicates otherwise.
12.10 COUNTERPARTS. This Agreement may be executed in several
counterparts and all so executed shall constitute one and the same agreement
binding on all parties hereto, notwithstanding that all parties have not signed
the same counterpart or that any such counterpart does not have attached copies
of all exhibits and/or schedules hereto as then in effect and copies of all
signature pages attached hereto that constitute part of this Agreement. The
Manager shall maintain at the business office of the Company a counterpart of
this Agreement as executed by all Members and to which shall be attached copies
of all exhibits and/or schedules hereto as then in effect, and all signature
pages, which counterpart shall be available for inspection by any Member.
12.11 WORD MEANINGS. The words such as "herein," "hereinafter,"
"hereof" and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall include the plural, and the masculine gender shall include
the feminine and neuter, and vice versa, unless the context otherwise requires.
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12.12 APPLICABLE LAW. This Agreement and the rights of the parties
hereto shall be interpreted in accordance with the laws of the State of
Delaware.
12.13 CHOICE OF VENUE AND CONSENT TO JURISDICTION AND VENUE. It is
the intention of the parties that this Agreement shall be deemed to have been
entered into in Franklin County, Ohio. EACH PARTY HEREBY: (I) CONSENTS TO THE
SUBJECT MATTER AND PERSONAL JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF OHIO AND ANY OF THE COURTS OF FRANKLIN COUNTY, IN THE
STATE OF OHIO IN ANY ACTION, SUIT OR PROCEEDING ARISING UNDER THIS AGREEMENT
(INCLUDING, WITHOUT LIMITATION, ACTIONS, SUITS AND PROCEEDINGS IN CONNECTION
WITH THE ENFORCEMENT OF ANY JUDGMENT), (II) AGREES THAT ANY SUCH ACTION, SUIT OR
PROCEEDING MAY BE BROUGHT IN ANY OF SUCH COURTS, (III) WAIVES ANY OBJECTION
BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO JURISDICTION OR VENUE OF ANY
ACTION INSTITUTED IN SUCH COURTS HEREUNDER, AND (IV) AGREES THAT SERVICE OF
PROCESS OR NOTICE IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE IF
GIVEN IN ACCORDANCE WITH SECTION 12.5.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the undersigned have duly executed this Limited
Liability Company Agreement of Northeast Office Venture, Limited Liability
Company.
THE GEORGETOWN COMPANY
By:
-------------------------------------
Printed Name: Edgar A. Lampert
Title: Authorized Representative
LIMITED OVAL OFFICE I, INC.
By:
------------------------------------
Printed Name: George R. Sappenfield
Title: Vice President - Real Estate
M/I SCHOTTENSTEIN HOMES, INC.
By:
------------------------------------
Print Name: Irving E. Schottenstein
Title: President
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<PAGE> 61
SCHEDULE A
MEMBERS, CAPITAL CONTRIBUTIONS AND PERCENTAGE INTERESTS
<TABLE>
<CAPTION>
Member Percentage
and Address Interests
<S> <C>
The Georgetown Company 33 1/3%
667 Madison Avenue
23rd Floor
New York, NY 10021
Limited Oval Office I, Inc. 33 1/3%
Three Limited Parkway
Columbus, Ohio 43230
M/I Schottenstein Homes, Inc. 33 1/3%
41 South High Street
Suite 2410
Columbus, Ohio 43215
</TABLE>
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<PAGE> 62
SCHEDULE B
LEGAL DESCRIPTION OF THE LAND
-B-1-
<PAGE> 63
SCHEDULE C
CERTIFICATE OF FORMATION
OF
NORTHEAST OFFICE VENTURE, LIMITED LIABILITY COMPANY
The undersigned, desiring to form a limited liability company under
Chapter 6, Sections 18-101 et seq. of the Delaware Code, hereby certifies as
follows:
1. The name of the limited liability company shall be Northeast
Office Venture, Limited Liability Company.
2. The address of the limited liability company's registered
office in the state of Delaware is Corporation Trust Center, 1209 Orange Street,
in the City of Wilmington, County of New Castle 19801. The name of its
registered agent at such address is The Corporation Trust Company.
3. The undersigned is an authorized person for purposes of the
execution and delivery of this Certificate of Formation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
of Formation of Northeast Office Venture, Limited Liability Company this ____
day of ________, 1995.
THE GEORGETOWN COMPANY, a
New York general partnership
By:
-----------------------------
Print name:
-----------------------
Title:
-----------------------------
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<PAGE> 64
SCHEDULE D
LOCATION OF CERTAIN REAL PROPERTY
IN PROXIMITY TO THE LAND
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<PAGE> 65
SCHEDULE ESCHEDULE E
PRELIMINARY BUDGET
-E-1-
<PAGE> 1
Exhibit 10.52
THIS LEASE AGREEMENT (the "Lease Agreement") is made and entered into
at Columbus, Ohio, to be effective as of ___________, 1995, by and between
Northeast Office Venture, Limited Liability Company, a Delaware limited
liability company ("Landlord"), and M/I Schottenstein Homes, Inc., an Ohio
corporation ("Tenant").
RECITALS
A. Landlord owns fee simple title to a certain tract of real property
located in Columbus, Franklin County, Ohio, and Tenant desires to lease said
real property from Landlord, together with an office building and related site
improvements to be constructed thereon by Landlord.
B. Landlord desires to construct an office building and related site
improvements on said real property and to lease the same to Tenant.
NOW, THEREFORE, for value received and in consideration of the terms,
covenants and agreements herein contained, Landlord and Tenant hereby make the
following agreement, intending to be legally bound hereby:
ARTICLE 1
Definition of Certain Terms
1.01. The term "Additional Lease Term" shall have the meaning set forth
in Section 3.03 of this Lease Agreement.
1.02. The term "Affiliate" means a Person who directly or indirectly
controls, is controlled by, or is under common control with another Person. For
purposes of this definition, a Person is deemed to control an entity of which he
is a director, officer, member, or general partner, or in which he is the
beneficial owner of 50% or more of its outstanding voting securities.
1.03. The term "Approved Plans and Specifications" shall have the
meaning set forth in Section 4.01 of this Lease Agreement.
1.04. The term "Appurtenant Easements" shall have the meaning set forth
in Section 2.02 of this Lease Agreement.
<PAGE> 2
1.05. The term "Base Rent" means the base rent as defined in Section
7.01 of this Lease Agreement.
1.06. The term "Development Agreement" means that certain Development
Agreement, of even date herewith, between Landlord and MORSO Holding Co.
("MORSO"), relating, among other things, to the construction of certain off-site
improvements, a copy of which has been provided to Tenant.
1.07. The term "Easton Project" means the approximately 950-acre mixed
use (i.e., office, retail, commercial, etc.) project being developed by MORSO
and The Georgetown Company in the southwest quadrant of the intersection of
Interstate Route 270 and Morse Road in Columbus, Franklin County, Ohio, of which
the Premises are a part.
1.08. The term "Effective Date" means the date first set forth in this
Lease Agreement.
1.09. The term "Election Notice" shall have the meaning set forth in
Section 18.03 of this Lease Agreement.
1.10. The term "Fee Mortgage" shall have the meaning set forth in
Section 17.02 of this Lease Agreement.
1.11. The term "Fee Mortgagee" shall have the meaning set forth in
Section 17.02 of this Lease Agreement.
1.12. The term "Fixtures" means all furniture, fixtures, machinery,
equipment, works of art and trade fixtures which Tenant may purchase
(conditionally or otherwise) or lease and hereafter cause to be installed,
maintained or kept in or otherwise at the Premises for any purpose whatsoever.
1.13. The term "Initial Lease Term" shall have the meaning set forth in
Section 3.01 of this Lease Agreement.
1.14. The term "Lease Term" means the Initial Lease Term specified in
Section 3.01 of this Lease Agreement, plus the Additional Lease Term, if any,
plus any period during which Tenant may be a tenant-at-sufferance under Section
3.03 of this Lease Agreement, or the shorter period expiring upon the date of
earlier termination of this Lease Agreement by Landlord or by Tenant, as
provided elsewhere in this Lease Agreement.
1.15. The term "Lease Year" means the periods determined as follows:
(a) the first Lease Year shall commence on the Rent Commencement Date and shall
end on the last day of the twelfth (12th) full calendar month next following the
Rent
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<PAGE> 3
Commencement Date, and (b) each Lease Year thereafter shall run from the day
after the date of termination of the preceding Lease Year and shall terminate on
the anniversary date of the termination of the prior Lease Year, except that the
last Lease Year shall end on the date this Lease Agreement shall expire or
otherwise terminate.
1.16. The term "Land" means that certain tract of real property
containing 5.823 acres and which is more particularly described in the legal
description set forth in Annex 1, attached to this Lease Agreement.
1.17. The term "Landlord" means Northeast Office Venture, Limited
Liability Company, and its successors and assigns.
1.18. The term "Landlord Improvements" means the five-story, first
class office building containing approximately 86,000 square feet of floor
space, which Landlord shall cause to be constructed on the Land as provided in
this Lease Agreement, together with all other site improvements which Landlord
shall cause to be placed upon the Land, including, but not limited to, paved
surface parking areas, the underground parking and storage areas, driveways,
vehicular and pedestrian circulation areas, and landscaping. The Landlord
Improvements include all the items described in the Plans and Specifications,
but do not include any of the Tenant Improvements or Fixtures.
1.19. The term "Non-Leased Parking Garage Area" means that portion of
the Parking Garage located on the Land which is not included in the Premises and
which is comprised of the parking spaces designated or described as the
"Non-Leased Parking Spaces," together with that portion of the "Access Lane"
which is adjacent to said spaces, all of which are delineated and designated on
the drawing entitled "M/I Homes Office Building Partial Basement Plan," prepared
by NBBJ, a copy of which is attached to this Lease Agreement as Annex 2 (the
"Basement Floor Plan").
1.20. The term "Oval District" means the approximately 73.9 acre
development being developed and constructed by MORSO and The Georgetown Company,
situated in the Easton Project and in which the Land is situated.
1.21. The term "Parking Agreement" means that certain Parking Facility
Operation and Maintenance Agreement, of even date herewith, among Landlord,
Tenant and Limited Oval Office II, Inc. ("LOO II"), relating to the operation of
the Parking Garage.
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1.22. The term "Parking Garage" means the integrated, below-grade
parking garage, presently designed to have 79 parking spaces, a portion of which
is included in the Landlord Improvements and the balance of which forms a part
of the office building being constructed by LOO II on the real property
adjoining the Land, including the entry ramp thereto.
1.23. The term "Permitted Encumbrances" shall have the meaning set
forth in Section 20.02 of this Lease Agreement.
1.24. The term "Person" means any individual, partnership, corporation,
firm, joint venture, or other entity, or any combination thereof.
1.25. The term "Plans and Specifications" means all of the preliminary
and final plans, drawings and specifications for the construction of the
Landlord Improvements prepared or to be prepared by Gensler & Associates and
NBBJ.
1.26. The term "Premises" means the Land, together with: (a) all of the
above-grade Landlord Improvements; (b) that portion of the Parking Garage which
forms a part of the Landlord Improvements and which consists of the parking
spaces designated or described as the "Leased Parking Spaces" on the Basement
Floor Plan; (c) all of the other areas contained in the below-grade Landlord
Improvements which are not included in the "Non-Leased Parking Garage Area"; and
(d) all of the Tenant Improvements.
1.27. The term "REA" means that certain Reciprocal Easement Agreement,
of even date herewith, between Landlord and LOO II, which creates certain
reciprocal easements and other rights and obligations relating to the Premises
and that certain 7.983 acre parcel of land located immediately west of the
Premises, a copy of which has been provided to Tenant.
1.28. The term "Rent Commencement Date" means sixty (60) calendar days
following the Substantial Completion Date.
1.29. The term "Reserved Easements" shall have the meaning set forth in
Section 2.03 of this Lease Agreement.
1.30. The term "Scheduled Commencement Date" shall have the meaning set
forth in Section 4.03 of this Lease Agreement.
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1.31. The term "Substantial Completion Date" shall have the meaning set
forth in Section 4.04 of this Lease Agreement.
1.32. The term "Tenant" means M/I Schottenstein Homes, Inc. and its
successors and assigns.
1.33. The term "Tenant Improvements" means all of the items and work
described or to be described in the Tenant Plans.
1.34. The term "Tenant Plans" shall have the meaning set forth in
Section 4.05 of this Lease Agreement.
ARTICLE 2
Creation of Leasehold
2.01. Demise. Upon the terms and conditions set forth in this Lease
Agreement, Landlord does hereby demise and let unto Tenant, and Tenant does
hereby lease and hire from Landlord, the Premises, together with the Appurtenant
Easements, but subject to the Reserved Easements and Permitted Encumbrances.
2.02. Appurtenant Easements. Landlord does hereby assign, grant and
convey to Tenant, as easements appurtenant to the Premises, for and during the
Lease Term (a) all of the easements and rights created in favor of the Premises
pursuant to the Development Agreement and REA, and (b) a non-exclusive easement
over that portion of the "Access Lane" contained within the Non-Leased Parking
Garage Area, for the purpose of providing a means of ingress to and egress from
the parking spaces in the Parking Garage which are included in the Premises.
2.03. Reserved Easements. Landlord does hereby retain and reserve unto
itself, and Tenant does hereby grant and convey to Landlord non-exclusive
perpetual easements under, across and through the Premises for the purposes of
constructing, installing, reconstructing, repairing, replacing, maintaining and
using underground laterals and lines to be connected to those public utilities
and appurtenant works, and connections which now or in the future may exist in
the public thoroughfares or other portions of the Easton Project abutting the
Premises, (herein collectively called the "Reserved Easements"); provided,
however, that (i) such easements shall be used in such a manner as will not
result in interference with the use and enjoyment of the Premises by Tenant for
the purposes contemplated by this Lease Agreement, and (ii) if, as a result of
Landlord's use of said easements for said purposes, Landlord shall damage the
Premises,
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then Landlord shall promptly repair the damage and restore the Premises to its
pre-existing condition.
2.04. Certain Additional Rights. Landlord hereby assigns to Tenant the
right, during the term of this Lease and concurrent with and not in derogation
of Landlord's right, to enforce the provisions of the REA and Development
Agreement against Limited Oval Office II, Inc. and MORSO Holding Co.,
respctively. In addition, pursuant to Section 3.2 of the Declaration (as
hereinafter defined), Landlord hereby assigns to Tenant the Landlord's right,
during the term of this Lease, to vote on all matters as to which a Member (as
defined in the Declaration) is entitled to vote pursuant to the terms and
provisions of the Declaration.
ARTICLE 3
Lease Term
3.01. Initial Lease Term. The initial term of this Lease (the "Initial
Lease Term") shall commence on the Rent Commencement Date and shall be for a
period of twenty (20) Lease Years, unless sooner terminated, as provided
elsewhere in this Lease Agreement. Landlord and Tenant agree to execute a
writing establishing the commencement and termination dates of the Initial Lease
Term as soon as said dates have been determined.
3.02. Additional Lease Term
(A) Renewal Options. Landlord does hereby grant to Tenant the right and
option to extend the Initial Lease Term for six (6) additional periods of five
(5) years each (with each such five-year period being herein called a "Renewal
Term," and with all of such Renewal Terms being sometimes herein collectively
called the "Additional Lease Term"), beginning on the day immediately following
the expiration of the Initial Lease Term or the then current Renewal Term, as
appropriate, upon the same terms, conditions, covenants and provisions as are
provided in this Lease Agreement, except that the annual Base Rent payable
during the Additional Term shall be determined in accordance with the provisions
of Section 3.02(B) of this Lease Agreement.
If Tenant intends to exercise a renewal option, then Tenant shall give
to Landlord written notice of such intention not less than fifteen (15) months
prior to the expiration of the Initial Lease Term or the then current Renewal
Term, as appropriate. If an Event of Default has occurred under this Lease
Agreement at the time Tenant gives notice of its intention
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to exercise a renewal option, or at the time the Renewal Term is otherwise
scheduled to commence, and if Tenant does not cure such Event of Default in
accordance with the provisions of Section 18.01, then the renewal option shall
be invalid, and Tenant shall not be permitted to exercise it. If Landlord and
Tenant dispute whether an Event of Default has occurred, the then current term
hereof shall be automatically extended until a determination is made by a court
of competent jurisdiction, or if the parties so elect, by arbitration in
accordance with the procedures set forth in Article 25 hereof. The Base Rent to
be paid during any such automatic extension shall be the Base Rent determined in
accordance with Section 3.02(B).
Tenant shall have a period of thirty (30) calendar days following the
determination of the Base Rent, as provided in Section 3.02(B), within which to
affirm or disaffirm its exercise of such renewal option. If Tenant disaffirms
its exercise of such renewal option, the term of this Lease Agreement shall
expire in accordance with the terms hereof. If Tenant fails to affirm or
disaffirm its exercise of such renewal option within said 30-day period, Tenant
shall be conclusively deemed to have disaffirmed such exercise.
(B) Base Rent During Renewal Terms. The Base Rent payable during each
Renewal Term shall be such amount of money as may be agreed upon between the
parties, as being equal to 90% of the "fair market rental" rate for buildings of
comparable size, quality and location, and tenants of comparable size and credit
in central Ohio, prevailing at the time Tenant gives notice of its election to
exercise the renewal option, or as otherwise being acceptable to both parties.
In the absence of any such agreement, the Base Rent shall be determined as
follows: the parties shall first attempt to agree upon the appointment of one
real estate professional who, if so selected by the parties, shall, within 30
days after his appointment, establish the Base Rent for the Renewal Term by
first determining the fair market rental rate for the Premises, and then taking
90% of that amount, which shall be the new Base Rent for the Renewal Term;
provided, however, that the Base Rent for the first Renewal Term shall not be
less than the Base Rent in effect for the last Lease Year of the Initial Lease
Term, and the Base Rent for each succeeding Renewal Term shall not be less than
the Base Rent in effect for the last Lease Year of the preceding Renewal Term.
If the parties are unable to agree upon the appointment of one real
estate professional within fifteen (15) days after Tenant gives notice of its
election to exercise the renewal option, as contemplated by the preceding
paragraph, then, not later than ten (10) days following the expiration of said
15-day
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period, each party shall designate, in a writing delivered to the other, a real
estate professional to act on its behalf. The real estate professionals so
chosen shall meet within ten (10) days after the last is so selected and shall,
within ten (10) days thereafter, select a third real estate professional. All
three such real estate professionals shall independently determine the Base Rent
for the Renewal Term. The fair market rental rate for the Premises shall be
equal to the average of the two (2) closest amounts as determined by such real
estate professionals. Based on such fair market rental rate, the Base Rent for
the Renewal Term shall be determined in the same manner as is set forth in the
first paragraph of this Section 3.02(B). The fees of all of the real estate
professionals chosen under this Section 3.02(B) shall be shared equally by the
parties. For purposes of this Section 3.02(B), a "real estate professional" is
defined as either (i) a real estate appraiser who shall have been active over
the five (5) year period ending on the date of such appointment in the appraisal
of office and commercial properties in the Columbus, Ohio, metropolitan area, or
(ii) a real estate broker who shall have been active over the five (5) year
period ending on the date of such appointment in the leasing of office and
commercial properties in the Columbus, Ohio, metropolitan area.
3.03. Lease Hold-Over Provisions. If Tenant remains in possession of
the Premises after the expiration of the Lease Term, Tenant shall be deemed to
be a tenant-at-sufferance.
3.04. Failure to Give Notice of Election. In the event Tenant fails to
deliver timely notice of an exercise of its option to renew for any Renewal
Term, then such right of renewal shall not terminate unless and until Landlord
delivers to Tenant written notice of such failure and Tenant fails, within
thirty (30) days of the receipt of such notice, to deliver to Landlord written
notice of its election to exercise its renewal option.
ARTICLE 4
Design and Construction of Landlord
Improvements and Tenant Improvements
4.01. Plans and Specifications. The parties acknowledge that Tenant is
a "member" in Landlord, and that, pursuant to the provisions of Landlord's
"Limited Liability Company Agreement" of even date herewith (herein called the
"Operating Agreement"), Tenant, in its capacity as such member, has the right to
review and approve all of the Plans and Specifications. Following approval of
the Plans and
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Specifications by all of the members in Landlord (such plans, as so approved,
being herein called the "Approved Plans and Specifications), any changes thereto
must likewise be approved by Tenant pursuant to the Operating Agreement.
Accordingly, Tenant's rights to review and approve the Plans and Specifications
shall be governed by the provisions of the Operating Agreement, and Tenant shall
have no additional rights to review and approve the Plans and Specifications
under this Lease Agreement.
4.02. Development of the Landlord Improvements. Landlord shall proceed,
with due diligence and in a continual manner, to cause the Landlord Improvements
to be developed and constructed in a good and workmanlike manner and in
substantial accordance with the Approved Plans and Specifications.
4.03. Commencement of Construction of the Landlord Improvements.
(A) Landlord shall cause construction of the Landlord Improvements to
commence not later than thirty (30) calendar days following the Effective Date
hereof (the "Scheduled Commencement Date").
(B) In the event that Landlord shall have failed to commence
construction of the Landlord Improvements on or before the Scheduled
Commencement Date, then Tenant shall have the right and option, exercisable by
written notice to Landlord prior to the date actual construction commences, but
not later than thirty (30) calendar days following the Scheduled Commencement
Date, to terminate this Lease Agreement and the Lease Term, whereupon both
parties shall be released from all further obligations and liability hereunder,
without prejudice to any rights or remedies either may have against the other
for damages caused by such failure.
On the date that construction of the Landlord Improvements actually
shall be commenced, Landlord and Tenant shall enter into a writing to be signed
by both Landlord and Tenant and to be in form and substance satisfactory to both
Landlord and Tenant, wherein the actual date of such commencement of
construction shall be set forth.
