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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
M/I SCHOTTENSTEIN HOMES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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[M/I SCHOTTENSTEIN HOMES, INC. LOGO]
3 Easton Oval
Columbus, Ohio 43219
March 20, 2003
To Our Shareholders:
The Annual Meeting of Shareholders of M/I Schottenstein Homes, Inc. (the
"Company") will be held at 9:00 a.m., Eastern Daylight Time, on Tuesday, April
22, 2003, at the offices of the Company, 3 Easton Oval, Columbus, Ohio.
Enclosed is a copy of our 2002 Annual Report, notice of the meeting, a
proxy statement and a proxy card. Please record your vote on the proxy card and
return it promptly in the postage-paid envelope provided, or alternatively, vote
your proxy electronically via the Internet or telephonically in accordance with
the instructions on your proxy card.
We look forward to reviewing the activities of the Company at the meeting.
We hope you can be with us.
Sincerely,
/s/ Irving E. Schottenstein
Irving E. Schottenstein,
Chief Executive Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
IN THE ENVELOPE PROVIDED, OR ALTERNATIVELY,
VOTE ELECTRONICALLY OR TELEPHONICALLY
[M/I SCHOTTENSTEIN HOMES, INC. LOGO]
3 EASTON OVAL
COLUMBUS, OHIO 43219
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 2003
To Each Shareholder of M/I Schottenstein Homes, Inc.:
Notice is hereby given that the 2003 Annual Meeting of Shareholders of M/I
Schottenstein Homes, Inc. (the "Company") will be held at 9:00 a.m., Eastern
Daylight Time, on Tuesday, April 22, 2003, at the offices of the Company, 3
Easton Oval, Columbus, Ohio, for the following purposes:
1) To elect three directors to serve until the 2006 annual meeting of
shareholders and until their successors have been duly elected and
qualified;
2) To consider and vote upon a proposal to approve the restructuring
of the Company's corporate structure into a holding company structure by
transferring the Company's operating assets and certain associated
liabilities to wholly-owned subsidiaries of the Company;
3) To consider and vote upon a proposal to ratify the appointment of
Deloitte & Touche LLP as the Company's independent accountants and auditors
for the 2003 fiscal year; and
4) To transact such other business as may properly be brought before
the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on February 26, 2003,
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournment thereof.
It is important that your common shares be represented at the Annual
Meeting. Whether or not you intend to be present, please complete, sign, date
and return the enclosed proxy card in the envelope provided, or alternatively,
vote your proxy electronically via the Internet or telephonically in accordance
with the instructions on your proxy card. You may revoke your proxy at any time
before it is exercised at the Annual Meeting, and, if you attend the Annual
Meeting and wish to vote in person, you may withdraw your proxy and vote in
person.
By Order of the Board of Directors,
/s/ J. Thomas Mason
J. Thomas Mason,
Secretary
March 20, 2003
[M/I SCHOTTENSTEIN HOMES, INC. LOGO]
3 Easton Oval
Columbus, Ohio 43219
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 2003
March 20, 2003
The Annual Meeting of Shareholders of M/I Schottenstein Homes, Inc. (the
"Company") will be held on Tuesday, April 22, 2003 (the "Annual Meeting"), for
the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders. This Proxy Statement and the accompanying form of proxy are first
being sent to shareholders on or about March 20, 2003. This Proxy Statement is
furnished in connection with the solicitation of proxies by the Company's Board
of Directors (the "Board") for use at the Annual Meeting and at any adjournment
thereof. The Annual Report of the Company for the fiscal year ended December 31,
2002, including financial statements, is being mailed to all shareholders
together with this Proxy Statement.
A proxy card for use at the Annual Meeting is enclosed. You may ensure your
representation by completing, signing, dating and promptly returning the
enclosed proxy card in the envelope provided. Alternatively, shareholders
holding common shares registered directly with the Company's transfer agent,
EquiServe, may vote their proxy electronically via the Internet or
telephonically by following the instructions on their proxy card. The deadline
for voting electronically via the Internet or telephonically is 11:59 p.m.,
Eastern Daylight Time, on April 21, 2003. There are no fees or charges
associated with voting electronically via the Internet or telephonically, other
than fees or charges, if any, that shareholders pay for access to the Internet
and for telephone service. Shareholders holding common shares in "street name"
with a broker, bank or other holder of record may also be eligible to vote their
proxy electronically via the Internet or telephonically. Such shareholders
should review the information provided to them by such holder of record. This
information will set forth the procedures to be followed in instructing the
holder of record how to vote the "street name" common shares and how to revoke
previously given instructions.
You may revoke your proxy at any time before it is exercised at the Annual
Meeting by filing a written notice with the Company revoking it, by duly
executing a proxy card bearing a later date, by casting a new vote
electronically via the Internet or telephonically or by attending the Annual
Meeting and voting in person. Attending the Annual Meeting without voting will
not revoke a proxy. Subject to such revocation and except as otherwise stated
herein or in the form of proxy, all proxies properly executed or properly voted
electronically via the Internet or telephonically that are received prior to, or
at the time of, the Annual Meeting will be voted in accordance with the
instructions contained therein. If no instructions are given (excluding broker
non-votes), proxies will be voted for the nominees for election of directors set
forth herein, for Proposal Nos. 2 and 3 and, at the discretion of the
proxyholders, on all other matters that may properly be brought before the
Annual Meeting or any adjournment thereof.
OUTSTANDING SHARES AND VOTING RIGHTS
There were 14,519,969 of the Company's common shares, par value $.01 per
share (the "Common Shares"), issued and outstanding on February 26, 2003 (the
"Record Date"), which date has been set as the record date for the purpose of
determining the shareholders entitled to notice of, and to vote at, the Annual
Meeting. Each Common Share outstanding on the Record Date entitles the holder to
one vote on each matter submitted to a shareholder vote at the Annual Meeting. A
quorum for the Annual Meeting is a majority of the outstanding Common Shares on
the Record Date.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Pursuant to the Company's Amended and Restated Regulations (the
"Regulations"), the Board is comprised of nine directors, divided into three
classes with staggered three year terms. A class of three directors is to be
elected at the Annual Meeting. The Board has nominated the persons set forth
below for election as directors of the Company at the Annual Meeting. The three
nominees receiving the greatest number of votes cast will be elected to serve
until the 2006 Annual Meeting of Shareholders and until their successors are
duly elected and qualified or until their earlier death, resignation or removal.
Withheld votes with respect to any nominee will be counted for purposes of
establishing a quorum, but will have no effect on the election of that nominee.
Information concerning the nominees and the remaining members of the Board is
set forth below.
Unless otherwise specified in your proxy, the Common Shares voted pursuant
thereto will be voted FOR each of the persons named below as nominees for
election as directors. The Board has no reason to believe that any nominee will
not serve if elected. If any nominee becomes unwilling or unable to serve as a
director, the proxyholders reserve full discretion to vote the Common Shares
represented by the proxies they hold for the election of the remaining nominees
and for the election of any substitute nominee designated by the Board.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE PERSONS NAMED
BELOW AS NOMINEES FOR ELECTION AS DIRECTORS.
YEAR FIRST
SERVED AS
NAME AGE CURRENT POSITIONS WITH COMPANY DIRECTOR
---- --- ------------------------------ ----------
NOMINEES
Thomas D. Igoe 71 Director, Chairman of Audit Committee, member of 2000
Compensation Committee, member of Executive
Officer Compensation Committee
Steven Schottenstein 46 Chief Operating Officer, Vice Chairman of the 1993
Board, member of Executive Committee, member of
Compensation Committee
Lewis R. Smoot, Sr. 69 Director, member of Executive Committee, member 1993
of Audit Committee, member of Compensation
Committee, member of Executive Officer
Compensation Committee
DIRECTORS
Friedrich K. M. Bohm 61 Director, Chairman of Executive Officer 1994
Compensation Committee, member of Audit
Committee, member of Compensation Committee
Phillip G. Creek 50 Senior Vice President, Chief Financial Officer, 2002
Treasurer, Director, member of Compensation
Committee
2
YEAR FIRST
SERVED AS
NAME AGE CURRENT POSITIONS WITH COMPANY DIRECTOR
---- --- ------------------------------ ----------
Jeffrey H. Miro 60 Director, member of Compensation Committee, 1998
member of Executive Officer Compensation
Committee
Irving E. Schottenstein 74 Chief Executive Officer, Chairman of the Board, 1976
Chairman of Executive Committee, member of
Compensation Committee
Robert H. Schottenstein 50 President, Vice Chairman of the Board, member of 1993
Executive Committee, member of Compensation
Committee
Norman L. Traeger 63 Director, Chairman of Compensation Committee, 1997
member of Audit Committee, member of Executive
Officer Compensation Committee
---------------
Irving E. Schottenstein is the father of Robert H. Schottenstein and Steven
Schottenstein.
BUSINESS EXPERIENCE
NOMINEES -- TERM TO EXPIRE AT 2006 ANNUAL MEETING
Thomas D. Igoe served as a consultant to Bank One, NA's Corporate Banking
Division from January 1997 until December 1999. From 1962 until January 1997,
Mr. Igoe was an employee of Bank One, NA, serving last as Senior Vice
President -- Corporate Banking.
Steven Schottenstein has been Vice Chairman and Chief Operating Officer
since January 1999 and Assistant Secretary since April 1992. He served as Senior
Executive Vice President from May 1996 until January 1999.
Lewis R. Smoot, Sr. has been President and Chief Executive Officer of The
Smoot Corporation, a construction contractor and construction management
concern, since 1987. He currently serves as a Director of Huntington Bancshares
Incorporated.
DIRECTORS -- TERM TO EXPIRE AT 2004 ANNUAL MEETING
Friedrich K. M. Bohm has been Chairman of NBBJ, the second largest
architectural firm in the United States, since 1997. From 1987 until 1997, Mr.
Bohm was Managing Partner and Chief Executive Officer of NBBJ. He currently
serves as a Director, and a member of the Executive Committee of the Board of
Directors, of Huntington National Bank, a subsidiary of Huntington Bancshares
Incorporated, and as a Director of The Daimler Group.
