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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 No. 1-12434
M/I SCHOTTENSTEIN HOMES, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1210837
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Easton Oval, Suite 500
Columbus, Ohio 43219
--------------------
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: (614) 418-8000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
---------------------------- --------------------------
Common Stock, par value $.01 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
-----------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 26, 1999, the aggregate market value of voting common
stock held by non-affiliates of the registrant (6,036,161 shares) was
approximately $104,501,000. The number of shares of common stock of M/I
Schottenstein Homes, Inc., outstanding on February 26, 1999 was 8,813,061.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1998 (Part I, II and IV)
Portions of the registrant's Definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders filed pursuant to Regulation 14A (Part III)
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PART I
ITEM 1. BUSINESS
COMPANY
M/I Schottenstein Homes, Inc. and its subsidiaries (the "Company") is
one of the nation's leading homebuilders. The Company sells and constructs
single-family homes to the entry level, move-up and empty nester buyer under the
Horizon, M/I Homes and Showcase Homes tradenames. In 1997, the latest year for
which information is available, the Company was the eighteenth largest U.S.
single-family homebuilder (based on total revenue) as ranked by Builder
Magazine. The Company sells its homes in eleven geographic markets including
Columbus and Cincinnati, Ohio; Tampa, Orlando and Palm Beach County, Florida;
Charlotte and Raleigh, North Carolina; Indianapolis, Indiana; Virginia, Maryland
and Phoenix, Arizona. The Company currently offers a number of distinct lines of
single-family homes ranging in base sales price from approximately $80,000 to
$930,000 with an average sales price in 1998 of $194,000. During the year ended
December 31, 1998, the Company delivered 3,629 homes and had revenues of $740.0
million and net income of $27.7 million, the highest in the Company's history.
M/I Schottenstein Homes, Inc. was reincorporated in Ohio in 1993. Prior to that
date, the Company was a Delaware Corporation. M/I Schottenstein Homes, Inc. was
incorporated, through predecessor entities, in 1973 and commenced its
homebuilding activities in 1976.
The Company is the leading homebuilder in the Columbus, Ohio market,
based on revenue, and has been the number one builder of single-family detached
homes in this market for each of the past ten years. In addition, the Company is
currently one of the top ten homebuilders in a majority of its other markets and
believes it is well positioned to further penetrate these markets. The Company's
growth strategy targets both product line expansion and geographical
diversification. With respect to geographical diversification, the Company has
expanded into new markets through the opening of new divisions rather than
through acquisitions. To complement its M/I Homes ($125,000 - $240,000 base
sales price range) and Showcase Homes ($190,000 - $395,000 base sales price
range) lines, the affordably priced Horizon line ($105,000 - $155,000 base sales
price range), which appeals to the first time home buyer, was introduced to the
Columbus market in 1993 and has been very successful. The Company has expanded
this entry level product into a majority of its other markets.
The Company believes it distinguishes itself from competitors by
offering homes located in selective areas that have a higher level of design and
construction quality within a given price range and by providing superior
customer service. The Company also believes that by offering homes at a variety
of price points, it attracts a wide range of buyers, many of whom are existing
M/I homeowners. The Company supports its homebuilding operations by providing
mortgage financing services through M/I Financial, and providing title-related
services through joint ventures.
The Company's business strategy emphasizes the following key
objectives:
Focus on profitability. The Company focuses on improving profitability
while maintaining the high quality of its homes and customer service. The
Company focuses on gross margins by stressing the features, benefits, quality
and design of its homes during the sale process and by minimizing speculative
building. The Company also value engineers its homes by working with its
subcontractors and suppliers to provide attractive home features while
minimizing raw material and construction costs.
Maintain conservative and selective land policies. The Company's
profitability is largely dependent on the quality of its subdivision locations;
therefore, the Company focuses on locating and controlling land in the most
desirable areas of its markets. The Company is conservative in its land
acquisition policies and only purchases land already zoned and serviceable by
utilities. The Company seeks to control a four- to five-year supply of land in
each of its markets. The Company believes its expertise in developing land gives
it a competitive advantage in controlling attractive locations at competitive
costs, and, as a result, developed approximately 70% of its communities as of
December 31, 1998. At December 31, 1998, the company owned 7,977 lots and
controlled an additional 11,432 lots pursuant to contracts.
Maintain or increase market position in current markets. The Company
has been the leading builder of single-family detached homes in the Columbus
market for each of the last ten years. The Company seeks to maintain its leading
position by continuing to provide high quality homes and superior customer
service. The Company believes there are significant opportunities to profitably
expand in each of its other markets, by increasing product offerings,
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continuing to acquire land in desirable locations and constructing and selling
homes with the same commitment to customer service that has accounted for the
Company's historical success. In addition, the Company continues to explore
expanding into new markets through either internal growth (such as the expansion
into Phoenix, Arizona late in 1996) or acquisitions.
Provide superior customer service. The overriding Company philosophy is
to provide superior service to its homeowners. The Company offers a wide array
of functional and innovative designs and involves the homeowner in virtually
every phase of its operations from the selling process through construction,
closing and service after delivery. The Company's selling process focuses on the
homes' features, benefits, quality and design as opposed to merely price and
square footage. In certain markets, the Company utilizes design centers to
enhance the selling process and increase the sale of optional features which
typically carry higher margins. In addition, the Company assists many of its
customers with financing and provides attractive warranties. As a result, based
on the responses to the Company's customer questionnaire, for the eighth year in
a row, more than 95% of the Company's customers would recommend the Company to a
potential buyer.
Offer product breadth and innovative design. The Company devotes
significant resources to the research and design of its homes to better meet the
needs of its customers. The Company offers a number of distinct product lines
and more than 350 different floor plans and elevations. In addition to providing
customers with a wide variety of choices, the Company believes it offers a
higher level of design and construction quality within a given price range. The
Company has also introduced and utilized innovative design concepts, such as
themed communities, rear garages, rear alley access, porches and parks.
Maintain decentralized operations with experienced management. The
Company believes that each of its markets has unique characteristics and,
therefore, is managed locally by dedicated, on-site personnel. Each of the
Company's managers possesses intimate knowledge of his or her particular market
and is encouraged to be entrepreneurial in order to best meet the needs of such
market. The Company's incentive compensation structure rewards each manager
based on financial performance, income growth and customer satisfaction.
SALES AND MARKETING
The Company markets and sells its homes under the Horizon, M/I and
Showcase tradenames. Home sales are conducted by the Company's own sales
personnel in on-site sales offices in furnished model homes. Each sales
consultant is trained and equipped to fully explain the features and benefits of
the Company's homes, to determine which home best suits each customer's needs,
to explain the construction process and to assist the customer in choosing the
best financing. Significant attention is given to the training and re-training
of all sales personnel to assure the highest levels of professionalism and
product knowledge. Overall, the Company currently employs more than 120 sales
consultants and operates approximately 150 model homes.
The Company advertises in newspapers and magazines, by direct mail, on
billboards and on radio and television, although the particular marketing medium
used differs from division to division based upon marketing demographics and
other competitive factors. The Company has increased significantly its
advertising on the world wide web through expansion of its web site at
www.mihomes.com. In addition, the Company welcomes independent broker
participation and, from time to time, utilizes various promotions and sales
incentives to attract interest from these brokers. The Company's commitment to
quality design and construction and reputation for customer service has resulted
in a strong referral base and numerous repeat buyers.
To enhance the selling process, the Company operates design centers in
the Cincinnati, Columbus, and most recently, Tampa markets. The design centers
are staffed with interior design specialists who assist customers in selecting
interior and exterior colors as well as standard options and upgrades. In its
other markets, the color selection and option/upgrade process is handled
directly by the Company's sales consultants. The Company also offers financing
to its customers through its wholly-owned subsidiary, M/I Financial, which now
has branches in all markets in which the Company operates except Virginia,
Maryland and Phoenix. M/I Financial originates loans primarily for purchasers of
the Company's homes. The loans are then sold, along with the majority of the
servicing rights, to outside mortgage lenders. The Company also provides
title-related services in a majority of its markets through joint ventures to
purchasers of its homes.
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The Company generally does not commence construction of a home until it
obtains a sales contract and preliminary oral advice from the customer's lender
that financing will be approved. However, in certain markets, contracts may be
accepted contingent upon the sale of an existing home, and construction is
authorized through a certain stage prior to satisfaction of that contingency. In
addition, in all divisions, a limited, strictly controlled number of "spec"
homes (i.e., homes started in the absence of an executed contract) are built in
order to permit construction and delivery of homes on an immediate-need basis
and to provide presentation of new products. In determining the number of spec
homes to be started, the Company has traditionally adopted what it believes to
be a very conservative approach, with the unit number determined after
consultation with the respective region and division presidents.
The Company's sales and marketing efforts are further enhanced by the
Company's inspection and warranty programs. Through these programs, the Company
offers a 2-year limited warranty on materials and workmanship and a 30-year
limited warranty against major structural defects. To increase the value of
these warranties, both are transferable in the event of the sale of the home.
Immediately prior to closing and again three months after a home is delivered,
the Company inspects each home with the customer to determine if any repairs are
required. At the customer's written request, the Company will also provide a
free 1-year inspection and again make necessary repairs. The Company passes
along to its customers all warranties provided by manufacturers or suppliers of
components installed in each home. The Company's warranty expense was
approximately 1.0% of total costs and expenses for each of the years ended
December 31, 1998, 1997 and 1996.
DESIGN AND CONSTRUCTION
The Company devotes significant resources to the research, design and
development of its homes in order to best meet the needs of the various home
buyers in housing markets in which the Company operates. Virtually all of the
Company's floor plans and elevations are designed by experienced and qualified
in-house professionals using modern computer-aided design technology. The
Company offers more than 350 different floor plans and elevations, which may
differ significantly from market to market.
The construction of each home is supervised by a construction
supervisor who reports to a production manager, both of whom are employees of
the Company. Customers are introduced to their construction supervisor prior to
commencement of home construction at a pre-construction "buyer/builder
conference." In addition to introducing customers to their construction
supervisor, the purpose of this conference is to review with the customers the
home plans and all relevant construction details and to explain the construction
process and schedule. Every customer is given a hard hat at the "buyer/builder
conference" as an open invitation to visit the site at any time during the
course of construction. The Company wants customers to become involved, to
better understand the construction of their home and to see the quality being
built into their home. All of this is part of the Company's philosophy to "put
the customer first" and enhance the total homebuilding experience.
Homes generally are constructed according to standardized designs and
meet applicable Federal Housing Authority ("FHA") and Veterans Administration
("VA") requirements. To allow maximum design flexibility, the Company limits the
use of pre-assembled building components and pre-fabricated structural
assemblies. The efficiency of the building process is enhanced by the Company's
use of standardized materials available from a variety of sources. The Company
has, from time to time, experienced construction delays due to shortages of
materials or subcontractors. Such construction delays may delay the delivery of
homes, thereby extending the period of time between the signing of a purchase
contract with respect to a home and the receipt of revenue by the Company;
however, the Company cannot predict the extent to which shortages of necessary
materials or labor may occur in the future. The Company employs independent
subcontractors for the installation of site improvements and the construction of
its homes. Subcontractors are supervised by the Company's on-site construction
supervisors. All subcontractor work is performed pursuant to written agreements
with the Company. Such agreements are generally short-term, with terms from six
to twelve months, provide for a fixed price for labor and materials and are
structured to allow for price protection for a majority of the higher cost
phases of construction related to the homes in the Company's Backlog. The
Company seeks to build in large volume to reduce the per unit cost of the home
due to advantages achieved by lower unit prices paid to subcontractors for labor
and materials.
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MARKETS
The Company's operations are organized into geographic divisions to
maximize operating efficiencies and use of local management. The Company's
present divisional operating structure is as follows:
<TABLE>
<CAPTION>
Year
Operations
State Division Commenced
----- -------- ---------
<S> <C> <C>
Ohio........................... Columbus 1976
Columbus - Showcase 1988
Columbus - Horizon 1994
Cincinnati 1988
Indiana........................ Indianapolis 1988
Florida........................ Tampa 1981
Orlando 1984
Palm Beach County 1984
North Carolina................. Charlotte 1985
Raleigh 1986
Washington, D. C. ............. Virginia 1991
Maryland 1991
Arizona........................ Phoenix 1996
</TABLE>
Columbus is the capital of Ohio, with federal, state and local
governments providing significant and stable employment. Columbus has been a
stable market with diverse economic and employment bases, with single-family
permits ranging between 6,500 and 7,500 annually over the last five years.
Columbus is also the home of The Ohio State University, one of the largest
universities in the world. The Company's market share in Columbus has exceeded
20% during each of the last five years.
Cincinnati is characterized by a stable economic environment and a
diverse employment base. Employers include Proctor & Gamble, Kroger and General
Electric. Also, the Cincinnati International Airport serves as a regional hub
for Delta Airlines. The Company continues to expand its Horizon product line in
this market and focus on more affordable communities. In 1998, the Company was
ranked the number two homebuilder in Cincinnati, excluding the Northern Kentucky
market in which the Company does not participate.
Indianapolis is a growth market noted for its excellent transportation
system and relatively young population. 1998 was the fifth consecutive year of
single-family housing permits exceeding 10,000. A large aircraft maintenance hub
for United Airlines and an express mail sorting facility for the U.S.
Postal Service have recently begun operations in Indianapolis.
Tampa's housing market is strong, buoyed by financial services, tourism
and conventions. Business relocation has continued, especially in the banking,
insurance and telecommunications industries. Tampa's economy continues to grow;
1998 employment levels increased by 5%.
In 1998, Orlando's economy grew at a healthy pace, with job growth
increasing by 5%. Contributing were improved tourism (both domestic and
foreign), strong in-migration and business expansion/relocation due primarily to
lower business costs. Single-family permits exceeded 15,000 in 1998, setting a
new record.
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Palm Beach County is one of the more affluent markets in the United
States. Job gains of 4% in 1998 were experienced in the construction, wholesale
trade and service sectors. Housing activity rebounded in 1998 after permits
dropped in 1997.
Charlotte, which is home to fast-growing firms in the banking industry,
continues to prosper as a financial center and has established itself as a
transportation hub with its manufacturing base. Construction activity set
another record in 1998, exceeding 15,000 single-family permits.
Raleigh-Durham is situated to take advantage of the explosive growth in
high-tech firms with a well-educated workforce and the recently completed North
Carolina telecommunications highway. Raleigh's economy continues to flourish,
with job growth of 4% in 1998, and single-family permits reaching 14,000.
The Washington, D.C. metro economy was led in 1998 by job gains in the
construction and service sectors. Housing activity was robust, with over 25,000
single-family permits being issued. The Company's operations are located
primarily in Fairfax, Prince William and Loudoun Counties in Virginia and Prince
Georges, Montgomery and Anne Arundel Counties in Maryland.
The Company entered the Phoenix market in late 1996. The Phoenix
housing market is one of the most active in the United States, generating over
30,000 single-family permits annually in each of the last two years. Phoenix is
a national leader in employment growth and has a very diverse economy.
PRODUCT LINES
The Company, on a regional basis, offers homes ranging in base sales
price from approximately $80,000 to $930,000 and ranging in square footage from
approximately 1,100 to 4,900 square feet. There are more than 350 different
floor plans and elevations across all product lines. By offering a wide range of
homes, the Company is able to attract first-time home buyers, move-up home
buyers and empty nesters. It is a Company goal to sell more than one home to our
customers.
In the Columbus market, which is the Company's largest market, the
Company offers all of its distinct product lines. In addition, the Company
offers a select number of its product lines in its divisions outside of
Columbus. The base sales price range and average square footage for these
product lines in Columbus are shown below:
<TABLE>
<CAPTION>
BASE SALES AVERAGE
DIVISION PRICE RANGE SQUARE FOOTAGE
---------------- ----------------------- --------------
<S> <C> <C> <C>
Horizon $105,000 - $155,000 1,400
M/I Homes $125,000 - $240,000 2,000
Showcase Homes $190,000 - $395,000 2,600
</TABLE>
Historically, the Company has offered a line of attached townhomes
exclusively in the Maryland and Virginia markets, however, due to market
demands, the Company will soon be offering this product in a number of its
Florida markets. These homes are marketed primarily to first-time buyers and
range from 1,600 to 2,200 square feet of living space. These homes utilize wood
frame construction and feature aluminum exteriors with brick fronts. In
Maryland, Virginia and Phoenix, the Company offers homes with up to 4,900 square
feet of living space for base sales prices ranging up to $930,000.
In each of the Company's lines of homes, certain options are available
to the purchaser for an additional charge. Major options include fireplaces,
additional bathrooms, and higher quality carpeting, cabinets and appliances. The
options typically are more numerous and significant on more expensive homes.
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LAND DEVELOPMENT ACTIVITIES
The Company's land development activities and land holdings have
increased in the past few years, and are expected to continue to increase. The
Company continues to purchase lots from outside developers under option
contracts, when possible, to limit the Company's risk; however, the Company
continually evaluates all of its alternatives to satisfy the need for lots in
the most cost effective manner. The Company develops internally when it can gain
a competitive advantage by doing so or when shortages of qualified land
developers make it impractical to purchase the required lots from outside
sources. The Company seeks to limit its investment in undeveloped land and lots
to the amount reasonably expected to be sold in the next three to five years.
Although the Company purchases land and engages in land development activities
primarily for the purpose of furthering its own homebuilding activities, it has
developed land with the intention of selling a portion of the lots to outside
homebuilders in certain markets.
To limit the risk involved in the development of raw land, the Company
primarily acquires land through the use of contingent purchase contracts. These
contracts require the approval of the Company's land committee and condition the
Company's obligation to purchase land upon approval of zoning, utilities, soil
and subsurface conditions, environmental and wetland conditions, levels of
taxation, traffic patterns, development costs, title matters and other
property-related criteria. In addition, careful attention is paid to the quality
of the public school system. Only after this thorough evaluation has been
completed does the Company make a commitment to purchase undeveloped land. To
further reduce the risk in acquiring raw land, the Company generally does not
commence engineering or development until zoning approvals are secured.
