<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, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____
Commission file number 1-12434
M/I SCHOTTENSTEIN HOMES, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1210837
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(State of incorporation) (I.R.S. Employer Identification No.)
3 Easton Oval, Suite 500, Columbus, Ohio 43219
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(Address of principal executive offices) (Zip Code)
(614) 418-8000
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(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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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: 7,597,561 shares
outstanding as of August 12, 1997
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M/I SCHOTTENSTEIN HOMES, INC.
FORM 10-Q
INDEX
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<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1997 and
December 31, 1996 3
Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1997 and 1996 5
Notes to Interim Unaudited Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 8
PART II. Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security
Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
</TABLE>
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CONSOLIDATED BALANCE SHEETS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
JUNE 30, December 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash, including cash in escrow $ 11,124 $ 6,761
Receivables 25,697 34,447
Inventories:
Single-family lots, land and land development costs 139,697 129,025
Houses under construction 119,430 89,696
Model homes and furnishings - at cost (less accumulated depreciation:
June 30, 1997 - $61;
December 31, 1996 - $56) 21,909 19,482
Land purchase deposits 600 716
Office furnishings, transportation and construction equipment - at cost (less
accumulated depreciation:
June 30, 1997 - $3,693;
December 31, 1996 - $6,668) 8,185 1,635
Investment in unconsolidated joint ventures and limited partnerships 12,828 12,998
Other assets 9,758 10,599
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TOTAL $ 349,228 $ 305,359
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable banks - home-building operations $129,000 $77,000
Note payable bank - financial operations 9,580 23,300
Subordinated notes 25,000 25,000
Accounts payable 42,137 32,016
Accrued compensation 5,941 11,802
Income taxes payable 1,162 1,502
Accrued interest, warranty and other 12,555 15,349
Customer deposits 9,097 7,071
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TOTAL LIABILITIES 234,472 193,040
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Commitments and Contingencies
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Stockholders' equity:
Preferred stock - $.01 par value;
authorized 2,000,000 shares;
none outstanding - -
Common stock - $.01 par value;
authorized 38,000,000 shares;
issued 8,800,000 shares, of which 500,000 shares are held in Treasury 88 88
Additional paid-in capital 50,573 50,573
Retained earnings 69,345 61,658
Treasury stock - at cost (5,250) -
- --------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 114,756 112,319
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TOTAL $ 349,228 $ 305,359
==============================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands, except per share information) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $146,014 $137,357 $251,843 $233,215
- ---------------------------------------------------------------------------------------------------------------
Costs and expenses:
Land and housing 117,459 110,975 201,532 187,930
General and administrative 8,388 7,559 14,798 13,518
Selling 9,620 8,948 17,537 16,743
Interest 2,699 3,097 5,061 6,028
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Total costs and expenses 138,166 130,579 238,928 224,219
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 7,848 6,778 12,915 8,996
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Income taxes:
Current 3,213 3,817 4,364 4,125
Deferred - (975) 864 (388)
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Total income taxes 3,213 2,842 5,228 3,737
- ---------------------------------------------------------------------------------------------------------------
Net income $ 4,635 $ 3,936 $ 7,687 $ 5,259
===============================================================================================================
Net income per common share $ 0.56 $ 0.45 $ 0.90 $ 0.60
===============================================================================================================
Weighted average common shares
outstanding 8,300,000 8,800,000 8,507,182 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 SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
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SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,687 $ 5,259
Adjustments to reconcile net income to net cash
used by operating activities:
Loss from property disposals 121 40
Depreciation and amortization 774 771
Decrease (increase) deferred income taxes 864 (975)
Decrease in receivables 8,750 1,109
Increase in inventories (38,242) (24,253)
Increase in other assets (132) (573)
Increase in accounts payable 10,121 14,321
Decrease in income taxes payable (340) (1,274)
Decrease in accrued liabilities (8,655) (2,057)
Equity in undistributed income of
unconsolidated joint ventures and limited partnerships (151) (84)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (19,203) (7,716)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to model and office furnishings,
transportation and construction equipment (7,329) (301)
Investment in unconsolidated joint ventures (4,680) (5,003)
Distributions from unconsolidated joint ventures
and limited partnerships 519 358
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,490) (4,946)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable banks:
Cash proceeds from borrowings 131,490 132,096
Principal repayments (93,210) (119,016)
Principal repayments of mortgage notes payable - (404)
Net increase in customer deposits 2,026 3,773
Payments to acquire treasury stock (5,250) -
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 35,056 16,449
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Net increase in cash 4,363 3,787
Cash balance at beginning of period 6,761 8,136
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Cash balance at end of period $ 11,124 $ 11,923
==================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 4,555 $ 5,229
Income taxes $ 4,810 $ 5,415
NON-CASH TRANSACTIONS DURING THE YEAR:
Single-family lots distributed from unconsolidated joint ventures $ 4,482 $ 2,224
==================================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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<PAGE> 6
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission for interim financial information. The results of
operations for the six months ended June 30, 1997 and 1996 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, 1996.
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, 1997, the Company amended its bank loan agreement. Limits on
certain restrictive covenants were increased under the amended agreement. The
amount available and other terms of the agreement remain substantially the
same as those in the agreement that it amends.
On July 18, 1997, the Company and M/I Financial entered into a new $30
million bank loan agreement with the existing lender, pursuant to which the
Company and M/I Financial have the ability to borrow at (a) the prime rate
less 0.25%, or (b) LIBOR plus 1.75% or (c) a combination of (a) and (b). The
agreement was previously amended on June 20, 1997 extending the maturity date
until July 20, 1997 through a short-term note. The new agreement terminates
on June 25, 1998, at which time the unpaid balance is due.
NOTE 3. SUBORDINATED DEBT
The Company signed a letter of intent with BankBoston, N.A. to issue $50
million of Senior Subordinated Notes. The proceeds will be used to repay
outstanding amounts under the bank credit facility and the existing $25
million Subordinated Note. The notes will bear interest at a fixed rate of
9.51% and will mature in August of 2004. The Company expects to complete the
Subordinated Debt Agreement in late August of 1997.
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<PAGE> 7
NOTE 4. INTEREST
The Company capitalizes interest during development and construction.
Capitalized interest is charged to interest expense as the related inventory
is delivered. The summary of total interest for the three and six months
ended June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest capitalized, beginning of period $ 7,125 $ 7,648 $ 6,862 $ 7,560
Interest incurred 3,172 3,183 5,797 6,202
Interest expensed (2,699) (3,097) (5,061) (6,028)
- --------------------------------------------------------------------------------------------------------------
Interest capitalized, end of period $ 7,598 $ 7,734 $ 7,598 $ 7,734
==============================================================================================================
</TABLE>
NOTE 5. CONTINGENCIES
At June 30, 1997, the Company had options and contingent purchase contracts
to acquire land and developed lots with an aggregate purchase price of
approximately $154.9 million.
NOTE 6. PER SHARE DATA
Per share data for the three and six months ended June 30, 1997 was computed
using the weighted average number of common shares outstanding during the
period of 8,300,000 and 8,507,182, respectively. The Company has no common
stock equivalents other than outstanding options, which have no significant
effect on the calculation.
NOTE 7. ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per
Share." SFAS 128 replaces the presentation of primary EPS with a presentation
of basic EPS. This statement is effective for financial statements for both
interim and annual periods ending after December 15, 1997. The Company has
determined that the new standard will have no material impact on its EPS
calculation.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosure
about Segments of an Enterprise and Related Information". SFAS 131 is
required to be adopted for the Company's 1998 annual financial statements.
The Company has not yet determined what, if any, impact the adoption of this
standard will have on its financial statements.
NOTE 8. TREASURY STOCK
On August 1, 1997, the Company repurchased 702,439 shares of the Company's
common stock at $12.8125 per share, which represents the closing price of the
Company's common stock on July 30, 1997, from the Melvin L. Schottenstein
family interests. These shares are held as treasury shares by the Company.
The total purchase price was $9,000,000 and was paid from the Company's bank
credit facility.
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<PAGE> 8
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
FORM 10-Q - PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
CONSOLIDATED
Total Revenue. Total revenue for the three months ended June 30, 1997
increased $8.7 million and for the six months ended June 30, 1997 increased
$18.6 million from the comparable periods of 1996. Increases for the three-month
period in housing revenue of $8.8 million and other revenue of $0.5 million were
partially offset by a $0.6 million decrease in land revenue. For the six-month
period, housing revenue, other revenue and land revenue increased $14.6 million,
$1.1 million and $2.9 million, respectively. The increase in housing revenue for
both the three and six-month periods was attributable to an increase in the
average sales price of Homes Delivered of 9.3% and 7.2%, respectively. For both
periods, the increase in other revenue is primarily attributable to financial
services where the gains recognized from the sale of loans increased in the
current year. The decrease in land revenue for the three months ended June 30,
1997 was primarily due to a decrease in the number of lots sold to third parties
in the Maryland division from the comparable period of 1996. The increase in
land revenue for the six months ended June 30, 1997 was primarily due to an
increase in the number of lots sold to third parties in the Maryland division
over the comparable period of 1996.
Income Before Income Taxes. Income before income taxes for the three
months ended June 30, 1997 increased 15.8% and for the six months ended June 30,
1997 increased 43.6% from the comparable periods of 1996. The increase for the
three months ended June 30, 1997 related primarily to housing, where income
before income taxes increased from $5.7 million to $6.4 million. The increase
for the six months ended June 30, 1997 related primarily to housing and land,
where income before income taxes increased from $6.9 million to $9.8 million and
financial services, where income before income taxes increased from $2.1 million
to $3.1 million. The increase in housing for both the three- and six-month
periods was primarily due to the increase in the average sales price of Homes
Delivered. The increase in land for the six month period was primarily due to a
significant increase in the number of lots sold to third parties at relatively
high margins in the Maryland division during the first half of 1997 in
comparison to the first half of 1996. The increase in financial services was
primarily due to the significant increase in income from the sale of servicing
and marketing gains due to increased loan volume and the favorable interest rate
environment during the last half of 1996 and the first half of 1997. Income
before income taxes also increased due to a decrease in interest expense from
$3.1 and $6.0 million in the three and six months ended June 30, 1996,
respectively, to $2.7 and $5.1 million in the comparable periods of 1997. These
decreases were primarily attributable to a decrease in the weighted average
interest rate and an increase in the net amount of interest capitalized. The
weighted average interest rate decreased due to more favorable terms on the
Company's line of credit facilities and retirement of the 14% Subordinated Notes
and issuance of a new Subordinated Note in December 1996 at a significantly
lower rate. Capitalized interest increased due to a significant increase in the
Company's land development activities and land holdings in the first half of
1997.
