<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____
Commission file number 33-44914, 33-68564
M/I SCHOTTENSTEIN HOMES, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1210837
(State of incorporation) (I.R.S. Employer Identification No.)
41 S. High Street, Suite 2410, Columbus, Ohio 43215
(Address of principal executive offices) (Zip Code)
(614) 221-5700
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $.01 per share: 8,800,000 shares
outstanding as of August 12, 1996
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M/I SCHOTTENSTEIN HOMES, INC.
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1996 and 1995 5
Notes to Interim Unaudited Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index 18
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<PAGE> 3
CONSOLIDATED BALANCE SHEETS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
JUNE 30 December 31
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash, including cash in escrow $ 11,923 $ 8,136
Receivables 22,503 23,612
Inventories:
Single-family lots, land and land development costs 104,756 120,806
Houses under construction 128,788 86,110
Model homes and furnishings (less accumulated depreciation:
June 30, 1996 - $845;
December 31, 1995 - $823) 20,871 20,971
Land purchase deposits 461 381
Office furnishings, transportation and construction
equipment - at cost (less accumulated depreciation:
June 30, 1996 - $6,699;
December 31, 1995 - $6,106) 2,000 2,392
Investment in unconsolidated joint ventures and limited partnerships 14,146 11,641
Other assets 8,552 7,094
- ------------------------------------------------------------------------------------------------------------
TOTAL $314,000 $281,143
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable banks-home-building operations $103,000 $ 87,000
Note payable bank-financial operations 12,280 15,200
Mortgage notes payable 104 349
Subordinated notes 24,513 24,513
Accounts payable 43,540 29,219
Accrued compensation 4,327 7,336
Income taxes payable 1,497 2,771
Accrued interest, warranty and other 10,739 9,787
Customer deposits 9,245 5,472
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 209,245 181,647
- ------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
- ------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - $.01 par value;
authorized 2,000,000 shares;
none outstanding -- --
Common stock - $.01 par value;
authorized 38,000,000 shares;
issued and outstanding - 8,800,000 shares 88 88
Additional paid-in capital 50,573 50,573
Retained earnings 54,094 48,835
- ------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 104,755 99,496
- ------------------------------------------------------------------------------------------------------------
TOTAL $314,000 $281,143
============================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements
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<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 233,215 $ 220,881 $ 137,357 $ 125,305
- ----------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Land and housing 187,930 181,186 110,975 102,499
General and administrative 13,518 12,383 7,559 6,930
Selling 16,743 15,319 8,948 8,342
Interest 6,028 6,581 3,097 3,532
- ----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 224,219 215,469 130,579 121,303
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 8,996 5,412 6,778 4,002
- ----------------------------------------------------------------------------------------------------------------------------
Income taxes:
Current 4,125 2,061 3,817 1,448
Deferred (388) 92 (975) 137
- ----------------------------------------------------------------------------------------------------------------------------
Total income taxes 3,737 2,153 2,842 1,585
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 5,259 $ 3,259 $ 3,936 $ 2,417
============================================================================================================================
Net income per common share $ 0.60 $ 0.37 $ 0.45 $ 0.27
============================================================================================================================
Weighted average common shares
outstanding 8,800,000 8,800,000 8,800,000 8,800,000
============================================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
(DOLLARS IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,259 $ 3,259
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 771 859
Decrease (increase) deferred income taxes (975) 92
Decrease in receivables 1,109 2,283
Increase in inventories (24,253) (23,755)
Decrease (increase) in other assets (573) 547
Increase (decrease) in accounts payable 14,321 (2,061)
Decrease in income taxes payable (1,274) (1,425)
Decrease in accrued liabilities (2,057) (2,671)
Equity in undistributed income of
unconsolidated joint ventures and limited partnerships (84) (9)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (7,756) (22,881)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to model and office furnishings,
transportation and construction equipment (301) (327)
Proceeds from property disposals 40 42
Investment in unconsolidated joint ventures (5,003) (4,462)
Distributions from unconsolidated joint ventures
and limited partnerships 358 361
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,906) (4,386)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable banks:
Cash proceeds from borrowings 132,096 128,870
Principal repayments (119,016) (108,675)
Principal repayments of mortgage notes payable (404) (252)
Net increase in customer deposits 3,773 1,814
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 16,449 21,757
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 3,787 (5,510)
Cash balance at beginning of year 8,136 14,059
- ------------------------------------------------------------------------------------------------------------------
Cash balance at end of period $ 11,923 $ 8,549
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 5,229 $ 6,518
Income taxes $ 5,415 $ 3,220
NON-CASH TRANSACTIONS DURING THE YEAR:
Single-family lots distributed from unconsolidated joint ventures $ 2,224 $ 1,021
Land acquired with mortgage notes payable $ 159 $ 374
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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<PAGE> 6
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission for interim financial information. The results of
operations for the six months ended June 30, 1996 and 1995 are not
necessarily indicative of the results for the full year.
It is suggested that these financial statements be read in conjunction with
the financial statements, accounting policies and financial notes thereto
included in the Company's Annual Report to Shareholders for the year ended
December 31, 1995.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring accruals) which
are necessary for a fair presentation of financial results for the interim
periods presented.
NOTE 2. AMENDED LOAN AGREEMENTS
On May 7, 1996, the Company amended its bank loan agreement. The amended loan
agreement provides for interest on borrowings to be at the banks' prime rates
or, at the Company's option, LIBOR plus a margin of between 1.75% and 2.5%
based on the Company's ratio of Earnings Before Interest, Taxes, Depreciation
and Amortization ("EBITDA") to consolidated interest incurred (as defined in
such amendment). The amended loan agreement contains an additional
restrictive covenant which requires the Company to maintain a minimum ratio
of EBITDA to consolidated interest incurred. The remaining terms of the
agreement remain substantially the same as those in the agreement that it
replaces.
On July 19, 1996, M/I Financial entered into a new bank loan agreement. The
amount available and other terms of the new agreement remain substantially
the same as the previous agreement. The agreement was previously amended on
May 7, 1996 to provide for interest on borrowings to be at the banks' prime
rate less 0.25%. The new agreement terminates on June 20, 1997 and the unpaid
balance of such loans are payable on this date.
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<PAGE> 7
NOTE 3. INTEREST
The Company capitalizes interest during development and construction.
Capitalized interest is charged to interest expense as the related inventory
is delivered. The summary of total interest for the six and three months
ended June 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Six Months ended June 30, Three Months ended June 30,
(Dollars in Thousands) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest capitalized, beginning of year $ 7,560 $ 7,322 $ 7,648 $ 7,698
Interest incurred 6,202 7,157 3,183 3,732
Interest expensed 6,028 6,580 3,097 3,531
- ---------------------------------------------------------------------------------------------------------------
Interest capitalized, end of period $ 7,734 $ 7,899 $ 7,734 $ 7,899
===============================================================================================================
</TABLE>
NOTE 4. IMPACT OF ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of". SFAS 121 amends the impairment provisions of the existing
accounting literature which required the Company's home-building inventories
to be carried at the lower of cost or net realizable value. Under the new
provisions, if the Company's home-building inventories are determined to be
impaired, the impairment loss is measured based upon the difference between
the fair value of the asset and its carrying amount.
The Company adopted SFAS 121 during the first quarter of 1996. Based on the
Company's analysis of its home-building inventories, none were found to be
impaired and, therefore, the implementation of this statement had no impact
on the financial condition or results of operations of the Company.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which the Company adopted during the first quarter of 1996.
Under SFAS 123, companies are encouraged, but not required, to adopt the fair
value method of accounting for employee stock-based transactions. Companies
are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," but would be required to disclose in a note to the annual
financial statements pro forma net income and earnings per share, as if the
Company had applied the new method of accounting. The Company has determined
that it will not adopt the expense recognition provisions of this standard;
therefore, the new standard had no effect on the Company's financial
condition or results of operations.
NOTE 5. CONTINGENCIES
At June 30, 1996, the Company had options and contingent purchase contracts
to acquire land and developed lots with an aggregate purchase price of
approximately $172.4 million.
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<PAGE> 8
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
FORM 10-Q - PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1996 AND 1995
CONSOLIDATED
Total Revenue. Total revenue for the six months ended June 30, 1996
increased $12.3 million and for the three months ended June 30, 1996 increased
$12.0 million from the comparable periods of 1995. Increases for the six-month
period in housing revenue of $14.5 million and other revenue of $1.2 million
were partially offset by a $3.4 million decrease in land revenue. Increases for
the three-month period in housing revenue of $13.0 million and other revenue of
$0.4 million were partially offset by a $1.4 million decrease in land revenue.
The increase in housing revenue for both the six and three-month periods was
attributable to an increase in the number of Homes Delivered. The Company
delivered 96 and 98 more homes during the six and three months ended June 30,
1996 than the comparable periods of 1995. For both periods, the increase in
other revenue is primarily attributable to M/I Financial where both the number
of loans originated and the gains recognized from the sale of loans increased in
the current year. The decrease in land revenue for both the six and three months
ended June 30, 1996 was primarily due to a significant decrease in the number of
lots sold to third parties from the comparable periods of 1995.
Income Before Income Taxes. Income before income taxes for the six
months ended June 30, 1996 increased 66.2% and for the three months ended June
30, 1996 increased 69.4% from the comparable periods of 1995. The increase for
the six months ended June 30, 1996 related to both housing, where income before
income taxes increased from $4.4 million to $6.9 million, and M/I Financial,
where income before income taxes increased from $1.0 million to $2.1 million.
The increase for the three months ended June 30, 1996 related to housing, where
income before income taxes increased from $3.4 million to $5.7 million. The
increase in housing for both the six and three-month periods was primarily due
to the increase in the number of Homes Delivered along with improved margins.
The increase in M/I Financial for the six months ended June 30, 1996 was
primarily due to the significant increase in income from the sale of servicing
and marketing gains due to the favorable interest rate environment during the
last half of 1995 and first half of 1996 as compared to the same periods of 1994
and 1995.
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<PAGE> 9
HOME-BUILDING SEGMENT
The following table sets forth certain information related to the Company's
home-building segment:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
(Dollars in thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Housing Sales $224,993 $210,487 $132,100 $119,053
Land and Lot Sales 4,475 7,844 3,370 4,790
Other Income 428 281 225 201
- --------------------------------------------------------------------------------------------------------------------
Total Revenue $229,896 $218,612 $135,695 $124,044
====================================================================================================================
Revenue:
Housing Sales 97.9 % 96.3 % 97.3 % 96.0 %
Land and Lot Sales 1.9 3.6 2.5 3.8
Other Income 0.2 0.1 0.2 0.2
- --------------------------------------------------------------------------------------------------------------------
Total Revenue 100.0 100.0 100.0 100.0
Land and Housing Costs 82.2 83.2 82.2 83.0
- --------------------------------------------------------------------------------------------------------------------
Gross Margin 17.8 16.8 17.8 17.0
General and Administrative Expenses 2.7 2.8 2.3 2.5
Selling Expenses 7.3 7.0 6.6 6.7
- --------------------------------------------------------------------------------------------------------------------
Operating Income 7.8 7.0 8.9 7.8
====================================================================================================================
Unit Data:
New Contracts 1,716 1,510 760 767
Homes Delivered 1,342 1,246 795 697
Backlog at end of period 1,795 1,521 1,795 1,521
Average sales price of homes in backlog $ 179.0 $ 177.0 $ 179.0 $ 177.0
Aggregate sales value of homes in backlog $322,168 $268,610 $322,168 $268,610
Number of active subdivisions 160 150 160 150
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
A home is included in "New Contracts" when the Company's standard sales
contract, which requires a deposit and generally has no contingencies other than
for financing, is executed. In the Midwest Region, contracts are sometimes
accepted contingent upon the sale of an existing home. "Homes Delivered"
represents units for which the closing of the sale has occurred and title has
transferred to the buyer. Revenue and cost of revenue for a home sale are
recognized at the time of such closing.
"Backlog" represents homes for which the Company's standard sales
contract has been executed, but which are not included in Homes Delivered
because closings for the sale of such homes have not yet occurred as of the end
of the periods specified. Most cancellations of contracts for homes in Backlog
occur because customers cannot qualify for financing. These cancellations
usually occur prior to the start of construction. Since the Company arranges
financing with guaranteed rates for many of its customers, the incidence of
cancellations after the start of construction is low. In the first six months of
1996, the Company delivered 1,342 homes, most of which were homes under contract
in Backlog at December 31, 1995. Of the 1,421 contracts in Backlog at December
31, 1995, 13.1% have been canceled as of June 30, 1996. For homes in Backlog at
December 31, 1994, 14.6% had been canceled as of June 30, 1995. For the homes in
Backlog at December 31, 1994, the final cancellation percentage was 15.6%.