The Company from time to time enters into joint ventures, generally
with other homebuilders. At December 31, 1998, the Company had interests varying
from 33% to 50% in each of 29 joint ventures and limited liability companies
("LLCs"). These joint ventures and LLCs develop raw ground into lots and,
typically, the Company receives its percentage interest in the form of a
distribution of developed lots. The joint ventures and LLCs pay the managing
partner or manager certain fees for accounting, administrative and construction
supervision services performed by the managing partner or manager in addition to
its percentage interest as a partner in the profits of the joint venture or LLC.
The Company is currently responsible for the management of 15 of these 29 joint
ventures and LLCs. These joint ventures and LLCs are equity financed, except
where seller financing is available on attractive terms.
During development of lots, the Company is required by some
municipalities and other governmental authorities to provide completion bonds
for sewer, streets and other improvements. The Company generally provides
letters of credit in lieu of these completion bonds. At December 31, 1998, $9.5
million of letters of credit were outstanding for these purposes, as well as
$11.8 million of completion bonds.
AVAILABLE LOTS AND LAND
The Company seeks to balance the economic risk of owning lots and land
with the necessity of having lots available for its homes. At December 31, 1998,
the Company had in inventory 2,378 developed lots and 1,600 lots under
development. The Company also owned raw land expected to be developed into
approximately 2,488 lots.
In addition, at December 31, 1998, the Company's interest in lots held
by its joint ventures and LLCs consisted of 17 developed lots and 391 lots under
development. The Company also owns interests in raw land held by its joint
ventures and LLCs which is zoned for 1,103 lots. It is anticipated that some of
the lots owned by the Company will be sold to others.
At December 31, 1998, the Company had options and purchase contracts,
which expire over the next 5 years, to acquire 2,242 developed lots and land to
be developed into approximately 9,190 lots, for a total of 11,432 lots, with an
aggregate current purchase price of approximately $176.9 million. Purchase of
these properties is contingent upon satisfaction of certain requirements by the
Company and the sellers, such as zoning approval, completion of development and
availability of building permits. The majority of these lot purchase agreements
provide for periodic escalation of the purchase price which, the Company
believes, reflects the developers' carrying cost of the lots.
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The following table sets forth the Company's land position in lots
(including the Company's interest in joint ventures) by region in which the
Company operated at December 31, 1998:
<TABLE>
<CAPTION>
OWNED LOTS
----------------------------------------------
Under To Be Total Lots under
State Developed Development Developed Owned Option Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ohio and Indiana 1,364 1,369 2,806 5,539 7,857 13,396
Florida 558 266 307 1,131 2,513 3,644
Carolina 229 60 273 562 775 1,337
Virginia, Maryland and Phoenix 244 296 205 745 287 1,032
-----------------------------------------------------------------------------------------------------
Total 2,395 1,991 3,591 7,977 11,432 19,409
=====================================================================================================
</TABLE>
FINANCIAL SERVICES
Through its wholly-owned subsidiary, M/I Financial, the Company offers
fixed and adjustable rate mortgage loans, primarily to buyers of the Company's
homes. M/I Financial has branches in all of the Company's housing markets, with
the exception of Virginia, Maryland and Phoenix. Of the 3,270 Homes Delivered in
1998 in the markets in which M/I Financial operates, M/I Financial provided
financing for 2,930 of these homes representing approximately $447.0 million of
mortgage loans originated and sold. M/I Financial issues commitments to
customers and closes both conventional and government-insured loans in its own
name. To minimize the risk of financing activities, M/I Financial generally
sells the loans it originates to the secondary market which provides the funding
within several days thereafter. The Company retains a small servicing portfolio
which it currently sub-services with a financial institution.
At December 31, 1998, the Company was committed to fund $107.5 million
in mortgage loans to home buyers. Of this total, approximately $2.5 million were
adjustable rate loans and $105.0 million were fixed rate loan commitments. The
loans are granted at current market interest rates and the rate is guaranteed
through the transfer of the title of the home to the buyer. The Company uses
hedging methods to reduce its exposure to interest rate fluctuations between the
commitment date of the loan and the time the home closes.
The Company hedges its interest rate risk using optional and mandatory
forward sales of mortgage-backed securities whereby the Company agrees to sell
and later repurchase similar but not identical mortgage-backed securities.
Generally, the agreements are fixed-coupon agreements whereby the interest rate
and maturity date of both transactions are approximately the same and are
established to correspond with the closing of the fixed interest rate mortgage
loan commitments of the Company. The difference between the two values of the
mortgage-backed securities in the agreements at settlement provide a hedge on
the interest rate risk exposure in the mortgage loan commitments and is included
in the gain or loss on the sale of the loans to third party investors. At
December 31, 1998, these agreements matured within 90 to 120 days. Securities
under forward sales agreements averaged approximately $89.4 million during 1998
and the maximum amount outstanding at any month end during 1998 was $104.0
million, the balance at December 31, 1998. Hedging gains of $2.7 million were
deferred at year end as the mortgage loans and commitment contracts qualified
for hedge accounting.
Additionally, the Company hedges the interest rate risk relative to
unclosed loans by purchasing commitments from outside investors to acquire the
loans at the interest rate at which the loan will be closed. The cost of these
purchase commitments is recorded as an asset and is expensed as loans are closed
under the related commitments. Any remaining unused balance is expensed when the
commitment expires or earlier, if the Company determines that it will be unable
to use the entire commitment prior to its expiration date. At December 31, 1998,
the Company had approximately $15.0 million of commitments to deliver mortgage
loans to outside investors.
To reduce the credit risk associated with accounting losses,
which would be recognized if the counterparties failed completely to perform as
contracted, the Company limits the entities that management can enter
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into a commitment with to the primary dealers in the market. The risk of
accounting loss is the difference between the market rate at the time a
counterparty fails and the rate the Company committed to for the mortgage loans
and any purchase commitments recorded with the counterparty.
M/I Financial has been approved by the Department of Housing and Urban
Development and the VA to originate loans insured by the FHA and the VA,
respectively, and has been approved by the Federal Home Loan Mortgage
Corporation ("FHLMC") and by the Federal National Mortgage Association ("FNMA")
as a seller and servicer of mortgages sold to FHLMC and FNMA.
In 1996, the Company entered into a joint venture to provide title
insurance in the Indianapolis and Columbus markets. A similar joint venture was
formed in the Tampa and Orlando markets in 1997 and in the Cincinnati, Virginia
and Maryland markets in 1998.
COMPETITION
The homebuilding industry is highly competitive. The Company competes
in each of its local market areas with numerous national, regional and local
homebuilders, some of which have greater financial, marketing, land acquisition
and sales resources than the Company. Builders of new homes compete not only for
home buyers, 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 attractions for home buyers over building
a new home.
REGULATION AND ENVIRONMENTAL MATTERS
The homebuilding industry, including the Company, is subject to various
local, state and federal (including FHA and VA) statutes, ordinances, rules and
regulations concerning zoning, building, design, construction, sales and similar
matters. Such regulation affects construction activities, including types of
construction materials which may be used, certain aspects of building design,
sales activities and other dealings with consumers. The Company must also obtain
certain licenses, permits and approvals from various governmental authorities
for its development activities. In many areas, the Company is subject to local
regulations which impose restrictive zoning and density requirements in order to
limit the number of houses within the boundaries of a particular locality. The
Company seeks to reduce the risk from restrictive zoning and density
requirements by using contingent land purchase contracts which require that land
purchased by the Company meet various requirements, including zoning.
The Company may be subject to periodic delays or may be precluded
entirely from developing projects due to building moratoriums, particularly in
Florida. Generally, such moratoriums relate to insufficient water or sewage
facilities or inadequate road capacity within specific market areas or
subdivisions. Moratoriums experienced by the Company have not been of long
duration and have not had a material effect on the Company's business.
Each of the states in which the Company operates has adopted a wide
variety of environmental protection laws. These laws generally regulate
developments which are of substantial size and which are in or near certain
specified geographic areas. Furthermore, these laws impose requirements for
development approvals which are more stringent than those which land developers
would have to meet outside of these geographic areas.
Increased stringent requirements may be imposed on homebuilders and
developers in the future which may have a significant impact on the Company and
the industry. Although the Company cannot predict the effect of these
requirements, such requirements could result in time-consuming and expensive
compliance programs. In addition, the continued effectiveness of current
licenses, permits or development approvals is dependent upon many factors, some
of which are beyond the Company's control.
EMPLOYEES
At February 26, 1999, the Company employed 779 people (including
part-time employees), of which 223 were employed in sales, 313 in construction
and 243 in management, administrative and clerical positions. The Company
considers its employee relations to be very good. No employees are represented
by a collective bargaining agreement.
9
<PAGE> 10
ITEM 2. PROPERTIES
The Company owns and operates an approximately 85,000 square foot
office building used for its home office and leases all of its other offices.
Prior to September 1998, the Company leased its home office space from a limited
liability company in which the Company had a minority equity interest. The
Company purchased the remaining interest in this limited liability company in
September of 1998. See Notes 2, 5 and 9 to the Consolidated Financial
Statements.
Due to the nature of the Company's business, a substantial amount of
property is held as inventory in the ordinary course of business. See "Item 1.
Business - Available Lots and Land."
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to its
business. Management does not believe that any of this litigation is material to
the financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, no matters were submitted to a vote
of security holders.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is incorporated herein by
reference from the Company's Annual Report to Shareholders for the year ended
December 31, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by
reference from the Company's Annual Report to Shareholders for the year ended
December 31, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by this item is incorporated herein by
reference from the Company's Annual Report to Shareholders for the year ended
December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by
reference from the Company's Annual Report to Shareholders for the year ended
December 31, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants during
each of the two years ended December 31, 1998 and 1997.
11
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by
reference to the Company's definitive proxy statement relating to the 1999
Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the Company's definitive proxy statement relating to the 1999
Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the Company's definitive proxy statement relating to the 1999
Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the Company's definitive proxy statement relating to the 1999
Annual Meeting of Shareholders.
12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. The following financial statements of M/I
Schottenstein Homes, Inc. and its subsidiaries have been incorporated
herein by reference as set forth in Item 8 of Part II of this Annual
Report on Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - Years Ended December 31, 1998, 1997
and 1996
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years Ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules. Page
----
Independent Auditors' Report on financial statement schedules..... 18
For the Years ended December 31, 1998, 1997 and 1996:
Schedule II - Valuation and Qualifying Accounts ............... 19
All other schedules have been omitted because the required information
is included in the financial statements or notes thereto, the amounts
involved are not significant, or the required matter is not present.
3. Exhibits.
The following exhibits required by Item 601 of Regulation S-K are filed
as part of this report. For convenience of reference, the exhibits are
listed according to the numbers appearing in the Exhibit Table to Item
601 of Regulation S-K.
Exhibit Number Description
- --------------- -------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Company,
hereby incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
3.2 Regulations of the Company hereby incorporated by reference to
Exhibit 3(l) of the Company's Registration Statement on
Form S-1, Commission File No. 33-68564.
3.3 Amendment to the Code of Regulations of the Company, hereby
incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form S-8, Commission File
No. 33-76518.
3.4 Amended and Restated Regulations of the Company. (Filed
herewith.)
13
<PAGE> 14
Exhibit Number Description
- --------------- -------------------------------------------------------------
4 Specimen of Stock Certificate, hereby incorporated by
reference to Exhibit 4 of the Company's Registration Statement
on Form S-1, Commission File No. 33-68564.
10.1 The Predecessor's Amended and Restated 401(k) Profit Sharing
Plan, consisting of a savings plan adoption agreement, savings
plan and savings plan trust, hereby incorporated by reference
to Exhibit 10(cc) of the Predecessor's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991.
10.2 Third restated revolving credit loan, swingline loan and
standby letter of credit agreement by and among the Company;
Bank One, NA; The Huntington National Bank; The First National
Bank of Chicago; National City Bank; BankBoston, N.A.; The
Fifth Third Bank of Columbus; SunTrust Bank, Central Florida,
N.A. and Bank One, NA, as agent for the banks, dated May 27,
1998, hereby incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
10.3 Fourth restated revolving credit loan, swingline loan and
standby letter of credit agreement by and among the Company;
Bank One, NA; The Huntington National Bank; AmSouth Bank;
National City Bank; BankBoston, N.A.; The Fifth Third Bank of
Columbus; Suntrust Bank and Bank One, NA as agent for the
banks, dated December 31, 1998. (Filed herewith.)
10.4 Promissory Note by and among the Company, M/I Financial Corp.
and Bank One, Columbus, N.A., dated November 5, 1993, hereby
incorporated by reference to Exhibit 19(d) of the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10.5 Revolving Credit Agreement by and among the Company, M/I
Financial Corp. and Bank One, NA dated June 22, 1998, hereby
incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
10.6 1993 Stock Incentive Plan of the Company, hereby incorporated
by reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-8, Commission File No. 33-76518.
10.7 Termination Agreement between the Company and parties to the
Melvin and Irving Schottenstein Family Agreement, dated
July 31, 1997, hereby incorporated by reference to
Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
10.8 Executive Employment Agreement by and between the Company and
Irving E. Schottenstein dated August 9, 1994, hereby
incorporated by reference to Exhibit 10(c) of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994.
10.9 Company's 1997 President and Senior Executive Vice President
Bonus Program, hereby incorporated by reference to Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
14
<PAGE> 15
Exhibit Number Description
- --------------- -------------------------------------------------------------
10.10 Company's 1997 Senior Vice President and Chief Financial
Officer Bonus Program, hereby incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
10.11 Company's 1998 President and Senior Executive Vice President
Bonus Program, hereby incorporated by reference to
Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
10.12 Company's 1998 Senior Vice President and Chief Financial
Officer Bonus Program, hereby incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
10.13 Company's 1998 Chief Executive Officer Stock Bonus Program.
(Filed herewith.)
10.14 Company's 1998 President, Senior Executive Vice President and
Chief Financial Officer Stock Bonus Program. (Filed herewith.)
10.15 Company's 1999 Chief Executive Officer Bonus Program. (Filed
herewith.)
10.16 Company's 1999 President Bonus Program. (Filed herewith.)
10.17 Company's 1999 Chief Operating Officer Bonus Program. (Filed
herewith.)
10.18 Company's 1999 Chief Financial Officer Bonus Program. (Filed
herewith.)
10.19 Investment Home Compensation Plan dated September 1, 1995,
hereby incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
10.20 Limited Liability Company Agreement of Northeast Office
Venture, Limited Liability Company dated November 17, 1995,
hereby incorporated by reference to Exhibit 10.51 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.21 Lease Agreement by and between the Company and Northeast
Office Venture, Limited Liability Company dated November 17,
1995, hereby incorporated by reference to Exhibit 10.52 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.22 Credit Agreement between the Company and BankBoston, N.A., the
other parties which may become lenders and BankBoston, N.A. as
agent, dated August 29, 1997, hereby incorporated by reference
to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
15
<PAGE> 16
Exhibit Number Description
- --------------- -------------------------------------------------------------
10.23 Company's Director Deferred Compensation Plan, hereby
incorporated by reference to Exhibit 10.4 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.
10.24 Collateral Assignment Split-Dollar Agreement by and among the
Company and Robert H. Schottenstein, and Janice K.
Schottenstein, as Trustee of the Robert H. Schottenstein 1996
Insurance Trust, dated September 24, 1997, hereby incorporated
by reference to Exhibit 10.28 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
10.25 Collateral Assignment Split-Dollar Agreement by and among the
Company and Steven Schottenstein, and Irving E. Schottenstein,
as Trustee of the Steven Schottenstein 1994 Trust, dated
September 24, 1997, hereby incorporated by reference to
Exhibit 10.29 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
10.26 Collateral Assignment Split-Dollar Agreement by and among the
Company and Kerrii B. Anderson, and Douglas T. Anderson, as
Trustee of the Kerrii B. Anderson 1997 Irrevocable Life
Insurance Trust, dated September 24, 1997, hereby incorporated
by reference to Exhibit 10.30 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
13 Annual Report to Shareholders for the year ended December 31,
1998. (Filed herewith.)
21 Subsidiaries of Company. (Filed herewith.)
23 Consent of Deloitte & Touche LLP. (Filed herewith.)
24 Powers of Attorney. (Filed herewith.)
27 Financial Data Schedule.
- ----------------
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed during the last quarter
of the period covered by this report.
(c) See Item 14(a)(3).
(d) Financial Statement Schedule - See Item 14(a)(2).
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio on this
24th day of March, 1999.
M/I SCHOTTENSTEIN HOMES, INC.
(Registrant)
By: /s/ ROBERT H. SCHOTTENSTEIN
---------------------------------------
Robert H. Schottenstein
President and Director (Vice Chairman)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on this 24th of March, 1999.
<TABLE>
<CAPTION>
NAME AND TITLE NAME AND TITLE
<S> <C>
IRVING E. SCHOTTENSTEIN* /s/ ROBERT H. SCHOTTENSTEIN
- ------------------------------- --------------------------------
Irving E. Schottenstein Robert H. Schottenstein
Chairman of the Board and President and Director (Vice Chairman)
Chief Executive Officer
(Principal Executive Officer)
STEVEN SCHOTTENSTEIN* /s/ KERRII B. ANDERSON
- ------------------------------- --------------------------------
Steven Schottenstein Kerrii B. Anderson
Chief Operating Officer Senior Vice President, Chief Financial
and Director (Vice Chairman) Officer, Assistant Secretary and Director
(Principal Financial and Accounting Officer)
FRIEDRICH K. M. BOHM* JEFFREY H. MIRO*
- ------------------------------- --------------------------------
Friedrich K. M. Bohm Jeffrey H. Miro
Director Director
LEWIS R. SMOOT, SR.* NORMAN L. TRAEGER*
- ------------------------------- --------------------------------
Lewis R. Smoot, Sr. Norman L. Traeger
Director Director
</TABLE>
* The above-named Directors and Officers of the Registrant execute this report
by Robert H. Schottenstein and Kerrii B. Anderson, their Attorneys-in-Fact,
pursuant to powers of attorney executed by the above-named Directors and filed
with the Securities and Exchange Commission as Exhibit 24 to the report.