Jeffrey H. Miro has been Chairman of the law firm of Miro, Weiner and
Kramer, with offices in Bloomfield Hills, Michigan and New York, New York, since
1981. In addition, Mr. Miro is an Adjunct Professor of Law at the University of
Michigan Law School. He currently serves as a Director of Sotheby's Holdings,
Inc.
Robert H. Schottenstein has been Vice Chairman since January 1999,
President since May 1996 and Assistant Secretary since March 1991. He currently
serves as a Director of Huntington Bancshares Incorporated.
DIRECTORS -- TERM TO EXPIRE AT 2005 ANNUAL MEETING
Phillip G. Creek has been Chief Financial Officer since September 2000,
Senior Vice President since September 1993, Treasurer since January 1993 and
Chief Financial Officer and Treasurer of M/I Financial Corp., a wholly-owned
subsidiary of the Company ("M/I Financial"), since September 2000. He served as
Senior Vice President of M/I Financial from February 1997 until September 2000.
3
Irving E. Schottenstein has been Chief Executive Officer since August 1986
and Chairman of the Board of the Company and its predecessors since 1976.
Norman L. Traeger founded United Skates of America, a chain of family fun
centers, in 1971 and The Discovery Group, a venture capital firm, in 1983. Mr.
Traeger currently owns and manages industrial, commercial and office real
estate.
NOMINATION OF DIRECTORS
Nomination for the election of directors may be made by the Board or a
committee appointed by the Board or by any shareholder entitled to vote in the
election of directors generally. To nominate one or more persons for election as
a director, the Regulations require that a shareholder give written notice of
such shareholder's intent to make such nomination or nominations by personal
delivery or by United States Mail, postage prepaid, to the Secretary of the
Company not less than 60 days nor more than 90 days prior to the first
anniversary of the date of the preceding year's annual meeting (or, if the date
of the annual meeting is changed by more than 30 days from the anniversary date
of the preceding year's annual meeting or in the case of a special meeting,
within seven days after the date the Company mails or otherwise gives notice of
the date of the meeting). Such notice shall set forth: (1) the name and address
of the person or persons to be nominated; (2) a representation that the
shareholder is a holder of record entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (3) a description of all arrangements or understandings
between the shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the shareholder; (4) such other information regarding each nominee
proposed by the shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission (the "Commission") had the nominee been nominated, or intended to be
nominated, by the Board; and (5) the consent of each nominee to serve as a
director of the Company, if so elected. The Chairman of the meeting may refuse
to acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
BOARD AND COMMITTEE MEETINGS
The Board held six meetings during 2002. The Board has four standing
committees: the Audit Committee, the Compensation Committee, the Executive
Officer Compensation Committee and the Executive Committee. During 2002, all
members of the Board attended at least 75% of all meetings of the Board and of
the committees on which they served.
The Board does not have a nominating committee. The full Board currently
selects the nominees for directors. However, in response to the rules proposed
by the New York Stock Exchange ("NYSE") relating to corporate governance
matters, the Board intends to create a nominating committee comprised of
independent directors and adopt a written charter for such nominating committee,
as contemplated by the proposed NYSE rules, once such rules have been finalized.
Similarly, the Board is in the process of developing, and intends to adopt, a
code of business conduct and ethics that complies with the requirement for such
a code of business conduct and ethics under the proposed NYSE rules and
constitutes a code of ethics applicable to the Company's principal executive
officer and senior financial officers in accordance with the Sarbanes-Oxley Act
of 2002 (the "Sarbanes-Oxley Act") and the rules and regulations promulgated by
the Commission implementing the Sarbanes-Oxley Act.
The Audit Committee is organized and conducts its business pursuant to a
written charter adopted by the Board (the "Audit Committee Charter"), a copy of
which is attached to this Proxy Statement as Annex A. The Audit Committee
periodically reviews and reassesses the Audit Committee Charter, and at least
annually, obtains the Board's approval of the Audit Committee Charter. The Board
is in the process of reviewing the Audit Committee Charter in light of the
Sarbanes-Oxley Act and the proposed NYSE rules and intends to adopt a revised
Audit Committee Charter that complies with the Commission's rules and
regulations implementing the Sarbanes-Oxley Act and the proposed NYSE rules once
such rules have been finalized. The Audit Committee's responsibilities include:
reviewing the Company's auditing and accounting
4
procedures and policies, the activities of the internal auditors and the
Company's independent accountants and auditors, and the independence and
objectivity of the independent accountants and auditors, including potential
conflicts of interest; monitoring and evaluating the Company's internal controls
and procedures for financial reporting; selecting the Company's independent
accountants and auditors and approving the fees to be paid to the independent
accountants and auditors; and making recommendations concerning these matters to
the Board. As contemplated by the Sarbanes-Oxley Act and the rules and
regulations promulgated by the Commission thereunder, the Audit Committee will
assume sole responsibility for the hiring, retention and fees of the Company's
independent accountants and auditors in accordance with the timetable set forth
by the Commission. Each member of the Audit Committee qualifies as independent
under the rules of the NYSE as currently in effect and as proposed to be
revised. The Audit Committee met four times in 2002. The Audit Committee's
report relating to the 2002 fiscal year appears on page 19.
The Compensation Committee's duties include reviewing and reporting to the
Board on specific compensation matters and administering the Company's stock
option plan. The Compensation Committee met four times in 2002. The Compensation
Committee's report relating to the 2002 fiscal year appears on page 16.
The Executive Officer Compensation Committee's duties include reviewing and
determining the compensation for the Company's Chief Executive Officer and the
other executive officers of the Company and developing and administering the
plans necessary to ensure that the compensation paid to such officers will be
tax deductible. Each member of the Executive Officer Compensation Committee is
an outside director for purposes of Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"). The Board is in the process of developing, and
intends to adopt, a written charter for the Executive Officer Compensation
Committee that complies with the proposed NYSE rules once such rules have been
finalized. The Executive Officer Compensation Committee met four times in 2002.
The Executive Officer Compensation Committee's report relating to the 2002
fiscal year appears on page 16.
Between meetings of the Board or when the Board is not in session, the
Executive Committee may exercise, to the extent permitted by law, all of the
powers and duties of the Board. During 2002, the Executive Committee did not
hold any formal meetings but did take four written actions.
PROPOSAL NO. 2
FORMATION OF A HOLDING COMPANY STRUCTURE BY TRANSFERRING OPERATING ASSETS AND
CERTAIN ASSOCIATED LIABILITIES TO WHOLLY-OWNED SUBSIDIARIES OF THE COMPANY
Under the Company's existing corporate structure, the Company directly owns
and operates the assets used in connection with its homebuilding operations in
each of its markets, except for those assets used in connection with its Indiana
and Florida homebuilding operations, which assets are owned and operated by
wholly-owned subsidiaries of the Company. For the reasons described below, the
Board has approved, and recommends that the shareholders approve, the
restructuring of the Company's corporate structure into a holding company
structure (the "Holding Company Restructuring"). The Company currently intends
to implement the Holding Company Restructuring by transferring the assets that
it directly owns and operates in connection with its homebuilding operations, as
well as certain associated liabilities, to five newly-formed, wholly-owned
subsidiaries: M/I Homes of Charlotte, LLC, a Delaware limited liability company;
M/I Homes of Raleigh, LLC, a Delaware limited liability company; M/I Homes of
DC, LLC, a Delaware limited liability company; M/I Homes of Cincinnati, LLC, an
Ohio limited liability company; and M/I Homes of Central Ohio, LLC, an Ohio
limited liability company.
Specifically, in the Holding Company Restructuring, the Company plans to
transfer the operating assets and certain associated liabilities used in
connection with its
- Charlotte, North Carolina homebuilding operations to M/I Homes of
Charlotte, LLC;
- Raleigh, North Carolina homebuilding operations to M/I Homes of Raleigh,
LLC;
5
- Washington, D.C. homebuilding operations to M/I Homes of DC, LLC;
- Cincinnati, Ohio homebuilding operations to M/I Homes of Cincinnati, LLC;
and
- Columbus, Ohio homebuilding operations to M/I Homes of Central Ohio, LLC.
As stated above, a separate, wholly-owned subsidiary of the Company already owns
and operates the assets used in connection with the Company's homebuilding
operations in each of its other markets: Indianapolis, Indiana; Tampa, Florida;
Orlando, Florida; and West Palm Beach, Florida. Consequently, following the
Holding Company Restructuring, the Company's homebuilding operations in each of
its markets, and the assets and certain associated liabilities used in
connection therewith, will be carried on and owned by a wholly-owned subsidiary
of the Company. The Company's principal assets will change from the operating
assets used in connection with its homebuilding operations to the capital stock,
membership interests and limited partnership interests of each of its operating
subsidiaries. Although the Company's corporate structure will have changed, its
business will continue unchanged under the same name.
The Holding Company Restructuring will not affect the Company's management,
corporate governance or capital stock. The Company's directors and executive
officers immediately prior to the Holding Company Restructuring will continue to
be the Company's directors and executive officers immediately following the
Holding Company Restructuring.
Similarly, the Company's Amended and Restated Articles of Incorporation and
the Regulations will not change in connection with the Holding Company
Restructuring. The Company will also continue to be subject to the rules and
regulations of the Commission and the NYSE. Thus, following the Holding Company
Restructuring, the Company will be subject to the same corporate governance
rules and regulations as before the Holding Company Restructuring.
In addition, the Company's capital stock and the shareholders' rights
therein will not change as a result of the Holding Company Restructuring. Each
Common Share outstanding immediately prior to the Holding Company Restructuring
will remain outstanding immediately following the Holding Company Restructuring
with the same rights and privileges and will continue to be listed for trading
on the NYSE under the current ticker symbol, "MHO." No Common Shares or other
shares of capital stock of the Company will be issued in connection with the
Holding Company Restructuring. Also, all of the Company's outstanding
indebtedness under its credit facilities immediately prior to the Holding
Company Restructuring will continue to be outstanding indebtedness of the
Company after the Holding Company Restructuring, although the Company's credit
facilities may be modified to add the new operating subsidiaries as subsidiary
guarantors.
The Company contemplates that each of the limited liability company
subsidiaries formed in connection with the Holding Company Restructuring will be
managed by a management committee comprised of certain of the Company's
executive officers. The employees of the Company who immediately prior to the
Holding Company Restructuring provided services exclusively in connection with
the Company's homebuilding operations in one market will become employees of the
limited liability company subsidiary that is the transferee of the assets and
certain associated liabilities used in such market.
