<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____
Commission file number 1-12434
M/I SCHOTTENSTEIN HOMES, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1210837
---- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
3 Easton Oval, Suite 500, Columbus, Ohio 43219
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(Address of principal executive offices) (Zip Code)
(614) 418-8000
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(Telephone number)
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
-------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $.01 per share: 8,777,561 shares
outstanding as of August 13, 1999
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<TABLE>
<CAPTION>
M/I SCHOTTENSTEIN HOMES, INC.
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1999 and 1998 4
Consolidated Statement of Stockholders' Equity
for the Six Months Ended
June 30, 1999 5
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1999 and 1998 6
Notes to Interim Unaudited Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Exhibit Index 25
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------
JUNE 30, December 31,
(Dollars in thousands, except par values) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash $ 11,654 $ 10,068
Cash held in escrow 1,244 870
Receivables 39,715 42,361
Inventories:
Single-family lots, land and land development costs 199,027 170,115
Houses under construction 190,358 136,965
Model homes and furnishings - at cost (less accumulated depreciation:
June 30, 1999 - $48;
December 31, 1998 - $45) 17,603 15,054
Land purchase deposits 2,113 1,366
Building, office furnishings, transportation and construction equipment - at
cost (less accumulated depreciation:
June 30, 1999 - $5,782;
December 31, 1998 - $4,962) 19,775 20,015
Investment in unconsolidated joint ventures and limited liability companies 14,512 17,850
Other assets 10,943 12,483
- --------------------------------------------------------------------------------------------------------------
TOTAL $506,944 $427,147
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable banks - homebuilding operations $131,900 $ 70,000
Note payable bank - financial services operations 17,810 23,500
Mortgage notes payable 11,731 11,793
Senior subordinated notes 50,000 50,000
Accounts payable 64,236 51,364
Accrued compensation 9,226 18,131
Income taxes payable 2,939 4,380
Accrued interest, warranty and other 18,537 19,430
Customer deposits 16,890 11,909
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 323,269 260,507
- --------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock - $.01 par value;
authorized 2,000,000 shares;
none outstanding -
Common stock - $.01 par value;
authorized 38,000,000 shares;
issued 8,813,061 shares 88 88
Additional paid-in capital 61,037 61,067
Retained earnings 122,845 105,485
Treasury stock - at cost - 16,600 shares held in treasury at
June 30, 1999 (295) -
- --------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 183,675 166,640
- --------------------------------------------------------------------------------------------------------------
TOTAL $506,944 $427,147
==============================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands, except per share information) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $213,513 $175,606 $362,337 $292,836
- ---------------------------------------------------------------------------------------------------------------
Costs and expenses:
Land and housing 167,212 140,307 281,801 231,578
General and administrative 11,485 9,494 19,585 16,481
Selling 13,769 11,576 24,092 20,397
Interest 3,572 3,011 6,708 5,659
- ---------------------------------------------------------------------------------------------------------------
Total costs and expenses 196,038 164,388 332,186 274,115
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 17,475 11,218 30,151 18,721
- ---------------------------------------------------------------------------------------------------------------
Income taxes:
Current 6,532 4,570 10,314 6,069
Deferred 372 23 1,597 1,526
- ---------------------------------------------------------------------------------------------------------------
Total income taxes 6,904 4,593 11,911 7,595
- ---------------------------------------------------------------------------------------------------------------
Net income $ 10,571 $ 6,625 $ 18,240 $ 11,126
===============================================================================================================
Per share data:
Basic $ 1.20 $ 0.80 $ 2.07 $ 1.40
Diluted $ 1.19 $ 0.79 $ 2.05 $ 1.38
===============================================================================================================
Weighted average shares outstanding:
Basic 8,796,249 8,323,049 8,804,222 7,965,576
Diluted 8,879,407 8,419,804 8,887,203 8,061,186
===============================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
Common Stock
-------------------------- Additional
(Dollars in thousands, except Shares Paid-In Retained Treasury
per share information) Outstanding Amount Capital Earnings Stock
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 8,813,061 $88 $61,037 $105,485 -
Net income - - - 18,240 -
Dividends to stockholders,
$0.10 per common share - - - (880) -
- -
Purchase of treasury shares (22,400) - - - ($398)
Stock options exercised 5,800 - (30) - 103
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 8,796,461 $88 $61,037 $122,845 ($295)
================================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 18,240 $ 11,126
Adjustments to reconcile net income to net cash
used in operating activities:
Loss from property disposals 7 131
Depreciation and amortization 1,050 804
Deferred income taxes 1,597 1,503
Decrease (increase) in cash held in escrow (374) 2,179
Decrease in receivables 10,838 8,750
Decrease in receivables 2,646 10,838
Increase in inventories (75,312) (61,335)
Decrease (increase) in other assets (138) 346
Increase in accounts payable 12,872 9,463
Decrease in income taxes payable (1,441) (1,710)
Decrease in accrued liabilities (9,798) (8,601)
Equity in undistributed income of unconsolidated joint
ventures and limited liability companies (305) (255)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (50,956) (35,511)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (733) (515)
Investment in unconsolidated joint ventures and limited liability companies (7,092) (7,556)
Distributions from unconsolidated joint ventures and limited liability companies 443 639
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,382) (7,432)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings - net of repayments 56,210 14,160
Mortgage notes payable:
Proceeds from borrowings -- 342
Principal repayments (62) --
Net increase in customer deposits 4,981 5,073
Dividends paid (880) (380)
Proceeds from exercise of stock options 73 164
Proceeds from sale of treasury stock-net of expenses -- 24,559
Payments to acquire treasury stock (398) --
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 59,924 43,918
- -------------------------------------------------------------------------------------------------------------------------
Net increase in cash 1,586 975
Cash balance at beginning of year 10,068 10,836
- -------------------------------------------------------------------------------------------------------------------------
Cash balance at end of period $ 11,654 $ 11,811
=========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $ 5,926 $ 4,821
Income taxes $ 12,417 $ 7,761
NON-CASH TRANSACTIONS DURING THE PERIOD:
Land acquired with mortgage notes payable $ -- $ 342
Single-family lots distributed from unconsolidated joint ventures and
limited liability companies $ 10,207 $ 5,856
=========================================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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--
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission for interim financial information. The results of
operations for the six months ended June 30, 1999 and 1998 are not
necessarily indicative of the results for the full year.
It is suggested that these financial statements be read in conjunction with
the financial statements, accounting policies and financial notes thereto
included in the Company's Annual Report to Shareholders for the year ended
December 31, 1998.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring accruals) which
are necessary for a fair presentation of financial results for the interim
periods presented.
NOTE 2. AMENDED LOAN AGREEMENT
On April 20, 1999, the Company amended its bank loan agreement. The amended
loan agreement modified certain covenants. The remaining terms of the
agreement remain substantially the same as those in the agreement that it
replaces.
NOTE 3. 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 the three and six months
ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest capitalized, beginning of period $8,057 $8,307 $7,957 $7,620
Interest incurred 3,903 3,599 7,139 6,934
Interest expensed (3,572) (3,011) (6,708) (5,659)
- --------------------------------------------------------------------------------------------------------------
Interest capitalized, end of period $8,388 $8,895 $8,388 $8,895
=============================================================================================================
</TABLE>
NOTE 4. CONTINGENCIES
At June 30, 1999, the Company had options and contingent purchase contracts
to acquire land and developed lots with an aggregate purchase price of
approximately $180.6 million.
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NOTE 5. PER SHARE DATA
Basic EPS is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during each
period. Diluted computations include common share equivalents, when dilutive.
NOTE 6. ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting
for Derivative Instruments and Hedging Activities." In June 1999 FASB issued
Statement of Financial Standards No. 137 (SFAS 137) "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133." SFAS 137 deferred the adoption of SFAS 133
until our 2001 annual financial statements. The Company has not yet
determined what, if any, impact the adoption of this standard will have on
its financial statements.
NOTE 7. DIVIDENDS
On April 22, 1999, the Company paid to the stockholders of record on April 1,
1999, a cash dividend of $0.05 per share (aggregate dividends paid of
$440,000). On April 22, 1999, the Board of Directors approved a $0.05 per
share cash dividend payable to stockholders of record of its common stock on
July 1, 1999, which was paid on July 22, 1999 (aggregate dividends paid of
$440,000).
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M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
FORM 10-Q - PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
CONSOLIDATED
Total Revenue. Total revenue for the three months ended June 30, 1999
increased $37.9 million and for the six months ended June 30, 1999 increased
$69.5 million over the comparable periods of 1998. For the three-month period,
homebuilding revenue increased $37.1 million, and financial services revenue
increased $0.8 million. For the six-month period, homebuilding revenue increased
$66.6 million and financial services revenue increased $2.9 million. The
increase in homebuilding for both the three- and six-month periods was
attributable to housing revenue increases of $38.7 million and $67.1 million,
respectively, offset by land revenue decreases of $1.7 million and $0.5 million,
respectively. The increase in housing revenue for both the three- and six-month
periods was attributable to an increase in the number of Homes Delivered of 125
and 205, respectively, and an increase in the average sales price of Homes
Delivered of 7.6% and 8.9%, respectively. For both periods, the increase in
financial services revenue was primarily attributable to increases in the number
of loans originated and the gains recognized from the sale of loans. The
decrease in land revenue for the three and six months ended June 30, 1999 was
primarily due to a decrease in lot sales to outside homebuilders in the
Charlotte division and a lower average sales price on lots sold to third parties
in the Washington, D.C. market from the comparable periods of 1998.
Income Before Income Taxes. Income before income taxes for the three
months ended June 30, 1999 increased 55.8% and for the six months ended June 30,
1999 increased 61.1% over the comparable periods of 1998. The increase for the
three months ended June 30, 1999 related primarily to homebuilding, where income
before income taxes increased from $7.6 million to $12.7 million and financial
services, where income before income taxes increased from $2.1 million to $2.8
million. The increase for the six months ended June 30, 1999 also related
primarily to homebuilding, where income before income taxes increased from $10.6
million to $18.1 million and financial services, where income before income
taxes increased from $4.3 million to $6.9 million. The increase in homebuilding
for both the three- and six-month periods was due to the increase in the number
of Homes Delivered and an increase in the average sales price of Homes
Delivered. The increase in homebuilding was also due to an increase in gross
margin. Housing gross margin increased from 18.9% and 19.4% for the three and
six months ended June 30, 1998 to 20.5% for both the three and six months ended
June 30, 1999. The increase in financial services was primarily due to an
increase in the number of loans originated and the significant increase in
income from the sale of servicing and marketing gains due to increased loan
volume and the favorable interest rate environment during the last half of 1998
and the first half of 1999.
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<TABLE>
<CAPTION>
SEGMENT INFORMATION
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C>
Homebuilding $210,090 $172,969 $354,242 $287,607
Financial services 4,460 3,620 9,959 7,088
Intersegment (1,037) (983) (1,864) (1,859)
- ----------------------------------------------------------------------------------------------------------------
Total Revenue $213,513 $175,606 $362,337 $292,836
================================================================================================================
Income Before Income Taxes:
Homebuilding $ 12,749 $ 7,623 $ 18,074 $ 10,623
Financial Services 2,793 2,081 6,893 4,273
Unallocated amounts 1,933 1,514 5,184 3,825
- ----------------------------------------------------------------------------------------------------------------
Total Income Before Income Taxes $ 17,475 $ 11,218 $ 30,151 $ 18,721
===================================================================================================================
</TABLE>
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<TABLE>
<CAPTION>
HOMEBUILDING SEGMENT
The following table sets forth certain information related to the homebuilding
segment:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C>
Housing sales $207,003 $168,333 $347,579 $280,456
Land and lot sales 2,737 4,451 5,853 6,355
Other income 350 185 810 796
- -------------------------------------------------------------------------------------------------------------------
Total Revenue $210,090 $172,969 $354,242 $287,607
===================================================================================================================
Revenue:
Housing sales 98.5% 97.3% 98.1% 97.5%
Land and lot sales 1.3 2.6 1.7 2.2
Other income 0.2 0.1 0.2 0.3
- -------------------------------------------------------------------------------------------------------------------
Total Revenue 100.0 100.0 100.0 100.0
Land and housing costs 80.8 82.2 80.5 81.5
- -------------------------------------------------------------------------------------------------------------------
Gross Margin 19.2 17.8 19.5 18.5
General and administrative expenses 2.4 2.6 2.9 3.0
Selling expenses 6.5 6.7 6.8 7.1
- -------------------------------------------------------------------------------------------------------------------
Operating Income 10.3 8.5 9.8 8.4
Allocated expenses 4.2 4.1 4.7 4.7
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 6.1 4.4 5.1 3.7
===================================================================================================================
MIDWEST REGION
Unit Data:
New contracts, net 760 626 1,515 1,347
Homes delivered 618 535 1,047 911
Backlog at end of period 1,790 1,493 1,790 1,493
Average sales price of homes in backlog $ 184 $ 180 $ 184 $ 180
Aggregate sales value of homes in backlog $330,000 $268,000 $330,000 $268,000
Number of active subdivisions 75 75 75 75
- -------------------------------------------------------------------------------------------------------------------
FLORIDA REGION
Unit Data:
New contracts, net 185 195 360 388
Homes delivered 173 182 290 308
Backlog at end of period 403 335 403 335
Average sales price of homes in backlog $ 202 $ 187 $ 202 $ 187
Aggregate sales value of homes in backlog $ 82,000 $ 63,000 $ 82,000 $ 63,000
Number of active subdivisions 27 35 27 35
- -------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA, VIRGINIA, MARYLAND AND ARIZONA REGION
Unit Data:
New contracts, net 253 218 490 449
Homes delivered 210 159 353 266
Backlog at end of period 505 415 505 415
Average sales price of homes in backlog $ 335 $ 326 $ 335 $ 326
Aggregate sales value of homes in backlog $169,000 $135,000 $169,000 $135,000
Number of active subdivisions 38 35 38 35
- -------------------------------------------------------------------------------------------------------------------
TOTAL
Unit Data:
New contracts, net 1,198 1,039 2,365 2,184
Homes delivered 1,001 876 1,690 1,485
Backlog at end of period 2,698 2,243 2,698 2,243
Average sales price of homes in backlog $ 215 $ 208 $ 215 $ 208
Aggregate sales value of homes in backlog $581,000 $466,000 $581,000 $466,000
Number of active subdivisions 140 145 140 145
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 12
A home is included in "New Contracts" when our standard sales contract
is executed. Our standard contract requires a deposit and generally has no
contingencies other than for buyer financing. In a limited number of markets, we
sometimes accept contracts that are contingent upon the sale of an existing
home. "Homes Delivered" represents homes for which the closing of the sale has
occurred and title has transferred to the buyer. We recognize revenue and cost
of revenue for a home sale at the time of closing.