-9-
<PAGE> 10
Total Revenue. Total revenue for the six months ended June 30, 1996
increased 5.2% and for the three months ended June 30, 1996 increased 9.4% from
the comparable periods of 1995. The increase recorded for both the six and
three-month periods resulted from significant increases in housing revenue and
was offset by decreases in lot and land sales. The increase in housing revenue
for both periods was attributable to an increase in the number of Homes
Delivered as the Company delivered 7.7% and 14.1% more homes during the six and
three months ended June 30, 1996 than the comparable periods of 1995. The impact
of Homes Delivered on total revenue for both the six and three months ended June
30, 1996 was slightly offset by decreases in the average selling prices. The
increase in Homes Delivered during the six months ended June 30, 1996 was due
primarily to increased deliveries in the Indianapolis and Cincinnati markets, in
which the introduction of the lower priced Horizon product into new areas has
had a positive impact. In addition, Orlando had a large increase in Homes
Delivered during the six months ended June 30, 1996. The increase in Homes
Delivered during the three months ended June 30, 1996 was due to increased
deliveries in the Columbus, Indianapolis and Cincinnati markets. Again, the
introduction of the lower priced Horizon product into new areas has had a
positive impact on Homes Delivered in these markets. The decrease in land
revenue was primarily attributable to the Maryland division. The Maryland
division had significant lot sales to outside home-builders from its Willows
land development project in the six and three months ended June 30, 1995 which
did not occur in the current year. The Company is developing additional sections
of this project and has entered into contracts to sell a portion of the lots
developed to these same builders for which the timing is different than in 1995.
Home Sales and Backlog. The number of New Contracts recorded during the
first six months of 1996 was 13.6% higher than the number recorded for the
comparable period in the prior year. New Contracts recorded for the second
quarter were 0.9% lower than the prior year's amount. New Contracts recorded in
the first six months of 1996 were higher in all of the Company's regions, led by
the Ohio and Indiana Region where the number of New Contracts recorded increased
18.6%. The Company believes the increase in the number of New Contracts recorded
is attributable to the more favorable interest rate environment in the current
year as compared to the first six months of 1995. The introduction of the
Company's lower priced Horizon product line into several new markets during 1995
also had a positive impact on the number of New Contracts recorded for the
current year. New Contracts recorded in the Columbus market during the three
months ended June 30, 1996 actually decreased by 9.7% from the comparable period
of 1995 due primarily to a record number of New Contracts recorded in the
Columbus market in 1995. This decrease was offset by increases in the majority
of the Company's other markets. The number of new contracts recorded in future
periods will be dependent on future economic conditions, consumer confidence and
interest rates available to potential home buyers.
At June 30, 1996, the total sales value of the Company's Backlog of
1,795 homes was approximately $322.2 million, representing a 19.9% increase in
sales value and an 18.0% increase in units from the levels reported at June 30,
1995. The average sales price of homes in Backlog increased 1.1% from June 30,
1995 to June 30, 1996. The minimal increase in the average sales price was due
to the introduction of the Company's lower priced Horizon product line into
several other markets in 1995.
Gross Margin. The overall gross margin for the home-building segment
was 17.8% for both the six and three months ended June 30, 1996 as compared to
16.8% and 17.0% for the comparable periods of 1995. These increases were due to
the increased emphasis placed on improving margins during 1995 and improved
market conditions in 1996. Management continues to focus on maintaining
accurate, up-to-date costing information so that sales prices can be set to
achieve the desired margins. The Company has also focused on acquiring or
developing lots in premier locations so that it can obtain higher margins. Gross
margins were also higher due to the national accounts program which the Company
has expanded significantly in the past year. Through this program, the Company
has been able to lower costs on many of
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<PAGE> 11
the components used in building its homes through volume discounts and other
negotiated price reductions from its suppliers. The Company's ability to
maintain the levels of margins obtained during the first six months of 1996 are
dependent on a number of factors, some of which are beyond the Company's
control. Due to the increased level of sales during the last quarter of 1995 and
the first quarter of 1996, some of the Company's divisions are beginning to
experience shortages of qualified subcontractors in certain construction trades.
This could negatively impact gross margins by requiring the Company to pay
premiums to expedite construction work or delaying construction, thus delaying
revenue recognition and increasing carrying costs.
General and Administrative Expenses. General and administrative
expenses as a percentage of total revenue decreased from 2.8% and 2.5% for the
six and three months ended June 30, 1995 to 2.7% and 2.3% for the comparable
periods in the current year. These decreases were primarily attributable to the
large increases in total revenue for both periods.
Selling Expenses. Selling expenses as a percentage of total revenue
increased to 7.3% for the six months ended June 30, 1996 from 7.0% for the
comparable period of 1995, and for the three months ended June 30, 1996
decreased slightly to 6.6% of total revenue from 6.7% for the comparable period
of 1995. The increase in the six month period was primarily due to increases in
sales commissions paid to both internal salespeople and outside Realtors.
FINANCIAL SERVICES SEGMENT - M/I FINANCIAL
The following table sets forth certain information related to the Company's
financial services segment:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
(Dollars in thousands) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of Loans Originated 1,007 764 599 428
Revenue:
Loan Origination Fees $1,223 $ 898 $ 737 $ 508
Sale of Servicing and Marketing Gains 2,042 1,268 962 716
Other 1,052 833 547 452
- ------------------------------------------------------------------------------------------------------------
Total Revenue 4,317 2,999 2,246 1,676
- ------------------------------------------------------------------------------------------------------------
General and Administrative Expenses 2,226 2,004 1,175 1,053
- ------------------------------------------------------------------------------------------------------------
Operating Income $2,091 $ 995 $1,071 $ 623
============================================================================================================
</TABLE>
Total Revenue. Total revenue for the six and three months ended June
30, 1996 was $4.3 and $2.2 million, a 43.9% and 33.9% increase over the $3.0 and
$1.7 million recorded for the comparable periods of 1995. Loan origination fees
increased 36.2% and 45.1% in the six and three months ended June 30, 1996 from
the comparable periods of 1995, primarily due to the 31.8% and 40.0% increase in
the number of loans originated. The increase in the number of loans originated
was due to an increase in the percentage of the Company's Homes Delivered which
were financed through M/I Financial and an increase in the number of Homes
Delivered by the Company.
Revenue from sale of servicing and marketing gains increased from $1.3
and $0.7 million to $2.0 and $1.0 million from the six and three months ended
June 30, 1995 to the comparable periods of the current year. This increase was
primarily due to an increase in servicing fees due to more fixed rate mortgages
originated during the six and three months ended June 30, 1996 as compared to
the comparable periods of 1995. The Company originated primarily adjustable rate
mortgages during the first half of 1995 due to a higher interest rate
environment. The Company earns higher premiums on fixed rate mortgages as
opposed to adjustable rate mortgages. The increase was also due to the falling
interest rate environment
-11-
<PAGE> 12
during the last part of 1995 which increased marketing gains on loans that
closed during the six and three months ended June 30, 1996. Revenue from the
sale of servicing and marketing gains were also higher due to the increased
volume of loans closed and sold during the six and three months ended June 30,
1996 as compared to the same periods of 1995.
General and Administrative Expenses. General and administrative
expenses for the six and three months ended June 30, 1996 were $2.2 and $1.2
million, an 11.3% and 12.0% increase over the comparable periods of the prior
year. This increase was primarily attributable to personnel and other variable
expenses which increased due to the significantly higher volume of loans
processed during the current year.
OTHER OPERATING RESULTS
Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the six and three months ended June 30, 1996 totaled
$5.2 and $3.3 million, respectively, or 2.2% and 2.4% of total revenue. This is
an increase from the $4.5 and $2.9 million, or 2.0% and 2.3% of total revenue
recorded for the comparable periods of 1995. These increases are primarily due
to higher amounts recorded for certain employee related expenses in the current
year. These expenses are generally based on pre-tax net income of the Company
which increased significantly in the six and three months ended June 30, 1996.
Interest Expense. Corporate and home-building interest expense for the
six and three months ended June 30, 1996 decreased to $6.0 and $3.1 million from
$6.6 and $3.5 million for the comparable periods of 1995. Interest expense was
lower in the current year due to decreases in the weighted average interest rate
and the average borrowings outstanding. These decreases were partially offset by
a decrease in the net amount of interest capitalized during the six and three
months ended June 30, 1996 as compared to the same periods of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing needs depend upon its sales volume, asset
turnover, land acquisition and inventory balances. The Company continues to
incur substantial indebtedness, and expects to incur indebtedness in the future,
to fund the growth of its home-building activities. Historically, the Company's
principal source of funds for construction and development activities has been
from internally generated cash and from bank borrowings which are primarily
unsecured.
At June 30, 1996 the Company had bank borrowings outstanding of $103.0
million under its loan agreement relating to its home-building operations which
permits aggregate borrowings not to exceed the lesser of: $166.0 million in
revolving credit loans, including $30.0 million of seasonal loans which are
available from March 1st through December 31st during each year of the agreement
and $25.0 million, including $4.0 million for joint ventures in which the
Company is a partner, in the form of letters of credit; or the Company's
borrowing base which is calculated based on specified percentages of certain
types of assets held by the Company as of each month end. The loan agreement
matures September 30, 2000, at which time the unpaid balance of the revolving
credit loans outstanding shall be due and payable. Under the terms of the loan
agreement, the banks make an annual determination as to whether or not to extend
the maturity date of the commitments by one year. On May 7, 1996, the Company
amended its bank loan agreement to add a LIBOR borrowing feature. At June 30,
1996, borrowings under the loan agreement were at LIBOR plus a margin of between
1.75% and 2.5% based on the Company's ratio of EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization) to consolidated interest incurred and
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<PAGE> 13
were primarily unsecured. The loan agreement contains restrictive covenants
which require the Company, among other things, to maintain minimum net worth and
working capital amounts, to maintain a minimum ratio of EBITDA to consolidated
interest incurred and to maintain certain other financial ratios. The loan
agreement also places limitations on the amount of additional indebtedness that
may be incurred by the Company, the acquisition of undeveloped land, on
dividends that may be paid and on the aggregate cost of certain types of
inventory the Company can hold at any one time.
An additional $12.3 million was outstanding as of June 30, 1996 under
the M/I Financial loan agreement, which permits borrowings of $25.0 million to
finance mortgage loans initially funded by M/I Financial for customers of the
Company and a limited amount for loans to others. This agreement limits the
borrowings to 95% of the aggregate face amount of the mortgages and contains
restrictive covenants requiring M/I Financial to maintain minimum net worth and
certain minimum financial ratios. On May 7, 1996, M/I Financial amended its bank
loan agreement to lower its prime rate borrowing margin. At June 30, 1996,
borrowings under this agreement were at the bank's prime rate less 0.25% and
were unsecured.
On July 19, 1996, M/I Financial entered into a new loan agreement with
its lender. The agreement terminates on June 20, 1997 and the unpaid balance of
such borrowings are payable on this date. The remaining terms of the agreement
remain substantially the same as those in the agreement that it replaces.
At June 30, 1996, the Company had $71.4 million of unused borrowing
availability under its loan agreements. At June 30, 1996, the Company had the
right to borrow up to $186.7 million under its credit facilities, including
$30.0 million of seasonal loans, available from March 1st through December 31
during each year of the loan agreement, and $20.7 million under the M/I
Financial Loan Agreement (95% of the aggregate face amount of eligible mortgage
loans). The Company may increase its borrowings under such agreements or
otherwise.
In addition, there were outstanding 14% Subordinated Notes in the
principal amount of $24.5 million at June 30, 1996. Annual sinking fund payments
for the Subordinated Notes of approximately $3.7 million commence December 1,
1997, with the remaining balance due at maturity on December 1, 2001. The Notes
are redeemable in whole or in part at the option of the Company on or after
December 1, 1996 at 106% of the principal amount until December 1, 1997 and
declining 1 1/2% annually through 2000. The Company is currently investigating
financing which could replace the existing Subordinated Notes at a significantly
lower interest rate.
At June 30, 1996, mortgage notes payable outstanding were $104,000
secured by lots and land with a recorded book value of $314,000. The Company
also had approximately $20.3 million of completion bonds and letters of credit
outstanding at June 30, 1996.
The $13.0 million increase in notes payable to banks from December 31,
1995 to June 30, 1996 reflects increased borrowings primarily attributable to a
significant seasonal increase in homes under construction offset by a decrease
in single family lots, land and land development costs. It is expected that
borrowing needs will increase as the Company continues to increase its
investment in land under development and developed lots and as its investment in
homes under construction increases due to the higher backlog.