The Company's current plan to implement the Holding Company Restructuring
by transferring its operating assets and certain associated liabilities to the
five wholly-owned subsidiaries named above involves a number of factors. As a
result, the Company's implementation of the Holding Company Restructuring may
differ in non-material respects from the description in this Proxy Statement.
Any such differences will not, individually or in the aggregate, materially
adversely affect the Company or its shareholders.
If the shareholders approve the Holding Company Restructuring at the Annual
Meeting, the Company will work toward completing the Holding Company
Restructuring as soon as reasonably possible thereafter.
6
REASONS FOR THE HOLDING COMPANY RESTRUCTURING
The primary purposes of the Holding Company Restructuring are:
- to provide a framework for future growth;
- to increase the Company's operational and administrative efficiency;
- to provide additional flexibility for financing operations; and
- to protect the Company and each of its subsidiaries from the potential
liabilities that arise in connection with homebuilding operations by
isolating such liabilities to the homebuilding operation with which they
are associated.
FUTURE GROWTH
The Company continually monitors and analyzes potential business
opportunities for growth, including opportunities to expand into new markets,
acquire competitors in new and existing markets and enter into related lines of
business that complement its homebuilding operations. The Company believes that
the holding company structure provides a better framework to capitalize on such
future growth opportunities than the Company's existing corporate structure.
Following the Holding Company Restructuring, if the Company desires to expand
into a new market, make an acquisition, enter into a related line of business or
pursue a similar business opportunity, the Company can easily integrate such
opportunity into its holding company structure by creating a wholly-owned
subsidiary to pursue and develop the business opportunity. In addition, as
described below, the holding company structure allows the Company to isolate the
potential risks and liabilities that may arise in connection with pursuing and
developing the business opportunity.
OPERATIONAL AND ADMINISTRATIVE EFFICIENCY
By segregating the Company's homebuilding operations into subsidiaries on a
market-by-market basis, the Company believes that the Holding Company
Restructuring will increase the Company's operational and administrative
efficiency. The holding company structure facilitates the Company's ability to
promptly respond to industry or market changes or future needs that are unique
to homebuilding operations in one market. In such a case, the applicable
subsidiary can address the industry or market change or future need without
impacting or involving the other subsidiaries. The holding company structure
also fosters managerial accountability and allows each subsidiary to focus on
its particular market. In addition, the holding company structure provides a
framework to potentially realize income tax savings in the future.
FINANCING FLEXIBILITY
The Company believes that the holding company structure broadens the
financing alternatives available to the Company without any impact on its
capital structure or creditworthiness. Following the Holding Company
Restructuring, the Company will be able to elect whether to raise capital on an
enterprise-wide basis or to cause one or more of its subsidiaries to separately
raise capital. Similarly, the holding company structure expands the intercompany
financing alternatives available to the Company and its subsidiaries.
PROTECTION FROM LIABILITIES
Following the Holding Company Restructuring, a separate subsidiary of the
Company will carry on the Company's homebuilding operations in each of its
markets. As a holding company, the Company will, directly or indirectly, own all
of the outstanding capital stock, membership interests or limited partnership
interests of each operating subsidiary, but will be separated from each such
subsidiary's homebuilding operations. Similarly, each subsidiary will be a
distinct entity representing one of the Company's homebuilding markets and will,
therefore, be separate from the homebuilding operations of each other
homebuilding market. Provided that the Company and its subsidiaries observe the
appropriate corporate, limited liability company or limited partnership
formalities applicable to such entity, the Company and its subsidiaries should
not be liable for each other's acts and debts. Thus, by separating the Company's
homebuilding operations in each market within a distinct subsidiary, the Company
believes that the holding company structure affords the Company and each of its
subsidiaries better protection from the foreseen and unforeseen potential
liabilities that arise in connection with homebuilding operations.
7
FEDERAL INCOME TAX CONSEQUENCES
The Holding Company Restructuring will not have any federal income tax
consequences to the Company's shareholders.
REGULATORY APPROVALS
The Company is not required to comply with any material federal or state
regulatory requirements or obtain any material federal or state approvals, other
than shareholder approval, in connection with completing the Holding Company
Restructuring.
RIGHTS OF DISSENTING SHAREHOLDERS
Under Section 1701.85 of the Ohio Revised Code, the Company's shareholders
are entitled to exercise dissenters' rights in connection with the Holding
Company Restructuring. The following summary is a description of the steps you
must take if you desire to perfect dissenters' rights. The summary is not
intended to be complete and is qualified in its entirety by reference to Section
1701.85, a copy of which is attached as Annex B to this Proxy Statement. The
Company recommends that you consult with your own counsel if you have questions
with respect to your rights under Section 1701.85.
"Dissenters' rights" is your right to dissent from the Holding Company
Restructuring and have the "fair cash value" of your Common Shares determined by
a court and paid in cash. The "fair cash value" of a Common Share is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay. The "fair cash value" is determined as of the day prior to the
day on which the shareholder vote to approve the Holding Company Restructuring
is taken. When determining the "fair cash value," any appreciation or
depreciation in market value resulting from the proposed Holding Company
Restructuring is excluded. In no event can the "fair cash value" of a Common
Share exceed the amount specified in the demand of the particular shareholder
discussed below.
To perfect your dissenters' rights, you must satisfy each of the following
conditions:
- You must be the record holder of the dissenting shares at the close of
business on February 26, 2003. If you have a beneficial interest in
Common Shares held of record in the name of any other person for which
you desire to perfect dissenters' rights, you must cause the holder of
record to timely and properly act to perfect such rights;
- You must not vote in favor of approval of the Holding Company
Restructuring. You waive your dissenters' rights if you vote for approval
of the Holding Company Restructuring;
- On or before the tenth day following the shareholder vote approving the
Holding Company Restructuring, you must serve a written demand on the
Company for the "fair cash value" of the dissenting shares. The Company
will not notify you of the date of such tenth day. The written demand
must specify your name and address, the number of Common Shares as to
which relief is sought and the amount that you claim as the "fair cash
value" of the Common Shares for which you are exercising dissenters'
rights;
- If requested by the Company, you must submit to the Company your
certificates for the dissenting shares within 15 days after the date the
Company sends such request. The Company will then endorse the
certificates with a legend that demand for the "fair cash value" has been
made; and
- If you and the Company cannot agree on the "fair cash value" of your
dissenting shares, either you or the Company must, within three months
after service of your written demand, file or join in a petition in the
Court of Common Pleas of Franklin County, Ohio, for a determination of
the "fair cash value" of the dissenting shares.
If you dissent from the Holding Company Restructuring, your right to be
paid the "fair cash value" of your Common Shares will terminate if:
- for any reason, the Holding Company Restructuring is not completed;
- you fail to serve a timely and appropriate written demand upon the
Company;
8
- you do not, upon request of the Company, make timely and appropriate
surrender of the certificates evidencing your dissenting shares for
endorsement of a legend that demand for the "fair cash value" of such
Common Shares has been made;
- you withdraw your demand with the consent of the Board;
- you and the Company have not agreed upon the "fair cash value" of your
dissenting shares and neither you nor the Company has timely filed or
joined in an appropriate petition in the Court of Common Pleas of
Franklin County, Ohio; or
- you otherwise fail to comply with the requirements of Section 1701.85.
VOTE REQUIRED
The affirmative vote of the holders of two-thirds of the outstanding Common
Shares entitled to vote is required to approve the Holding Company
Restructuring. Abstentions and broker non-votes will be counted for purposes of
establishing a quorum and will have the same effect as a vote against the
proposal. The Company's executive officers and directors and members of the
Irving E. Schottenstein family, who collectively own, or have voting power with
respect to, approximately 27.2% of the outstanding Common Shares, have indicated
that they intend to vote FOR the proposal to approve the Holding Company
Restructuring.
The Board reserves the right to withdraw the proposal to approve the
Holding Company Restructuring at any time prior to the Annual Meeting or to
terminate and abandon the Holding Company Restructuring after the Annual
Meeting, whether or not the shareholders have approved the Holding Company
Restructuring by the requisite vote, if such action is deemed to be in the best
interests of the Company and its shareholders.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE HOLDING
COMPANY RESTRUCTURING.
PROPOSAL NO. 3
INDEPENDENT PUBLIC ACCOUNTANTS
The Board, upon the recommendation of the Audit Committee, has appointed
Deloitte & Touche LLP as the Company's independent accountants and auditors for
the fiscal year ending December 31, 2003. Deloitte & Touche LLP served as the
Company's independent accountants and auditors for fiscal year 2002. Although
action by the shareholders in this matter is not required, the Board believes
that shareholder ratification of its appointment of Deloitte & Touche LLP is
appropriate because of the independent accountants' and auditors' role in
maintaining the quality and integrity of the Company's internal controls and
financial reporting practices. A representative of Deloitte & Touche LLP will be
present at the Annual Meeting, will have an opportunity to make a statement, if
he or she desires, and will be available to respond to appropriate questions.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding Common
Shares entitled to vote is required to ratify the appointment of Deloitte &
Touche LLP as the Company's independent accountants and auditors for fiscal year
2003. Abstentions and broker non-votes will be counted for purposes of
establishing a quorum and will have the same effect as a vote against the
proposal. The Company's executive officers and directors and members of the
Irving E. Schottenstein family, who collectively own, or have voting power with
respect to, approximately 27.2% of the outstanding Common Shares, have indicated
that they intend to vote FOR the proposal to ratify the appointment of Deloitte
& Touche LLP as the Company's independent accountants and auditors. In the event
that the shareholders do not ratify the appointment of Deloitte & Touche LLP,
the Board will consider other independent accountants and auditors upon the
recommendation of the Audit Committee.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
AND AUDITORS FOR FISCAL YEAR 2003.
9
EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES
The executive officers of the Company are Irving E. Schottenstein, Robert
H. Schottenstein, Steven Schottenstein and Phillip G. Creek. Biographical
information with respect to the executive officers is set forth on pages 3-4.
The following table sets forth biographical information with respect to certain
key employees of the Company.