4.04. Completion of Construction of the Landlord Improvements and
Certain Off-Site Improvements. Except as extended by reason of operation of
Article 24 hereof, Landlord shall cause the Landlord Improvements, and those
off-site improvements defined and described in Section 1.01 of the Development
Agreement as the "Infrastructure" (herein called the
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"Infrastructure"), to be substantially completed not later than four hundred
eighty (480) days following the Scheduled Commencement Date. The Landlord
Improvements shall be deemed to be substantially completed only after the work
called for in the Plans and Specifications has been completed (with the
exception of punchlist and punchlist-type items) in accordance with such Plans
and Specifications; and NBBJ has issued a "Certificate of Substantial
Completion" therefor. The Infrastructure shall be deemed to be substantially
completed only after Evans, Mechwart, Hambleton & Tilton, Inc. ("EMH&T") has
certified such substantial completion to both Landlord and Tenant. The date the
last of such certificates are issued shall be the "Substantial Completion Date"
for all purposes hereunder, and Landlord and Tenant shall enter into a writing
to be signed by both Landlord and Tenant and to be in form and substance
satisfactory to both Landlord and Tenant, wherein the Substantial Completion
Date shall be set forth and identified as such.
Landlord shall, in connection with the construction of the Landlord
Improvements, comply with, and Landlord shall cause, in connection with the
construction of the Parking Garage and Infrastructure, the compliance with all
applicable laws, ordinances, rules and regulations, and shall obtain all permits
and approvals required or necessary thereunder, in order for Landlord to perform
its work hereunder.
Anything contained in this Lease Agreement to the contrary
notwithstanding, no delay of any kind or character in the completion of
construction of the Landlord Improvements shall give rise to any right in Tenant
to terminate this Lease Agreement.
4.05. Plans and Specifications for Tenant Improvements. In coordination
with Landlord's preparation of the Plans and Specifications, Tenant, at
Landlord's sole cost and expense, shall prepare all necessary plans and
specifications for the design and construction of the Tenant Improvements
(herein called the "Tenant Plans"). Tenant shall cause its design professionals
to consult with Landlord's design professionals so that the Tenant Improvements
will create a level of finish and an ambiance equal to or better than that of
the Landlord Improvements. The Tenant Plans shall be subject to review and
approval by Landlord, which approval Landlord shall not unreasonably delay or
refuse to give. Any changes to the Tenant Plans, once approved by Landlord,
shall likewise be subject to review and approval by Landlord, which approval
Landlord shall not unreasonably delay or refuse to give. Tenant shall cause the
construction and installation of the Tenant Improvements to be in compliance
with such approved Tenant Plans.
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4.06. Notice of Substantial Completion of the Landlord Improvements and
Infrastructure; Entry by Tenant. Landlord shall notify Tenant, in writing, when
construction of the Landlord Improvements and Infrastructure has been
substantially completed. Upon receipt of such notice, Landlord shall permit
Tenant reasonable access to the Premises for the construction and installation
of the Tenant Improvements. Notwithstanding the foregoing, if Tenant uses the
same contractor to construct the Tenant Improvements as Landlord uses to
construct the Landlord Improvements, then Landlord shall permit Tenant
reasonable access to the Premises at the earliest possible time (whether or not
construction of the Landlord Improvements is substantially completed) to
commence construction and installation of the Tenant Improvements. In either
case (i.e., whether or not construction of the Landlord Improvements has been
substantially completed when Tenant is granted access), such access shall be at
Tenant's own risk, shall not interfere with or delay completion of the Landlord
Improvements by Landlord, and shall be only after Tenant has obtained the
insurance required under this Lease Agreement. Tenant shall, in connection with
the construction and installation of the Tenant Improvements, comply with all
applicable laws, ordinances, rules and regulations and shall obtain all permits
and approvals required or necessary thereunder in order for Tenant to perform
its work hereunder.
4.07. Rights During Construction.
(a) Tenant's Rights. At all times prior to the Substantial Completion
Date, Tenant, at its option, but only during normal business hours, shall have
the right, but not the obligation, to enter upon the Premises to inspect the
Premises and the Landlord Improvements, for the purpose of determining that the
construction of the Landlord Improvements is proceeding in substantial
accordance with the Approved Plans and Specifications and the terms of this
Lease Agreement; provided that any such inspections shall not unreasonably
interfere with the activities of Landlord or its agents or contractors in or on
the Premises, nor cause or result in any damage to the Premises or the Landlord
Improvements.
(b) Landlord's Rights. At all times prior to the completion of
construction and installation of the Tenant Improvements, Landlord, at its
option, but only during normal business hours, shall have the right, but not the
obligation, to enter upon the Premises to inspect the Premises and the Tenant
Improvements, for the purpose of determining that the construction of the Tenant
Improvements is proceeding in substantial accordance with the Tenant Plans and
the terms of
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this Lease Agreement; provided that any such inspections shall not unreasonably
interfere with the activities of Tenant or its agents or contractors in or on
the Premises, nor cause or result in any damage to the Premises or the Tenant
Improvements.
4.08. Landlord's Contribution to Construction of Tenant Improvements.
Of the costs incurred by Tenant to construct the Tenant Improvements (the "Work
Costs"), Landlord agrees to pay to Tenant the sum of Two Million One Hundred
Fifty Thousand Dollars ($2,150,000.00) (the "Allowance"). Any Work Costs in
excess of the Allowance shall be paid by Tenant. If the Allowance exceeds the
Work Costs, such excess shall nevertheless be paid to Tenant at such time as the
Tenant Improvements are complete.
The Allowance shall be paid by Landlord toward the first invoices
received for the construction of the Tenant Improvements, and shall be paid in
accordance with the following procedures:
(a) Tenant shall provide Landlord, not more often than once per
calendar month, with an invoice (on a form reasonably acceptable
to Landlord) prepared and certified by Tenant's chief financial
officer, setting forth the Work Costs payable since the last
such invoice, and certifying that all disbursements theretofore
made under this Section 4.08 have been applied toward payment of
the Work Costs covered by and described in the previous
invoices.
(b) Landlord shall pay to Tenant, within five (5) business days of
receipt of the documentation described in Section 4.08(a), the
Work Costs set forth on the invoice. Upon exhaustion of the
Allowance, it shall become Tenant's responsibility to pay the
Work Costs, and Tenant shall provide Landlord with evidence of
such payment.
The foregoing payment procedures are subject to the review and approval
of Landlord's construction lender, and if such lender imposes additional
disbursement requirements, such additional requirements shall be followed.
4.09. Additional Construction Provisions. In addition to the other
provisions set forth in this Article 4, Landlord and Tenant agree that:
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(A) Each shall require all contractors retained by it to take any and
all safety measures reasonably required to protect Landlord and Tenant and their
respective agents, contractors and employees from injury or damage caused by or
resulting from the performance of the construction of the Landlord and Tenant
Improvements;
(B) All construction contracts, in connection with the Landlord and
Tenant Improvements, shall contain provisions that obligate the contractors to
(i) carry public liability and property damage insurance, with the limitations
set forth in Section 12.03 of this Lease Agreement, naming Landlord and Tenant
as additional insureds; (ii) indemnify, defend and hold harmless Landlord and
Tenant from and against any claims, cost, loss, expense (including attorneys'
fees), liabilities and damages any of them may suffer on account of the
negligence of the contractor; and (iii) carry workers' compensation insurance;
(C) The review and approval by Landlord of the Tenant Plans for the
Tenant Improvements, pursuant to this Article 4, is solely for the benefit of
Landlord, and, in reviewing and approving the same, Landlord assumes no
liability for the design of the Tenant Improvements or the adequacy thereof, nor
shall such review or approval by Landlord release Tenant from any obligation or
liability in respect thereof;
(D) The review and approval by Tenant of the Plans and Specifications
for the Landlord Improvements, pursuant to the Operating Agreement, is solely
for the benefit of Tenant, and, in reviewing and approving the same, Tenant
assumes no liability for the design of the Landlord Improvements or the adequacy
thereof, nor shall such review or approval by Tenant release Landlord from any
obligation or liability in respect thereof;
(E) Upon Landlord's request, from time to time and in any event upon
final completion of the Tenant Improvements, Tenant shall promptly submit to
Landlord then-current copies of any and all plans, specifications and/or working
drawings relative to the Tenant Improvements which have not been previously
submitted to Landlord pursuant to other provisions of this Lease Agreement; and
(F) All items of Tenant Improvements, whether or not the cost thereof
is covered by the Allowance, shall become the property of Landlord upon
expiration or earlier termination of
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this Lease Agreement, and shall remain on the Premises at all times during the
term hereof.
ARTICLE 5
Ownership of Fixtures
All of the Fixtures (as distinguished from the Tenant Improvements)
shall remain the property of Tenant and shall be removable at any time,
including upon the expiration of the Lease Term; provided that Tenant shall
repair any damage to the Premises caused by the removal of the Fixtures.
ARTICLE 6
Liens
6.01. Indemnity; Removal of Liens. At all times during the Lease Term,
Tenant agrees to and shall indemnify, defend, save and hold harmless Landlord
from and against any and all loss, damage, liability, expense or claim
whatsoever (including reasonable fees of attorneys, paralegals, experts, court
reporters and others), arising by reason of any claim or lien, including,
without limitation, any judgment lien, tax lien or vendor's lien, or any
mechanic's lien, laborer's lien, materialmen's lien, or other similar lien or
claim based upon or arising out of the furnishing of materials, fuel, machinery,
supplies or labor to or in respect of the Tenant Improvements or the Premises,
and not expressly contracted for in writing by Landlord. In the event any such
lien is filed, Tenant shall cause any such lien to be discharged, at its sole
cost and expense, within sixty (60) days after Tenant shall have notice of the
existence of any suit, action, or other proceeding to foreclose the lien or to
seek execution in respect thereof, unless such lien and the claim occasioning it
both are contested or litigated in good faith by Tenant, at its sole cost and
expense, and Tenant shall have posted, at its sole cost and expense, a bond
(with surety) or other security satisfactory to Landlord, sufficient to insure
that upon final determination of the validity of the lien or claim, any final
judgment rendered against Tenant or Landlord, together with all related costs
and charges, will be fully paid.
At all times during the Lease Term, Landlord agrees to and shall
indemnify, defend, save and hold harmless Tenant from and against any and all
loss, damage, liability, expense or claim whatsoever (including reasonable fees
of attorneys, paralegals,
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experts, court reporters and others), affecting Tenant's leasehold interest in
the Premises and arising by reason of any claim or lien, including, without
limitation, any judgment lien, tax lien or vendor's lien, or any mechanic's
lien, laborer's lien, materialmen's lien, or other similar lien or claim based
upon or arising out of the furnishing of materials, fuel, machinery, suppliers
or labor to or in respect of the Landlord Improvements, and not expressly
contracted for in writing by Tenant. In the event any such lien is filed,
Landlord shall cause such lien to be discharged, at its sole cost and expense,
within sixty (60) days after Landlord shall have notice of the existence of any
suit, action or other proceeding to foreclose the lien or to seek execution in
respect thereof, unless such lien and the claim occasioning it both are
contested or litigated in good faith by Landlord, at its sole cost and expense,
and Landlord shall have posted, at its sole cost and expense, a bond (with
surety) or other security satisfactory to Tenant, sufficient to ensure that upon
final determination of the validity of the lien or claim, any final judgment
rendered against Landlord or Tenant, together with all related costs and
charges, will be fully paid.
6.02. Liens Prohibited. Nothing in this Lease Agreement shall be
construed as constituting the express or implied consent or request of Landlord
to any contractor, subcontractor, laborer or materialman for the performance of
any labor or the furnishing of any materials, fuel, machinery or supplies, or
any specific improvements, alteration of or repair to the Premises, or any
improvement thereto, nor as giving Tenant any right, power or authority to act
as agent of Landlord or to contract for, or to permit the performance or
furnishing of, any labor, material, fuel, machinery or supplies on any basis,
which would entitle any person to assert and/or perfect a mechanic's lien or
other claim encumbering the Premises and/or the interests of Landlord in the
Premises. Landlord may (but shall not be required to) post and maintain at the
Premises any notices which Landlord may deem appropriate for the protection of
the Premises, from efforts by others to perfect or assert mechanics' liens or
other claims in respect of the Premises.
Nothing in this Lease Agreement shall be construed as constituting the
express or implied consent or request of Tenant to any contractor,
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials, fuel, machinery or supplies, or any specific
improvements, alteration of or repair to the Premises, or any improvement
thereto, nor as giving Landlord any right, power or authority to act as agent of
Tenant or to contract for, or to permit the performance or furnishing of, any
labor, material, fuel,
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machinery or supplies on any basis, which would entitle any person to assert
and/or perfect a mechanic's lien or other claim encumbering Tenant's leasehold
estate in the Premises. Tenant may (but shall not be required to) post and
maintain at the Premises any notices which Tenant may deem appropriate for the
protection of Tenant's leasehold estate in the Premises, from efforts by others
to perfect or assert mechanics' liens or other claims in respect of Tenant's
leasehold estate in the Premises.
ARTICLE 7
Rent and Other Payments
7.01. Base Rent. Tenant shall pay to Landlord, as base rent ("Base
Rent") for the Premises during the Initial Lease Term, an annual sum as set
forth on the Base Rent Schedule attached hereto as Annex 3. Base Rent shall be
payable in equal consecutive monthly installments equal to one-twelfth (1/12th)
of the annual Base Rent, in advance, on or before the first day of each and
every calendar month during the Initial Lease Term, commencing on the Rent
Commencement Date; provided, however, that if the Rent Commencement Date shall
be a day other than the first day of a calendar month, the Base Rent installment
for such first fractional month shall be prorated on the basis of the number of
days during such month this Lease Agreement was in effect in relation to the
total number of days in such month.
7.02. Rent to Be Net to Lessor. Except as otherwise specifically
provided herein, it is the intention of the parties that all amounts of rent (by
any name and in any form) payable hereunder shall be net to Landlord so that
this Lease Agreement shall yield to Landlord the net rent specified herein
during the Lease Term, and so that all costs, expenses and obligations of every
kind and nature whatsoever relating to the Premises shall be paid by Tenant.
ARTICLE 8
Taxes, Assessments, Service Charges and Other Payments
8.01. Taxes and Assessments.
(A) Subject to the provisions of Section 8.02, commencing on the Rent
Commencement Date and continuing at all times thereafter during the Lease Term,
Tenant shall be responsible for and shall pay, when due, all intangible,
personal, sales, personal property and real estate taxes and
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assessments, both general and special, and all other charges of any kind levied,
assessed, charged, taxed or imposed by any governmental authority upon or in
respect of the Premises, the Fixtures, and/or any other property, fixtures or
improvements now or hereafter situated upon the Land, including any tax or
excise on rents levied or assessed by the State of Ohio or any political
subdivision thereof against Landlord in respect of the Base Rent or any other
rent payable hereunder in any form, as a substitution in whole or in part for
taxes assessed or imposed by said state or any political subdivision thereof on
land and buildings or on land or buildings; provided, however, the foregoing
obligations shall not include or require Tenant to pay any form of income tax
imposed on Landlord.
(B) On the Rent Commencement Date, (i) Landlord shall pay or shall have
paid to the taxing authorities all then delinquent or due and payable real
estate taxes in respect of the Premises, and all installments of assessments
which are then due and payable, and (ii) Landlord shall pay to Tenant, or credit
against the Base Rent payment next payable, a portion of the real estate taxes
which then constitute a lien, but which are not yet due and payable in respect
of the Premises, prorated through the Rent Commencement Date.
(C) Upon expiration or termination of this Lease Agreement, real estate
taxes and assessments due or payable, or which are or become a lien upon or in
respect of the Premises and/or any other property, fixtures or improvements
situated upon the Land, shall be prorated to the date of expiration or
termination of this Lease Agreement.
(D) The parties recognize that the Premises are part of a larger tax
parcel (herein called the "Existing Tax Parcel") and that real estate taxes are
therefore assessed on the Existing Tax Parcel and are not separately apportioned
to the Premises and the remaining portions of the Existing Tax Parcel.
Accordingly, until such time as the Franklin County Auditor separately assesses
the Premises for real estate tax purposes, Tenant shall only be obligated to pay
a pro rata portion of the real estate taxes and assessments levied on the
Existing Tax Parcel. Such pro rata portion shall be equal to (a) 100% of the
taxes attributable to the value of the Improvements, plus (b) a portion of the
taxes attributable to the value of the land contained in the Existing Tax
Parcel, equal to the product of (i) said taxes, and (ii) a fraction, the
numerator of which is the number of acres contained in the Premises and the
denominator of which is the number of acres in the Existing Tax Parcel. Landlord
shall cause the real estate taxes and assessments on the balance of the Existing
Tax Parcel to be paid by the owner thereof, and will
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indemnify and hold Tenant harmless from and against any claims or damages
suffered by Tenant as a result of such owner's failure to pay such taxes and
assessments.
(E) The proration(s) of said real estate taxes, as provided for in
Sections 8.01(B)(ii) and (C) above, shall be based upon a 365-day year and the
most recently-available tax rates and valuations; provided that, at such time as
final tax rates and valuations are determined by the taxing authorities for the
period(s) of time in question, real estate taxes shall be reprorated based upon
said final tax rates and valuations, and adjustment amounts, if any, shall be
paid promptly to the entitled party.
8.02. Tax Abatement. Tenant acknowledges that it has received and
reviewed copies of Columbus City Council Resolution No. 62X-87 and Columbus City
Council Resolution No. 172X-92 which relate to the Amended Stelzer/Stygler Road
Community Reinvestment Area (the "CRA"), and that Tenant has made its own
independent determination that the Premises is situated in the CRA. Landlord
agrees to file an application for, and use commercially reasonable efforts to
obtain, an exemption from real property taxation for the Landlord Improvements
and Tenant Improvements, pursuant to Section 3735.67 of the Ohio Revised Code.
Landlord shall be the party primarily responsible for the filing of the
application for tax exemption, and Landlord shall pay all of the costs and
expenses associated therewith. Tenant agrees to cooperate with Landlord in
pursuing such filing. If for any reason such exemption is not granted, the
increased tax burden occasioned thereby shall be borne 100% by Landlord.
8.03. Right to Contest Taxes or Other Charges. Tenant may (but shall
not be required to) contest, in its or in the name of Landlord, the amount or
validity of any taxes, assessments or other charges which Tenant is required
to pay as provided in this Article 8, or to apply for the reduction thereof.
Landlord shall notify (or shall, in good faith, use all reasonable efforts to
make all necessary arrangements to have the appropriate governmental
authorities notify) Tenant of any new or increased taxes, assessments, or other
charges which Tenant is obligated to pay under this Article 8, in sufficient
time to permit Tenant to contest or appeal the same or to seek reassessment in
respect thereof. Landlord shall, upon request by Tenant, execute or join in
executing all such documents as are necessary or desirable in connection with
any such contest or appeal, and Landlord shall, upon request by Tenant and at
Tenant's sole cost and expense, join and actively participate in prosecuting
any such proceeding.
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8.04. Tax and Other Statements. Landlord and Tenant shall, in good
faith, exercise all reasonable efforts to make all necessary arrangements to
have the appropriate governmental authorities send directly to Tenant all
pertinent statements and bills in respect of taxes, assessments, and other
charges to be paid by Tenant as provided in this Article 8, and Tenant shall,
not later than the date such payments are due, furnish to Landlord written
evidence of the payment by Tenant of any and all such statements and bills. If
tax bills are received by Landlord, Landlord shall promptly forward the bills to
Tenant.
8.05. Owners' Association Assessments. Subject to the cap set forth
below, commencing on the date the Additional Infrastructure (as such term is
defined in Section 1.02 of the Development Agreement) is substantially completed
(the "Infrastructure Completion Date"), and continuing at all time thereafter
during the Lease Term, Tenant shall be responsible for, and shall pay when due,
all installments of owners' association assessments ("Assessments") imposed by
the owners' association created by the Declaration (as defined in Section 20.02
hereof), upon or in respect of the Premises. The amount of Assessments for which
Tenant shall be responsible in any Lease Year shall not (subject to adjustment
as hereinafter set forth) exceed $.25 per square foot of gross floor area
contained in the Landlord Improvements, and any excess shall be paid by
Landlord. Said $.25 per square foot Assessment cap shall be adjusted annually at
the end of each Lease Year following the Infrastructure Completion Date (to be
effective during the ensuing Lease Year) by multiplying said Assessment cap by a
fraction, the denominator of which shall be the index level of the Consumer
Price Index for All Urban Consumers (CPI-U), all items index (Base 1982-84 =
100), for the North Central Region (Size Class A), as published by the Bureau of
Labor Statistics of the United States Department of Labor ("CPI"), applicable on
the Infrastructure Completion Date, and the numerator of which shall be the most
recent CPI level available on the first day of the Lease Year for which the
adjustment is being made. For purposes of this Section 8.05, construction of the
Additional Infrastructure shall be deemed substantially complete when the work
called for in the plans and specifications therefor has been completed (with the
exception of punchlist and punchlist-type items) in accordance with such plans
and specifications (excluding any seasonal plantings that may be included in the
landscaping component of the Additional Infrastructure) and EMH&T has certified
such substantial completion to both Landlord and Tenant.
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ARTICLE 9
Utilities Service and Charges
9.01. Water, Sewer, Gas, Electric and Telephone Service. Landlord shall
cause facilities providing water service, storm sewer service, sanitary sewer
service, gas service, electric service and telephone service, in capacities
sufficient to service the Premises, to be connected to the Premises in the
manner and to the extent provided in the Approved Plans and Specifications.
Thereafter, Tenant, at its sole cost and expense, shall be responsible for
maintaining all such facilities. Landlord shall pay all fees and charges
normally charged by the utility service providers to tap into and otherwise
access such utility services, with such fees and charges being included in the
Development Costs.