Net income from housing and lot and land sales are the Company's
primary sources of net cash provided by operating activities. Net cash used by
operating activities in the six months ended June 30, 1996 was $7.8 million
compared to $22.9 million for the comparable period of the prior year. The
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<PAGE> 14
decrease in net cash used by operating activities was primarily due to a large
increase in accounts payable, partially offset by a smaller decrease in
receivables.
The Company executed an agreement with certain unrelated parties for
the development and occupancy of an approximately 85,000 square foot building.
The four current office locations in Columbus, Ohio will be consolidated into
one building in an effort to improve operating efficiencies. The building will
be built, owned and operated by a limited liability company in which the Company
has invested $1.1 million and holds a 1/3 interest (the "LLC"). The building
will be financed primarily through borrowings of the LLC. The LLC has obtained
financing for the construction of the building and also has obtained commitments
for the permanent financing. The construction financing has been jointly and
severally guaranteed by the members of the LLC. The Company has entered into a
long-term operating lease for the premises with the LLC. Construction of the
building has commenced and is expected to be completed early in the fourth
quarter of 1996. The Company believes that any commitments arising from this
transaction would not significantly affect its liquidity or capital resources.
Over the past several years, the Company's land development activities
and land holdings have increased significantly and the Company expects this
trend to continue into the foreseeable future. These increases are primarily due
to the shortage of qualified land developers in certain of the Company's markets
as well as the competitive advantages that can be achieved by developing land
internally rather than purchasing lots from developers or other competing
homebuilders. This is particularly true for the Company's Horizon product line
where, due to the price points the Company targets, lots are generally not
available from third party developers at economically feasible prices. The
Company continues to purchase lots from outside developers under option
contracts, when possible, to limit its risk; however, the Company will continue
to evaluate all of its alternatives to satisfy the Company's demand for lots in
the most cost effective manner.
In 1994, the Company entered into a land purchase contract which
required a greater investment than the Company normally commits and could
significantly impact the Company's liquidity. On January 31, 1994, the Company
closed on the first phase of a six phase land purchase contract in the
Washington, D.C. market. This first phase was purchased for $6.6 million and was
developed into 106 single family and townhouse lots. Based on the demand for
lots in this area and the strong sales in the first phase of this development,
the Company purchased the second phase of this development through a series of
three closings in May, June and July of 1995. The total purchase price for the
second phase was approximately $6.4 million and this section was developed into
122 single-family and townhouse lots. On July 1, 1996, the Company purchased the
third phase for $5.6 million which will provide an additional 95 single-family
and townhouse lots. The Company sold a portion of the developed lots from the
first and second phases to outside homebuilders and will be entering into
similar contracts to sell a portion of the lots in the third phase to outside
homebuilders. The Company has an option to purchase each of the remaining
phases. If the Company purchases all six phases, the total purchase price will
be approximately $38.9 million and the land will be developed into approximately
710 lots.
As its capital requirements increase, the Company may increase its
borrowings under its bank line of credit. In addition, the Company continually
explores and evaluates alternative sources from which to obtain additional
capital. The Company believes that its currently available financial resources
are sufficient to meet its current and near-term capital requirements.
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<PAGE> 15
INTEREST RATES AND INFLATION
The Company's business is significantly affected by general economic
conditions of the United States and, particularly, by the impact of interest
rates. Higher interest rates may decrease the potential market by making it more
difficult for home buyers to qualify for mortgages or to obtain mortgages at
interest rates acceptable to them. Increases in interest rates also would
increase the Company's interest expense as the rate on the revolving loans is
based upon floating rates of interest. The weighted average interest rates on
the Company's outstanding debt for the six months ended June 30, 1996 was 9.8%
as compared to 10.2% for the comparable period of 1995.
In conjunction with its mortgage banking operations, the Company uses
hedging methods to reduce its exposure to interest rate fluctuations between the
commitment date of the loan and the time the loan closes.
In recent years, the Company generally has been able to raise prices by
amounts at least equal to its cost increases and, accordingly, has not
experienced any detrimental effect from inflation. Where the Company develops
lots for its own use, inflation may increase the Company's profits because land
costs are fixed well in advance of sales efforts. The Company is generally able
to maintain costs with subcontractors from the date a home sales contract is
accepted; however, in certain situations unanticipated costs may occur between
the time a sales contract is executed and the time a home is constructed, which
result in lower gross profit margins.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters
discussed in this quarterly report are forward-looking statements which involve
risks and uncertainties, including, but not limited to, economic, competitive
and governmental factors affecting the Company's markets, prices and other
facets of its operations. See the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 for a further discussion of these and other risks
and uncertainties applicable to the Company's business.
-15-
<PAGE> 16
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On May 8, 1996, the Company held its 1996 annual meeting of
shareholders. The shareholders voted on the election of three directors to
three-year terms. The results of the voting for the directors are as follows:
1. Election of Directors
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Irving E. Schottenstein 7,849,949 556,259
John B. Gerlach 7,849,988 556,220
Lenore G. Schottenstein 7,849,787 556,421
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
The exhibits required to be filed herewith are set forth below. No
reports were filed on Form 8-K for the quarter for which this report is filed.
Exhibit
Number Description
10.1 Revolving Credit Agreement by and among the Company; M/I
Financial Corp. and Bank One, Columbus, N.A. dated July 19,
1996.
10.2 Company's 1996 Senior Vice President/Regional Manager Bonus
Program.
10.3 Company's 1996 Division Manager Bonus Program.
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<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
M/I Schottenstein Homes, Inc.
(Registrant)
Date: August____, 1996 by: /s/ Irving E. Schottenstein
---------------------------
Irving E. Schottenstein
Chief Executive Officer
(Principal Executive Officer)
Date: August____, 1996 by: /s/ Kerrii B. Anderson
----------------------
Kerrii B. Anderson
Senior Vice President,
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------ ----------- --------
<S> <C> <C>
10.1 Revolving Credit Agreement by and among the Company; M/I
Financial Corp. and Bank One, Columbus, N.A. dated July 19,
1996.
10.2 Company's 1996 Senior Vice President/Regional Manager Bonus
Program.
10.3 Company's 1996 Division Manager Bonus Program.
</TABLE>
-18-
<PAGE> 1
Exhibit 10.1
REVOLVING CREDIT AGREEMENT
--------------------------
THIS AGREEMENT is made to be effective as of July 19, 1996, by
and among M/I FINANCIAL CORP., an Ohio corporation ("Financial"), M/I
SCHOTTENSTEIN HOMES, INC., an Ohio corporation ("M/I Homes") (Financial and M/I
Homes are sometimes hereinafter referred to collectively as the "Borrowers"),
and BANK ONE, COLUMBUS, N.A., a national banking association (the "Bank"). The
Borrowers and the Bank, in consideration of the covenants and agreements
contained herein, intending to be legally bound, hereby recite and agree as
follows:
RECITALS
--------
A. M/I Homes, the Bank, The Huntington National Bank, The
First National Bank of Chicago (as the assignee of NBD Bank), National City Bank
of Columbus, formerly known as National City Bank, Columbus, The First National
Bank of Boston and the Bank as agent for the foregoing banks are parties to a
certain Restated Revolving Credit Loan, Seasonal Loan and Standby Letter of
Credit Agreement dated as of September 29, 1995, as amended by Amendment No. 1
thereto effective as of May 7, 1996 (together with any amendments and
restatements thereto that may be made subsequent to the date hereof, the "M/I
Homes Loan Agreement").
B. M/I Homes owns 100% of the issued and outstanding common
stock of Financial.
C. The Borrowers and Bank are parties to a Revolving Credit
Agreement effective as of August 8, 1995, as amended by Amendment No. 1 thereto
effective as of May 7, 1996 in the principal amount of $25,000,000 (the "1995
Credit Agreement"), which matures on July 19, 1996.
D. The Borrowers and Bank want to enter into a new credit
facility in the principal amount of Twenty-Five Million and 00/100 Dollars
($25,000,000), which will pay off and replace the 1995 Credit Agreement on the
terms and conditions hereinafter set forth.
<PAGE> 2
AGREEMENT
---------
SECTION 1. DEFINITIONS
-----------
1.1 DEFINED TERMS. As used in the Agreement, the following
terms have the following meanings:
"AGREEMENT" shall mean this Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"BORROWING DATE" shall mean any Business Day specified
pursuant to subsection 2.3 hereof as a date on which the Borrowers request the
Bank to make a disbursement pursuant to the Loans hereunder.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday
or other day on which commercial banks in Columbus, Ohio are authorized or
required by law to close.
"CASH EQUIVALENTS" shall mean (a) securities with maturities
of 180 days or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b) certificates
of deposit and bankers acceptances each issued by the Bank and each with
maturities of 180 days or less from the date of acquisition, and (c) commercial
paper of a domestic issuer rated at least A-1 by Standard & Poor's Corporation
or P-1 by Moody's Investors Service, Inc. with a maturity of not more than 180
days.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended or superseded from time to time. Any reference to a specific provision
of the Code shall be construed to include any comparable provision of the Code
as hereafter amended or superseded.
"COMMITMENT" shall mean the Bank's agreement to make the Loans
to the Borrowers pursuant to subsection 2.1 hereof in the amount referred to
therein, which amount shall not exceed at any time the lesser of (a)
$25,000,000, or (b) 95% of the aggregate face amount of all Eligible Mortgage
Loans in existence at such time.
"COMMITMENT PERIOD" shall mean the period from and including
the date hereof through and including June 20, 1997, or such earlier date as the
Commitment shall terminate as provided herein.
2
<PAGE> 3
"COMMONLY CONTROLLED ENTITY" shall mean an entity, whether or
not incorporated, which is under common control with Financial within the
meaning of Section 414(b) or (c) of the Code.
"CONTINGENT OBLIGATION" shall mean as to any Person, any
reimbursement obligations of such Person in respect of drafts that may be drawn
under letters of credit, any reimbursement obligation of such Person in respect
of surety bonds (including reimbursement obligations in respect of construction
bonds), and any obligation of such Person guaranteeing or in effect guaranteeing
any Indebtedness, leases, dividends or other obligations primarily to pay money
("primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including without limitation any
obligation of such Person, whether or not contingent, (a) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of any
such primary obligation, or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the obligee under any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the obligee under such primary
obligation against loss in respect thereof; provided, however, that the term
"Contingent Obligation" shall not include (i) indorsements of instruments for
deposit or collection in the ordinary course of business, (ii) Financial's
guaranty of the obligations of M/I Homes with respect to the M/I Homes Loan
Agreement, and (iii) Mortgage Loan Repurchase Obligations.
"CONTRACTUAL OBLIGATION" shall mean as to any Person, any
provision of any security issued by such Person or of any agreement, instrument
or undertaking to which such Person is a party or by which it or any of its
property is bound.
"DEFAULT" shall mean any of the events specified in Section 7
hereof, whether or not any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.
"EBIT" shall mean for any rolling 12 month period with respect
to Financial, the net income (or deficit) after all charges and reserves
(excluding, however, extraordinary items of gain or loss), but before deduction
of (a) interest expense deducted in computation of net income, and (b) income
taxes, all as determined in accordance with GAAP.
"ELIGIBLE MORTGAGE LOAN" shall mean at any date an original
(not a rewritten or renewed) loan evidenced by a note and
3
<PAGE> 4
secured by a first mortgage on residential real property which (a) Financial has
made to enable a natural person or persons to purchase a home from M/I Homes or
another Person that is substantially completed, (b) is not more than 60 days
old, as determined by the date of the note which evidences such loan, and (c) is
subject, or Financial reasonably believes is subject, to a Purchase Commitment;
provided, however, that the amount of Eligible Mortgage Loans consisting of
loans made by Financial for the purchase of homes from any Person other than M/I
Homes shall not, in the aggregate at any one time outstanding, exceed the amount
of $5,000,000.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"EVENT OF DEFAULT" shall mean any of the events specified in
Section 7 hereof, provided that any requirement for the giving of notice, the
lapse of time, or both, has been satisfied.