YEAR STARTED
NAME AGE CURRENT POSITIONS WITH COMPANY WITH COMPANY
---- --- ------------------------------ ------------
J. Thomas Mason..................... 46 Senior Vice President, General 2002
Counsel and Secretary
Paul S. Rosen....................... 52 Chief Executive Officer and 1993
President of M/I Financial and
Senior Vice President
Lloyd T. Simpson.................... 57 President, Columbus Region 1984
BUSINESS EXPERIENCE
J. Thomas Mason joined the Company in July 2002 as Senior Vice President,
General Counsel and Secretary. From 1984 until July 2002, Mr. Mason was an
attorney with the law firm of Vorys, Sater, Seymour and Pease LLP in Columbus,
Ohio where he practiced real estate law.
Paul S. Rosen joined the Company in August 1993 as Vice President of
Mortgage Operations for M/I Financial. Mr. Rosen became Chief Executive Officer
of M/I Financial in February 1994, President of M/I Financial in August 1995 and
Senior Vice President of the Company in February 1999.
Lloyd T. Simpson joined the Company in 1984 as Vice President/Regional
Manager of the Ohio Region. Mr. Simpson became Vice President/Regional Manager
of the Columbus Region in February 1996 and President of the Columbus Region in
November 1996.
10
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the Record Date, the number and
percentage of the outstanding Common Shares beneficially owned by each person
who, to the knowledge of the Company, beneficially owns more than five percent
of the outstanding Common Shares, by each of the Company's directors, nominees
for director and Named Executive Officers (as defined below) and by all of the
directors, nominees for director and executive officers of the Company as a
group. Except as set forth in the footnotes to the table, the shareholders have
sole voting and dispositive power with respect to such Common Shares.
NUMBER OF
COMMON PERCENT
NAME OF BENEFICIAL OWNER SHARES (1) OF CLASS
------------------------ --------------- --------
Friedrich K. M. Bohm........................................ 22,097(2) (3)
Phillip G. Creek............................................ 28,057(4) (3)
Thomas D. Igoe.............................................. 7,756(2) (3)
Jeffrey H. Miro............................................. 15,836(2) (3)
Irving E. Schottenstein..................................... 3,886,846(5)(6) 26.6%
Robert H. Schottenstein..................................... 1,005,184(5)(7) 6.9%
Steven Schottenstein........................................ 1,039,595(5)(8) 7.1%
Lewis R. Smoot, Sr. ........................................ 17,957(2) (3)
Norman L. Traeger........................................... 27,317(2) (3)
All directors, nominees and executive officers as a group (9
persons).................................................. 4,166,945 28.2%
FMR Corp. .................................................. 2,205,055(9) 15.2%
82 Devonshire Street
Boston, Massachusetts 02109
Dimensional Fund Advisors Inc. ............................. 1,010,400(10) 7.0%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Linda S. Fisher............................................. 1,025,250(5)(11) 7.1%
11221 Grandon Ridge Circle
Cincinnati, Ohio 45249
Gary L. Schottenstein....................................... 821,650(5)(12) 5.7%
2077 Parkhill Drive
Columbus, Ohio 43209
---------------
(1) The amounts shown include 11,557, 6,882, 1,932, 9,436, 60,046, 24,934,
8,945, 11,557 and 11,557 Common Shares held by Friedrich K. M. Bohm,
Phillip G. Creek, Thomas D. Igoe, Jeffrey H. Miro, Irving E. Schottenstein,
Robert H. Schottenstein, Steven Schottenstein, Lewis R. Smoot, Sr. and
Norman L. Traeger, respectively, under the terms of the Executives'
Deferred Compensation Plan or the Directors Deferred Compensation Plan, as
applicable. Under the terms of the Executives' Deferred Compensation Plan
and the Directors Deferred Compensation Plan, a participant does not
beneficially own, or have voting or dispositive power with respect to,
Common Shares acquired under the plan, until such Common Shares are
distributed pursuant to terms of the plan.
(2) Includes 2,400 Common Shares that underlie currently exercisable stock
options.
(3) Less than one percent of the outstanding Common Shares.
(4) Includes 15,000 Common Shares that underlie currently exercisable stock
options.
(5) IES Family Holdings No. 1, LLC, an Ohio limited liability company, holds of
record 817,850 Common Shares. Irving E. Schottenstein and Gary L.
Schottenstein are the sole members and co-managers of IES Family Holdings
No. 1, LLC and hold 25.3% and 74.7% of the membership interests therein,
respectively. As co-managers, Irving E. Schottenstein and Gary L.
Schottenstein share voting and dispositive power with respect to such
817,850 Common Shares.
11
IES Family Holdings No. 2, LLC, an Ohio limited liability company, holds of
record 916,650 Common Shares. Irving E. Schottenstein and Robert H.
Schottenstein are the sole members and co-managers of IES Family Holdings
No. 2, LLC and hold 22.5% and 77.5% of the membership interests therein,
respectively. As co-managers, Irving E. Schottenstein and Robert H.
Schottenstein share voting and dispositive power with respect to such
916,650 Common Shares.
IES Family Holdings No. 3, LLC, an Ohio limited liability company, holds of
record 986,650 Common Shares. Irving E. Schottenstein and Linda S. Fisher
are the sole members and co-managers of IES Family Holdings No. 3, LLC and
hold 20.9% and 79.1% of the membership interests therein, respectively. As
co-managers, Irving E. Schottenstein and Linda S. Fisher share voting and
dispositive power with respect to such 986,650 Common Shares.
IES Family Holdings No. 4, LLC, an Ohio limited liability company, holds of
record 967,050 Common Shares. Irving E. Schottenstein and Steven
Schottenstein are the sole members and co-managers of IES Family Holdings
No. 4, LLC and hold 21.4% and 78.6% of the membership interests therein,
respectively. As co-managers, Irving E. Schottenstein and Steven
Schottenstein share voting and dispositive power with respect to such
967,050 Common Shares.
(6) An aggregate of 3,688,200 of these Common Shares are beneficially owned by
Irving E. Schottenstein as a member and co-manager of each of IES Family
Holdings No. 1, LLC, IES Family Holdings No. 2, LLC, IES Family Holdings
No. 3, LLC and IES Family Holdings No. 4, LLC as more fully described in
note 5 above. 109,600 of these Common Shares are held by Irving E.
Schottenstein as trustee of the Steven Schottenstein Descendants Trust. As
trustee, Irving E. Schottenstein is empowered to exercise all rights with
regard to such Common Shares. Includes 29,000 Common Shares that underlie
currently exercisable stock options.
(7) 916,650 of these Common Shares are beneficially owned by Robert H.
Schottenstein as a member and co-manager of IES Family Holdings No. 2, LLC
as more fully described in note 5 above. 5,600 of these Common Shares are
held by Robert H. Schottenstein individually. 33,000 of these Common Shares
are held in trust by Robert H. Schottenstein, as trustee, for the benefit
of his children pursuant to trust agreements dated December 22, 1994. As
trustee, Robert H. Schottenstein is empowered to exercise all rights with
regard to such Common Shares. Includes 25,000 Common Shares that underlie
currently exercisable stock options.
(8) 967,050 of these Common Shares are beneficially owned by Steven
Schottenstein as a member and co-manager of IES Family Holdings No. 4, LLC
as more fully described in note 5 above. 5,600 of these Common Shares are
held by Steven Schottenstein individually. 33,000 of these Common Shares
are held in trust by Steven Schottenstein, as trustee, for the benefit of
his children pursuant to trust agreements dated December 22, 1994. As
trustee, Steven Schottenstein is empowered to exercise all rights with
regard to such Common Shares. Includes 25,000 Common Shares that underlie
currently exercisable stock options.
(9) Based on information set forth in a Schedule 13G dated February 14, 2003,
which was filed on behalf of FMR Corp., a parent holding company, and
certain other Fidelity entities.
(10) Based on information set forth in a Schedule 13G dated February 3, 2003,
which was filed by Dimensional Fund Advisors Inc., a registered investment
advisor, on behalf of its advisory clients.
(11) 986,650 of these Common Shares are beneficially owned by Linda S. Fisher as
a member and co-manager of IES Family Holdings No. 3, LLC as more fully
described in note 5 above. 5,600 of these Common Shares are held by Mrs.
Fisher individually. 33,000 of these Common Shares are held in trust by
Mrs. Fisher, as trustee, for the benefit of her children pursuant to trust
agreements dated December 22, 1994. As trustee, Mrs. Fisher is empowered to
exercise all rights with regard to such Common Shares.
(12) 817,850 of these Common Shares are beneficially owned by Gary L.
Schottenstein as a member and co-manager of IES Family Holdings No. 1, LLC
as more fully described in note 5 above. Includes 3,800 Common Shares that
underlie currently exercisable stock options.
The address of each of Irving E. Schottenstein, Robert H. Schottenstein and
Steven Schottenstein is 3 Easton Oval, Columbus, Ohio 43219.
12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation and other
compensation for each of the fiscal years ended December 31, 2002, 2001 and 2000
for the Company's Chief Executive Officer and for each other executive officer
of the Company (the "Named Executive Officers"):
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)(1)(2)
------------------ ---- ------- --------- ------------ ------------ ------------
Irving E. Schottenstein 2002 575,000 2,875,000(3) 86,837(5) 50,000 70,998
Chief Executive Officer 2001 575,000 2,875,000(3)(6) 110,705(5) 50,000 70,965
2000 575,000 2,812,210(3)(7) 124,714(5) 25,000 70,923
Robert H. Schottenstein 2002 400,000 1,400,000(3)(4) 60,587(5) 40,000 61,490
President 2001 376,923 1,400,000(3)(6) 61,819(5) 40,000 61,748
2000 325,000 1,097,135(3)(7) 67,087(5) 15,000 61,554
Steven Schottenstein 2002 390,000 1,365,000(3)(4) 2,809 40,000 49,390
Chief Operating Officer 2001 362,308 1,365,000(3)(6) 2,651 40,000 49,648
2000 300,000 1,012,740(3)(7) 2,505 15,000 49,454
Phillip G. Creek 2002 225,000 443,750(3)(4) 670 7,000 19,551
Senior Vice President, 2001 225,000 443,750(3)(6) 901 7,000 19,809
Chief Financial Officer 2000 207,692 429,872(3)(7) 859 4,000 19,615
and Treasurer
---------------
(1) "All Other Compensation" includes: (i) the Company's discretionary
contribution under its 401(k) plan in the amount of $3,423 for the 2000
fiscal year, $3,465 for the 2001 fiscal year, and $3,498 for the 2002 fiscal
year; (ii) the term and the non-term portion of the premium for a
split-dollar life insurance policy (as more fully described in note 2
below); and (iii) for each of the Named Executive Officers other than Irving
E. Schottenstein, long-term disability plan premiums of $1,331 for the 2000
fiscal year, $1,483 for the 2001 fiscal year, and $1,192 for the 2002 fiscal
year.