"Backlog" represents homes for which the standard sales contract has
been executed, but which are not included in Homes Delivered because closings
for these 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 we arrange financing with guaranteed rates for many
of our customers, the incidence of cancellations after the start of construction
is low. In the first six months of 1999, we delivered 1,690 homes, most of which
were homes under contract in Backlog at December 31, 1998. Of the 2,023
contracts in Backlog at December 31, 1998, 11.5% have been canceled as of June
30, 1999. For homes in Backlog at December 31, 1997, 11.7% had been canceled as
of June 30, 1998. For the homes in Backlog at December 31, 1997, the final
cancellation percentage was 12.8%. Unsold speculative homes, which are in
various stages of construction, totaled 121 and 148 at June 30, 1999 and 1998,
respectively.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue for the homebuilding segment for the three
months ended June 30, 1999 was $210.1 million, a 21.5% increase over 1998. This
increase was due to a 23.0% increase in housing revenue offset by a 38.5%
decrease in land revenue. The increase in housing revenue was partially due to a
14.3% increase in the number of Homes Delivered. Homes Delivered were higher in
all of our markets with the exception of Palm Beach County, Orlando and Raleigh.
The increase in housing revenue was also due to a 7.6% increase in the average
sales price of Homes Delivered. The increase in the average sales price of Homes
Delivered was primarily due to increased closings in the Washington, D.C. and
Phoenix markets. The average sales price in these markets is substantially
higher than our average sales price. The decrease in land revenue from $4.5
million to $2.7 million was primarily attributable to the Washington, D.C. and
Charlotte markets. Charlotte had a decrease in lot sales to outside homebuilders
in the three months ended June 30, 1999 while Washington, D.C sold lots to
outside homebuilders at a lower average sales price.
Home Sales and Backlog. We recorded a 15.3% increase in the number of
New Contracts in the three months ended June 30, 1999 as compared to the
corresponding period of 1998. New Contracts recorded in the second quarter of
1999 were higher in nearly all of the Company's markets. We believe the increase
in New Contracts was partially due to favorable market conditions and low
interest rates. The number of New Contracts recorded in future periods will be
dependent on numerous factors, including future economic conditions, timing of
land development, consumer confidence and interest rates available to potential
home buyers. New Contracts recorded in July 1999 were 18.7% lower than New
Contracts recorded in July 1998. We believe this decrease was mainly due to an
increase in sales prices, as a result of increased material and labor costs, and
a slight increase in interest rates.
At June 30, 1999, the total sales value of our Backlog of 2,698 homes
was approximately $581.0 million. This represented a 24.5% increase in sales
value and a 20.3% increase in units over the levels reported at June 30, 1998.
The increase in units at June 30, 1999 is a result of record high new contracts
recorded in the first half of 1999. The average sales price of homes in Backlog
increased 3.5% from June 30, 1998 to June 30, 1999. This increase was primarily
due to increases in the Washington, D.C. and Phoenix markets where we are
building in more upscale and niche subdivisions.
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<PAGE> 13
Gross Margin. The overall gross margin for the homebuilding segment was
19.2% for the three months ended June 30, 1999 compared to 17.8% for the three
months ended June 30, 1998. The gross margin from housing sales was 20.5% in the
second quarter of 1999 compared to 18.9% in the second quarter of 1998. The
gross margin from lot and land sales decreased from 13.8% to 7.4%. The increase
in housing margin is attributable to favorable market conditions and
management's continued focus on maintaining accurate, up-to-date costing
information so that sales prices can be set to achieve the desired margins. We
have has also focused on acquiring or developing lots in premier locations to
obtain higher margins. The decrease in gross margin from lot and land sales was
due to the Virginia division where there were lot sales to outside homebuilders
at lower margins in the second quarter of 1999 than in the second quarter of
1998. Lot and land gross margins can vary significantly depending on the sales
price, and cost of the subdivision and the phase in which the sale takes place.
General and Administrative Expenses. General and administrative
expenses increased from $4.6 million for the three months ended June 30, 1998 to
$5.1 million for the three months ended June 30, 1999. However, general and
administrative expenses as a percentage of total revenue decreased from 2.6% for
the three months ended June 30, 1998 to 2.4% for the three months ended June 30,
1999. The increase in expense was primarily attributable to the increase in
payroll expense and miscellaneous other expenses related to the increase in
income.
Selling Expenses. Selling expenses increased from $11.5 million for the
three months ended June 30, 1998 to $13.7 million for the three months ended
June 30, 1999. However, selling expenses as a percentage of total revenue
decreased from 6.7% to 6.5%. The increase in expense was primarily due to
increases in sales commissions paid to outside Realtors and internal salespeople
as a result of the increase in sales volume. There were also increases in
advertising and model expenses.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue for the homebuilding segment for the six
months ended June 30, 1999 was $354.2 million, a 23.2% increase over 1998. This
increase was due to a 23.9% increase in housing revenue offset by a 7.9%
decrease in land revenue. The increase in housing revenue was partially due to a
13.8% increase in the number of Homes Delivered. Homes Delivered were higher in
all of our markets with the exception of Palm Beach County, Orlando and Raleigh.
The increase in housing revenue was also due to an 8.9% increase in the average
sales price of Homes Delivered. The increase in the average sales price of Homes
Delivered was primarily due to increased closings in the Washington, D.C. and
Phoenix markets. The average sales price in these markets is substantially
higher than our average sales price. The decrease in land revenue from $6.4
million to $5.9 million was primarily attributable to the Washington, D.C. and
Charlotte markets. Charlotte had a decrease in lot sales to outside homebuilders
in the six months ended June 30, 1999 while Washington, D.C. sold lots to
outside homebuilders at a lower average sales price.
Home Sales and Backlog. We recorded an 8.3% increase in the number of
New Contracts recorded in the first half of 1999 compared to the corresponding
period of 1998. New Contracts recorded in the current year were higher than the
prior year in nearly all of the Company's markets. We believe the increase in
New Contracts was partially due to favorable market conditions and low interest
rates. The number of New Contracts recorded in future periods will be dependent
on numerous factors, including future economic conditions, timing of land
development, consumer confidence and interest rates available to potential home
buyers.
Gross Margin. The overall gross margin for the homebuilding segment was
19.5% for the six months ended June 30, 1999 compared to 18.5% for the
comparable period of 1998. The gross margin
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<PAGE> 14
from housing sales was 20.5% in the first half of 1999 compared to 19.4% in the
first half of 1998. The gross margin from lot and land sales decreased from
14.5% to 9.6%. The increase in housing margin is attributable to favorable
market conditions and management's continued focus on maintaining accurate,
up-to-date costing information so that sales prices can be set to achieve the
desired margins. We also focused on acquiring or developing lots in premier
locations so that we can obtain higher margins. The decrease in gross margin
from lot and land sales was primarily due to the Washington, D.C. market where
there were more lot sales to outside homebuilders at lower margins in the first
half of 1999 than in the second half of 1998. Lot and land gross margins can
vary significantly depending on the sales price, the cost of the subdivision and
the phase in which the sale takes place.
General and Administrative Expenses. General and administrative
expenses increased from $8.7 million for the six months ended June 30, 1998 to
$10.1 million for the six months ended June 30, 1999. However, general and
administrative expenses as a percentage of total revenue decreased from 3.0% for
the six months ended June 30, 1998 to 2.9% for the comparable period in the
current year. The increase in expense was primarily attributable to the increase
in payroll expense and miscellaneous other expenses related to the increase in
income.
Selling Expenses. Selling expenses increased from $20.3 million for the
six months ended June 30, 1998 to $24.1 million for the six months ended June
30, 1999. However, selling expenses as a percentage of total revenue decreased
from 7.1% to 6.8%. The increase in expense was primarily due to increases in
sales commissions paid to outside Realtors and internal salespeople as a result
of the increase in sales volume. There were also increases in advertising and
model expenses.
FINANCIAL SERVICES SEGMENT - M/I FINANCIAL
The following table sets forth certain information related to our financial
services segment:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of loans originated 825 712 1,393 1,245
Revenue:
Loan origination fees $1,248 $ 999 $2,045 $1,821
Sale of servicing and marketing gains 1,810 1,439 5,412 3,247
Other 1,402 1,182 2,502 2,020
- ----------------------------------------------------------------------------------------------------------
Total Revenue 4,460 3,620 9,959 7,088
- ----------------------------------------------------------------------------------------------------------
General and administrative expenses 1,667 1,539 3,066 2,815
- ----------------------------------------------------------------------------------------------------------
Operating Income $2,793 $ 2,081 $6,893 $4,273
==========================================================================================================
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue of our financial services segment for the
three months ended June 30, 1999 was $4.5 million, a 23.2% increase over the
$3.6 million recorded for the comparable period of 1998. Loan origination fees
increased 24.9% from $1.0 million for the three months ended June 30, 1998 to
$1.2 million for the three months ended June 30, 1999. The increase was due to
an increase in the number of loans originated over the comparable period of the
prior year, along with an increase in the average loan amount.
Revenue from the sale of servicing and marketing gains increased 25.8%
from $1.4 million for the three months ended June 30, 1998 to $1.8 million for
the three months ended June 30, 1999. The
-14-
<PAGE> 15
increase was primarily due to more mortgages originated during the second three
months of 1999 as compared to the comparable period of 1998. The number of loans
originated increased 15.9% during the period over the prior year.
Revenue from other sources increased 18.6% from $1.2 million for the
three months ended June 30, 1998 to $1.4 million for the three months ended June
30, 1999. This was primarily due to increased earnings from title services. We
expanded into the Washington, D.C. title agency market in early 1999.
General and Administrative Expenses. General and administrative
expenses of our financial services segment for the three months ended June 30,
1999 were $1.7 million, an 8.3% increase from the comparable period of the prior
year. This increase was mainly due to payroll expense, which increased due to a
significant increase in volume related to origination, loan closings, title
services and income.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue of our financial services segment for the
six months ended June 30, 1999 was $10.0 million, a 40.5% increase over the $7.1
million recorded for the comparable period of 1998. Loan origination fees
increased 12.3% from $1.8 million for the six months ended June 30, 1998 to $2.0
million for the six months ended June 30, 1999. This increase was due to an
increase in the number of loans originated over the comparable period of the
prior year, along with an increase in the average loan amount. This increase was
partially offset by special financing programs in the first quarter.
Revenue from the sale of servicing and marketing gains increased 66.7%
from $3.2 million for the six months ended June 30, 1998 to $5.4 million for the
six months ended June 30, 1999. The was primarily due to more mortgages
originated during the first six months of 1999 as compared to the comparable
period of 1998. The number of loans originated increased 11.9% during the period
over the prior year. The increase in marketing gains was primarily due to
favorable market conditions during the last part of 1998 and early part of 1999,
which increased marketing gains on loans that closed during the first quarter of
1999. M/I Financial uses hedging methods in which we have the option to complete
the hedging transaction, but in which we are not required to complete the
transaction. We also continued to concentrate on the securitization of loans
with FNMA and FHLMC, and we separate the sale of loans and servicing into two
transactions on this product. This change, along with more favorable terms
negotiated with investors, resulted in an increase in servicing release
premiums.
Revenue from other sources increased 23.9% from $2.0 million
for the six months ended June 30, 1998 to $2.5 million for the six months ended
June 30, 1999. This was primarily due to increased earnings from title services.
We also expanded into the Washington, D.C. title agency market in early 1999.
General and Administrative Expenses. General and administrative
expenses of our financial services segment for the six months ended June 30,
1999 were $3.1 million, an 8.9% increase over the comparable period of the prior
year. This increase was mainly due to payroll expense, which increased due to a
significant increase in volume related to origination, loan closings, title
services and income.
OTHER OPERATING RESULTS
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased to $4.7 million and $6.5 million for the three
and six months ended June 30, 1999, respectively, from $3.5 million and $5.1
million recorded for the comparable periods of 1998. As a percentage of total
revenue, corporate general and administrative expenses for the three and six
months ended June 30, 1999
-15-
<PAGE> 16
increased to 2.2% and 1.8%, respectively, from 2.0% and 1.7% for the comparable
periods in the prior year. These increases were primarily attributable to
increases in incentive compensation, profit sharing and charitable contributions
expensed in the current year due to the significant increase in net income.
Interest Expense. Corporate and homebuilding interest expense for the
three and six months ended June 30, 1999 increased to $3.6 and $6.7 million,
respectively, from $3.0 and $5.7 million recorded for the comparable periods of
the prior year. Interest expense was higher in the current year partially due to
an increase in the average borrowings outstanding. Interest expense was also
higher due to less of an increase in capitalized interest in 1999 compared to
1998 as a result of an increase in the proportion of raw land and developed lots
to total inventory. Average borrowings outstanding increased due to a
significant increase in our backlog and land development activities.
LIQUIDITY AND CAPITAL RESOURCES
Our financing needs depend upon our sales volume, asset turnover, land
acquisition and inventory balances. We have incurred substantial indebtedness,
and may incur substantial indebtedness in the future, to fund the growth of our
homebuilding activities. Our principal source of funds for construction and
development activities has been from internally generated cash and from bank
borrowings, which are primarily unsecured.
Notes Payable Banks. At June 30, 1999, we had bank borrowings
outstanding of $131.9 million under our Bank Credit Facility. The Bank Credit
Facility permits aggregate borrowings, other than for the issuance of letters of
credit, not to exceed the lesser of: (i) $204.5 million and (ii) our borrowing
base. The borrowing base is calculated based on specified percentages of certain
types of assets held by us as of each month end, less the sum of (A) outstanding
letters of credit issued for purposes other than to satisfy bonding requirements
and (B) the aggregate amount of outstanding letters of credit, other than
letters of credit issued for the purpose of satisfying bonding requirements, for
joint ventures in which we are a partner and which we guarantee. The Bank Credit
Facility matures September 30, 2003, at which time the unpaid balance of the
revolving credit loans outstanding will be due and payable. Under the terms of
the Bank Credit Facility, the banks will determine annually whether or not to
extend the maturity date of the commitments by one year. At June 30, 1999,
borrowings under the Bank Credit Facility were at the prime rate or, at our
option, LIBOR plus a margin of between 1.60% and 2.35% based on our ratio of
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") to
consolidated interest incurred and were primarily unsecured. The Bank Credit
Facility contains restrictive covenants which require us to maintain minimum net
worth and working capital amounts, to maintain a minimum ratio of EBITDA to
consolidated interest incurred and to maintain other financial ratios. The Bank
Credit Facility also places limitations on the amount of additional indebtedness
that we may incur, the acquisition of undeveloped land, dividends that we may
pay and the aggregate cost of certain types of inventory we can hold at any one
time.
On February 26, 1998 and September 23, 1998, we entered into $50.0
million and $25.0 million interest rate swap agreements with certain banks. The
swap agreements expire February 26, 2001 and September 25, 2000, respectively,
and require us to make fixed interest rate payments to the bank in return for
variable payments. During the six months ended June 30, 1999, these agreements
resulted in an increase in interest expense of $123,000.