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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>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Housing sales $140,908 $132,100 $239,588 $224,993
Land and lot sales 2,793 3,370 7,395 4,475
Other income 408 225 704 428
- --------------------------------------------------------------------------------------------------------------------------------
Total Revenue $144,109 $135,695 $247,687 $229,896
================================================================================================================================
Revenue:
Housing sales 97.8 % 97.3 % 96.7 % 97.9 %
Land and lot sales 1.9 2.5 3.0 1.9
Other income 0.3 0.2 0.3 0.2
- --------------------------------------------------------------------------------------------------------------------------------
Total Revenue 100.0 100.0 100.0 100.0
Land and housing costs 81.9 82.2 81.8 82.2
- --------------------------------------------------------------------------------------------------------------------------------
Gross Margin 18.1 17.8 18.2 17.8
General and administrative expenses 2.9 2.3 3.1 2.7
Selling expenses 6.7 6.6 7.1 7.3
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income 8.5 8.9 8.0 7.8
================================================================================================================================
MIDWEST REGION
Unit Data:
New contracts, net 442 444 1,029 1,046
Homes delivered 464 479 806 798
Backlog at end of period 1,131 1,185 1,131 1,185
Average sales price of homes in backlog $177 $168 $177 $168
Aggregate sales value of homes in backlog $200,000 $198,000 $200,000 $198,000
Number of active subdivisions 75 85 75 85
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FLORIDA REGION
Unit Data:
New contracts, net 193 160 365 341
Homes delivered 165 167 277 280
Backlog at end of period 309 286 309 286
Average sales price of homes in backlog $181 $171 $181 $171
Aggregate sales value of homes in backlog $56,000 $49,000 $56,000 $49,000
Number of active subdivisions 35 40 35 40
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NORTH CAROLINA, VIRGINIA AND MARYLAND REGION
Unit Data:
New contracts, net 133 156 281 329
Homes delivered 147 149 250 264
Backlog at end of period 239 324 239 324
Average sales price of homes in backlog $263 $230 $263 $230
Aggregate sales value of homes in backlog $63,000 $75,000 $63,000 $75,000
Number of active subdivisions 35 35 35 35
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TOTAL
Unit Data:
New contracts, net 768 760 1,675 1,716
Homes delivered 776 795 1,333 1,342
Backlog at end of period 1,679 1,795 1,679 1,795
Average sales price of homes in backlog $190 $179 $190 $179
Aggregate sales value of homes in backlog $319,000 $322,000 $319,000 $322,000
Number of active subdivisions 145 160 145 160
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</TABLE>
The Phoenix division, which began operations late in 1996, had no unit activity
for the three and six months ended June 30, 1997.
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<PAGE> 10
A home is included in "New Contracts" when the Company's standard sales
contract, which requires a deposit and generally has no contingencies other than
for buyer financing, is executed. In the Midwest Region, contracts are sometimes
accepted contingent upon the sale of an existing home. "Homes Delivered"
represents units for which the closing of the sale has occurred and title has
transferred to the buyer. Revenue and cost of revenue for a home sale are
recognized at the time of such closing.
"Backlog" represents homes for which the Company's standard sales
contract has been executed, but which are not included in Homes Delivered
because closings for the sale of such homes have not yet occurred as of the end
of the periods specified. Most cancellations of contracts for homes in Backlog
occur because customers cannot qualify for financing. These cancellations
usually occur prior to the start of construction. Since the Company arranges
financing with guaranteed rates for many of its customers, the incidence of
cancellations after the start of construction is low. In the first six months of
1997, the Company delivered 1,333 homes, most of which were homes under contract
in Backlog at December 31, 1996. Of the 1,337 contracts in Backlog at December
31, 1996, 12.3% have been canceled as of June 30, 1997. For homes in Backlog at
December 31, 1995, 13.1% had been canceled as of June 30, 1996. For the homes in
Backlog at December 31, 1995, the final cancellation percentage was 14.4%.
Unsold speculative homes, which are in various stages of construction, totaled
131 and 145 at June 30, 1997 and 1996, respectively.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Total Revenue. Total revenue for the three months ended June 30, 1997
increased 6.2% over the three months ended June 30, 1996. A 6.7% increase in
housing revenue was partially offset by a 17.1% decrease in land revenue. The
increase in housing revenue was due to a 9.3% increase in the average sales
price of Homes Delivered. The average sales price of Homes Delivered increased
in all of the Company's markets with the exception of Raleigh and Palm Beach
County; however, the increase was primarily due to increases in the Columbus and
Cincinnati markets where the Company is building in more upscale and certain
niche subdivisions. The decrease in land revenue from $3.4 million to $2.8
million 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 three months ended June 30, 1996 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 certain outside home-builders.
Home Sales and Backlog. The Company recorded a 1.1% increase in the
number of New Contracts in the three months ended June 30, 1997 as compared to
the same period of 1996. New Contracts recorded in the second quarter of 1996
were higher in all of the Company's markets except Indianapolis, Raleigh and
Washington D.C. The Company believes the increase is partially attributable to
the more favorable interest rate environment in the second quarter of 1997 as
compared to the same period of 1996. The number of New Contracts recorded in
future periods will be dependent on numerous factors, including future economic
conditions, timing of land development, consumer confidence and interest rates
available to potential home buyers.
At June 30, 1997, the aggregate sales value of the Company's Backlog of
1,679 homes was approximately $319.0 million, representing a 0.9% decrease in
sales value and a 6.5% decrease in units from the levels reported at June 30,
1996. The decrease in units at June 30, 1997 is a result of near record
deliveries in the first half of 1997 and a decrease in New Contracts recorded in
the first half of 1997. The average sales price of homes in Backlog increased
6.1% from June 30, 1996 to June 30, 1997. This increase was primarily due to
increases in the Columbus, Cincinnati, Orlando and Maryland markets
-10-
<PAGE> 11
where the Company is building in more upscale and certain niche subdivisions.
The Chevy Chase subdivision in Maryland, where the Company started selling in
May of 1997, has an average selling price of over $700,000.
Gross Margin. The overall gross margin for the home-building segment
was 18.1% for the three month period ended June 30, 1997 compared to 17.8% for
the three month period ended June 30, 1996. While the gross margin from housing
sales remained close to record levels for the Company, the increase in overall
gross margin was mainly due to lot and land sales. The gross margin from housing
sales was 18.1% in the second quarter of 1997 as compared to 18.2% in the second
quarter of 1996. The overall increase in gross margin was mainly due to lot and
land sales, where margins increased from 14.4% to 27.4%. The Virginia division
had a significant increase in the number of lots sold to outside home-builders
from its Wallney Road development project. The division sold 8 lots in Wallney
Road in the second quarter of 1997, while there were no lots sold from this
project in the second quarter of 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. The
Company's ability to maintain these levels of margins is dependent on a number
of factors, some of which are beyond the Company's control. Due to the strong
level of sales during the last quarter of 1996 and the first half of 1997, 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 by delaying construction, thus delaying revenue recognition and
increasing carrying costs. In addition, due to the competitive sales
environment, the Company is offering promotions in selected cities which could
adversely impact gross margins in 1997.
General and Administrative Expenses. General and administrative
expenses as a percentage of total revenue increased from 2.3% for the three
months ended June 30, 1996 to 2.9% for the three months ended June 30, 1997.
This increase was primarily attributable to the increase in bonuses recorded in
the second quarter of 1997 as compared to the second quarter of 1996 due to the
significant increase in net income. Additionally, the Company incurred general
and administrative expenses of approximately $510,000 in their newest market,
Phoenix, Arizona.
Selling Expenses. Selling expenses as a percentage of total revenue
increased slightly from 6.6% for the three months ended June 30, 1996 to 6.7%
for the three months ended June 30, 1997. This increase was primarily due to
increases in sales commissions paid to internal salespeople as a result of the
increase in sales volume.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total Revenue. Total revenue for the six months ended June 30, 1997
increased 7.7% from the comparable period of 1996. The increase resulted from
significant increases in both housing revenue and lot and land sales. The
increase in housing revenue was attributable to a 7.2% increase in the average
sales price of Homes Delivered. The average sales price of Homes Delivered
increased in all of the Company's markets with the exception of Raleigh, Orlando
and Palm Beach County; however, the increase was primarily due to increases in
the Columbus, Cincinnati and Charlotte markets where the Company is building in
more upscale and certain niche subdivisions. The increase in land revenue from
$4.5 million to $7.4 million 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 months ended
June 30, 1997 which did not occur in the prior year. The Company is developing
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<PAGE> 12
additional sections of this project and has entered into contracts to sell a
portion of the lots developed to certain outside home-builders.
Home Sales and Backlog. The number of New Contracts recorded during the
first six months of 1997 was 2.4% lower than the number recorded for the
comparable period in the prior year. New Contracts recorded in the first six
months of 1997 were lower in all of the Company's regions, except the Florida
region. The decrease in the number of New Contracts recorded is primarily
attributable to a record number of New Contracts recorded in the first six
months of 1996. The number of New Contracts recorded in future periods will be
dependent on future economic conditions, timing of land development, consumer
confidence and interest rates available to potential home buyers.
Gross Margin. The overall gross margin for the home-building segment
was 18.2% for the six months ended June 30, 1997 as compared to 17.8% for the
comparable period of 1996. The gross margin from housing sales was 18.1% in the
first half of 1997 as compared to 18.2% in the first half of 1996. The overall
increase in gross margin was mainly due to lot and land sales, where margins
increased from 11.4% to 27.7%. The Maryland division had a significant increase
in the number of lots sold to outside home-builders from its Willows land
development project. The division sold thirty lots in the Willows in the six
months ended June 30, 1997 as compared to fourteen lots in the six months ended
June 30, 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. The Company's ability to
maintain these levels of margins is dependent on a number of factors, some of
which are beyond the Company's control. Due to the strong level of sales during
the last quarter of 1996 and the first six months of 1997, 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 by
delaying construction, thus delaying revenue recognition and increasing carrying
costs. In addition, due to the competitive sales environment, the Company is
offering promotions in selected cities which could adversely impact gross
margins in 1997.
General and Administrative Expenses. General and administrative
expenses as a percentage of total revenue increased from 2.7% for the six months
ended June 30, 1996 to 3.1% for the comparable period in the current year. This
increase was primarily attributable to the increase in real estate tax expense
and bonuses. Real estate taxes increased in the current year as the Company's
investment in developed lots and raw land awaiting development increased over
prior year balances. More bonuses were recorded in the first six months of 1997
as compared to the first six months of 1996 due to the significant increase in
net income.
Selling Expenses. Selling expenses as a percentage of total revenue
decreased to 7.1% for the six months ended June 30, 1997 from 7.3% for the
comparable period of 1996. The decrease in the six month period was primarily
due to decreases in sales commissions paid to outside Realtors.
-12-
<PAGE> 13
FINANCIAL SERVICES SEGMENT - M/I FINANCIAL
The following table sets forth certain information related to the Company's
financial services segment:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of loans originated 567 599 990 1,007
Revenue:
Loan origination fees $ 750 $ 737 $1,312 $ 1,223
Sale of servicing and marketing gains 1,176 962 2,721 2,042
Other 630 547 1,258 1,052
- ----------------------------------------------------------------------------------------------------------
Total Revenue 2,556 2,246 5,291 4,317
- ----------------------------------------------------------------------------------------------------------
General and administrative expenses 1,123 1,175 2,159 2,226
- ----------------------------------------------------------------------------------------------------------
Operating Income $1,433 $ 1,071 $3,132 $ 2,091
==========================================================================================================
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Total Revenue. Total revenue for the three months ended June 30, 1997
was $2.6 million, a 13.8% increase over the $2.2 million recorded for the
comparable period of 1996. Loan origination fees increased 1.9% in the three
months ended June 30, 1997 from the comparable period of 1996, even though the
number of loans originated decreased 32 units from the comparable period of
1996. This was primarily due to M/I Financial capturing a higher percentage of
the Company's higher end product line and larger loan amounts.
Revenue from the sale of servicing and marketing gains increased $0.2
million to $1.2 million in the three months ended June 30, 1997 from the
comparable period of 1996. The increase in marketing gains was primarily due to
favorable market conditions during the last part of 1996 and early part of 1997
which increased marketing gains on loans that closed during the second quarter
of 1997. M/I Financial used hedging methods whereby it has the option, but is
not required, to complete the hedging transaction. This allowed the Company to
record significant servicing and marketing gains during the period of falling
interest rates while limiting its risk of loss from a rising interest rate
market.