9.02. Utility Charges. On and after the Substantial Completion Date and
thereafter throughout the Lease Term, Tenant shall contract, in its own name,
and pay for all charges for gas, water, electricity, sewer, and other utility
services furnished to the Premises or to Tenant.
ARTICLE 10
Project Charges
Landlord shall pay, when due, all inspection fees, permit fees, and
other fees charged by the City of Columbus or others in connection with the
construction of the Landlord Improvements. Tenant shall pay, when due, all
inspection fees, permit fees, and other fees charged by the City of Columbus or
others in connection with the construction of the Tenant Improvements.
ARTICLE 11
Indemnification
11.01. Indemnification. From and after the Substantial Completion Date
(and except for injuries, deaths, losses, damages, or other matters resulting
from the acts or omissions of Landlord or of the agents or employees thereof),
Tenant shall indemnify Landlord and save it harmless from and against all loss,
liability, damage, actions, causes of action or claims for injury, death, loss
or damage of whatever nature to any Person, property or business interest caused
by or resulting
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from any event or occurrence in, on or about the Premises, or resulting from the
occupancy or use of the Premises and/or the Appurtenant Easements by Tenant or
agents, employees, customers, servants, licensees, tenants, subtenants, guests
or invitees of Tenant, or from the use by Tenant of the property of other
Persons pursuant to rights granted to Tenant by or in connection with this Lease
Agreement or other agreements, and from and against any and all costs, expenses
or liabilities (including reasonable fees of attorneys, paralegals, experts,
court reporters and others) incurred by Landlord in connection with any claim,
action or proceeding in respect of any such loss, liability, damage or claim.
Prior to the Substantial Completion Date (and except for injuries,
deaths, losses, damages, or other matters resulting from the acts or omissions
of Tenant or of the agents or employees thereof), Landlord shall indemnify
Tenant and save it harmless from and against all loss, liability, damage,
actions, causes of action or claims for injury, death, loss or damage of
whatever nature to any Person, property or business interest caused by or
resulting from any event or occurrence in, on or about the Premises, or
resulting from the construction of the Landlord Improvements by Landlord or the
contractors of Landlord, and from and against any and all costs, expenses or
liabilities (including reasonable fees of attorneys, paralegals, experts, court
reporters and others) incurred by Tenant in connection with any claim, action or
proceeding in respect of any such loss, liability, damage or claim.
11.02. Procedures. In the event that any claim is asserted, or any
action or proceeding is instituted, against a party (the "indemnified party") by
reason of any event or occurrence in respect of which the other party (the
"indemnifying party") is to provide indemnity as provided in Section 11.01 of
this Lease Agreement:
(A) The indemnifying party shall, if requested in writing by the
indemnified party, cause such claim, action or proceeding to be resisted,
defended and resolved, at the indemnifying party's sole cost and expense, and,
by legal counsel, to be approved by the indemnified party, which approval shall
not be unreasonably withheld or delayed; or
(B) In the event that the indemnifying party shall fail to engage legal
counsel within thirty (30) days after the written request contemplated by clause
(A) above, the indemnified party may cause such claim, action or proceeding to
be resisted and defended by legal counsel designated by the indemnified party,
in which event the indemnifying party shall reimburse the
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indemnified party, upon demand made from time to time, for the costs thereby
incurred by the indemnified party (including the reasonable fees of attorneys,
paralegals, experts, court reporters and others) and reasonable amounts paid to
resolve any such claim, action or proceeding.
ARTICLE 12
Insurance
12.01. Public Liability Insurance. At all times on and after the
Substantial Completion Date and during the Lease Term, Tenant shall carry and
maintain Broad Form Comprehensive or Commercial General liability insurance,
written on an occurrence basis, against claims for personal injury or death or
property damage occurring on or about the Premises and Non-Leased Parking Garage
Area, with financially responsible insurers acceptable to Landlord and
authorized to transact insurance business in the State of Ohio, with a combined
single limit of not less than Five Million Dollars ($5,000,000.00) per
occurrence, which insurance shall contain a contractual liability endorsement
covering the matters set forth in Section 11.01 of this Lease Agreement. Such
insurance policy shall name Landlord as an additional insured. Notwithstanding
anything contained in this Section 12.01 to the contrary, and in recognition of
the length of the Lease Term, Landlord shall have the right, from time to time,
but not more often than once in any five (5) year period, based upon community
custom and a standard of reasonableness, to re-establish, by written notice to
Tenant, minimum insurance amounts in excess of those set forth above in this
Section 12.01.
12.02. Casualty Insurance. At all times on and after the Substantial
Completion Date and during the Lease Term, Tenant shall keep the Landlord
Improvements, the Tenant Improvements and the Fixtures insured, with financially
responsible insurers acceptable to Landlord and authorized to transact insurance
business in the State of Ohio, against all loss or damage by fire, vandalism,
malicious mischief, and all other hazards, risks and perils (except for
earthquakes and floods) in respect of which extended coverage and "all risk"
insurance is available, in an amount equal to 100% of the replacement cost of
the Landlord Improvements, the Tenant Improvements, and the Fixtures. If such
insurance coverage has a deductible clause, the deductible amount (on a per
occurrence basis) shall be mutually agreed upon by Landlord and Tenant, and
Tenant shall be responsible for such deductible amount in the event of an
insured loss. Such replacement cost shall be determined from time to time, but
not more frequently than once in any 36 consecutive calendar months,
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at the request of Landlord, by the insurer or, at the option of Landlord, by an
appraiser or architect who shall be mutually and reasonably acceptable to
Landlord and Tenant. No omission on the part of Landlord to request any such
determination shall relieve Tenant of its obligations under this Section 12.02.
12.03. Insurance During Construction. During the construction of the
Landlord Improvements and up to the Substantial Completion Date, Landlord shall
obtain, at its sole expense, carry and maintain, or cause to be carried and
maintained, with financially responsible insurers authorized to transact
insurance business in the State of Ohio, Builder's Risk Insurance in the full
amount of the replacement cost of the work being performed, and comprehensive
general public liability insurance against claims for personal injury or death
or property damage occurring on or about the Premises and the Non-Leased Parking
Garage Area, with a combined single limit of not less than Five Million Dollars
($5,000,000.00) per occurrence.
During the construction of the Tenant Improvements and up to the
completion thereof, Tenant shall obtain, at its sole expense, carry and
maintain, or cause to be carried and maintained, with financially responsible
insurers licensed to transact insurance business in the State of Ohio, Builder's
Risk Insurance in the full amount of the replacement cost of the work being
performed, and comprehensive general public liability insurance against claims
for personal injury or death or property damage occurring on or about the
Premises and the Non-Leased Parking Garage Area, with a combined single limit of
not less than Five Million Dollars ($5,000,000.00) per occurrence.
12.04. Rental Value Insurance. On and after the Rent Commencement Date
and at all times during the Lease Term, Tenant shall keep and maintain, in the
name of Landlord, with loss payable to Landlord and any Fee Mortgagee, as their
interests may appear, rental value insurance covering risk of loss due to the
occurrence of any of the hazards described in Section 12.02, in an amount not
less than the annual Base Rent, plus the estimated annual taxes and assessments
described in Section 8.01 hereof and the annual premiums for the insurance
described in this Article 12 (other than the builder's risk insurance described
in Section 12.03).
12.05. Other Insurance Tenant shall keep and maintain such other
insurance on the Landlord and Tenant Improvements, and in such amounts as may
from time to time be agreed upon by Landlord and Tenant against other insurable
hazards which, at the time, are commonly insured against in the case of
properties similarly situated, due regard being given to the type of the
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Landlord and Tenant Improvements, their construction, location, use and
occupancy.
12.06. Named Insureds; Settlement of Claims. Any policies of insurance
of the character described in Sections 12.02, 12.03 and 12.05 shall expressly
provide that any losses thereunder shall be adjusted with and approved by
Landlord, Tenant, and any Fee Mortgagee, as their interests may appear. All such
insurance shall be carried in the name of Landlord, Tenant, and all Fee
Mortgagees, as their interests may appear. Subject to the rights of all Fee
Mortgagees, any loss thereunder shall be paid to Landlord, for application by
Landlord to restoration and repair of the Landlord and Tenant Improvements.
12.07. Notice of Cancellation or Surrender. Each policy of insurance
required to be carried and maintained by Tenant or its contractors under this
Article 12 shall provide that it cannot be cancelled or surrendered unless
Landlord and each Fee Mortgagee have been given actual notice of such proposed
cancellation or surrender at least thirty (30) days prior to such cancellation
or surrender.
12.08. Evidence of Insurance. Originals, duplicate originals, or
certificates of each policy of insurance required to be carried and maintained
by Tenant or its contractors under this Article 12, and renewal or other
policies, as the case may be, or certificates thereof, shall be delivered by
Tenant to Landlord and each Fee Mortgagee promptly upon request.
12.09. Waiver of Subrogation. Landlord and Tenant hereby release each
other and each other's employees, agents, customers and invitees from any and
all liability for any loss, damage or injury to property occurring in, on or
about or to the Premises, by reason of fire or other casualty which could be
insured against under a standard fire and extended coverage insurance policy,
regardless of cause, including the negligence of Landlord or Tenant and their
employees, agents, customers and invitees; provided, however, this mutual
release shall not apply to the willful misconduct of a party or anyone for whom
such party is legally responsible. Because the provisions of this Section 12.09
preclude the assignment of any claim mentioned herein, by way of subrogation or
otherwise, to an insurance company or any other person, each party to this Lease
shall give to each insurance company which has issued to it one or more policies
of fire and extended coverage insurance notice of the terms of the mutual
releases contained in this Section 12.09, and have such insurance policies
properly endorsed, if necessary, to
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prevent the invalidation of insurance coverages by reason of these mutual
releases.
12.10. Reimbursement of Additional Premiums. Landlord shall reimburse
Tenant for any additional premiums paid by Tenant for liability insurance
coverage in respect of the Non-Leased Parking Garage Area, as required by
Sections 12.01 and 12.03 of this Lease Agreement. Such reimbursement shall be
made within thirty (30) calendar days following receipt by Landlord of an
invoice therefor from Tenant, showing the additional premiums charged for such
coverage.
ARTICLE 13
Use; Maintenance, Operation and Repair; Surrender
13.01. Use of Premises. Tenant shall use the Premises only as a
first-class office building, and for no other purpose; provided, however, that
retail uses consistent with institutional quality, first-class office buildings
situated in predominantly office settings will also be permitted with Landlord's
consent, which consent will not be unreasonably withheld or delayed. Landlord
hereby indicates its consent, in advance, to Tenant's use of a portion of the
Premises as a "Design and Sales Center" for Tenant's home construction business.
13.02. Maintenance and Operation. (A) Tenant shall, at its sole cost
and expense, cause the Premises and the Non-Leased Parking Garage Area to be
operated, maintained and repaired in a first class manner and condition, in
compliance with all present and future laws, codes, rules, orders, ordinances,
regulations, statutes and requirements of any federal, state, county, or other
governmental entity having jurisdiction. Tenant shall not use, or permit or
suffer the use of, the Premises, or any part thereof, for any unlawful purpose
or for any dangerous or noxious trade or business, or in violation of any
occupancy permit issued in respect thereof. Tenant shall not commit, suffer or
permit waste in or to the Premises or Non-Leased Parking Garage Area. If Tenant
elects to employ a property manager to operate and maintain the Premises and
Non-Leased Parking Garage Area, such manager must first be approved by Landlord,
which approval will not be unreasonably withheld or delayed.
(B) The REA obligates the owner of the Land to reimburse the
Contracting Agent (as such term is defined in the REA) for one-half of all
costs incurred for the repair and maintenance of the Common Accessway and
Portico (as such terms
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are defined in the REA). During the term of this Lease, Tenant shall assume and
be responsible for such reimbursement obligations.
(C) Section 3.3 of the Parking Agreement provides that certain
categories of maintenance of the Parking Garage will be performed by the
Operator (as such term is defined in the Parking Agreement), and the performance
of such maintenance by the Operator, in accordance with the provisions of the
Parking Agreement, shall satisfy Tenant's maintenance obligations in respect of
the Non-Leased Parking Garage Area and the portion of the Parking Garage
included in the Premises. If other maintenance or repair work of the nature
contemplated by Section 3.4 of the Parking Agreement (i.e., work not required to
be performed by the Operator under the Parking Agreement) is necessary in
respect of the Non-Leased Parking Garage Area, such work shall be performed by
Tenant as is provided in Section 13.02(A), but Landlord shall reimburse Tenant
for the costs of any such work. Such reimbursement shall be made within thirty
(30) calendar days following receipt by Landlord of an invoice therefor from
Tenant, showing, in reasonable detail, the charges incurred for such work.
13.03. Casualty Repairs.
(A) In the event the Landlord or Tenant Improvements are damaged or
destroyed, then so long as the full cost of repairing such damage or destruction
is covered by insurance policies carried by Tenant (except for deductible
amounts, which shall, in all cases, be paid by Tenant), Landlord shall repair
and restore the Landlord and Tenant Improvements (but not any of Tenant's
Fixtures, furnishings or equipment, for which Tenant may submit a separate claim
to the insurer) to their condition existing prior to said damage or destruction,
and this Lease Agreement shall continue in full force and effect. Any damage or
destruction of the type described above is referred to herein as an "Insured
Loss." The proceeds of insurance shall be delivered to Landlord and shall be
used to pay the cost and expense of repairing and rebuilding the Landlord and
Tenant Improvements. If the cost of repairing any damage or destruction to the
Landlord and Tenant Improvements is not covered by insurance due solely to
Tenant's failure to obtain and maintain in effect the policies of insurance
which Tenant is required to maintain pursuant to Section 12.02 of this Lease
Agreement, then such damage and destruction shall be treated in the same manner
as an Insured Loss pursuant to this Section 13.03(A), but Tenant shall be
required to pay to Landlord the full amount of any costs of repairing such
damage or destruction which would have been covered by insurance had Tenant
maintained the required
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insurance, and Tenant shall be required to pay to Landlord the full amount of
any deductible amounts which Tenant would have been required to pay pursuant to
the terms of this Lease Agreement had Tenant maintained the required insurance.
(B) In the event the Landlord Improvements or Tenant Improvements are
damaged or destroyed, and, for reasons other than Tenant's failure to maintain
in effect the insurance which Tenant is required to maintain pursuant to Section
12.02 of this Lease Agreement, the cost of repairing such damage or destruction
is not covered by insurance policies carried by Tenant (an "Uninsured Loss"),
then so long as the cost of repairing such damage or destruction does not exceed
the "Cap Amount" (as defined below), Landlord shall repair and restore the
Landlord and Tenant Improvements (but not any of Tenant's Fixtures, furnishings
or equipment) to its condition existing prior to said damage or destruction, and
this Lease Agreement shall continue in full force and effect. As used herein,
the term "Cap Amount" shall mean the amount of Fifty Thousand Dollars
($50,000.00). In the event of an Uninsured Loss having a repair cost which is
equal to or less than the Cap Amount, Landlord and Tenant shall each contribute
one-half of the repair cost of such Uninsured Loss (up to a maximum contribution
amount of Twenty-Five Thousand Dollars ($25,000.00) each for Landlord and
Tenant). If the repair cost of such Uninsured Loss exceeds the Cap Amount,
Landlord and Tenant shall each have the right to terminate this Lease Agreement
upon thirty (30) days' written notice to the other. However, if a party has
elected to terminate this Lease Agreement pursuant to this Section 13.03(B), the
other party may prevent termination of this Lease Agreement, pursuant to this
Section 13.03(B), by paying (in addition to any other amounts to be paid by such
party pursuant to this Section 13.03(B)) the amount by which the cost of
repairing such Uninsured Loss exceeds the Cap Amount.
(C) Upon the occurrence of any damage or destruction to the Landlord or
Tenant Improvements, Landlord shall, within thirty (30) days following the date
Landlord receives notice from Tenant of the occurrence of such damage or
destruction, provide to Tenant a written notice of Landlord's reasonable and
good faith estimate of the time required to complete the repair and restoration
of the Landlord and/or Tenant Improvements ("Landlord's Time Estimate").
Landlord's Time Estimate shall be supported by a certification letter addressed
to both Landlord and Tenant, from a properly licensed and qualified general
contractor selected by Landlord and approved by Tenant, such approval not to be
unreasonably withheld or delayed, stating the opinion of such contractor as to
the number of days following the issuance of the necessary building permits
necessary to complete
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the repair and restoration of the Landlord and/or Tenant Improvements. If
Landlord reasonably estimates that such repair and restoration will take more
than two hundred ten (210) days to complete (measured from the date of issuance
of necessary building permits for the repair and restoration work), Tenant may
elect to terminate this Lease Agreement upon written notice to Landlord, which
notice shall be given, if at all, within twenty (20) days following Tenant's
receipt of Landlord's Time Estimate. Once such notice has been delivered, the
twenty- (20-) day response period has expired, and the repair and restoration
work has commenced, Tenant shall not have the right to terminate this Lease
Agreement as a result of the occurrence of such damage or destruction,
regardless of the actual time necessary to complete such repair and restoration
work, but Landlord agrees that it shall use diligent efforts to complete the
restoration work in a timely manner. If this Lease Agreement is terminated by
Tenant pursuant to this Section 13.03(C), Tenant shall pay to Landlord one (but
not more than one) of the following amounts: (a) the deductible amount payable
by Tenant in the event of an Insured Loss, if the damage and destruction results
from an Insured Loss; or (b) Tenant's portion of the Cap Amount, if the damage
and destruction results from an Uninsured Loss. If the reconstruction of the
Landlord and/or Tenant Improvements is delayed beyond the date established for
completion of repair and restoration work, as provided in the general contract
between Landlord and the general contractor selected by Landlord to perform such
repair and restoration work (the "General Contractor"), and if Tenant actually
suffers damages as a result of such delay, then so long as Landlord continues to
receive the proceeds of rent abatement insurance during the period of such
delay, Landlord shall assign to Tenant (to the extent of any damages actually
suffered by Tenant as a result of such delay) any liquidated damages or other
damages payable by the general contractor pursuant to the terms of its general
contract, as a result of such delay. To the extent Landlord does not receive
sufficient rent abatement insurance proceeds to fully compensate Landlord for
any abatement of rent under this Lease Agreement, Landlord shall have a first
priority claim to any such liquidated damages or other damages payable by the
General Contractor.
(D) The Base Rent, taxes and assessments, insurance premiums, and other
charges payable by Tenant hereunder shall abate, in the proportion that the part
of the Premises rendered unusable to Tenant bears to the whole thereof, from the
date of the damage or destruction through the time required by Landlord to
repair and rebuild the Landlord and/or Tenant Improvements, but only to the
extent to which Landlord receives, or is ultimately entitled to receive,
reimbursement for such abatement pursuant to the rental value insurance
maintained under
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Section 12.04 of this Lease Agreement, it being the intention of the parties
that Landlord shall always receive the Base Rent and Tenant shall always pay the
taxes and assessments, insurance premiums, and other charges payable under this
Lease Agreement, either directly or through an insurance carrier.
(E) If the Landlord or Tenant Improvements are damaged or destroyed,
either partially or totally, during the last year of the Lease Term, Landlord or
Tenant may, at such party's option, cancel and terminate this Lease Agreement as
of the date of occurrence of such damage, by giving written notice to the other
party of the electing party's election to do so within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Tenant
has, at the time of the occurrence of such damage or destruction, already
exercised an option to extend the Lease Term (but the Renewal Term has not yet
commenced), then if Tenant reaffirms its exercise of such option within twenty
(20) days after the occurrence of such damage or destruction, Landlord shall not
have the right to terminate this Lease Agreement pursuant to this Section
13.03(E), and the other applicable provisions of this Article 13 shall govern
the repair and restoration of the Landlord and Tenant Improvements or the
termination of this Lease Agreement (as the case may be).
13.04. Surrender. Subject to the provisions of Article 15 of this Lease
Agreement, upon the exercise by Landlord of its right to obtain possession of
the Premises upon the occurrence of an Event of Default hereunder, or upon the
expiration or sooner termination of this Lease Agreement, Tenant will surrender
the Premises to Landlord, with all improvements, parts and surfaces thereof
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Tenant performing all of its obligations under this
Lease Agreement. In connection with such surrender, Tenant shall execute and
deliver to Landlord such deeds, bills of sale, assignments and/or other
instruments of conveyance and/or transfer as Landlord may reasonably request to
evidence, confirm and effect the surrender to Landlord of the Premises.
13.05. Determination of First Class. The determination of "first
class," wherever required by this Lease Agreement, shall take into consideration
the age of the Landlord and Tenant Improvements.
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ARTICLE 14
Alterations and Improvements; Signage
14.01. Alterations, Improvements. Following the completion of the
Tenant Improvements, Tenant shall not be entitled to make any alterations,
improvements or additions to the Premises, unless and until it has received
Landlord's approval thereof, which approval shall not be unreasonably withheld
or delayed. Notwithstanding the foregoing, Tenant shall be entitled to make
alterations, improvements or additions to the interior of the Premises without
the necessity of obtaining Landlord's prior approval, so long as such
improvements, alterations or additions (a) do not affect the structural
integrity of the Premises; (b) do not in any way diminish the value of the
Premises; or (c) are not visible from the exterior of the Premises. All such
alterations, improvements or additions (whether interior or otherwise) shall be
accomplished (i) at Tenant's sole cost and expense, and (ii) in compliance with
the provisions of Article 4 of this Lease Agreement, pertaining to the
construction of the Tenant Improvements, as though the making of such
alterations, improvements and additions were the construction of the Tenant
Improvements; provided that Landlord shall have no obligation to fund any such
alterations, improvements or additions. All such alterations, improvements and
additions shall (automatically and without further act by any party) become a
part of the Premises.