"FANNIE MAE" shall mean the Federal National Mortgage
Association, or any successor thereto.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect at the time any determination is made
or financial statement is required hereunder as promulgated by the American
Institute of Certified Public Accountants, the Accounting Principles Board, the
Financial Accounting Standards Board or any other body existing from time to
time which is authorized to establish or interpret such principles, applied on a
consistent basis throughout any applicable period, subject to any change
required by a change in GAAP; provided, however, that if any change in generally
accepted accounting principles from those applied in preparing the financial
statements referred to in subsection 3.1 hereof affects the calculation of any
financial covenant contained herein, Borrowers and Bank hereby agree to amend
the Agreement to the effect that each such financial covenant is not more or
less restrictive than such covenant as in effect on the date hereof using
generally accepted accounting principles consistent with those reflected in such
financial statements.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"INDEBTEDNESS" shall mean, as to any Person at a particular
time, (a) indebtedness for borrowed money or for the
4
<PAGE> 5
deferred purchase price of property or services (including without limitation
any such indebtedness which is non-recourse to the credit of such Person but is
secured by assets of such Person) other than current (due and payable within 12
months or less), unsecured obligations for operating expense items incurred in
the ordinary course of business, (b) any other indebtedness evidenced by
promissory notes or other debt instruments, (c) obligations under material
leases which shall have been or should be, in accordance with GAAP, recorded as
capitalized leases, (d) indebtedness arising under acceptance facilities, (e)
indebtedness arising under unpaid reimbursement obligations in respect of all
drafts actually drawn under letters of credit issued for the account of such
Person,(f) indebtedness arising under unpaid reimbursement obligations in
respect of all payments actually made under surety bonds (including payments
actually made under construction bonds) and (g) the incurrence of withdrawal
liability under Title IV of ERISA by such Person or a Commonly Controlled Entity
to a Multiemployer Plan.
"INTEREST EXPENSE" shall mean for any rolling 12 month period,
with respect to Financial, the total amount of all charges for the use of funds,
whether captioned interest or otherwise, in a statement of income or operations
of Financial for such rolling 12 month period prepared in accordance with GAAP.
"LIABILITIES" shall mean at any date the total of all amounts
which would be properly classified as liabilities in a balance sheet of
Financial at such date prepared in accordance with GAAP, consistently applied,
including without limitation deferred income taxes, deferred compensation of any
type and capital lease obligations, if any.
"LIEN" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, charge, encumbrance, lien
(statutory or other), or preference, priority or other security agreement or
similar preferential arrangement of any kind or nature whatsoever (including
without limitation any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the authorized filing by or against a Person of any financing
statement as debtor under the Uniform Commercial Code or comparable law of any
jurisdiction). A restriction, covenant, easement, right of way, or similar
encumbrance affecting any interest in real property owned by either of the
Borrowers and which does not secure an obligation to pay money is not a Lien.
"LOANS" shall mean the revolving credit loans made pursuant to
subsection 2.1 hereof.
5
<PAGE> 6
"MORTGAGE LOAN REPURCHASE OBLIGATIONS" shall mean those
obligations (as more particularly described in this definition) of Financial
under a Purchase Commitment to repurchase (a) Eligible Mortgage Loans, (b) first
mortgage loans that are not Eligible Mortgage Loans solely because either (i)
the mortgagor did not purchase from M/I Homes the home subject to such mortgage
loan, or (ii) such mortgage loan is more than 60 days old, as determined by the
date of the note which evidences such loan, at the time of the purchase of the
mortgage loan by a secondary market lender pursuant to a Purchase Commitment,
(c) those second mortgage loans permitted by clause (ii) of subsection 6.5
hereof, and (d) those first mortgage refinancing loans permitted by clause (iii)
of subsection 6.5 hereof; provided, the obligations to repurchase the mortgage
loans described in clauses (a) through (d) of this definition shall exist only
if (A) such mortgage loans do not meet for any reason the investor guidelines
and underwriting criteria for such Purchase Commitment, (B) Financial or its
employees engage in any fraudulent conduct or misrepresentation, (C) the
mortgagor fails to make timely payment of any of the first, second, third or
fourth installments due under such mortgage loan, and such delinquency remains
uncured for a period of more than 90 days or results in a foreclosure action,
(D) the mortgagor fails to make timely payment of two or more monthly
installments within six months from the date such mortgage loan is purchased by
such secondary market lender, or (E) the mortgagor engages in fraudulent conduct
or misrepresentation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"PERSON" shall mean an individual, a partnership (including
without limitation a joint venture), a limited liability company (including
without limitation a joint venture), a corporation (including without limitation
a joint venture), a business trust, a joint stock company, a trust, an
unincorporated association, a joint venture, a Governmental Authority or any
other entity of whatever nature (including without limitation a joint venture).
"PLAN" shall mean any pension plan which is covered by Title
IV of ERISA and in respect of which the Borrower or a Commonly Controlled Entity
is an "employer" as defined in Section 3(5) of ERISA or an affiliate of an
employer as defined in Section 407(d)(7) of ERISA.
"PRIME RATE" shall mean the rate of interest per annum
announced by the Bank from time to time as its prime rate, with any change
thereto effective as of the opening of business on the day
6
<PAGE> 7
of the change; the Prime Rate is not necessarily the best interest rate offered
by the Bank.
"PURCHASE COMMITMENT" shall mean a commitment from a secondary
market lender acceptable to Bank (the names and addresses of secondary market
lenders acceptable to Bank as of the effective date of this Agreement have been
delivered to Bank and certified by a Responsible Officer, and Financial shall
update the list of secondary market lenders quarterly as set forth in subsection
5.11 hereof), pursuant to an agreement with Financial, either with respect to a
particular mortgage loan or with respect to mortgage loans meeting specified
criteria, to purchase such mortgage loan or loans without recourse (except for
Mortgage Loan Repurchase Obligations) for an amount not less than the difference
of (a) the face amount of the note evidencing such mortgage loan(s), minus (b)
the sum of (i) the points agreed upon between Financial and such secondary
market lender, and (ii) the amount of funds (for example, without limitation,
escrow funds and origination fees), other than points, received by Financial at
the loan closing from the mortgagor.
"REPORTABLE EVENT" shall mean any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder.
"REQUIREMENT OF LAW" shall mean as to any Person, the
Certificate (or Articles) of Incorporation, By-Laws (or Code of Regulations),
Close Corporation Agreement (where applicable) or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or
determination, including without limitation all environmental laws, rules,
regulations and determinations, of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER" shall mean as to either of the
Borrowers, the Chairman of the Board, Chief Executive Officer, President, a
Senior Executive Vice President or a Senior Vice President of such Borrower and,
with respect to financial matters, the chief financial officer, treasurer or
controller of such Borrower, in each case acting in his or her capacity as such.
"SINGLE EMPLOYER PLAN" shall mean any Plan which is not a
Multiemployer Plan (as such term is defined in ERISA).
"SUBSIDIARY" shall mean as to any Person, a corporation of
which shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other
7
<PAGE> 8
managers of such corporation are at the time owned, or the management of which
is otherwise controlled, directly, or indirectly through one or more
intermediaries, or both, by such Person.
"TANGIBLE NET WORTH" shall mean at any date, with respect to
Financial, the total of the capital stock (net of treasury stock, if any), paid
in surplus, general contingency reserves and retained earnings (deficit), in
each case determined in accordance with GAAP, minus the following items (without
duplication of deductions), if any, appearing on Financial's balance sheet
prepared in accordance with GAAP:
(a) The book amount of all deferred charges (including
specifically deferred income taxes);
(b) The book amount of all assets which would be treated
as intangibles under GAAP, provided, however, that
intangible assets shall include the aggregate amount
of advances, if any, made by Financial to M/I Homes;
and
(c) The amount of any write-up in the book value of any
asset resulting from a revaluation thereof from the
book value entered upon acquisition.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in
the Agreement shall have the defined meanings when used in the Note or any
certificate or other document made or delivered pursuant hereto or thereto
unless otherwise defined therein.
(b) As used herein, in the Note or in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms relating
to the Borrowers not defined in subsection 1.1, and accounting terms partly
defined in subsection 1.1 to the extent not defined, shall have the respective
meanings given to them under GAAP.
(c) The definition of any document or instrument includes all
schedules, attachments and exhibits thereto and all renewals, extensions,
supplements and amendments thereof; terms otherwise defined herein have the same
meanings throughout the Agreement.
(d) "Hereunder," "herein," "hereto," "the Agreement" and words
of similar import refer to this entire document; "including" is used by way of
illustration and not by way of limitation, unless the context clearly indicates
the contrary; and the singular includes the plural and conversely.
8
<PAGE> 9
SECTION 2. AMOUNT AND TERMS OF COMMITMENT
------------------------------
2.1 COMMITMENT. Subject to the terms and conditions of the
Agreement, the Bank agrees to make revolving credit loans (the "Loans") to the
Borrowers from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the lesser of (a)
Twenty-Five Million and 00/100 Dollars ($25,000,000), or (b) ninety-five percent
(95%) of the aggregate face amount of all Eligible Mortgage Loans in existence
at such time. During the Commitment Period and as long as no Event of Default
exists, the Borrowers may use the Commitment by borrowing, prepaying the Loans
in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof.
2.2 NOTE. The Loans made by the Bank pursuant hereto shall be
evidenced by a promissory note of the Borrowers, substantially in the form of
Exhibit A attached hereto and made a part hereof (the "Note"), payable to the
order of the Bank and evidencing the obligation of the Borrowers to pay the
aggregate unpaid principal amount of the Loans made by the Bank, with interest
thereon at a rate per annum equal to the Prime Rate in effect from time to time
minus one-quarter of one percent (1/4%), subject to the default interest rate
provisions of subsection 2.6(c) hereof. Interest shall be payable in arrears and
shall be due on the last day of each month, beginning with August 31, 1996, and
continuing on the last day of each month thereafter, and on the last day of the
Commitment Period. If not sooner paid, the entire principal amount of the Loans
outstanding and any remaining unpaid interest on the Loans shall be due and
payable on the last day of the Commitment Period. The Bank is hereby authorized
to record electronically or otherwise the date and amount of each Loan
disbursement made by the Bank and the date and amount of each payment or
prepayment of principal thereof, and any such recordation shall constitute
conclusive evidence, absent manifest error, of the accuracy of the information
so recorded; provided, however, the failure of the Bank to make any such
recordation(s) shall not affect the obligation of Borrowers to repay outstanding
principal, interest, or any other amount due hereunder or under the Note in
accordance with the terms hereof and thereof. The Note shall (a) be dated as of
the date hereof, (b) be stated to mature on the last day of the Commitment
Period, and (c) bear interest from and including the date thereof on the unpaid
principal amount thereof from time to time outstanding at a rate per annum equal
to the Prime Rate in effect from time to time minus one-quarter of one percent
(1/4%), subject to the default interest rate provisions of subsection 2.6(c)
hereof.
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2.3 PROCEDURE FOR BORROWING. The Borrowers may borrow under
the Commitment during the Commitment Period, provided the Borrowers shall give
the Bank irrevocable telephonic or written notice (which notice must be received
by the Bank prior to 3:00 P.M., Columbus, Ohio time for funding to be made that
day) on or before the requested Borrowing Date, specifying (i) the date of the
requested borrowing (which shall be a Business Day), and (ii) the amount of the
requested borrowing. Each borrowing pursuant to the Commitment shall be in the
principal amount of the lesser of (a) $50,000 or any larger amount, and (b) the
then undrawn amount of the Commitment. On the Borrowing Date, the Bank shall
make available to Borrowers the funds requested, subject to the satisfaction of
the terms and conditions of the Agreement, by crediting the account of Financial
on the books of the Bank at its 100 East Broad Street, Columbus, Ohio office
with the funds requested. If for any reason the Bank is unable to make funds
available to the Borrowers as aforesaid, the Bank shall notify the Borrowers
immediately.
2.4 COMMITMENT FEE. The Borrowers agree to pay to the Bank a
commitment fee for the Commitment Period, computed at the rate of one-quarter of
one percent (1/4%) per annum on the average daily unused amount of the
Commitment of the Bank during the Commitment Period, payable quarterly in
arrears and due on the last day of each September, December, March and June and
on the last day of the Commitment Period, commencing on the first of such dates
to occur after the date hereof.
2.5 TERMINATION OR REDUCTION OF COMMITMENT. (a) The Borrowers
shall have the right, upon not less than five Business Days' written notice to
the Bank, to terminate the Commitment or, from time to time (and so long as no
Default exists), reduce the amount of the Commitment, provided that (i) any such
reduction shall be accompanied by prepayment of the Loans made hereunder,
together with accrued interest on the amount so prepaid to the date of such
prepayment, to the extent, if any, that the amount of such Loans then
outstanding exceeds the amount of the Commitment as then reduced, and (ii) any
such termination of the Commitment shall be accompanied by prepayment in full of
the Loans then outstanding hereunder, together with accrued interest thereon to
the date of such prepayment, and the payment of any unpaid commitment fee then
accrued hereunder. Any such reduction shall be in the amount of $1,000,000 or a
whole multiple of $100,000 in excess thereof and shall reduce permanently the
amount of the Commitment then in effect.