Revenue from other sources increased from $0.5 million to $0.6 million
in the three months ended June 30, 1997 from the comparable period of 1996. The
increase was primarily due to a 49.9% interest in a title agency that started
operations during the first half of 1997.
General and Administrative Expenses. General and administrative
expenses for the three months ended June 30, 1997 were $1.1 million, a 4.4%
decrease from the comparable period of 1996. This decrease was primarily
attributable to lower interest expenses and tighter cost controls over variable
expenses. There were also no new branches opened during 1997.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total Revenue. Total revenue for the six months ended June 30, 1997 was
$5.3 million, a 22.6% increase over the $4.3 million recorded for the comparable
period of 1996. Loan origination fees increased 7.3% in the six months ended
June 30, 1997 from the comparable period of 1996, even though the number of
loans originated decreased 17 units from the comparable period of 1996. This was
primarily due to a higher capture rate of the Company's higher end product line
and higher loan amounts.
-13-
<PAGE> 14
Revenue from the sale of servicing and marketing gains increased $0.7
million to $2.7 million in the six months ended June 30, 1997 from the
comparable period of 1996. The increase in marketing gains was primarily due to
favorable market conditions during the last part of 1996 and early part of 1997
which increased marketing gains on loans that closed during the second half of
1997. M/I Financial used hedging methods whereby it has the option, but is not
required, to complete the hedging transaction. This allowed the Company to
record significant servicing and marketing gains during the period of falling
interest rates while limiting its risk of loss from a rising interest rate
market.
Revenue from other sources increased from $1.1 million to $1.3 million
in the six months ended June 30, 1997 from the comparable period of 1996. The
increase was primarily due to income received from a 49.9% interest in a title
agency that started operations during the first half of 1997.
General and Administrative Expenses. General and administrative expenses
for the six months ended June 30, 1997 were $2.2 million, a 3.0% decrease from
the comparable period of 1996. This decrease was primarily attributable to lower
interest expenses and tighter cost controls over variable expenses. There were
also no new branches opened during 1997. In addition, there were 65 fewer
applications taken in the six months ended June 30, 1997 as compared to the six
months ended June 30, 1996.
OTHER OPERATING RESULTS
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased slightly to $3.1 million for the three months
ended June 30, 1997 from $3.0 million for the same period of 1996 and remained
constant at $4.9 million for the six months ended June 30, 1997 and 1996. As a
percentage of total revenue, general and administrative expenses for the three
and six months ended June 30, 1997 decreased to 2.1% and 1.9%, respectively,
from 2.2% and 2.1% for the comparable periods in the prior year. These decreases
resulted from increases in total revenue.
Interest Expense. Corporate and home-building interest expense for the
three and six months ended June 30, 1997 decreased to $2.7 and $5.0 million,
respectively, from $3.0 and $5.9 million recorded for the comparable periods of
the prior year. Interest expense was lower in the current year due a decrease in
the weighted average interest rate and an increase in the net amount of interest
capitalized during the first half of 1997 as compared to the first half of 1996.
This was partially offset by an increase in the average borrowings outstanding.
The weighted average interest rate decreased due to the Company replacing its
14% Subordinated Notes with a new Subordinated Note at a significantly lower
rate in December of 1996. In May of 1996, the Company switched its bank
borrowings from prime to LIBOR plus a margin which also reduced the interest
rate. Capitalized interest increased due to a significant increase in the
Company's land development activities and land holdings in the first half of
1997.
LIQUIDITY AND CAPITAL RESOURCES
Notes Payable Banks. The Company's financing needs depend upon its
sales volume, asset turnover, land acquisition and inventory balances. The
Company has incurred substantial indebtedness, and may incur substantial
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.
-14-
<PAGE> 15
At June 30, 1997, the Company had bank borrowings outstanding of $129.0
million under its loan agreement relating to its home-building operations, which
permits aggregate borrowings, other than for the issuance of letters of credit,
not to exceed the lesser of: (i) $186.0 million and (ii) 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, less the sum of (A) outstanding
letters of credit issued for purposes other than to satisfy bonding requirements
and (B) the aggregate amount of outstanding letters of credit, other than
letters of credit issued for the purpose of satisfying bonding requirements, for
joint ventures in which the Company is a partner and which are guaranteed by the
Company. The loan agreement matures September 30, 2001, at which time the unpaid
balance of the revolving credit loans outstanding will be due and payable. Under
the terms of the loan agreement, the banks will determine annually whether or
not to extend the maturity date of the commitments by one year. At June 30,
1997, borrowings under the loan agreement were at the prime rate or, at the
Company's option, at LIBOR plus a margin of between 1.75% and 2.50% based on the
Company's ratio of Earnings Before Interest, Taxes, Depreciation and
Amortization ("Bank EBITDA") to consolidated interest incurred and 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 Bank 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.
On May 7, 1997, the Company amended its bank loan agreement. Limits on
certain restrictive covenants were increased under the amended agreement. The
amount available and other terms of the agreement remain substantially the same
as those in the agreement that it amends.
An additional $9.6 million was outstanding as of June 30, 1997 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. The Company and M/I Financial
are co-borrowers under the M/I Financial loan agreement. This agreement limits
the borrowings to 95% of the aggregate face amount of certain qualified
mortgages and contains restrictive covenants requiring M/I Financial to maintain
minimum net worth and certain minimum financial ratios. At June 30, 1997,
borrowings under this agreement accrued interest at a rate slightly less than
the lenders' prime rate and were unsecured. The agreement matured on June 20,
1997, but the maturity was extended until July 20, 1997 through a short-term
note. On July 18, 1997, the Company and M/I Financial entered into a new
short-term $30.0 million replacement credit facility with the existing lender,
pursuant to which the Company and M/I Financial have the ability to borrow at
(a) the prime rate less 0.25%, or (b) LIBOR plus 1.75% or (c) a combination of
(a) and (b). The new agreement terminates on June 25, 1998, at which time the
unpaid balance is due.
At June 30, 1997, the Company had the right to borrow up to $209.9
million under its credit facilities, including $23.9 million under the M/I
Financial loan agreement (95% of the aggregate face amount of eligible mortgage
loans). At June 30, 1997, the Company had $71.3 million of unused borrowing
availability under its loan agreements. The Company also had approximately $27.0
million of completion bonds and letters of credit outstanding at June 30, 1997.
Subordinated Note. In addition, the Company had outstanding a
Subordinated Note in the amount of $25.0 million at June 30, 1997, which is held
by First National Bank of Boston. The maturity date is December 15, 2001 and can
be extended two additional years at the Company's option. The Subordinated Note
is redeemable, in whole or in part, after December 15, 1997, and in certain
circumstances prior to such
-15-
<PAGE> 16
time, without penalty or premium. Interest on the Subordinated Note accrues at
LIBOR plus 3.50% and adjusts quarterly.
In compliance with the terms of the Subordinated Note, the Company
purchased two three-year 9% interest rate cap agreements, each effective
December 2, 1996 through December 2, 1999. The agreements provide that if the
interest rate of the Subordinated Note in effect for each three month period is
greater than the cap rate, the respective counterparty will pay to the Company
the excess interest computed.
The Company signed a letter of intent with BankBoston, N.A. to issue
$50 million of Senior Subordinated Notes. The proceeds will be used to repay
outstanding amounts under the bank credit facility and the existing $25 million
Subordinated Note. The notes will bear interest at a fixed rate of 9.51% and
will mature in August of 2004. The Company expects to complete the Subordinated
Debt Agreement in late August of 1997.
Cash. Net income from housing and lot and land sales is the Company's
primary source of net cash provided by operating activities. Net cash used by
operating activities in the six months ended June 30, 1997 was $19.2 million
compared to $7.7 million for the prior year period. The increase in net cash
used by operating activities was primarily due to a large increase in
inventories and a decrease in accrued liabilities. This was partially offset by
a decrease in accounts receivable.
Land and Land Development. Over the past several years, the Company's
land development activities and land holdings have increased significantly, and
the Company expects this trend will continue in the foreseeable future.
Single-family lots, land and land development costs increased 8.3% from December
31, 1996 to June 30, 1997. The Company anticipates that its land holdings in the
Columbus market will increase 50% in 1997. 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
home-builders. 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.
The $38.3 million increase in notes payable to banks from December 31,
1996 to June 30, 1997 reflects increased borrowings primarily attributable to
the seasonal increase in houses under construction, along with an increase in
single-family lots, land and land development costs. Houses under construction
increased $29.7 million from December 31, 1996 to June 30, 1997 while
single-family lots, land and land development costs increased $10.7 million. 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 houses under construction increases.
As of June 30, 1997, the Company has closed on the first four phases of
a six-phase land purchase contract in the Maryland division. This contract was
entered into in 1994 and required a greater investment than the Company normally
commits. The Company sold a portion of the developed lots from the first and
second phases to outside home-builders and is currently selling a portion of the
lots in the third and fourth phases to outside home-builders. The Company has an
option to purchase each of the remaining two phases. If the Company purchases
all six phases, the total purchase price will be approximately $39.8 million and
the land will be developed into approximately 710 lots.
-16-
<PAGE> 17
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.
Treasury Stock. On August 1, 1997, the Company repurchased 702,439
shares of the Company's common stock at $12.8125 per share, which represents the
closing price of the Company's common stock on July 30, 1997, from the Melvin L.
Schottenstein family interests. There shares are held as treasury shares by the
Company. The total purchase price was $9,000,000 and was paid from the Company's
bank credit facility. In conjunction with this stock repurchase, Eric J.
Schottenstein, Holly S. Kastan and Amy D. Schottenstein have resigned from the
Board of Directors.
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, 1997 was 8.4%
as compared to 9.8% for the six months ended June 30, 1996.
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 in advance of sales efforts. The Company is generally able to
maintain costs with subcontractors from the date a home sales contract is
accepted; however, in certain situations unanticipated costs may occur between
the time a sales contract is executed and the time a home is constructed, which
results in lower gross profit margins.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company wishes to take advantage of the safe harbor provisions
included in the Private Securities Litigation Reform Act of 1995. Accordingly,
in addition to historical information, this Management's Discussion and Analysis
of Results of Operations and Financial Condition contains certain
forward-looking statements, including, but not limited to, statements regarding
the Company's future financial performance and financial condition. These
statements involve a number of risks and uncertainties. Any forward-looking
statements made by the Company herein and in future reports and statements are
not guarantees of future performance, and actual results may differ materially
from those in such forward-looking statements as a result of various factors
including, but not limited to, those referred to below.
General Real Estate, Economic, Interest Rates and Other Conditions. The
home-building industry is significantly affected by changes in national and
local economic and other conditions, including employment levels, changing
demographic considerations, availability of financing, interest rates, consumer
confidence and housing demand. In addition, home-builders are subject to various
risks, many of them
-17-
<PAGE> 18
outside the control of the home-builder, including competitive overbuilding,
availability and cost of building lots, availability of materials and labor,
adverse weather conditions which can cause delays in construction schedules,
cost overruns, changes in government regulations, and increases in real estate
taxes and other local government fees. The Company cannot predict whether
interest rates will be at levels attractive to prospective homebuyers. If
interest rates increase, and in particular mortgage interest rates, the
Company's business could be adversely affected.