14.02. Signage. Tenant may, at its own risk and expense, erect and
maintain signage on the Premises; provided that (a) the location of any exterior
signs must be agreed upon by both Landlord and Tenant; (b) the kind, size,
amount and content of any such exterior signs shall have first been approved by
Landlord, which approval Landlord shall not unreasonably delay or refuse to
give, but in which approval process it shall be deemed reasonable for Landlord
to give due consideration to the signage criteria and objectives established by
Limrea Properties Limited Partnership for the Oval Office Park; and (c) any such
signs shall be in compliance with local, state and federal laws, ordinances and
regulations.
ARTICLE 15
Condemnation
15.01. Total Condemnation. If all of the Premises are taken by any
condemning authority under the power of eminent domain or otherwise, or by any
purchase or other acquisition in
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lieu of eminent domain or otherwise (a "Total Take"), this Lease Agreement and
the Lease Term shall terminate as of the date when possession of the Premises is
required by the condemning authority, and all Base Rent and other sums required
to be paid by Tenant hereunder shall be apportioned and paid to the date of such
taking.
15.02. Partial Condemnation.
(A) In the event a "substantial portion of the Premises" [as defined in
Section 15.02 (D) below] is taken or condemned by any condemning authority,
Landlord shall immediately send written notice thereof to Tenant and Tenant
shall have the right: (i) to terminate this Lease Agreement as of the date of
the taking of possession by the condemning authority, in which event the Base
Rent and all other charges shall be apportioned and paid to the date of the
taking, or (ii) to continue this Lease Agreement in full force and effect, with
a reduced Base Rent commensurate with the reduced area and/or reduced utility of
the Premises, in lieu of the amount of Base Rent hereinbefore provided, which
reduced Base Rent will become effective upon the date of such taking. Tenant
shall elect between these rights and give notice to Landlord of its election
within thirty (30) days after receipt from Landlord of (a) the aforesaid notice,
and (b) plans setting forth the details of Landlord's proposed restoration of
the Premises.
(B) If Tenant does not elect to terminate this Lease Agreement as set
forth in Section 15.02 (A), then the award or payment for the taking shall be
paid to and used by Landlord to restore, with reasonable dispatch, the portion
of the Premises remaining, after the taking, to substantially the same condition
and tenantability as existed immediately preceding the taking.
(C) If Landlord does not commence, within sixty (60) days after receipt
of the award, and with reasonable dispatch continue, to restore the portion of
the Premises as provided in Section 15.02 (B) (subject to the provisions of
Article 24 hereof), Tenant shall have the right, upon giving notice to Landlord,
in addition to other rights provided herein, to (i) restore the Premises, at
Landlord's sole cost and expense, or (ii) terminate this Lease Agreement, on
written notice to Landlord, and all Base Rent and all other charges shall be
apportioned and paid to the date of such notice. If Tenant elects to restore,
Landlord shall promptly pay to Tenant any award or payment made as to the taking
of the Premises.
(D) A "substantial portion of the Premises" shall be deemed to have
been condemned if such condemnation results in any
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of the following: (i) any reduction in Tenant's "minimum parking requirement,"
and Landlord shall not promptly add additional parking (by the addition of
immediately contiguous land, or otherwise in a manner reasonably acceptable to
Tenant) to meet Tenant's "minimum parking requirement"; (ii) loss of direct
access from the Premises to any adjacent public street or highway (and a
substitute means of access reasonably satisfactory to Tenant is not immediately
provided); or (iii) loss of a portion of the Landlord or Tenant Improvements,
the absence of which would have a substantial, adverse impact on Tenant's
business conducted on or from the Premises. As used herein, Tenant's "minimum
parking requirement" shall mean the minimum number of surface parking spaces
that will satisfy all applicable legal requirements, and 20 parking spaces in
the Parking Garage.
(E) Termination of this Lease Agreement because of condemnation shall
be without prejudice to the rights of either Landlord or Tenant to recover from
the condemning authority compensation and damages for the injury and loss
sustained by them as a result of the taking. Landlord shall have the right to
recover from the condemning authority compensation and damages for the injury
and loss sustained by Landlord as a result of the taking of the Premises,
including the Land, the Landlord Improvements, and the Tenant Improvements that
were paid for with funds provided by Landlord pursuant to Section 4.08 hereof.
Tenant shall have the right to make an independent claim against the condemning
authority for the unamortized value of the Tenant Improvements funded by Tenant,
in excess of the funds provided by Landlord pursuant to Section 4.08 hereof, and
the value of Tenant's trade fixtures, furniture and personal property,
interruption or dislocation of business in the Premises, loss of good will, and
for moving and remodeling expenses.
ARTICLE 16
Assignment and Subletting
16.01. Assignment. Tenant acknowledges that Landlord's ability to
finance the construction of the Landlord and Tenant Improvements is in large
part dependent upon this Lease Agreement and the financial strength of Tenant.
Accordingly, Tenant shall not assign this Lease Agreement or its rights in or to
the Premises, or permit the assumption of all or any part of the obligations of
Tenant under this Lease Agreement, without the prior written consent of
Landlord, which consent Landlord shall not unreasonably withhold or delay.
Notwithstanding any such consent, Tenant will remain jointly and severally
liable (along with the approved assignee), and Landlord shall be permitted to
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enforce the provisions of this Lease directly against Tenant and/or any assignee
without being required to proceed in any way against the other.
For purposes of this Section 16.01, an assignment shall mean the sale,
conveyance, transfer or assignment of this Lease Agreement by Tenant, or the
assumption of Tenant's obligations hereunder, to or by any Persons.
16.02. Subletting.
(A) Tenant may sublease all or any part of the Premises to Affiliates
of Tenant, without the necessity of obtaining Landlord's consent thereto (with
any such sublease being herein called an "Affiliate Sublease"); provided that
(i) no such subletting shall release or relieve Tenant from any of its
obligations under this Lease Agreement; (ii) all Affiliate Subleases of all or
any part of the Premises shall be and be deemed, at all times, to be subject and
subordinate to the terms and conditions of this Lease Agreement; and (iii)
Tenant shall have furnished to Landlord a copy of the Affiliate Sublease.
(B) Except for Affiliate Subleases, Tenant shall not sublease all or
any part of the Premises without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. For purposes of this
Lease Agreement, a "sublease" shall include subleases, licenses, concessions,
and all other possessory arrangements entered into by Tenant in respect of the
Premises.
(C) If Landlord consents to a sublease (herein called an "Approved
Sublease"), the following provisions shall apply: (i) the Approved Sublease must
contain the following provision:
"Tenant understands that the landlord herein is the lessee under an
underlying lease of the land and building of which the premises form a
part and that this lease is subject and subordinate to such underlying
lease and any extensions or modifications thereof. Tenant covenants and
agrees that if, by reason of any default upon the part of the landlord
herein as lessee under such underlying lease, the underlying lease is
terminated by summary proceedings, voluntary agreement or as otherwise
permitted or required by law, the tenant herein will attorn to and
recognize the lessor under such underlying lease as tenant's landlord
under
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this lease. Tenant further agrees to execute and deliver at any time
upon request of the lessor under the underlying lease or of any person,
firm, or corporation which shall succeed to the interest of such lessor
an instrument to evidence such attornment. Tenant waives the provisions
of any law now or hereafter in effect or any other provision of this
lease which may give tenant any right of election to terminate this
lease or to surrender possession of the premises."
(ii) no such subletting shall release or relieve Tenant from any of its
obligations under this Lease Agreement; and (iii) if the space included within
the Approved Sublease, when added to the space included within all other
existing Approved Subleases, exceeds 20,000 square feet, then, as to any sublet
space that exceeds the aggregate threshhold of 20,000 square feet, Tenant shall
pay to Landlord a sum equal to seventy-five percent (75%) of (a) any rent or
other consideration paid to Tenant by the subtenant which (after deducting the
costs of Tenant, if any, in effecting the subletting, including reasonable
alteration costs, commissions and legal fees, and an amount up to the aggregate
of two months' fixed rent payable under the sublease, provided the sublease
shall contain a specific statement that such sum is given as free rent in lieu
of Tenant's obligation to perform alterations or other work preparatory to such
subtenant's occupancy of the subleased premises, with the amount of such
deductions being amortized over the term of the Approved Sublease) is in excess
of the Base Rent and other charges allocable to the subleased space which is
then being paid by Tenant to Landlord pursuant to the terms hereof; and (b) any
other profit or gain (after deducting any necessary expenses incurred, again
with such deduction being amortized over the term of the Approved Sublease)
realized by Tenant from any such subletting, including an amount of free rent in
lieu of construction, to the extent specified in clause (a) above. All sums
payable hereunder by Tenant shall be payable to Landlord as additional rent,
upon receipt thereof by Tenant.
ARTICLE 17
Conveyance or Encumbrancing by Landlord
17.01. Conveyances. Landlord shall have the unrestricted right to sell,
assign, convey or transfer to any Persons all or any part of its right, title or
interest in or to the Premises; subject, however, to this Lease Agreement. In
the
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event of a sale or transfer of the Premises, the "landlord" named herein, or, in
the case of a subsequent transfer, the transferor, shall, after the date of such
transfer, be automatically released from all further liability for the
performance or observance of any term, condition, covenant or obligation
required to be performed or observed by Landlord hereunder; and the transferee
shall be deemed to have assumed all of such terms, conditions, covenants and
obligations, it being intended hereby that such terms, conditions, covenants and
obligations shall be binding upon Landlord, its successors and assigns, only
during and in respect of their successive periods of ownership during the Lease
Term.
17.02. Encumbrancing. Landlord shall have the unrestricted right to
mortgage to any Persons all or any part of its right, title or interest in or to
the Premises (with any such mortgage being herein called a "Fee Mortgage"),
provided that, at Landlord's option, either: (i) so long as Tenant shall perform
its obligations hereunder, this Lease Agreement, and any and all rights of
Tenant hereunder, shall be deemed prior to any such Fee Mortgage, without regard
to the respective dates of execution, delivery and recordation thereof, and
without the necessity of any further instrument or act on the part of Landlord
or Tenant, with the holder of any such Fee Mortgage (herein called a "Fee
Mortgagee") to have those rights which would have accrued to it if this Lease
Agreement had been executed, delivered and recorded prior to the execution,
delivery and recordation of such Fee Mortgage, or (ii) Landlord and any such Fee
Mortgagee shall execute an instrument (in a form recordable under the laws of
the State of Ohio) to confirm that if, by disposition, foreclosure, or
otherwise, such Fee Mortgagee or any successor thereto, or any purchaser at a
foreclosure or similar sale, shall come into possession of or become the owner
of the Premises, such person will not disturb the possession, use or enjoyment
of the Premises by Tenant, or disaffirm this Lease Agreement, so long as Tenant
shall perform its obligations under this Lease Agreement.
17.03. Attornment. Subject to the provisions of Section 17.02(ii),
Tenant shall, at the request of any Fee Mortgagee upon acquisition of title to
the Premises, attorn to any such Fee Mortgagee as the Landlord under the terms
and conditions of this Lease Agreement.
17.04. Notice and Cure Rights. If Tenant shall serve Landlord with any
notice claiming a default or breach of this Lease Agreement by Landlord, Tenant
shall serve a duplicate of said notice upon each Fee Mortgagee, provided that
Tenant has received the name and address of such Fee Mortgagees. The Fee
Mortgagees shall be permitted to correct or remedy the breach or
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default complained of, within a reasonable time after the expiration of
Landlord's time to do so and with the same effect as if Landlord itself had done
so.
Landlord shall endeavor to have included within each Fee Mortgage a
provision which (i) shall require the Fee Mortgagee to deliver to Tenant a
duplicate copy of any notice of default which such Fee Mortgagee delivers to
Landlord under the Fee Mortgage, and (ii) will afford Tenant the right to cure
such default, on the part of Landlord, within a reasonable time after the
expiration of Landlord's time to do so and with the same affect as if Landlord
itself had done so.
ARTICLE 18
Default; Termination
18.01. Default by Tenant. Tenant shall create, and there shall exist,
an event of default (herein called an "Event of Default") under this Lease
Agreement if:
(A) Tenant shall fail to pay any installment of Base Rent or other
amounts required to be paid or expended by it under the provisions of this Lease
Agreement, including, but not limited to, taxes, insurance premiums and/or costs
of indemnity required to be paid by Tenant, when the same shall become due for
payment and if such default shall remain uncured for more than ten (10)
consecutive business days after notice of such default shall have been given to
Tenant by Landlord; or
(B) Tenant shall fail to perform or comply with any non-monetary
obligation of Tenant under this Lease Agreement, and if Tenant shall not
commence the correction of such default within thirty (30) days after notice of
such default from Landlord and shall not proceed with due diligence to complete
such correction within a reasonable time; or
(C) Tenant shall make a general assignment for the benefit of
creditors, or if Tenant's interest in the Premises is sold upon execution or
other legal process; or
(D) Tenant shall suffer a receiver to be appointed in any action or
proceeding by or against Tenant, and such appointment is not stayed or
discharged within sixty (60) days after the commencement thereof, or if Tenant
is a debtor in any insolvency proceeding conducted pursuant to the laws of any
state or of a political subdivision of any state and such proceeding is not
stayed or discharged within sixty (60) days after the
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commencement thereof, or if Tenant shall be or become, either voluntarily or
involuntarily, a debtor in any case commenced under the provisions of the U.S.
Bankruptcy Code, as amended, and such case is not stayed or discharged within
sixty (60) days after the commencement thereof.
18.02. Rights of Landlord upon Tenant's Default. In the event that
Tenant shall create or suffer an Event of Default under this Lease Agreement, in
addition to the other rights and remedies available to Landlord hereunder, in
equity or at law, Landlord shall have the right, by giving an Election Notice as
prescribed in Section 18.03 hereof, to elect:
(A) Without cancelling or terminating this Lease Agreement or the Lease
Term, to repossess the Premises, and to possess the Premises and the Fixtures
and each and every part thereof and to expel Tenant therefrom. Neither such
termination of the right of Tenant to occupy the Premises, nor such repossession
and possession by Landlord, shall relieve Tenant from its obligations to pay
Base Rent and all other amounts payable by Tenant under the terms of this Lease
Agreement, and/or to perform and observe all of the obligations of Tenant under
this Lease Agreement; and/or
(B) To cancel and terminate this Lease Agreement and the Lease Term at
any time (including any time after Landlord has terminated the right of Tenant
to possession only of the Premises and of the Fixtures, as provided in
subsection 18.02(A) of this Lease Agreement), and to collect from Tenant,
without demand therefor, any and all amounts of Base Rent and all other amounts
payable by Tenant under the terms of this Lease Agreement and accruing through
the date of such termination.
18.03. Election Notice. Landlord may elect to exercise the rights
afforded to it under Section 18.02 of this Lease Agreement only by giving
written notice of such election (each an "Election Notice"), in addition to any
notice provided for under Section 18.01 of this Lease Agreement, to Tenant.
ARTICLE 19
Plenary Right To Cure Certain Defaults
19.01. Default By Tenant Under This Lease Agreement. If Tenant shall
create or suffer an Event of Default under this Lease Agreement, Landlord may
(but shall not be required to) cure such default on behalf of Tenant (without
thereby waiving any of the rights otherwise afforded to Landlord under Article
18 of
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this Lease Agreement by reason of such default), and the amount of the
reasonable cost to Landlord of curing any such default shall be paid by Tenant
to Landlord on demand, together with interest thereon at a per annum rate equal
to the "prime rate" of Bank One, Columbus, NA (as such rate is announced or
disclosed from time to time), plus one (1) percentage point (the "Default
Rate"), or at the maximum rate of interest permitted by law if less than the
Default Rate, from the date or dates of payment thereof by Landlord.
19.02. Default By Tenant Under Subleases. Tenant shall include, in each
Affiliate Sublease and Approved Sublease of all or any portion of the Premises,
a provision which states that if Tenant shall default in its obligations as
lessor under the sublease, the subtenant shall notify Landlord of such default
at the same time it notifies Tenant, and shall permit Landlord to correct or
remedy the default within a reasonable time after the expiration of Tenant's
time to do so and with the same effect as if Tenant itself had done so;
provided, however, that the existence of such provision shall in no way obligate
Landlord to correct or remedy such default.
19.03. Default by Subtenant Under Sublease. Tenant shall include, in
each Affiliate Sublease and Approved Sublease of all or any portion of the
Premises, a provision which states that if the subtenant shall default in its
obligations under the sublease, Tenant shall notify Landlord of such default at
the same time it notifies the subtenant, and shall permit Landlord to correct or
remedy the default within a reasonable time after the expiration of the
subtenant's time to do so and with the same effect as if the subtenant itself
had done so; provided, however, that the existence of such provision shall in no
way obligate Landlord to correct or remedy such default.
ARTICLE 20
Quiet Enjoyment; Title Matters
20.01. Quiet Enjoyment. Landlord covenants with and warrants and
represents to Tenant that, so long as Tenant is not in default hereunder, Tenant
shall, at all times during the Lease Term, peaceably and quietly have, hold,
occupy and enjoy the Premises, without hindrance or molestation by Landlord or
by any person claiming rights through Landlord in respect of the Premises, other
than rights created by Tenant.
20.02. Warranties of Title. Landlord covenants with and warrants and
represents to Tenant that Landlord now owns good
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and merchantable fee simple title to the Premises, free and clear from all
defects, liens, encumbrances and easements, except for the matters which are set
forth on Annex 4, attached hereto (the "Permitted Encumbrances"). The Permitted
Encumbrances include (or may include) a Declaration of Protective Covenants (the
"Declaration") which, among other things, establishes a comprehensive set of
development, construction and use restrictions and create an owner's association
which will maintain the common areas of the real estate subject to the
Declaration, and, in order to pay for the same, will charge assessments to the
members of the owner's association, including Landlord and Tenant as owners of
the fee simple and leasehold estates in the Land. If the Declaration has not
been filed of record on the Effective Date hereof, Tenant agrees to subordinate
its leasehold estate in the Premises to the Declaration, in a document
recordable under the laws of the State of Ohio; provided, however, that any such
subordination documentation shall specifically provide that so long as Tenant
has complied with the provisions of Article 4 of this Lease Agreement, the
development and construction of the Tenant Improvements, and the use of the
Premises as a first-class office building shall be deemed not to have violated
any of the requirements established by the Declaration.
ARTICLE 21
Inspection
Landlord and its duly authorized representatives may enter the Premises
at all reasonable times, upon at least twenty-four (24) hours' prior written
notice to Tenant, to view and inspect the Premises and to inspect all repairs,
additions and alterations or to perform any work which may be necessary by
reason of Tenant's default under the terms of this Lease Agreement; provided
that any such inspections shall not unreasonably interfere with the activities
of Tenant or its agents or contractors in or on the Premises, nor cause or
result in any damage to the Premises.
ARTICLE 22
Notices and Payments
22.01. Notices. Any notice or other communication required or permitted
to be given to a party under this Lease Agreement shall be in writing and shall
be given by one of the following methods to such party, at the address set forth
at the
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end of this Section 22.01: (i) it may be sent by registered or certified United
States (U.S.) mail, return receipt requested and postage prepaid, or (ii) it may
be sent by ordinary U.S. mail or delivered in person or by courier, telecopier,
telex, telegram, interconnected computers, or any other means for transmitting a
written communication. Any such notice shall be deemed to have been given as
follows: (i) when sent by registered or certified U.S. mail, as of the second
business day after it was mailed, and (ii) when sent or delivered by any other
means, upon receipt, with written confirmation thereof. Either party may change
its address for notice by giving written notice thereof to the other party. The
address of each party for notice initially is as follows:
Landlord Tenant
Northeast Office Until the Rent
Venture, Limited Commencement Date:
Liability Company
c/o The Georgetown Company M/I Schottenstein
667 Madison Avenue Homes, Inc.
23rd Floor 41 South High Street
New York, New York 10021 Columbus, Ohio 43215
Attn: Edgar A. Lampert, Esq. Attn: President
With a duplicate copy
similarly addressed and
directed to the attention
of: General Counsel.
After the Rent Commencement
Date, Notices shall be sent
to Tenant at the Premises
address, Attn: President,
with a duplicate copy directed
to the attention of: General
Counsel.
22.02. Place of Payment; No Setoff. All rent and other payments
required to be made by Tenant to Landlord shall be delivered or mailed to
Landlord at the address specified in Section 22.01 hereof, or any other address
Landlord may specify from time to time by written notice given to Tenant,
without notice or demand and without abatement, deduction or setoff of any
amount whatsoever.
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ARTICLE 23
Compliance with Laws
23.01. General Compliance. At all times during the Lease Term, Tenant
shall, in respect of this Lease Agreement and its use and occupancy of the
Premises, comply with all applicable federal, state and local laws, codes,
ordinances, rules and regulations, and any other applicable requirements.
23.02. Incorporation of Provisions of Law. Each and every provision
required by applicable federal, state or local laws, codes, ordinances, rules
and regulations to be included in this Lease Agreement shall be deemed to be
incorporated herein by reference and included in this Lease Agreement, and this
Lease Agreement shall be read, construed and enforced as though each such
provision were set forth herein and if, through mistake, inadvertence or
otherwise, any such provision or clause is not included herein or is incorrectly
set forth herein, this Lease Agreement shall nevertheless be read, construed and
enforced as though such provision were correctly set forth herein.
ARTICLE 24
Force Majeure
The time periods by which the Landlord and/or Tenant are required to
perform their obligations under this Lease Agreement shall be extended by the
period of any delays arising by reason of excused causes. Excused causes
include, without limiting the generality of the foregoing, war, nuclear
disaster, insurrection, strikes or other labor disputes, unavailability of
materials, riot, rationing, civil disobedience, fire, flood, hurricane,
earthquake, any act of God and acts, actions, failures to act, and proceedings
or regulations of any governmental authority (whether legislative, executive,
administrative or judicial). Excused causes shall not include (i) causes which
result from a substantial fault or negligence of a party, or (ii) the lack of
sufficient funds.