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2.6 COMPUTATION OF INTEREST AND FEES; DEFAULT INTEREST.
(a) Commitment fees on the Commitment and interest in
respect of the Loans shall be calculated on the basis of a 360
day year for the actual days elapsed. Any change in the
interest rate on the Note resulting from a change in the Prime
Rate shall become effective as of the opening of business on
the day on which such change in the Prime Rate shall become
effective, without notice to the Borrowers; however, the Bank
shall give the Borrowers prompt notice of all changes in the
Prime Rate.
(b) Each determination of an interest rate by the
Bank pursuant to the Agreement shall be conclusive and binding
on the Borrowers in the absence of manifest error.
(c) If all or a portion of the principal amount of
any of the Loans made hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or
otherwise), any such overdue principal amount and, to the
extent permitted by applicable law, any overdue installment of
interest on any Loan, shall, without limiting any other rights
of the Bank, bear interest at a rate per annum which is the
sum of (i) one percent (1.0%), and (ii) the rate which would
otherwise be applicable thereto, from the date of such
non-payment until paid in full (before, as well as after,
judgment).
2.7 USE OF PROCEEDS. The proceeds of the initial Loan made
hereunder shall be used by the Borrowers to pay in full the obligations
outstanding under the 1995 Credit Agreement. Upon Borrower's irrevocable payment
in full of the obligations outstanding under the 1995 Credit Agreement, the Bank
shall cancel the 1995 Credit Agreement and the promissory note related to the
1995 Credit Agreement. The remaining proceeds of the initial Loan made hereunder
and the proceeds of subsequent Loans made hereunder shall be used by Borrowers
for lawful purposes in Financial's business.
SECTION 3. REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Bank to enter into the Agreement and to
make the Loans herein provided for, the Borrowers hereby covenant, represent and
warrant, jointly and severally, to the Bank that on the date hereof:
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3.1 FINANCIAL STATEMENTS. Financial has heretofore furnished
to the Bank the balance sheet of Financial as of December 31, 1995, and the
related audited statements of income and retained earnings and of changes in
cash flows for the fiscal year of Financial then ended, certified by Deloitte &
Touche, independent public accountants. Such financial statement fairly presents
the financial condition of Financial as of the date thereof and the results of
the operations of Financial for the period then ended and from December 31, 1995
to the date hereof, there has been no material adverse change in such condition.
3.2 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the
Borrowers (a) is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (b) has the corporate power and
authority to conduct the business in which it is currently engaged, (c) is
qualified as a foreign corporation under the laws of any jurisdiction where the
failure to so qualify would have a material adverse effect on the business of
such Borrower, and (d) is in compliance with all Requirements of Law, except to
the extent that the failure to comply therewith would not, in the aggregate,
have a material adverse effect on the business, operations, property or
financial or other condition of such Borrower and would not materially adversely
affect the ability of such Borrower to perform its obligations under the
Agreement and the Note.
3.3 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each of the Borrowers has the corporate power and authority to make, deliver and
perform the Agreement and the Note and to borrow hereunder and has taken all
corporate action necessary to be taken by it to authorize the borrowings on the
terms and conditions of the Agreement and the Note and to authorize the
execution, delivery and performance of the Agreement and the Note. No consent,
waiver or authorization of, or filing with, any Person (including without
limitation any Governmental Authority), is required to be made or obtained by
either of the Borrowers in connection with the borrowings hereunder or the
execution, delivery, performance, validity or enforceability of the Agreement
and the Note. The Agreement has been, and the Note will be, duly executed and
delivered on behalf of each of the Borrowers and the Agreement constitutes, and
the Note when executed and delivered hereunder will constitute, a legal, valid
and binding obligation of each of the Borrowers enforceable against each of the
Borrowers in accordance with its terms, subject to the effect, if any, of
bankruptcy, insolvency, reorganization, arrangement or other similar laws
relating to or affecting the rights of creditors generally and the limitations,
if any, imposed by the general principles of equity and public policy.
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3.4 NO LEGAL BAR. The execution, delivery and performance of
the Agreement and the Note, the borrowings hereunder and the use of the proceeds
thereof does not and will not violate any Requirement of Law or Contractual
Obligation of either of the Borrowers and does not and will not result in, or
require, the creation or imposition of any Lien on any of the properties of
either of the Borrowers or their respective revenues pursuant to any Requirement
of Law or Contractual Obligation.
3.5 NO MATERIAL LITIGATION. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the best knowledge of the Borrowers, threatened by or against either of the
Borrowers or against any of their respective properties or revenues (a) with
respect to the Agreement or the Note or any of the transactions contemplated
hereby or thereby, or (b) which could reasonably be expected to have a material
adverse effect on the business, operations, property or financial or other
condition of either of the Borrowers.
3.6 REGULATION U. Neither of the Borrowers is engaged in, nor
will either of them engage in, principally or as one of its important
activities, the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the proceeds
of any Loans hereunder will be used for "purchasing" or "carrying" "margin
stock" as so defined or for any purpose which violates, or which would be
inconsistent with, the provisions of the Regulations of such Board of Governors.
If requested by the Bank, the Borrowers will furnish to the Bank a statement in
conformity with the requirements of Federal Reserve Form U-1 referred to in said
Regulation U to the foregoing effect.
3.7 INVESTMENT COMPANY ACT. Neither of the Borrowers is an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
3.8 DISCLOSURE. No representations or warranties made by
either of the Borrowers in the Agreement or in any other document furnished from
time to time in connection herewith (as such other documents may be supplemented
from time to time) contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements herein or therein not misleading.
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3.9 SUBSIDIARY INFORMATION. Financial has no Subsidiaries.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 CONDITIONS TO INITIAL LOAN. The obligation of the Bank to
make its initial disbursement under the Loans on the first Borrowing Date is
subject to the satisfaction of the following conditions precedent on or prior to
such date:
(a) NOTE. The Bank shall have received the Note,
conforming to the requirements hereof and duly executed and
delivered by a duly authorized officer of each of the
Borrowers.
(b) LEGAL OPINIONS OF COUNSEL TO THE BORROWERS. The
Bank shall have received an executed legal opinion of
Schottenstein, Zox & Dunn, counsel to the Borrowers, dated the
date hereof and addressed to the Bank, substantially in the
form of Exhibit B hereto, and otherwise in form and substance
satisfactory to the Bank and covering such other matters
incident to the transactions contemplated hereby as the Bank
and its counsel may reasonably require.
(c) CORPORATE PROCEEDINGS OF THE BORROWERS. The Bank
shall have received a copy of the resolutions (in form and
substance satisfactory to Bank) of the sole shareholder (M/I
Homes) of Financial and of the Board of Directors of M/I Homes
authorizing (i) the execution, delivery and performance of the
Agreement, (ii) the consummation of the transactions
contemplated hereby, (iii) the borrowings herein provided for,
and (iv) the execution, delivery and performance of the Note
and the other documents provided for in the Agreement, all
certified by the Secretary or the Assistant Secretary of each
of the Borrowers as of the date hereof. Such certificate shall
state that the resolutions set forth therein have not been
amended, modified, revoked or rescinded as of the date hereof.
(d) INCUMBENCY CERTIFICATE OF THE BORROWERS. The Bank
shall have received a certificate of the Secretary or an
Assistant Secretary of each of the Borrowers, dated the date
hereof, as to the incumbency and signature of the officers of
each of the Borrowers executing the Agreement, the Note and
any certificate or
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<PAGE> 15
other documents to be delivered pursuant hereto or thereto.
(e) NO PROCEEDINGS OR LITIGATION; NO INJUNCTIVE
RELIEF. No action, suit or proceeding before any arbitrator or
any Governmental Authority shall have been commenced, no
investigation by any Governmental Authority shall have been
commenced and no action, suit, proceeding or investigation by
any Governmental Authority shall have been threatened, against
either of the Borrowers or any of the officers or directors of
either of the Borrowers seeking to restrain, prevent or change
the transactions contemplated by the Agreement in whole or in
part or questioning the validity or legality of the
transactions contemplated by the Agreement or seeking damages
in connection with such transactions.
(f) CONSENTS, LICENSES, APPROVALS, ETC. The Bank
shall have received true copies (certified to be such by the
Borrowers or other appropriate party) of all consents,
licenses and approvals required in accordance with applicable
law in connection with the execution, delivery, performance,
validity and enforceability of the Agreement and the Note, if
the failure to obtain such consents, licenses or approvals,
individually or in the aggregate, would have a material
adverse effect on either of the Borrowers or would adversely
affect the validity or enforceability of any of the foregoing
documents, and approvals obtained shall be in full force and
effect and be satisfactory in form and substance to the Bank.
(g) COMPLIANCE WITH LAW. Neither of the Borrowers
shall be in violation in any material respect of any
applicable statute, regulation or ordinance, including without
limitation statutes, regulations or ordinances relating to
environmental matters, of any governmental entity, or any
agency thereof, in any respect materially and adversely
affecting the business, property, assets, operations or
condition, financial or otherwise, of either of the Borrowers.
(h) NO DEFAULT OR EVENT OF DEFAULT. No Default or
Event of Default shall have occurred and be continuing
hereunder prior to or after giving effect to the making of the
initial disbursement of the Loans hereunder.
(i) NO MATERIAL ADVERSE CHANGE. There shall have been
no material adverse change in the financial
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<PAGE> 16
condition or business or operations of Financial from the date
of Financial's December 31, 1995 audited financial statements
to the first Borrowing Date.
(j) HEDGING POLICY. The Bank shall have received
Financial's policy with respect to hedging transactions, a
copy of which shall be attached hereto as Exhibit E (the
"Hedging Policy"), certified by a Responsible Officer.
(k) ADDITIONAL MATTERS. All corporate and other
proceedings and all other documents and legal matters in
connection with the transactions contemplated by the Agreement
and the Note shall be satisfactory in form and substance to
the Bank and its counsel.
4.2 CONDITIONS TO ALL LOANS. The obligation of the Bank to
make any Loan hereunder on any date (including without limitation the first
Borrowing Date) is subject to the satisfaction of the following conditions
precedent as of such date:
(a) REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by each of the Borrowers
in the Agreement and any representations and warranties made
by each of the Borrowers which are contained in any
certificate, document or financial or other statement
furnished at any time under or in connection herewith or
therewith, shall be true and correct in all material respects
on and as of the date of such loan as if made on and as of
such date unless stated to relate to a specific earlier date.
(b) NO DEFAULT OR EVENT OF DEFAULT. No Default or
Event of Default shall have occurred and be continuing on such
date or after giving effect to the Loan to be made on such
date.
Each borrowing by the Borrowers under the Agreement shall constitute a
representation and warranty by each of the Borrowers as of the date of such
borrowing that the conditions contained in the foregoing paragraphs (a) and (b)
of this subsection 4.2 have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
---------------------
The Borrowers hereby agree, jointly and severally, that, from
the date hereof and so long as the Commitment remains in
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effect, the Note remains outstanding and unpaid or any other amount is owing to
the Bank hereunder, Financial shall:
5.1 FINANCIAL STATEMENTS. Furnish to the Bank:
(a) as soon as available, but in any event within 90
days after the end of each fiscal year of Financial, a copy of
the audited balance sheet of Financial as at the end of such
year and the related audited statements of income and retained
earnings and cash flows for such year, together with the
opinion of independent certified public accountants of
nationally recognized standing, which opinion shall not
contain a "going concern" or like qualification or exception,
or qualification arising out of the scope of the audit or
qualification which would affect the computation of financial
covenants contained herein other than a qualification for
consistency due to a change in the application of GAAP with
which Financial's independent certified public accountants
concur; and
(b) as soon as available, but in any event not later
than 45 days after the end of each monthly accounting period,
the unaudited balance sheet of Financial as at the end of each
such month and the related unaudited statements of income and
retained earnings of Financial for such month and the portion
of the fiscal year through such date setting forth in each
case in comparative form the figures for the previous year,
certified by a Responsible Officer of Financial as being
fairly stated in all material respects.
All such financial statements required by this subsection 5.1 shall be complete
and correct in all material respects and prepared in reasonable detail and in
accordance with GAAP (except, in the case of the financial statements referred
to in subparagraph (b), that such financial statements need not contain
footnotes).