Land Development Activities. The Company develops the lots for a
majority of its subdivisions. Therefore, the medium- and long-term financial
success of the Company will be dependent on the Company's ability to develop its
subdivisions successfully. Acquiring land and committing the financial
managerial resources to develop a subdivision involves significant risks. Before
a subdivision generates any revenue, material expenditures are required for
items such as acquiring land and constructing subdivision infrastructure (such
as roads and utilities). It generally takes more than one year for subdivisions
which are internally developed to achieve cumulative positive cash flow.
The Company's Markets. The Company's operations are situated in the
Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and Palm
Beach County, Florida; Charlotte and Raleigh, North Carolina; and Virginia and
Maryland metropolitan areas. Adverse general economic conditions in these
markets could have a material adverse impact on the operations of the Company.
For the year ended December 31, 1996, approximately 38% of the Company's housing
revenue and a significant portion of the Company's operating income was derived
from operations in its Columbus, Ohio market. The Company's performance could be
significantly affected by changes in this market. The Company expanded into a
new geographic market, Phoenix, Arizona, in late 1996. A new market may prove to
be less stable and may involve delays, problems and expenses not typically found
by the Company in the existing markets with which it is familiar.
Competition. The home-building industry is highly competitive. The
Company competes in each of its local market areas with numerous national,
regional and local home-builders, some of which have greater financial,
marketing, land acquisition, and sales resources than the Company. Builders of
new homes compete not only for homebuyers, but also for desirable properties,
financing, raw materials and skilled subcontractors. The Company also competes
with the resale market for existing homes which provides certain attraction for
homebuyers over building a new home.
Governmental Regulation and Environmental Considerations. The
home-building industry is subject to increasing local, state and Federal
statutes, ordinances, rules and regulations concerning zoning, resource
protection (preservation of woodlands and hillside areas), building design, and
construction and similar matters, including local regulations which impose
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
location. Such regulation affects construction activities, including
construction materials which must be used in certain aspects of building design,
as well as sales activities and other dealings with homebuyers. The Company must
also obtain licenses, permits and approvals from various governmental agencies
for its development activities, the granting of which are beyond the Company's
control. Furthermore, increasingly stringent requirements may be imposed on
home-builders and developers in the future. Although the Company cannot predict
the impact on the Company of compliance with any such requirements, such
requirements could result in time consuming and expensive compliance programs.
The Company is also subject to a variety of local, state and Federal
statutes, ordinances, rules and regulations concerning the protection of health
and the environment. The particular environmental laws which apply to any given
project vary greatly according to the project site and the present and former
uses
-18-
<PAGE> 19
of the property. These environmental laws may result in delays, cause the
Company to incur substantial compliance costs (including substantial
expenditures for pollution and water quality control) and prohibit or severely
restrict development in certain environmentally sensitive regions. Although
there can be no assurance that it will be successful in all cases, the Company
has a general practice of requiring an environmental audit and resolution of
environmental issues prior to purchasing land in an effort to avoid major
environmental issues in the Company's developments.
In addition, the Company has been, and in the future may be, subject to
periodic delays or may be precluded from developing certain projects due to
building moratoriums. These moratoriums generally relate to insufficient water
supplies, sewage facilities, delays in utility hook-ups, or inadequate road
capacity within the specific market area or subdivision. These moratoriums can
occur prior to, or subsequent to, commencement of operations by the Company
without notice to, or recourse by, the Company.
Risk of Material and Labor Shortages. The Company is presently not
experiencing any serious material or labor shortages. However, the residential
construction industry in the past has, from time to time, experienced shortages
in insulation, drywall, certain carpentry and framing work and cement, as well
as fluctuating lumber prices and supplies. Delays in construction of homes due
to these shortages could adversely affect the Company's business.
Significant Voting Control by Principal Shareholders. As of August 1,
1997, members of the Melvin L. Schottenstein and Irving E. Schottenstein
families owned approximately 53% of the outstanding Common Shares. In
particular, Irving E. Schottenstein, in his own name and as trustee of trusts
for his children, had the right to vote 2,761,800 Common Shares, or 36.4% of the
outstanding Common Shares, and Melvin L. Schottenstein's children had the right
to vote in the aggregate 1,243,000 Common Shares, or 16.4% of the outstanding
Common Shares. Therefore, members of the Irving E. Schottenstein and Melvin L.
Schottenstein families have significant voting power with respect to the
election of the Board of Directors of the Company and, in general, the
determination of the outcome of the various matters submitted to the
shareholders of the Company for approval.
Dependence on Key Executives. The Company is managed by a relatively
small number of executive officers. The loss of the services of one or more of
these executive officers could have an adverse effect on the Company's business
and operations.
-19-
<PAGE> 20
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings - none.
- --------------------------
Item 2. Changes in Securities - none.
- ------------------------------
Item 3. Defaults upon Senior Securities - none.
- ---------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On May 7, 1997, the Company held its 1997 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>
Steven Schottenstein 7,578,859 6,140
Lewis R. Smoot, Sr. 7,578,834 6,165
Holly S. Kastan 7,577,833 7,166
</TABLE>
Item 5. Other Information - none.
- --------------------------
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 18, 1997.
10.2 Company's 1997 President and Senior Executive Vice President Bonus
Program.
10.3 Company's 1997 Senior Vice President and Chief Financial Officer
Bonus Program.
10.4 Company's Director Deferred Compensation Plan.
10.5 Termination Agreement dated July 31, 1997 between the Company and
parties to the Melvin and Irving Schottenstein Family Agreement.
-20-
<PAGE> 21
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 12, 1997 by: /s/ Robert H. Schottenstein
---------------------------
Robert H. Schottenstein
President
Date: August 12, 1997 by: /s/ Kerrii B. Anderson
----------------------
Kerrii B. Anderson
Senior Vice President,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
-21-
<PAGE> 1
REVOLVING CREDIT AGREEMENT
--------------------------
THIS AGREEMENT is made to be effective as of July 18, 1997, 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, N.A., a national banking association, formerly known as 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, National City Bank of Columbus, The First
National Bank of Boston, The Fifth Third Bank of Columbus and the Bank as agent
for the foregoing banks are parties to a certain Second Restated Revolving
Credit Loan and Standby Letter of Credit Agreement effective as of December 30,
1996, as amended by the First Amendment thereto effective as of March 14, 1997
and by the Second Amendment thereto effective as of May 7, 1997 (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 July 19, 1996 in the principal amount of $25,000,000
(the "1996 Credit Agreement"), which matured on June 20, 1997, and which was
extended to July 20, 1997.
D. The Borrowers and Bank want to enter into a new credit
facility in the principal amount of Thirty Million and 00/100 Dollars
($30,000,000), which will pay off and replace the 1996 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, except that when used in connection with Eurodollar
Rate Loans, "Business Day" shall mean any Business Day on which dealings in
Dollars between banks may be carried on in London, England and Columbus, Ohio.
"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)
$30,000,000, 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 25, 1998, or such earlier date as the
Commitment shall terminate as provided
2
<PAGE> 3
herein, subject to any extension of the Commitment Period pursuant to subsection
2.7 of this Agreement.
"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.
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"ELIGIBLE MORTGAGE LOAN" shall mean at any date an original
(not a rewritten or renewed) loan evidenced by a note and 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.
"EUROCURRENCY RESERVE REQUIREMENTS" shall mean, for any day as
applied to a Eurodollar Rate Loan, the aggregate (without duplication) of the
rates (expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction with
respect thereto) dealing with reserve requirements prescribed for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board) maintained by a member bank of the Federal Reserve System.
"EURODOLLAR BASE RATE" shall mean with respect to each day
during each Interest Period, the rate per annum equal to the rate at which Bank
is offered Dollar deposits, for a one month period, at or about 10:00 A.M.,
Columbus, Ohio time, in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations in respect of its Eurodollar Rate Loans
are then being conducted.
"EURODOLLAR RATE" shall mean with respect to each day during
each Interest Period pertaining to a Eurodollar Rate Loan, a rate per annum
determined for such day in accordance with the following formula (rounded upward
to the nearest 1/100th of 1%):
EURODOLLAR BASE RATE
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"EURODOLLAR RATE LOANS" shall mean Loans the rate of interest
applicable to which is the Eurodollar Rate.
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"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 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)
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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.
"INTEREST PERIOD" shall mean with respect to any Eurodollar
Rate Loan, the period commencing on the Borrowing Date, the conversion date or
the continuation date with respect to such Eurodollar Rate Loan and ending no
less than ten nor more than twenty days thereafter, as selected by the
Borrowers.
"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.
"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
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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 Borrowers 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 of the change; the
Prime Rate is not necessarily the best interest rate offered by the Bank.
"PRIME RATE LOANS" shall mean loans the rate of interest
applicable to which is based on the Prime Rate.
"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
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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 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
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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.
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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)
Thirty Million and 00/100 Dollars ($30,000,000), 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.
Subject to the terms and conditions of this Agreement
(including the limitations on the availability of Eurodollar Rate Loans and
including the termination of the Commitment as set forth in Section 7 hereof),
the Loans may from time to time be (i) Eurodollar Rate Loans, (ii) Prime Rate
Loans, or (iii) a combination thereof, as determined by the Borrowers, provided
that no Loan shall be made as a Eurodollar Rate Loan after the day that is
twenty days prior to the last day of the Commitment Period.
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 (i) in the case of Prime Rate Loans, the
Prime Rate in effect from time to time minus one-quarter of one percent (1/4%)
and (ii) in the case of Eurodollar Rate Loans if permitted hereunder at such
time, the Eurodollar Rate determined for each such loan plus one and
three-quarter percent (1.75%), subject with respect to each of the aforesaid
interest rates 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, 1997, 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
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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 (i) in the case of Prime
Rate Loans, the Prime Rate in effect from time to time minus one-quarter of one
percent (1/4%) and (ii) in the case of Eurodollar Rate Loans, the Eurodollar
Rate determined for each such loan plus one and three-quarter percent (1.75%)
subject with respect to each of the aforesaid interest rates to the default
interest rate provisions of subsection 2.6(c) hereof.
2.3 PROCEDURE FOR BORROWING. The Borrowers may borrow under
the Commitment (subject to the limitations on the availability of Eurodollar
Rate Loans) 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), (ii) the amount of the
requested borrowing, (iii) whether the borrowing is to be of a Eurodollar Rate
Loan, a Prime Rate Loan or a combination thereof and (iv) if the borrowing is to
be entirely or partly of a Eurodollar Rate Loan, the amount of the Prime Rate
Loan, if any, and the amount of the Eurodollar Rate Loan and the length of the
initial Interest Period therefor. Each borrowing pursuant to the Commitment
shall be in the principal amount (a) in the case of Prime Rate Loans, of $50,000
or any larger amount, and (b) in the case of Eurodollar Rate Loans, of $500,000
or any larger amount, provided, however, with respect to Prime Rate Loans and
Eurodollar Rate Loans that no borrowing shall exceed 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. The
provisions for conversion and continuation of the Loans are set forth in
subsection 2.9.
2.4 COMMITMENT FEE. The Borrowers agree to pay to the Bank a
commitment fee for the Commitment Period, computed at the
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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, the payment of any unpaid commitment fee then
accrued hereunder and, if a Loan is a Eurodollar Rate Loan that is prepaid other
than at the end of the Interest Period applicable thereto, by any amounts
payable pursuant to Subsection 2.13, Indemnity. 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.
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 or the Eurodollar Reserve Requirements shall become
effective as of the opening of business on the day on which
such change in the Prime Rate or the Eurocurrency Reserve
Requirements shall become effective, without notice to the
Borrowers; however, the Bank shall give the Borrowers prompt
notice of all changes in the Prime Rate or the Eurodollar
Reserve Requirements.