By: /s/ ROBERT H. SCHOTTENSTEIN
-------------------------------------
Robert H. Schottenstein, Attorney-in-Fact
By: /s/ KERRII B. ANDERSON
-------------------------------------
Kerrii B. Anderson, Attorney-in-Fact
17
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
M/I Schottenstein Homes, Inc.
Columbus, Ohio
We have audited the consolidated financial statements of M/I Schottenstein
Homes, Inc. and its subsidiaries as of December 31, 1998 and 1997, and for each
of the three years in the period ended December 31, 1998, and have issued our
report thereon dated February 25, 1999; such financial statements and reports
are included in your 1998 Annual Report to Shareholders and are incorporated
herein by reference. Our audits also included the consolidated financial
statement schedule of M/I Schottenstein Homes, Inc. and its subsidiaries, listed
in Item 14. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
- ----------------------------------
Deloitte & Touche LLP
Columbus, Ohio
February 25, 1999
18
<PAGE> 19
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Year Expenses Deductions Year
- ----------- ------- -------- ---------- ----
Valuation allowance deducted from
asset account - single-family lots,
land and land development costs:
<S> <C> <C> <C> <C>
Year ended
December 31, 1998 $ 4,000,000 $ 2,450,000 $ 340,000 $6,110,000
=========== =========== =========== ==========
Year ended
December 31, 1997 $ 2,350,000 $ 4,135,000 $ 2,485,000 $ 4,000,000
=========== =========== =========== ===========
Year ended
December 31, 1996 $ 975,000 $ 1,375,000 $ 0 $ 2,350,000
=========== =========== =========== ===========
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Number Description Page No.
- --------------- -------------------------------------------------------------- ---------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation of the Company,
hereby incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
3.2 Regulations of the Company, hereby incorporated by reference
to Exhibit 3(l) of the Company's Registration Statement on
Form S-1, Commission File No. 33-68564.
3.3 Amendment to the Code of Regulations of the Company, hereby
incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form S-8, Commission File No.
33-76518.
3.4 Amended and Restated Regulations of the Company.
4 Specimen of Stock Certificate, hereby incorporated by
reference to Exhibit 4 of the Company's Registration Statement
on Form S-1, Commission File No. 33-68564.
10.1 The Predecessor's Amended and Restated 401(k) Profit Sharing
Plan, consisting of a savings plan adoption agreement, savings
plan and savings plan trust, hereby incorporated by reference
to Exhibit 10(cc) of the Predecessor's Annual Report on Form
10-K for the fiscal year ended December 31, 1991.
10.2 Third restated revolving credit loan, swingline loan and
standby letter of credit agreement by and among the Company;
Bank One, NA; The Huntington National Bank; The First National
Bank of Chicago; National City Bank; BankBoston, N.A.; The
Fifth Third Bank of Columbus; SunTrust Bank, Central Florida,
N.A. and Bank One, NA, as agent for the banks, dated May 27,
1998, hereby incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
10.3 Fourth restated revolving credit loan, swingline loan and
standby letter of credit agreement by and among the Company;
Bank One, NA; The Huntington National Bank; AmSouth Bank;
National City Bank; BankBoston, N.A.; The Fifth Third Bank of
Columbus; Suntrust Bank and Bank One, NA as agent for the
banks, dated December 31, 1998. (Filed herewith.)
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
- --------------- -------------------------------------------------------------- ---------
<S> <C> <C>
10.4 Promissory Note by and among the Company, M/I Financial Corp.
and Bank One, Columbus, N.A., dated November 5, 1993, hereby
incorporated by reference to Exhibit 19(d) of the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10.5 Revolving Credit Agreement by and among the Company, M/I
Financial Corp. and Bank One, NA dated June 22, 1998, hereby
incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
10.6 1993 Stock Incentive Plan of the Company, hereby incorporated
by reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-8, Commission File No. 33-76518.
10.7 Termination Agreement between the Company and parties to the
Melvin and Irving Schottenstein Family Agreement, dated July
31, 1997, hereby incorporated by reference to Exhibit 10.5 of
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997.
10.8 Executive Employment Agreement by and between the Company and
Irving E. Schottenstein dated August 9, 1994, hereby
incorporated by reference to Exhibit 10(c) of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994.
10.9 Company's 1997 President and Senior Executive Vice President
Bonus Program, hereby incorporated by reference to Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
10.10 Company's 1997 Senior Vice President and Chief Financial
Officer Bonus Program, hereby incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
10.11 Company's 1998 President and Senior Executive Vice President
Bonus Program, hereby incorporated by reference to Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
10.12 Company's 1998 Senior Vice President and Chief Financial
Officer Bonus Program, hereby incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
- --------------- -------------------------------------------------------------- ---------
<S> <C> <C>
10.13 Company's 1998 Chief Executive Officer Stock Bonus Program.
(Filed herewith.)
10.14 Company's 1998 President, Senior Executive Vice President and
Chief Financial Officer Stock Bonus Program. (Filed herewith.)
10.15 Company's 1999 Chief Executive Officer Bonus Program. (Filed
herewith.)
10.16 Company's 1999 President Bonus Program. (Filed herewith.)
10.17 Company's 1999 Chief Operating Officer Bonus Program (Filed
herewith.)
10.18 Company's Chief Financial Officer Bonus Program. (Filed
herewith.)
10.19 Investment Home Compensation Plan dated September 1, 1995,
hereby incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
10.20 Limited Liability Company Agreement of Northeast Office
Venture, Limited Liability Company dated November 17, 1995,
hereby incorporated by reference to Exhibit 10.51 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.21 Lease Agreement by and between the Company and Northeast
Office Venture, Limited Liability Company dated November 17,
1995, hereby incorporated by reference to Exhibit 10.52 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.22 Credit Agreement between the Company and BankBoston, N.A., the
other parties which may become lenders and BankBoston, N.A. as
agent, dated August 29, 1997, hereby incorporated by reference
to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
10.23 Company's Director Deferred Compensation Plan, hereby
incorporated by reference to Exhibit 10.4 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
- --------------- -------------------------------------------------------------- ---------
<S> <C> <C>
10.24 Collateral Assignment Split-Dollar Agreement by and among the
Company and Robert H. Schottenstein, and Janice K.
Schottenstein, as Trustee of the Robert H. Schottenstein 1996
Insurance Trust, dated September 24, 1997, hereby incorporated
by reference to Exhibit 10.28 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
10.25 Collateral Assignment Split-Dollar Agreement by and among the
Company and Steven Schottenstein, and Irving E. Schottenstein,
as Trustee of the Steven Schottenstein 1994 Trust, dated
September 24, 1997, hereby incorporated by reference to
Exhibit 10.29 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
10.26 Collateral Assignment Split-Dollar Agreement by and among the
Company and Kerrii B. Anderson, and Douglas T. Anderson, as
Trustee of the Kerrii B. Anderson 1997 Irrevocable Life
Insurance Trust, dated September 24, 1997, hereby incorporated
by reference to Exhibit 10.30 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
13 Annual Report to Shareholders for the year ended December 31,
1998. (Filed herewith.)
21 Subsidiaries of Company. (Filed herewith.)
23 Consent of Deloitte & Touche LLP. (Filed herewith.)
24 Powers of Attorney. (Filed herewith.)
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit 3.4
AMENDED AND RESTATED
REGULATIONS
OF
M/I SCHOTTENSTEIN HOMES, INC.
ARTICLE I - MEETING OF SHAREHOLDERS
-----------------------------------
(a) ANNUAL MEETINGS. An annual meeting of shareholders, for
the election of directors, for the consideration of any reports and for the
transaction of such other business as may be brought before the meeting, shall
be held at such time and place, within or without the State of Ohio as may be
specified in the notice. The date of each annual meeting of the shareholders
shall be held no earlier than sixty (60) days, but no later than two hundred
seventy (270) days subsequent to the corporation's year end. The specific
meeting date within such time period shall be determined by the Board of
Directors in its sole and absolute authority; provided, however, that each
meeting date shall be within the 13 month period following the last annual
meeting of the Shareholders. If this date shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day.
(b) SPECIAL MEETINGS. Special meetings of the shareholders of
this corporation shall be called by the Secretary, pursuant to a resolution of
the Board of Directors, or upon written direction of the Chairman of the Board,
the President or, in the case of the President's absence, death or disability, a
Vice President authorized to exercise the authority of the President, or upon
written request by shareholders representing 50% of the shares issued and
entitled to vote thereat. Calls for special meetings shall specify the time,
place and object or objects thereof, and no business other than that specified
in the call therefor shall be considered at any such meetings. Special meetings
of the shareholders may be held at such time and place either within or without
the State of Ohio, as may be designated in the notice thereof.
(c) NOTICES OF MEETINGS. A written or printed notice of the
annual or any special meetings of the shareholders, stating the time and place,
and in case of special meetings, the objects thereof, shall be given by the
Secretary to each shareholder entitled to vote at such meeting appearing on the
books of the corporation, by mailing the same to his address as same appears on
the records of the corporation or of its Transfer Agent or Agents, at least
seven (7) days, but no more than sixty (60) days, before any such meeting.
Notice of adjournment of a meeting need not be given if the time and place to
which it is adjourned are fixed and announced at the meeting.
(d) QUORUM. Those shareholders present in person or by proxy
entitling them to exercise a majority of the voting power shall constitute a
quorum for any meeting of shareholders, except when a greater proportion is
required by law, the Articles of Incorporation or these Code of Regulations. In
the event of an absence of a quorum at any meeting or any
<PAGE> 2
adjournment thereof, a majority of those present in person or by proxy and
entitled to vote may adjourn such meeting from time to time. At any adjourned
meeting at which a quorum may be present, any business may be transacted which
might have been transacted at the meeting as originally called.
(e) PLACE OF MEETINGS. The annual or any special meeting of
shareholders may be held at such place or places within or without the State of
Ohio, as may be specified in the notice of any such meetings.
(f) PROXIES. At any meeting of shareholders, any person who is
entitled to attend, or to vote thereat, and to execute consents, waivers or
releases, may be represented at such meeting or vote thereat, and execute
consents, waivers and releases, and exercise any of his other rights, by proxy
or proxies appointed by a writing signed by such person and submitted to the
Secretary at or before such meeting. Voting by proxy or proxies shall be
governed by all of the provisions of Ohio law, including the provisions relating
to the sufficiency of the writing, the duration of the validity of the proxy or
proxies, and the power of substitution and revocation.
(g) DETERMINING SHAREHOLDERS OF RECORD. The Board of Directors
may fix in advance a record date for the determination of the shareholders
entitled to notice of and to vote at any meeting of the shareholders. The record
date so fixed shall not be more than sixty (60) days prior to the date of the
meeting. When a record date is so fixed, only shareholders of record on that
date are entitled to notice of and to vote at the meeting, notwithstanding any
transfer of any shares on the books of the corporation after the record date. If
the Board of Directors does not fix such a record date, only persons in whose
names shares entitled to vote stand on the stock records of the corporation on
the close of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held, are entitled to vote at the meeting.
(h) VOTING. At all meetings of the shareholders, every
registered owner of shares entitled to vote may vote in person or by proxy and
shall have one vote for each share standing in his name on the books of the
corporation. The vote at any meeting of the shareholders on any questions need
not be by ballot, unless so directed by the Chairman of the meeting or required
by the Articles of Incorporation. On a vote by ballot, each ballot shall be
signed by the shareholder voting, or by his proxy if there be such proxy, and it
shall state the number of shares voted. At any meeting at which a quorum is
present, all questions and business which shall come before the meeting shall be
determined by the vote of the holders of a majority of the voting power, except
when a different proportion is required by law, the Articles of Incorporation or
these Code of Regulations.
(i) INSPECTORS. The Board of Directors, in advance of any
meeting of the shareholders, may appoint one or more inspectors to act at the
meeting. If inspectors are not so appointed, the Chairman presiding at the
meeting may appoint one or more inspectors. If any person so appointed fails to
appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the Chairman presiding
thereat. Each inspector, before entering upon the discharge of his duties, shall
take and sign an
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oath faithfully to execute the duties of inspector at the meeting with strict
impartiality and according to the best of his ability. The inspectors so
appointed shall (i) determine the number of shares outstanding, the shares
represented at the meeting, the existence of a quorum and the authenticity,
validity and effect of proxies, (ii) receive votes, ballots, waivers, releases
or consents, (iii) hear and determine all challenges and questions arising in
connection with the right to vote, (iv) count and tabulate all votes, ballots,
waivers, releases or consents, (v) determine and announce the results of each
election or vote and (vi) do such acts as are proper to conduct each election or
vote with fairness to all shareholders. On request of the Chairman presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated and of the vote as certified by them.
(j) CHAIRMAN OF MEETING. The Chief Executive Officer shall
preside at all meetings of the shareholders. In the absence of the Chief
Executive Officer, the President shall preside at all meetings of the
shareholders. In the absence of the Chief Executive Officer and the President,
the Board of Directors may appoint the Chairman of the Board or any other
officer of the corporation to act as chairman of the meeting.
(k) SECRETARY OF MEETING. The Secretary of the corporation
shall act as Secretary of all meetings of the shareholders; and, in his absence,
the Chairman may appoint any person to act as Secretary of the meeting.
ARTICLE II - SHARES
-------------------
(a) CERTIFICATES. Certificates evidencing the ownership of
shares of the corporation shall be issued to those entitled to them by transfer
or otherwise. Each certificate for shares shall bear a distinguishing number,
the signature of the Chairman of the Board or the President or a Vice President
and the signature of the Secretary, an Assistant Secretary, the Treasurer, or an
Assistant Treasurer of the corporation, and such recitals as may be required by
law. If authorized by the Board of Directors and to the extent permitted by, and
subject to any conditions imposed under applicable law, the signatures of any of
said officers on the certificates may be facsimile, engraved, stamped or
printed. The certificates for shares shall be of such tenor and design as the
Board of Directors from time to time may adopt.
(b) TRANSFERS. The shares of the corporation shall be
assignable and transferable only on the books and records of the corporation or
of its Transfer Agent or Agents by the registered owner, or by his duly
authorized attorney, upon surrender of the certificate duly and properly
endorsed with proper evidence of authority to transfer. The corporation or its
Transfer Agent or Agents shall issue a new certificate for the shares
surrendered to the person or persons entitled thereto.
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(c) LOST, STOLEN OR DESTROYED CERTIFICATES. The holder of any
shares in the corporation shall immediately notify the Secretary of any lost,
stolen or destroyed certificate, and the corporation may issue a new certificate
in the place of any certificate alleged to have been lost, stolen or destroyed.
The Board of Directors may, at its discretion, require the owner of a lost,
stolen or destroyed certificate or his legal representative to give the
corporation a bond on such terms and with such sureties as it may direct, to
indemnify the corporation against any claim that may be made against it on
account of the alleged lost, stolen or destroyed certificate. The Board of
Directors may, however, at its discretion, refuse to issue any such new
certificate except pursuant to legal proceedings in a court having jurisdiction
over such matter pursuant to Ohio law.
(d) FIXING OF RECORD DATE. The Board of Directors shall have
power to fix in advance a date not exceeding sixty (60) days preceding the date
of any meeting of shareholders or the date for the payment of any dividend, or
the date for the allotment of rights, or the date when any rights in respect of
any change, conversion or exchange of capital stock may be exercised, and in
such cases, such shareholders only as shall be shareholders of record on the
date so fixed shall be entitled to such notice of, and to vote at, such meeting,
or to receive payment of such dividends, or to receive such allotment of rights,
or to exercise the rights in respect of such change, conversion or exchange of
capital stock.
(e) DIVIDENDS. Subject to law and the provisions of the
Articles of Incorporation, if any, the directors may declare dividends upon the
capital stock of the corporation as and when they deem expedient. Before
declaring any dividend, there may be set apart out of any funds of the
corporation available for their discretion think proper for working capital or
as a reserve fund to meet contingencies or for equalizing dividends or for such
other purposes as the directors shall think conducive to the interest of the
corporation.
(f) RESTRICTIONS ON TRANSFER. A restriction on the
hypothecation, transfer or registration of transfer of shares of the corporation
may be imposed either by the Articles of Incorporation or by these Code of
Regulations or by an agreement among any number of shareholders or among such
holders and the corporation or by resolution of the Board of Directors
determining that restriction is reasonably necessary for compliance with the
Securities Act of 1933, as amended. No restriction so imposed shall be binding
with respect to the securities issued prior to the adoption of the restriction
unless the holders of such securities are parties to an agreement or voted in
favor of the restriction. Unless noted conspicuously on the share certificate, a
restriction, even though permitted by this Section, is ineffective except
against a person with actual knowledge of the restriction.
ARTICLE III - DIRECTORS
-----------------------
(a) MANAGEMENT OF CORPORATION. Except where the law, the
Articles of Incorporation or this Code of Regulations requires actions to be
authorized or taken by the shareholders, all of the authority of the corporation
shall be exercised and the property, business,
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and affairs of the corporation shall be managed and controlled by, and under the
direction of, its Board of Directors.