An additional $17.8 million was outstanding as of June 30, 1999 under
the M/I Financial loan agreement, which permits borrowings of $30.0 million to
finance mortgage loans initially funded by M/I Financial for our customers and a
limited amount for loans to others. The Company and M/I Financial are
co-borrowers under the M/I Financial loan agreement. This agreement limits the
borrowings to 95% of the aggregate face amount of certain qualified mortgages
and contains restrictive covenants requiring M/I
-16-
<PAGE> 17
Financial to maintain minimum net worth and certain minimum financial ratios. At
June 30, 1999, borrowings under the M/I Financial loan agreement were at (a) the
prime rate less 0.50%, or (b) LIBOR plus 1.60% or (c) a combination of (a) and
(b). The agreement terminates on June 22, 2001, at which time the unpaid balance
is due.
At June 30, 1999, we had the right to borrow up to $234.5 million under
our credit facilities, including $30.0 million under the M/I Financial loan
agreements. At June 30, 1999, we had $84.8 million of unused borrowing
availability under our loan agreements. We also had approximately $41.0 million
of completion bonds and letters of credit outstanding at June 30, 1999.
Subordinated Notes. At June 30, 1999, there was outstanding $50.0
million of Senior Subordinated Notes. The notes bear interest at a fixed rate of
9.51% and mature August 29, 2004.
Land and Land Development. Over the past several years, our land
development activities and land holdings have increased significantly, and we
expect this trend will continue in the foreseeable future. Single-family lots,
land and land development increased 17.0% from December 31, 1998 to June 30,
1999. These increases are primarily due to the shortage of qualified land
developers in certain of our markets as well as our developing more land due to
the competitive advantages that can be achieved by developing land internally
rather than purchasing lots from developers or competing homebuilders. This is
particularly true for our Horizon product line, in which lots are generally not
available from third party developers at economically feasible prices due to the
price points we target. We continue 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 increasing demand
for lots in the most cost effective manner.
The $61.9 million increase in notes payable banks - homebuilding
operations, from December 31, 1998 to June 30, 1999 reflects increased
borrowings primarily attributable to the increase in houses under construction,
along with an increase in single-family lots, land and land development costs.
Houses under construction increased $53.4 million from December 31, 1998 to June
30, 1999, while single-family lots, land and land development increased $28.9
million. Borrowing needs may continue to increase as we invest in land under
development and developed lots, depending upon the market and competition.
At June 30, 1999, mortgage notes payable outstanding were $11.7
million, secured by a building, lots and land with a recorded book value of
$15.8 million.
As our capital requirements increase, we may increase our borrowings
under our bank line of credit. In addition, we continually explore and evaluate
alternative sources from which to obtain additional capital. We are currently in
discussions with our lenders to increase the amount of the lines of credit,
increase the amount of letters of credit and modify certain covenants; however,
there is no assurance that such terms can be obtained.
Purchase of Treasury Shares. On February 16, 1999, our Board
of Directors approved the repurchase of up to 500,000 shares of our outstanding
common stock. The purchases may occur in the open market and/or in privately
negotiated transactions as market conditions warrant. As of June 30, 1999 we had
purchased 22,400 shares at an average price of $17.75.
Impact of New Accounting Standards. In June, 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities". In June 1999 FASB issued Statement of Financial Standards No. 137
(SFAS 137) "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." SFAS 137 deferred the
adoption of SFAS
-17-
<PAGE> 18
133 until our 2001 annual financial statements. We have not yet determined what,
if any, impact the adoption of this standard will have on our financial
statements.
Year 2000 Compliance. We are currently in the process of modifying or
replacing management information systems to address issues regarding the year
2000. In accordance with current accounting guidance, we charge modification
costs for the year 2000 to expense as incurred while we capitalize replacement
costs and amortize them over the asset's useful life. We do not currently
believe that these changes will have an adverse impact on operations or that the
related expenditures will be material to our financial position or results of
operations in any given year.
The "Year 2000" problem arises as a result of many automated
calculations being written in computer code which does not properly recognize
dates after 1999. Problems associated with this issue can occur not only on
"mainframe" applications, but also with such devices as personal computers,
telecommunication equipment and programmable logic controllers associated with
certain manufacturing equipment. Without correction, it is possible that
business and operational functions that rely on this improper code could fail
and cause significant business disruption and loss.
The manner of resolving the identified Year 2000 shortcomings has
included strategies such as implementing Year 2000 compliant versions of third
party software, modifying portions of existing software and replacing
non-compliant business systems with new third party software. A combination of
internal and external resources is being used to help identify, implement and
test solutions associated with Year 2000 issues. We believe that quantifying the
extent to which our Year 2000 remediation efforts are complete is not
practicable and could be potentially misleading. However, based on existing
plans, we anticipate that our ongoing efforts to remediate the remaining data
processing systems to be Year 2000 compliant, which we believe are not critical
to our operations, will be completed by December 1999.
Another risk presented by the Year 2000 issue is that some of our
significant customers, regulatory agencies and suppliers could fail to become
fully Year 2000 compliant. This failure, in turn, could result in a significant
adverse effect to our operations. We are in the process of making inquiries of
our significant suppliers as to the state of their Year 2000 readiness. We
believe that these inquiries will become increasingly more meaningful as the
year 2000 approaches. Regardless, we cannot assure you that the data processing
and non-information technology systems utilized by these other companies will
become Year 2000 compliant on a timely basis. We cannot currently estimate the
impact of noncompliance.
Worst case scenarios are being evaluated in relation to our key
business needs. We have not yet adopted a formal contingency plan to address the
possibility that internal, customer, or supplier systems may not become Year
2000 compliant. We will develop such plans which may be required as Fiscal 1999
evolves and the risk of such exposure, if any, becomes better clarified.
Specific timetables and phases will be established for these contingency plans.
We cannot currently estimate the cost, if any, associated with contingency
planning efforts that may be necessary to complete the Year 2000 efforts.
Taken together, we believe that our substantial past and current
investments in information technology initiatives will provide the foundation
necessary to support and enhance operations in the years to come. Nevertheless,
achieving Year 2000 compliance is dependent on many factors, some of which are
not completely within our control. Should either our internal systems or the
internal systems of one or more significant vendors or suppliers fail to achieve
Year 2000 compliance, our business and our results of operations could be
adversely affected.
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<PAGE> 19
INTEREST RATES AND INFLATION
Our 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 our interest
expense as the rate on the revolving loans is based upon floating rates of
interest. The weighted average interest rate on our outstanding debt for the six
months ended June 30, 1999 was 8.2% compared to 8.5 % for the six months ended
June 30, 1998.
In conjunction with our mortgage banking operations, we use hedging
methods to reduce our exposure to interest rate fluctuations between the
commitment date of the loan and the time the loan closes.
In recent years, we generally have been able to raise prices by amounts
at least equal to our cost increases and, accordingly, have not experienced any
detrimental effect from inflation. Where we develop lots for our own use,
inflation may increase our profits because land costs are fixed well in advance
of sales efforts. We are generally able to maintain costs with subcontractors
from the date a home is started to the date of close. However, in certain
situations, unanticipated costs may occur between the time of start and the time
a home is constructed, resulting in lower gross profit margins.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
We wish to take advantage of the safe harbor provisions included in the
Private Securities Litigation Reform Act of 1995. Accordingly, in addition to
historical information, this Management's Discussion & Analysis of Results of
Operations and Financial Condition contains certain forward-looking statements,
including, but not limited to, statements regarding our future financial
performance and financial condition. These statements involve a number of risks
and uncertainties. Any forward-looking statements that we make herein and in
future reports and statements are not guarantees of future performance, and
actual results may differ materially from those in such forward-looking
statements as a result of various factors including, but not limited to, those
referred to below.
General Real Estate, Economic and Other Conditions. The homebuilding
industry is significantly affected by changes in national and local economic and
other conditions. The changes include employment levels, changing demographics,
availability of financing, interest rates, consumer confidence and housing
demand. In addition, homebuilders are subject to risks related to competitive
overbuilding, availability and cost of building lots, availability of materials
and labor, adverse weather conditions which can cause delays in construction
schedules, cost overruns, changes in government regulations, and increases in
real estate taxes and other local government fees. Many of these risks are
beyond our control. We cannot predict whether interest rates will be at levels
attractive to prospective home buyers. If interest rates increase, and in
particular mortgage interest rates, our business could be adversely affected.
Land Development Activities. We develop the lots for a majority of our
subdivisions. Therefore, our short- and long-term financial success will be
dependent on our ability to develop these subdivisions successfully. Acquiring
land and committing the financial and managerial resources to develop a
subdivision involves significant risks. Before a subdivision generates any
revenue, we must make material expenditures for items such as acquiring land and
constructing subdivision infrastructure (such as roads and utilities).
-19-
<PAGE> 20
Concentration of the Company's Markets. We have operations in Columbus
and Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and Palm Beach
County, Florida; Charlotte and Raleigh, North Carolina; the Virginia and
Maryland suburbs of Washington, D.C.; and Phoenix, Arizona. Adverse general
economic conditions in these markets could have a material adverse impact on our
operations. For the six months ended June 30, 1999, approximately 40% of our
housing revenue and a significant portion of our operating income were derived
from operations in the Columbus, Ohio market. Our performance could be
significantly affected by changes in this market.
Competition. The homebuilding industry is highly competitive. We
compete in each of our local market areas with numerous national, regional and
local homebuilders, some of which have greater financial, marketing, land
acquisition, and sales resources than we do. Builders of new homes compete not
only for home buyers, but also for desirable properties, financing, raw
materials and skilled subcontractors. We also compete with the resale market for
existing homes which provides certain attractions for home buyers over building
a new home.
Governmental Regulation and Environmental Considerations. The
homebuilding industry is subject to increasing local, state and Federal
statutes, ordinances, rules and regulations concerning zoning, resource
protection (preservation of woodlands and hillside areas), building design, and
construction and similar matters, including local regulations which impose
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
location. Such regulation affects construction activities, including
construction materials which must be used in certain aspects of building design,
as well as sales activities and other dealings with home buyers. We must also
obtain licenses, permits and approvals from various governmental agencies for
our development activities, the granting of which are beyond our control.
Furthermore, increasingly stringent requirements may be imposed on homebuilders
and developers in the future. Although we cannot predict the impact on us of
compliance with any such requirements, such requirements could result in time
consuming and expensive compliance programs.
We are also subject to a variety of local, state and Federal statutes,
ordinances, rules and regulations concerning the protection of health and the
environment. The particular environmental laws which apply to any given project
vary greatly according to the project site and the present and former uses of
the property. These environmental laws may result in delays, cause us to incur
substantial compliance costs (including substantial expenditures for pollution
and water quality control) and prohibit or severely restrict development in
certain environmentally sensitive regions. Although there can be no assurance
that we will be successful in all cases, we have a general practice of requiring
an environmental audit and resolution of environmental issues prior to
purchasing land in an effort to avoid major environmental issues in our
developments.
In addition, we have been, and in the future may be, subject to
periodic delays or may be precluded from developing certain projects due to
building moratoriums. These moratoriums generally relate to insufficient water
supplies or sewage facilities, delays in utility hook-ups or inadequate road
capacity within the specific market area or subdivision. These moratoriums can
occur prior to, or subsequent to, commencement of our operations without notice
or recourse.
Risk of Material and Labor Shortages. The residential construction
industry in the past has, from time to time, experienced serious material and
labor shortages in insulation, drywall, brick, certain carpentry and framing
work and cement, as well as fluctuating lumber prices and supplies. We have
recently begun to experience some of these material and labor shortages. Delays
in construction of homes due to these shortages could adversely affect our
business.
-20-
<PAGE> 21
Significant Voting Control by Principal Shareholders. As of June 30,
1999, members of the Irving E. Schottenstein family owned approximately 31% of
our outstanding Common Shares. In particular, Irving E. Schottenstein, in his
own name and as trustee of trusts for his children, had the right to vote
2,678,300 Common Shares. Therefore, members of the Irving E. Schottenstein
family have significant voting power with respect to the election of the Board
of Directors of the Company and, in general, the determination of the outcome of
various matters submitted to our shareholders for approval.
Quantitative and Qualitative Disclosures about Market Risk. Our primary
market risk results from fluctuations in interest rates. We are exposed to
interest rate risk through the borrowings under our unsecured revolving credit
facilities which permit borrowings up to $234.5 million. To minimize the effect
of the interest rate fluctuation, we have entered into two interest rate swap
arrangements with certain banks for a total notional amount of $75.0 million.
Under these agreements we pay a fixed rate of 5.10% on $25.0 million and 5.50%
on $50.0 million.
Assuming a hypothetical 10% change in short-term interest rates,
interest expense would not change significantly, as the interest rate swap
agreements would partially offset the impact.
Additionally, M/I Financial offers fixed and adjustable rate mortgage
loans, primarily to buyers of our homes. The loans are granted at current market
interest rates which are guaranteed from the loan commitment date through the
transfer of the title of the home to the buyer (the "Closing"). M/I Financial
hedges its interest rate risk using optional and mandatory forward sales to
hedge risk from the loan commitment date generally to the date a sale commitment
is entered into. At June 30, 1999, the notional principal amount under these
forward sales agreements was approximately $149.0 million and the related fair
value of these agreements was approximately $1.1 million. The hedging agreements
outstanding at June 30, 1999 mature within 90-120 days. Gains or losses on
these agreements are recognized at the time the loan is sold.
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<PAGE> 22
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings - none.
- -----------------------------------
Item 2. Changes in Securities - none.
- ---------------------------------------
Item 3. Defaults upon Senior Securities - none.
- -----------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On April 22, 1999, the Company held its 1999 annual meeting of
shareholders. The shareholders voted on the election of three directors to
three-year terms, whether to approve the 1993 Stock Incentive Plan as Amended,
whether to approve the Executive Officers Compensation Plan and whether to
ratify the appointment of Deloitte & Touche LLP as the independent accountants
and auditors for fiscal year 1999. The results of the voting are as follows:
1. Election of Directors
---------------------
For Withheld
--- --------
Irving E. Schottenstein 7,818,040 28,774
Kerrii B. Anderson 7,817,889 28,925
Norman L. Traeger 7,538,565 308,249
2. To approve the 1993 Stock Incentive Plan as Amended
---------------------------------------------------
For 6,383,794
Against 747,405
Abstain 5,997
Broker non-votes 709,618
3. To approve the Executive Officers Compensation Plan.
---------------------------------------------------
For 6,727,352
Against 394,749
Abstain 15,095
Broker non-votes 709,618
4. To ratify the appointment of Deloitte & Touche LLP as the
---------------------------------------------------------
independent accountants and auditors for fiscal year 1999.
----------------------------------------------------------
For 7,814,648
Against 31,158
Abstain 1,008
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<PAGE> 23
Item 5. Other Information
- --------------------------
On April 22, 1999, the Company paid to the stockholders of record on
April 1, 1999, a cash dividend of $0.05 per share (aggregate dividends paid of
$440,000). On April 22, 1999, the Board of Directors approved a $0.05 per share
cash dividend payable to stockholders of record of its common stock on July 1,
1999, which was paid on July 22, 1999 (aggregate dividends paid of $440,000).