ARTICLE 25
Arbitration
Whenever in this Lease Agreement it is provided that a dispute shall be
determined by arbitration, the arbitration shall be conducted as provided in
this Article 25. The party desiring
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such arbitration shall give written notice to that effect to the other,
specifying the dispute to be arbitrated and the name and address of the person
designated to act as the arbitrator on its behalf. Within ten days after said
notice is given, the other party shall give written notice to the first party,
specifying the name and address of the person designated to act as arbitrator on
its behalf. If the second party fails to notify the first party of the
appointment of its arbitrator, as aforesaid, by the time above specified, then
the appointment of the second arbitrator shall be made in the same manner as
hereinafter provided for the appointment of a third arbitrator. The arbitrators
so chosen shall meet within ten days after the second arbitrator is appointed
and within 20 days thereafter shall decide the dispute. If within said period
they cannot agree upon their decision, they shall appoint a third arbitrator,
and if they cannot agree upon said appointment, the third arbitrator shall be
appointed upon their application or upon the application of either party by the
Administrative Judge of the Franklin County, Ohio Common Pleas Court. The three
arbitrators shall meet and decide the dispute. A decision in which two of the
three arbitrators concur shall be binding and conclusive upon the parties. In
designating arbitrators and in deciding the dispute, the arbitrators shall act
in accordance with the Commercial Arbitration Rules then in force of the
American Arbitration Association; subject, however, to such limitations as may
be placed upon them by the provisions of this Lease Agreement. The obligation of
Landlord and Tenant to submit a dispute to arbitration is limited to disputes
arising under those Articles or Sections of this Lease Agreement which
specifically provide for arbitration.
ARTICLE 26
Miscellaneous Provisions
26.01. Brokers, Finders and Others. Landlord and Tenant each warrant
and represent to the other that it has had no compensable dealings,
negotiations, agreements, consultations or other transactions with any broker,
finder, or other intermediary in respect of the Premises or this Lease
Agreement, and that no person is entitled to any brokerage fee, commission, or
other payment in respect of this Lease Agreement, the transactions contemplated
thereby and/or the Premises, arising from agreements, arrangements or
undertakings made or effected by it with any third Persons.
26.02. Memorandum of Lease. Landlord and Tenant shall, upon request by
the other, execute and deliver a
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memorandum of lease or similar instrument reflecting such of the terms of this
Lease Agreement as may be acceptable to the parties, which instrument shall be
in a form recordable under the laws, regulations and customs of the State of
Ohio and its political subdivisions, and which instrument shall be recorded in
appropriate public offices.
26.03. Estoppel Certificates. Each party shall, within ten (10) days
after written request from the other party, from time to time and at any time,
complete, execute, acknowledge and deliver to the requesting party a written
instrument, in a form prepared and presented by the requesting party and
acceptable to the other party, certifying that this Lease Agreement is
unmodified and in full force and effect (or if there have been modifications,
that it is in full force and effect as modified and stating the modifications),
and the dates to which Base Rent and other charges have been paid in advance, if
any, and stating whether or not, to the knowledge of such party, the requesting
party is in default in the performance of any obligation of such requesting
party under this Lease Agreement, and, if so, specifying each such default of
which such party has knowledge and certifying any other fact reasonably
requested to be certified by the requesting party, it being intended that any
such instrument may be delivered to and relied upon by any prospective purchaser
of Landlord's interest in the Premises and any prospective assignee of Tenant's
leasehold estate in the Premises, or any mortgagee or prospective mortgagee in
respect thereof or any part thereof.
26.04. Successors and Assigns. Except as otherwise specifically
provided herein, this Lease Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns (including successive, as
well as immediate, successors and assigns) of Landlord and of Tenant.
26.05. Governing Law. This Lease Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
26.06. Remedies Cumulative. All rights and remedies of Landlord and of
Tenant enumerated in this Lease Agreement shall be cumulative and, except as
specifically contemplated otherwise by this Lease Agreement, none shall exclude
any other right or remedy allowed at law or in equity, and said rights or
remedies may be exercised and enforced concurrently. No waiver by Landlord or by
Tenant of any covenant or condition of this Lease Agreement, to be kept or
performed by any other party, shall constitute a waiver by the waiving party of
any subsequent breach of such covenant or condition, or authorize the breach or
-43-
<PAGE> 44
nonobservance on any other occasion of the same or any other covenant or
condition of this Lease Agreement.
26.07. Duplicate Originals. This Lease Agreement may be executed in one
or more counterparts, each of which shall be deemed to be a duplicate original,
but all of which, taken together, shall constitute a single instrument.
26.08. Article and Section Captions. The Article and Section captions
contained in this Lease Agreement are included only for convenience of reference
and do not define, limit, explain or modify this Lease Agreement or its
interpretation, construction or meaning, and are in no way to be construed as a
part of this Lease Agreement.
26.09. Severability. If any provision of this Lease Agreement or the
application of any provision to any Person or any circumstance shall be
determined to be invalid or unenforceable, then such determination shall not
affect any other provision of this Lease Agreement or the application of said
provision to any other Person or circumstance, all of which other provisions
shall remain in full force and effect, and it is the intention of Landlord and
of Tenant that if any provision of this Lease Agreement is susceptible of two or
more constructions, one of which would render the provision valid and the other
or others of which would render the provision invalid, then such provision shall
have a meaning which renders it valid.
26.10. Amendments in Writing; Annexes. No officer, employee, or other
servant or agent of Landlord or of Tenant is authorized to make any
representation, warranty, or other promise not contained in this Lease Agreement
in respect of the subject matter hereof. No amendment, change, termination or
attempted waiver of any of the provisions of this Lease Agreement shall be
binding upon Landlord or Tenant, unless in writing and signed by the party
affected. Each of the annexes, exhibits or instruments attached hereto are
hereby expressly incorporated herein by this reference.
26.11. No Third Party Beneficiaries. Except as otherwise expressly
provided herein: (a) the provisions of this Lease Agreement are for the
exclusive benefit of the parties hereto and are not for the benefit of any other
Person, and (b) this Lease Agreement shall not be deemed to have conferred any
rights, express or implied, upon any third Person.
26.12. Hazardous Substances. Neither party shall cause or permit any
Hazardous Substance (as hereinafter defined) to be used, stored, generated or
disposed of on or in the
-44-
<PAGE> 45
Premises, in violation of any applicable laws, without first obtaining the other
party's written consent. If Hazardous Substances are used, stored, generated or
disposed of on or in the Premises, or if the Premises become contaminated in any
manner for which a party is legally liable, such party (the "indemnitor") shall
indemnify and hold harmless the other party (the "indemnitee") from any and all
claims, damages, fines, judgments, penalties, costs, liabilities or losses
(including, without limitation, a decrease in value of the Premises, damages
caused by loss or restriction of rentable or usable space, or any damages caused
by adverse impact on marketing of the space, and any and all sums paid for
settlement of claims, attorneys' fees, consultant and expert fees) arising
during or after the Lease Term, and arising as a result of that contamination by
the indemnitor. This indemnification includes, without limitation, any and all
costs incurred because of any investigation of the site or any cleanup, removal
or restoration mandated by a federal, state or local agency or political
subdivision. Without limitation of the foregoing, if a party causes or permits
the presence of any Hazardous Substance on or in the Premises and that results
in contamination, such party shall promptly, at its sole expense, take any and
all necessary actions to return the Premises to the condition existing prior to
the presence of any such Hazardous Substance on or in the Premises. Such party
shall first obtain the other party's approval for any such remedial action. As
used herein, "Hazardous Substance" means any substance that is toxic, ignitable,
reactive or corrosive and that is regulated by any local government, the State
of Ohio, or the United States Government. "Hazardous Substance" includes any and
all materials or substances that are defined as "hazardous waste," "extremely
hazardous waste," or a "hazardous substance" pursuant to state, federal or local
governmental law. "Hazardous Substance" includes, but is not restricted to,
asbestos, polychlorinated byphenyls, petroleum, petroleum products, and
petroleum wastes.
ARTICLE 27
Exculpation
If Landlord shall fail to perform any covenant, term or condition of
this Lease Agreement, upon Landlord's part to be performed, and if, as a
consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the right,
title and interest of Landlord in the Premises and out of rents or other income
from the Premises receivable by Landlord, or out
-45-
<PAGE> 46
of the consideration received by Landlord from the sale or other disposition of
all or any part of Landlord's right, title and interest in the Premises,
subject, nevertheless, to the rights of any Fee Mortgagee, and neither Landlord
nor any member in Landlord, nor any of the shareholders, directors or officers
of any corporate member in Landlord, shall be liable for any deficiency.
[The remainder of this page 46 has intentionally
been left blank. The signatures appear on the
following page 47.]
-46-
<PAGE> 47
IN WITNESS WHEREOF, this Lease Agreement was executed on
behalf of Landlord and Tenant by the duly authorized officials or officers
thereof, to be effective as of the date first above written.
Signed and acknowledged LANDLORD:
in the presence of:
Northeast Office Venture,
As to Landlord: Limited Liability Company
By: The Georgetown Company,
Member and Manager
______________________________ By:__________________________
(witness signature) Edgar A. Lampert
Authorized Representative
______________________________
(printed name)
and
______________________________
(witness signature)
______________________________
(printed name)
As to Tenant: TENANT:
M/I Schottenstein Homes, Inc.
______________________________ By:___________________________
(witness signature) Irving E. Schottenstein
President
______________________________
(printed name)
and
______________________________
(witness signature)
______________________________
(printed name)
-47-
<PAGE> 48
STATE OF OHIO
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this _____ day of
September, 1995, by Edgar A. Lampert, an Authorized Representative of The
Georgetown Company, a New York general partnership and a member in Northeast
Office Venture, Limited Liability Company, a Delaware limited liability company,
on behalf of the partnership and limited liability company.
------------------------------
Notary Public
STATE OF OHIO
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this _____ day of
September, 1995, by Irving E. Schottenstein, President of M/I Schottenstein
Homes, Inc., an Ohio corporation, on behalf of the corporation.
------------------------------
Notary Public
-48-
<PAGE> 49
ANNEX 1
Preliminary Estimate of Development Costs
[to be supplied by parties]
<PAGE> 50
ANNEX 2
Legal Description of the Land
[to be supplied by EMH&T]
<PAGE> 51
ANNEX 3
Sub-Grade Garage Floor Plan
[to be provided]
<PAGE> 52
ANNEX 3
Schedule of Base Rent
<TABLE>
<CAPTION>
Monthly Installments
Lease Years Annual Base Rent of Base Rent
- ----------- ---------------- ------------
<S> <C> <C>
1-5 $1,131,576.00 $ 94,298.00
6-10 $1,217,693.00 $101,474.42
11-15 $1,275,104.00 $106,258.67
16-20 $1,303,810.00 $108,650.83
</TABLE>
Note
The above Schedule of Base Rent was calculated by multiplying the
"agreed development costs" for the Premises (i.e., $11,482,255) by the decimal
equivalent of the sum of (i) the "debt constant" on Landlord's permanent
mortgage loan for the Premises (i.e., .09355), plus (ii) the additional interest
factor set forth in the following table:
<TABLE>
<CAPTION>
Lease Years Additional Interest Factor
----------- --------------------------
<S> <C>
1-5 .5% (50 basis pts.)
6-10 1.25% (125 basis pts.)
11-15 1.75% (175 basis pts.)
16-20 2.00% (200 basis pts.)
</TABLE>
If Landlord either (i) closes its permanent mortgage loan on different
terms than presently contemplated, or (ii) refinances its permanent mortgage
loan at any time, or from time to time, in the future, and, as a result thereof,
the debt constant on the permanent mortgage loan is less than .09355, the Base
Rent shall be adjusted using the new debt constant in the foregoing formula.
<PAGE> 53
ANNEX 4
Permitted Title Encumbrances
The following are the Permitted Encumbrances on title to the Premises
being leased pursuant to the foregoing Lease Agreement (with all recording
information being references to instruments recorded in the Recorder's Office,
Franklin County, Ohio):
1(a). Real estate taxes and assessments which are a lien on the
Premises, but which are not, on the date of this Lease Agreement, due and
payable.
1(b). Zoning and building laws, ordinances and regulations, including
building setback lines.
2. The matters set forth in the Declaration of Covenants, Conditions
and Restrictions for Easton recorded at Official Records Vol. _____, page _____.
3. The matters set forth in the Development Agreement recorded at
Official Records Vol. _____, page _____.
4. The matters set forth in the Reciprocal Easement Agreement recorded
at Official Records Vol. _____, page _____.
5. The matters set forth in the Easement recorded at Miscellaneous
Records Vol. 5, page 469.
6. The matters set forth in the Easement recorded at Miscellaneous
Records Vol. 2, page 545.
7. The matters set forth in the Easement recorded at Miscellaneous
Records Vol. 5, page 442.
8. The matters set forth in the Easement recorded at Official Records
Vol. 330, page E-09.
9. The matters set forth in the Easement recorded at Official Records
Vol. 29304, page I-13.
<PAGE> 1
EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL DATA
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands, except per share amounts) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 527,822 $ 491,719 $ 446,060 $ 372,026 $ 269,409
Costs and expenses 511,316 472,526 427,512 359,854 261,528
Income before income taxes 16,506 19,193 18,548 12,172 7,881
Net income (1) 9,876 11,613 11,198 7,304 4,743
Net income per common share (1) 1.12 1.32 1.87 1.33 0.86
Dividends per common share (2) - - - - -
Total assets 281,143 277,614 227,958 172,176 148,497
Notes and mortgage notes payable 102,549 112,765 77,892 61,742 46,970
13 1/4% Senior Subordinated Notes
due October 1, 1996, net of discount - - - 16,664 24,870
14% Subordinated Notes due
December 1, 2001 24,513 24,513 24,513 24,513 20,000
Stockholders' equity 99,496 89,620 79,089 36,830 31,801
Stockholders' equity per common share (3) 11.31 10.18 8.99 6.70 5.78
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Information for 1993, 1992 and 1991 includes adjustments to reflect the
taxation of the Company as a C corporation using a 40% combined tax rate for
federal, state and local income taxes. Pro forma information is not provided
for 1995 and 1994 as the Company was taxed as a C corporation during those
periods. The per share information is based upon a weighted average of
8,800,000 common shares for 1995 and 1994, 5,975,068 common shares for 1993
and on a total of 5,500,000 outstanding shares of common stock for 1992 and
1991.
(2) No dividends were paid by the Company during any period in which the stock
was publicly held; however, distributions were made to S corporation
stockholders during 1993, 1992 and 1991 while the Company was privately
held. In January 1994, the Company made distributions of $1,082,000 to the
former S corporation stockholders related to the Company's earnings from
January 1, 1993 to November 8, 1993 (the date the Company's status as an S
corporation was terminated).
(3) The per share information is based on the total shares outstanding at the
end of each period (8,800,000 outstanding for 1995, 1994 and 1993 and
5,500,000 outstanding for 1992 and 1991.)
SELECTED CONSOLIDATED QUARTERLY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Three months ended
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
(Dollars in thousands, except per share amounts) 1995 1995 1995 1995
<S> <C> <C> <C> <C>
New Contracts 795 811 767 743
Homes Delivered 941 765 697 549
Backlog 1,421 1,567 1,521 1,451
Total revenue $ 169,849 $ 137,092 $ 125,305 $ 95,576
Gross margin $ 31,343 $ 24,823 $ 22,806 $ 16,889
Income before income taxes $ 6,800 $ 4,294 $ 4,002 $ 1,410
Net income $ 4,042 $ 2,575 $ 2,417 $ 842
Net income per common share $ 0.46 $ 0.29 $ 0.27 $ 0.10
Weighted average common shares
outstanding 8,800,000 8,800,000 8,800,000 8,800,000
</TABLE>
<TABLE>
<CAPTION>
Three months ended
December 31, September 30, June 30, March 31,
(Dollars in thousands, except per share amounts) 1994 1994 1994 1994
<S> <C> <C> <C> <C>
New Contracts 677 576 622 932
Homes Delivered 857 778 813 542
Backlog 1,257 1,437 1,639 1,830
Total revenue $ 145,612 $ 131,819 $ 130,367 $ 83,921
Gross margin $ 25,135 $ 23,806 $ 23,904 $ 15,320
Income before income taxes $ 5,458 $ 5,571 $ 6,077 $ 2,087
Net income $ 3,408 $ 3,411 $ 3,572 $ 1,222
Net income per common share $ 0.39 $ 0.39 $ 0.41 $ 0.14
Weighted average common shares
outstanding 8,800,000 8,800,000 8,800,000 8,800,000
</TABLE>
20
<PAGE> 2
SEGMENT INFORMATION
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
The business segments of the Company are defined as home-building and
financial services. The home-building operations include the development of land
and the sale and construction of single-family attached and detached homes. The
financial services operations include the origination of mortgage loans,
primarily for purchasers of the Company's homes. The loans and the majority of
the servicing rights are sold to outside mortgage lenders.
Intersegment revenue represents the elimination of revenue included in
financial services revenue for fees paid by the home-building operations.
Corporate expenses include salaries and other administrative expenses which are
not identifiable with a specific segment. Interest expense excludes interest
expense related to the financial services segment of $431,000, $323,000 and
$229,000 for 1995, 1994 and 1993, respectively, which is included in the
determination of Financial Services operating income. Corporate assets consist
primarily of cash, deferred taxes and other assets not associated with a
specific business segment.
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Revenue:
Home-Building $ 522,453,000 $ 487,786,000 $ 442,547,000
Financial Services 7,208,000 5,250,000 4,608,000
Intersegment (1,839,000) (1,317,000) (1,095,000)
Total Revenue $ 527,822,000 $ 491,719,000 $ 446,060,000
Operating Income:
Home-Building $ 39,039,000 $ 37,712,000 $ 36,180,000
Financial Services 2,697,000 1,524,000 1,373,000
Total 41,736,000 39,236,000 37,553,000
Corporate Expenses (11,463,000) (10,401,000) (9,269,000)
Interest Expenses (13,767,000) (9,642,000) (9,736,000)
INCOME BEFORE INCOME TAXES $ 16,506,000 $ 19,193,000 $ 18,548,000
Identifiable Assets:
Home-Building $ 243,117,000 $ 244,429,000 $ 196,372,000
Financial Services 23,694,000 16,430,000 19,573,000
Corporate 14,332,000 16,755,000 12,013,000
Total $ 281,143,000 $ 277,614,000 $ 227,958,000
Capital Expenditures:
Home-Building $ 363,000 $ 1,029,000 $ 618,000
Financial Services 19,000 437,000 42,000
Corporate 309,000 683,000 695,000
Total $ 691,000 $ 2,149,000 $ 1,355,000
Depreciation and Amortization:
Home-Building $ 916,000 $ 893,000 $ 983,000
Financial Services 159,000 124,000 87,000
Corporate 679,000 630,000 516,000
Total $ 1,754,000 $ 1,647,000 $ 1,586,000
</TABLE>
21
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
RESULTS OF OPERATIONS
CONSOLIDATED
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
TOTAL REVENUE. Total revenue for 1995 of $527.8 million set a new record
for the Company and represented a 7.3% increase over the $491.7 million reported
for 1994. This increase was primarily attributable to higher housing revenue,
which increased 5.7% to $505.8 million for 1995. This increase was due to a 7.0%
increase in the average selling price of Homes Delivered partially offset by a
1.3% decline in the number of Homes Delivered. Land revenue also increased
significantly as the number of lots developed for sale to third parties
significantly increased during 1995.
INCOME BEFORE INCOME TAXES. Income before income taxes decreased to $16.5
million for 1995 from $19.2 million for the preceding year. This decline was due
to the increase in interest expense, which increased from $10.0 million in 1994
to $14.2 million in 1995. This increase was primarily attributable to an
increase in the weighted average interest rate, due to the increases in the
prime rate of interest in late 1994 and early 1995, as well as an increase in
the average borrowings outstanding.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
TOTAL REVENUE. Total revenue in 1994 was 10.2% greater than total revenue
recorded in 1993, primarily due to the 9.5% increase in housing revenue. This
increase was caused by a 7.1% increase in the average sales price of Homes
Delivered and a 2.2% increase in the number of Homes Delivered.
INCOME BEFORE INCOME TAXES. Income before income taxes increased to $19.2
million for 1994 from $18.5 million for 1993. This increase was primarily due to
the increase in housing revenues which was partially offset by lower gross
margins and higher selling expenses.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
The Company has experienced, and expects to continue to experience,
significant seasonality and quarter-to-quarter variability in home-building
activity levels. In general, Homes Delivered increase substantially in the third
and fourth quarters. The Company believes that this seasonality reflects the
tendency of home buyers to shop for a new home in the spring with the goal of
closing in the fall or winter, as well as the scheduling of construction to
accommodate seasonal weather conditions. The following tables reflect this cycle
for the Company during the four quarters of 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
Dec. 31, Sept. 30, June 30, March 31,
(Dollars in thousands) 1995 1995 1995 1995
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $169,849 $137,092 $125,305 $95,576
In units:
New Contracts,
net of cancellations 795 811 767 743
Homes Delivered 941 765 697 549
Backlog at end
of period 1,421 1,567 1,521 1,451
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
Dec. 31, Sept. 30, June 30, March 31,
(Dollars in thousands) 1994 1994 1994 1994
<S> <C> <C> <C> <C>
Total revenue $145,612 $131,819 $130,367 $83,921
In units:
New Contracts,
net of cancellations 677 576 622 932
Homes Delivered 857 778 813 542
Backlog at end
of period 1,257 1,437 1,639 1,830
</TABLE>
HOME-BUILDING SEGMENT
The following table sets forth certain information related to the Company's
home-building segment:
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Revenue:
Housing Sales $505,810 $478,657$ 437,283
Lot and Land
Sales 16,145 8,528 4,824
Other Income 498 601 440
Total Revenue $522,453 $487,786 $442,547
Revenue:
Housing Sales 96.8% 98.1% 98.8%
Lot and Land Sales 3.1 1.8 1.1
Other Income 0.1 0.1 0.1
Total Revenue 100.0 100.0 100.0
Land and Housing
Costs 83.0 83.0 82.9
Gross Margin 17.0 17.0 17.1
General and
Administrative
Expenses 2.9 2.8 3.0
Selling Expenses 6.6 6.5 5.9
Operating Income 7.5% 7.7% 8.2%
Average sales price
of Homes Delivered $ 171.3 $ 160.1 $ 149.4
Unit data:
New Contracts 3,116 2,807 3,222
Homes Delivered 2,952 2,990 2,926
Backlog at end
of period 1,421 1,257 1,440
Average sales
price of homes
in Backlog $ 169.0 $ 176.4 $ 158.1
Aggregate sales
value of homes
in Backlog $240,095 $221,683 $227,638
</TABLE>
22
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
A home is included in "New Contracts" when the Company's standard sales
contract, which requires a deposit and generally has no contingencies other than
for buyer financing, is executed. In the Midwest Region, contracts are sometimes
accepted contingent upon the sale of an existing home. "Homes Delivered"
represents units for which the closing of the sale has occurred and title has
transferred to the buyer. Revenue and cost of revenue for a home sale are
recognized at the time of such closing.