(b) NUMBER AND TERM. The number of members of the Board of
Directors shall be initially fixed at nine (9) and shall be divided into three
classes. The first class shall be comprised of three directors, and the
directors initially elected to such class shall hold office until the next
succeeding annual meeting of the shareholders and until their successors are
duly elected and qualified. The second class shall be comprised of three
directors, and the directors initially elected to such class shall hold office
until the second succeeding annual meeting of the shareholders and until their
successors are duly elected and qualified. The third class shall be comprised of
three directors, and the directors initially elected to such class shall hold
office until the third succeeding annual meeting of the shareholders and until
their successors are duly elected and qualified. Thereafter, at each annual
meeting of shareholders, directors to succeed those whose terms are expiring at
such annual meeting shall be elected to hold office until the third succeeding
annual meeting of the shareholders and until their successors are duly elected
and qualified.
(c) NEWLY CREATED DIRECTORSHIPS AND VACANCIES. A resignation
from the Board of Directors shall be deemed to take effect upon its receipt by
the Secretary, unless some other time is specified therein. The acceptance of
any resignation shall not be necessary to make it effective unless so specified
in the resignation. Newly created directorships resulting from any increase in
the number of directors and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause, may be filled
at any duly convened meeting by the affirmative vote of a majority of the
remaining directors then in office, even though the number of then serving
directors is less than a quorum of the Board of Directors; provided, however,
that any vacancy resulting from the removal of a director by the shareholders
shall be filled only by the vote of the shareholders entitled to vote for the
election of directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term for which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
(d) CHANGE IN NUMBER OF DIRECTORS. The number of directors of
the corporation and the number of directors in each class may be changed either
by the affirmative vote of a majority of the directors or by an affirmative vote
of the holders of record of at least 75% of the voting power of the corporation
at a meeting of the shareholders called for that purpose and for the purpose of
electing directors; PROVIDED, HOWEVER, that the classes shall be of
approximately equal size and in no event shall any class contain more than six
directors. No reduction in the number of directors, either by a vote of the
directors or shareholders, shall of itself have the effect of shortening the
term of any incumbent director.
(e) NOMINATIONS. Nominations for the election of directors may
be made by the Board of Directors or a committee appointed by the Board of
Directors or by any shareholder entitled to vote in the election of directors
generally. However, any shareholders entitled to vote
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in the election of directors generally may nominate one or more persons for
election as directors at a meeting only if written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States Mail, postage prepaid, to the Secretary of the
corporation not less than sixty (60) days nor more than ninety (90) days prior
to the first anniversary of the date of the preceding year's annual meeting (or,
if the date of annual meeting is changed by more than thirty (30) days from the
anniversary date of the preceding year's annual meeting or in the case of a
special meeting, within seven (7) days after the date the Company mails or
otherwise gives notice of the date of the meeting). Each such notice shall set
forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of stock of the corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the corporation if
so elected. The Chairman of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure.
(f) REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such frequency and on such dates as the Board may
from time to time designate.
(g) SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be called by the Secretary upon written request of the Chairman
of the Board, the President or any two (2) directors.
(h) NOTICE OF MEETINGS. The Secretary shall give written
notice of the time and place of each meeting of the Board of Directors, whether
regular or special, to each member of the Board, either by personal delivery or
by mail, telegram, cablegram or other means authorized by law, at least two (2)
days prior to such meeting.
(i) QUORUM. A majority of the Directors in office at the time
shall constitute a quorum at all meetings thereof.
(j) PLACE OF MEETINGS. The Board of Directors may hold its
meetings at such place or places within or without the State of Ohio as the
Board may from time to time determine.
(k) COMPENSATION. Directors shall be entitled to receive as
compensation for services rendered and expenses incurred as directors, such
amounts as the Board of Directors may determine. Members of any committees
created hereunder or by the Board of Directors may
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be allowed such compensation as the Board of Directors may determine for
attending committee meetings.
(l) TELECONFERENCES. Meetings of the Board of Directors, or
any committee thereof, may be held through any communications equipment if all
persons participating in such meeting can hear each other, and participation in
any meeting in this manner shall constitute presence at such meeting.
(m) CONFLICTS OF INTEREST. A director of the corporation shall
not be disqualified by his office from dealing or contracting with the
corporation as a vendor, purchaser, employee, agent or otherwise. No
transaction, contract or other act of the corporation shall be void or voidable
or in any way affected or invalidated solely by reason of the fact that any
director or any firm, corporation or trust in which such director is a member or
is a beneficiary, shareholder, director, officer or trustee, is in any way
interested in such transaction, contract or other act, provided that the
conditions of Section 1701.60 of the General Corporation Law of Ohio, as the
same now exists or may hereafter be amended, are satisfied. No director shall be
accountable or responsible to the corporation for or in respect of any such
transaction, contract or other act of the corporation or for any gains or
profits realized by him by reason of the fact that he or any firm of which he is
a member or any corporation or trust which he is a beneficiary, shareholder,
director, officer or trustee is interested in such transaction, contract or
other act.
(o) REMOVAL FOR CAUSE. No director may be removed from office
by the shareholders except for cause with the affirmative vote of the holders of
not less than a majority of the total voting power of the corporation entitled
to vote in the election of directors.
ARTICLE IV - COMMITTEES
-----------------------
(a) EXECUTIVE COMMITTEE. The Board of Directors shall, by
resolution or resolutions passed by a majority of the Board, designate three (3)
or more of their number, which shall include the Chairman of the Board, to
constitute an Executive Committee to serve during the pleasure of the Board of
Directors. The Chairman of the Board shall be the Chairman of the Executive
Committee. The Board of Directors is authorized to remove at any time, without
notice, any member of the Executive Committee, except the Chairman of the Board,
and elect another member in his place and stead.
The Board of Directors may appoint one (1) or more directors as
alternate members of the Executive Committee who may take the place of any
absent member or members at any meeting of the Executive Committee.
Except as otherwise provided herein, in the Articles of Incorporation
or by law, the Board of Directors may delegate to such Committee, during the
interval between meetings of the Board of Directors, authority to exercise all
of the powers, or only specifically enumerated or described
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powers, of the Board of Directors in the management of the business and affairs
of the corporation.
The Executive Committee shall keep full and fair records and accounts
of its proceedings and transactions. All action by the Executive Committee shall
be reported to the Board of Directors at its meeting next succeeding such action
and shall be subject to control, revision and alteration by the Board of
Directors; provided that no rights of third persons shall be prejudicially
affected thereby.
Vacancies on the Executive Committee shall be filled by the Board of
Directors.
(b) COMPENSATION COMMITTEE. The Board of Directors shall
appoint the Compensation Committee, which shall consist of three (3) or more
directors, a majority of which are independent directors. For purposes of this
section, an independent director is a director who is not an employee, officer
or former officer of the corporation or a subsidiary or division thereof, or a
relative of a principal executive officer, or who is not an individual member of
an organization acting as an advisor, consultant or legal counsel receiving
compensation on a continuing basis from the corporation in addition to
director's fees. The Board shall designate one (1) of the members as Chairman of
the Committee. The Compensation Committee shall review and report to the Board
of Directors on company compensation programs and policies to assure that they
are competitive and provide for internal equity; review and advise the President
on specific compensation matters for officers and top executives; and perform
such other duties as the Board of Directors may require.
(c) AUDIT COMMITTEE. The Board of Directors shall appoint the
Audit Committee, which shall consist of not less than three (3) or more
directors who are independent directors of the corporation. The Board shall
designate one (1) of the members as Chairman of the Committee. The Audit
Committee shall review and report to the Board of Directors on the corporation's
audit procedures and policies, make recommendations concerning such policies and
procedures, and perform such other duties as the Board of Directors may require.
(d) GENERAL. The Board of Directors may by resolution provide
for such other standing committees or special committees as it deems desirable
and discontinue the same at its pleasure. Each such committee shall have such
powers and perform such duties, not inconsistent with law, as may be delegated
to it by the Board of Directors. The Board of Directors shall appoint the
members of any and all such committees and shall designate the Chairman of each
such committee. Subject to the provisions of these Code of Regulations,
committees formed by the Board of Directors shall fix their own rules of
procedure and shall meet as provided by such rules or by resolutions of the
Board of Directors, and they shall also meet at the call of the Chairman of the
Board, the President, any two members of the committee, or the sole surviving
member of the committee. A majority of the surviving members of a committee
shall be necessary to constitute a quorum. Any committee, including the
Executive Committee, may act in writing, or by cable or telegraph or by
telephone with written confirmation, without a meeting; but no such action of a
committee shall be effective unless concurred in by all members of the
committee.
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ARTICLE V - ELECTION OF OFFICERS
--------------------------------
At the first meeting of the Board of Directors in each year
(at which a quorum shall be present) held next after the annual meeting of the
shareholders, the Board of Directors shall elect the officers of the
corporation. Officers may also be elected at any regular meeting of the Board of
Directors or at any special meeting called for such purpose.
ARTICLE VI - OFFICERS
---------------------
(a) DESIGNATION. The officers of this corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more
Senior Vice Presidents, one or more Vice Presidents, a Secretary, a Treasurer,
and such other officers as the Board of Directors may, from time to time, elect,
all of whom may or may not be directors. The Chairman of the Board must be a
director of the corporation. Any person may hold two or more offices, except
that one person may not simultaneously hold the offices of President and
Secretary. Said officers shall be chosen by the Board of Directors and shall
hold office for one (1) year, or until their successors are elected and
qualified.
(b) REMOVAL. Any officer elected by the Board of Directors may
be removed at any time, with or without cause, upon vote of the majority of the
whole Board of Directors. Any officer appointed not by the Board of Directors
but by an officer or committee to which the Board of Directors shall have
delegated the power of appointment may also be removed at any time, with or
without cause, by the committee or superior officer (including successors) who
made the appointment, or by any committee or officer upon whom such power of
removal may be conferred by the Board of Directors.
(c) RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors, the Chairman of the Board, the
President, or the Secretary of the corporation. Any such resignation shall take
effect at the time specified therein, and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
(d) CONFLICTS OF INTEREST. An officer of the corporation shall
not be disqualified by his office from dealing or contracting with the
corporation as a vendor, purchaser, employee, agent or otherwise. No
transaction, contract or other act of the corporation shall be void or voidable
or in any way affected or invalidated solely by reason of the fact that any
officer or any firm, corporation or trust in which such officer is a member or
is a beneficiary, shareholder, director, officer or trustee, is in any way
interested in such transaction, contract or other act, provided that the
conditions of Section 1701.60 of the General Corporation Law of Ohio, as the
same now exists or may hereafter be amended, are satisfied. No officer shall be
accountable or responsible to the corporation for or in respect of any such
transaction, contract or other act of the corporation or for any gains or
profits realized by him by reason of the fact that
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he or any firm of which he is a member or any corporation or trust in which he
is a beneficiary, shareholder, director, officer or trustee is interested in
such transaction, contract or other act.
ARTICLE VII - DUTIES OF OFFICERS
--------------------------------
(a) CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of directors. He shall exercise, subject to the control
of the Board of Directors and the shareholders of the corporation, a general
supervision over the affairs of the corporation, and shall perform generally all
duties incident to the office and such other duties as may be assigned to him
from time to time by the Board of Directors.
(b) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
have general control and management of the business affairs and policies of the
corporation. He shall be generally responsible for the proper conduct of the
business of the corporation. Except as otherwise provided by law, the Articles
of Incorporation, this Code of Regulations or resolution of the Board of
Directors, the Chief Executive Officer shall possess the same power as the
President to sign all certificates, contracts, and other instruments of the
corporation. During the absence or disability of the President, the Chief
Executive Officer shall exercise all the powers and discharge all of the duties
of the President. The Chief Executive Officer shall preside at all meetings of
the shareholders. The Chief Executive Officer shall have such other powers and
perform such other duties as from time to time may be conferred upon him by the
Board of Directors.
(c) PRESIDENT. The President shall be the principal operating
and administrative officer of the corporation. If there is no Chief Executive
Officer or during the absence or disability of the Chief Executive Officer, he
shall exercise all of the powers and discharge all of the duties of the Chief
Executive Officer. Except as otherwise provided by law, the Articles of
Incorporation, this Code of Regulations or resolution of the Board of Directors,
the President shall possess the power to sign all certificates, contracts and
other instruments of the corporation. The President shall, in the absence of the
Chief Executive Officer, preside at all meetings of the shareholders. The
President shall perform all other duties as are incident to his office or are
properly required by him by the Board of Directors.
(d) SENIOR VICE PRESIDENT. The Senior Vice Presidents shall
have such powers and perform such duties as may be assigned to them by the Board
of Directors or the President.
(e) VICE PRESIDENT. The Vice Presidents shall have such powers
and perform such duties as may be assigned to them by the Board of Directors or
the President.
(f) SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of shareholders and directors and all other notices
required by law or by these Code of Regulations and, in case of his absence or
refusal or neglect to do so for a period of fifteen (15)
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days, any such notice may be given by a person thereunto directed by the
President, or by the directors or shareholders upon whose request the meeting is
called as provided in these Code of Regulations. The Secretary shall record all
the proceedings of the meetings of the corporation and of the directors in a
book to be kept for that purpose and shall perform such other duties as may be
assigned to him by the Board of Directors or the President. The Secretary shall
have the custody of the seal of the corporation, if any, and shall affix the
same to all instruments requiring it, when authorized by the directors or the
President, and attest the same.
(g) TREASURER. The Treasurer shall have the custody of the
funds and securities of the corporation which may come into his hands, and shall
do with the same as may be ordered by the Board of Directors. When necessary or
proper, he may endorse on behalf of the corporation, for collection, checks,
notes and other obligations. He shall deposit the funds of the corporation to
its credit in such hands and depositories as the Board of Directors may, from
time to time, designate. He shall also have such further duties as may be
assigned to him by the Board of Directors.
ARTICLE VIII - INDEMNIFICATION
------------------------------
(a) MANDATORY INDEMNIFICATION. The corporation shall indemnify
any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action threatened or instituted by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, member,
manager or agent of another corporation (domestic or foreign, nonprofit or for
profit), limited liability company, partnership, joint venture, trust or other
enterprise, against expenses (including, without limitation, attorneys' fees,
filing fees, court reporters' fees and transcript costs), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation. A person claiming indemnification under this section shall be
presumed, in respect of any act or omission giving rise to such claim for
indemnification, to have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and
the termination of any action suit or proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, rebut such presumption. Any indemnification under this section,
unless ordered by a court, shall be made by the corporation only upon a
determination that the director or officer has met the applicable standard of
conduct and such determination shall be made by (i) a majority vote of a quorum
consisting of directors of the corporation who were and are not parties to, or
threatened with, any such action, suit or proceeding, (ii) if such a quorum is
not obtainable or if a majority of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by
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or who has performed services for or any person to be indemnified, within the
past five years, or (iii) by the shareholders.
(b) INDEMNIFICATION AND ADVANCES FOR EXPENSES. Anything contained in
the Regulations or elsewhere to the contrary notwithstanding, to the extent that
an officer or director of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding, he shall be promptly
indemnified by the corporation against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript costs)
actually and reasonably incurred by him in connection therewith. Expenses
(including, without limitation, attorneys' fees, filing fees, court reporters'
fees and transcript costs) incurred in defending any action, suit or proceeding
shall be paid by the corporation in advance of the final disposition of such
action, suit or proceeding to or on behalf of the officer or director promptly
as such expenses are incurred by him if: (i) in respect of any claim, except one
in which the only liability asserted against a director is pursuant to Section
1701.95 of the Ohio Revised Code, the corporation receives an undertaking by or
on behalf of the director, in which he agrees to repay all such amounts if it is
proved by clear and convincing evidence in a court of competent jurisdiction
that his action or failure to act involved an act or omission undertaken with
deliberate intent to cause injury to the corporation or undertaken with reckless
disregard for the best interests of the corporation and agrees to cooperate
reasonably with the corporation concerning the action, suit, or proceeding; or
(ii) the corporation receives an undertaking by or on behalf of the director or
officer in which he agrees to repay all such amounts if it ultimately is
determined that he is not entitled to be indemnified by the corporation under
section (a) of this Article VIII.
(c) ARTICLE VIII NOT EXCLUSIVE. The indemnification provided by this
Article VIII shall not be exclusive of, and shall be in addition to, any other
rights to which any person seeking indemnification may be entitled under any
agreement, vote of shareholders or disinterested directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be an
officer or director of the corporation and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(d) INSURANCE. The corporation may purchase and maintain insurance or
furnish similar protection, including but not limited to trust funds, letters of
credit, or self-insurance, on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, member,
manager or agent of another corporation (domestic or foreign, nonprofit or for
profit), limited liability company, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the obligation or the power to indemnify him against such
liability under the provisions of this Article VIII.
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ARTICLE IX - CONTROL SHARE ACQUISITION PROVISIONS
-------------------------------------------------
(a) Unless the Directors of the corporation have pre-approved
a proposed Control Share Acquisition, such Control Share Acquisition shall be
made only with the prior authorization of the shareholders of the corporation in
accordance with this Article IX.
(b) Unless the Directors waive such requirement with respect
to any particular proposed Control Share Acquisition, any person who proposes to
make a Control Share Acquisition shall deliver notice (an "Acquiring Person
Statement") to the corporation at the corporation's principal executive offices.
Such Acquiring Person Statement shall set forth all of the following:
(1) The identity of the Acquiring Person;
(2) A statement that the Acquiring Person Statement is given
pursuant to this Article IX;
(3) The number of shares of Common Stock of the corporation
owned, directly or indirectly, by the Acquiring Person;
(4) The range of Voting Power, described in Article
IX(f)(2)(A)(i), (ii) or (iii) hereof, under which the proposed
Control Share Acquisition would, if consummated, fall;
(5) A description in reasonable detail of the terms of the
proposed Control Share Acquisition; and
(6) Representations of the Acquiring Person, together with a
statement in reasonable detail of the facts upon which they
are based, that the proposed Control Share Acquisition, if
consummated, will not be contrary to law, and that the
Acquiring Person has the financial capacity to make the
proposed Control Share Acquisition.