(2) "All Other Compensation" for Irving E. Schottenstein, Robert H.
Schottenstein, Steven Schottenstein and Phillip G. Creek for the 2000, 2001
and 2002 fiscal years includes: (i) the term portion of the premium for a
split-dollar life insurance policy of $10,025, $3,720, $2,840 and $983,
respectively, for the 2000 fiscal year, $11,210, $3,960, $3,040 and $1,044,
respectively, for the 2001 fiscal year, and $12,365, $4,200, $3,280 and
$790, respectively, for the 2002 fiscal year; and (ii) the non-term portion
of the premium for a split-dollar life insurance policy of $57,475, $53,080,
$41,860 and $13,878, respectively, for the 2000 fiscal year, $56,290,
$52,840, $41,660 and $13,817, respectively, for the 2001 fiscal year, and
$55,135, $52,600, $41,420 and $14,071, respectively, for the 2002 fiscal
year.
(3) Represents amounts accrued pursuant to the Company's Executive Officers
Compensation Plan and approved by the Executive Officer Compensation
Committee. The Company's shareholders approved the Executive Officers
Compensation Plan at the 1999 Annual Meeting of Shareholders. The amounts
shown for Phillip G. Creek also include a $50,000 discretionary bonus
awarded to Mr. Creek in 2000 in consideration for him assuming the duties of
the Chief Financial Officer and in 2001 and 2002 based on his performance as
the Chief Financial Officer.
(4) Pursuant to the terms of the Company's Executives' Deferred Compensation
Plan, each of the Company's executive officers, as well as other members of
management, has the right to allocate a portion of his bonus to Common
Shares. Each participant will not beneficially own Common Shares acquired
under the plan until such Common Shares are distributed pursuant to the
terms of the plan. With respect to Robert H. Schottenstein, the amount shown
includes $70,000 allocated to Common Shares (2,234 shares). With respect to
Steven Schottenstein, the amount shown includes $68,250
13
allocated to Common Shares (2,178 shares). With respect to Phillip G. Creek,
the amount shown includes $44,375 allocated to Common Shares (1,416 shares).
(5) With respect to Irving E. Schottenstein, the amounts shown include $101,080,
$84,071 and $59,389 for the 2000, 2001 and 2002 fiscal years, respectively,
for personal use of Company property. With respect to Robert H.
Schottenstein, the amounts shown include $63,838, $58,400 and $57,026 for
the 2000, 2001 and 2002 fiscal years, respectively, for personal use of
Company property.
(6) With respect to Irving E. Schottenstein, the amount shown includes $143,750
allocated to Common Shares (3,761 shares) pursuant to the Executives'
Deferred Compensation Plan. With respect to Robert H. Schottenstein, the
amount shown includes $70,000 allocated to Common Shares (1,831 shares)
pursuant to the Executives' Deferred Compensation Plan. With respect to
Steven Schottenstein, the amount shown includes $68,250 allocated to Common
Shares (1,785 shares) pursuant to the Executives' Deferred Compensation
Plan. With respect to Phillip G. Creek, the amount shown includes $44,375
allocated to Common Shares (1,161 shares) pursuant to the Executives'
Deferred Compensation Plan.
(7) With respect to Irving E. Schottenstein, the amount shown includes $140,610
allocated to Common Shares (7,388 shares) pursuant to the Executives'
Deferred Compensation Plan. With respect to Robert H. Schottenstein, the
amount shown includes $54,857 allocated to Common Shares (2,882 shares)
pursuant to the Executives' Deferred Compensation Plan. With respect to
Steven Schottenstein, the amount shown includes $50,637 allocated to Common
Shares (2,660 shares) pursuant to the Executives' Deferred Compensation
Plan. With respect to Phillip G. Creek, the amount shown includes $42,987
allocated to Common Shares (2,258 shares) pursuant to the Executives'
Deferred Compensation Plan.
On August 9, 1994, the Company and Irving E. Schottenstein entered into an
employment agreement. On November 14, 2001, the Company, with the approval of
the Board, and Mr. Schottenstein amended the employment agreement. Under the
amended agreement, in the event Mr. Schottenstein becomes disabled, he will
receive disability payments from the Company for a period of up to three years
in an annual amount equal to $1,000,000. In addition, under the amended
agreement, the Company has agreed to maintain a split-dollar life insurance
policy for Mr. Schottenstein in an amount not less than $1,500,000, and, upon
the death of Mr. Schottenstein, pay to Mr. Schottenstein's designated
beneficiary, $1,000,000 per year for a period of three years (such amount
payable on death to be reduced by any disability payments made by the Company to
Mr. Schottenstein under the amended agreement).
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the nonqualified stock options granted by
the Board during the 2002 fiscal year to each of the Named Executive Officers:
INDIVIDUAL GRANTS (1) POTENTIAL
---------------------------------------------------- REALIZABLE VALUE AT
NUMBER ASSUMED ANNUAL RATES
OF OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE ---------------------
GRANTED FISCAL YEAR PRICE EXPIRATION 5% 10%
NAME (#) (%) ($/SH) DATE ($) ($)
---- ---------- --------------- -------- ---------- --------- ---------
Irving E. Schottenstein 50,000 23.26 28.55 2/12/12 897,747 2,275,067
Robert H. Schottenstein 40,000 18.60 28.55 2/12/12 718,198 1,820,054
Steven Schottenstein 40,000 18.60 28.55 2/12/12 718,198 1,820,054
Phillip G. Creek 7,000 3.26 28.55 2/12/12 125,685 318,509
---------------
(1) The nonqualified stock options granted by the Board are scheduled to vest at
a rate of 20% per year over the first five years and to lapse after ten
years unless sooner exercised or forfeited. All stock options were granted
at the closing market price on the date of grant.
14
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth information with respect to options
exercised during the 2002 fiscal year and unexercised nonqualified stock options
held as of the end of the 2002 fiscal year by each of the Named Executive
Officers.
NUMBER OF
NUMBER SECURITIES UNDERLYING VALUE OF UNEXERCISED
OF SECURITIES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
UNDERLYING AT FISCAL YEAR END AT FISCAL YEAR END
OPTIONS VALUE (#)(1) ($)
EXERCISED REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- -------- ----------- ------------- ----------- -------------
Irving E. Schottenstein 32,000 597,822 29,000 84,000 293,888 627,950
Robert H. Schottenstein 18,000 317,676 25,000 64,000 257,475 437,913
Steven Schottenstein 18,000 290,600 25,000 64,000 257,475 437,913
Phillip G. Creek 8,000 216,560 15,000 12,000 243,843 92,876
---------------
(1) The nonqualified stock options granted by the Board are scheduled to vest at
a rate of 20% per year over the first five years and to lapse after ten
years unless sooner exercised or forfeited.
COMPENSATION OF DIRECTORS
Each of the Company's non-employee, outside directors (other than the
Chairman of the Audit Committee) receives $9,000 per quarter, payable in Common
Shares pursuant to the Directors Deferred Compensation Plan, as payment for his
service on the Board and any of its committees. The Chairman of the Audit
Committee receives $12,500 per quarter, payable in Common Shares pursuant to the
Directors Deferred Compensation Plan, for his service on the Board and any of
its committees. During the 2002 fiscal year, each of the non-employee, outside
directors also received an option to purchase 2,000 Common Shares pursuant to
the Company's stock option plan.
COMPENSATION COMMITTEE AND EXECUTIVE OFFICER COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee with respect to the 2002 fiscal year was
comprised of nine members: Kerrii B. Anderson (until April 18, 2002), Friedrich
K. M. Bohm, Phillip G. Creek (effective April 18, 2002), Thomas D. Igoe, Jeffrey
H. Miro, Irving E. Schottenstein, Robert H. Schottenstein, Steven Schottenstein,
Lewis R. Smoot, Sr. and Norman L. Traeger. Irving E. Schottenstein, Robert H.
Schottenstein, Steven Schottenstein and Phillip G. Creek are executive officers
of the Company. Kerrii B. Anderson, whose term as a director and member of the
Compensation Committee expired at the 2002 Annual Meeting of Shareholders, was
formerly an executive officer of the Company until September 2000. During the
2002 fiscal year, there were no interlocking relationships between any executive
officers of the Company and any entity whose directors or executive officers
served on the Board or the Compensation Committee.
The Executive Officer Compensation Committee with respect to the 2002
fiscal year was comprised of five members: Friedrich K. M. Bohm, Thomas D. Igoe,
Jeffrey H. Miro, Lewis R. Smoot, Sr. and Norman L. Traeger. None of such members
is or was formerly an officer or employee of the Company. During the 2002 fiscal
year, there were no interlocking relationships between any executive officers of
the Company and any entity whose directors or executive officers served on the
Board or the Executive Officer Compensation Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Ownership of, and transactions in, the Common Shares of the Company by
executive officers, directors and persons who own more than ten percent of the
Common Shares are required to be reported to the Commission and the NYSE
pursuant to Section 16 of the Securities Exchange Act of 1934, as amended. Based
solely on a review of the copies of reports furnished to the Company and
representations of certain
15
executive officers and directors, the Company believes that during the 2002
fiscal year its executive officers, directors and greater than ten percent
beneficial owners complied with such requirements.
COMPENSATION COMMITTEE AND EXECUTIVE OFFICER COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
General. In 2002, the Executive Officer Compensation Committee reviewed
and determined the compensation for the Chief Executive Officer and for each of
the other executive officers of the Company. The Compensation Committee reviewed
the Company's 401(k) plan with respect to investment selections, returns, audit
results and the Company's discretionary contributions. The Compensation
Committee also reviewed all stock option awards granted by the Company.