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The exhibits required to be filed herewith are set forth below. No
reports were filed on Form 8-K for the quarter for which this report is filed.
Exhibit
Number Description
------ -----------
4 M/I Schottenstein Homes, Inc. 1993 Stock Incentive Plan
as Amended, dated April 22, 1999.
10.1 M/I Schottenstein Homes, Inc. Executives' Deferred
Compensation Plan.
27 Financial Data Schedule.
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<PAGE> 24
SIGNATURES
----------
Pursuant to the requirements 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.
M/I Schottenstein Homes, Inc.
(Registrant)
Date: August 13, 1999 by: /s/ Robert H. Schottenstein
---------------------------
Robert H. Schottenstein
Vice Chairman,
President
Date: August 13, 1999 by: /s/ Kerrii B. Anderson
----------------------
Kerrii B. Anderson
Senior Vice President,
Chief Financial Officer
(Principal Financial and Accounting
Officer)
-24-
<PAGE> 25
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------ ----------- --------
4 M/I Schottenstein Homes, Inc. 1993 Stock
Incentive Plan as Amended, dated April 22, 1999.
10.1 M/I Schottenstein Homes, Inc. Executives' Deferred
Compensation Plan.
27 Financial Data Schedule.
-25-
<PAGE> 1
Exhibit 4
M/I SCHOTTENSTEIN HOMES, INC.
-----------------------------
1993
----
STOCK INCENTIVE PLAN
--------------------
AS AMENDED
----------
1. Purpose. This document shall serve as an amendment and
restatement of the M/I Schottenstein Homes of Ohio, Inc. 1993 Stock Incentive
Plan. The Plan, as amended, is intended to continue to advance the interest of
the Company, its Subsidiaries and the Company's shareholders by providing
additional incentive to attract, retain and reward selected directors,
executives, key employees, consultants and advisors upon whose judgment,
initiative and effort the Company is largely dependent for the successful
conduct of its business, and to provide additional motivation for such personnel
to exert additional effort toward the Company's growth and success.
2. Definitions.
(a) "Award" means any one or more shares of Restricted
Stock, Options or SARs which are granted under this
Plan.
(b) "Beneficiary" means the person or persons last
designated by a Participant to receive such amounts
or rights under this Plan with respect to such
Participant by reason of the death of such
Participant. A Participant may designate a
Beneficiary, or change any Beneficiary previously
designated by him or her, by delivering to the
Committee a writing setting forth the name and
address of the person so designated together with a
signed statement by the Participant of his or her
intention that the person so designated be the
Beneficiary hereunder. In the absence of such a
designation, the Participant's estate shall be
treated as his or her designated Beneficiary under
this Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means (i) the acquisition by any
person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than
Irving E. Schottenstein or any of his immediate
family members or lineal descendants, any heir of the
foregoing, any trust for the benefit of any of the
foregoing, any private charitable foundation or any
partnership, limited liability company or corporation
owned or controlled by some or all of the foregoing,
of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or
more of the outstanding voting capital stock of the
Company or (ii) the failure of the directors of the
Company on the date hereof (the "Current Board"), or
such directors
<PAGE> 2
who are elected or recommended or endorsed for
election to the board of directors of the Company by
a majority of the Current Board or their successors
so elected, recommended or endorsed, to constitute a
majority of the board of directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" means the Compensation Committee of the
Board, as specified in paragraph 3 herein, or such
other committee appointed by the Board to administer
the Plan with respect to grants of Awards.
(g) "Common Stock" means the Company's $.01 par value
common stock.
(h) "Company" means M/I Schottenstein Homes, Inc.
(i) "Date of Grant" means the date on which an Award is
granted under the Plan.
(j) "Director" means a member of the Board.
(k) "Employer" means the Company and any Parent and all
Subsidiaries.
(l) "Fair Market Value" shall mean the value of the
Common Stock as of a particular date as determined by
the Committee, provided that if the Common Stock is
traded in a public market, the Fair Market Value per
share shall be the mean between the closing "bid" and
"asked" prices thereof or the mean between the
highest and lowest quoted selling prices thereof, as
applicable, as reported in customary financial
reporting services on the business day coincident
with or next preceding the day as to which the Fair
Market Value is determined.
(m) "ISO" means an incentive stock option as such term is
defined in Code Section 422(b).
(n) "Named Executive Officer" means a Participant who, as
of the date of vesting and/or payout of an Award, as
applicable, is one of the group of "covered
employees," as defined in the regulations promulgated
under Code Section 162(m), or any successor statute.
(o) "NQSO" means an Option that is not an ISO, including
but not limited to an Option that would qualify as an
ISO as of the Date of Grant but for the fact that
such Option specifies that it will not be treated as
an ISO.
2
<PAGE> 3
(p) "Option" means an option to purchase Common Stock
that is granted under this Plan.
(q) "Option Agreement" means a written agreement between
the Company and a Participant setting forth terms and
conditions applicable to an Option granted to the
Participant.
(r) "Optionee" means a Participant to whom an Option
which has not expired has been granted under this
Plan.
(s) "Parent" or "Parents" means a parent corporation or
corporations of the Company as defined in Code
Section 424(e).
(t) "Participant" means a person who is eligible to
participate in the Plan pursuant to paragraph 5 and
who has been selected by the Committee to receive an
Award under this Plan.
(u) "Performance-Based Exception" means the
performance-based exception from the tax
deductibility limitations of Code Section 162(m).
(v) "Reorganization" means any statutory merger,
statutory consolidation, sale of all or substantially
all of the assets of the Company, or sale or
exchange, pursuant to an agreement with the Company,
of securities of the Company pursuant to which the
Company is or becomes a wholly--owned subsidiary of
another company after the effective date of the
Reorganization.
(w) "Restricted Stock" means shares of Common Stock
granted under the Plan which are subject to
restrictions or conditions specified by the Committee
pursuant to this Plan.
(x) "Restricted Stock Agreement" means a written
agreement between the Company and a Participant
setting forth the restrictions and conditions
applicable to Restricted Stock granted to the
Participant.
(y) "SAR" means a right to receive financial benefits
under the terms of this Plan equal in value to the
excess of (i) the Fair Market Value of the shares
subject to the SAR as of the date of exercise of the
SAR over (ii) the Fair Market Value of such shares on
the Date of Grant of the SAR.
(z) "SAR Agreement" means a written agreement between the
Company and a Participant setting forth terms and
conditions applicable to a SAR granted to the
Participant.
3
<PAGE> 4
(aa) "Subsidiary" or "Subsidiaries" means a subsidiary
corporation or corporations of the Company as defined
in Code Section 424(f).
(bb) "Ten Percent Shareholder" means an employee of the
Employer who owns, or is considered as owning for
purposes of Code Section 422(b)(6), stock possessing
more than 10% of the total combined voting power of
all classes of stock of the Company or of its Parent
or Subsidiary.
3. Administration of Plan. The Plan shall be administered by the
Compensation Committee of the Board, or by any other committee appointed by the
Board. The members of the Committee shall be appointed from time to time by, and
shall serve at the discretion of, the Board. Notwithstanding any provision
contained herein, to the extent that any Award is designed to comply with the
Performance-Based Exception, the Committee shall satisfy the requirements
contained in Section 1.162-27(c)(4) of the final regulations promulgated by the
Internal Revenue Service under Section 162(m) of the Code. For purposes of
granting Awards under the Plan, the Committee shall be composed of not less than
the minimum number of persons from time to time required by Rule 16b-3 under the
Exchange Act, or any successor rule or regulation, each of whom shall be a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange Act.
The Committee shall keep a record of all of its proceedings and actions and
shall keep, or cause an appropriate officer of the Company to keep, all such
books of account, records and other data as may be necessary for the proper
administration of this Plan, and it shall report all action taken by it to the
Board. Members of the Committee may be granted an Award only by a majority of
the disinterested members of the Board. The Committee shall have full and final
authority in its discretion, subject to the provisions of this Plan, to
determine the type or types of Awards and the individuals to whom and the time
or times at which each Award shall be granted; to construe and interpret the
Plan; to specify terms and provisions of the respective Awards and of any stock
restriction agreement, option agreement or other agreement related to such
Award, which terms and provisions need not be identical for Awards made to
different individuals or to a particular individual; and to make all other
determinations and take all other actions it deems necessary or advisable for
the proper administration of the Plan. All such actions and determinations shall
be conclusively binding for all purposes and upon all persons.
4. Common Stock Subject to the Plan.
(a) The maximum number of shares of Common Stock in
respect for which Awards may be granted under the
Plan, subject to adjustment as provided in Paragraph
10 of the Plan, in each calendar year during any part
of which the Plan is effective shall be five percent
(5%) of the total issued and outstanding shares of
Common Stock as of the first day of each such year
the Plan is in effect. Notwithstanding the foregoing,
in no event shall more than one hundred thousand
(100,000) shares of Common Stock be cumulatively
available for Awards of ISO's under the Plan.
(b) The shares of Common Stock to be issued with respect
to this Plan may be authorized but unissued shares,
shares issued and reacquired by the
4
<PAGE> 5
Company or shares bought on the market for the
purposes of this Plan. In the event any shares of
Restricted Stock shall for any reason be forfeited or
any Option or SAR shall, for any reason, terminate or
expire or be surrendered without having been
exercised in full, such forfeited shares and the
shares subject to such Option or SAR but not issued
thereunder shall again be available to be issued with
respect to this Plan.
(c) Unless and until the Committee determines that an
Award to a Named Executive Officer shall not be
designed to comply with the Performance-Based
Exception, the following rules shall apply to a grant
of such Award under the Plan:
(i) The maximum aggregate number of shares of
Common Stock (relating to Options and SARs)
that may be granted or that may vest, as
applicable, during any fiscal year pursuant
to any such Options or SARs held by any
Named Executive Officer shall be two hundred
thousand (200,000). For this purpose, to the
extent that any Option that is granted or is
vested during any fiscal year is canceled
(as described in Section
1.162-27(e)(2)(vi)(B) of the final
regulations under Section 162(m) of the
Code) during such fiscal year, such canceled
Option shall continue to be counted against
the foregoing maximum aggregate number of
shares of Common Stock that may be granted
or that may vest during such fiscal year
pursuant to any such Option or SAR held by a
Named Executive Officer under the Plan; and
(ii) The amount of compensation that a Named
Executive Officer may receive pursuant to an
Option or SAR shall be based solely upon the
increase in the value of the Common Stock
subject to the Option or the SAR after the
grant of the Option or the SAR.
5. Participants. Awards may be granted under this Plan to any
person who is an officer or employee (including officers and employees who are
also Directors) of the Employer, any consultant or advisor to the Employer and
any non--employee members of the Board as determined by the Committee; provided,
however, that no Director, consultant or advisor who is not an employee of the
Employer may be granted an ISO under this Plan.
6. Terms and Conditions of Restricted Stock.
(a) Generally. Shares of Restricted Stock awarded under
this Plan shall be duly and validly issued and
outstanding, fully paid and nonassessable shares of
Common Stock, and from the time of the issuance
thereof shall have all voting, dividend and
distribution rights of other outstanding shares of
such class, but shall be subject to restrictions
provided for or contemplated in this Plan or in a
Restricted Stock Agreement or required under any
applicable laws.
5
<PAGE> 6
(b) Restrictions. Among other restrictions and
conditions, the Committee may, in its discretion at
the time of an Award of Restricted Stock, impose a
substantial risk of forfeiture of such Restricted
Stock by the Participant, and such restrictions on
the transfer or disposition of such Restricted Stock
(such as, without limitation, requiring that such
shares become transferable or subject to disposition
by Participant only in installments over a period of
time) as the Committee may deem appropriate. Any
restrictions imposed by the Committee shall be set
forth in a Restricted Stock Agreement.
(c) Escrow. During the duration of any substantial risk
of forfeiture or any restrictions on transfer or
disposition of Restricted Stock which are imposed by
the Committee, the Committee may, in its discretion,
require that the stock certificates evidencing such
Restricted Stock be held in escrow by the Secretary
or another officer of the Company designated by the
Committee, to be delivered to the Participant (or, if
required, back to the Company for cancellation or
other disposition) in such circumstances, at such
times and in such numbers of shares as shall be
directed by the Committee under the terms of this
Plan or the applicable Restricted Stock Agreement.
(d) Waiver of Restrictions. If a substantial risk of
forfeiture or restrictions on transfer or disposition
of Restricted Stock are imposed, the Committee may,
in its sole discretion, accelerate, in whole or in
part, the time of termination of such risk or
restrictions, (i) in the event that any financial
hardship may arise with respect to a Participant or
the successor--in--interest of a Participant, (ii) in
the event of any change in existing tax or other
applicable laws, regulations or rulings which would
have a substantial adverse effect on the treatment of
the compensation provided for herein for tax
purposes, or (iii) under such other circumstances as
the Committee deems appropriate.
(e) Change of Control. Any substantial risk of forfeiture
or restrictions on transfer or disposition of
Restricted Stock shall immediately lapse upon the
occurrence of a Change of Control. The provisions of
this subparagraph (e) shall apply to any shares of
Restricted Stock awarded and outstanding under this
Plan as of the effective date of this amended and
restated Plan, as well as, any shares of Restricted
Stock awarded under this Plan after such effective
date.
6
<PAGE> 7
7. Terms and Conditions of Options. Any Option granted under
this Plan shall be evidenced by an Option Agreement, containing such terms and
in such form as the Committee may from time to time determine, subject to the
following limitations and conditions:
(a) ISO Limitations. In the case of any ISO, the terms
and conditions of such grants shall be subject to,
and comply with, such rules as may be prescribed by
Section 422 of the Code, as from time to time
amended, and any regulations implementing such
statute, including, without limitation, the
requirements of Code Section 422(d) which limit the
aggregate Fair Market Value of shares of Common Stock
(determined at the time that such Option is granted)
for which any ISO is exercisable for the first time
to $100,000 per calendar year. Each provision of the
Plan and of each written Option Agreement relating to
an Option designated as an ISO shall be construed so
that such Option qualifies as an ISO, and any
provision that cannot be so construed shall be
disregarded.
(b) Option Price. The exercise price for the Common Stock
subject to each Option shall be determined by the
Committee, but:
(i) With respect to any NQSO granted to an
employee of the Employer, the exercise price
shall be no less than fifteen percent (15%)
of Fair Market Value on the Date of Grant;
(ii) With respect to any NQSO granted to a
Director, consultant or advisor who is not
an employee of the Employer and any ISO
granted to an employee who is not a Ten
Percent Shareholder (in each case,
determined as of the Date of Grant), the
exercise price shall be no less than one
hundred percent (100%) of Fair Market Value
on the Date of Grant; and
(iii) With respect to any ISO granted to a Ten
Percent Shareholder, the exercise price
shall be no less than one hundred ten
percent (110%) of Fair Market Value on the
Date of Grant.