(c) As soon as reasonably practicable after receipt of an
Acquiring Person Statement that complies with Article IX(b) hereof, the
Directors shall set a date for a special meeting of shareholders for the purpose
of voting on the proposed Control Share Acquisition, which date, unless the
Acquiring Person agrees in writing to another date, shall be within ninety (90)
days after receipt by the corporation of the Acquiring Person Statement;
PROVIDED, that in no event shall such special meeting shall be held sooner than
thirty (30) days after receipt by the corporation of the Acquiring Person
Statement or later than one hundred and twenty (120) days after receipt by the
corporation of the Acquiring Person Statement.
(d) Notice of the special meeting of shareholders shall be
given as promptly as reasonably practicable by the corporation to all
shareholders of record as of the record date set for
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<PAGE> 14
such meeting, whether or not entitled to vote thereat. Such notice shall include
or be accompanied by both of the following:
(1) A copy of the Acquiring Person Statement delivered to the
corporation pursuant to this Article IX; and
(2) A statement by the corporation, authorized by the
Directors, of its position or recommendation, or that it is
taking no position or making no recommendation, with respect
to the proposed Control Share Acquisition.
(e) Unless the Directors of the corporation have pre-approved
a proposed Control Share Acquisition, the Acquiring Person may make the proposed
Control Share Acquisition only if both of the following occur:
(1) The shareholders of the corporation who hold shares of the
corporation entitling them to vote in the election of
directors authorize such acquisition at the special meeting
held for that purpose at which a quorum is present by the
affirmative vote of a majority of the Voting Power represented
at such meeting in person or by proxy, an a majority of such
Voting Power excluding the Voting Power of Interested Shares.
A quorum shall be deemed to be present at such special meeting
if at least a majority of the Voting Power, and a majority of
the portion of such Voting Power excluding the Voting Power of
Interested Shares are represented at such meeting in person or
by proxy; and
(2) Such acquisition is consummated, in accordance with the
terms so authorized, no later than three hundred sixty (360)
days following shareholder authorization of the Control Share
Acquisition.
(f) For purposes of this Article IX, the following terms have
the following meanings:
(1) "Acquiring Person" means any person who has delivered an
Acquiring Person Statement.
(2) (A) "Control Share Acquisition" means the acquisition,
directly or indirectly, by any person of shares of the
corporation that, when added to all other shares of the
corporation in respect of which such person may exercise or
direct the exercise of Voting Power, would entitle such
person, immediately after such acquisition, directly or
indirectly, alone or with others, to exercise or direct the
exercise of the Voting Power within any of the following
ranges of such Voting Power:
(i) One-fifth or more but less than one-third of such
Voting Power;
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<PAGE> 15
(ii) One-third or more but less than a majority of
such Voting Power; or
(iii) A majority or more of such Voting Power.
A bank, broker, nominee, trustee or other person who
acquires shares in the ordinary course of business for the
benefit of others in good faith and not for the purpose of
circumventing this Article IX shall, however, be deemed to
have Voting Power only of shares in respect of which such
person would be able, without further instructions from
others, to exercise or direct the exercise of votes on a
proposed Control Share Acquisition at a meeting of
shareholders called pursuant to this Article IX.
(B) The acquisition by any person of any shares of
the corporation does not constitute a Control Share
Acquisition for the purposes of this Article IX if the
acquisition was or is consummated in, results from or is the
consequence of any of the following circumstances:
(i) By bequest or inheritance, by operation of law
upon the death of an individual, or by any other
transfer without valuable consideration, including a
gift, that is made in good faith and not for the
purpose of circumventing this Article IX;
(ii) Pursuant to the satisfaction of a pledge or
other security interest created in good faith and not
for the purpose of circumventing this Article IX;
(iii) Pursuant to a merger or consolidation adopted,
or a combination or majority share acquisition
authorized, by shareholder vote in compliance with
the provisions of Section 1701.78, 1701.781 or
1701.83 of the Ohio Revised Code (or any successors
to such provisions) provided that the corporation is
the surviving or new corporation in the merger or
consolidation or is the acquiring corporation in the
combination or majority share acquisition;
(iv) The person's being entitled, immediately
thereafter, to exercise or direct the exercise of
Voting Power within the same range theretofore
attained by that person either in compliance with the
provisions of this Article IX or as a result solely
of the corporation's purchase of shares issued by it.
The acquisition by any person of shares of the
corporation in a manner described under Article IX(f)(2)(B)
shall be deemed a Control Share Acquisition authorized
pursuant to this Article IX within the range of Voting Power
under Article IX(F)(2)(A)(i), (ii) or (iii) that such person
is entitled to exercise after such
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<PAGE> 16
acquisition, provided in the case of an acquisition in a
manner described under Article IX(F)(2)(B)(i) or (ii), the
transferor of shares to such person had previously obtained
any authorization of the Directors or shareholders required
under this Article IX in connection with such transferor's
acquisition of shares of the corporation.
(C) The acquisition of shares of the corporation in
good faith and not for the purpose of circumventing this
Article IX from any person whose Control Share Acquisition
previously had been approved by the Directors or authorized by
the shareholders in compliance with this Article IX, or from
any person whose previous acquisition of shares of the
corporation would have constituted a Control Share Acquisition
but for Article IX(F)(2)(B) or (C), does not constitute a
Control Share Acquisition for the purposes of this Article IX
unless such acquisition entitles the person making the
acquisition, directly or indirectly, alone or with others, to
exercise or direct the exercise of Voting Power in excess of
the range of such Voting Power authorized pursuant to this
Article IX, or deemed to be so authorized under Article
IX(F)(2)(B).
(3) "Interested Shares" means the shares of the corporation in
respect of which any of the following persons may exercise or
direct the exercise of Voting Power:
(A) An Acquiring Person;
(B) Any officer of the corporation elected or
appointed by the Directors; or
(C) Any employee of the corporation who is also a
Director.
(4) "Voting Power" means voting power of the corporation in
the election of Directors.
ARTICLE X - AMENDMENTS
----------------------
These Regulations may be adopted, amended or repealed by the
affirmative vote of a majority of the shares empowered to vote thereon at any
meeting called and held for that purpose, notice of which meeting has been given
pursuant to law, or without a meeting by the written consent of the owners of a
majority of the shares of the corporation entitled to vote thereon; provided,
however, that the affirmative vote of the holders of shares entitling them to
exercise not less than two-thirds of the voting power of the corporation, or
two-thirds of the voting power of any class or classes of shares of the
corporation which entitle the holders thereof to vote in respect of any such
matter as a class, shall be required, whether at any meeting called and held for
that purpose, or without a meeting in an action by written consent, to adopt,
amend or repeal any of the following provisions of these Regulations: (1)
Article I(b); (2) Article I(c);
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<PAGE> 17
(3) Article III(b); (4) Article III(c); (5) Article III(e); (6) Article III(m);
(7) Article III(o); (8) Article VIII; (9) Article IX; or (10) this Article X;
provided, further, that the affirmative vote of the holders of shares entitling
them to exercise not less than 75% of the voting power of the corporation, or
75% of the voting power of any class or classes of shares of the corporation
which entitle the holders thereof to vote in respect of any such matter as a
class, shall be required, whether at any meeting called and held for that
purpose, or without a meeting in an action by written consent, to adopt, amend
or repeal Article III(d) of these Regulations.
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<PAGE> 1
Exhibit 10.3
FOURTH RESTATED REVOLVING CREDIT LOAN, SWINGLINE LOAN
-----------------------------------------------------
AND STANDBY LETTER OF CREDIT AGREEMENT
--------------------------------------
THIS FOURTH RESTATED REVOLVING CREDIT LOAN, SWINGLINE LOAN AND STANDBY
LETTER OF CREDIT AGREEMENT (this "Agreement") is made to be effective as of
December 31, 1998, by and among M/I SCHOTTENSTEIN HOMES, INC., an Ohio
corporation ("M/I") and M/I Homes, Inc., an Arizona corporation and a
wholly-owned Subsidiary of M/I ("M/I Homes") (M/I and M/I Homes are, jointly,
severally and jointly and severally, "Borrower"), BANK ONE, NA, a national
banking association ("Bank One"), THE HUNTINGTON NATIONAL BANK, a national
banking association ("HNB"), NATIONAL CITY BANK, a national banking association
("NCB"), BANKBOSTON, N.A., a national banking association, ("BKB"), THE FIFTH
THIRD BANK OF COLUMBUS, an Ohio banking corporation ("Fifth Third"), SUNTRUST
BANK, CENTRAL FLORIDA, N.A., a national banking association ("STB") and AMSOUTH
BANK, an Alabama corporation ("ASB") (Bank One, HNB, NCB, BKB, Fifth Third, STB
and ASB is each a "Bank" and are, collectively, "Banks"), and BANK ONE, NA, a
national banking association, as agent for Banks ("Agent"). For valuable
consideration, the receipt of which is hereby acknowledged, Borrower, Banks and
Agent, each intending to be legally bound, hereby recite and agree as follows:
BACKGROUND INFORMATION
----------------------
A. M/I, Bank One, HNB, The First National Bank of Chicago, a national
banking association ("First Chicago"), NCB, BKB, Fifth Third, STB and Agent are
parties to a certain Third Restated Revolving Credit Loan, Swingline Loan and
Standby Letter Credit Agreement effective as of May 27, 1998, as amended by the
First Amendment thereto effective as of August 25, 1998, (the "Existing Credit
Agreement").
B. Borrower, Banks and Agent want to modify the Existing Credit
Agreement by adding M/I Homes as a Borrower, adding ASB as a Bank, eliminating
First Chicago as a Bank, increasing the L/C Commitment (as defined in the
Existing Credit
<PAGE> 2
Agreement), reallocating the Commitments (as defined in the Existing Credit
Agreement), modifying certain covenants and reflecting the extension of the
maturity date of the Commitment from September 30, 2002 to September 30, 2003,
for which extension Agent provided notice to M/I dated September 30, 1998
pursuant to subsection 2.7 of the Existing Credit Agreement.
AGREEMENT
---------
SECTION 1. DEFINITIONS
-----------
1.1 Defined Terms. As used in this Agreement, the following terms have
the following respective meanings:
"601RS, LLC" shall mean 601RS, LLC, an Ohio limited liability
company and a wholly-owned Subsidiary of M/I.
"Adjustment Date" shall mean each date that is two Business Days
after February 15, May 15, August 15 and November 15 of each year of the
Commitment, subject to the provisions in the definition of "Applicable
Eurodollar Margin" for a later adjustment in certain circumstances.
"Affiliate" shall mean (a) any Person (other than a Subsidiary of
Borrower) which, directly or indirectly, controls, is controlled by or is under
common control with Borrower or (b) any Person who is a director, officer or key
employee of Borrower, any Subsidiary of Borrower or any Person described in
clause (a) of this definition. For purposes of this definition, "control" of a
Person means the power, direct or indirect, to vote twenty percent (20%) or more
of the securities having voting power for the election of directors of such
Person or otherwise to direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
"Agreement" shall mean this Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Applicable Eurodollar Margin" shall mean, during the period from
the date hereof until the first Adjustment Date, 1.60% per annum. Thereafter,
subject to the other terms and
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<PAGE> 3
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 9 hereof), the "Applicable Eurodollar Margin" will be adjusted
on each Adjustment Date to the applicable rate per annum that corresponds to the
ratio of EBITDA to Consolidated Interest Incurred, determined from the financial
statements and compliance certificate that relate to the last month of the
fiscal quarter immediately preceding such Adjustment Date, as set forth below:
If the ratio of EBITDA Applicable Eurodollar
to Consolidated Margin for Eurodollar
Interest Incurred Rate Loans is:
is: ---------------------
----------------------
less than 1.75 to 1.0 Eurodollar Rate Loans
are not available
equal to or greater
than 1.75 to 1.0 but
less than 2.0 to 1.0 2.35% per annum
equal to or greater
than 2.0 to 1.0 but
less than 2.50 to 1.0 2.10% per annum
equal to or greater
than 2.50 to 1.0 but
less than 3.0 to 1.0 1.85% per annum
equal to or greater
than 3.0 to 1.0 1.60% per annum
If, however, the financial statements required to be delivered pursuant to
subsection 6.1(b) and the related compliance certificate required to be
delivered pursuant to subsection 6.2(a) are not delivered when due, then:
(a) if such financial statements and compliance certificate
are delivered after the date such financial statements and compliance
certificate were required to be delivered but before the expiration of any
applicable cure period and the Applicable Eurodollar Margin increases from that
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<PAGE> 4
previously in effect as a result of a change in the ratio of EBITDA to
Consolidated Interest Incurred as determined from such financial statements and
compliance certificate, then the Applicable Eurodollar Margin during the period
from the date upon which such financial statements were required to be delivered
but before the expiration of any applicable cure period until the date upon
which they actually are delivered shall be the Applicable Eurodollar Margin as
so increased;
(b) if such financial statements and compliance certificate
are delivered after the date such financial statements and compliance
certificate were required to be delivered but before the expiration of any
applicable cure period and the Applicable Eurodollar Margin decreases from that
previously in effect as a result of a change in the ratio of EBITDA to
Consolidated Interest Incurred as determined from such financial statements and
compliance certificate, then such decrease in the Applicable Eurodollar Margin
shall not become applicable until the date upon which the financial statements
and compliance certificates are actually delivered; and
(c) if such financial statements and certificate are not
delivered prior to the expiration of the applicable cure period, the Applicable
Eurodollar Margin for the period beginning as of the date upon which such
financial statements and compliance certificate were required to be delivered
without regard to any applicable cure period until two Business Days following
the date upon which they actually are delivered shall be, per annum, one percent
(1.0%) plus the Applicable Eurodollar Margin that was in effect at the time of
such expiration (it being understood that the foregoing shall not limit the
rights of the Agent and the Banks set forth in Section 9).
"BankBoston Agreement" shall mean the credit agreement dated
August 29, 1997 between M/I and BankBoston, N.A., in its capacities as lender
and as agent, and any other parties which may become lenders thereunder, and any
subsequent successors or assigns, which credit agreement governs certain
subordinated indebtedness to BankBoston, N.A. in the principal amount of
$50,000,000.
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<PAGE> 5
"Banks" shall mean Bank One, HNB, NCB, BKB, Fifth Third, STB and
ASB.
"Borrowing Base" shall mean, as of any date of determination, an
amount equal to the sum of:
(a) the amount calculated by multiplying .90 by the value of
Eligible Production Inventory; plus
(b) the amount calculated by multiplying .85 by the
aggregate value of Eligible Model Houses which are not over two (2) years old
(as measured from the date of the completion of construction); plus
(c) the amount calculated by multiplying .75 by the
aggregate value of Eligible Model Houses which are over two (2) years old (as
measured from the date of the completion of construction); plus
(d) the amount calculated by multiplying .80 by the value of
Eligible Developed Lots Sold; plus
(e) the amount calculated by multiplying .50 by the value of
Eligible Developed Lots Unsold; plus
(f) the amount calculated by multiplying .25 by the value of
Eligible Raw Land and Land Under Development; plus
(g) the amount calculated by multiplying .25 by the value of
Investments in Joint Ventures;
less the sum of (i) the aggregate amount of Customer Deposits then held by
Borrower and (ii) the aggregate outstanding amount of Liens incurred by Borrower
and permitted by subsection 7.2(i) hereof.
"Borrowing Base Certificate" shall have the meaning set forth in
subsection 5.1(c) hereof.
"Borrowing Date" shall mean any Business Day specified pursuant
to (a) subsection 2.3 hereof as a date on which Banks make a disbursement of the
Revolving Credit Loans hereunder, (b) subsection 2.12 hereof as a date on which
Bank One makes, at
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<PAGE> 6
Borrower's request, a disbursement of the Swingline Loans hereunder, or (c)
subsection 2.13 hereof as a date on which Agent issues, at Borrower's request, a
Standby L/C 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 Bank One, HNB, NCB, BKB,
Fifth Third, STB or ASB and each with a maturity 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.
"Chevy Chase Villas, L.L.C." shall mean Chevy Chase Villas,
L.L.C., a Virginia limited liability company and a Subsidiary of M/I, which is
owned 99% by Manor Road - 1997, L.L.C.
"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 aggregate of (a) the Revolving Credit
Loan Commitments and (b) the L/C Commitments as set forth on Schedule 1 hereto.
"Commitment Period" shall mean the period from and including the
date hereof to the Maturity Date, or such earlier or later date as the
Commitment shall terminate as provided herein.
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<PAGE> 7
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with Borrower within the meaning of
Section 414(b) or (c) of the Code.
"Consolidated Earnings" at any date shall mean the amount which
would be set forth opposite the caption "net income" (or any like caption) in a
consolidated statement of income or operations of Borrower and Borrower's
Subsidiaries at such date prepared in accordance with GAAP.
"Consolidated Interest Expense" shall mean, for any period,
interest expense on Indebtedness of the Borrower and Borrower's Subsidiaries for
such period, in each case determined on a consolidated basis in accordance with
GAAP.
"Consolidated Interest Incurred" shall mean, for any rolling 12
month period, all interest incurred during such period on outstanding
Indebtedness of Borrower and Borrower's Subsidiaries irrespective of whether
such interest is expensed or capitalized by Borrower or Borrower's Subsidiaries,
in each case determined on a consolidated basis.
"Consolidated Liabilities" at any date shall mean the total of
all amounts which would be properly classified as liabilities in a consolidated
balance sheet of Borrower and Borrower's Subsidiaries at such date prepared in
accordance with GAAP, including without limitation deferred income taxes and
capital lease obligations, if any.