"Backlog" represents homes for which the Company's standard sales contract
has been executed, but which are not included in Homes Delivered because
closings for the sale of such homes have not yet occurred as of the end of the
periods specified. Most cancellations of contracts for homes in Backlog occur
because customers cannot qualify for financing. These cancellations usually
occur prior to the start of construction. Since the Company arranges financing
with guaranteed rates for many of its customers, the incidence of cancellations
after the start of construction is low. In 1995, the Company delivered 2,952
homes, including most of the homes under contract in Backlog at December 31,
1994. Of the 1,257 contracts in Backlog at December 31, 1994, 16% were
cancelled. The cancellation percentages were 14% and 13% for homes in Backlog as
of December 31, 1993 and December 31, 1992, respectively.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
TOTAL REVENUE. Total revenue for the home-building segment for 1995 was $522.5
million, a 7.1% increase over total revenue recorded for 1994. This increase was
primarily attributable to the 5.7% increase in housing revenue as well as a
significant increase in land revenue. The increase in housing revenue was due to
a 7.0% increase in the average sales price of Homes Delivered, partially offset
by a 1.3% decrease in the number of Homes Delivered. The increase in the average
sales price of Homes Delivered was primarily due to the increase in the number
of Homes Delivered in the Columbus Showcase and Maryland divisions where the
average sales prices are significantly higher than the Company's average due to
the types of product offered. In addition, the Maryland and Palm Beach County
divisions experienced significant increases in the average sales price of Homes
Delivered. In Maryland, the increase was primarily due to the opening of a new
subdivision where the average sales price is significantly higher than the
division's average and where sales were particularly strong in 1995. In Palm
Beach County, the Company expanded the product lines offered to include higher
priced homes, allowing the division to build in more upscale areas of the
market.
The decrease in the number of Homes Delivered during 1995 as compared to the
prior year was primarily due to the lower number of homes in backlog at December
31, 1994 as compared to the preceding year end as well as lower New Contracts
recorded during the first quarter of 1995. The Company believes New Contracts
recorded during the first quarter of 1995 were adversely affected by consumer
uncertainty regarding the overall strength of the economy and how it might
affect their future.
The Company also recorded a significant increase in revenue from lot and land
sales, which increased to $16.1 million for 1995 from $8.5 million for the
preceding year. This increase was primarily attributable to the Washington, D.C.
market. Late in 1994, the Company completed development of the first phase of a
six phase land development project. Development is currently in progress on the
second phase of this project. The Company has entered into contracts to sell a
portion of the lots developed in both of these phases to outside home builders.
The Company believes that lot and land revenue will remain at relatively high
levels for the next few years in comparison to historical amounts as the Company
continues to develop this and other projects where a portion of the lots will be
sold to outside home builders.
HOME SALES AND BACKLOG. The Company recorded an 11.0% increase in the number
of New Contracts recorded in 1995 as compared to the prior year. This increase
was primarily attributable to the Columbus Horizon, Indianapolis, Cincinnati and
Raleigh divisions. The Company's lower priced Horizon line of homes was first
introduced in Columbus in May 1993 and sales have continued to increase as new
locations have been opened. Late in 1994, the Company introduced its Horizon
line of homes in both Indianapolis and Cincinnati where it has found strong
acceptance among first-time home buyers. The Raleigh division was able to
increase the number of New Contracts recorded in 1995 primarily due to the
opening of new subdivisions in more desirable locations. The number of New
Contracts recorded in future periods will be dependent on future economic
conditions, consumer confidence and interest rates available to potential home
buyers.
At December 31, 1995, the total sales value of the Company's Backlog of 1,421
homes was approximately $240.1 million, representing an 8.3% increase in sales
value and a 13.0% increase in units from the levels reported at December 31,
1994. The average sales price of homes in backlog decreased 4.2% from December
31, 1994 to December 31, 1995. This decline was primarily due to the
introduction of the Company's lower priced Horizon line into several other
markets in 1995 as well as a significant increase in the Backlog for the
Columbus Horizon division whose average sales price is significantly below the
Company's average.
GROSS MARGIN. The overall gross margin for the housing segment was 17.0% for
both 1995 and 1994. A slight increase in housing gross margins was partially
offset by a decrease in gross margins from lot and land sales. The increase in
housing gross margins was primarily due to the Columbus Horizon, Columbus
Showcase and Maryland divisions where the Company began closing homes in
subdivisions which are in more desirable locations. The decrease in gross
margins from lot and land sales was primarily due to the sale of a tract of
commercial real estate in 1994 which produced a gross margin significantly
higher than normal lot sales. The Company recorded an after-tax gain of
approximately $425,000 from this sale. Excluding the effects of
23
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
this sale, the gross margin from land sales was actually higher in the current
year as the Company has begun to develop lots in certain areas specifically for
sale to third parties where gross margins would be expected to be higher than on
other lot sales where the Company will sometimes accept lower gross margins in
order to reduce inventory levels.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of total revenue increased from 2.8% for 1994 to 2.9% for 1995. This
increase was primarily due to two factors. Bonus expense for regional and
division managers increased approximately $1.1 million from 1994 to 1995. These
bonuses are based on customer satisfaction ratings, net income and increases in
net income over prior year amounts for the individual's division or region.
While net income for the Company as a whole actually decreased from 1994 to
1995, the net income of certain individual divisions and regions increased
significantly in the current year earning these managers higher bonuses in the
current year. In addition, real estate tax expense and homeowners association
dues increased approximately $890,000 in 1995 as the Company's investment in
developed lots and raw land awaiting development increased over amounts held
during 1994.
SELLING EXPENSES. Selling expenses increased from $31.6 million for 1994 to
$34.3 million for 1995 and as a percentage of total revenue increased from 6.5%
for 1994 to 6.6% for 1995. In terms of actual dollars spent, a portion of the
increase was due to the 5.7% increase in housing revenue which caused a
corresponding increase in variable selling expenses. In addition, bonus expense
recorded for 1995 for both sales managers and individual salespersons was higher
due to the increase in the number of New Contracts recorded in the current year
as well as new bonus plans for individual salespersons which were adopted in
several of our divisions in 1995. Additional expenses were also incurred in 1995
related to the opening of model homes in new subdivisions.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
TOTAL REVENUE. Total revenue for the home-building segment for 1994 was $487.8
million, a 10.2% increase over the $442.5 million reported for 1993. This
increase was primarily due to a 9.5% increase in housing revenues. This increase
was caused by a 7.1% increase in the average sales price of Homes Delivered and
a 2.2% increase in the number of Homes Delivered. The largest increase in the
average sales price of Homes Delivered occurred in the Tampa, Cincinnati,
Charlotte and Raleigh divisions. These divisions have expanded the products
offered to include higher priced homes and have also been required to increase
sale prices due to rising land costs and increases in fees.
The increase in the number of Homes Delivered related primarily to the
Columbus market where the Company introduced its Horizon product line in May
1993. The Company delivered its first Horizon homes in September 1993 and since
that time, this product line has enjoyed strong acceptance among first-time home
buyers.
HOME SALES AND BACKLOG. The Company recorded a 12.9% decrease in the number of
New Contracts entered into in 1994 compared to 1993. The number of New Contracts
recorded in 1994 was lower in all markets except Palm Beach County which
experienced a 4.0% increase. The Company believes that these decreases resulted
from the increase in interest rates available to home buyers, the uncertainty
surrounding future interest rates and reduced buyer enthusiasm from people who
have refinanced their homes at interest rates significantly below the rates
currently available.
The total sales value of the Company's Backlog of 1,257 homes at December 31,
1994 was approximately $221.7 million representing a 2.6% decrease in sales
value and a 12.7% decrease in units from levels reported at December 31, 1993.
GROSS MARGIN. The overall gross margin for the housing segment was 17.0% in
1994 compared to 17.1% in 1993. Housing margins decreased from 17.2% for 1993 to
16.7% for 1994 while gross margins from lot and land sales increased from 1.9%
to 23.9%. The decrease in housing gross margins was primarily attributable to
the Columbus market where shortages of qualified subcontractors in certain areas
of the construction trades resulted in construction delays. Higher costs were
also incurred in 1994 from the unusually severe winter weather experienced in
many of our markets. The significant increase in gross margins from lot and land
sales was due to the sale of a tract of commercial real estate which produced a
gross margin significantly higher than normal lot sales. The Company recorded an
after-tax gain of approximately $425,000 from this sale.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of total revenue decreased from 3.0% in 1993 to 2.8% in 1994. This
decrease was brought about by the 10.2% increase in total revenue and
management's efforts to control increases in general and administrative
expenses.
SELLING EXPENSES. Selling expenses as a percentage of total revenue increased
from 5.9% for 1993 to 6.5% for 1994. A portion of this increase was due to
higher outside realtor commissions as a result of more buyers using outside
Realtors as well as higher commission rates being paid. In addition, with the
softening demand for new homes, the Company increased advertising and
promotional expenditures in an effort to stimulate sales.
24
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
FINANCIAL SERVICES SEGMENT
The following table sets forth certain information related to the Company's
financial services segment:
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Number of Loans
Originated 1,873 1,455 1,234
Revenue:
Loan Origination Fees $2,258 $1,688 $1,327
Sale of Servicing and
Marketing Gains 3,047 2,207 2,060
Other 1,903 1,355 1,221
Total Revenue 7,208 5,250 4,608
General & Administrative
Expenses 4,511 3,726 3,236
Operating Income $2,697 $1,524 $1,373
</TABLE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
TOTAL REVENUE. Total revenue for the year ended December 31, 1995 was $7.2
million, a 37.3% increase over total revenue recorded for 1994. Loan origination
fees increased 33.8% from 1995 to 1994, primarily due to the 28.7% increase in
the number of loans originated as well as an increase in the average loan
amount. The increase in the number of loans originated during 1995 as compared
to the preceding year was due to an increase in the percentage of the parent
company's home sales which were financed through M/I Financial. In addition, M/I
Financial branch offices were opened in the Tampa and Maryland markets during
1995.
Revenue from sale of servicing and marketing gains increased 38.1% to $3.0
million in 1995. This increase was primarily due to the increase in the number
of loans originated in the current year as well as a falling interest rate
environment which increased marketing gains during the current year. While M/I
Financial's revenue increased due to the falling interest rates in the current
year, the company seeks to minimize the risks associated with a rising interest
rate market by using hedging methods whereby the Company has the option, but is
not required, to complete the hedging transaction. M/I Financial's revenue from
sale of servicing and marketing gains was also positively influenced by a
significant shift from adjustable rate loans to fixed rate loans which offer
greater income potential through larger servicing release premiums.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 21.1% to $4.5 million for the year ended December 31, 1995 as compared
to the $3.7 million recorded in 1994. This increase was primarily due to the
opening of the two new branches in 1995 as well as increases in personnel costs
related to the significant increase in loans originated.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
TOTAL REVENUE. Total revenue for the year ended December 31, 1994 was $5.3
million, a 13.9% increase over total revenue recorded for 1993. Loan origination
fees increased 27.2% from 1993 to 1994, primarily due to the 17.9% increase in
the number of loans originated as well as an increase in the average loan
amount. The increase in the number of loans originated during 1994 as compared
to the preceding year was due to an increase in the percentage of the parent
company's home sales which were financed through M/I Financial.
Revenue from sale of servicing and marketing gains increased 7.1% from 1993
to 1994. This increase was due to the increase in the number of loans
originated, partially offset by a shift in the types of loans originated from
predominately fixed rate loans to more variable rate loans which decreases the
profit potential.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 15.1% to $3.7 million for the year ended December 31, 1994 compared to
the $3.2 million recorded in 1993. This increase was primarily due to increased
personnel costs. In mid 1993, several changes were made in the management of M/I
Financial in an effort to strengthen the management team and refocus the
business to better serve its customers as well as increase profitability.
OTHER OPERATING RESULTS
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses for the year ended December 31, 1995 totaled $11.5
million, or 2.2% of total revenue, a 10.2% increase from the $10.4 million or
2.1% of total revenue, recorded for 1994. This increase was primarily due to
expenses incurred in conjunction with the Company's new office building which is
currently under construction (See Note 10 to the Consolidated Financial
Statements).
Corporate general and administrative expenses for the year ended December
31, 1994 totaled $10.4 million or 2.1% of total revenue, a 12.2% increase from
the $9.3 million or 2.1% of total revenue recorded for 1993. This increase in
general and administrative expenses primarily related to expenses incurred in
conjunction with the conversion of the Companies accounting and costing systems
to a new computer system. These costs included consulting fees, additional
personnel costs for system support as well as additional depreciation expense
related to the new hardware and software purchased in the current year. This
conversion was undertaken to increase operating efficiencies and provide
management with better information in a more timely manner.
INTEREST EXPENSE. Corporate and home-building interest for the year ended
December 31, 1995 totaled $13.8 million, a 42.8% increase over the $9.6 million
recorded for the preceding year. This increase was due to increases in the
weighted aver-
25
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
age interest rate and the average borrowings outstanding as well as a decrease
in the net amount of interest capitalized during 1995 as compared to 1994. The
interest rate on the bank borrowings is based on the prime rate of interest and
increased five times during late 1994 and once more in early 1995 as the prime
rate of interest increased. The increase in the average borrowings outstanding
was primarily used to fund the increase in inventories of both houses under
construction as well as land and lot inventories.
Corporate and home-building interest for the year ended December 31, 1994
totaled $9.6 million, relatively unchanged from the $9.7 million recorded for
the year ended December 31, 1993. Interest expense for 1993 included $616,000 of
redemption premium and write-off of unamortized debt issuance costs and original
issue discount related to the Senior Subordinated Notes which were redeemed in
December 1993. The expected decrease in interest expense was offset by an
increase in average borrowings during 1994 and a decreased portion of interest
costs being capitalized. The weighted average interest rate remained constant
from 1993 to 1994. The increase in interest rates on the Company's bank
borrowings due to increases in the prime rate of interest was offset by the
effect of paying off the 13 1/4% Senior Subordinated Notes in December 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing needs depend upon its sales volume, asset turnover,
land acquisition and inventory balances. The Company has incurred substantial
indebtedness, and expects to incur indebtedness in the future, to fund the
growth of its home-building activities. Historically, the Company's principal
sources of funds for construction and development activities has been from
internally generated cash and from bank borrowings which are primarily
unsecured.
At December 31, 1995, the Company had bank borrowings outstanding of $87.0
million under its loan agreement which permits aggregate borrowings not to
exceed the lesser of: $136.0 million in revolving credit loans and $25.0
million, including $4.0 million for joint ventures in which the Company is a
partner, in the form of letters of credit; or the Company's borrowing base which
is calculated based on specified percentages of certain types of assets held by
the Company as of each month end. The loan agreement matures September 30, 2000,
at which time the unpaid balance of the revolving credit loans outstanding shall
be due and payable. Under the terms of the loan agreement, the banks make an
annual determination as to whether or not to extend the maturity date of the
commitments by one year. Borrowings under this agreement are at the bank's prime
rate and are primarily unsecured. The loan agreement also provides for seasonal
loans of up to $30.0 million which are available from March 1st through December
31st during each year of the agreement. The loan agreement contains restrictive
covenants which require the Company, among other things, to maintain minimum net
worth and working capital amounts and to maintain certain financial ratios. The
loan agreement also places limitations on the amount of additional indebtedness
that may be incurred by the Company, the acquisition of undeveloped land, on
dividends that may be paid and on the aggregate cost of certain types of
inventory the Company can hold at any one time.
An additional $15.2 million was outstanding as of December 31, 1995 under
the M/I Financial loan agreement, which permitted borrowings of $25.0 million to
finance mortgage loans initially funded by M/I Financial for customers of the
Company and a limited amount for loans to others. This agreement limits the
borrowings to 95% of the aggregate face amount of the mortgages and contains
restrictive covenants requiring M/I Financial to maintain minimum net worth and
certain minimum financial ratios. Borrowings under this agreement are at the
bank's prime rate and are unsecured. The M/I Financial Loan Agreement terminates
on July 19, 1996 and the unpaid balance of such loans are payable on this date.
In addition, there were outstanding Subordinated Notes in the principal
amount of $24.5 million at December 31, 1995 and approximately $19.5 million of
completion bonds and letters of credit at December 31, 1995. At December 31,
1995, the Company had $55.5 million of unused borrowing availability under its
loan agreements.
At December 31, 1995, the Company had the right to borrow up to $157.7
million under its credit facilities, including $21.7 million under the M/I
Financial Credit Agreement (95% of the aggregate face amount of eligible
mortgage loans.) The Company also has a seasonal loan of up to $30.0 million
available from March 1st through December 31st during each year of the loan
agreement.
During the fourth quarter of 1993, the Company sold 3.3 million shares of
common stock in its initial public offering. Of the net proceeds of
approximately $42.2 million, approximately $32.2 million was used to reduce
debt, including the redemption of the outstanding Senior Subordinated Notes. The
remaining $10.0 million of the net proceeds was used to make a distribution to
the former S Corporation stockholders of previously taxed S Corporation
earnings. Net income from housing and lot and land sales are the Company's
primary sources of net cash provided by operating activities. Net cash provided
by operating activities in 1995 was $14.6 million. Net cash used by operating
activities was $19.8 million in 1994 and $10.4 million in 1993. The change from
net cash used by operating activities in 1994 to net cash provided by operating
activities in 1995 was primarily due to the change in cash used/provided by
changes in working capital components, primarily inventories, which provided
$5.8 million of cash in 1995 while using $38.8 million in the preceding year.
The Company has reached agreement with certain unrelated parties for the
development and occupancy of an approximately 85,000 square foot building. The
four current office locations in Columbus, Ohio will be consolidated into one
building in an effort to improve operating efficiencies. The building will be
built, owned and operated, by a limited liability company in which the Company
has a 1/3 interest (the "LLC"). The building will primarily be financed through
borrowings of the LLC. The LLC has obtained financing for the construction of
the building and also has obtained commitments for the permanent financing. The
Company has entered into a long-term operating lease for the premises with the
LLC. Construction of the build-
26
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
ing has commenced and is expected to be completed by the third quarter of 1996.
The Company believes that any commitments arising from this transaction would
not significantly affect its liquidity or capital resources.
Over the past several years, the Company's land development activities and
land holdings have increased significantly and the Company expects this trend to
continue into the foreseeable future. These increases are primarily due to the
shortage of qualified land developers in certain of our markets as well as the
competitive advantages that can be achieved by developing land internally rather
than purchasing lots from developers or other competing home builders. This is
particularly true for our Horizon product line where, due to the price points we
are targeting, lots are generally not available from third party developers at
economically feasible prices. The Company continues to purchase lots from
outside developers under option contracts, when possible, to limit our risk;
however, we will continue to evaluate all of our alternatives to satisfy our
demand for lots in the most cost effective manner.
In 1994, the Company entered into two land purchase contracts which require
a greater investment than the Company normally commits and could significantly
impact the Company's liquidity. On January 31, 1994, the Company closed on the
first phase of a six phase land purchase contract in the Washington, D.C.
market. This first phase was purchased for $6.6 million and was developed into
106 single-family and townhouse lots. Based on the demand for lots in this area
and the strong sales in the first phase of this development, the Company
purchased the second phase of this development through a series of three
closings in May, June and July of 1995 and expects to purchase the third phase
in the third quarter of 1996. The total purchase price for the second phase was
approximately $6.4 million and this section will be developed into 122
single-family and townhouse lots. The Company sold a portion of the developed
lots from the first phase to outside home builders and has entered into similar
contracts to sell a portion of the lots in the second phase to outside home
builders. The Company has an option to purchase each of the remaining phases. If
the Company purchases all six phases, the total purchase price will be
approximately $38.9 million and the land will be developed into approximately
710 lots.
In August 1994, the Company completed the purchase of a parcel of land in
the Columbus market for $7.5 million which will be developed into approximately
375 lots. The Company has completed development of several phases of this
project into a total of 168 lots. Model homes were opened in this development in
April 1995 and sales have remained strong.
As its capital requirements increase, the Company may increase its
borrowings under its bank line of credit. In addition, the Company continually
explores and evaluates alternative sources from which to obtain additional
capital. The Company believes that it's currently available financial resources
are sufficient to meet it's current and near-term capital requirements; however,
the extent of the Company's ability to invest in additional land and land
development activities in the long-term will be dependent on its ability to
obtain additional capital.
At December 31, 1995 mortgage notes payable outstanding were $349,000
secured by lots and land with a recorded book value of $1.2 million. The Company
does not currently have any arrangements for additional capital nor is there any
assurance that it will be able to obtain additional capital.