(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
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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 EXTENSION OF COMMITMENT PERIOD. At any time during the
sixty days immediately preceding the last day of the Commitment Period, the Bank
in its sole discretion may elect to extend the Commitment Period for a period
not to exceed 360 days by written notice from the Bank to the Borrowers which
written notice shall include the number of days by which the Commitment Period
shall be extended. Each notice granting an extension shall be attached to the
Note and shall constitute an amendment extending the Commitment maturity date of
the Note by the number of days specified in the notice. If the Bank does not
elect to extend the Commitment Period, the Bank shall not be required to give
notice to Borrowers of such election not to extend. If the Borrowers have not
received notice from the Bank as stated herein that the Bank has elected to
extend the Commitment Period by one year, the Commitment Period shall be deemed
not to have been extended.
2.8 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 1996 Credit Agreement. Upon Borrowers' irrevocable payment
in full of the obligations outstanding under the 1996 Credit Agreement, the Bank
shall cancel the 1996 Credit Agreement and the promissory note related to the
1996 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.
2.9 CONVERSION AND CONTINUATION OPTIONS.
(a) The Borrowers may elect from time to time to convert
outstanding Loans from Eurodollar Rate Loans to Prime Rate Loans by giving the
Bank at least two Business Days' prior irrevocable notice of such election,
provided that any such conversion of Eurodollar Rate Loans may only be made on
the last day of an Interest Period with respect thereto. Subject to the
limitations on the availability of Eurodollar Rate Loans, the Borrowers may
elect from time to time to convert outstanding Loans from Prime Rate Loans to a
Eurodollar Rate Loan by giving the Bank telephonic or written notice (the
"NOTICE OF
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CONVERSION") at least two Business Days prior to the requested date for the
conversion, which Notice of Conversion shall specify (i) the date for the
conversion, (ii) the aggregate amount of Prime Rate Loans to be converted and
(iii) the length of the initial Interest Period for such Eurodollar Rate Loan.
Each conversion from Prime Rate Loans to a Eurodollar Rate Loan shall be in the
principal amount of $500,000 or any larger amount. All or any part of
outstanding Eurodollar Rate Loans and Prime Rate Loans may be converted as
provided herein, provided that (i) (unless the Bank otherwise consents) no Prime
Rate Loan may be converted into a Eurodollar Rate Loan when any Default or Event
of Default has occurred and is continuing and (ii) no Prime Rate Loan may be
converted into a Eurodollar Rate Loan after the date that is twenty days prior
to the last day of the Commitment Period.
(b) Subject to the limitations on the availability of
Eurodollar Rate Loans, any Eurodollar Rate Loans may be continued as such upon
the expiration of the then current Interest Period with respect thereto by the
Borrowers giving the Bank telephonic or written notice, at least two Business
Days prior to the last day of the then current Interest Period, and which notice
shall specify (i) the amount of the Eurodollar Rate Loans to be continued as
such and (ii) the length of the Interest Period for such Eurodollar Rate Loans.
All or any part of outstanding Eurodollar Rate Loans may be continued as
provided herein, provided that (i) (unless the Bank otherwise consents) no
Eurodollar Rate Loan may be continued when any Default or Event of Default has
occurred and is continuing and (ii) no Eurodollar Rate Loan may be continued as
a Eurodollar Rate Loan after the date that is twenty days prior to the last day
of the Commitment Period.
2.10 INABILITY TO DETERMINE INTEREST RATE. If by reason of
circumstances affecting the relevant market adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate, any Eurodollar Rate Loans requested
to be made shall be made as Prime Rate Loans.
2.11 ILLEGALITY; IMPRACTICABILITY. Notwithstanding any other
provision herein, if the adoption of or any change in any Requirement of Law or
in the interpretation or application thereof shall make it unlawful, or if
compliance by the Bank with any request or directive (whether or not having the
force of law) from any Governmental Authority occurring after the date hereof
shall make it impracticable for the Bank to make or maintain Eurodollar Rate
Loans as contemplated by this Agreement, the commitment of the Bank hereunder to
make Eurodollar Rate Loans shall forthwith be canceled and, until such time as
it shall no
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longer be unlawful for the Bank to make or maintain Eurodollar Rate Loans, the
Bank shall then have a commitment only to make a Prime Rate Loan when a
Eurodollar Rate Loan is requested and the Bank's Loans then outstanding as
Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate
Loans as required by law. If any such conversion of a Eurodollar Rate Loan
occurs on a day which is not the last day of the then current Interest Period
with respect thereto, the Borrowers shall pay to such Bank such amounts, if any,
as may be required pursuant to subsection 2.13, Indemnity.
2.12 REQUIREMENTS OF LAW. If the adoption of or any change in
any Requirement of Law or in the interpretation or application thereof
applicable to the Bank or compliance by the Bank with any request or directive
(whether or not having the force of law) from any Governmental Authority, in
each case made subsequent to the date hereof:
(a) shall subject the Bank to any tax of any kind whatsoever
with respect to any Eurodollar Rate Loans made by it or its obligation to make
Eurodollar Rate Loans, or change the basis of taxation of payments to the Bank
in respect thereof, or change any tax measured by or imposed upon the overall
net income, or franchise taxes, or taxes measured by or imposed upon overall
capital or net worth, or branch taxes (in the case of such capital, net worth or
branch taxes, imposed in lieu of such net income tax), of the Bank;
(b) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by, the Bank which is
not otherwise included in the determination of the Eurodollar Rate hereunder; or
(c) shall impose on the Bank any other condition; and the
result of any of the foregoing is to increase the cost to the Bank, by an amount
which the Bank deems to be material, of making Eurodollar Rate Loans or to
reduce any amount receivable hereunder in respect thereof, then the Borrowers
shall promptly pay the Bank, upon its demand, any additional amounts necessary
to compensate the Bank for such increased cost or reduced amount receivable; in
addition, in any such case, the Borrowers may elect to convert the Eurodollar
Rate Loans made by the Bank hereunder to Prime Rate Loans in which case the
Borrowers shall promptly pay to the Bank, upon demand, without duplication, such
amounts, if any, as may be required pursuant to subsection 3.1.
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2.13 INDEMNITY. The Borrowers agree to indemnify the Bank and
to hold the Bank harmless from any loss or expense which the Bank may sustain or
incur (other than through the Bank's gross negligence or willful misconduct) as
a consequence of the Borrowers' making a prepayment of a Eurodollar Rate Loan on
a day which is not the last day of an Interest Period with respect thereto
(whether by acceleration, demand or otherwise). Such indemnification may
include, without limitation, an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid for the
period from the date of such prepayment to the last day of the applicable
Interest Period in each case at the applicable rate of interest for such
Eurodollar Rate Loans provided for herein over (ii) the amount of interest (as
reasonably determined by the Bank) which would have accrued to the Bank on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank eurodollar market. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
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:
3.1 FINANCIAL STATEMENTS. Financial has heretofore furnished
to the Bank the balance sheet of Financial as of December 31, 1996, 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, 1996
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
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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.
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.
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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.
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 Paul S.
Coppel, General Counsel of M/I Schottenstein Homes, Inc.,
dated the date hereof and addressed to the Bank, substantially
in the form of Exhibit B hereto, and
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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 Executive Committee 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 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
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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 condition or
business or operations of Financial from the date of
Financial's December 31, 1996 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:
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(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 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
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(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
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;
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(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 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
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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 (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
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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.
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
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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, 1997, 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, (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
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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 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
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(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.
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,
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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 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
29
<PAGE> 30
(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
(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
30
<PAGE> 31
(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 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
31
<PAGE> 32
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.
3 Easton Oval
Columbus, Ohio 43219
Attention: Kerrii B. Anderson
Facsimile: (614) 418-8080
with a copy to: Paul S. Coppel, Esq.
M/I Schottenstein Homes, Inc.
3 Easton Oval
Columbus, Ohio 43219
Facsimile: (614) 418-8030
M/I Homes: M/I Schottenstein Homes, Inc.
3 Easton Oval
Columbus, Ohio 43219
Attention: Robert H. Schottenstein,
with a copy to Phillip G. Creek
Facsimile: (614) 418-8080
with a copy to Paul S. Coppel, Esq.
Facsimile: (614) 418-8030
The Bank: Bank One, 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
32
<PAGE> 33
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.
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 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.
33
<PAGE> 34
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.
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, N.A. M/I FINANCIAL CORP.
By___________________________ By____________________________
Thomas D. Igoe Paul S. Rosen
Title: Senior Vice President Title: President
M/I SCHOTTENSTEIN HOMES, INC.
By____________________________
Robert H. Schottenstein
Title: President and
Assistant Secretary
34
<PAGE> 1
M/I SCHOTTENSTEIN HOMES, INC.
PERFORMANCE-BASED BONUS PROGRAM
PRESIDENT
SENIOR EXECUTIVE VICE PRESIDENT
EFFECTIVE JANUARY 1, 1997
---------------
BONUS CRITERIA:
- ---------------
The President and the Senior Executive Vice President are eligible to receive up
to three times their December 31 base salary as per the following criteria:
1. If the pre-tax income of the Company is at least $13,000,000 a
graduating cents per dollar amount will be awarded as
indicated on ATTACHMENT A.
2. If the actual pre-tax net income of the Company is at least
50% of Budgeted Net Income and the Corporation achieves at
least a 92% affirmative response to Question Number 16 on the
Customer Questionnaire, the President and the Senior Executive
Vice President will receive 17% of their December 31 base
salary, increasing proportionally for each increase in
customer affirmative responses over 92%, to a maximum of 25%
of December 31 base salary at a 100% "yes" response level.
PAYMENT:
- --------
The bonus is 50% payable at the end of January and 50% payable prior to March 15
of the following year the bonus is earned. The individual must be employed in
this capacity with the Company on the date the bonuses are distributed to
receive a bonus. However, in the event of a promotion or transfer, the bonus
amount will be allocated to time employed in each position. No amounts are
considered due or payable in the event the employment relationship with the
Company is terminated.
THE COMPANY RESERVES THE RIGHT TO REVISE THIS PROGRAM AS IT CONSIDERS NECESSARY.