"Consolidated Tangible Net Worth" at any date shall be the
excess, if any, of the total amount of assets over the total amount of
liabilities, deferred credits and minority interests, as the same would appear
in a consolidated balance sheet of Borrower and Borrower's Subsidiaries at such
date prepared in accordance with GAAP, less the book value of all intangible
assets, determined in accordance with GAAP.
"Consolidated Unsubordinated Liabilities" at any date shall mean
Consolidated Liabilities less Subordinated Indebtedness.
"Construction Bonds" shall mean bonds issued by surety bond
companies for the benefit of, and as required by,
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<PAGE> 8
municipalities or other political subdivisions to secure the performance by
Borrower or any Subsidiary of its obligations relating to lot improvements and
subdivision development and completion.
"Contingent Obligation" shall mean as to any Person, any
reimbursement obligations (including Reimbursement Obligations) of such Person
in respect of drafts that may be drawn under letters of credit, any
reimbursement obligations 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 (A) endorsements of instruments for deposit or collection in the
ordinary course of business, (B) Mortgage Loan Repurchase Obligations, or (C)
obligations under lot purchase contracts entered into in the ordinary course of
business.
"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.
"Customer Deposits" shall mean cash deposits made by customers of
Borrower or any Subsidiary in connection with the execution of purchase
contracts, which deposits shall be shown as liabilities on Borrower's
consolidated financial statements.
-8-
<PAGE> 9
"Default" shall mean any of the events specified in Section 9
hereof, whether or not any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.
"Developed Lots" shall mean (a) all residential lots with respect
to which (i) development has been completed to such an extent that permits that
allow use and construction, including building, sanitary sewer and water, could
be obtained for a detached or attached single family house (including a
townhouse condominium building or condominium building) on each such lot, and
(ii) Start of Construction has not occurred; and (b) all lots zoned for
commercial use that have sewer and water available for use at such lots. The
value of Developed Lots shall be calculated in accordance with GAAP and shall
include all associated costs required to be capitalized under GAAP; provided,
however, that the total value (calculated in accordance with GAAP) of commercial
lots constituting Developed Lots shall not exceed $1,000,000 at any one time.
"Dollars" and "$" shall mean dollars in lawful currency of the
United States of America.
"EBITDA" shall mean, for any rolling 12 month period, on a
consolidated basis for Borrower and Borrower's Subsidiaries, the sum of the
amounts for such period of (a) Consolidated Earnings, plus (b) charges against
income for federal, state and local income taxes, plus (c) Consolidated Interest
Expense, plus (d) depreciation and amortization expense, plus (e) extraordinary
losses exclusive of any such losses that are attributable to the write-down or
other downward revaluation of assets (including the establishment of reserves),
minus (x) interest income, minus (y) all extraordinary gains.
"Eligible Assignee" shall mean (a) any Bank or any affiliate of a
Bank and (b) any other commercial bank, financial institution, institutional
lender or "accredited investor" (as defined in Regulation D promulgated under
the Securities Act of 1993 by the Securities and Exchange Commission) with
capital of at least $500,000,000 and with an office in the United States.
"Eligible Developed Lots Sold" shall mean all Developed Lots
which Borrower or any Subsidiary has recorded as
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<PAGE> 10
sold in accordance with its usual accounting practices to any Person other than
an Affiliate or Subsidiary of Borrower. The value of Eligible Developed Lots
Sold shall be calculated in accordance with GAAP and shall include all
associated costs required to be capitalized under GAAP, but shall be reduced by
the then outstanding aggregate amount of Indebtedness secured by any Eligible
Developed Lots Sold and permitted by subsection 7.1(d) hereof.
"Eligible Developed Lots Unsold" shall mean all Developed Lots
which Borrower or any Subsidiary has not recorded as sold in accordance with its
usual accounting practices, or which Borrower or any Subsidiary has recorded as
sold to an Affiliate or Subsidiary of Borrower. The value of Eligible Developed
Lots Unsold shall be calculated in accordance with GAAP and shall include all
associated costs required to be capitalized under GAAP, but shall be reduced by
the then outstanding aggregate amount of Indebtedness secured by any Eligible
Developed Lots Unsold and permitted by subsection 7.1(d) hereof.
"Eligible Model Houses" shall mean (a) all completed detached or
attached single family houses (including townhouse condominiums and
condominiums) which are being used by Borrower or any Subsidiary as sales
models, and the lots on which such houses are located and (b) detached or
attached (including townhouse condominiums and condominiums) single family
houses for which there has been a Start of Construction which upon completion
will be used by Borrower or any Subsidiary as sales models, and the lots on
which such houses are located. The value of Eligible Model Houses shall be
calculated in accordance with GAAP and shall include all associated costs
required to be capitalized under GAAP except for the costs of any furnishings,
but shall be reduced by the then outstanding aggregate amount of Indebtedness
secured by any Eligible Model Houses and permitted by subsection 7.1(d) hereof;
provided, however, that (a) the aggregate value of attached (including townhouse
condominiums and condominiums) single family homes constituting Eligible Model
Houses shall not exceed $3,000,000, and (b) the aggregate value of all Eligible
Model Houses shall not exceed $30,000,000.
"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
-10-
<PAGE> 11
which (a) M/I Financial Corp. has made to enable a natural person or persons to
purchase a home from Borrower, any Subsidiary of Borrower 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 M/I
Financial Corp. reasonably believes is subject, to a Purchase Commitment;
provided, however, that the amount of Eligible Mortgage Loans consisting of
loans made by M/I Financial Corp. for the purchase of homes from any Person
other than Borrower or any Subsidiary of Borrower shall not, in the aggregate at
any one time outstanding, exceed the amount of $5,000,000.
"Eligible Production Inventory" shall mean all detached or
attached (including townhouse condominiums and condominiums) single family
houses which are completed (including Speculative Houses but excluding Eligible
Model Houses and Rental Houses, if any) or for which there has been a Start of
Construction (including Speculative Houses but excluding Eligible Model Houses
and Rental Houses, if any), and the lots on which such houses are located. The
value of Eligible Production Inventory shall be calculated in accordance with
GAAP and shall include all associated costs required to be capitalized under
GAAP, but shall be reduced by the then outstanding aggregate amount of
Indebtedness secured by any Eligible Production Inventory and permitted by
subsection 7.1(d) hereof; provided that the cost of obtaining commitments for
financing terms to be provided to the buyers of Eligible Production Inventory
shall be excluded.
"Eligible Raw Land and Land Under Development" shall mean all
land other than land included in the definition of Eligible Model Houses, Rental
Houses (if any), Eligible Production Inventory, Eligible Developed Lots Sold, or
Eligible Developed Lots Unsold. The value of Eligible Raw Land and Land Under
Development shall be calculated in accordance with GAAP and shall include all
associated costs required to be capitalized in accordance with GAAP, but shall
be reduced by the then outstanding aggregate amount of Indebtedness secured by
any Eligible Raw Land and Land Under Development and permitted by subsection
7.1(d) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
-11-
<PAGE> 12
"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 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 Agent
is offered Dollar deposits at or about 10:00 A.M., Columbus, Ohio time, two
Business Days prior to the beginning of such Interest Period 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 for
delivery on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of its Eurodollar
Rate Loan to be outstanding during such Interest Period.
"Eurodollar Rate Loans" shall mean Revolving Credit Loans the
rate of interest applicable to which is based upon the Eurodollar Rate.
"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
"Event of Default" shall mean any of the events specified in
Section 9 hereof, provided that any requirement for the giving of notice, the
lapse of time, or both, has been satisfied.
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<PAGE> 13
"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 4.1 hereof affects the calculation of any
financial covenant contained herein, Borrower, Banks and Agent 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.
"Guaranteed HNB Joint Ventures Letters of Credit" shall mean that
portion of the standby letters of credit (including joint venture letters of
credit issued by HNB prior to the date of this Agreement that will remain in
place after the effective date of this Agreement) issued by HNB pursuant to the
HNB Joint Ventures Letter of Credit Agreement for the account of joint ventures
of which Borrower is a partner which Borrower has guaranteed in accordance with
the terms of the HNB Joint Ventures Letter of Credit Agreement, provided that
the portion of such letters of credit that has been guaranteed by Borrower shall
not exceed in the aggregate $6,500,000 at any one time outstanding.
"Guaranties" (individually, "Guaranty") shall mean the guaranties
of the Indebtedness evidenced by this Agreement and by all documents
contemplated by this Agreement, including without limitation the Notes, as this
Agreement and such
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<PAGE> 14
documents may be amended or restated from time to time, which guaranties are
substantially in the form of Exhibit A attached to this Agreement, executed by
each of Borrower's Subsidiaries which is not also a borrower under this
Agreement (which are M/I Financial Corp.; M/I Homes Construction, Inc.; Manor
Road - 1997, L.L.C.; Chevy Chase Villas, L.L.C.; Northeast Office Venture;
601RS, LLC; MHO, LLC; and M/I Service Corp.) in favor of the respective Banks
and to which Agent shall also be a party, and any guaranties in favor of Agent
and the respective Banks executed by (a) each other permitted Subsidiary, if
any, of Borrower and/or (b) the M/I Ancillary Businesses that are wholly-owned
by Borrower or by any Subsidiary.
"HNB Joint Ventures Letter of Credit Agreement" shall mean the
Agreement to Issue Letters of Credit dated as of June 8, 1994, as amended and to
be amended from time to time, with respect to standby letters of credit issued
or to be issued by HNB for the account of certain joint ventures of which
Borrower is a partner.
"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 (including Reimbursement Obligations) in
respect of all drafts actually drawn under letters or credit (including Standby
L/Cs) issued for the account of such Person, (f) indebtedness arising under
unpaid reimbursement obligations in respect of all payments actually made under
surety bonds (including payments actually made under Construction Bonds), and
(g) the incurrence of withdrawal liability under Title IV of ERISA by such
Person or a Commonly Controlled Entity to a Multiemployer Plan.
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<PAGE> 15
"Interest Payment Date" shall mean, (a) with respect to any Prime
Rate Loan, the last day of each March, June, September and December, commencing
on the first of such days to occur after the first Borrowing Date, (b) with
respect to any Eurodollar Rate Loan having an Interest Period of three months or
less, the last day of such Interest Period, and (c) with respect to any
Eurodollar Rate Loan having an Interest Period longer than three months, (x)
each day which is three months, or a whole multiple thereof, after the first day
of such Interest Period, and (y) the last day of such Interest Period.
"Interest Period" shall mean with respect to any Eurodollar Rate
Loan:
(i) initially, the period commencing on the Borrowing Date
or conversion date, as the case may be, with respect to such Eurodollar Rate
Loan and ending one, two, three or six months thereafter, as selected by
Borrower in Borrower's notice of borrowing or notice of conversion, as the case
may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such Eurodollar Rate Loan and
ending one, two, three or six months thereafter, as selected by Borrower by
irrevocable notice to the Agent not less than three Business Days prior to the
last day of the then current Interest Period with respect thereto;
provided that all of the foregoing provisions relating to Interest Periods are
subject to the following:
(1) if any Interest Period would otherwise end on a day
that is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month in which event such Interest
Period shall end on the immediately preceding Business Day;
(2) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at
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<PAGE> 16
the end of such Interest Period) shall end on the last Business Day of a
calendar month; and
(3) no Interest Period shall be for less than one
month, and Borrower shall not select an Interest Period for a Eurodollar Rate
Loan as a Revolving Credit Loan if the last day of such Interest Period would be
after the last day of the Commitment Period.
"Interest Rate Contract" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate insurance arrangement, or any other agreement or arrangement designed to
provide protection against fluctuation in interest rates.
"Investments in Joint Ventures" shall mean investments (as
defined in subsection 7.9 hereof) in joint ventures that are general
partnerships, limited partnerships, limited liability companies, corporations or
any other business association formed for the purpose of acquiring land, the
majority of which land is zoned residential and is to be developed into
residential lots for attached or detached single family housing (including a
townhouse condominium building or condominium building), and/or performing such
development. The value of Investments in Joint Ventures shall be calculated in
accordance with GAAP.
"L/C Commitment" shall mean, as to any L/C Participant, the
percentage (the "L/C Commitment Percentage") and amount set forth opposite its
name on Schedule 1 hereto under the headings "L/C Commitment Percentage" and
"L/C Commitment"; and collectively, as to all L/C Participants, the "L/C
Commitments".
"L/C Participant(s)" shall mean any one or more of the Banks.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, charge, encumbrance, lien
(statutory or other), 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
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<PAGE> 17
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 Borrower and which
does not secure an obligation to pay money is not a Lien.
"Liquidity Ratio" at any date shall mean the ratio, determined on
a consolidated basis for Borrower and all Subsidiaries of Borrower with the
exception of M/I Financial Corp., of (a) the sum of (i) cash, (ii) trade
receivables (exclusive of any receivables due from Affiliates or Subsidiaries),
(iii) Eligible Production Inventory, (iv) the aggregate cost of Developed Lots,
and (v) the aggregate costs of all Eligible Model Houses that are not more than
two years old as measured from the date of completion of construction thereof,
to (b) the sum of all of (i) accounts payable, (ii) accruals, (iii) Customer
Deposits, and (iv) Indebtedness permitted pursuant to subsection 7.1(a) hereof.
The amount of each asset included in (a) above shall be the book value of such
asset (net of any applicable reserves) determined in accordance with GAAP and
the value of each liability included in (b) above shall be determined in
accordance with GAAP.
"Loans" shall mean the Revolving Credit Loans and the Swingline
Loans.
"Manor Road - 1997, L.L.C." shall mean Manor Road - 1997, L.L.C.,
a Virginia limited liability company and a wholly-owned Subsidiary of M/I.
"Maturity Date" shall mean September 30, 2003.
"Maximum Swingline Amount" shall mean $5,000,000.
"MHO, LLC" shall mean MHO, LLC, an Arizona limited liability
company and a wholly-owned Subsidiary of M/I Homes and an indirect Subsidiary of
M/I.
"M/I" shall mean M/I Schottenstein Homes, Inc. and, jointly,
severally and jointly and severally with M/I Homes, Borrower under this
Agreement.
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<PAGE> 18
"M/I Ancillary Businesses" shall mean businesses that are
corporations, limited partnerships, limited liability partnerships or limited
liability companies which are engaged solely in activities reasonably related to
the sale of single family housing and in which Borrower or any Subsidiary has an
investment or other interest, provided that such investment or other interest
shall be as (a) a shareholder if the business is a corporation, (b) a limited
partner if the business is a limited partnership, (c) a limited liability
partner if the business is a limited liability partnership, or (d) a limited
liability member if the business is a limited liability company.
"M/I Financial Corp." shall mean M/I Financial Corp., an Ohio
corporation and a wholly-owned Subsidiary of M/I.
"M/I Financial Corp. Loan Agreement" shall mean the Revolving
Credit Agreement by and among M/I Financial Corp., M/I and Bank One, effective
as of June 22, 1998, as the same may be amended, extended, renewed or replaced
from time to time.
"M/I Homes Construction, Inc." shall mean M/I Homes Construction,
Inc., an Arizona corporation and a wholly-owned Subsidiary of M/I.
"M/I Homes" shall mean M/I Homes, Inc., an Arizona corporation, a
wholly-owned Subsidiary of M/I and jointly, severally and jointly and severally
with M/I, Borrower under this Agreement.
"M/I Service Corp." shall mean M/I Schottenstein Homes Service
Corp., an Ohio corporation and a wholly-owned Subsidiary of M/I.
"Mortgage Loan Repurchase Obligations" shall mean those
obligations (as more particularly described in this definition) of M/I Financial
Corp. 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 Borrower 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, (c) those second mortgage
loans permitted by subsection 7.9(g) hereof, and (d) those first mortgage
refinancing loans permitted
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<PAGE> 19
by subsection 7.9(h) 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 regarding loan origination, loan processing or loan closing and
regarding underwriting criteria for such Purchase Commitment or defects are
noted in origination, processing or closing of Mortgage Loans by investor, (B)
M/I Financial Corp. 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 30 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, (E) the mortgagor engages in
fraudulent conduct or misrepresentation or (F) with respect to mortgage loans
issued pursuant to the North Carolina Housing Finance Authority bond programs,
the mortgagor fails to make timely payment of the first installment due under
such mortgage loans.
"Northeast Office Venture" shall mean Northeast Office Venture,
Limited Liability Company, a Delaware limited liability company and a
wholly-owned Subsidiary of M/I.
"Notes" shall mean the Revolving Credit Notes and the Swingline
Note.
"Office Building" shall mean the office building at 3 Easton
Oval, Columbus, Ohio 43219 in which M/I is a tenant.
"Operating Lease" at any date shall mean any lease other than a
lease which is required to be capitalized in accordance with GAAP, provided such
lease has, as of the date of determination, a remaining term of 12 months or
more, or may at the option of the lessor or lessee be extended for a term of 12
months or more.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
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<PAGE> 20
"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 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 Borrower or a Commonly Controlled Entity is an
"employer" as defined in Section 3(5) of ERISA.
"Prime Rate" shall mean the rate of interest per annum announced
by Agent 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; which Prime Rate is not
necessarily the best interest rate offered by Agent.
"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, pursuant to an agreement with M/I Financial Corp., 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 M/I Financial
Corp. 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 M/I Financial Corp. at the loan closing from the mortgagor.
"Reimbursement Obligations" shall mean Borrower's obligations to
reimburse (a) Agent or, (b) in the case of Standby L/Cs previously issued which
will remain in place after the execution of this Agreement, Bank One or HNB, as
appropriate, as a result of draws on one or more Standby L/Cs.
"Rental Houses" shall mean (a) all completed detached or attached
(including townhouse condominiums and
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condominiums) single family houses which are rented to third parties or held for
rental by Borrower or which were previously so held and are currently held for
sale and (b) detached or attached (including townhouse condominiums and
condominiums) single family houses for which there has been a Start of
Construction which upon completion will be rented to third parties or will be
held for rental by Borrower. The value of Rental Houses shall be calculated in
accordance with GAAP and shall include all associated costs required to be
capitalized under GAAP.