(c) Period of Option. The expiration date of each Option
shall be fixed by the Committee. Notwithstanding the
foregoing or any other provision of this Plan, (i)
such expiration date shall not be more than ten (10)
years from the Date of Grant, and (ii) if the Option
is an ISO which is granted to a Ten Percent
Shareholder, such expiration date shall not be more
than five (5) years from the Date of Grant.
(d) Stockholder Rights. Neither an Optionee nor his
Beneficiary shall have any of the rights of a
stockholder of the Company until the certificates
evidencing shares purchased upon exercise of an
Option are properly delivered to such Optionee or his
Beneficiary.
7
<PAGE> 8
(e) Exercise of Option. Each Option shall be exercisable
from time to time over a period commencing no earlier
than 9 months after the Date of Grant and ending upon
the expiration or termination of the Option;
provided, however, if the Option is granted to a
Director, consultant or advisor who is not an
employee of the Employer on the Date of Grant, such
Option shall be exercisable commencing no earlier
than one year after the Date of Grant. The Committee
shall, by the provisions of individual Option
Agreements, specify the period or periods of time
during which each Option is exercisable and the
number of shares purchasable thereunder in any such
period or periods. Options granted under this
paragraph 7 shall be exercised by the delivery of a
written notice of exercise to the Company, setting
forth the number of shares of Common Stock with
respect to which the Option is to be exercised,
accompanied by full payment of the Option price for
the shares to be exercised. The Option price upon
exercise of any Option shall be payable to the
Company in full either, in the discretion of the
Committee or the Board: (a) in cash or its
equivalent, or (b) by tendering previously acquired
shares of Common Stock having an aggregate Fair
Market Value at the time of exercise equal to the
total Option price (provided that the shares which
are tendered must have been held by the Participant
for at least six (6) months prior to their tender to
satisfy the Option price), or (c) by a combination of
(a) and (b). The Committee may provide, by inclusion
of appropriate language in an Option Agreement, that
payment in full of the Option price need not
accompany the written notice of exercise provided the
notice of exercise directs that the certificate or
certificates for the shares of Common Stock for which
the Option is exercised be delivered to a licensed
broker acceptable to the Company as the agent for the
individual exercising the Option and, at the time
such certificate or certificates are delivered, the
broker tenders to the Company cash (or cash
equivalents acceptable to the Company) equal to the
Option price for the shares of Common Stock purchased
pursuant to the exercise of the Option plus the
amount (if any) of federal and/or other taxes which
the Company may in its judgment, be required to
withhold with respect to the exercise of the Option.
(f) Nontransferability of Option. No Option shall be
transferable or assignable by an Optionee otherwise
than by will or the laws of descent and distribution,
and each Option shall be exercisable, during the
Optionee's lifetime, only by the Optionee. No Option
shall be subject to execution, attachment, or similar
process except with the express consent of the
Committee.
(g) Termination of Employment. Upon termination of an
Optionee's employment with the Employer for any
reason other than the Optionee's retirement, death or
disability, his option privileges shall be limited to
the
8
<PAGE> 9
shares which were immediately purchasable by him at
the date of such termination, and such option
privileges shall expire unless exercised by him
within 30 days after the date of such termination.
The granting of an Option to an eligible person does
not alter in any way the Employer's existing rights
to terminate such person's employment at any time for
any reason, nor does it confer upon such person any
rights or privileges except as specifically provided
for pursuant to this Plan.
(h) Death of Optionee. If an Optionee dies while in the
employ of the Employer, his option privileges shall
be limited to the shares which were immediately
purchasable by him at the date of death, and such
option privileges shall expire unless exercised by
his Beneficiary within one year after the date of the
Optionee's death.
(i) Retirement or Disability. If an Optionee retires or
suffers a disability while in the employ of the
Employer, his option privileges shall be limited to
the shares which were immediately purchasable by him
at the date of his retirement or disability, and such
option privileges shall expire unless exercised by
him (or his representative, in the case of
disability) within one year after his termination of
employment. Notwithstanding the previous sentence, in
the case of an ISO, an Optionee's option privileges
shall expire 90 days following his termination of
employment from the Employer due to his retirement.
For purposes of this subparagraph (i), an Optionee
shall be considered to have "retired" if he
terminates his service with the Employer at a time
when he has satisfied the relevant standards for
retirement applied by the Employer to the position
then held by the Optionee; and an Optionee shall be
considered to have suffered a "disability" if he is
considered to have suffered a permanent and total
disability, as defined in Section 22(e)(3) of the
Code.
(j) Change of Control. Upon the occurrence of a Change in
Control, the shares of Common Stock with respect to
each Option shall be immediately exercisable,
notwithstanding any restriction upon exercise of such
Option which may be contained in this Plan or in the
applicable Option Agreement. Any option privileges
shall expire unless exercised by the Participant
within 15 days after the date of a Change of Control.
The provisions of this subparagraph (j) shall apply
to any Option outstanding as of the effective date of
this amended and restated Plan, as well as, any
Option granted after such effective date.
(k) Restrictions on Issuing Shares. The exercise of each
Option shall be subject to, and shall not be
effective until, the complete satisfaction, as
determined by the Committee in its discretion, of all
(i) withholding obligations, (ii) listing,
registration, or qualification requirements imposed
by any securities exchange or under any state or
federal law, and
9
<PAGE> 10
(iii) consents or approvals of any regulatory body,
the Board or the Company's stockholders which are
necessary or desirable as a condition of, or in
connection with, such exercise or the delivery or
purchase of shares pursuant thereto.
8. Terms and Conditions of SARs. Any SAR granted under this Plan
shall be evidenced by a SAR Agreement, containing such terms and in such form as
the Committee may in its discretion determine, subject to the following
limitations and conditions:
(a) Period of SAR. The expiration date of each SAR shall
be fixed by the Committee. Notwithstanding the
foregoing or any other provision of the Plan, such
expiration date shall not be more than ten (10) years
from the Date of Grant.
(b) Exercise of SAR. Each SAR shall be exercisable from
time to time over a period commencing no earlier than
9 months after the Date of Grant and ending upon the
expiration or termination of the SAR; provided,
however, if the SAR is granted to a Director,
consultant or advisor who is not an employee of the
Employer on the Date of Grant, such SAR shall be
exercisable commencing no earlier than one year after
the Date of Grant. The Committee shall, by the
provisions of individual SAR Agreements, specify the
period or periods of time and the extent to which
each SAR is exercisable. Upon his exercise of a SAR,
the Participant shall be permitted to elect payment
in cash, shares of Common Stock or a combination of
both.
(c) Nontransferability of SAR. No SAR shall be
transferable or assignable by a Participant otherwise
than by will or the laws of descent and distribution,
and each SAR shall be exercisable, during the
Participant's lifetime, only by the Participant. No
SAR shall be subject to execution, attachment, or
similar process except with the express consent of
the Committee.
(d) Termination of Employment. Upon termination of a
Participant's employment with the Employer for any
reason other than the Participant's death, his
ability to exercise his SARs shall be limited to the
extent to which his SARs were exercisable by him at
the date of such termination, and his SARs shall
expire unless exercised by him within 15 days after
the date of such termination. The granting of a SAR
to an eligible person does not alter in any way the
Company's existing rights to terminate such person's
employment at any time for any reason, nor does it
confer upon such person any rights or privileges
except as specifically provided for pursuant to this
Plan.
(e) Death of Participant. If a Participant dies while in
the employ of the Employer, his Beneficiary's ability
to exercise the Participant's SARs shall
10
<PAGE> 11
be limited to the extent to which such SARs were
exercisable by the Participant at the date of death,
and such SARs shall expire unless exercised by the
Beneficiary within one year after the date of the
Participant's death.
(f) Change in Control. Upon the occurrence of a Change of
Control, each outstanding SAR shall be immediately
exercisable, notwithstanding any restriction or
limitation on such exercise contained in this Plan or
in the applicable SAR Agreement. Any SAR shall expire
unless exercised by a Participant within 15 days
after the date of a Change of Control. The provisions
of this subparagraph (f) shall apply to any SAR
outstanding as of the effective date of this amended
and restated Plan, as well as, with respect to any
SAR awarded after such effective date.
(g) Restrictions on Issuing Shares. The exercise of each
SAR shall be subject to, and shall not be effective
until, the complete satisfaction, as determined by
the Committee in its discretion, of all (i)
withholding obligations, (ii) listing, registration,
or qualification requirements imposed by any
securities exchange or under any state or federal
law, and (iii) consents or approvals of any
regulatory body, the Board or the Company's
stockholders which are necessary or desirable as a
condition of, or in connection with, such exercise or
the delivery of shares pursuant thereto.
9. Withholding Tax. At each time when applicable federal, state,
and local law requires withholding of income, state disability, social security
or other tax, with respect to Restricted Stock, Options or SARs granted to a
Participant, such Participant shall promptly pay to the Company the amount
necessary to satisfy all such withholding requirements. Such payment must be in
the form of any one or a combination of the following: cash, a certified check,
bank draft, or postal or express money order payable to the order of the Company
in lawful money of the United States. If a Participant does not pay such amount
to the Company, the Company shall be authorized on behalf of the Participant to
(i) sell any of the Participant's Restricted Stock held by the Secretary or
other officer of the Company in escrow, pursuant to subparagraph 6(c) above, in
order to satisfy such withholding requirements and/or (ii) to setoff the amount
of such withholding requirements against any amount otherwise due or to become
due by the Company to the Participant (under this Plan or otherwise). Upon
receiving payment of the Participant's withholding obligation, the Company shall
inform such Secretary or other officer that the Participant's withholding
requirements under this paragraph 9 have been satisfied.
10. Adjustments.
(a) If there shall be any change in the Common Stock as a
result of any merger, consolidation, reorganization,
reclassification, recapitalization, reincorporation,
stock split, stock dividend, or other like change in
the capital stock of the Company, appropriate
adjustments shall be made by the Committee in (i) the
number, class or kind of shares of Restricted
11
<PAGE> 12
Stock and Common Stock subject to Options and SARs
theretofore granted under this Plan, in order to
preserve (but not to increase) the benefits afforded
by this Plan to each Participant and (ii) the number
of shares which may be allocated to Awards made under
this Plan.
(b) In the event of the dissolution or liquidation of the
Company, any Option or SAR granted under this Plan
shall terminate as of a date to be fixed by the
Committee, provided that not less than 30 days' prior
written notice of the date so fixed shall be given to
each affected Participant, and each such Participant
shall have the right during such period to exercise
his Option or SAR in whole or in part thereby
including such shares or rights as to which such
Option or SAR would not otherwise be exercisable
solely by reason of an insufficient lapse of time.
(c) In the event of a Reorganization in which the Company
is not the surviving or acquiring company, or in
which the Company is or becomes a wholly-owned
subsidiary of another company after the effective
date of the Reorganization,
(1) If there is no plan or agreement respecting
the Reorganization ("Reorganization
Agreement") or if the Reorganization
Agreement does not specifically provide for
the change, conversion, or exchange of the
shares subject to outstanding and
unexercised Options for securities of
another corporation, the Reorganization
shall be treated as if it were a dissolution
or liquidation subject to subparagraph (b)
of this paragraph 10; or
(2) If there is a Reorganization Agreement
specifically providing for the change,
conversion, or exchange of the shares
subject to outstanding and unexercised
Options for securities of another
corporation, the Committee shall equitably
adjust the shares subject to such
outstanding and unexercised Options (and
shall adjust the shares then available to be
optioned under the Plan, if the
Reorganization Agreement permits) in a
manner not inconsistent with the provisions
of the Reorganization Agreement. The
Committee also shall make equitable
adjustments to all outstanding and
unexercised SARs.
(e) Adjustments and determinations under this
paragraph 10 shall be made by the Committee,
whose decisions as to what adjustments or
determinations shall be made, and the extent
thereof, shall be final, binding, and
conclusive.
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<PAGE> 13
11. Performance Measures.
(a) Unless and until the Committee proposes for a
stockholder vote and stockholders approve a change in
the general performance measures set forth in this
paragraph 11, the attainment of which may determine
the degree of payout and/or vesting with respect to
Awards (relating to Restricted Stock or Options that
do not satisfy the requirements of Paragraph 4(c)(ii)
hereof) to Named Executive Officers which are
designed to qualify for the Performance-Based
Exception, the performance measure(s) to be used for
purposes of such grants shall be chosen from among
the following alternatives as reported in the
Company's Report on Form 10-K:
(i) Return on Assets.
(ii) Return on Sales.
(iii) Return on Equity.
(iv) Cash Flow Return on Investment.
(v) Operating Income.
(vi) EBIT.
(vii) Net Earnings.
(viii) Earnings Per Share.
(b) The Committee shall have the discretion to adjust the
determinations of the degree of attainment of the
pre-established performance goals; provided, however,
that Awards affected by this paragraph 11 held by
Named Executive Officers which are designed to
qualify for the Performance-Based Exception may not
be adjusted upward (but the Committee shall have the
discretion to adjust such Awards downward).
(c) In the event that applicable tax and/or securities
laws change to permit Committee discretion to alter
the governing performance measures without obtaining
stockholder approval of such changes, the Committee
shall have discretion to make such changes without
obtaining stockholder approval. In addition, in the
event that the Committee determines that it is
advisable to grant Awards of Restricted Stock or
Options that do not satisfy the requirements of
paragraph 4(c)(ii) to Named Executive Officers which
are not designed to qualify for the Performance-Based
Exception, the Committee may make such grants without
satisfying the requirements of
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<PAGE> 14
Code Section 162(m) and, thus, which use no
performance measures or use performance measures
other than those specified above. To the extent that
the Committee determines that it is advisable to
grant Awards of Restricted Stock or Options that do
not satisfy the requirements of paragraph 4(c)(ii) to
Named Executive Officers which are designed to comply
with the Performance-Based Exception, the Committee
shall certify, in writing, prior to the payment of
any compensation under the Award, that the
performance goals and any other material terms were
in fact satisfied.
12. Use of Proceeds. The proceeds received by the Company from
the sale of Restricted Stock granted under this Plan or of Common Stock sold
pursuant to the exercise of Options granted under this Plan shall be added to
the Company's general funds and used for general corporate purposes.
13. Amendment, Suspension, and Termination of Plan. The Board
may at any time suspend or terminate this Plan or may amend it from time to time
in such respects as the Board may deem advisable in order that the Awards
granted hereunder may conform to any changes in the law or in any other respect
which the Board may deem to be in the best interest of the Company; provided,
however, that unless first approved by a vote of a majority of the outstanding
voting stock of the Company, no amendment shall be made which would:
(a) materially increase the benefits accruing to
Participants under the Plan,
(b) increase the number of shares of the Company's Common
Stock subject to the Plan,
(c) modify the requirements regarding eligibility for
participation in the Plan,
(d) extend the date as of which the Plan shall terminate.