The Company's executive compensation program is intended to serve four
primary objectives: (1) attract and retain qualified executives to manage the
Company's business; (2) provide executives with incentives to accomplish the
Company's business objectives and strategy and meet specific performance goals;
(3) encourage stock ownership by executives in order to enhance mutuality of
interest with the Company's shareholders; and (4) maximize shareholder value.
The Executive Officer Compensation Committee and the Compensation Committee
believe that the Company's executive compensation program promotes each of these
objectives. Additionally, the Executive Officer Compensation Committee and the
Compensation Committee believe that the executive compensation program fosters
long-term growth and accountability for performance.
Elements of Compensation. Under the Company's executive compensation
program, each of the executive officers of the Company receives compensation in
the form of: (1) a base salary; (2) an annual performance bonus; and (3) stock
options. The Company's current policy is not to provide pension or other
retirement plans for the Company's executive officers other than the Company's
401(k) plan.
Under the Company's Executives' Deferred Compensation Plan, each executive
officer has the right to elect to have a portion of his performance bonus
invested in Common Shares, the payment of which is deferred until a future date.
The Company believes that the Executives' Deferred Compensation Plan serves to
further align the interests of the executive officers with the Company's
shareholders.
Chief Executive Officer Compensation. The base salary paid to the Chief
Executive Officer in 2002 was commensurate with the base salary paid to chief
executive officers of other publicly traded, national and regional homebuilders.
The performance bonus for the Chief Executive Officer for 2002 was awarded
in accordance with the Company's Executive Officers Compensation Plan, which
plan was approved by the Company's shareholders at the 1999 Annual Meeting of
Shareholders. Pursuant to the terms of the Executive Officers Compensation Plan,
the Executive Officer Compensation Committee established the Award Formula (as
defined in the plan) and the Performance Goals (also as defined) for the Chief
Executive Officer for 2002. The Award Formula was based upon the Company's
achievement of Performance Goals in the following areas: (1) achieving specified
levels of net income; (2) return on shareholders' equity; and (3) achieving
specified homeowner satisfaction ratings as measured by homeowner surveys
conducted by the Company. The total amount that could be earned by the Chief
Executive Officer was capped at five times his annual base salary.
In 2002, the Company achieved record net income, return on beginning equity
exceeded 23% and homeowner satisfaction ratings exceeded 99%. As a result, the
Chief Executive Officer earned the maximum performance bonus available in 2002.
Other Executive Officers' Compensation. The base salaries paid to the
President, the Chief Operating Officer and the Senior Vice President/Chief
Financial Officer in 2002 were commensurate with the base salaries paid to
persons holding comparable positions with other publicly traded, national and
regional homebuilders.
Pursuant to the Executive Officers Compensation Plan, the Executive Officer
Compensation Committee established the Award Formulas and the Performance Goals
for the President, the Chief Operating Officer
16
and the Senior Vice President/Chief Financial Officer for 2002. The Award
Formulas for each of these executive officers were based upon the Company's
achievement of Performance Goals in the following areas: (1) achieving specified
levels of net income; (2) return on shareholders' equity; and (3) achieving
specified homeowner satisfaction ratings as measured by homeowner surveys
conducted by the Company. The total amount that could be earned by each of the
President and the Chief Operating Officer was capped at three and one half times
their annual base salaries. The total amount that could be earned by the Senior
Vice President/ Chief Financial Officer was capped at one and three quarters
times his annual base salary.
In 2002, the Company achieved record net income, return on beginning equity
exceeded 23% and homeowner satisfaction ratings exceeded 99%. As a result, the
President, the Chief Operating Officer and the Senior Vice President/Chief
Financial Officer each earned the maximum performance bonus available in 2002.
The President, the Chief Operating Officer and the Senior Vice President/Chief
Financial Officer each invested a portion of his performance bonus in Common
Shares pursuant to the Executives' Deferred Compensation Plan. In 2002, the
Senior Vice President/Chief Financial Officer also received a $50,000
discretionary bonus based on his outstanding performance as the Chief Financial
Officer.
Stock Options. It is the Company's intent to award stock options to the
Company's executive officers in amounts reflecting the financial performance of
the Company, the executive officer's ability to influence the Company's overall
performance and his position. Options are intended to motivate executive
officers to improve the Company's financial results and stock performance and to
retain executive officers. In 2002, the Compensation Committee approved the
award of nonqualified stock options for 137,000 Common Shares at $28.55 per
share (the closing price on the date of grant) to the Named Executive Officers
(see "-- Option Grants in Last Fiscal Year"). The nonqualified stock options
vest at a rate of 20% per year over the first five years and lapse after ten
years unless sooner exercised or forfeited.
Section 162(m) Compliance. Section 162(m) of the Code places certain
restrictions on the amount of compensation in excess of $1,000,000 which may be
deducted for each executive officer. In 1999, the Company adopted the Executive
Officers Compensation Plan and constituted the Executive Officer Compensation
Committee (which consists solely of outside directors for purposes of Section
162(m)) to comply with Section 162(m) and to further ensure that compensation
paid to executive officers in excess of $1,000,000 will be fully deductible. The
Company believes that all compensation paid to the executive officers in excess
of $1,000,000 will be fully deductible.
COMPENSATION COMMITTEE: EXECUTIVE OFFICER COMPENSATION COMMITTEE:
Norman L. Traeger (Chairman) Friedrich K. M. Bohm (Chairman)
Friedrich K. M. Bohm Thomas D. Igoe
Phillip G. Creek Jeffrey H. Miro
Thomas D. Igoe Lewis R. Smoot, Sr.
Jeffrey H. Miro Norman L. Traeger
Irving E. Schottenstein
Robert H. Schottenstein
Steven Schottenstein
Lewis R. Smoot, Sr.
17
PERFORMANCE GRAPH
This graph charts the Company's performance in the form of cumulative total
return to shareholders from December 31, 1997 until December 31, 2002 in
comparison to (1) Standard and Poor's 500 Index (the "S&P 500 Index"); (2)
Standard and Poor's 500 Homebuilding Index (the "S&P 500 Homebuilding Index");
and (3) the cumulative return on the common stock of the following four publicly
traded peer issuers: Beazer Homes USA, Inc., Hovnanian Enterprises, Inc., MDC
Holdings, Inc. and NVR, Inc. (the "Former Peer Group"). For fiscal year 2003 and
thereafter, the Company intends to include the S&P 500 Homebuilding Index in
lieu of the Former Peer Group. As a result of several business combinations
involving corporations currently or formerly included within the Former Peer
Group, the Company believes that the S&P 500 Homebuilding Index provides a more
representative comparison of the Company's performance with respect to its
principal competitors. In 2002, Crossmann Communities, Inc., which was formerly
included in the Former Peer Group, merged with and into Beazer Homes USA, Inc.
[PERFORMANCE GRAPH]
M/I SCHOTTENSTEIN S&P 500
HOMES, INC.(1) S&P 500 INDEX HOMEBUILDING INDEX FORMER PEER GROUP
----------------- ------------- ------------------ -----------------
12/31/97 100.00 100.00 100.00 100.00
12/31/98 118.46 128.58 121.99 158.30
12/31/99 84.79 155.63 82.30 135.81
12/31/00 133.22 141.46 129.11 302.77
12/31/01 275.61 124.65 164.88 498.60
12/31/02 308.89 97.10 163.94 644.78
-----------------------------------------------------------------------------
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
--------------------------------------------------------------------------------------------------------------------
M/I Schottenstein Homes, Inc. (1) 100 118.46 84.79 133.22 275.61 308.89
--------------------------------------------------------------------------------------------------------------------
S&P 500 Index 100 128.58 155.63 141.46 124.65 97.10
--------------------------------------------------------------------------------------------------------------------
S&P 500 Homebuilding Index 100 121.99 82.30 129.11 164.88 163.94
--------------------------------------------------------------------------------------------------------------------
Former Peer Group 100 158.30 135.81 302.77 498.60 644.78
--------------------------------------------------------------------------------------------------------------------
---------------
(1) Assumes that the value of the Common Shares and the indices was 100 on
December 31, 1997 and that all dividends were reinvested.
18
AUDIT COMMITTEE MATTERS
AUDIT COMMITTEE REPORT
General. In accordance with the Audit Committee Charter, the Audit
Committee assists the Board in fulfilling its responsibility for oversight of
the quality and integrity of the accounting, auditing and financial reporting
practices of the Company. During the 2002 fiscal year, the Audit Committee met
four times. In addition, the Chairman of the Audit Committee, on behalf of the
Audit Committee, met quarterly with the Company's senior financial management
and Deloitte & Touche LLP, the Company's independent accountants and auditors,
and discussed the Company's interim financial information prior to public
release.
Review and Discussion with Independent Accountants and Auditors. In
fulfilling its oversight responsibility as to the audit process, the Audit
Committee obtained from Deloitte & Touche LLP a formal written statement
describing all relationships between Deloitte & Touche LLP and the Company that
might bear on Deloitte & Touche LLP's independence consistent with Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees,
discussed with Deloitte & Touche LLP any relationships that may impact Deloitte
& Touche LLP's objectivity and independence and satisfied itself as to Deloitte
& Touche LLP's independence. The Audit Committee reviewed and discussed with
management, the internal auditors and Deloitte & Touche LLP the quality and
adequacy of the Company's internal controls and procedures. In addition, the
Audit Committee reviewed and discussed with Deloitte & Touche LLP all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, Communication with
Audit Committees, as amended by Statement on Auditing Standards No. 90, Audit
Committee Communications, and, with and without management present, discussed
and reviewed the results of Deloitte & Touche LLP's examination of the financial
statements. The Audit Committee also discussed the results of the Company's
internal audits conducted throughout the year.
Review with Management. The Audit Committee reviewed and discussed the
audited financial statements of the Company as of and for the fiscal year ended
December 31, 2002 with management. Management has the responsibility for the
preparation of the Company's financial statements, and Deloitte & Touche LLP has
the responsibility for the examination of those statements.
Conclusion. Based on the reviews and discussions with management and
Deloitte & Touche LLP noted above, the Audit Committee recommended to the Board
(and the Board approved) that the Company's audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 to be filed with the Commission.