"Reportable Event" shall mean any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder.
"Required Banks" shall mean, at any particular time, Banks having
at least 55% of the aggregate amount of the Commitment, whether or not Borrower
has drawn all or any portion of the Commitment; provided that for purposes of
consent to waiver or amendment of the covenants contained in subsection 6.14
hereof, Required Banks shall mean, at any particular time, Banks having at least
67% of the aggregate amount of the Commitment, whether or not Borrower has drawn
all or any portion of the Commitment.
"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 Borrower or any of
Borrower's Subsidiaries, the Chairman, President, Senior Executive Vice
President or a Senior Vice President of such Person and, with respect to
financial matters, the chief financial officer, treasurer or controller of such
Person, in each case acting in his or her capacity as such.
"Revolving Credit Loan Commitment" shall mean, as to any Bank
that has committed to make Revolving Credit Loans
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<PAGE> 22
hereunder, the percentage (the "Revolving Credit Loan Commitment Percentage")
and amount set forth opposite its name on Schedule 1 hereto under the headings
"Revolving Credit Loan Commitment Percentage" and "Revolving Credit Loan
Commitment" as such amount may be reduced from time to time in accordance with
the provisions of subsection 2.6 hereof; and collectively, as to all Banks that
have committed to make Revolving Credit Loans hereunder, the "Revolving Credit
Loan Commitments".
"Revolving Credit Loans" shall mean the revolving credit loans
made pursuant to this Agreement that are more particularly described in
subsection 2.1 hereof.
"Revolving Credit Notes" shall have the meaning set forth in
subsection 2.2 hereof.
"S Corporation" shall have the meaning set forth in Section
1361(a)(1) of the Code.
"Single Employer Plan" shall mean any Plan which is not a
Multiemployer Plan (as defined in ERISA).
"Speculative Houses" shall mean the aggregate value (which value
shall be reduced by the then outstanding aggregate amount of Indebtedness
secured by any Speculative Houses and permitted by subsection 7.1(d) hereof) as
determined in accordance with GAAP of: (a) all uncompleted houses for which
there has been a Start of Construction except (1) Eligible Model Houses, (2)
Rental Houses, if any, and (3) those which are less than nine months old as
measured from the date on which construction was begun and are subject to valid
noncontingent, except for financing, contracts of sale (A) to Persons who are
not Affiliates or Subsidiaries, and (B) that provide for closing within 30 days
after completion; and (b) all completed houses except (1) Eligible Model Houses,
(2) Rental Houses, if any, and (3) those subject to valid noncontingent, except
for financing, contracts of sale (A) to Persons who are not Affiliates or
Subsidiaries, and (B) that provide for closing on or before the later of 60 days
after the date of the contract or 30 days after completion of construction.
"Standby L/C" shall mean an irrevocable letter of credit,
including any extensions or renewals, (a) issued by Agent pursuant to this
Agreement or (b) previously issued by Bank One
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pursuant to the Existing Credit Agreement, or by Bank One or HNB pursuant to any
predecessor to the Existing Credit Agreement, and which will remain in place as
of the first Borrowing Date, in which each L/C Participant agrees to purchase a
participation equal to its L/C Commitment Percentage and the issuing bank agrees
to make payments in Dollars for the account of Borrower, on behalf of Borrower
or any Subsidiary thereof in respect of obligations of Borrower or such
Subsidiary incurred pursuant to contracts made or performances undertaken or to
be undertaken or like matters relating to contracts to which Borrower or such
Subsidiary is or proposes to become a party in the ordinary course of Borrower's
or such Subsidiary's business. The term "Standby L/C" shall not include any
letters of credit issued (x) pursuant to the HNB Joint Ventures Letter of Credit
Agreement or (y) by any Bank other than pursuant to this Agreement or the
Existing Credit Agreement.
"Standby L/C Application" shall have the meaning set forth in
subsection 2.14 hereof.
"Start of Construction" shall mean the commencement of the
digging of the foundation or footer for a detached or attached single family
house (including a townhouse condominium building or condominium building).
"Stockholder Payment" shall have the meaning set forth in
subsection 7.6 hereof.
"Subordinated Indebtedness" at any date shall mean (i) the
unsecured Indebtedness of M/I created as a result of the BankBoston Agreement,
and (ii) all other future unsecured subordinated Indebtedness of M/I, the terms
and manner (including without limitation the terms and manner with respect to
subordination) of which are satisfactory to Required Banks in their sole
discretion and approved in writing by Required Banks and which is subordinate to
(a) M/I's obligations to Banks and Agent under this Agreement and the Notes and
(b) M/I's obligations, if any, as a guarantor or otherwise of the obligations of
M/I Financial Corp. (including without limitation the obligations with respect
to the M/I Financial Corp. Loan Agreement).
"Subsidiary" shall mean as to any Person, a corporation, limited
liability company or other entity of which
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shares of stock or other ownership interests having ordinary voting power (other
than stock or such other ownership interests 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, limited liability company or other entity
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, and with respect to Borrower shall include all Subsidiaries of
Subsidiaries of Borrower.
"Swingline Expiry Date" shall mean the date which is ten (10)
Business Days prior to the Maturity Date.
"Swingline Loan" shall have the meaning provided in subsection
2.12.
"Swingline Note" shall have the meaning provided in Subsection
2.12.
"Tranche" shall mean the collective reference to those Eurodollar
Rate Loans, the then current Interest Periods with respect to all of which begin
on the same date and end on the same date (whether or not such Eurodollar Rate
Loans shall originally have been made on the same day).
"Uncommitted Land" shall mean the aggregate value as determined
in accordance with GAAP of: (a) Eligible Raw Land and Land Under Development,
(b) Eligible Developed Lots Unsold, (c) Borrower's pro rata share of land that
constitutes part of Investments in Joint Ventures which is not subject to an
agreement for sale, and (d) deposits for land purchases and purchase options.
"Uniform Customs" shall mean the Uniform Customs and Practice for
Documentary Credits, 1993 revision, ICC Publication No. 500, or amendment
thereof or successor thereto referenced in Agent's issued letters of credit;
provided, however, as to any letter of credit issued prior to January 1, 1994,
"Uniform Customs" shall mean the Uniform Customs and Practice for Documentary
Credits, 1983 revision, ICC Publication No. 400.
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"Washington, D.C. Market" shall mean the geographic area
consisting of Washington, D.C., Virginia and Maryland.
"Year 2000 Compliance" shall mean that all hardware, software,
operating systems, peripherals, networks and other devices and systems owned,
leased, licensed or used by Borrower or any of Borrower's Subsidiaries will be
able accurately to process, utilize and present, and will not be impacted
negatively by, processing, utilizing, or presenting, date information from, into
and between any times, days or periods prior to, on or after January 1, 2000.
1.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto or thereto unless otherwise defined therein.
(b) As used herein, in the Notes or in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms relating
to Borrower and Borrower's Subsidiaries not defined in subsection 1.1 hereof, to
the extent not defined, shall have the respective meanings given to them under
GAAP.
(c) Any reference to "value" of property shall mean the lower of
cost or market value of such property, determined in accordance with GAAP.
(d) 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 this Agreement.
(e) "Hereunder," "herein," "hereto," "this 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, REVOLVING
-----------------------------------------
CREDIT LOANS, SWINGLINE LOANS AND STANDBY LETTERS OF CREDIT
-----------------------------------------------------------
2.1 Revolving Credit Loan Commitments. Subject to the terms and
conditions of this Agreement, each Bank severally agrees to make revolving
credit loans ("Revolving Credit Loans") to Borrower from time to time during the
Commitment Period in an aggregate principal amount at any one time outstanding
not to exceed that Bank's Revolving Credit Loan Commitment Percentage of the
lesser of (a) the Borrowing Base (determined as of the most recent month end or,
if Borrower elects to provide an interim Borrowing Base Certificate pursuant to
subsection 6.4 hereof, as of the date stated in such Borrowing Base Certificate)
minus the sum of (i) the aggregate principal amount of undrawn and drawn Standby
L/Cs, exclusive of the amount of Standby L/Cs issued for the purpose of
satisfying bonding requirements, then outstanding, (ii) the aggregate principal
amount of undrawn and drawn Guaranteed HNB Joint Ventures Letters of Credit,
exclusive of the amount of Guaranteed HNB Joint Ventures Letters of Credit
issued for the purpose of satisfying bonding requirements, then outstanding and
(iii) the aggregate principal amount of Swingline Loans which remain outstanding
after giving effect to any repayment of Swingline Loans with the proceeds of a
borrowing of Revolving Credit Loans, or (b) Two Hundred Four Million Five
Hundred Thousand and 00/100 Dollars ($204,500,000.00) minus the aggregate
principal amount of all Swingline Loans which remain outstanding after giving
effect to any repayment of Swingline Loans with the proceeds of a borrowing of
Revolving Credit Loans. During the Commitment Period and as long as no Event of
Default exists, Borrower may use the Revolving Credit Loan Commitments by
borrowing, prepaying the Revolving Credit 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 9 hereof), the Revolving
Credit Loans may from time to time be (i) Eurodollar Rate Loans, (ii) Prime Rate
Loans, or (iii) a combination thereof, as determined by Borrower and notified to
Agent in accordance with subsection 2.3 hereof, provided (a) that no Revolving
Credit Loan shall be made as a Eurodollar Rate Loan if the ratio of EBITDA to
Consolidated
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<PAGE> 27
Interest Incurred as of the most recent Adjustment Date, determined from the
financial statements and compliance certificate that relate to the last month of
the fiscal quarter immediately preceding such Adjustment Date, is less than 1.75
to 1.0, (b) that no Revolving Credit Loan shall be made as a Eurodollar Rate
Loan after the day that is one month prior to the last day of the Commitment
Period, and (c) that the maximum number of Tranches that may be outstanding at
any one time as Revolving Credit Loans may not exceed seven in the aggregate.
2.2 Revolving Credit Notes. The Revolving Credit Loans made by Banks
pursuant hereto shall be evidenced by promissory notes of Borrower,
substantially in the form of Exhibit B attached hereto (each a "Revolving Credit
Note" and collectively the "Revolving Credit Notes"), payable to the order of
the respective Bank and evidencing the obligation of Borrower to pay the
aggregate unpaid principal amount of the Revolving Credit Loans made by such
Bank, with interest thereon as prescribed in subsection 2.5 hereof. Each Bank is
hereby authorized to record electronically or otherwise the date and amount of
each Revolving Credit Loan disbursement made by such Bank, and the date and
amount of each payment or prepayment of principal thereof, and any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded; provided, however, the failure of such Bank to make any
such recordation(s) shall not affect the obligation of Borrower to repay
outstanding principal, interest, or any other amount due hereunder or under the
Revolving Credit Notes in accordance with the terms hereof and thereof. Each
Revolving Credit Note shall (a) be dated as of the date hereof, (b) be stated to
mature on the Maturity Date, which Maturity Date may be extended as provided in
subsection 2.7 hereof, and (c) bear interest for the period from and including
the date thereof on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum determined as provided in
subsection 2.5 hereof. Interest on each Revolving Credit Note shall be payable
as specified in subsection 2.5 hereof.
2.3 Procedure for Borrowing. Borrower may borrow under the Revolving
Credit Loan Commitments (subject to the limitations on the availability of
Eurodollar Rate Loans), during the Commitment Period, provided Borrower shall
give Agent telephonic or written notice (the "Notice of Borrowing"), which
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Notice of Borrowing must be received (a) prior to 12:00 Noon, Columbus, Ohio
time, at least three Business Days prior to the requested Borrowing Date for
that part of the requested borrowing that is to be Eurodollar Rate Loans, or (b)
prior to 11:00 a.m., Columbus, Ohio time on or before the requested Borrowing
Date for that part of the requested borrowing that is to be Prime Rate Loans
which Notice of Borrowing, in the case of Prime Rate Loan(s), shall be
irrevocable. Each Notice of Borrowing shall specify (i) the Borrowing Date
(which shall be a Business Day), (ii) the amount of the requested borrowing,
(iii) whether the borrowing is to be of Eurodollar Rate Loans, Prime Rate Loans
or a combination thereof and (iv) if the borrowing is to be entirely or partly
of Eurodollar Rate Loans, the amount of each Prime Rate Loan, if any, and the
respective amounts of each such Eurodollar Rate Loan and the respective lengths
of the initial Interest Periods therefor. Each borrowing pursuant to the
Revolving Credit Loan Commitments shall be in the principal amount (a) in the
case of Prime Rate Loans, of the lesser of (i) $1,000,000 or any larger amount
which is an even multiple of $100,000, and (ii) the then undrawn Revolving
Credit Loan Commitments, and (b) in the case of Eurodollar Rate Loans, of
$10,000,000 or any larger amount which is an even multiple of $1,000,000 so long
as the principal amount of the requested borrowing is less than the then undrawn
Revolving Credit Loan Commitments.
After the Borrower gives a Notice of Borrowing with respect to
Eurodollar Rate Loans, Agent, by 10:00 a.m., Columbus, Ohio time, two Business
Days prior to the requested Borrowing Date, shall advise the Borrower of the
applicable interest rate(s) (which is the sum of the applicable Eurodollar
Rate(s) and the Applicable Eurodollar Margin) for the Eurodollar Rate Loan(s)
and Interest Period(s) requested in the Notice of Borrowing. Not more than two
hours thereafter, the Borrower shall give Agent written irrevocable confirmation
of whether or not the Borrower wants Eurodollar Rate Loan(s) on such Borrowing
Date and, if so, the amount(s) and Interest Period(s) of such Eurodollar Rate
Loan(s).
If the Borrower's written confirmation is timely made, the Borrower
shall be deemed to be requesting borrowing(s) of Eurodollar Rate Loan(s) in the
amount(s) and for the Interest Period(s) stated in the confirmation. If the
Borrower's confirmation is not timely made, the Borrower shall be deemed to
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have requested a borrowing entirely as a Prime Rate Loan in the aggregate amount
and on the Borrowing Date specified in the Notice of Borrowing.
By 2:00 p.m., Columbus, Ohio time, two Business Days prior to the
requested Borrowing Date, Agent shall give telephonic or written notice to each
Bank of such request, specifying (i) the Borrowing Date (which shall be a
Business Day), (ii) the amount of the requested borrowing, (iii) whether the
borrowing is to be of Eurodollar Rate Loans, Prime Rate Loans or a combination
thereof, and (iv) if the borrowing is to be entirely or partly of Eurodollar
Rate Loans, the amount of each Prime Rate Loan, if any, and the respective
amounts of each such Eurodollar Rate Loan, the applicable Eurodollar Rate for
each such Eurodollar Rate Loan and the respective lengths of the initial
Interest Periods therefor. Subject to satisfaction of the terms and conditions
of this Agreement, each Bank shall deposit funds with Agent for the account of
Borrower by 2:00 p.m. on the Borrowing Date by wire transfer or other
immediately available funds equal to its Revolving Credit Loan Commitment
Percentage of the Revolving Credit Loans to be made on the Borrowing Date. The
Loan(s) will then be made available to Borrower by Agent crediting the account
of Borrower on the books of Agent with the aggregate amounts made available to
Agent by Banks, and in like funds as received by Agent. The provisions for
conversion and continuation of the Loans are set forth in subsection 3.1.
2.4 Revolving Credit Loan Commitment Fee. Borrower agrees to pay to
Agent for the pro rata benefit of Banks a commitment fee for the Commitment
Period, computed at the rate of 1/4 of 1 percent (1/4%) per annum on the average
daily unused amount of the aggregate Revolving Credit Loan Commitments during
the Commitment Period, payable quarterly in arrears and due on the last day of
each March, June, September and December and on the last day of the Commitment
Period, commencing on the first of such dates to occur after the date hereof.
2.5 Interest; Default Interest.
(a) Except as provided in subsection 2.5(b) hereof, (i) the
Revolving Credit Loans shall bear interest on the unpaid principal amount
thereof at a rate per annum equal to (y)
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in the case of Prime Rate Loans, the Prime Rate in effect from time to time and
(z) in the case of Eurodollar Rate Loans, if permitted hereunder at such time,
the Eurodollar Rate determined for such day plus the Applicable Eurodollar
Margin in effect for such day, and (ii) the Swingline Loans shall bear interest
on the unpaid principal amount thereof at a rate per annum equal to the Prime
Rate in effect from time to time.
(b) If all or a portion of the principal amount of any of the
Revolving Credit Loans made hereunder (whether as Prime Rate Loans or Eurodollar
Rate Loans or a combination thereof) or the Swingline Loans shall not be paid
when due (whether at the stated maturity, by acceleration or otherwise), any
such overdue principal amount and, to the extent permitted by applicable law,
any overdue installment of interest on any Revolving Credit Loan or Swingline
Loan shall, without limiting any other rights of Banks, bear interest at a rate
per annum which is the sum of one percent (1.0%) plus the Prime Rate in effect
from time to time from the date of such non-payment until paid in full (before,
as well as after, judgment); provided, however, if all or any portion of any
principal on any Revolving Credit Loan made as a Eurodollar Rate Loan hereunder
shall not be paid when due and the then current Interest Period for such
Eurodollar Rate Loan has not yet expired, the entire principal amount of such
Eurodollar Rate Loan and, to the extent permitted by applicable law, any overdue
installment of interest on such Eurodollar Rate Loan shall, without limiting any
other rights of Banks, bear interest at a rate per annum which is the sum of one
percent (1.0%) plus the applicable non-default interest rate (which is the sum
of the applicable Eurodollar Rate and the Applicable Eurodollar Margin) on such
Eurodollar Rate Loan then in effect from the date of such non-payment until the
expiration of the then current Interest Period with respect to such Eurodollar
Rate Loan (before, as well as after, judgment); thereafter, the entire principal
amount of such Eurodollar Rate Loan and, to the extent permitted by applicable
law, any overdue installment of interest on such Eurodollar Rate Loan shall,
without limiting any other rights of Banks, bear interest at a rate per annum
which is the sum of one percent (1.0%) plus the Prime Rate in effect from time
to time until paid in full (before, as well as after, judgment).