INTEREST RATES AND INFLATION
The Company's business is significantly affected by general economic conditions
of the United States and, particularly, by the impact of interest rates. Higher
interest rates may decrease the potential market by making it more difficult for
home buyers to qualify for mortgages or to obtain mortgages at interest rates
acceptable to them. Increases in interest rates also would increase the
Company's interest expense as the rate on the revolving loans is based upon
floating rates of interest. The weighted average interest rates on the Company's
outstanding debt were 10.1% for 1995 and 9.0% for 1994 and 1993.
In conjunction with its mortgage banking operations, the Company uses
hedging methods to reduce its exposure to interest rate fluctuations between the
commitment date of the loan and the time the loan closes. (See Note 16 to the
Consolidated Financial Statements.)
In recent years, the Company generally has been able to raise prices by
amounts at least equal to its cost increases and, accordingly, has not
experienced any detrimental effect from inflation. Where the Company develops
lots for its own use, inflation may increase the Company's profits because land
costs are fixed well in advance of sales efforts. The Company is generally able
to maintain costs with subcontractors from the date a home sales contract is
accepted; however, in certain situations unanticipated costs may occur between
the time a sales contract is executed and the time a home is constructed, which
results in lower gross profit margins.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters discussed in
this annual report are forward-looking statements which involve risks and
uncertainties, including but not limited to economic, competitive and
governmental factors affecting the Company's markets, prices and other facets of
its operations.
27
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands, except per share amounts) 1995 1994 1993
<S> <C> <C> <C>
Revenue (Notes 1 and 4) $ 527,822 $ 491,719 $ 446,060
Costs and expenses:
Land and housing (Notes 1, 2 and 4) 431,961 403,554 365,525
General and administrative (Notes 1 and 2) 30,660 27,208 25,687
Selling (Notes 1 and 2) 34,497 31,799 26,335
Interest (Notes 1, 4, 6, 7, 8 and 9) 14,198 9,965 9,965
Total costs and expenses 511,316 472,526 427,512
Income before income taxes 16,506 19,193 18,548
Income taxes (credit) (Notes 1 and 14):
Current 8,399 8,101 3,204
Deferred (1,769) (521) (751)
Total income taxes 6,630 7,580 2,453
Net income $ 9,876 $ 11,613 $ 16,095
Pro forma net income (Note 17) (Unaudited) - - $ 11,198
Net income per common share (Note 1) $ 1.12 $ 1.32 -
Pro forma net income per common share (Note 17) (Unaudited) - - $ 1.87
Weighted average common shares outstanding 8,800,000 8,800,000 5,975,068
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands, except par values) 1995 1994
<S> <C> <C>
ASSETS
Cash, including cash in escrow (Note 1) $ 8,136 $ 14,059
Receivables (Note 3) 23,612 17,347
Inventories (Notes 1, 2, 4, 5, and 7):
Single-family lots, land and land development costs 120,806 122,532
Houses under construction 86,110 85,410
Model homes and furnishings (less accumulated
depreciation: 1995 - $823; 1994 - $1,654) 20,971 19,830
Land purchase deposits 381 542
Office furnishings, transportation and
construction equipment - at cost (less accumulated
depreciation: 1995 - $6,106; 1994 - $5,705) (Note 1) 2,392 3,337
Investment in unconsolidated joint ventures and
limited partnerships (Notes 2, 4, and 5) 11,641 8,191
Other assets (Notes 1 and 14) 7,094 6,366
TOTAL $ 281,143 $ 277,614
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable banks - home-building operations (Note 6) $ 87,000 $ 97,800
Note payable bank - financial operations (Note 6) 15,200 14,630
Mortgage notes payable (Note 7) 349 335
Subordinated notes (Note 9) 24,513 24,513
Accounts payable 29,219 31,436
Accrued compensation 7,336 5,542
Income taxes payable (Notes 1 and 14) 2,771 1,169
Accrued interest, warranty and other (Note 1) 9,787 6,426
Customer deposits 5,472 6,143
TOTAL LIABILITIES $181,647 $187,994
Commitments and Contingencies (Notes 4, 6, 10, 13, 15 and 16)
Stockholders' equity (Notes 1, 2, 6, 9, 11, 12 and 13):
Preferred stock - $.01 par value; authorized 2,000,000
shares; none outstanding - -
Common stock - $.01 par value; authorized - 38,000,000
shares; issued and outstanding - 8,800,000 shares 88 88
Additional paid-in capital 50,573 50,573
Retained earnings 48,835 38,959
TOTAL STOCKHOLDERS' EQUITY 99,496 89,620
TOTAL $ 281,143 $ 277,614
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 11
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Common Stock Additional Stockholders'
Shares Paid-in Retained Notes
(Dollars in thousands) Outstanding Amount Capital Earnings Receivable
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 5,400 - $ 3,323 $ 33,699 $ (192)
Net income - - - 16,095 -
Distributions to stockholders
(Note 1) - - - (6,339) -
Principal repayments (Note 2) - - - - 192
Redemption of Delaware
corporation shares (Note 12) (2,700) - - (10,000) -
Reincorporation in State
of Ohio (Note 12) 5,497,300 $55 (55) - -
Issuance of common stock,
net of costs of $3,994
(Note 12) 3,300,000 33 42,173 - -
Transfer S corporation
retained earnings to
additional paid-in capital (Note 1) - - 5,027 (5,027) -
Gain on repurchase of M/I
Financial minority interest
(Note 2) - - 105 - -
Balance at December 31, 1993 8,800,000 88 50,573 28,428 -
Net Income - - - 11,613 -
Distributions to stockholders (Note 1) - - - (1,082) -
Balance at December 31, 1994 8,800,000 88 50,573 38,959 -
Net Income - - - 9,876 -
BALANCE AT DECEMBER 31, 1995 8,800,000 $88 $50,573 $ 48,835 -
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,876 $ 11,613 $ 16,095
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,754 1,647 1,586
Deferred income tax credit (1,769) (521) (751)
Decrease (increase) in receivables (6,265) 3,865 (11,513)
Decrease (increase) in inventories 5,775 (38,807) (28,444)
Decrease (increase) in other assets 861 (845) (784)
Increase (decrease) in accounts payable (2,217) 6,652 7,659
Increase (decrease) in income taxes payable 1,602 (1,453) 2,485
Increase (decrease) in accrued liabilities 5,155 (1,694) 3,392
Equity in undistributed income of
unconsolidated joint ventures and limited partnerships (132) (242) (110)
Net cash provided (used) by operating activities 14,640 (19,785) (10,385)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to model and office furnishings, transportation
and construction equipment (691) (2,149) (1,355)
Proceeds from property disposals 335 254 1,042
Investment in unconsolidated joint ventures (10,423) (9,752) (10,515)
Distributions from unconsolidated joint ventures
and limited partnerships 1,477 823 303
Net cash used in investing activities (9,302) (10,824) (10,525)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable banks:
Cash proceeds from borrowings 396,793 438,816 350,612
Principal repayments (407,023) (403,891) (332,687)
Principal repayments of mortgage notes payable (360) (571) (2,081)
Principal repayments of senior subordinated notes - - (16,737)
Net increase (decrease)in customer deposits (671) 747 887
Proceeds from the sale of stock, net of costs of $3,994 - - 42,206
Repurchase of M/I Financial minority interest - - (281)
Principal repayments of stockholders' notes receivable - - 192
Distributions paid to former S corporation stockholders (1,082) (16,339)
Net cash provided (used) by financing activities (11,261) 34,019 25,772
Net increase (decrease) in cash (5,923) 3,410 4,862
Cash balance at beginning of year 14,059 10,649 5,787
Cash balance at end of year $ 8,136 $ 14,059 $ 10,649
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest - net of amount capitalized $ 14,007 $ 10,634 $ 8,734
Income taxes - net $ 6,797 $ 9,554 $ 719
NON-CASH TRANSACTIONS DURING THE YEAR:
Land acquired with mortgage notes payable $ 374 $ 519 $ 306
Single-family lots distributed from unconsolidated
joint ventures $ 5,628 $ 11,588 $ 6,663
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of M/I Schottenstein Homes, Inc. and its wholly
owned subsidiary, M/I Financial Corp. ("M/I Financial") (see Note 2). All
significant intercompany transactions have been eliminated. The accompanying
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company is engaged primarily in the construction and sale of
single-family residential property in Columbus and Cincinnati Ohio; Tampa,
Orlando and Palm Beach County, Florida; Charlotte and Raleigh, North Carolina;
Indianapolis, Indiana; and the Virginia and Maryland suburbs of Washington, D.C.
The Company designs, builds and sells single-family houses on finished lots
which it purchases ready for home construction or which it develops. The Company
also purchases undeveloped land to develop finished lots for future construction
of single-family houses and for sale to others.
The Company also conducts mortgage banking activities through M/I Financial
which originates mortgage loans primarily for purchasers of the Company's homes.
The loans and the majority of the servicing rights are sold to outside mortgage
lenders.
CASH IN ESCROW. Cash includes cash held in escrow of $407,000 and $703,000
at December 31, 1995 and 1994, respectively, pending completion of construction.
Cash was primarily held in one bank at December 31, 1995 and three banks at
December 31, 1994.
INVENTORIES. Inventories are recorded at cost which is not in excess of net
realizable value. Houses under construction include lot costs, construction
costs, capitalized interest and indirect costs. These costs, other than
interest, are charged, under the specific identification method, to cost of
sales as housing sales are closed. Previously capitalized interest is included
in interest expense when the related housing sales are closed. Lot costs are
transferred to houses under construction from land costs when house construction
commences.
Depreciation on model home furnishings is recorded using an accelerated
method over the estimated useful lives of the assets.
Land and land development costs are allocated to development phases based
on relative estimated market values. Development costs, capitalized interest and
real estate taxes incurred during land development are allocated to each
residential lot in a development phase based on relative estimated market
values.
INTEREST. The Company capitalizes interest during development and
construction. Capitalized interest is charged to interest expense as the related
inventory is delivered. The summary of total interest for 1995, 1994 and 1993 is
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Interest capitalized, beginning of year $ 7,322 $ 6,139 $ 4,649
Interest incurred 14,436 11,148 11,455
Interest expensed (14,198) (9,965) (9,965)
Interest capitalized, end of year $ 7,560 $ 7,322 $ 6,139
</TABLE>
REVENUE RECOGNITION. Revenue and cost of revenue from the sale of real
estate are recognized at the time title is transferred to the buyer and the
buyer has met the minimum down payment requirement. Discounts and other sales
incentives are included as a reduction of homebuilding revenue.
Included in revenue are homebuilding sales of $505,810,000, $478,657,000
and $437,283,000 for 1995, 1994 and 1993 and revenue from lot and land sales of
$16,145,000, $8,528,000 and $4,824,000 for 1995, 1994 and 1993. Land and housing
costs related to homebuilding sales were $418,697,000, $397,063,000 and
$360,791,000 for 1995, 1994 and 1993 and costs relating to lot and land sales
were $13,264,000, $6,491,000 and $4,734,000 for 1995, 1994 and 1993. No indirect
expenses are allocated to land cost of sales.
M/I Financial recognizes revenue from application fees when received while
revenue from loan origination fees are recorded when the loan closes. M/I
Financial sells its loans and the majority of its servicing rights to outside
mortgage lenders. The revenue from these transactions is recorded when the loan
is sold. M/I Financial uses various methods to hedge the interest rate risk
related to the loans it has committed to make to home buyers (see Note 16).
Gains or losses resulting from these hedging transactions are included in
revenue when the gain or loss from the sale of the related loan is recorded.
WARRANTY COST. The Company provides a two-year limited warranty on
materials and workmanship and a twenty-year limited warranty against major
structural defects. An estimated amount of warranty cost is provided for each
house at the time of sale. Warranty expense was $4,475,000, $4,256,000 and
$3,886,000 for 1995, 1994 and 1993.
DEPRECIATION. Depreciation of office furnishings, transportation and
construction equipment is computed using both straight-line and accelerated
methods based on the estimated useful lives of the assets. Depreciation expense
was $1,574,000, $1,466,000 and $1,199,000 in 1995, 1994 and 1993.
AMORTIZATION. The costs incurred in connection with the issuance of the
Subordinated Notes and Exchange Subordinated Notes (see Note 9) are being
amortized over the terms of the related debt using the effective yield method.
Unamortized debt issuance costs of $798,000 and $978,000 are included in other
32
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets at December 31, 1995 and 1994.
ADVERTISING. The Company expenses advertising costs as incurred. The
Company expensed $4,963,000, $4,831,000 and $3,267,000 in 1995, 1994 and 1993,
respectively.
INCOME TAXES. Effective November 8, 1993, in conjunction with the initial
public offering (see Note 12), the Company terminated its S corporation status
and, accordingly, is fully subject to federal, state and local taxes from that
date forward. Upon termination of the Company's S corporation status, the
remaining S corporation retained earnings were transferred to additional paid-in
capital. The Company's subsidiary, M/I Financial, has been taxed as a C
corporation under the Internal Revenue Code of 1986, as amended (the "Code")
during all periods presented.
NET INCOME PER COMMON SHARE. Net income per common share is calculated
based on the weighted average shares outstanding during the period.
PROFIT SHARING. The Company has a trusteed deferred profit-sharing plan
which covers substantially all Company employees and permits members to make
contributions to the plan on a pre-tax salary reduction basis in accordance with
the provisions of Section 401(k) of the Code. Company contributions to the plan
are made at the discretion of the Board and totalled $620,000 in 1995, $715,000
in 1994 and $700,000 in 1993 (including payment of expenses incurred by the
plan).
DISTRIBUTIONS TO STOCKHOLDERS. Distributions to stockholders represent
payments by the Company to its stockholders while it was an S corporation. In
January 1994, the Company made distributions of $1,082,000 to the former S
corporation stockholders related to the Company's earnings from January 1, 1993
to November 8, 1993 (the date the Company's status as an S corporation was
terminated).
IMPACT OF ACCOUNTING STANDARDS. In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". SFAS 121 amends the impairment provisions
of the existing accounting literature which required the Company's home-building
inventories to be carried at the lower of cost or net realizable value. Under
the new provisions, if the Company's home-building inventories are determined to
be impaired, the impairment loss is measured based upon the difference between
the fair value of the asset and its carrying amount.
SFAS 121 is required to be adopted no later than the first quarter of 1996.
The Company has not completed its analysis of the impact of this new
pronouncement; however, based on preliminary estimates, the Company believes
that implementation of the provisions of this statement will not have a material
impact on the financial condition or results of operations of the Company.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires adoption no later than fiscal years beginning
after December 15, 1995.
Under SFAS 123, companies are encouraged, but not required, to adopt the
fair value method of accounting for employee stock-based transactions. Companies
are also permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but
would be required to disclose in a note to the financial statements pro forma
net income and earnings per share, as if the Company had applied the new method
of accounting. The Company has determined that it will not adopt the expense
recognition provisions of this standard; therefore, the new standard will have
no effect on the Company's financial condition or results of operations.
2. TRANSACTIONS WITH RELATED PARTIES
Related parties are entities owned by, or partially owned by, certain
stockholders of the Company or joint ventures and limited partnerships (see
Notes 4 and 5) in which investments by the Company are accounted for by the
equity method.
The Company purchased lots and undeveloped land from the joint ventures or
limited partnerships of approximately $4,286,000, $3,608,000 and $3,507,000 for
1995, 1994 and 1993. The Company received distributions of $5,628,000,
$11,588,000 and $6,663,000 in developed lots at joint venture cost in 1995, 1994
and 1993, respectively. The Company also had notes receivable from limited
partnerships (see Note 3).
Until September 1993, an officer of the Company was associated with a law
firm that provided legal services for the Company. The Company paid the firm
approximately $779,000 (of which $39,000 was paid by joint ventures and limited
partnerships) in 1993. Additionally, approximately $1,436,000 of title insurance
premiums and closing fees were paid to wholly owned subsidiaries of the firm in
1993.
Immediately prior to the consummation of the initial public offering (see
Note 12), the Company repurchased the 20.1% share of the common stock of M/I
Financial previously owned by the former controlling officers/stockholders of
the Company. These shares were repurchased for the same price at which they were
originally sold to them, resulting in a gain of $105,000 which was credited to
additional paid-in capital. The remaining balance of the related notes
receivable owed to the Company was also repaid at that time.
Eric J. Schottenstein, formerly Senior Vice President/Regional Manager -
Carolina Region, resigned his position with the Company in December 1993. Mr.
Schottenstein has agreed to serve as a consultant to the Company for a period of
three years, for which he was paid $207,000 in 1995 and $215,000 in 1994 and
will be paid approximately $200,000 in 1996.
33
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
<S> <C> <C>
Mortgage loans to be funded $22,797 $15,418
Notes receivable from limited partnerships 440 1,219
Accounts receivable 356 265
Accounts receivable from limited partnerships 19 445
Total receivables $23,612 $17,347
</TABLE>
Mortgage loans to be funded relate to houses sold and closed prior to
December 31 and which were subsequently funded by unrelated lending
institutions. Notes receivable from limited partnerships represent advances from
the Company which bear interest at the prime rate plus 1/2%, total of 9.00% at
December 31, 1995 and 1994. One of the notes was paid off in 1995 and the
maturity date of the remaining note was extended to December 31, 1996 (see Note
5).
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
At December 31, 1995, the Company had interests varying from 33% to 50% in
each of 18 separate joint ventures (33%-4 and 50%-14), three formed in 1995,
three formed in 1994, four formed in 1993 and eight formed prior to 1993 that
engage in land development activities. These interests are recorded using the
equity method of accounting.
The Company receives its percentage interest share of joint venture profits
or, in the majority of the joint ventures, its percentage interest share of the
lots developed in the form of a capital distribution. The Company received
distributions of $5,628,000, $11,588,000 and $6,663,000 in developed lots at
joint venture cost in 1995, 1994 and 1993, respectively, and purchased lots
totalling $1,333,000, $1,105,000 and $589,000 in 1995, 1994 and 1993 from the
joint ventures.
Summarized condensed combined financial information for the joint ventures
as of December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 is as follows:
SUMMARIZED CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1995 1994
<S> <C> <C>
Assets:
Single family lots,
land and land development costs $ 25,173 $18,152
Other assets 1,284 1,188
Total $ 26,457 $19,340
Liabilities:
Debt $ 2,544 $ 2,510
Other liabilities 2,132 1,748
Total liabilities 4,676 4,258
Partners' equity:
Company's equity 9,890 7,043
Other 11,891 8,039
Total Partners' equity 21,781 15,082
Total $ 26,457 $19,340
</TABLE>
SUMMARIZED CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Revenue $ 2,335 $ 1,706 $ 1,233
Costs and expenses 2,158 1,809 1,519
Income (loss) $ 177 $ (103) $ (286)
</TABLE>
Joint venture earnings include $45,000 and $44,000 of intercompany profit
not included in the Company's earnings for 1995 and 1994. In addition, included
in the Company's investment in the joint ventures at December 31, 1995 and 1994,
is $413,000 and $376,000 of capitalized interest and other costs relating to the
joint ventures. Letters of credit totalling approximately $3,794,000 are
outstanding at December 31, 1995, which serve as completion bonds for joint
venture development work in progress.
5. INVESTMENT IN LIMITED PARTNERSHIPS
In 1992, the Company became a limited partner in two limited partnerships
formed by affiliates to purchase and develop land and lots. The operations of
the limited partnerships have primarily been funded through advances from the
Company. The advances outstanding as of December 31, 1995 and 1994 totaled
$465,000 and $1,712,000, respectively, including $440,000 and $1,219,000 of
notes receivable which bear interest at prime plus 1/2%. Also included in these
advances are $6,000 and $48,000 of deposits for lots the Company has an option
to purchase from the limited partnerships at fair market value. The Company
purchased lots totalling $2,953,000, $2,503,000 and $2,918,000 from the limited
partnerships in 1995, 1994 and 1993, respectively.
For both limited partnerships, the land and related debt are recorded on
the limited partnerships' books and the Company is not contingently liable for
any of the limited partnerships' debt; therefore, the only amounts related to
the limited partnerships that are recorded on the Company's books are the
advances noted above, and the Company's investment in the limited partnerships
of $262,000 and $772,000 respectively at December 31, 1995 and 1994. The Company
recorded income from the limited partnerships of $85,000, $322,000 and $294,000
respectively for 1995, 1994 and 1993.
6. NOTES PAYABLE BANKS
At December 31, 1995, the Company had revolving credit loans of $87,000,000
and letters of credit totalling $14,748,000 outstanding under a loan agreement
with five banks. Borrowings under the loan agreement are at the banks' prime
rates and are primarily unsecured. This agreement provides for total borrowings
not to exceed the lesser of $136,000,000 under the revolving credit agreement
and $25,000,000, including $4,000,000 for joint ventures in which the Company is
a partner, in the form of letters of credit or the Company's borrowing base
which is calculated based on specified percentages of certain types of assets
held by the Company as of each month end. This revolving credit facility and
letter of credit commitment
34
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
will be in effect until September 30, 2000, at which time the unpaid balance of
the revolving credit loans outstanding shall be due and payable. Under the terms
of the agreement, the banks shall make an annual determination as to whether or
not to extend the maturity date of the commitment by one year. The Company is
required to pay interest at the prime rate of the banks and a commitment fee of
1/4 of 1% based upon the average daily unused portion of the note. The loan
agreement also provides for seasonal loans of up to $30,000,000 which are
available from March 1st through December 31st during each year of the agreement
The terms of the loan agreement contain restrictive covenants which require the
Company, among other things, to maintain minimum net worth and working capital
amounts and to maintain certain financial ratios. This agreement also places
limitations on the amount of additional indebtedness that may be incurred by the
Company, the acquisition of undeveloped land, on dividends that may be paid and
on the aggregate cost of certain types of inventory the Company can hold at any
one time. At December 31, 1995, approximately $7,500,000 of retained earnings
was available for cash dividends and repurchases of the Company's stock under
the terms of the loan agreement.