5.2 CERTIFICATES; OTHER INFORMATION. Furnish to the
Bank:
(a) concurrently with the delivery of each financial
statement referred to in subsection 5.1(a) above and each
financial statement referred to in subsection 5.1(b) above, a
summary in form and substance satisfactory to the Bank of the
hedging investments described in subsection 6.5(vi) hereof,
and a certificate of a Responsible Officer of Financial (in
the form of Exhibit C or such other form as shall be
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<PAGE> 18
reasonably acceptable to Bank) stated to have been made after
due examination by such Responsible Officer (i) stating that,
to the best of such officer's knowledge, Financial during such
period has observed or performed in all material respects all
of its covenants and other agreements, and satisfied every
condition, contained in this Agreement and the Note to be
observed, performed or satisfied by it, and that such officer
has obtained no knowledge of any Default or Event of Default
except as specified in such certificate, and (ii) showing in
detail the calculations supporting such statement in respect
of subsections 5.7, 5.8, 5.9, 6.3 and 6.5;
(b) as soon as available, but in any event not later
than 20 days after the end of each monthly accounting period,
a borrowing base certificate in the form of Exhibit D attached
hereto and made a part hereof, certified by a Responsible
Officer of Financial as being accurate in all material
respects;
(c) promptly upon receipt thereof, copies of all
final reports submitted to Financial by independent certified
public accountants in connection with each annual, interim or
special audit of the books of Financial made by such
accountants, including without limitation any final comment
letter submitted by such accountants to management in
connection with their annual audit; and
(d) promptly, on reasonable notice to Financial, such
additional financial and other information as the Bank may
from time to time reasonably request.
5.3 MAINTENANCE OF EXISTENCE. Preserve, renew and keep in full
force and effect its corporate existence and take all reasonable action to
maintain all rights, privileges, contracts, copyrights, patents, trademarks,
trade names and franchises necessary or desirable in the normal conduct of its
business, and comply with all Contractual Obligations and Requirements of Law,
except to the extent that the failure to take such actions or comply with such
Contractual Obligations and Requirements of Law would not, in the aggregate,
have a material adverse effect on the business, operations, property or
financial or other condition of Financial.
5.4 MAINTENANCE OF PROPERTY, INSURANCE. Keep all property
useful in and necessary to its business in good working order and condition;
maintain with financially sound and reputable
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insurance companies insurance on all its property in at least such amounts and
against at least such risks (but including in any event public liability,
general liability and business interruption insurance) as are usually insured
against in the same general area by companies engaged in the same or a similar
business; and furnish to the Bank, upon written request, full information as to
the insurance carried.
5.5 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS.
Keep proper books of record and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities, subject in
the case of interim statements to year-end audit adjustments; and permit
representatives of the Bank to visit and inspect any of its properties, and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be requested, and to discuss the business,
operations, properties and financial and other condition of Financial with
officers and employees of Financial and, if notice thereof is given to the
Borrowers prior to the date of such discussions, with its independent certified
public accountants. The Bank shall keep confidential the information it receives
pursuant to subsection 5.2 hereof and this subsection 5.5, provided that the
Bank may disclose such information to its regulators, auditors and counsel on a
need to know basis, and the Bank must disclose such information if required to
do so by law (including without limitation by judicial or administrative
process).
5.6 NOTICES. Promptly give notice to the Bank:
(a) of the occurrence of any Default or Event of
Default;
(b) of any (i) default under any other Contractual
Obligation that would enable the obligee of the Contractual
Obligation to compel Financial to immediately pay all amounts
owing thereunder or otherwise accelerate payments thereunder
and would have a material adverse effect on Financial, or (ii)
litigation, investigation or proceeding which may exist at any
time between Financial and any Governmental Authority, which,
if adversely determined, would have a material adverse effect
on the business, operations, property or financial or other
condition of Financial;
(c) of any litigation or proceeding affecting
Financial (i) (A) in which the amount involved is $100,000 or
more and not covered by insurance, or
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(B) which, in the reasonable opinion of a Responsible Officer
of Financial, would, if adversely determined, have a material
adverse effect on Financial, or (ii) in which injunctive or
similar relief is sought and which, in the reasonable opinion
of a Responsible Officer of Financial, would, if adversely
determined, have a material adverse effect on Financial;
(d) of the following events, as soon as possible and
in any event within 30 days after Financial knows or has
reason to know thereof: (i) the occurrence of any Reportable
Event with respect to any Plan with respect to which the PBGC
has not waived the 30 day reporting requirement, or (ii) the
institution of proceedings or the taking or expected taking of
any other action by PBGC or Financial or any Commonly
Controlled Entity to terminate or withdraw or partially
withdraw from any Plan under circumstances which could lead to
material liability to the PBGC or, with respect to a
Multiemployer Plan, the Reorganization or Insolvency (as each
such term is defined in ERISA) of the Plan and in addition to
such notice, deliver to the Bank whichever of the following
may be applicable: (A) a certificate of a Responsible Officer
of Financial setting forth details as to such Reportable Event
and the action that Financial or Commonly Controlled Entity
proposes to take with respect thereto, together with a copy of
any notice of such Reportable Event that may be required to be
filed with PBGC, or (B) any notice delivered by PBGC
evidencing its intent to institute such proceedings or any
notice to PBGC that such Plan is to be terminated, as the case
may be; and
(e) of a material adverse change in the business,
operations, property or financial or other condition of
Financial or M/I Homes.
Each notice pursuant to this subsection 5.6 shall be accompanied by a statement
of the chief executive officer or chief financial officer or other Responsible
Officer of Financial setting forth details of the occurrence referred to therein
and stating what action Financial proposes to take with respect thereto. For all
purposes of clause (d) of this subsection 5.6, Financial shall be deemed to have
all knowledge or knowledge of all facts attributable to the administrator of
such Plan if such Plan is a Single Employer Plan.
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5.7 MAINTENANCE OF TANGIBLE NET WORTH. Maintain at all times
its Tangible Net Worth in an amount equal to at least $3,500,000.
5.8 MAINTENANCE OF LIABILITIES TO TANGIBLE NET WORTH RATIO.
Maintain at all times a ratio of Liabilities to Tangible Net Worth not in excess
of 10.0 to 1.0.
5.9 MAINTENANCE OF EBIT TO INTEREST EXPENSE RATIO. Maintain a
ratio of EBIT to Interest Expense, determined as of the end of each monthly
accounting period of each fiscal year and as of the end of each fiscal year, on
a rolling 12 month basis (with the period of determination being the 12 month
period ending on the date as of which such determination is made), of not less
than 1.50 to 1.0.
5.10 COLLATERAL. Promptly provide to Bank, at any time and
from time to time as Bank may request in its sole discretion, a first priority
security interest in all of Financial's then existing or thereafter acquired
mortgage notes receivable and all proceeds thereof as security for Borrowers'
obligations to Bank under this Agreement and the Note, and promptly execute and
deliver all such documentation (including without limitation Financial's
mortgage notes receivable) as Bank shall reasonably request to perfect Bank's
security interest in such collateral.
5.11 SECONDARY MARKET LENDERS. (a) Provide to Bank on the
first Business Day of each calendar quarter, commencing on October 1, 1996, and
continuing on the first Business Day of each January, April, July and October
thereafter, for Bank's review and approval, the current list of secondary market
lenders that purchase mortgage loans from Financial, and (b) by the end of such
calendar quarter, remove from the list and cease to sell mortgage loans to any
secondary market lender that is not acceptable to Bank in Bank's sole
discretion.
SECTION 6. NEGATIVE COVENANTS
------------------
The Borrowers hereby agree, jointly and severally, that, from
the date hereof and so long as the Commitment remains in effect, the Note
remains outstanding and unpaid or any other amount is owing to the Bank
hereunder, Financial shall not, directly or indirectly:
6.1 LIMITATION ON INDEBTEDNESS. Create, incur, assume or
suffer to exist any Indebtedness (other than purchases on open account in the
ordinary course of Financial's business) except for (a) Indebtedness evidenced
by this Agreement and the Note,
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(b) Indebtedness for which Liens are permitted pursuant to subsection 6.2(g)
hereof, provided that the aggregate amount of such Indebtedness does not exceed
the amount of the Liens permitted by subsection 6.2(g), and (c) unsecured
Indebtedness of Financial to M/I Homes for loans and advances from M/I Homes and
for property and services provided by M/I Homes.
6.2 LIMITATION ON LIENS. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except:
(a) Liens, if any, in favor of the Bank including
without limitation Liens on mortgage notes receivable;
(b) Liens for taxes and special assessments not yet
due or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of Financial in accordance
with GAAP;
(c) Carriers', warehousemen's, materialmen's,
mechanics', repairmen's, or other like Liens arising in the
ordinary course of business which are not overdue for a period
of more than 30 days or which are being contested in good
faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the books of Financial in
accordance with GAAP;
(d) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation;
(e) Liens of landlords, arising solely by operation
of law, on fixtures and moveable property located on premises
leased in the ordinary course of business, provided that the
rental payments secured thereby are not yet due;
(f) Liens arising as a result of a judgment or
judgments against Financial which do not in the aggregate
exceed $200,000 at any time outstanding, which are being
diligently contested in good faith, which are not the subject
of any attachment, levy or enforcement proceeding, and as to
which appropriate reserves have been established in accordance
with GAAP; and
(g) Liens to secure purchase money obligations and
capitalized leases, provided that the aggregate amount
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of the obligations secured by such Liens shall not exceed
$250,000 at any time.
6.3 PROHIBITION ON CONTINGENT OBLIGATIONS. Agree to or assume,
guarantee, indorse or otherwise in any way be or become responsible or liable
for, directly or indirectly, any Contingent Obligation, including but not
limited to Contingent Obligations incurred as a result of sales of any notes
with recourse or as a general partner in a partnership.
6.4 PROHIBITION ON FUNDAMENTAL CHANGES. Enter into any
transaction of merger, consolidation, amalgamation or reorganization, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or any substantial part of its
business or assets, whether now owned or hereafter acquired, or make any
material change in the method by which it conducts business.
6.5 LIMITATION ON INVESTMENTS. Make or commit to make any
advance, loan, extension of credit or capital contribution to, or purchase of,
any stock, bonds, notes, debentures or other securities of, or make any other
investment in, any Person (all such transactions being herein called
"investments") except for (i) first mortgage loans made in the ordinary course
of Financial's business to natural persons for the purchase of residential real
property, (ii) second mortgage loans made in the ordinary course of Financial's
business to natural persons for the purchase of residential real property,
provided that such second mortgage loans (A) shall be made only in connection
with a specific financing program to natural persons who have a first mortgage
loan from Financial with respect to the same real property, and (B) shall not
exceed $500,000 in aggregate at any one time outstanding, (iii) first mortgage
loans made in the ordinary course of Financial's business to natural persons for
the purpose of re-financing an existing first mortgage loan, provided that the
amount of such re-financing mortgage loans shall not exceed $5,000,000 in
aggregate at any one time outstanding, (iv) investments in Cash Equivalents, (v)
investments in Fannie Mae stock to the extent required for Financial to sell
mortgages to Fannie Mae, but the amount of such investments in Fannie Mae stock
shall in no event exceed $100,000, (vi) investments in the ordinary course of
Financial's business in standard instruments hedging against interest rate risk
incurred in the origination and sale of mortgage loans, in each case matching a
hedging instrument or instruments to specific mortgages or specific groups of
mortgages, but in no event including investments in futures contracts, options
contracts or other derivative investment vehicles acquired as independent
investments, and (vii) loans and advances to M/I Homes.
23
<PAGE> 24
6.6 PROHIBITION ON SUBSIDIARIES. Create or form any
Subsidiaries.
6.7 PROHIBITION ON CHANGE IN HEDGING POLICY. Amend or modify
Financial's policy with respect to hedging transactions from the Hedging Policy
currently in effect.