ACKNOWLEDGED:
- ------------------------------------------------------ ---------------------
NAME DATE
2
<PAGE> 2
<TABLE>
ATTACHMENT A - PRESIDENT AND SENIOR EXECUTIVE VICE PRESIDENT
ACTUAL NET INCOME RESULTS OVER $13,000,000
<CAPTION>
Incremental
Net Income 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$13,000,000 $0.03500 $0.03750 $0.04000 $0.04250 $0.05000 $0.05750 $0.06500 $0.07250
$15,000,000 $0.03750 $0.04000 $0.04250 $0.04500 $0.05250 $0.06000 $0.06750 $0.07500
$17,000,000 $0.04000 $0.04250 $0.04500 $0.04750 $0.05500 $0.06250 $0.07000 $0.07750
$18,000,000 $0.04250 $0.04500 $0.04750 $0.05000 $0.05750 $0.06500 $0.07250 $0.08000
$19,000,000 $0.04500 $0.04750 $0.05000 $0.05250 $0.06000 $0.06750 $0.07500 $0.08250
$20,000,000 $0.00050 $0.00175 $0.00300 $0.00425 $0.00550 $0.00675 $0.00800 $0.00925
$21,000,000 $0.00300 $0.00425 $0.00550 $0.00675 $0.00800 $0.00925 $0.01050 $0.01175
$22,000,000 $0.00550 $0.00675 $0.00800 $0.00925 $0.01050 $0.01175 $0.01300 $0.01425
$23,000,000 $0.04000 $0.04250 $0.04500 $0.04750 $0.05000 $0.05250 $0.05500 $0.05750
$24,000,000 $0.04250 $0.04500 $0.04750 $0.05000 $0.05250 $0.05500 $0.05750 $0.06000
$25,000,000 $0.04500 $0.04750 $0.05000 $0.05250 $0.05500 $0.05750 $0.06000 $0.06250
<CAPTION>
Incremental
Net Income 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50%
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$13,000,000 $0.07375 $0.07500 $0.07625 $0.07750 $0.07875 $0.08000 $0.08125 $0.08250
$15,000,000 $0.07625 $0.07750 $0.07875 $0.08000 $0.08125 $0.08250 $0.08375 $0.08500
$17,000,000 $0.07875 $0.08000 $0.08125 $0.08250 $0.08375 $0.08500 $0.08625 $0.08750
$18,000,000 $0.08125 $0.08250 $0.08375 $0.08500 $0.08625 $0.08750 $0.08875 $0.09000
$19,000,000 $0.08375 $0.08500 $0.08625 $0.08750 $0.08875 $0.09000 $0.09125 $0.09250
$20,000,000 $0.01050 $0.01175 $0.01300 $0.01425 $0.01550 $0.01675 $0.01800 $0.01925
$21,000,000 $0.01300 $0.01425 $0.01550 $0.01675 $0.01800 $0.01925 $0.02050 $0.02175
$22,000,000 $0.01550 $0.01675 $0.01800 $0.01925 $0.02050 $0.02175 $0.02300 $0.02425
$23,000,000 $0.06000 $0.06250 $0.06500 $0.06750 $0.07000 $0.07250 $0.07500 $0.07750
$24,000,000 $0.06250 $0.06500 $0.06750 $0.07000 $0.07250 $0.07500 $0.07750 $0.08000
$25,000,000 $0.06500 $0.06750 $0.07000 $0.07250 $0.07500 $0.07750 $0.08000 $0.08250
</TABLE>
<PAGE> 1
M/I SCHOTTENSTEIN HOMES, INC.
PERFORMANCE BASED BONUS PROGRAM
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
EFFECTIVE JANUARY 1, 1997
---------------
The Senior Vice President and Chief Financial Officer is eligible to receive up
to 125% of December 31 base salary as per the following criteria:
ACTUAL PRE-TAX NET INCOME: Provided the actual pre-tax net income of
the Corporation equals $13,000,000, the Senior Vice President and Chief
Financial Officer will receive a designated percentage of December 31
base salary as indicated by the following schedule:
<TABLE>
<CAPTION>
PRE-TAX NET INCOME PERCENTAGE OF DECEMBER 31 BASE SALARY
------------------ -------------------------------------
<S> <C>
$13,000,000 - $15,999,999 40%
------------------------- ---
$16,000,000 - $16,999,999 50%
------------------------- ---
$17,000,000 - $17,999,999 60%
------------------------- ---
$18,000,000 - $18,999,999 70%
------------------------- ---
$19,000,000 - $19,999,999 80%
------------------------- ---
$20,000,000 - $20,999,999 85%
------------------------- ---
$21,000,000 - $21,999,999 90%
------------------------- ---
$22,000,000 - $22,999,999 95%
------------------------- ---
$23,000,000 - $23,999,999 100%
------------------------- ----
$24,000,000 - $24,999,999 115%
------------------------- ----
$25,000,000.00 + 125%
---------------- ----
</TABLE>
PAYMENT
Bonuses are 50% payable at the end of January and 50% payable by March 15 of the
following year the bonus is earned. The individual must be employed in this
capacity with the Company on the date bonuses are distributed to receive a
bonus. However, in the event of a promotion or transfer, the bonus will be
allocated to time employed with each position. No amounts are considered due or
payable in the event the employment relationship with the Company is terminated.
THE COMPANY RESERVES THE RIGHT TO REVISE THIS PROGRAM AS IT CONSIDERS NECESSARY.
ACKNOWLEDGED:
__________________________________________________ ____________________
Name Date
<PAGE> 1
M/I SCHOTTENSTEIN HOMES, INC.
DIRECTOR DEFERRED COMPENSATION PLAN
SECTION 1. PURPOSE - The Company desires and intends to recognize the value to
the Company and its Affiliates of the past and present services of its
Directors, to encourage their continued service to the Company and its
Affiliates and to be able to attract and retain superior Directors by adopting
and implementing this Plan to provide such Directors an opportunity to defer
compensation otherwise payable to them from the Company and/or Affiliate. In
addition, the Company desires to allow such Directors an opportunity to invest
in the Common Shares of the Company by providing that amounts deferred under
this Plan will be used to purchase such Common Shares.
SECTION 2. CERTAIN DEFINITIONS - The following terms will have the meanings
provided below.
"Additions" means the credits applied to Deferred Compensation Accounts
as provided in Section 4 hereof.
"Adjustment Date" means the last business day of each calendar month.
"Affiliate" means any organization or entity which, together with the
Company, is a member of a controlled group of corporations or of a commonly
controlled group of trades or businesses [as defined in Sections 414(b) and (c)
of the Code], or of an affiliated service group [as defined in Code Section
414(m)] or other organization described in Code Section 414(o).
"Annual Retainer" means, with respect to any calendar year or other
period, the fixed retainer which, absent an election to defer hereunder, would
be payable to a Participant for services rendered to the Board or its committees
during those pay periods beginning in the given calendar year or other period.
"Beneficiary" means the person or persons designated in writing as such
and filed with the Company at any time by a Participant. Any such designation
may be withdrawn or changed in writing (without the consent of the Beneficiary),
but only the last designation on file with the Company shall be effective.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as may be amended from
time to time.
<PAGE> 2
"Common Shares" means the common shares of the Company, par value $.01.
"Company" means M/I Schottenstein Homes, Inc., an Ohio corporation, and
any successor entity.
"Deferred Compensation Account" means the separate Deferred
Compensation Account established for each Participant pursuant to Section 4 of
the Plan.
"Director" means any director of the Company who receives compensation
from the Company for his services as a director.
"Effective Date" means May 1, 1997, provided that the Plan is approved
by at least a majority vote of the members of the Board at a regularly scheduled
meeting of the Board within thirty (30) days following such date.
"Eligible Compensation" means, to the extent applicable to any given
Participant, the Annual Retainer and all Meeting Fees. The extent to which a
given Participant may defer a given component of Eligible Compensation shall be
based upon such Participant's eligibility to receive the given component of
Eligible Compensation (as determined under applicable agreements and pay
practices of the Company or applicable Affiliate) and the provisions and
limitations applicable to the given component as provided under this Plan.
"Fair Market Value" of the Common Shares means the most recent closing
price of the Common Shares on any national securities exchange on which the
Common Shares are then listed.
"Meeting Fees" means, with respect to any calendar year or other
period, the fees for attendance at meetings of the Board or its committees
(exclusive of expenses) which, absent an election to defer hereunder, would be
payable to a Participant during those pay periods beginning in the given
calendar year or other period.
"Participant" has the meaning specified in Section 3 of the Plan.
"Plan" means the M/I Schottenstein Homes, Inc. Director Deferred
Compensation Plan, as reflected in this document, as the same may be amended
from time to time after the Effective Date.
"Plan Administrator" means the Company.
"Plan Year" means the calendar year.
2
<PAGE> 3
"Trust" means the trust fund that, in the discretion of the Company,
may be established for purposes of segregating certain assets of the Company for
payment of benefits hereunder as the same may be amended from time to time. Such
Trust may be irrevocable, but the assets thereof shall, at all times, remain the
property of the Company subject to the claims of the Company's creditors.
SECTION 3. PARTICIPANTS
Each Director on the Effective Date shall be designated by the Company as
eligible for participation in the Plan on the Effective Date. Each individual
who becomes a Director after the Effective Date shall be designated by the
Company as eligible for participation in the Plan as of the date on which he
becomes a Director. A Director so designated shall immediately become a
"Participant" in the Plan. A Participant shall continue to participate in the
Plan until his status as a Participant is terminated by either a complete
distribution of his Deferred Compensation Account pursuant to the terms of the
Plan or by written directive of the Company.
SECTION 4. DEFERRED COMPENSATION ACCOUNTS
A. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNTS. The Company will
establish a Deferred Compensation Account for each Participant.
B. ELECTION OF PARTICIPANT. With respect to each Plan Year, a
Participant may elect to have either 100% or none of his Eligible Compensation
which is to be paid to him by the Company for the Plan Year in question
allocated to his Deferred Compensation Account and paid on a deferred basis
pursuant to the terms of the Plan. To exercise such an election for any Plan
Year, within thirty (30) days prior to the commencement of the Plan Year, the
Participant must advise the Company of his election, in writing, on a form
prescribed by the Company (each, a "Deferral Notice"). Notwithstanding the
preceding sentence, in the first year of the Plan, a Participant may complete a
Deferral Notice at any time within thirty (30) days following the Effective
Date. Such Deferral Notice shall apply only to Eligible Compensation payable to,
or earned by, the Participant after the date on which the Deferral Notice is
received by the Company. To the extent that a Participant completes a Deferral
Notice in accordance with the provisions of this paragraph, such Deferral Notice
shall remain in effect for future Plan Years until changed or revoked by the
Participant.
C. COMPANY CONTRIBUTIONS. Each time a Deferral Notice is submitted to
the Company in accordance with Section 4.B. above, during the next Plan Year,
the Company will allocate to the Participant's Deferred Compensation Account the
percentage of Eligible Compensation, specified in the Deferral Notice. Any
amounts so allocated by the Company are called "Company Contributions."
3
<PAGE> 4
D. ADJUSTMENT OF ACCOUNT BALANCES. As of each Adjustment Date, the
amount credited to the Deferred Compensation Account of each Participant shall
be divided by the then Fair Market Value of the Common Shares. Upon completion
of this calculation, each Deferred Compensation Account shall be credited with
the resulting number of whole Common Shares and any remaining amounts shall
continue to be credited to the Deferred Compensation Account until converted to
whole Common Shares at a future Adjustment Date. The Deferred Compensation
Account of each Participant shall be credited with cash dividends on the Common
Shares at the times and equal in amount to the cash dividends actually paid with
respect to Common Shares on and after the date credited to the Deferred
Compensation Account. At the following Adjustment Date, the amount of cash
dividends credited to each Deferred Compensation Account (and any other amounts
then credited to such account) shall be divided by the then Fair Market Value of
the Common Shares; and the Deferred Compensation Account of each Participant
shall be credited with the resulting number of whole Common Shares and any
remaining amounts shall continue to be credited to the Deferred Compensation
Account until converted to whole Common Shares at a future Adjustment Date. The
Plan Administrator may prescribe any reasonable method or procedure for the
accounting of Additions.
E. STOCK ADJUSTMENTS. The number of Common Shares in the Deferred
Compensation Account of each Participant shall be adjusted from time to time to
reflect stock splits, stock dividends or other changes in the Common Shares
resulting from a change in the Company's capital structure.
F. PARTICIPANT'S RIGHTS IN ACCOUNTS. A Participant's only right with
respect to his Deferred Compensation Account (and amounts allocated thereto)
will be to receive payments in accordance with the provisions of Section 5 of
the Plan.
SECTION 5. PAYMENT OF DEFERRED BENEFITS
A. TIME OF PAYMENT. Distribution of a Participant's Deferred
Compensation Account shall be made within thirty (30) days of the earlier of (i)
the date specified by the Participant in the Deferral Notice delivered to the
Plan Administrator at the time the deferral election is made; or (ii) the date
of the Participant's termination of service as a Director due to resignation,
retirement, death or otherwise.