AUDIT COMMITTEE:
Thomas D. Igoe (Chairman)
Friedrich K. M. Bohm
Lewis R. Smoot, Sr.
Norman L. Traeger
19
FEES OF INDEPENDENT ACCOUNTANTS AND AUDITORS
Audit Fees. The aggregate fees billed for professional services rendered
by Deloitte & Touche LLP for the audit of the Company's annual financial
statements for the 2002 fiscal year and the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q for the 2002 fiscal
year were $255,000.
Financial Information Systems Design and Implementation Fees. Deloitte &
Touche LLP did not render any professional services to the Company relating to
financial information systems design and implementation during the 2002 fiscal
year.
All Other Fees. The aggregate fees billed for all other services rendered
to the Company by Deloitte & Touche LLP during the 2002 fiscal year were
$218,000 for tax planning and compliance services, accounting services in
connection with the Company's filing of a registration statement and the audit
of the Company's 401(k) plan. The Audit Committee determined that the provision
of such other services was compatible with maintaining Deloitte & Touche LLP's
independence.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On January 31, 2003, the Company purchased the right to acquire certain
land located in Columbus, Ohio for $850,000 from an entity owned by Gary L.
Schottenstein, a vice president of the Company, the son of Irving E.
Schottenstein and the brother of Robert H. Schottenstein and Steven
Schottenstein. The Company's non-employee, outside directors unanimously
approved the transaction prior to purchase after reviewing the terms of the
transaction and concluding that they were fair, reasonable and in the best
interests of the Company.
SHAREHOLDER PROPOSALS
Any proposals of shareholders which are intended to be presented at the
2004 Annual Meeting of Shareholders must be received by the Company at its
principal executive offices by November 21, 2003 to be eligible for inclusion in
next year's proxy statement. Such proposals may be included in next year's proxy
statement if they comply with certain rules and regulations promulgated by the
Commission. If a shareholder intends to present a proposal at the 2004 Annual
Meeting of Shareholders, but has not sought the inclusion of such a proposal in
the Company's proxy statement, such proposal must be received by the Company at
its principal executive offices by February 4, 2004, or the Company's management
proxies will be entitled to use their discretionary voting authority should such
proposal then be raised, without any discussion of the matter in the Company's
proxy statement.
EXPENSES OF SOLICITATION
Other than the Internet and telephone service access fees or charges
described above, the entire expense of preparing, assembling, printing and
mailing the proxy card and the form of material used in the solicitation of
proxies will be paid by the Company. Proxies may be solicited personally or by
telephone, mail or telegraph. Officers or employees of the Company may assist
with personal or telephone solicitations and will receive no additional
compensation. The Company will also reimburse brokers, banks and other nominees
for their reasonable expenses in forwarding proxy materials to beneficial owners
of the Common Shares. In addition, the Company has retained The Altman Group, a
proxy solicitation firm, to assist in the solicitation of proxies for a fee of
$5,500 plus reimbursement of out-of-pocket expenses.
OTHER MATTERS
The Board knows of no other matters to be presented at the Annual Meeting.
If any other matter is properly brought before the Annual Meeting, the persons
named in the accompanying proxy card will vote and act according to their best
judgments in light of the conditions then prevailing.
20
You are urged to complete, sign, date and return the enclosed proxy card in
the envelope provided, or alternatively, vote your proxy electronically via the
Internet or telephonically. No postage is required if the envelope provided is
mailed from within the United States. If you subsequently decide to attend the
Annual Meeting and wish to vote your Common Shares in person, you may do so.
Your cooperation in giving this matter your prompt attention is appreciated.
By Order of the Board of Directors,
/s/ J. Thomas Mason
J. Thomas Mason,
Secretary
21
ANNEX A
CHARTER OF THE AUDIT COMMITTEE
OF
M/I SCHOTTENSTEIN HOMES, INC.
I. SCOPE OF THE AUDIT COMMITTEE'S DUTIES AND RESPONSIBILITIES
This Charter governs the duties and responsibilities of the Audit
Committee. The Audit Committee shall assist the Board of Directors in fulfilling
its oversight responsibilities by providing oversight review of the Company's
auditing, accounting and financial reporting processes. In so doing, the Audit
Committee shall serve as an independent and objective body and provide a free
and open means of communication among the Company's independent auditors,
management and internal auditing department, the Audit Committee and the Board
of Directors.
The Audit Committee shall periodically review its scope, policies and
procedures. At least annually, the Audit Committee shall review and reassess the
adequacy of this Charter and obtain the Board of Directors' approval of this
Charter. In accordance with SEC rules and regulations, at least every three
years, this Charter shall be filed as an appendix to the Company's proxy
statement.
II. MEMBERSHIP ON THE AUDIT COMMITTEE
The Audit Committee shall consist of at least three directors selected by
the Board of Directors. Each member of the Audit Committee shall be Independent
(as defined herein). "Independent" shall mean (i) that the director is free from
any relationship with the Company that, in the opinion of the Board of
Directors, may interfere with the exercise of his or her independence from
management and the Company and (ii) subject to the proviso set forth in the
immediately succeeding paragraph, that the director does not have a Restricted
Relationship (as defined herein). "Restricted Relationship" shall include any of
the following relationships and any other restricted or prohibited relationships
set forth from time to time in the SEC Independence Requirements as defined and
in the NYSE Listed Company Manual as the same may be amended or restated:
1. A director who is, or any time during the last three years has been, an
employee (including non-employee executive officers) of the Company, any
of its affiliates or any entity which at any time during the last three
years was a former parent or predecessor of the Company;
2. A director (i) who is, or any time during the last three years was, a
partner, controlling shareholder, or executive officer of an
organization that has a business relationship with the Company, or (ii)
who has, or any time during the last three years had, a direct business
relationship with the Company (e.g., a consultant), unless, in each
case, the Board of Directors determines in its business judgment that
the relationship does not interfere with the director's exercise of
independent judgment. In making a determination regarding the
independence of a director pursuant to this sub-paragraph, the Board of
Directors should consider, among other items, the materiality of the
relationship to the Company, to the director, and, if applicable, to the
organization with which the director is affiliated. For the purposes of
this sub-paragraph, "business relationship" can include commercial,
industrial, banking, consulting, legal, accounting and other
relationships. A director can have a "business relationship" directly
with the Company, or the director can be a partner, officer or employee
of an organization that has such a relationship.
3. A director who is employed as an executive of another entity where any
of the Company's executives serves on the other entity's compensation
committee; or
4. A director who is an Immediate Family (as defined herein) member of an
individual who is, or any time during the last three years was, an
executive officer of the Company or any of its affiliates. "Immediate
Family" includes a person's spouse, parents, children, siblings,
mothers-in-law and fathers-in-law, sons and daughters-in-law, brothers
and sisters-in-law, and anyone (other than employees) who shares such
person's home.
A-1
Notwithstanding the requirements set forth in Restricted Relationships Nos.
1 and 4, one director who is no longer an employee or who is an Immediate Family
member of a former executive officer of the Company or its affiliates, but is
not considered Independent pursuant to the three-year restriction periods set
forth in Restricted Relationships Nos. 1 and 4, may be appointed, under
exceptional and limited circumstances, to the Audit Committee if the Board of
Directors determines in its business judgment that membership on the Audit
Committee by the person is required by the best interests of the Company and its
shareholders, and the Company discloses, in the next annual proxy statement
subsequent to such determination, the nature of the relationship and the reasons
for that determination.
Each director serving on the Audit Committee shall be "financially
literate," as such qualification is interpreted by the Board of Directors in its
business judgment or must become "financially literate" within a reasonable
period of time after his or her appointment to the Audit Committee. At least one
member of the Audit Committee shall have accounting or related financial
management expertise, as the Board of Directors interprets such qualification in
its business judgment.
In addition, each director serving on the Audit Committee shall have such
qualification(s) and/or experience as may from time to time be required by the
applicable rules and standards of the SEC and/or the primary exchange upon which
the Company's common shares are then traded, the AICPA and Independence
Standards Board (the "Applicable Rules and Standards").
The Chairman of the Audit Committee shall be selected by the Board of
Directors or, in the absence of such selection, by the Audit Committee.
III. MEETINGS OF AND WITH THE AUDIT COMMITTEE; QUORUM AND AUDIT COMMITTEE ACTION
The Audit Committee shall meet at least annually, or more frequently as
circumstances require. In connection with its duty to provide a free and open
means of communication, the Audit Committee may ask members of management of the
Company or others to attend any meeting of the Audit Committee. The Audit
Committee shall meet at least annually with the Company's internal auditing
department, independent auditors and management in separate executive sessions
to discuss any matters that the Audit Committee or such groups believe should be
discussed privately with the Audit Committee.
The Audit Committee shall obtain confirmation that the outside auditors and
the internal auditing department will communicate directly and, on a timely
basis, with the Audit Committee or the Chairman of the Audit Committee if such
communication is warranted.
A majority of the members of the Audit Committee present in person or by
telephone shall constitute a quorum, and action of the Audit Committee shall be
by a majority of the members of the Audit Committee; provided, however, that if
this Charter, the Audit Committee or the Board of Directors so provides, the
Chairman of the Audit Committee may act on behalf of or represent the Audit
Committee.
IV. RESPONSIBILITIES, POWERS AND DUTIES OF THE AUDIT COMMITTEE
A. General
1. The Audit Committee shall report Audit Committee actions to the Board
of Directors and may make appropriate recommendations to the Board of
Directors concerning matters within the Audit Committee's scope of
responsibilities.
2. The Audit Committee shall have the power (but not the duty) to conduct
or authorize investigations into matters within the Audit Committee's
scope of responsibilities. The Audit Committee shall have the
authority to retain independent counsel, accountants and others to
assist in such investigations and to arrange and commit the Company
with respect to compensation for such independent counsel, accountants
and others.
3. Commencing in fiscal year 2001, the Audit Committee shall prepare a
report of audit committee disclosures to the shareholders of the
Company in accordance with the applicable rules and regulations of the
SEC. Such report shall be included in the Company's proxy statement.
A-2
4. The Audit Committee may perform any activities consistent with this
Charter, the Amended and Restated Articles of Incorporation, the
Amended and Restated Regulations and applicable law (including the
Applicable Rules and Standards) as the Audit Committee or the Board of
Directors deems advisable.