Unless the Plan shall theretofore have been terminated by the Board or as
provided in paragraph 10, this Plan shall terminate on ________________ 2009,
ten years after the date this amended and restated Plan was approved by action
of the shareholders of the Company. No Restricted Stock, Option or SAR may be
granted during any suspension or after the termination of the Plan. Except as
provided in paragraph 10, no amendment, suspension, or termination of the Plan
shall, without a Participant's consent, alter or impair any of the rights or
obligations under any Restricted Stock, Option or SAR theretofore granted to
such Participant under this Plan.
14. Miscellaneous Provisions.
(a) The selection of any person to receive an Award under
this Plan shall not give such person any right to be
retained in the employ of the Employer, and the right
and power of the Employer to discharge any such
person
14
<PAGE> 15
shall not be affected by such Award. No person shall
have any right or claim whatever, directly,
indirectly or by implication, to receive an Award,
nor any expectancy thereof, unless and until an Award
in fact shall have been made to such person by the
Committee as provided herein. An Award hereunder to
any person at any time shall not create any right or
implication that any other or further Award may or
shall be made at another time. Each Award hereunder
shall be separate and distinct from every other Award
and shall not be construed as a part of any
continuing series of Awards or compensation.
(b) This Plan is not exclusive. The Company may have
other plans, programs and arrangements for
compensation or the issuance of shares. This Plan
does not require that Participants hereunder be
precluded from participation in such other plans,
programs and arrangements.
(c) At all times when Code Section 162(m) is applicable,
all Awards granted under the Plan to Named Executive
Officers shall comply with the requirements of Code
Section 162(m); provided, however, that in the event
the Committee determines in its discretion that such
compliance is not desired with respect to any Award
or Awards available for grant under the Plan, then
compliance with Code Section 162(m) will not be
required. In addition, in the event that changes are
made to Code Section 162(m) to permit greater
flexibility with respect to any Award or Awards
available under the Plan, the Committee may, subject
to this subparagraph (c), make any adjustments it
deems appropriate.
(d) The validity, interpretation, construction and
performance of this Plan shall be governed by the
laws of the State of Ohio.
15. Effective Date of Plan. The effective date of this amended
and restated Plan is April 22, 1999, the date of its approval by the
shareholders of the Company.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed on
this 23rd day of April, 1999.
M/I SCHOTTENSTEIN HOMES, INC.
By: /s/ Robert H. Schottenstein
----------------------------
Robert H. Schottenstein
President
<PAGE> 16
OPTION AGREEMENT
UNDER THE
M/I SCHOTTENSTEIN HOMES, INC.
1993 STOCK INCENTIVE PLAN
AS AMENDED
This Agreement is made as of _________________________, by and between
M/I Schottenstein Homes, Inc., an Ohio corporation (the "Company") and _________
_____________ (the "Employee").
WHEREAS, the Company adopted the M/I Schottenstein Homes, Inc. 1993
Stock Incentive Plan, as Amended (the "Plan"), which is a part of this
Agreement; and available upon request; and
WHEREAS, in recognition of the valuable services provided by and to be
provided by the Employee, the Company has determined that its interests will be
advanced by providing an incentive to the Employee to acquire a proprietary
interest in the Company and, as a stockholder, to share in its success and
thereby have added incentive to work effectively for and in the interests of the
Company and its affiliates; and
WHEREAS, the Employee has acquired and/or shall acquire during his/her
employment a considerable amount of confidential and proprietary information
with respect to the business of the Company and its affiliates, which
confidential and proprietary information is very valuable to the Company and
would be extremely detrimental to the Company if disclosed or used by the
Employee, other than in the performance of his/her duties as an employee of the
Company and/or its affiliates; and
WHEREAS, the Employee desires to participate in the Plan.
THEREFORE, in consideration of the mutual promises hereinafter set
forth and for other good and valuable consideration, the parties hereby agree as
follows:
Section 1. Award
The Company hereby grants to the Employee, as a matter of separate
agreement and not in lieu of salary or any other compensation for services, the
right, privilege and option (the "Option") to purchase ________ ( ) full shares
of the Company's common stock, $.01 par value ("Shares"), on the terms and
conditions set forth in this Agreement.
Section 2. Status of Option
(a) Subject to Plan. The Option and the manner of and the conditions
placed upon its exercise shall be subject to all the terms and conditions of
this Agreement and of the Plan, as interpreted and administered by the
Compensation Committee, or such other committee as the Board of Directors of the
Company may designate (the "Plan Committee").
-1-
<PAGE> 17
(b) Intended Tax Status. It is the intention of the Company that the
Option shall not be treated as an "incentive stock option" in accordance with
Section 422 of the Internal Revenue Code of 1986, as amended.
Section 3. Price of Shares
The purchase price of the Shares subject to the Option shall be
$____________________ per share.
Section 4. Time of Exercise of Option
(a) Subject to the provisions of Sections 6 and 7, below, the Option
shall be exercisable in accordance with the following schedule, on or before the
tenth anniversary of the date of this Agreement:
<TABLE>
<CAPTION>
Number of Shares
Subject to Exercise Exercise Period
------------------- ---------------
<S> <C>
____ ( %) Shares 12/31/___ or thereafter;
An additional ____ ( %) Shares 12/31/___ or thereafter;
An additional ____ ( %) Shares 12/31/___ or thereafter;
An additional ____ ( %) Shares 12/31/___ or thereafter;
An additional ____ ( %) Shares 12/31/___ or thereafter;
</TABLE>
provided, however, the Employee must remain continuously employed by the Company
or any of its affiliates from the date of this Agreement through the
commencement of an Exercise Period in order for the Shares scheduled to become
exercisable during that Exercise Period to actually become exercisable.
(b) Notwithstanding any provision contained herein, upon the occurrence
of a "Change in Control", as defined in the Plan, the Option shall be
immediately exercisable with respect to all Shares described in Section 1 which
have not previously been purchased by the Employee.
(c) The Option shall lapse and be forfeited to the extent not exercised
on or before its termination in accordance with Section 7 below.
-2-
<PAGE> 18
Section 5. Method of Exercise of Units
(a) The Employee shall exercise the Option with respect to all or any
number of full Shares then subject to exercise by written notice to the Plan
Committee in the form attached hereto as Exhibit A. Such notice shall either be
accompanied (i) by a certified check, bank draft, postal or express money order,
personal check (if approved by the Plan Committee), or Shares previously
acquired by the Employee in full payment of the option price of the Shares to be
purchased; or (ii) a statement, in substantially the form attached hereto as
Exhibit B, directing that (A) the certificates for the Shares for which the
Option is exercised be delivered to a licensed broker acceptable to the Company
as the agent for the individual exercising the Option and (B) at the time such
certificate or certificates are delivered, the broker shall tender to the
Company cash (or cash equivalents acceptable to the Company) equal to the Option
price for the Shares purchased pursuant to the exercise of the Option plus the
amount (if any) of federal and/or other taxes which the Company may in its
judgment, be required to withhold with respect to the exercise of the Option.
(b) If the Option is being exercised by the Employee's Beneficiary, as
defined in the Plan, the Beneficiary's notice of exercise to the Plan Committee
shall be accompanied by proof satisfactory to the Committee of the right of such
Beneficiary to exercise the Option under this Agreement, the Plan and all
applicable laws and regulations.
Section 6. Conditions on Exercise
Notwithstanding any provision to the contrary in this Agreement:
(a) The exercise of any portion of the Option or the Company's
obligation to deliver Shares upon the exercise of the Option is subject to the
satisfaction, in the Plan Committee's sole and absolute discretion, of the
following conditions:
(i) any withholding liabilities;
(ii) any restrictions imposed by any securities exchange or
under federal or state law with respect to the listing, registration or
qualification of any Shares to be delivered; and
(iii) any consent or approval of any regulatory body, the
Board of Directors of the Company or the Company's stockholders.
(b) The Company's obligation to deliver Shares upon the exercise of the
Option is further subject to the conditions that:
(i) the Employee is not, at the time of exercise, in material
breach of any of his or her obligations under this Agreement, or under any other
agreement with the Company;
-3-
<PAGE> 19
(ii) no preliminary or permanent injunction or other order
against the delivery of the Shares issued by any federal or state court of
competent jurisdiction in the United States shall be in effect;
(iii) there shall not be in effect any federal or state law,
rule or regulation which prevents or delays delivery of the Shares or payment,
as appropriate; and
(iv) the Employee or Beneficiary exercising the Option shall
confirm any factual matters reasonably requested by the Plan Committee, the
Company or counsel for the Company.
Section 7. Termination of Option
The Option granted hereunder, to the extent not theretofore exercised,
shall terminate upon the first to occur of the following dates:
(a) the expiration of thirty (30) days after the date on which the
Employee's employment by the Company or any of its affiliates terminates for any
reason other than the retirement, death or disability of the Employee;
(b) the expiration of one (1) year after the date of the Employee's
retirement (as defined in the Plan), death or disability (as defined in the
Plan);
(c) the expiration of fifteen (15) days after the occurrence of a
Change in Control; or
(d) the tenth anniversary of the date of this Agreement.
Section 8. Rights of Stockholder
Neither the Employee nor his or her Beneficiary, executor,
administrator, heirs or legatees shall have any rights of a stockholder in the
Company with respect to the Shares covered by the Option unless and until a
certificate representing such Shares has been duly issued and delivered to him
or her pursuant to this Agreement. Nothing in this Agreement shall be deemed to
confer on the Employee any right to continue in the employ of the Company or any
of its affiliates or to interfere in any way with the right of the Company or,
if applicable, its affiliates to terminate his or her employment at any time.
Section 9. Option Nontransferable
The Option shall not be assignable or transferable, or subject to any
disposition, including hypothecation, by the Employee otherwise than by will and
the laws of descent and distribution. Any such transfer, disposition, pledge or
hypothecation shall be null and void. The Option shall not be subject to
execution, attachment or similar process except with the express consent of the
Company. During the lifetime of the Employee, the Option shall be exercisable
only by him or her.
-4-
<PAGE> 20
Section 10. Employee Covenants
In consideration for the granting of the Option, the Employee hereby
covenants and agrees as follows:
(a) The Employee shall not at any time, directly or indirectly,
disclose to any other person, corporation, partnership, proprietorship or other
business enterprise, or otherwise use any "Data of a Confidential Nature" except
in the performance of Employee's duties as an Employee of the Company and/or an
affiliate with respect to the business of the Company and its affiliates.
Employee agrees that all Company materials evidencing, reflecting or containing
"Data of a Confidential Nature" are and shall remain the sole and exclusive
property of the Company and that upon termination of Employee's employment with
the Company and its affiliates, all such materials, including but not limited
to, records, drawings, blueprints, manuals, brochures, pamphlets and all other
materials will be returned to the Company. As used herein "Data of a
Confidential Nature" includes, but is not limited to cost, price and customer
data, any information on land acquisition programs, information on the Company's
(or any affiliate's) plans to acquire new properties or business, information on
the Company's (or any affiliate's) compensation programs, information regarding
relocations of existing facilities, new properties or business, major changes in
organization, competitive bid information, prices paid or received for goods or
services, processes, plans, methods of doing business, special needs of
customers, or any other information or data which if published, released, or
otherwise disseminated might be used to the detriment of the Company, its
affiliates or their management or affect their ability to transact business.
(b) The Employee shall not, at any time, directly or indirectly, or in
concert with any other person, corporation, partnership, proprietorship or other
business enterprise:
(i) induce or attempt to induce any employee or agent of the
Company or any of its affiliates to leave the employ of the Company or any of
its affiliates; or
(ii) employ (or engage to act, directly or indirectly, as an
independent contractor or agent) any employee or agent of the Company or any of
its affiliates within six (6) months following termination of such employee's
employment or of such agent's agency with the Company or any of its affiliates.
(c) In the event that any covenant set forth in subparagraph (b) shall
be determined by a court of competent jurisdiction to be unenforceable because
it extends over too great a period of time, or for any other reason, such
covenant shall be interpreted to extend only over the maximum period of other
restrictions to which they may be enforceable.
(d) The covenants set forth in subparagraphs (a) and (b) shall remain
in effect regardless of whether the Employee exercises the Option in whole or in
part.
-5-
<PAGE> 21
The Employee acknowledges that a breach of the covenants set forth in
this Section 10 may cause irreparable damage to the Company and its affiliates,
the extent of which may be difficult to ascertain, and that the award of damages
may not be adequate relief. The Employee agrees that, in the event of a breach
or threatened breach of the covenants contained in this Section 10, the Company
may institute an action to compel the specific performance of such covenants,
and that such remedy shall be cumulative, not exclusive, and shall be in
addition to any other available remedies.
The Employee recognizes and understands that the Employee has acquired
and/or shall acquire during his or her employment with the Company and/or its
affiliates a considerable amount of confidential and proprietary information
with respect to the business of the Company and its affiliates, which
confidential and proprietary information is very valuable to the Company and
would be extremely detrimental to the Company if disclosed or used by the
Employee other than in the performance of his or her duties as an employee of
the Company and/or its affiliates. The Employee further acknowledges that the
employees of the Company and its affiliates are an integral part of the
Company's business and, thus, it is important for the Company and its affiliates
to use their maximum efforts to prevent the loss of such employees.
Section 11. Miscellaneous
(a) No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by the Employee and such officers as may be specifically
designated by the Company.
(b) No agreement or representations, express or implied, with respect
to the subject matter hereof have been made by either party which are not set
forth expressly in this Agreement or the Plan.
(c) This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of Ohio. Any action brought relating to
this Agreement must be forumed and venued in a court of appropriate jurisdiction
located within Franklin County, Ohio. The Employee hereby consents to the
jurisdiction of the courts of Franklin County, Ohio with respect to any action
brought against the Employee by the Company under this Agreement.
(d) The Employee agrees that the Company may deduct and withhold from
any compensation otherwise payable to him the amounts required to be deducted
and withheld by the Company under the provisions of any statue, law or
regulations or ordinance heretofore or hereafter enacted in connection with the
grant and/or exercise of the Option.
(e) Notwithstanding any provision contained in this Agreement, the
Option issued hereunder is contingent upon the approval of the Plan by the
shareholders of the Company at their annual meeting to be held on April 22,
1999. To the extent that the shareholders of the Company fail to approve the
Plan, the Option issued hereunder shall be void ab initio.
-6-
<PAGE> 22
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and made effective the day and year first above written.
EMPLOYEE: COMPANY:
M/I SCHOTTENSTEIN HOMES, INC.
By:
- ---------------------------------- ----------------------------------
Title:
-------------------------------
- ----------------------------------
Date
-7-
<PAGE> 23
EXHIBIT A
---------
M/I SCHOTTENSTEIN HOMES, INC.