B. METHOD OF DISTRIBUTION. A Participant's Deferred Compensation
Account shall be distributed to the Participant in a single lump sum payment.
Deferred Compensation Accounts shall be distributed either in Common Shares or
in cash at the election of the Plan Administrator. In the event that a
distribution is made in cash, the Plan Administrator shall determine the amount
of such distribution by using the Fair Market Value of the Common Shares as of
either the date of distribution specified by the Participant in his Deferral
Notice or the date on which the Participant's service as a Director terminated,
whichever may be applicable.
4
<PAGE> 5
C. HARDSHIP DISTRIBUTIONS. Prior to the time a Participant's Deferred
Compensation Account becomes payable, the Plan Administrator, in its sole
discretion, may elect to distribute all or a portion of such account in the
event such Participant requests a distribution due to severe financial hardship.
For purposes of this Plan, severe financial hardship shall be deemed to exist in
the event the Plan Administrator determines that a Participant needs a
distribution to meet immediate and heavy financial needs resulting from a sudden
or unexpected illness or accident of the Participant or a member of the
Participant's family, loss of the Participant's property due to casualty or
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant. A distribution based on
financial hardship shall not exceed the amount required to meet the immediate
financial need created by the hardship and shall be made in cash, based upon the
Fair Market Value of the Common Shares as of the date of distribution.
D. DESIGNATION OF BENEFICIARY. Upon the death of a Participant prior to
the distribution of his Deferred Compensation Account, such Deferred
Compensation Account shall be paid to the Beneficiary designated by the
Participant. If there is no designated Beneficiary or no designated Beneficiary
surviving at a Participant's death, payment of the Participant's Deferred
Compensation Account shall be made to the Participant's estate.
E. TAXES. In the event any taxes are required by law to be withheld or
paid from any payments made pursuant to the Plan, the Plan Administrator shall
deduct such amounts from such payments and shall transmit the withheld amounts
to the appropriate taxing authority.
SECTION 6. ASSIGNMENT OR ALIENATION - The right of a Participant, Beneficiary or
any other person to the payment of a benefit under this Plan may not be
assigned, transferred, pledged or encumbered except by Will or by the laws of
descent and distribution.
SECTION 7. PLAN ADMINISTRATION - The Plan Administrator will have the right to
interpret and construe the Plan and to determine all questions of eligibility
and of status, rights and benefits of Participants and all other persons
claiming benefits under the Plan. In all such interpretations and constructions,
the Plan Administrator's determination will be based upon uniform rules and
practices applied in a nondiscriminatory manner and will be binding upon all
persons affected thereby. Subject to the provisions of Section 8 below, any
decision by the Plan Administrator with respect to any such matters will be
final and binding on all parties. The Plan Administrator will have absolute
discretion in carrying out its responsibilities under this Section 7.
SECTION 8. CLAIMS PROCEDURE
A. FILING CLAIMS. Any Participant or Beneficiary entitled to benefits
under the Plan will file a claim request with the Plan Administrator.
5
<PAGE> 6
B. NOTIFICATION TO CLAIMANT. If a claim request is wholly or partially
denied, the Plan Administrator will furnish to the claimant a notice of the
decision within ninety (90) days in writing and in a manner calculated to be
understood by the claimant, which notice will contain the following information:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions upon
which the denial is based;
(iii) a description of any additional material or
information necessary for the claimant to perfect
the claim and an explanation of why such material or
information is necessary; and
(iv) an explanation of the Plan's claims review procedure
describing the steps to be taken by a claimant who
wishes to submit his claims for review.
C. REVIEW PROCEDURE. A claimant or his authorized representative may,
with respect to any denied claim:
(i) request a review upon a written application filed
within sixty (60) days after receipt by the claimant
of written notice of the denial of his claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
Any request or submission will be in writing and will be directed to the Plan
Administrator (or its designee). The Plan Administrator (or its designee) will
have the sole responsibility for the review of any denied claim and will take
all steps appropriate in the light of its findings.
D. DECISION ON REVIEW. The Plan Administrator (or its designee) will
render a decision upon review. If special circumstances (such as the need to
hold a hearing on any matter pertaining to the denied claim) warrant additional
time, the decision will be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the request for review. Written
notice of any such extension will be furnished to the claimant prior to the
commencement of the extension. The decision on review will be in writing and
will include specific reasons for the decision, written in a manner calculated
to be understood by the claimant, as well as specific references to the
pertinent provisions of the Plan on which the decision is based. If the decision
on review is not furnished to the claimant within the time limits prescribed
above, the claim will be deemed denied on review.
6
<PAGE> 7
SECTION 9. UNSECURED AND UNFUNDED OBLIGATION - Notwithstanding any provision
herein to the contrary, the benefits offered under the Plan shall constitute an
unfunded, unsecured promise by the Company to pay benefits determined hereunder
which are accrued by Participants while such Participants are Directors. No
provision shall at any time be made with respect to segregating any assets of
the Company for payment of any benefits hereunder, except to the extent that the
Company, in its discretion, establishes a Trust for such purpose. To the extent
any benefits provided under the Plan are actually paid from a Trust, neither the
Company nor any Affiliate shall have any further obligation therefor, but to the
extent not so paid, such benefits shall remain the obligations of, and shall be
paid by, the Company. No Participant, Beneficiary or any other person shall have
any interest in any particular assets of the Company or any Affiliate by reason
of the right to receive a benefit under the Plan and any such Participant,
Beneficiary or other person shall have only the rights of a general unsecured
creditor of the Company with respect to any rights under the Plan. Nothing
contained in the Plan shall constitute a guaranty by the Company, any Affiliate
or any other entity or person that the assets of the Company will be sufficient
to pay any benefit hereunder. All expenses and fees incurred in the
administration of the Plan and of any Trust shall be paid by the Company,
provided that, in the event that a Trust is established, at the direction of the
Company, such expenses and fees shall be paid from the Trust, provided that such
amounts are not paid by the Company or an Affiliate.
SECTION 10. AMENDMENT AND TERMINATION OF THE PLAN - The Company reserves the
right, by a resolution of the Board, to amend the Plan at any time, and from
time to time, in any manner which it deems desirable, provided that no amendment
will adversely affect the accrued benefits of any Participant under the Plan.
The Company also reserves the right, by a resolution of the Board, to terminate
this Plan at any time without providing any advance notice to any Participant;
and in the event of any Plan termination, the Company reserves the right to then
distribute all amounts allocated to Participants' Deferred Compensation
Accounts.
SECTION 11. BINDING UPON SUCCESSORS - The Plan shall be binding upon and inure
to the benefit of the Company, its successors and assigns and the Participants
and their heirs, executors, administrators and legal representatives. In the
event of the merger or consolidation of the Company with or into any other
corporation, or in the event substantially all of the assets of the Company
shall be transferred to another corporation, the successor corporation resulting
from the merger or consolidation, or the transferee of such assets, as the case
may be, shall, as a condition to the consummation of the merger, consolidation
or transfer, assume the obligations of the Company hereunder and shall be
substituted for the Company hereunder.
SECTION 12. NO GUARANTEE OF PLAN PERMANENCY - This Plan does not contain any
guarantee of provisions for continued service on the Board to any Director or
Participant nor is it guaranteed by the Company to be a permanent plan.
7
<PAGE> 8
SECTION 13. GENDER - Any reference in the Plan made in the masculine pronoun
shall apply to both men and women.
SECTION 14. INCAPACITY OF RECIPIENT - In the event that a Participant or
Beneficiary is declared incompetent and a guardian, conservator or other person
legally charged with the care of his person or of his estate is appointed, any
benefits under the Plan to which such Participant or Beneficiary is entitled
shall be paid to such guardian, conservator or other person legally charged with
the care of his person or his estate. Except as provided hereinabove, when the
Plan Administrator, in its sole discretion, determines that a Participant or
Beneficiary is unable to manage his financial affairs, the Plan Administrator
may, but shall not be required to, direct the Company to make distribution(s) to
any one or more of the spouse, lineal ascendants or descendants or other closest
living relatives of such Participant or Beneficiary who demonstrates to the
satisfaction of the Plan Administrator the propriety of making such
distribution(s). Any payment made under this Section 14 shall be in complete
discharge of any liability under the Plan for such payment. The Plan
Administrator shall not be required to see to the application of any such
distribution made to any person.
SECTION 15. GOVERNING LAW - This Plan shall be construed in accordance with and
governed by the laws of the State of Ohio.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
a duly authorized officer as of the Effective Date.
M/I SCHOTTENSTEIN HOMES, INC.
By:_______________________________________
Its:_______________________________________
8
<PAGE> 9
M/I SCHOTTENSTEIN HOMES, INC.
DIRECTOR DEFERRED COMPENSATION PLAN
DEFERRAL NOTICE
Name:_______________________________________________________________________
Soc. Sec. No.:______________________________________________________________
Date of Birth:______________________________________________________________
1. ELECTION TO DEFER.
In accordance with the provisions of the M/I Schottenstein Homes, Inc.
Director Deferred Compensation Plan (the "Plan"), I hereby elect to
defer __________ percent (either 0% or 100%) of the Eligible
Compensation (as defined in the Plan) payable to me for services as a
Director of M/I Schottenstein Homes, Inc., or any of its Affiliates.
This election supersedes any prior deferral election made by me and
shall remain in effect until terminated or otherwise amended.
2. DISTRIBUTION ELECTION.
I hereby elect to receive distribution of my Deferred Compensation
Account in the Plan within 30 days of my termination as a Director or,
if earlier, within 30 days of _______________.
3. METHOD OF PAYMENT.
I hereby acknowledge that I will receive the distribution of my
Deferred Compensation Account in the Plan in a single lump sum payment.
4. DESIGNATION OF BENEFICIARY.
I hereby designate _____________________ as my primary Beneficiary and
______________________ as my contingent Beneficiary(ies) to receive any
amounts payable under the Plan in the event of my death.
5. ACKNOWLEDGMENT.
I hereby acknowledge that my election to defer Eligible Compensation
under the Plan is irrevocable with respect to amounts which are
deferred under the Plan and shall remain in effect until terminated or
modified.
- -------------------- --------------------------------
Date Signature
--------------------------------
Name (please print)
<PAGE> 1
TERMINATION AGREEMENT
This Termination Agreement (the "Agreement") is made and entered into
as of the 31st day of July, 1997, among the parties to the Melvin and Irving
Schottenstein Family Agreement dated as of October 11, 1993 (as amended on March
17, 1997, the "Family Agreement"), and M/I Schottenstein Homes, Inc., an Ohio
corporation (the "Company").
Capitalized terms used in this Agreement shall have the meanings
assigned thereto in the Family Agreement.
RECITAL
-------
WHEREAS, the Company has agreed to repurchase an aggregate of 702,439
COMMON SHARES from certain of MEL'S FAMILY SHAREHOLDERS on the date hereof;
WHEREAS, HOLLY, ERIC and Amy D. Schottenstein ("AMY") have agreed
to resign from the Board of Directors of the Company;
WHEREAS, IRVING has agreed to deliver $25,083.75 to HOLLY, $54,164.81
to ERIC, $26,190.00 to AMY and $26,268.75 to Julie S. Saar ("JULIE"), in each
case in next day funds, in consideration for their execution of this Agreement;
and
WHEREAS, the parties hereto desire to terminate the Family Agreement
in its entirety;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
Section 1. PAYMENTS. On the date this Agreement has been signed by each
of the signatories hereto, IRVING shall deliver (i) $25,083.75 to HOLLY, (ii)
$54,164.81 to ERIC, (iii) $26,190.00 to AMY and (iv) $26,268.75 to JULIE, in
each case in next day funds (collectively, the "Termination Payments").