B. Engagement of Independent Auditors
1. The independent auditors shall be ultimately accountable to the Audit
Committee and the Board of Directors, and, accordingly, the Audit
Committee and the Board of Directors shall have the ultimate authority
and responsibility to select, evaluate and, where appropriate, replace
the independent auditors (or to nominate the independent auditors to
be proposed for shareholder approval in any proxy statement).
Consistent with the foregoing, the Audit Committee shall recommend to
the Board of Directors for selection (or the replacement of) the
independent auditors. The Audit Committee shall annually review the
resume of each of the members of the independent auditors' audit team,
the independent auditors' written quality control procedures and the
written report concerning the independent auditors' most recent peer
review. The Audit Committee shall review and approve the fees and
other compensation to be paid to the independent auditors.
2. The independent auditors shall not be engaged to provide any services
for the Company other than audit services and tax services unless the
Audit Committee and the Board of Directors conclude that the
engagement will not compromise the independent auditors independence.
In addition, the Audit Committee shall ensure that the independent
auditor submits to the Audit Committee on a periodic basis a formal
written statement delineating all relationships between the
independent auditors and the Company that may in their judgment have a
bearing on the auditor's independence. The Audit Committee shall be
responsible for actively engaging in a dialogue with the independent
auditor with respect to any disclosed relationships or services that
may impact the objectivity and independence of the independent auditor
and for recommending that the Board of Directors take appropriate
action in response to the independent auditors' report to satisfy
itself of the independent auditors' independence. The Company shall
not hire any person for the position of Chief Financial Officer,
Treasurer or Corporate Controller who has been an employee of the
independent auditor at any time during the proceeding three (3) years,
without the approval of the Audit Committee.
3. The Audit Committee shall review, in consultation with management and
the independent auditors, the scope of each audit to be conducted by
the independent auditors.
4. The Audit Committee shall obtain confirmation that the independent
auditors will provide the Audit Committee with all communications
required of the independent auditors, including a timely analysis of
significant financial reporting issues.
5. The Audit Committee shall obtain confirmation that the independent
auditors will be available to the shareholders at the annual meeting
and, upon request, to the Audit Committee and the Board of Directors.
C. Responsibilities for Review
1. The Audit Committee shall review any significant findings and
recommendations made by the independent auditors together with
management's responses to such findings and recommendations.
2. The Audit Committee shall review with management and the independent
auditors all such matters as it deems appropriate, and as required by
the Applicable Rules and Standards of the AICPA; and the SEC,
including, but not limited to, the following:
a. The Company's (including the unconsolidated subsidiaries') audited
financial statements and related footnotes;
b. The independent auditors' report on the audit of the Company's
financial statements;
A-3
c. Any material issues raised by management, the independent auditors
or the Chairman of the Audit Committee in connection with the
Chairman's review of the Company's (including the unconsolidated
subsidiaries') interim financial statements;
d. Management's significant judgments that have affected the financial
statements, including, without limitation, any adjustments
recommended by the independent auditors and management's responses
to such adjustments, including any decision as to whether or not to
make any such adjustment;
e. The independent auditors' judgments regarding: (i) the quality (and
not just the acceptability) of the Company's accounting principles
as applied in its financial reporting; (ii) the adequacy of the
Company's internal controls and procedures; (iii) the clarity of the
Company's financial disclosures; and (iv) the degree of
aggressiveness or conservatism of the Company's accounting
principles and underlying estimates and other significant decisions
that were made by management and reviewed by the independent
auditors; and
f. Any serious difficulties or disagreements between the independent
auditors and management or the internal auditing department during
the course of the independent auditors' audit, including any
restrictions on the scope of their work or access to required
information.
3. The Audit Committee shall review with management and the internal
auditing department all such matters as it deems appropriate, and as
required by the Applicable Rules and Standards, including, but not
limited to, the following:
a. Any significant findings during the year and management's responses
to such findings;
b. Any serious difficulties members of the internal auditing department
encountered while conducting the audits, including any restrictions
on the scope of their work or access to required information;
c. The audit plan, including its scope and any changes or additions the
Audit Committee deems advisable; and
d. The level of staffing and qualifications of the internal audit
department.
4. The Audit Committee or the Chairman of the Audit Committee shall meet
(in person or by telephone) with the independent auditors and
financial and/or senior management at least on a quarterly basis,
prior to filing of the Quarterly Report on Form 10-Q and the release
of earnings, to review financial matters, specifically the financial
information included in the Company's Quarterly Report on SEC Form
10-Q.
5. The Audit Committee shall review with management and the independent
auditors and, as appropriate, the internal auditing department, any
significant changes to or the selection of the Company's accounting
principles and practices.
6. The Audit Committee shall review any legal matter that could have a
significant impact on the Company's financial statements.
7. Based on the Audit Committee's reviews undertaken pursuant to items 1
through 6 of this Section C, the Audit Committee shall communicate its
decision to the Board of Directors regarding whether or not to
recommend that the Company's latest audited financial statements be
included in the Company's latest Annual Report on Form 10-K for the
last fiscal year for filing with the SEC.
8. The Audit Committee or the Chairman of the Audit Committee shall
review written reports issued by analysts which regularly follow and
report upon the Company.
V. CONTINUING EFFECT OF INDEMNIFICATION AND EXCULPATION PROVISIONS OF THE
COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION AND AMENDED AND
RESTATED REGULATIONS
In fulfilling their responsibilities hereunder, the members of the Audit
Committee (as directors) shall continue to be fully covered by the exculpation
and indemnification provisions applicable to the Company's
A-4
directors and officers, as set forth in the Company's Amended and Restated
Articles of Incorporation and Amended and Restated Regulations and such
provisions are adopted by reference herein. Nothing contained herein, in the
Applicable Rules and Standards or in any other document shall abrogate or
supersede the protective exculpation and indemnification provisions set forth in
the Company's Amended and Restated Articles of Incorporation and Amended and
Restated Regulations.
A-5
ANNEX B
SECTION 1701.85 OF THE OHIO REVISED CODE
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or
B-1
was located when the proposal was adopted by the shareholders of the
corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
B-2
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
B-3
DETACH HERE
PROXY
M/I SCHOTTENSTEIN HOMES, INC.
3 Easton Oval, Columbus, Ohio 43219
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS, APRIL 22, 2003
The undersigned hereby appoints Irving E. Schottenstein and J. Thomas Mason
and each of them, proxies of the undersigned, with full power of substitution,
to attend the Annual Meeting of Shareholders to be held on April 22, 2003, or
any adjournment thereof, and to vote all Common Shares of M/I Schottenstein
Homes, Inc. which the undersigned is entitled to vote at such Annual Meeting or
any adjournment thereof as set forth below:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTIVE IS MADE, THE COMMON
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE NAMED
NOMINEES FOR DIRECTORS, "FOR" THE PROPOSAL TO APPROVE THE RESTRUCTURING OF M/I
SCHOTTENSTEIN HOMES, INC.'S CORPORATE STRUCTURE INTO A HOLDING COMPANY STRUCTURE
BY TRANSFERRING ITS OPERATING ASSETS AND CERTAIN ASSOCIATED LIABILITIES TO
WHOLLY-OWNED SUBSIDIARIES AND "FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS THE INDEPENDENT ACCOUNTANTS AND AUDITORS FOR FISCAL
YEAR 2003. IF ANY OTHER MATTERS ARE PROPERLY BROUGHT BEFORE THE ANNUAL MEETING
OR ANY ADJOURNMENT THEREOF, OR IF A NOMINEE FOR ELECTION AS A DIRECTOR NAMED IN
THE PROXY STATEMENT IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE
COMMON SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE
PROXIES ON SUCH MATTERS OR FOR SUCH SUBSTITUTE NOMINEE(S) AS THE DIRECTORS MAY
RECOMMEND.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Shareholders, dated March 20, 2003, the Proxy Statement furnished
therewith, and the Annual Report of M/I Schottenstein Homes, Inc. for the fiscal
year ended December 31, 2002. Any proxy heretofore given to vote the Common
Shares which the undersigned is entitled to vote at the Annual Meeting of
Shareholders is hereby revoked.
-------------------- ------------------
SEE REVERSE PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY SEE REVERSE
SIDE IN THE ENCLOSED ENVELOPE. SIDE
-------------------- ------------------
---------------------------------- --------------------------
Vote by Telephone Vote by Internet
---------------------------------- --------------------------
It's fast, convenient and immediate! It's fast, convenient and your vote is immediately
Call Toll-Free on a Touch-Tone Phone confirmed and posted.
1-877-PRX-VOTE (1-877-779-8683).
--------------------------------------------------------- -------------------------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement and Proxy Card. Statement and Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/mho
3. Enter your 14-digit Voter Control Number located 3. Enter your 14-digit Voter Control Number located
on your Proxy Card above your name. on your Proxy Card above your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
--------------------------------------------------------- -------------------------------------------------------
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 877-PRX-VOTE anytime! Go to HTTP://WWW.EPROXYVOTE.COM/MHO anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
DETACH HERE
-------
X PLEASE MARK
VOTES AS IN
THIS EXAMPLE
-------
FOR AGAINST ABSTAIN
------- -------- --------
1. To elect the nominees named below as 2. To approve the restructuring of
directors. M/I Schottenstein Homes, Inc.'s
corporate structure into
Nominees: (01) Thomas D. Igoe, a holding company structure by
(02) Steven Schottenstein, transferring its operating ------- -------- --------
(03) Lewis R. Smoot, Sr. assets and certain
associated liabilities to
wholly-owned subsidiaries.
FOR AGAINST ABSTAIN
-------- -------- ------- -------- --------
FOR WITHHELD 3. To ratify the appointment of
ALL FROM ALL Deloitte & Touche LLP as the
NOMINEES NOMINEES independent accountants and
auditors for fiscal
-------- -------- year 2003. ------- -------- --------
--------
-------- ----------------------------------
For all nominees except as
written above
--------
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
--------
Please sign exactly as your name or names appear hereon. Joint
owners should each sign. Executors, administrators, trustees,
guardians and others should give their full title. Corporations
and partnerships should sign in their full name by president or
other authorized person.
Signature: _______________________________ Date: __________ Signature: _______________________________ Date: __________