1993 STOCK INCENTIVE PLAN
AS AMENDED
NOTICE OF EXERCISE
Pursuant to Section 7(e) of the M/I Schottenstein Homes, Inc. 1993
Stock Incentive Plan as Amended (the "Plan"), the undersigned optionee hereby
provides written notice to M/I Schottenstein Homes, Inc. (the "Company") that
he/she intends to exercise an option to purchase __________________ (___) shares
of the Company's common stock, $.01 par value (the "Shares"), to be effective as
of the date on which the Company receives this Notice of Exercise.
EMPLOYEE:
------------------------------------
------------------------------------
Date
<PAGE> 24
EXHIBIT B
---------
M/I SCHOTTENSTEIN HOMES, INC.
1993 STOCK INCENTIVE PLAN
AS AMENDED
STATEMENT OF CASHLESS EXERCISE
Pursuant to the provisions of Section 7(e) of the M/I Schottenstein
Homes, Inc. 1993 Stock Incentive Plan (the "Plan"), the undersigned hereby
provides M/I Schottenstein Homes, Inc. (the "Company") with written notice that
he/she intends to exercise the option to purchase the common shares of the
Company (the "Shares"), as described in the Notice of Exercise (the "Notice") to
which this statement is attached, by using a cashless exercise method. As a
result, the undersigned hereby directs that the certificate or certificates for
the Shares be delivered to a licensed broker acceptable to the Company as the
agent for the undersigned and, at the time such certificate or certificates are
delivered, the broker shall tender to the Company cash (or cash equivalents
acceptable to the Company) equal to the option price for the Shares plus the
amount (if any) of federal and/or other taxes which the Company may in its
judgment, be required to withhold with respect to the exercise of the option.
EMPLOYEE:
------------------------------------
------------------------------------
Date
<PAGE> 25
AMENDMENT TO
OPTION AGREEMENT
UNDER THE
M/I SCHOTTENSTEIN HOMES, INC.
1993 STOCK INCENTIVE PLAN
This Amendment is made as of _______________, by and between M/I
Schottenstein Homes, Inc., an Ohio corporation (the "Company") and
________________ (the "Employee").
WHEREAS, the Company and the Employee previously entered into an Option
Agreement (the "Agreement") under which the Employee was granted an option (the
"Option") to purchase shares of the Company's common stock pursuant to the
provisions of the M/I Schottenstein Homes, Inc. 1993 Stock Incentive Plan (the
"Prior Plan"); and
WHEREAS, the Company has amended and restated the Prior Plan in the
form of the M/I Schottenstein Homes, Inc. 1993 Stock Incentive Plan, as Amended
(the "Amended Plan"), pursuant to which certain enhanced rights were granted, on
a retroactive basis, to options granted under the Prior Plan; and
WHEREAS, the Company and the Employee desire to have such enhanced
rights included under the Amended Plan apply to the Option previously granted to
the Employee pursuant to the terms of the Agreement and the Prior Plan.
THEREFORE, in consideration of the mutual promises hereinafter set
forth and for other good and valuable consideration, the parties hereby agree to
amend the Agreement as follows:
1. Any provision contained in the Amended Plan which, by its terms,
applies on a retroactive basis to options granted under the Prior Plan, shall be
incorporated into the Agreement and made applicable to the Option granted
thereunder. The Company and the Employee agree that the interpretation and
administration of the Amended Plan, as it applies to the Agreement and the
Option, shall be determined, in the discretion of, the Compensation Committee,
or such other committee as the Board of Directors of the Company may designate.
2. All remaining provisions of the Agreement which are not superseded
pursuant to the first paragraph of this Amendment shall remain in full force and
effect.
<PAGE> 26
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and made effective the day and year first above written.
COMPANY:
M/I SCHOTTENSTEIN HOMES, INC.
By:
--------------------------------
Title:
-----------------------------
EMPLOYEE:
- ----------------------------------
- ----------------------------------
Date
<PAGE> 1
Exhibit 10.1
M/I SCHOTTENSTEIN HOMES, INC.
EXECUTIVES' DEFERRED COMPENSATION PLAN
--------------------------------------
Section 1. PURPOSE
- ---------- -------
The Company desires and intends to recognize the value to the Company and its
Affiliates of the past and present services of its Executives, to encourage
their continued service to the Company and its Affiliates and to be able to
attract and retain Executives by adopting and implementing this Plan to provide
such Executives an opportunity to defer compensation otherwise payable to them
from the Company and/or Affiliate. In addition, the Company desires to allow
such Executives an opportunity to invest in the Common Shares of the Company by
providing that amounts deferred under this Plan will be distributed in Common
Shares.
This Plan was initially adopted effective November 1, 1998 and is amended and
restated in its entirety as provided in this document effective on the date that
it is adopted by the Company.
Section 2. CERTAIN DEFINITIONS
- ---------- -------------------
The following terms will have the meanings provided below.
"Additions" means the credits applied to Deferred Compensation Accounts
as provided in Section 4 hereof.
"Adjustment Date" means the last business day of each Plan Year during
which the Plan is in effect. However, solely for purposes of crediting
dividends, this term means the last business day of the calendar month during
which the dividend is paid.
"Affiliate" means any organization or entity which, together with the
Company, is a member of a controlled group of corporations or of a commonly
controlled group of trades or businesses [as defined in Sections 414(b) and (c)
of the Code], or of an affiliated service group [as defined in Code Section
414(m)] or other organization described in Code Section 414(o).
"Annual Cash Bonus" means, with respect to any calendar year or other
period, the bonus which, absent its deferral hereunder, would be payable to a
Participant for services rendered as an Executive. However, the term will not
include any bonus or special distribution made in connection with any other
employer provided benefit or fringe benefit program,
"Beneficiary" means the person or persons designated in writing as such
and filed with the Plan Administrator at any time by a Participant. Any such
designation may be withdrawn or changed in writing (without the consent of the
Beneficiary), but only the last designation on file with the Plan Administrator
shall be effective.
<PAGE> 2
"Board" means the Board of Directors of the Company.
"Change of Control" means (i) the acquisition by any person or group of
persons (within the meaning of Section 13 or 14 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), other than Irving E. Schottenstein or
any of his immediate family members or lineal descendants, any heir of the
foregoing, any trust for the benefit of any of the foregoing, any private
charitable foundation or any partnership, limited liability company or
corporation owned or controlled by some or all of the foregoing, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 25 percent or more of the outstanding voting capital stock of the Company or
(ii) the failure of the directors of the Company on the date hereof (the
"Current Board"), or such directors who are elected or recommended or endorsed
for election to the board of directors of the Company by a majority of the
Current Board or their successors so elected, recommended or endorsed to
constitute a majority of the board of directors of the Company.
"Code" means the Internal Revenue Code of 1986, as may be amended from
time to time.
"Common Shares" means the common shares of the Company, par value $.01.
"Company" means M/I Schottenstein Homes, Inc., an Ohio corporation, and
any successor entity.
"Deferred Compensation Account" means the separate Deferred
Compensation Account established for each Participant pursuant to Section 4 of
the Plan.
"Effective Date" means November 1, 1998.
"Executive" means those select management or highly compensated
employees whom the Board designates as eligible to participate in this Plan. As
of the Effective Date, these include those persons who are employed as the
Company's Chief Executive Officer; President; Chief Operating Officer; Senior
Vice President, Chief Financial Officer; Senior Vice President, Treasurer;
President Land Operations, General Counsel; Region Presidents, President,
Columbus Land; Vice President, Research and Design; Vice President, Research and
Design, Florida; Vice President, Marketing; Division Presidents; and the
President of M/I Financial.
"Fair Market Value" of the Common Shares means the most recent closing
price of the Common Shares on any national securities exchange on which the
Common Shares are then listed.
"Participant" has the meaning specified in Section 3 of the Plan.
"Plan" means the M/I Schottenstein Homes, Inc. Executives' Deferred
Compensation Plan, as reflected in this document, as the same may be amended
from time to time after the Effective Date.
2
<PAGE> 3
"Plan Administrator" means the Company or the person or committee to
whom the Company has delegated all of its powers and duties to administer the
Plan.
"Plan Year" means the calendar year.
"Executive Stock Bonus Plan" means the separate incentive compensation
program extended by the Company to select members of its management.
"Trust" means the trust fund that, in the discretion of the Company,
may be established for purposes of segregating certain assets of the Company for
payment of benefits hereunder as the same may be amended from time to time. Such
Trust may be irrevocable, but the assets thereof shall, at all times, remain the
property of the Company subject to the claims of the Company's creditors.
Section 3. PARTICIPANTS
- ---------- ------------
Each person who is an Executive on the Effective Date shall be designated by the
Plan Administrator as eligible for participation in the Plan on the Effective
Date. Each individual who becomes an Executive after the Effective Date will be
eligible to participate in the Plan as of the date on which he becomes an
Executive or the date specified by the Plan Administrator, whichever is latest.
An Executive so designated shall immediately become a "Participant" in the Plan.
A Participant shall continue to participate in the Plan until his status as a
Participant is terminated by a complete distribution of his Deferred
Compensation Account pursuant to the terms of the Plan, by written directive of
the Plan Administrator or if he or she is no longer an Executive.
Section 4. DEFERRED COMPENSATION ACCOUNTS
- ---------- ------------------------------
A. Establishment of Deferred Compensation Accounts. The Plan
Administrator will establish a Deferred Compensation Account for each
Participant.
B. Participant Deferrals. With respect to each Plan Year and subject to
the limit described in Section 4.H below, (i) five percent of each Participant's
Annual Cash Bonus will be credited to his or her Deferred Compensation Account
and (ii) a Participant may elect to have an additional portion of his or her
Annual Cash Bonus credited to this account. To make this discretionary deferral
for any Plan Year, before June 30 of each Plan Year, the Participant must advise
the Plan Administrator of his election, in writing, on a form prescribed by the
Plan Administrator (each, a "Deferral Notice"). Notwithstanding the preceding
sentence, in the first year if the Plan, a Participant may complete a Deferral
Notice at any time within thirty (30) days following the Effective Date. Such
Deferral Notice shall apply only to Annual Cash Bonuses payable to, or earned
by, the Participant after the date on which the Deferral Notice is received by
the Plan Administrator. To the extent that a Participant completes a Deferral
Notice in accordance with the provisions of this paragraph, such Deferral Notice
shall remain in effect for future Plan Years until changed or revoked by the
Participant.
3
<PAGE> 4
C. Executive Stock Bonus Plan Awards. Amounts awarded under the
Executive Stock Bonus Plan also will be credited to the recipient's Deferred
Compensation Account and distributed under the terms of this Plan.
D. Company Contributions. Each time a Deferral Notice is submitted to
the Plan Administrator in accordance with Section 4.B. above, during the next
Plan Year, the Company will allocate to the Participant's Deferred Compensation
Account the percentage of the Annual Cash Bonus, specified in the Deferral
Notice. Also, the mandatory deferral described in Section 4.B and the Executive
Stock Bonus Plan Award described in Section 4C will be allocated to that same
account. Any amounts so allocated by the Company are called "Company
Contributions."
E. Adjustment of Account Balances. The amount credited to the Deferred
Compensation Account of each Participant shall be divided by the Fair Market
Value of the Common Shares determined as of the last Adjustment Date. Upon
completion of this calculation, each Deferred Compensation Account shall be
credited with the resulting number of whole Common Shares and any remaining
amounts shall continue to be credited to the Deferred Compensation Account until
converted to whole Common Shares based on their Fair Market Value as of the most
recent Adjustment Date. The Deferred Compensation Account of each Participant
shall be credited with cash dividends on Common Share at the times and equal in
amount to the cash dividends actually paid with respect to Common Shares on and
after the date credited to the Deferred Compensation Account. The amount of cash
dividends credited to each Deferred Compensation Account (and any other amounts
then credited to such account) shall be divided by the then Fair Market Value of
the Common Shares determined as of the most recent Adjustment Date; and the
Deferred Compensation Account of each Participant shall be credited with the
resulting number of whole Common Shares and any remaining amounts shall continue
to be credited to the Deferred Compensation Account until it may be converted to
whole Common Shares based on their Fair Market Value as of the most recent
Valuation Date. The Plan Administrator may prescribe any reasonable method or
procedure for the accounting of for these adjustments.
F. Stock Adjustments. The number of Common Shares in the Deferred
Compensation Account of each Participant and the minimum and maximum share
limits described in Section 4.H shall be adjusted from time to time to reflect
stock splits, stock dividends or other changes in the Common Shares resulting
from a change in the Company's capital structure.
G. Participant's Rights in Accounts. A Participant's only right with
respect to his Deferred Compensation Account (and amounts allocated thereto)
will be to receive distributions in accordance with the provisions of Section 5
of the Plan.
H. Limits on Deferrals. The mandatory deferral described in Section 4.B
will not be applied in any year for which a Participant's Annual Cash Bonus
(before application of the
4
<PAGE> 5
Participant's Deferral Notice) is less than $50,000. If the Annual Cash Bonus
for any year is $50,000 or larger, this mandatory deferral will be applied to
the entire amount of the bonus, not just the portion that exceeds $50,000. Also,
the minimum and maximum number of Common Shares allocated will be subject to the
limits described in the following Table.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(b) (c)
TITLE MINIMUM NUMBER OF COMMON SHARES* MAXIMUM NUMBER OF COMMON SHARES**
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Chief Executive Officer None None
- ----------------------------------------------------------------------------------------------------------------------
President None None
- ----------------------------------------------------------------------------------------------------------------------
Chief Operating Officer None None
- ----------------------------------------------------------------------------------------------------------------------
Senior Vice President, 10,000 None
Chief Financial Officer
- ----------------------------------------------------------------------------------------------------------------------
Senior Vice President, Treasurer 10,000 None
- ----------------------------------------------------------------------------------------------------------------------
President Land Operations, 10,000 None
General Counsel
- ----------------------------------------------------------------------------------------------------------------------
Region Presidents 10,000 10,000
- ----------------------------------------------------------------------------------------------------------------------
President, M/I Financial 10,000 10,000
- ----------------------------------------------------------------------------------------------------------------------
President, Columbus 5,000 5,000
- ----------------------------------------------------------------------------------------------------------------------
Vice President, Research and 5,000 5,000
Development
- ----------------------------------------------------------------------------------------------------------------------
Vice President, Research
and Design, Florida 5,000 5,000
- ----------------------------------------------------------------------------------------------------------------------
Vice President, Marketing 5,000 5,000
- ----------------------------------------------------------------------------------------------------------------------
Division Presidents 5,000 5,000
- ----------------------------------------------------------------------------------------------------------------------
Other Executives To be established To be established
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
* The minimum number of Common Shares (column (b)) will be calculated by
aggregating (i) Common Shares credited to the Participant's Deferred
Compensation Account, (ii) Common Shares the Participant owns individually
(i.e., without regard to this Plan) and (iii) Common Shares the Participant owns
indirectly by application of Section 318 of the Code.
** The maximum number of Common Shares (column (c)) will be calculated solely by
reference to Common Shares credited to the Participant's Deferred Compensation
Account and (i) without regard to Common Shares the Participants owns
individually (i.e., without regard to this Plan) and (ii) without regard to
Common Shares the Participant owns indirectly by application of Section 318 of
the Code.