Section 2. RESIGNATIONS. (a) HOLLY, ERIC and AMY shall deliver
their written resignations as directors of the Company on the date hereof, which
resignations shall become effective immediately upon the termination of the
Family Agreement.
(b) HOLLY, ERIC and AMY, severally and not jointly, represent and
warrant that they are resigning as directors of the Company solely in connection
with the repurchase of the 702,439 COMMON SHARES contemplated hereby and in
connection with the termination of the Family Agreement and that none of HOLLY,
ERIC or AMY has furnished, and none will furnish, a letter to the Company
describing any disagreement with the Company on any matter relating to the
Company's operations, policies or practices and requesting that such matter be
disclosed.
<PAGE> 2
Section 3. FACILITATION OF COMMON SHARE REPURCHASE. Each of the parties
hereto agree that, notwithstanding anything in the Family Agreement to the
contrary, the Company may repurchase from MEL'S FAMILY SHAREHOLDERS, and MEL'S
FAMILY SHAREHOLDERS may sell to the Company, up to 702,439 COMMON SHARES on or
after the date hereof at a repurchase price of $12.8125 per COMMON SHARE.
Section 4. WAIVER OF RIGHTS OF FIRST AND SECOND REFUSAL. Each of the
parties hereto waives any and all rights of first and second refusal, and notice
thereof, pursuant to Section 6 of the Family Agreement in connection with the
repurchase by the Company of COMMON SHARES from one or more of MEL'S FAMILY
SHAREHOLDERS as contemplated by Section 3 of this Agreement.
Section 5. SECURITIES LAWS COMPLIANCE. (a) It is the intention of the
PARTIES hereto that the repurchase of COMMON SHARES from one or more of MEL'S
FAMILY SHAREHOLDERS contemplated by Section 3 of this Agreement comply with all
applicable federal and state securities laws, and each of the parties hereto,
including for such purpose the Company, agrees to take all actions reasonably
necessary and to cooperate in good faith to ensure such compliance to make any
all filings required under all applicable federal and state securities laws.
(b) The Company will arrange, at its expense, to have Forms 4 prepared
for HOLLY, ERIC and AMY in connection with the repurchase contemplated hereby,
and, upon review of such Forms 4 by counsel to HOLLY, ERIC and AMY, shall cause
such Forms 4 to be filed with the S.E.C. pursuant to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(c) It is the intention of the PARTIES hereto that the restrictive
legends on the remaining share certificates of MEL'S FAMILY SHAREHOLDERS be
removed as soon as reasonably practicable and that the COMMON SHARES represented
by such share certificates become eligible to be sold pursuant to Rule 144(k)
under the SECURITIES Act as soon as permitted under the SECURITIES ACT. The
PARTIES hereto acknowledge and agree that Rule 144(k) requires that at the time
of any applicable sale the holder of COMMON SHARES shall not be "an affiliate of
the issuer at the time of the sale and [shall not have] been an affiliate during
the preceding three months" and that "a period of at least two years [shall
have] elapsed since the later of the date the securities were acquired from the
issuer or from an affiliate of the issuer." The PARTIES further acknowledge and
agree that the question of "affiliate" status under the SECURITIES ACT is one of
facts and circumstances that cannot be determined in advance.
(d) Subject to subsection (c) above, as soon as reasonably practicable
after MEL'S FAMILY SHAREHOLDERS have ceased to be affiliates under the
SECURITIES ACT for more than 90 days, and assuming that MEL'S FAMILY
SHAREHOLDERS otherwise satisfy the requirements of Rule 144(k) under the
SECURITIES ACT, the Company will use reasonable efforts to obtain an opinion
from outside counsel, at the Company's expense, to the effect that MEL'S FAMILY
SHAREHOLDERS may rely on Rule 144(k) under the SECURITIES ACT and/or that the
restrictive legends on the remaining share certificates of MEL'S FAMILY
SHAREHOLDERS may be removed. The PARTIES hereto agree to
2
<PAGE> 3
provide such outside counsel such documents and certificates as are reasonably
requested by such counsel in connection with such opinion, and such counsel
shall be entitled to rely, as to matters of fact, on any such certificate or
document. The Company makes no representations or warranties as to when, or if,
MEL'S FAMILY SHAREHOLDERS will have ceased to be affiliates under the SECURITIES
ACT for more than 90 days.
Section 6. TERMINATION OF THE FAMILY AGREEMENT. The Family Agreement
shall be terminated in its entirety, and shall be of no further force or effect,
effective immediately upon delivery of the Termination Payments by IRVING.
Section 7. MUTUAL RELEASE. In consideration of the receipt of the
consideration described herein, each of the PARTIES hereto do hereby, on behalf
of themselves, the PARTIES whom they represent, their respective heirs,
administrators, executors, agents, parents, subsidiaries, affiliates, divisions,
officers, directors, stockholders, employees, successors and assigns, forever
release and discharge each other and their respective heirs, administrators,
executors, agents, parents, subsidiaries, affiliates, divisions, officers,
directors, stockholders, employees, successors, and assigns ("Released
Parties"), from any and all charges, claims, demands, judgments, actions, causes
of action, damages, expenses, costs, attorneys' fees, and liabilities of any
kind whatsoever, whether known or unknown, vested or contingent, in law, equity
or otherwise, which any such party has ever had, now has, or may hereafter have
against said Released Parties for or on account of any matter, cause or thing
whatsoever relating to the Company or to Joshua Investment Company which has
occurred prior to the date of this Agreement.
Section 8. INDEMNIFICATION. The Company will, to the fullest extent
permitted under applicable law and the Company's Articles of Incorporation and
Code of Regulations, as currently in effect, indemnify and hold harmless LENORE,
HOLLY, ERIC and AMY against all costs and expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
settlement amounts paid in connection with any claim, action suit, proceeding or
investigation (whether arising before or after the date hereof), whether civil,
criminal, administrative or investigative, arising out of or directly pertaining
to any action or omission in their capacity as directors, officers or employees
of the Company occurring on or prior to the date hereof, whether asserted or
claimed prior to, at or after the date hereof, for a period of six years after
the date hereof, in each case to the fullest extent permitted under applicable
law and the Company's Articles of Incorporation and Code of Regulations, as
currently in effect (and shall pay any expenses in advance of the final
disposition of such action or proceeding to such PARTY to the fullest extent
permitted under applicable law and the Company's Articles of Incorporation and
Code of Regulations, as currently in effect, upon receipt from the PARTY to whom
expenses are advanced of an undertaking to repay such advances, which
undertaking is required under applicable law or the Company's Articles of
Incorporation and Code of Regulations, as currently in effect). In the event of
any such claim, action, suit, proceeding or investigation, (i) the Company will
pay the reasonable fees and expenses of counsel selected by such PARTY promptly
after statements therefor are received and (ii) the Company shall cooperate in
the defense of any such matter. In the event that any claim for indemnification
is asserted or made within such six-year period, all rights to indemnification
in respect of such claim shall continue until the final disposition of such
claim.
3
<PAGE> 4
Section 9. FURTHER ASSURANCES. Each of the parties hereto agrees, at
any time and from time to time, upon the reasonable request of any other party
hereto, to do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered, all such further acts, documents and instruments as
may be required to effect any of the transactions contemplated by this
Agreement.
Section 10. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the PARTIES and their respective heirs, executors
and permitted assigns.
Section 11. JOINT PREPARATION. This Agreement shall be deemed to have
been prepared jointly by the parties hereto, and any uncertainty or ambiguity
existing herein shall not be interpreted against any PARTY, but shall be
interpreted according to the rules for the interpretation of arm's length
agreements.
Section 12. GOVERNING LAW; VENUE. This Agreement shall be construed in
accordance with Ohio law. The PARTIES hereto agree that any action concerning,
relating to, or involving this Agreement must be venued in Franklin County,
Ohio, and the PARTIES hereto irrevocably consent to the jurisdiction of the
courts in Franklin County, Ohio.
Section 13. COUNTERPARTS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
4
<PAGE> 5
IN WITNESS WHEREOF, each of the PARTIES has entered into this Agreement
as of the date and year first above written.
<TABLE>
<S> <C>
/s/ Irving E. Schottenstein /s/ Lenore S. Sagner
- ------------------------------------------------- --------------------------------------------------
Irving E. Schottenstein, as Family Representative Lenore S. Sagner, as Family Representative
M/I SCHOTTENSTEIN HOMES, INC.
By: /s/ Irving E. Schottenstein /s/ Lenore S. Sagner
- ------------------------------------------------- --------------------------------------------------
Irving E. Schottenstein Lenore S. Sagner, individually and as trustee
/s/ Irving E. Schottenstein /s/ Frances P. Schottenstein
- ------------------------------------------------- --------------------------------------------------
Irving E. Schottenstein, individually and as trustee Frances P. Schottenstein
/s/ Robert H. Schottenstein /s/ Robert H. Schottenstein
- ------------------------------------------------- -------------------------------------------------
Robert H. Schottenstein, individually and as trustee Janice K. Schottenstein
/s/ Steven Schottenstein /s/ Jill Schottenstein
- ------------------------------------------------- --------------------------------------------------
Steven Schottenstein, individually and as trustee Jill Schottenstein
/s/ Gary L. Schottenstein /s/ Terri Schottenstein
- ------------------------------------------------- --------------------------------------------------
Gary L. Schottenstein, individually and as trustee Terri Schottenstein
individually, and as trustee
/s/ Linda S. Fisher /s/ Robert W. Fisher
- ------------------------------------------------- --------------------------------------------------
Linda S. Fisher, individually and as trustee Robert W. Fisher
/s/ Holly S. Kastan /s/ Bradley R. Kastan
- ------------------------------------------------- --------------------------------------------------
Holly S. Kastan, individually and as trustee Bradley R. Kastan, individually and as trustee
/s/ Eric J. Schottenstein /s/ Melanie K. Schottenstein
- ------------------------------------------------- --------------------------------------------------
Eric J. Schottenstein, individually and as trustee Melanie K. Schottenstein
/s/ Amy D. Schottenstein /s/ Justin Magaram
- ------------------------------------------------- --------------------------------------------------
Amy D. Schottenstein, individually and as trustee Justin Magaram
/s/ Julie S. Saar /s/ Yoaz Saar
- ------------------------------------------------- --------------------------------------------------
Julie S. Saar, individually and as trustee Yoaz Saar, individually and as trustee
/s/ David J. Kastan
- -------------------------------------------------
David J. Kastan, as trustee
</TABLE>
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,124
<SECURITIES> 0
<RECEIVABLES> 25,697
<ALLOWANCES> 0
<INVENTORY> 281,636
<CURRENT-ASSETS> 318,457
<PP&E> 11,878
<DEPRECIATION> 3,693
<TOTAL-ASSETS> 349,228
<CURRENT-LIABILITIES> 70,892
<BONDS> 0
<COMMON> 88
0
0
<OTHER-SE> 114,668
<TOTAL-LIABILITY-AND-EQUITY> 349,228
<SALES> 246,983
<TOTAL-REVENUES> 251,843
<CGS> 201,532
<TOTAL-COSTS> 201,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,061
<INCOME-PRETAX> 12,915
<INCOME-TAX> 5,228
<INCOME-CONTINUING> 7,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,687
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