At December 31, 1995, $15,200,000 was outstanding under a revolving loan
agreement with a bank ("M/I Financial Loan Agreement") pursuant to which the
Company and M/I Financial were permitted to borrow up to $25,000,000 to finance
mortgage loans initially funded by M/I Financial for customers of the Company
and a limited amount for loans to others. This agreement limits the borrowings
to 95% of the aggregate face amount of the mortgages and contains restrictive
covenants requiring M/I Financial to maintain minimum net worth and certain
minimum financial ratios. Borrowings under this agreement are at the bank's
prime rate and are unsecured. A commitment fee of 1/4 of 1% is payable quarterly
based upon the average daily unused portion of the note. The M/I Financial Loan
Agreement terminates on July 19, 1996 and the unpaid balance of such loans are
payable on this date.
At December 31, 1995, the Company had $49,000,000 of unused borrowing
availability under its loan agreement, as well as $6,500,000 under the M/I
Financial Loan Agreement. The interest rate of the Company's bank borrowings was
8.5% at December 31, 1995 and 1994 and 6.0% at December 31, 1993.
7. MORTGAGE NOTES PAYABLE
Mortgage notes payable of $349,000 and $335,000 at December 31, 1995 and
1994, represent mortgages collateralized by land and lots (book value of
$1,162,000 and $1,184,000 at December 31, 1995 and 1994, respectively). The
notes payable outstanding at December 31, 1995 are noninterest bearing; however,
the seller of the land securing the notes will share in the profits the Company
recognizes from developing this land.
8. SENIOR SUBORDINATED NOTES
In December 1993, the Company redeemed the remaining $12,987,000 of its 13
1/4% senior subordinated notes issued in 1986 at 103% of their principal amount,
plus accrued interest. Included in interest expense in 1993 is $616,000 that
represents the write-off of unamortized issuance costs and original issue
discount and redemption premium resulting from the redemption of the Senior
Subordinated Notes.
9. SUBORDINATED NOTES
In December 1991, the Company issued $20,000,000 principal amount of 14%
Subordinated Notes and in April 1992, issued an additional $4,513,000. The
Subordinated Notes provide for semi-annual interest payments and are
subordinated to all senior indebtedness as defined in the related indenture.
Annual sinking fund payments of 15% of the aggregate amount of the Subordinated
Notes commence December 1, 1997, and a final payment of 40% of the total amount
of such notes is due at maturity on December 1, 2001. The notes are redeemable
in whole or in part at the option of the Company on or after December 1, 1996,
at 106% of the principal amount until December 1, 1997 and declining 1 1/2%
annually through 2000.
The indenture related to the Subordinated Notes restricts certain payments by
the Company, including payments for cash dividends and repurchase of the
Company's stock. The indenture also provides for mandatory redemption of 15% of
the total principal amount of the Subordinated Notes at par plus accrued
interest if the Company's consolidated net worth, as defined, is less than
$3,500,000 for two consecutive quarters. In the event of a Change of Control (as
defined in the related indenture), holders of $20,000,000 of Subordinated Notes
will be entitled to require redemption of its Subordinated Notes for the full
principal amount (plus accrued interest), but holders of the remaining Notes
will not have a similar right.
10. LEASE COMMITMENTS
The Company leases various office facilities, automobiles, model furnishings,
and model homes under operating leases with remaining terms of one to twenty
years. At December 31, 1995, the future minimum rental commitments, totalling
$29,889,000 under noncancelable operating leases with initial terms in excess of
one year are as follows: 1996 - $3,710,000; 1997 - $2,219,000; 1998 -
$1,642,000; 1999 - $1,439,000; 2000 - $1,142,000 and thereafter - $19,737,000.
Included in the amount for 1996 is $153,000 related to a lease with a related
party for approximately 27,000 square feet of office space. This lease expires
August 31, 1996 at which time the Company has the right to extend the lease on a
month-to-month basis at the current rental rate. Rental expense was $358,000 for
1995, $367,000 for 1994 and for a lesser amount of space was $262,000 for 1993
(which included operating expense increases).
In 1995, the Company became a 1/3 owner of a limited liability company (the
"LLC") formed to build, own and operate an approximately 85,000 square foot
office building in Columbus, Ohio. The Company plans to consolidate its four
Columbus locations into this building and has entered into a 20 year lease
35
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the premises with the LLC. This building is currently under construction and
the Company anticipates moving into this new facility in September 1996.
Included in the amounts above are rentals of $337,000 for 1996; $1,132,000 for
1997; $1,132,000 for 1998; $1,132,000 for 1999; $1,132,000 for 2000; and
$19,737,000 for all periods thereafter.
The Company's total rental expense was $5,023,000, $3,699,000 and $3,174,000
for 1995, 1994 and 1993, respectively.
11. PREFERRED STOCK
The Articles of Incorporation authorize the issuance of 2,000,000 shares of
preferred stock, par value $.01 per share. The Board of Directors of the Company
is authorized, without further stockholder action, to divide any or all shares
of the authorized preferred stock into series and to fix and determine the
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereon, of any series
so established, including voting powers, dividend rights, liquidation
preferences, redemption rights and conversion privileges. The Board of Directors
has not authorized any series of preferred stock and there are no plans,
agreements or understandings for the authorization or issuance of any shares of
preferred stock.
12. COMMON STOCK
In November 1993, the Company was reincorporated in Ohio and the 2,700
remaining outstanding shares of the Delaware corporation were exchanged for
5,500,000 shares of the new Ohio corporation. In November 1993, the Company sold
3,300,000 shares of common stock at $14.00 per share in its initial public
offering. The net proceeds from the sale were approximately $42,206,000.
13. STOCK INCENTIVE PLAN
In November 1993, the Company adopted the M/I Schottenstein Homes, Inc. 1993
Stock Incentive Plan. This plan includes stock option, restricted stock and
stock appreciation programs, under which an aggregate of 425,000 shares of
common stock have been reserved for issuance. No awards have been granted under
the restricted stock and stock appreciation programs. Stock options granted in
1995 were awarded at the market price at the close of business on the date of
grant. Options awarded vest 20% annually over five years and expire after ten
years. The following summarizes the transactions under the stock option program:
<TABLE>
<CAPTION>
Option Price
Shares Per Share
<S> <C> <C>
Options outstanding
January 1, 1994 - -
Granted 94,200 $16.125
Forfeited (10,000) $16.125
Options outstanding
December 31, 1994 84,200 $16.125
Granted 68,200 $6.75-$9.25
Forfeited (18,000) $6.75-$16.125
Options outstanding
December 31, 1995 134,400 $6.75-$16.125
Options exercisable at
December 31, 1995 40,920 $6.75-$16.125
</TABLE>
In February 1996, the Company granted options for an additional 60,700 shares
with the same terms as the previous awards, at a price of $10.875 which
represents the market value at the date of grant.
14. INCOME TAXES
Effective January 1, 1991, the Company elected to be taxed as an S
corporation under the Code. Effective November 8, 1993, the Company terminated
its S corporation status. From that date forward, the Company's income was fully
subject to federal, state and local taxes. In connection with the Company's S
corporation termination, deferred income tax benefits of $475,000 were
recognized in the fourth quarter of 1993.
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Federal $5,312 $6,216 $1,847
State and local 1,318 1,364 606
Total $6,630 $7,580 $2,453
</TABLE>
Reconciliations of the differences between income taxes computed at federal
statutory tax rates and consolidated provisions for income taxes are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Federal taxes at statutory rate $5,777 $6,718 $6,306
Deduct federal tax effect of
S corporation status - - (3,823)
State taxes -
net of federal tax benefit 857 887 400
Realization of deferred tax
benefit as a result of change
from S corporation status - - (475)
Other (4) (25) 45
Total $6,630 $7,580 $2,453
</TABLE>
36
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
<S> <C> <C>
Assets:
Warranty, insurance and other
reserves $1,855$ 846
Inventory writedowns 749 436
Inventories 584 360
State taxes 226 236
Depreciation 67 -
Other 420 306
Total deferred tax assets 3,901 2,184
Liabilities:
Prepaid expenses and deferred charges 854 854
Depreciation - 52
Total deferred tax liabilities 854 906
Net deferred tax asset $ 3,047 $1,278
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Company had sales agreements outstanding, some of
which have open contingencies for approval of financing, to deliver 1,421 homes
with an aggregate purchase price of approximately $240,095,000. At December 31,
1995, the Company had options and contingent purchase contracts to acquire land
and developed lots with an aggregate purchase price of approximately
$145,781,000. Purchase of the properties is contingent upon satisfaction of
certain requirements by the Company and the sellers.
At December 31, 1995, the Company had outstanding approximately $19,525,000
of completion bonds and standby letters of credit, which serve as completion
bonds for development work in progress, deposits on land and lot purchase
contracts and miscellaneous deposits.
The Company is involved from time to time in routine litigation. Management
does not believe that the ultimate resolution of this litigation will be
material to the financial condition or results of operations of the Company.
16. FINANCIAL INSTRUMENTS
M/I Financial offers fixed and adjustable rate mortgage loans, primarily to
buyers of the Company's homes. At December 31, 1995, M/I Financial is committed
to fund $55.0 million in mortgage loans to home buyers. Of this total,
approximately $6.0 million are adjustable rate loans and $49.0 million are fixed
rate loan commitments. The loans are granted at current market interest rates
and the rate is guaranteed through the transfer of the title of the home to the
buyer (the "Closing"). M/I Financial uses hedging methods to reduce its exposure
to interest rate fluctuations between the commitment date of the loan and the
time the home closes. The method to be used is determined at the time of the
loan commitment based on the market conditions and alternatives available. M/I
Financial's policy requires that there be no interest rate risk on loans closed
waiting to be sold. Also according to policy, the pipeline of committed loans is
to be hedged at 70 to 95% of the committed balance which is the balance of loans
expected to be closed.
One of the methods that M/I Financial uses to hedge the interest rate risk
relative to unclosed loans is to purchase commitments from outside investors to
acquire the loans at the interest rate at which the loan will be closed. The
cost of these purchase commitments is recorded as an asset and is expensed as
loans are closed under the related commitments. Any remaining unused balance is
expensed when the commitment expires or earlier, if the Company determines that
they will be unable to use the entire commitment prior to its expiration date.
At December 31, 1995, the Company had approximately $36.0 million of commitments
to deliver mortgage loans to outside investors.
The Company also hedges its interest rate risk using forward sales of
mortgage-backed securities. In these agreements, the Company agrees to sell and
later agrees to buy similar but not identical mortgage-backed securities.
Generally, the agreements are fixed-coupon agreements whereby the interest rate
and maturity date of both transactions are approximately the same and are
established to correspond with the closing of the fixed interest rate mortgage
loan commitments of the Company. The difference between the two values of the
mortgage-backed securities in the agreements at settlement provide a hedge on
the interest rate risk exposure in the mortgage loan commitments and is included
in the gain or loss on the sale of the loans to third party investors. At
December 31, 1995, these agreements matured within 90 to 120 days. Securities
under forward sales agreements averaged approximately $12.5 million during 1995
and the maximum amounts outstanding at any month end during 1995 was $16.0
million. Hedging gains of $456,000 were deferred at year end as the mortgage
loans and commitment contracts qualified for hedge accounting.
To reduce the credit risk associated with accounting losses, which would be
recognized if counterparties failed completely to perform as contracted, the
Company limits the entities that management can enter into a commitment with to
the primary dealers in the market. The risk of accounting loss is the difference
between the market rate at the time a counterparty fails and the rate the
Company committed to for the mortgage loans and any purchase commitments
recorded with the counterparty.
The following table presents the carrying amounts and fair values of the
Company's financial instruments and the notional amount and fair value of the
Company's unrecognized financial instruments at December 31, 1995 and 1994. SFAS
No. 107 "Disclosures about Fair Value of Financial Instruments" defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
37
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1995 1994
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets
Cash, including
cash in escrow $ 8,136 $ 8,136 $ 14,059 $ 14,059
Receivables:
Mortgage loans
to be funded 22,797 23,029 15,418 15,556
Notes receivable 440 440 1,219 1,219
Accounts
receivable 375 375 710 710
Prepaid financing
commitments 213 -- 518 268
Liabilities
Notes payable
banks 102,200 102,200 112,430 112,430
Mortgage notes
payable 349 349 335 335
Subordinated notes 24,513 23,346 24,513 23,346
Accounts payable 29,219 29,219 31,436 31,436
Other liabilities 25,366 25,366 19,280 19,280
Unrecognized Financial
Instruments:
Letters of credit -- 84 -- 90
Commitments to
extend real estate
loans -- 687 -- 605
Forward sale of
mortgage-backed
securities -- (163) -- 20
</TABLE>
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments at December 31, 1995 and
1994:
CASH, ACCOUNTS RECEIVABLE, ACCRUED LIABILITIES AND ACCOUNTS PAYABLE. The
carrying amounts of these items are a reasonable estimate of their fair value.
MORTGAGE LOANS TO BE FUNDED. The estimated fair value of mortgage loans to be
funded at December 31, 1995 and 1994 includes the estimated gains and servicing
rights which will be realized when the loans are sold. The estimated fair value
was determined based on market quotes at December 31, 1995 and 1994.
NOTES RECEIVABLES. The carrying value of notes receivable from limited
partnerships, which bear interest at the prime rate plus 1/2%, approximates
their fair value at December 31, 1995 and 1994.
PREPAID FINANCING COMMITMENTS. The estimated fair value was determined
using fees currently charged for similar commitments and by estimating the
prepaid financing commitments that will be utilized by the Company.
NOTES PAYABLE BANKS. The interest rates currently available to the Company
fluctuate with the prime rate of the lending institutions and thus their
carrying value is a reasonable estimate of fair value.
MORTGAGE NOTES PAYABLE. The estimated fair value was determined by
comparing the interest rates and terms of the note agreements to debt
instruments with similar terms and remaining maturities.
SUBORDINATED NOTES. The estimated fair value was determined using the bid
price for the debt instruments at December 31, 1995 and 1994.
LETTERS OF CREDIT. Letters of credit and outstanding completion bonds of
$19,525,000 and $19,020,000 represent potential commitments at December 31, 1995
and 1994. The letters of credit generally expire within one to two years. The
estimated fair value of letters of credit was determined using fees currently
charged for similar arrangements.
COMMITMENTS TO EXTEND REAL ESTATE LOANS AND FORWARD SALE OF MORTGAGE-BACKED
SECURITIES. The fair value of these financial instruments was determined based
upon market quotes at December 31, 1995 and 1994.
17. PRO FORMA INFORMATION (UNAUDITED)
The pro forma financial information for the year ended December 31, 1993
presents the pro forma effects on the historical financial information as if the
Company had always been taxed as a C corporation, using an effective 40% tax
rate for federal, state and local income taxes.
Pro forma net income per common share includes the shares which would have
been outstanding if the reincorporation in the state of Ohio had occurred on
January 1, 1993 and also reflects the increase in average common shares
outstanding from the 3,300,000 shares sold in the public offering.
18. BUSINESS SEGMENTS
The business segment information for 1995, 1994 and 1993 included on page
21 of this annual report is an integral part of these financial statements.
38
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
[D & T Letterhead]
To the Stockholders and Directors of
M/I Schottenstein Homes, Inc.:
We have audited the accompanying consolidated balance sheets of M/I
Schottenstein Homes, Inc. and its subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of M/I Schottenstein Homes,
Inc. and its subsidiary at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Columbus, Ohio
February 29, 1996
39
<PAGE> 21
STOCK MARKET PRICES AND DIVIDENDS
The Company's common stock is traded on the New York Stock Exchange under
the symbol "MHO". As of March 15, 1996, there were approximately ____ record
holders of the Company's common stock. At that time there were 8,800,000 shares
issued and outstanding. The table below presents the highest and lowest prices
for the Company's common stock during each of the quarters presented:
<TABLE>
<CAPTION>
1995 HIGH LOW
<S> <C> <C>
First Quarter $ 7.63 $ 6.50
Second Quarter $ 9.50 $ 6.50
Third Quarter $10.38 $ 8.75
Fourth Quarter $12.50 $ 9.38
<CAPTION>
1994 HIGH LOW
<S> <C> <C>
First Quarter $18.25 $14.75
Second Quarter $15.25 $10.88
Third Quarter $13.25 $10.00
Fourth Quarter $10.25 $ 6.75
</TABLE>
No dividends have been paid in the period following the completion of the
public offering and the Company does not anticipate paying cash dividends on its
common stock in the near future. The Company's loan agreement and Subordinated
Note Indenture place limits on the amount of dividends the Company can pay (see
Footnotes 6 and 9 to the consolidated financial statements).
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-76518 of M/I Schottenstein Homes, Inc. on Form S-8 of our report dated
February 29, 1996, incorporated by reference in this Annual Report on Form 10-K
of M/I Schottenstein Homes, Inc. for the year ended December 31, 1995.
Deloitte & Touche LLP
Columbus, Ohio
March 28, 1996
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes and
appoints Irving E. Schottenstein and Kerrii B. Anderson, and each of them, as
his true and lawful attorney-in-fact and agent for him and in his name, place
and stead, in any and all capacities, to sign the 1995 Annual Report on Form
10-K for M/I Schottenstein Homes, Inc., and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with the
foregoing, as he might or could do in person, and hereby ratifies and confirms
all that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
Date: March 29, 1996 /s/ Eric J. Schottenstein
-----------------------------
Eric J. Schottenstein
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes and
appoints Irving E. Schottenstein and Kerrii B. Anderson, and each of them, as
his true and lawful attorney-in-fact and agent for him and in his name, place
and stead, in any and all capacities, to sign the 1995 Annual Report on Form
10-K for M/I Schottenstein Homes, Inc., and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with the
foregoing, as he might or could do in person, and hereby ratifies and confirms
all that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
Date: March 29, 1996 /s/ Friedrich K.M. Bohm
-----------------------------
Friedrich K.M. Bohm
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes and
appoints Irving E. Schottenstein and Kerrii B. Anderson, and each of them, as
her true and lawful attorney-in-fact and agent for her and in her name, place
and stead, in any and all capacities, to sign the 1995 Annual Report on Form
10-K for M/I Schottenstein Homes, Inc., and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with the
foregoing, as she might or could do in person, and hereby ratifies and confirms
all that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
Date: March 29, 1996 /s/ Holly S. Kastan
-----------------------------
Holly S. Kastan
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes and
appoints Irving E. Schottenstein and Kerrii B. Anderson, and each of them, as
his true and lawful attorney-in-fact and agent for him and in his name, place
and stead, in any and all capacities, to sign the 1995 Annual Report on Form
10-K for M/I Schottenstein Homes, Inc., and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with the
foregoing, as he might or could do in person, and hereby ratifies and confirms
all that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
Date: March 29, 1996 /s/ John B. Gerlach
-----------------------------
John B. Gerlach
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes and
appoints Irving E. Schottenstein and Kerrii B. Anderson, and each of them, as
her true and lawful attorney-in-fact and agent for her and in her name, place
and stead, in any and all capacities, to sign the 1995 Annual Report on Form
10-K for M/I Schottenstein Homes, Inc., and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with the
foregoing, as she might or could do in person, and hereby ratifies and confirms
all that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
Date: March 29, 1996 /s/ Lenore G. Schottenstein
-----------------------------
Lenore G. Schottenstein
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes and
appoints Irving E. Schottenstein and Kerrii B. Anderson, and each of them, as
his true and lawful attorney-in-fact and agent for him and in his name, place
and stead, in any and all capacities, to sign the 1995 Annual Report on Form
10-K for M/I Schottenstein Homes, Inc., and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with the
foregoing, as he might or could do in person, and hereby ratifies and confirms
all that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
Date: March 29, 1996 /s/ Lewis R. Smoot, Sr.
-----------------------------
Lewis R. Smoot, Sr.
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes and
appoints Irving E. Schottenstein and Kerrii B. Anderson, and each of them, as
his true and lawful attorney-in-fact and agent for him and in his name, place
and stead, in any and all capacities, to sign the 1995 Annual Report on Form
10-K for M/I Schottenstein Homes, Inc., and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with the
foregoing, as he might or could do in person, and hereby ratifies and confirms
all that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
Date: March 29, 1996 /s/ Robert H. Schottenstein
-----------------------------
Robert H. Schottenstein
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes and
appoints Irving E. Schottenstein and Kerrii B. Anderson, and each of them, as
his true and lawful attorney-in-fact and agent for him and in his name, place
and stead, in any and all capacities, to sign the 1995 Annual Report on Form
10-K for M/I Schottenstein Homes, Inc., and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection with the
foregoing, as he might or could do in person, and hereby ratifies and confirms
all that said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
Date: March 29, 1996 /s/ Steven Schottenstein
-----------------------------
Steven Schottenstein
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR THEN ENDED OF M/I SCHOTTENSTEIN HOMES, INC.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,136
<SECURITIES> 0
<RECEIVABLES> 23,612
<ALLOWANCES> 0
<INVENTORY> 228,268
<CURRENT-ASSETS> 260,016
<PP&E> 8,498
<DEPRECIATION> 6,106
<TOTAL-ASSETS> 281,143
<CURRENT-LIABILITIES> 54,585
<BONDS> 24,862
0
0
<COMMON> 88
<OTHER-SE> 99,408
<TOTAL-LIABILITY-AND-EQUITY> 281,143
<SALES> 521,955
<TOTAL-REVENUES> 527,822
<CGS> 431,961
<TOTAL-COSTS> 431,961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,198
<INCOME-PRETAX> 16,506
<INCOME-TAX> 6,630
<INCOME-CONTINUING> 9,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,876
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