Section 5. PAYMENT OF DEFERRED BENEFITS
- ---------- ----------------------------
A. Time of Payment. Distribution of a Participant's Deferred
Compensation Account shall be made within sixty (60) days of the earlier of (i)
the date specified by the Participant in the Deferral Notice delivered to the
Plan Administrator at the time the deferral election is made; (ii) the date the
Participant terminates service for any reason (other than disability as
determined by the Plan Administrator) before reaching age 60 and completing at
least three years of employment or (iii) the date the Participant dies.
Also, each Participant may postpone the date selected for
distribution of his or her Deferred Compensation Account by filing a revised
Deferral Agreement but only if that revised form is filed no less than 12 months
before the initially designated distribution date.
B. Method of Distribution. A Participant's Deferred Compensation
Account shall be distributed to the Participant in a single lump sum
distribution of all of the Common Shares credited to his or her Deferred
Compensation Account on the date specified in the Participant's Deferral Notice.
C. Hardship Distributions. Prior to the time a Participant's Deferred
Compensation Account becomes payable, the Plan Administrator, in its sole
discretion, may elect to distribute all or a portion of such account in the
event such Participant requests a distribution due to severe financial hardship.
For purposes of this Plan, severe financial hardship shall be deemed to exist in
the event the Plan Administrator determines that a Participant needs a
distribution to meet immediate and heavy financial needs resulting from a sudden
or unexpected illness or accident of the Participant or a member of the
Participant's family, loss of the Participant's property due to casualty or
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant. A distribution based on
financial hardship shall not exceed the amount required to meet the immediate
financial need created by the hardship and shall be made by distributing the
smaller of (i) the number of Common Shares credited to his or her Deferred
Compensation Account or (ii) the number of Common Shares with a Fair Market
Value equal to the amount needed to meet the financial hardship, reduced by the
maximum amount that the Participant could borrow or withdraw from any other
deferred compensation program in which he or she participates, including a plan
described in Section 401(a) of the Code.
6
<PAGE> 7
D. Change of Control. Regardless of any other Plan provision to the
contrary, the balance of a Participant's entire Deferred Compensation Account
will be distributed as soon as administratively practical (but no later than 60
days) after a Change of Control but only if the Participant elected this
distribution event in his or her Deferral Notice. Any election a Participant
makes in his or her Deferral Notice with respect to a distribution after a
Change of Control may be changed by delivering a revised Deferral Notice to the
Plan Administrator before the Change of Control occurs. Any modification made
after that date will not be implemented.
E. Designation of Beneficiary. Upon the death of a Participant prior to
the distribution of his Deferred Compensation Account, such Deferred
Compensation Account shall be paid to the Beneficiary designated by the
Participant. If there is no designated Beneficiary or no designated Beneficiary
surviving at a Participant's death, payment of the Participant's Deferred
Compensation Account shall be made to the Participant's estate.
F. Taxes. In the event any taxes are required by law to be withheld or
paid from any payments made pursuant to the Plan, the Plan Administrator shall
pay these taxes from the proceeds of a personal check which the Participant
shall give the Plan Administrator to pay these taxes. The Plan Administrator
will pay these amounts to the appropriate taxing authority.
Section 6. ASSIGNMENT OR ALIENATION
- ---------- ------------------------
The right of a Participant, Beneficiary or any other person to the payment of a
benefit under this Plan may not be assigned, transferred, pledged or encumbered
except by will or by the laws of descent and distribution.
Section 7. PLAN ADMINISTRATION
- ---------- -------------------
The Plan Administrator will have the right to interpret and construe the Plan
and to determine all questions of eligibility and of status, rights and benefits
of Participants and all other persons claiming benefits under the Plan. In all
such interpretations and constructions, the Plan Administrator's determination
will be based upon uniform rules and practices applied in a nondiscriminatory
manner and will be binding upon all persons affected thereby. Subject to the
provisions of Section 8 below, any decision by the Plan Administrator with
respect to any such matters will be final and binding on all parties. The Plan
Administrator will have absolute discretion in carrying out its responsibilities
under this Section 7.
7
<PAGE> 8
Section 8. CLAIMS PROCEDURE
- ---------- ----------------
A. Filing Claims. Any Participant or Beneficiary entitled to benefits
under the Plan will file a claim request with the Plan Administrator.
B. Notification to Claimant. If a claim is wholly or partially denied,
the Plan Administrator will furnish to the claimant a notice of the decision
within ninety (90) days in writing and in a manner calculated to be understood
by the claimant, which notice will contain the following information:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions upon
which the denial is based;
(iii) a description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation of why such material or
information is necessary; and
(iv) an explanation of the Plan's claims review procedure
describing the steps to be taken by a claimant who
wishes to submit his claims for review.
C. Review Procedure. A claimant or his authorized representative may,
with respect to any denied claim:
(i) request a review upon a written application filed
within sixty (60) days after receipt by the claimant
of written notice of the denial of his claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
Any request or submission will be in writing and will be directed to the Plan
Administrator (or its designee). The Plan Administrator (or its designee) will
have the sole responsibility for the review of any denied claim and will take
all steps appropriate in the light of its findings.
D. Decision on Review. The Plan Administrator (or its designee) will
render a decision upon review. If special circumstances (such as the need to
hold a hearing on any matter pertaining to the denied claim) warrant additional
time, the decision will be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the request for review. Written
notice of any such extension will be furnished to the claimant prior to the
commencement of the extension. The decision on review will be in writing and
will include specific reasons for the decision, written in a manner calculated
to be understood by the claimant, as well as specific references to the
pertinent provisions of the Plan on which the decision is based. If the decision
on review is not furnished to the claimant within the time limits prescribed
above, the claim will be deemed denied on review.
8
<PAGE> 9
Section 9. UNSECURED AND UNFUNDED OBLIGATION
- ---------- ---------------------------------
Notwithstanding any provision herein to the contrary, the benefits offered under
the Plan shall constitute an unfunded, unsecured promise by the Company to pay
benefits determined hereunder which are accrued by Participants while such
Participants are Executives. No provision shall at any time be made with respect
to segregating any assets of the Company for payment of any benefits hereunder,
except to the extent that the Company, in its discretion, establishes a Trust
for such purpose. To the extent any benefits provided under the Plan are
actually paid from a Trust, neither the Company nor any Affiliate shall have any
further obligation therefor, but to the extent not so paid, such benefits shall
remain the obligations of, and shall be paid by, the Company. No Participant,
Beneficiary or any other person shall have any interest in any particular assets
of the Company or any Affiliate by reason of the right to receive a benefit
under the Plan and any such Participant, Beneficiary or other person shall have
only the rights of a general unsecured creditor of the Company with respect to
any rights under the Plan. Nothing contained in the Plan shall constitute a
guaranty by the Company, any Affiliate or any other entity or person that the
assets of the Company will be sufficient to pay any benefit hereunder. All
expenses and fees incurred in the administration of the Plan and of any Trust
shall be paid by the Company, provided that, in the event that a Trust is
established, at the direction of the Company, such expenses and fees shall be
paid from the Trust, provided that such amounts are not paid by the Company or
an Affiliate.
Section 10. AMENDMENT AND TERMINATION OF THE PLAN
- ----------- -------------------------------------
The Company reserves the right, by a resolution of the Board, to amend the Plan
at any time, and from time to time, in any manner which it deems desirable,
provided that no amendment will adversely affect the accrued benefits of any
Participant under the Plan. The Company also reserves the right, by a resolution
of the Board, to terminate this Plan at any time without providing any advance
notice to any Participant; and in the event of any Plan termination, the Company
reserves the right to then distribute all amounts allocated to Participants'
Deferred Compensation Accounts.
Section 11. BINDING UPON SUCCESSORS
- ----------- -----------------------
The Plan shall be binding upon and inure to the benefit of the Company, its
successors and assigns and the Participants and their heirs, executors,
administrators and legal representatives. In the event of the merger or
consolidation of the Company with or into any other corporation, or in the event
substantially all of the assets of the Company shall be transferred to another
corporation, the successor corporation resulting from the merger or
consolidation, or the transferee of such assets, as the case may be, shall, as a
condition to the consummation of the merger, consolidation or transfer, assume
the obligations of the Company hereunder and shall be substituted for the
Company hereunder.
9
<PAGE> 10
Section 12. NO GUARANTEE OF PLAN PERMANENCY
- ----------- -------------------------------
This Plan does not contain any guarantee of provisions for continued service on
the Board to any Executive or Participant nor is it guaranteed by the Company to
be a permanent plan.
Section 13. GENDER
- ----------- ------
Any reference in the Plan made in the masculine pronoun shall apply to both men
and women.
Section 14. INCAPACITY OF RECIPIENT
- ----------- -----------------------
In the event that a Participant or Beneficiary is declared incompetent and a
guardian, conservator or other person legally charged with the care of his
person or of his estate is appointed, any benefits under the Plan to which such
Participant or Beneficiary is entitled shall be paid to such guardian,
conservator or other person legally charged with the care of his person or his
estate. Except as provided hereinabove, when the Plan Administrator, in its sole
discretion, determines that a Participant or Beneficiary is unable to manage his
financial affairs, the Plan Administrator may, but shall not be required to,
direct distribution(s) to any one or more of the spouse, lineal ascendants or
descendants or other closest living relatives of such Participant or Beneficiary
who demonstrates to the satisfaction of the Plan Administrator the propriety of
making such distribution(s). Any payment made under this Section 14 shall be in
complete discharge of any liability under the Plan for such payment. The Plan
Administrator shall not be required to see to the application of any such
distribution made to any person.
Section 15. GOVERNING LAW
- ----------- -------------
This Plan shall be construed in accordance with and governed by the laws of the
State of Ohio.
Section 16. INABILITY TO LOCATE PARTICIPANT OR BENEFICIARY
- ----------- ----------------------------------------------
Each Participant is obliged to keep the Plan Administrator apprised of his or
her current mailing address and that of his or her Beneficiary. The Plan
Administrator's obligation to search for any Participant or Beneficiary is
limited to sending a registered or certified letter to the Participant's or
Beneficiary's last known address. Any amounts credited to the Deferred
Compensation Account of any Participant or Beneficiary that does not present
himself or herself to the Plan Administrator will be forfeited no later than 12
months after that benefit otherwise would have been payable. However, this
forfeited benefit will be restored and paid if the Plan Administrator
subsequently receives a claim for benefits which is approved under the
procedures described in Section 8.
10
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
a duly authorized officer as of the 23rd day of April, 1999.
M/I SCHOTTENSTEIN HOMES, INC.
By: /s/ Robert H. Schottenstein
------------------------------------
Its: President
-----------------------------------
11
<PAGE> 12
M/I SCHOTTENSTEIN HOMES, INC.
EXECUTIVES' DEFERRED COMPENSATION PLAN
DEFERRAL NOTICE
---------------
Name:__________________________________________________________________
Soc. Sec. No.:_________________________________________________________
Date of Birth:_________________________________________________________
1. ELECTION TO DEFER.
In accordance with the provisions of the M/I Schottenstein Homes, Inc.
Executives' Deferred Compensation Plan (the "Plan") and subject to the
limits described in the Plan, I hereby elect to defer __________
percent of the Annual Cash Bonus (as defined in the Plan) payable to me
for services as an Executive of M/I Schottenstein Homes, Inc., or any
of its Affiliates. This election supersedes any prior deferral election
made by me and shall remain in effect until terminated or otherwise
amended.
2. DISTRIBUTION ELECTION.
A. I hereby elect to receive distribution of my Deferred Compensation
Account in the Plan within 60 days of my termination as an employee,
or, if earlier, within 60 days of _______________.
B. Subject to Section 4.D, I elect:
_____ To receive,
_____ Not to receive,
a distribution of the amount credited to my Deferred Compensation
Account as soon as administratively possible after a Change of Control
occurs.
3. METHOD OF PAYMENT.
I hereby acknowledge that I will receive the distribution of my
Deferred Compensation Account in the Plan in a single lump sum
distribution of all of the Common Shares (as defined in the Plan)
credited to my Deferred Compensation Account.
4. DESIGNATION OF BENEFICIARY.
I hereby designate _____________________ as my primary Beneficiary and
______________________ as my contingent Beneficiary(ies) to receive any
amounts payable under the Plan in the event of my death.
<PAGE> 13
5. ACKNOWLEDGMENT.
I hereby acknowledge that (i) as described in Section 4.A of the Plan
(and subject to the limits described in Section 4.H of the Plan) a
portion of my Annual Cash Bonus will automatically be deferred to the
Plan, (ii) my election to defer a portion of my Annual Cash Bonus under
the Plan is irrevocable with respect to amounts which are deferred
under the Plan and shall remain in effect until terminated or modified,
(iii) the Plan is unfunded and is maintained primarily for the purpose
of providing deferred compensation to a select group of management or
highly compensated employees (as defined in the Employee Retirement
Income Security Act of 1974, as amended) and that I have no rights or
claims to receive amounts credited to my Deferred Compensation Account
other than those specifically granted by the terms of the Plan, and
(iv) I am solely responsible for ensuring that the Plan Administrator's
files contain my current mailing address and that of my Beneficiary.
______________________________ _______________________________
Date Signature
_______________________________
Name (please print)
13
<PAGE> 14
M/I SCHOTTENSTEIN HOMES, INC.
EXECUTIVES' DEFERRED COMPENSATION PLAN
CONSENT TO AMENDMENT
--------------------
Name:__________________________________________________________________
Soc. Sec. No.:_________________________________________________________
Date of Birth:_________________________________________________________
I understand that the M/I Schottenstein Homes, Inc. Executives' Deferred
Compensation Plan has been amended and that amendment may affect the date that
my benefits are distributable. By signing below, I consent to that change and
agree that payment of my benefits will be governed solely by the terms of the
amended Plan.
______________________________ _______________________________
Date Signature
_______________________________
Name (please print)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS THEN ENDED OF M/I SCHOTTENSTEIN HOMES, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,898
<SECURITIES> 0
<RECEIVABLES> 39,715
<ALLOWANCES> 0
<INVENTORY> 409,101
<CURRENT-ASSETS> 461,714
<PP&E> 25,557
<DEPRECIATION> 5,782
<TOTAL-ASSETS> 506,944
<CURRENT-LIABILITIES> 111,828
<BONDS> 11,731
0
0
<COMMON> 88
<OTHER-SE> 183,587
<TOTAL-LIABILITY-AND-EQUITY> 506,944
<SALES> 353,432
<TOTAL-REVENUES> 362,337
<CGS> 281,801
<TOTAL-COSTS> 281,801
<OTHER-EXPENSES> 43,677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,708
<INCOME-PRETAX> 30,151
<INCOME-TAX> 11,911
<INCOME-CONTINUING> 18,240
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,240
<EPS-BASIC> 2.07
<EPS-DILUTED> 2.05
</TABLE>