SECTION 7. DEFAULTS, EVENTS OF DEFAULT
---------------------------
Upon the occurrence of any of the following events:
(1) the Borrowers shall fail to pay any principal of the Note
when due in accordance with the terms thereof; or
(2) Borrowers shall fail to pay any interest on the Note or
any fee, charge, reimbursement or other amount payable hereunder, within three
days after the Bank notifies the Borrowers that such interest, fee or amount has
become due in accordance with the terms thereof or hereof and has not been paid;
or
(3) any representations or warranty made or deemed made by the
Borrowers herein or which is contained in any certificate, document or financial
or other written statement furnished at any time under or in connection herewith
or therewith, shall prove to have been incorrect in any material respect on or
as of the date made or deemed made; or
(4) (a) Financial shall commence any case, proceeding or other
action (i) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (ii) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or Financial shall make a general assignment for
the benefit of its creditors; or (b) there shall be commenced against Financial
any case, proceeding or other action of a nature referred to in clause (a) above
which (i) results in the entry of an order for relief or any such adjudication
or appointment, and (ii) remains undismissed, undischarged or unbonded for a
period of 60 days; or (c) there shall be commenced against Financial any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an
24
<PAGE> 25
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or (d)
Financial shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clauses (a), (b)
or (c) above; or (e) Financial shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due; or
(5) Financial shall default in (a) the observance or
performance of any covenant or agreement contained in subsection 5.6, 5.10 or
subsection 6.7 herein or shall fail to comply with the limitations of subsection
6.5(vi) herein, (b) the observance or performance of any covenant or agreement
contained in any other provision of Section 6 or in any provision of subsections
5.1, 5.2, 5.7, 5.8, 5.9 and 5.11 herein and such default remains uncured ten
days after the Bank notifies the Borrowers that such default has occurred, or
(c) the observance or performance of any other covenant or agreement contained
herein, which default shall remain unremedied for 30 days after the Borrowers
receive written notice from Bank that such a default has occurred, which notice
shall specify the nature of the default; or
(6) (a) any Person affiliated with Financial shall engage in
any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975
of the Code) involving any Plan, (b) any "accumulated finding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist with
respect to any Plan, (c) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or institution of proceedings is, in the opinion of the Bank,
likely to result in the termination of such Plan for purposes of Title IV of
ERISA, and, in the case of a Reportable Event, the continuance of such
Reportable Event remains unremedied for 30 days after notice of such Reportable
Event pursuant to Section 4043(a), (c) or (d) of ERISA is given or, in the case
of institution of proceedings, such proceedings continue for 30 days after
commencement thereof, (d) any Single Employer Plan shall terminate for purposes
of Title IV of ERISA, or (e) any other event or condition shall occur or exist
with respect to a Single Employer Plan and in each case in clauses (a) through
(e) above, such event or condition, together with all other such events or
conditions, if any, could subject Financial to any tax, penalty or other
liabilities in the aggregate material in relation to the business, operations,
property or financial or other condition of Financial; or
25
<PAGE> 26
(7) one or more judgments or decrees shall be entered against
Financial involving in the aggregate a liability (not covered by insurance) of
$200,000 or more and all such judgments or decrees in excess of $200,000 shall
not have been vacated, satisfied, discharged, or stayed or bonded pending appeal
within 30 days from the entry thereof; or
(8) M/I Homes shall cease to own directly one hundred percent
(100%) of all of the issued and outstanding stock of Financial; or
(9) any borrowing base certificate required to be furnished to
the Bank in accordance with subsection 5.2(b) hereof indicates that the
principal amount of the Loans then outstanding exceeds the Commitment then
permitted hereunder and, within five calendar days after the delivery of such
borrowing base certificate to the Bank, the Borrowers have not cured this event
by (a) the reduction of the principal amount of the Loans then outstanding to an
amount not in excess of the Commitment then permitted hereunder, or (b) the
delivery to the Bank of a more current borrowing base certificate that
demonstrates that the principal amount of the Loans outstanding as of the date
of such borrowing base certificate is not in excess of the Commitment permitted
hereunder at such time; or
(10) there is a Default or an Event of Default (as those terms
are defined in the M/I Homes Loan Agreement) under the M/I Homes Loan Agreement
or any one or more of the Notes (as that term is defined in the M/I Homes Loan
Agreement), M/I Homes defaults with respect to any other Indebtedness or
Contractual Obligation or Contingent Obligation and the Bank in its reasonable
discretion deems such default material, or Financial defaults on its Guaranty of
the M/I Homes Loan Agreement; or
(11) the M/I Homes Loan Agreement is terminated, voluntarily
or involuntarily, for any reason;
then, and in any such event, (a) if such event is an Event of Default specified
in subsection 7(4) above, automatically the Commitment, if still outstanding,
shall immediately terminate and the Loans hereunder (with accrued interest
thereon), and all other amounts owing under the Agreement or the Note shall
immediately become due and payable, and (b) if such event is any other Event of
Default and is continuing, either or both of the following actions may be taken:
(i) the Bank may, by notice to the Borrowers, declare the Commitment to be
terminated forthwith, whereupon the Commitment shall immediately terminate; and
(ii) the Bank may, by notice of default to the Borrowers, declare the Loans
hereunder (with accrued interest thereon) and all other amounts owing under
26
<PAGE> 27
the Agreement and the Note to be due and payable forthwith, whereupon the same
shall immediately become due and payable. Except as expressly provided above in
this Section 7, presentment, demand, protest and all other notices of any kind
are hereby expressly waived by the Borrowers.
SECTION 8. MISCELLANEOUS
-------------
8.1 AMENDMENTS AND WAIVERS. The Bank and the Borrowers may,
from time to time, enter into written amendments, supplements or modifications
for the purpose of adding any provisions to the Agreement or the Note or
changing in any manner the rights of the Bank or the Borrowers hereunder or
thereunder, and the Bank may execute and deliver to the Borrowers a written
instrument waiving, on such terms and conditions as the Bank may specify in such
instrument, any of the requirements of the Agreement or the Note or any Default
or Event of Default and its consequences. Any such waiver and any such
amendment, supplement or modification shall be binding upon the Borrowers, the
Bank, and all future holders of the Note. In the case of any waiver, the
Borrowers and the Bank shall be restored to their former position and rights
hereunder and under the outstanding Note, and any Default or Event of Default
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereon.
8.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing or by telecopy or
other electronic facsimile and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when delivered by hand, or when
deposited in the United States Mail, Registered or Certified, Return Receipt
Requested, postage prepaid, or, in the case of telecopy or other electronic
facsimile notice, when receipt thereof is confirmed by sender's electronic
facsimile machine, addressed as follows in the case of the Borrowers and the
Bank, or to such address or other address as may be hereafter notified by the
respective parties hereto and any future holders of the Note:
Financial: M/I Financial Corp.
41 South High Street
24th Floor
Columbus, Ohio 43215
Attention: Kerrii B. Anderson
Facsimile: (614) 221-0893
27
<PAGE> 28
with a copy to: Paul S. Coppel, Esq.
M/I Schottenstein Homes, Inc.
41 South High Street
24th Floor
Columbus, Ohio 43215
Facsimile: (614) 221-0893
M/I Homes: M/I Schottenstein Homes, Inc.
41 South High Street
24th Floor
Columbus, Ohio 43215
Attention: Robert H. Schottenstein,
with a copy to Phillip G. Creek
Facsimile: (614) 221-0893
with a copy to: Paul S. Coppel, Esq.
M/I Schottenstein Homes, Inc.
41 South High Street
24th Floor
Columbus, Ohio 43215
Facsimile: (614) 221-0893
The Bank: Bank One, Columbus, N.A.
100 East Broad Street
7th Floor
Columbus, Ohio 43271
Attention: Thomas D. Igoe
Facsimile: (614) 248-5518
8.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and
no delay in exercising, on the part of the Bank, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of the Agreement and the Note and shall remain in
full force and effect until the Agreement is terminated and all indebtedness
created or evidenced by the Agreement or the Note is paid in full.
28
<PAGE> 29
8.5 PAYMENT OF EXPENSES AND TAXES. The Borrowers agree,
jointly and severally,
(a) to pay or reimburse the Bank for all of its
out-of-pocket costs and expenses incurred in connection with
the development, preparation and execution of, and any
amendment, supplement or modification to, the Agreement, the
Note, and any other documents prepared in connection herewith,
and the consummation of the transactions contemplated hereby
and thereby, including without limitation the reasonable fees
and disbursements of counsel to the Bank, and
(b) to pay or reimburse the Bank for all of its costs
and expenses incurred in connection with the enforcement or
preservation of any rights under the Agreement, the Note, and
any such other documents, including without limitation the
fees and disbursements of counsel to the Bank.
8.6 OBLIGATIONS JOINT AND SEVERAL. The obligations of the
Borrowers under the Agreement, the Note and any documents related hereto or
thereto are joint and several.
8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Borrowers, all future holders of the Note
and their respective successors and assigns, except that the Borrowers may not
assign or transfer any of their respective rights or obligations under the
Agreement without the prior written consent of the Bank.
8.8 ADJUSTMENTS; SET-OFF. In addition to any rights and
remedies of the Bank provided by law, upon the occurrence of an Event of Default
and acceleration of the obligations owing in connection with the Agreement, the
Bank shall have the right, without prior notice to the Borrowers, any such
notice being expressly waived by the Borrowers to the extent permitted by
applicable law, to set off and apply against any indebtedness, whether matured
or unmatured, of either or both the Borrowers to the Bank, any amount held by or
owing from the Bank to or for the credit or the account of either or both of the
Borrowers at, or at any time after, the happening of any of the above mentioned
events, and the aforesaid right of set-off may be exercised by the Bank against
either or both of the Borrowers or against any trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, receiver, custodian or
execution, judgment or attachment creditor of either or both of the Borrowers or
against anyone else claiming through or against either or both of the Borrowers
or such trustee in bankruptcy, debtor in possession, assignee for the
29
<PAGE> 30
benefit of creditors, receiver, custodian or execution, judgment or attachment
creditor, notwithstanding the fact that such right of set off shall not have
been exercised by the Bank prior to the making, filing or issuance of or service
upon the Bank of, or of notice of, any such petition, assignment for the benefit
of creditors; appointment of application for the appointment of a receiver; or
issuance of execution, subpoena, order or warrant. The Bank agrees promptly to
notify the Borrowers after any such set off and application made by the Bank,
provided that the failure to give such notice shall not affect the validity of
such set off and application.
8.9 WAIVER OF JURY TRIAL. BORROWERS AND BANK, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY
LITIGATION BASED UPON OR ARISING OUT OF THE AGREEMENT, THE NOTE OR ANY RELATED
INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT
OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF ANY OF THEM. NEITHER OF THE BORROWERS OR THE BANK SHALL SEEK TO
CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL
HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY
RESPECT OR RELINQUISHED BY EITHER OF THE BORROWERS OR THE BANK EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
8.10 COUNTERPARTS; EFFECTIVE DATE. The Agreement may be
executed by one or more of the parties to the Agreement on any number of
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. The Agreement shall become
effective upon the receipt by the Bank of executed counterparts of the Agreement
by each of the parties hereto.
8.11 GOVERNING LAW. The Agreement, the Note and the rights and
obligations of the parties under the Agreement and the Note shall be governed
by, and construed and interpreted in accordance with, the local laws of the
State of Ohio.
8.12 HEADINGS. The headings of the Sections and subsections of
the Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.
30
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers to be effective as of the day and year first above written.
BANK ONE, COLUMBUS, N.A. M/I FINANCIAL CORP.
By /s/ Thomas D. Igoe By /s/ Paul S. Rosen
----------------------------- -----------------------------
Thomas D. Igoe Paul S. Rosen
Title: Senior Vice President Title: President
M/I SCHOTTENSTEIN HOMES, INC.
By /s/ Robert H. Schottenstein
-----------------------------
Robert H. Schottenstein
Title: President
31
<PAGE> 32
#149500.02
07/16/96
FINAL
EXHIBIT A
REVOLVING LOAN PROMISSORY NOTE
------------------------------
$25,000,000.00 Columbus, Ohio
July 19, 1996
FOR VALUE RECEIVED, the undersigned ("Borrowers"), jointly and
severally, promise to pay to the order of BANK ONE, COLUMBUS, N.A. ("Bank"), at
its principal office at 100 East Broad Street, Columbus, Ohio 43271, or at such
other place as the holder hereof may, from time to time, in writing designate,
the principal sum of Twenty-Five Million and 00/100 Dollars ($25,000,000.00), or
so much thereof as may be disbursed to, or for the benefit of, the Borrowers in
accordance with the terms of a Revolving Credit Agreement dated as of July 19,
1996 between Borrowers and Bank, as the same may hereinafter be further amended,
modified or supplemented from time to time (the "Loan Agreement") and remains
unpaid, together with interest thereon at a rate per annum equal to (a) the
Prime Rate in effect from time to time minus (b) one-quarter of one percent
(1/4%). Interest shall be payable in arrears and shall be due on the last day of
each month, beginning with August 31, 1996, and continuing on the last day of
each month thereafter and on the last day of the Commitment Period.
Interest on this Note shall be calculated on the basis of a 360 day
year for the actual days elapsed. Any change in the interest rate resulting from
a change in the Prime Rate shall become effective as of the opening of business
on the day on which such change in the Prime Rate shall become effective,
without notice to the Borrowers. Each determination of an interest rate by the
Bank pursuant to the Loan Agreement shall be conclusive and binding on the
Borrowers in the absence of manifest error.
If all or a portion of the principal amount of any of the obligations
evidenced hereby shall not be paid when due (whether at stated maturity, by
acceleration or otherwise), any such overdue principal amount and, to the extent
permitted by applicable law, any overdue installment of any interest on any
obligation evidenced hereby, shall, without limiting any other rights of the
Bank, bear interest at a rate per annum which is the sum of (i) one percent
(1.0%) and (ii) the rate which would otherwise be applicable hereto, from the
date of such non-payment until paid in full (before, as well as after,
judgment).
<PAGE> 33
From and after the date hereof, this replacement revolving loan
promissory note is the Note identified in the Loan Agreement, and said Loan
Agreement is hereby incorporated into this Note and made a part hereof.
Capitalized terms used but not defined herein shall have the meanings set forth
in the Loan Agreement.
The Bank's records of the principal, accrued interest and other charges
due hereunder, as well as applicable interest rates and periods are, absent
manifest error, conclusive as to and binding upon all Persons.
The entire unpaid principal balance evidenced by this Note plus any
accrued but unpaid interest thereon and any other indebtedness owing by
Borrowers to Bank under the Loan Agreement shall be paid in full on or before
the last day of the Commitment Period, which, if it does not occur sooner
pursuant to the terms of the Loan Agreement, shall be June 20, 1997.
The indebtedness evidenced hereby may be prepaid in whole or in part
without penalty. All payments and prepayments received by Bank (a) shall, with
respect to scheduled payments, be applied, first, to accrued interest, and
second, to principal; (b) shall, with respect to prepayments be applied to
principal; (c) shall be in lawful money of the United States; and (d) shall be
credited as of the time received by Bank in cash or equivalent or when finally
collected. Pursuant to the terms of the Loan Agreement, repayments of principal
shall be eligible for reborrowing by Borrower. Bank shall not be obligated to
extend any credit after (1) the occurrence of an Event of a Default, which,
under the terms of the Loan Agreement, results in either an automatic
termination of the Commitment or an election to terminate the Commitment, or (2)
the expiration of the term of this Note. Any part of the indebtedness evidenced
by this Note outstanding on the last day of the Commitment Period shall be
repaid on that date.
Upon the occurrence of an Event of Default, the whole or any part of
the unpaid indebtedness evidenced hereby shall, at once or at any time
thereafter, at the option of the holder or holders hereof, become due and
payable without notice or demand therefor, the same being expressly waived. A
failure of the holder hereof to insist upon strict compliance with the terms
hereof or to assert any right hereunder shall not be a waiver of any default and
shall not be deemed to constitute a modification of the terms hereof or to
establish any claim or defense.
Any and all moneys now or at any time hereafter owing to either or both
of the Borrowers from the holder hereof may be paid and applied on this and all
other indebtedness from the undersigned
2
<PAGE> 34
to the legal holder hereof at any time such indebtedness becomes due or is
declared due and payable.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this Note. A waiver on any one occasion shall not be construed as a bar to or
waiver of any such right and/or remedy on any future occasion.
All persons now or hereafter liable, primarily or secondarily, for the
payment of the indebtedness evidenced hereby or any part thereof, do hereby
expressly waive presentment for payment, notice of dishonor, protest and notice
of protest, and agree that the time for payment or payments of any part of the
indebtedness evidenced hereby may be extended without releasing or otherwise
affecting their liability hereon.
Borrowers agree, jointly and severally, that the local laws of the
State of Ohio shall govern their respective rights and duties hereunder and the
construction and effect hereof. However, if any provision hereof is or becomes
invalid or unenforceable under any law of mandatory application, it is the
intent of Borrowers, the Bank and all parties primarily or secondarily liable
hereunder, that such provision will be deemed severed and omitted herefrom, the
remaining portions hereof to remain in full force and effect as written.
To the extent that the terms and provisions of this Note are
inconsistent with the terms and provisions of the Loan Agreement, the terms and
provisions of this Note shall control.
As a specifically bargained inducement for the Bank to extend credit
giving rise to the indebtedness evidenced hereby, the Borrowers and Bank agree
that: ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING FROM OR OUT OF
THIS NOTE, ITS MAKING, VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF THE BANK
OR LEGAL HOLDER HEREOF, SHALL BE PROSECUTED AS TO ALL PARTIES AND THEIR
SUCCESSORS AND ASSIGNS AT COLUMBUS, OHIO. EACH OF THE BORROWERS CONSENTS TO AND
SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY COURT SITUATED AT
COLUMBUS, OHIO, AND HAVING JURISDICTION OVER THE SUBJECT MATTER.
Each of the Borrowers authorizes any attorney at law to appear in any
court of record in the State of Ohio or any other State or Territory of the
United States, after the indebtedness evidenced hereby, or any part thereof,
becomes due and waive the issuance and service of process and confess judgment
against it in favor of the holder of this Note, for the amount then appearing
due, together with costs of suit and, thereupon, to release all
3
<PAGE> 35
errors and waive all rights of appeal and stay of execution, but no such
judgment or judgments against only one of the undersigned shall be a bar to a
subsequent judgment or judgments against either of the undersigned against whom
judgment has not been obtained hereon. The foregoing warrant of attorney shall
survive any judgment; and if any judgment be vacated for any reason, the holder
hereof nevertheless may thereafter use the foregoing warrant of attorney to
obtain an additional judgment or judgments against one or both of the
undersigned. Each of the Borrowers hereby expressly consents to the confessing
attorney's receipt of a legal fee from the holder of this Note for confessing
such judgment(s) against one or both of the undersigned.
IN WITNESS WHEREOF, each of the Borrowers has executed this Note as of
the day and year first above written at Columbus, Franklin County, Ohio.
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
- --------------------------------------------------------------------------------
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
- --------------------------------------------------------------------------------
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
- -------------------------------------------------------------------------
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
- -------------------------------------------------------------------------------
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
- -----------------------------------------------------------------------------
OTHER CAUSE.
- ------------
M/I FINANCIAL CORP. M/I SCHOTTENSTEIN HOMES, INC.
By:___________________________ By:__________________________
Paul S. Rosen Robert H. Schottenstein
Title: President Title: President
4
<PAGE> 1
Exhibit 10.2
M/I SCHOTTENSTEIN HOMES, INC.
BONUS PROGRAM
DIVISION MANAGER
EFFECTIVE JANUARY 1, 1996
BONUS CRITERIA:
A Vice President - Division Manager is eligible to receive up to two times his
December 31 base salary as per the following criteria:
GOAL:
1. If Actual Net Income is at least $500,000, the percentage of Net Income
to Revenue is at least .5% and the respective Division achieves a 92%
affirmative response level or better, a graduating cents per dollar
amount will be awarded to a maximum of the prior years Net Income, as
indicated on ATTACHMENT A.
2a. If the Division was profitable in the prior year, Actual Net Income in
excess of the prior year Net Income is at least $100,000, the
percentage of Net Income to Revenue is 1.50% or higher and the
respective Division affirmative response percentage is 92% or better, a
graduating cents per dollar amount will be awarded as indicated on
ATTACHMENT B.
2b. If the Division was NOT profitable in the prior year, but actual
results are equal to or greater than $250,000, the percentage of Net
Income to Revenue is at least 1.5% and the respective Division
affirmative response percentage is 92% or better, a graduating cents
per dollar will be awarded as indicated on ATTACHMENT C.
3. If the Division achieves $50,000 of Net Income and receives at least a
92% affirmative response level to question #16 on the related customer
questionnaire of the respective Division, the Division Manager will
receive 17% of his December 31 base salary. The percentage of December
31 base salary increases proportionally for each increase in customer
responses over 92%, up to 25% of December 31 base salary at a 100%
"yes" response level. In the event the respective Division achieves a
99% "yes" response level, an additional $2500.00 will be awarded. An
additional $5,000.00 lump sum amount will be awarded if a 100% "yes"
response level is attained.
THE NET INCOME DEFINITION INCLUDES THE PERFORMANCE OF THE RESPECTIVE LAND
DEPARTMENTS FOR THE FOLLOWING DIVISIONS: COLUMBUS (NOT INCLUDING FAB 10),
HORIZON, SHOWCASE, CINCINNATI, INDIANAPOLIS, CHARLOTTE, RALEIGH, TAMPA, ORLANDO
AND WEST PALM BEACH. NET INCOME ALSO INCLUDES CORPORATE CHARGES, DIVISION
MANAGER BONUSES AND 1995 PERFORMANCE WILL BE RESTATED TO REFLECT ACCOUNTING
CHANGES FOR CORPORATE CHARGES, DIVISION MANAGER'S BONUS, CAPITALIZED INTEREST
AND GENERAL CONDITIONS TO ASSURE COMPARABILITY.
PAYMENT:
The bonus is 50% payable at the end of January and 50% payable prior to March 15
of the following year the bonus is earned. The individual must be employed in
this capacity with the Company on the date the bonuses are distributed to
receive a bonus. However, in the event of a promotion or transfer, the bonus
amount will be allocated to time employed in each position. No amounts are
considered due or payable in the event the employment relationship with the
Company is terminated.
THE COMPANY RESERVES THE RIGHT TO REVISE THIS PROGRAM AS IT CONSIDERS NECESSARY.
ACKNOWLEDGED:
- ------------------------------------------------ ------------------------------
(Name) Date
<PAGE> 1
Exhibit 10.3
M/I SCHOTTENSTEIN HOMES, INC.
BONUS PROGRAM
SENIOR VICE PRESIDENT/
REGIONAL MANAGER
EFFECTIVE JANUARY 1, 1996
BONUS CRITERIA:
A Senior Vice President - Regional Manager is eligible to receive up to three
times of his December 31 base salary as per the following criteria:
1. If the respective Region's Actual Net Income is at least $1,500,000,
the percentage of Net Income to Revenue is at least .5% and the
respective Divisions in each Region achieve at least a 92% COMBINED
affirmative response level, a graduating cents per dollar amount will
be awarded as indicated on Attachment A which will cease upon
attainment of the prior year's combined Net Income result.
2. If the respective Region's ACTUAL Net Income in excess of the PRIOR
YEAR Net Income is at least $500,000, the percentage of Net Income to
Revenue is 1.50% or higher and the affirmative responses of the
respective Region average 92% or higher, a graduating cents per dollar
amount will be awarded as indicated on ATTACHMENT B:
THE NET INCOME DEFINITION INCLUDES THE PERFORMANCE OF THE RESPECTIVE LAND
DEPARTMENTS FOR THE APPLICABLE REGIONAL MANAGERS (FAB 10 - COLUMBUS IS NOT
INCLUDED IN LAND DEFINITION). NET INCOME ALSO INCLUDES CORPORATE CHARGES,
DIVISION MANAGER BONUSES AND 1995 PERFORMANCE WILL BE RESTATED TO REFLECT
ACCOUNTING CHANGES FOR CORPORATE CHARGES, DIVISION MANAGER'S BONUS, CAPITALIZED
INTEREST AND GENERAL CONDITIONS TO ASSURE COMPARABILITY.
3. If the Region's Net Income is at least $50,000 AND if the respective
Divisions in each Region achieve a combined 92% affirmative response to
Question #16 on the related customer Questionnaire, the Regional
Manager will receive 17% of his December 31 base salary at a COMBINED
92% affirmative level, increasing proportionally for each increase in
customer responses over 92%, up to 25% of December 31 base salary at a
100% "yes" response level.
PAYMENT:
The bonus is 50% payable at the end of January and 50% payable prior to March 15
of the following year the bonus is earned. The individual must be employed in
this capacity with the Company on the date the bonuses are distributed to
receive a bonus. However, in the event of a promotion or transfer, the bonus
amount will be allocated to time employed in each position. No amounts are
considered due or payable in the event the employment relationship with the
Company is terminated.
THE COMPANY RESERVES THE RIGHT TO REVISE THIS PROGRAM AS IT CONSIDERS NECESSARY.
ACKNOWLEDGED:
- ---------------------------------------------------- --------------------------
(Name) Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 OF M/I SCHOTTENSTEIN HOMES, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,923
<SECURITIES> 0
<RECEIVABLES> 22,503
<ALLOWANCES> 0
<INVENTORY> 254,876
<CURRENT-ASSETS> 289,302
<PP&E> 8,699
<DEPRECIATION> 6,699
<TOTAL-ASSETS> 314,000
<CURRENT-LIABILITIES> 69,348
<BONDS> 24,617
0
0
<COMMON> 88
<OTHER-SE> 104,667
<TOTAL-LIABILITY-AND-EQUITY> 314,000
<SALES> 229,468
<TOTAL-REVENUES> 233,215
<CGS> 187,930
<TOTAL-COSTS> 187,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,028
<INCOME-PRETAX> 8,996
<INCOME-TAX> 3,737
<INCOME-CONTINUING> 5,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,259
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