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(c) Interest shall be payable in arrears and shall be due on each
Interest Payment Date.
2.6 Termination or Reduction of Commitment.
(a) Provided that each Bank consents in writing, Borrower shall
have the right to terminate the Commitment or, from time to time (and so long as
no Default or Event of Default exists), reduce the amount of the Commitment,
upon not less than five Business Days' written notice to each Bank specifying
(i) either a reduction or termination and (ii) in the case of a reduction,
whether any prepayment, if required by this Agreement, shall be of Prime Rate
Loans, Eurodollar Rate Loans or a combination thereof, and, in each case if a
combination thereof, the principal allocable to each.
(b) Any reduction of the Commitment shall be in the amount of
$5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce
permanently the amount of the Commitment then in effect. Any such reduction
shall be accompanied by prepayment of the Revolving Credit Loans made hereunder
to the extent, if any, that the amount of such Revolving Credit Loans then
outstanding exceeds the amount of the Revolving Credit Loan Commitments, as then
reduced, together with accrued interest on the amount so prepaid to the date of
such prepayment, and (ii) if a Revolving Credit 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 3.5, Indemnity. Any such reduction
of the L/C Commitment, if the L/C Commitment is being reduced, shall be
accompanied by either (A) return to Agent of the outstanding Standby L/Cs or (B)
payment by Borrower to Agent of cash to fully collateralize outstanding Standby
L/Cs, to the extent, if any, that the amount of such Standby L/Cs then
outstanding exceeds the L/C Commitment portion of the Commitment as then
reduced.
(c) Any such termination of the Commitment shall be accompanied
(i) by prepayment in full of the Revolving Credit Loans then outstanding
hereunder, together with accrued interest thereon to the date of such
prepayment, and the payment of any unpaid commitment fee then accrued hereunder;
(ii) with respect to Standby L/Cs, by Borrower's compliance with the terms of
subsection 2.14(b) hereof; and (iii) if a Revolving Credit Loan
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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 3.5,
Indemnity.
(d) Any such reduction or termination of the Revolving Credit
Loan Commitments and/or L/C Commitments portion(s) of the Commitment shall be
allocated to each Bank ratably in proportion to that Bank's Revolving Credit
Loan Commitment Percentage and/or L/C Commitment Percentage, as appropriate.
2.7 Maturity Date of Commitment; Extension. Unless earlier terminated
pursuant to the terms of this Agreement, the Commitment shall terminate on the
Maturity Date, and the unpaid balance of the Revolving Credit Loans outstanding
shall be paid on the Maturity Date; provided, however, that once each year
during each and every year of the Commitment Period (without regard to whether
or not all Banks elected to extend the Commitment Period in any preceding year
during the Commitment Period) all Banks shall make an election whether or not,
in all Banks' sole discretion, to extend the Maturity Date by one year. If all
Banks elect to extend the Maturity Date by one year, such election shall be made
on or before September 30 of each year (or the first Business Day after
September 30 if September 30 is not a Business Day) by written notice from Agent
to Borrower. Each notice granting an extension shall be attached to each of the
Notes and shall constitute an amendment extending the maturity date of each Note
by one year. If all Banks do not unanimously elect to extend the Maturity Date
by one year, Agent shall not be required to give notice to Borrower of such
election not to extend. If Borrower has not received notice from Agent as stated
herein that all Banks have elected to extend the Maturity Date by one year, the
Maturity Date shall be deemed not to have been extended.
2.8 Computation of Interest and Fees. Commitment fees on the
Commitment and interest in respect of the Revolving Credit 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 Loans and the Notes resulting from a change
in the Prime Rate or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business of the day on which such change in the
Prime Rate or the Eurocurrency Reserve Requirements shall become effective,
without notice to Banks or Borrower. However, Agent
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shall give Borrower and Banks prompt notice of all changes in the Prime Rate or
the Eurocurrency Reserve Requirements. Each determination of an interest rate by
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on Banks and Borrower in the absence of manifest error.
2.9 Increased Costs. In the event that at any time after the date of
this Agreement any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof or compliance by
any Bank (including Agent) with any request or directive regarding capital
adequacy (whether or not having the force of law) from any central bank or other
Governmental Authority, agency or instrumentality, does or shall have, in the
opinion of such Bank, the effect of reducing the rate of return on the capital
of such Bank or any corporation controlling such Bank as a consequence of such
Bank's obligations hereunder to a level below that which such Bank or any
corporation controlling such Bank could have achieved but for its adoption,
change or compliance (taking into account such Bank's or such corporation's
policies, as the case may be, with respect to capital adequacy) by an amount
deemed by such Bank to be material, then, from time to time, after submission by
such Bank to Borrower of a written request therefor, Borrower shall pay to such
Bank additional amount or amounts as will compensate such Bank or such
corporation, as the case may be, for such reduction. Such Bank's written request
to Borrower for compensation shall set forth in reasonable detail the
computation of any additional amounts payable to such Bank by Borrower, and such
request and computation shall be conclusive in the absence of manifest error.
This provision shall remain in full force and effect, with respect to the
Revolving Credit Loans until the later of (a) the termination of this Agreement
or (b) the payment in full of all Notes (provided that before accepting final
payment on the Notes, Bank shall calculate any amounts due in accordance with
this subsection 2.9 and give notice to Borrower of such amounts as stated
herein, and Borrower shall include such amounts in Borrower's final payment).
This provision shall survive the termination of all Standby L/Cs and, with
respect to Standby L/Cs, shall remain in full force and effect until there is no
existing or future obligation of Agent or any L/C Participant under any Standby
L/C. The provisions of this subsection 2.9 shall be supplemented by the
provisions of Section 3 hereof.
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2.10 Use of Proceeds. The proceeds of the initial Revolving Credit
Loans made hereunder shall be used by Borrower to pay in full the obligations
outstanding on the Revolving Credit Loans (as defined in the Existing Credit
Agreement), under the Existing Credit Agreement. Upon Borrower's irrevocable
payment in full of the obligations outstanding under the Existing Credit
Agreement (other than Standby L/Cs that remain in existence), Bank One, HNB,
First Chicago, NCB, BKB, Fifth Third and STB shall cancel the Existing Credit
Agreement (except for Standby L/Cs that remain in existence and all
reimbursement agreements related to such Standby L/Cs) and all promissory notes
and guaranties executed pursuant to the Existing Credit Agreement. Thereafter,
the proceeds of the Revolving Credit Loans made hereunder shall be used by
Borrower for lawful purposes in Borrower's business.
2.11 Pro Rata Treatment and Payments.
(a) Each borrowing by Borrower from Banks hereunder, each payment
(including each prepayment) by Borrower on account of principal of and interest
on the Revolving Credit Loans, each payment by Borrower on account of any
commitment fee hereunder and any reduction of the Revolving Credit Loan
Commitments and/or the L/C Commitments shall be made pro rata according to the
respective Revolving Credit Loan Commitment Percentage and/or L/C Commitment
Percentage, as appropriate, then held by Banks. All payments (including
prepayments) to be made by Borrower hereunder and under the Notes, whether on
account of principal, interest, fees or otherwise, shall be made without set-off
or counterclaim and shall be made prior to 12:00 Noon, Columbus, Ohio time, on
the due date thereof to Agent, for the account of Banks, at Agent's 100 East
Broad Street office in Columbus, Ohio, in Dollars and in immediately available
funds. Agent shall distribute such payments to Banks promptly upon receipt in
like funds as received. If any payment hereunder on a Prime Rate Loan becomes
due and payable on a day other than a Business Day, such payment shall be
extended to the next succeeding Business Day, and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension. If any payment hereunder on a Eurodollar Rate Loan becomes due
and payable on a day other than a Business Day, such payment shall be extended
to the next succeeding Business Day (and, with respect to payments of
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principal, interest thereon shall be payable at the then applicable rate during
such extension) unless the result of such extension would be to extend such
payment into another calendar month, in which event such payment shall be made
on the immediately preceding Business Day.
2.12 Swingline Loans.
(a) Subject to the terms and conditions of this Agreement, Bank
One in its individual capacity agrees to make at any time and from time to time
after the initial Borrowing Date and prior to the Swingline Expiry Date
swingline loans to Borrower ("Swingline Loans"), which Swingline Loans (i) shall
be made and maintained as Prime Rate Loans, (ii) shall be denominated in U.S.
Dollars, (iii) may be repaid and reborrowed in accordance with the provisions
hereof, (iv) shall not exceed in aggregate principal amount at any one time
outstanding, when combined with the aggregate principal amount of all Revolving
Credit Loans then outstanding, the Revolving Credit Loan Commitments and (v)
shall not exceed in aggregate principal amount at any time outstanding the
lesser of (y) the Borrowing Base (determined as of the most recent month end or,
if Borrower elects to provide an interim Borrowing Base Certificate pursuant to
subsection 6.4 hereof, as of the date stated in such Borrowing Base Certificate)
minus the sum of (1) the aggregate principal amount of undrawn and drawn Standby
L/Cs, exclusive of the amount of Standby L/Cs issued for the purpose of
satisfying bonding requirements, then outstanding, (2) the aggregate principal
amount of undrawn and drawn Guaranteed HNB Joint Ventures Letters of Credit,
exclusive of the amount of Guaranteed HNB Joint Ventures Letters of Credit
issued for the purpose of satisfying bonding requirements, then outstanding, and
(3) the aggregate principal amount of all Revolving Credit Loans then
outstanding, or (z) the Maximum Swingline Amount. Bank One will not make a
Swingline Loan after it has received written notice from Borrower or the
Required Banks stating that a Default or an Event of Default exists until such
time as Bank One shall have received a written notice of (i) rescission of such
notice from the party or parties originally delivering the same or (ii) a waiver
of such Default or Event of Default, as required by the Credit Agreement.
(b) Borrower shall give Bank One irrevocable telephonic or
written notice prior to 3:00 p.m., Columbus, Ohio
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time on the requested Borrowing Date specifying the amount of the requested
Swingline Loan which shall be in a minimum amount of $100,000 or whole multiples
of $10,000 in excess thereof. The Swingline Loans will then be made available to
Borrower by Bank One by crediting the account of Borrower on the books of Bank
One.
(c) The Swingline Loans shall be evidenced by a promissory note
of Borrower, substantially in the form of Exhibit C attached hereto, (the
"Swingline Note"), payable to the order of Bank One and evidencing the
obligation of Borrower to pay the aggregate unpaid principal amount of the
Swingline Loans made by Bank One with interest thereon as prescribed in
subsection 2.5 hereof. Bank One is hereby authorized to record electronically or
otherwise the date and amount of each Swingline Loan, and the date and amount of
each payment or prepayment of principal thereof, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded,
provided, however, the failure of Bank One to make any such recordation(s) shall
not affect the obligation of Borrower to repay outstanding principal, interest,
or any other amount due hereunder or under the Swingline Note in accordance with
the terms hereof and thereof. The Swingline Note shall (i) be dated as of the
date hereof, (ii) be stated to mature on the Swingline Expiry Date, and (iii)
bear interest for the period from and including the date thereof on the unpaid
principal amount thereof from time to time outstanding at the applicable
interest rate per annum determined as provided in subsection 2.5 hereof.
Interest on each Swingline Note shall be payable as specified in subsection 2.5
hereof.
(d) Bank One, at any time and in its sole and absolute
discretion, may, on behalf of Borrower (which hereby irrevocably directs Bank
One to act on Borrower's behalf), request each Bank, including Bank One, to make
a Revolving Credit Loan (each, a "Mandatory Borrowing") in an amount equal to
such Bank's Revolving Credit Loan Commitment Percentage of the amount of the
Swingline Loans (provided that each such request shall be deemed to have been
automatically given upon the occurrence of a Default or an Event of Default
under Section 9 or upon the exercise of any of the remedies provided in the last
paragraph of Section 9), in which case each Bank shall make the proceeds of its
Revolving Credit Loan available to Bank One on the
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immediately succeeding Business Day pro rata based on each Bank's Revolving
Credit Loan Commitment Percentage, and the proceeds thereof shall be applied
directly to repay Bank One for such outstanding Swingline Loans. Each Bank
hereby irrevocably agrees to make Prime Rate Loans upon one Business Day's
notice pursuant to each Mandatory Borrowing in the amount and in the manner
specified in the preceding sentence and on the date specified by Bank One
notwithstanding (i) that the amount of the Mandatory Borrowing may not comply
with the minimum borrowing amount otherwise required hereunder, (ii) whether any
conditions specified in Section 5 are then satisfied, (iii) whether a Default or
an Event of Default has occurred and is continuing, (iv) the date of such
Mandatory Borrowing, (v) any reduction in the Revolving Credit Commitments after
any such Swingline Loans were made, (vi) Borrower's compliance with Borrowing
Base requirements, (vii) any set-off, counterclaim, recoupment, defense or other
right which such Bank may have against Bank One, Borrower or any other Person
for any reason whatsoever, or (viii) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing. In the event that
any Mandatory Borrowing cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of the commencement
of a proceeding under the Bankruptcy Code in respect of Borrower), each Bank
(other than Bank One) hereby agrees that it shall forthwith purchase from Bank
One (without recourse or warranty) such assignment of the outstanding Swingline
Loans as shall be necessary to cause the Banks to share in such Swingline Loans
ratably based upon their respective Revolving Credit Loan Commitment
Percentages, provided that all interest payable on the Swingline Loans shall be
for the account of Bank One until the date the Mandatory Borrowing is made, and,
to the extent attributable to the Mandatory Borrowing, shall be payable to the
Bank making such Mandatory Borrowing from and after the date such Mandatory
Borrowing is made.
(e) Whenever, at any time after Bank One has received from any
Bank such Bank's participating interest in a Swingline Loan and Bank One
receives any payment on account thereof, Bank One will distribute to such Bank
its participating interest in such amount (appropriately adjusted, in the case
of interest payments, to reflect the period of time during which such Bank's
participating interest was outstanding and funded); provided, however, that in
the event that such payment received
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by Bank One is required to be returned, such Bank will return to Bank One any
portion thereof previously distributed by Bank One to it.
2.13 The Standby L/Cs. So long as no Default or Event of Default
exists, Agent agrees to issue Standby L/Cs, pursuant to the terms and conditions
hereof, provided that the aggregate of the undrawn and drawn amounts of the
Standby L/Cs at any one time outstanding, including the amount of Standby L/Cs
issued for the purpose of satisfying bonding requirements, shall not exceed
Thirty Million and 00/100 Dollars ($30,000,000), of which the amount of Standby
L/Cs issued for purposes other than satisfying bonding requirements shall not
exceed the lesser of (x) (i) the Borrowing Base (determined as of the most
recent month end or, if Borrower elects to provide an interim Borrowing Base
Certificate pursuant to subsection 6.4 hereof, as of the date stated in such
Borrowing Base Certificate) minus (ii) the sum of (A) the aggregate principal
amount of Revolving Credit Loans then outstanding, (B) the aggregate principal
amount of Swingline Loans then outstanding and (C) the aggregate principal
amount of undrawn and drawn Guaranteed HNB Joint Ventures Letters of Credit,
exclusive of the amount of Guaranteed HNB Joint Ventures Letters of Credit
issued for the purpose of satisfying bonding requirements, then outstanding, or
(y) Twelve Million and 00/100 Dollars ($12,000,000).
2.14 Issuance of Standby L/Cs.
(a) Borrower may request Agent to issue a Standby L/C by
delivering to Agent, no later than 11:00 a.m. two Business Days prior to the
date on which issuance of the Standby L/C is requested by Borrower, a standby
letter of credit application and reimbursement agreement in Agent's then
customary form (the "Standby L/C Application") completed to the satisfaction of
Agent, together with the proposed form of such letter of credit (which shall
comply with the applicable requirements of subsection 2.14 (b) below) and such
other certificates, documents and other papers and information as Agent may
reasonably request.
(b) Each Standby L/C issued hereunder shall, among other things,
(i) be in such form requested by Borrower as shall be acceptable to Agent in its
sole discretion, and (ii) have an expiry date occurring not later than three
years after such
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Standby L/C's date of issuance. If the Commitment is terminated (whether by
acceleration, demand, or otherwise), then, not later than simultaneously with
such termination, all outstanding Standby L/Cs shall be returned to Agent or
Borrower shall provide cash to Agent to fully collateralize all outstanding
Standby L/Cs. Each Standby L/C Application and each Standby L/C shall be subject
to the Uniform Customs and, to the extent not inconsistent therewith, the laws
of the State of Ohio.
2.15 Procedure for Opening Standby L/Cs. Upon receipt of any Standby
L/C Application from Borrower, Agent will process such Standby L/C Application,
and the other certificates, documents and other papers delivered to Agent in
connection therewith, in accordance with its customary procedures and send a
copy thereof to each L/C Participant, and, upon satisfaction of all conditions
contained in this Agreement, shall promptly open such Standby L/C by issuing the
original of such Standby L/C to the beneficiary thereof and by furnishing a copy
thereof to Borrower.
2.16 Standby L/C Participations.
(a) Agent irrevocably agrees to grant and hereby grants to each
L/C Participant, and, to induce such Agent to issue Standby L/Cs hereunder, each
L/C Participant irrevocably agrees to accept and purchase and hereby accepts and
purchases from Agent, on the terms and conditions hereinafter stated, for such
L/C Participant's own account and risk, an undivided interest equal to such L/C
Participant's L/C Commitment Percentage in Agent's obligations and rights under
each Standby L/C and the amount of each draft paid by Agent. Each L/C
Participant's obligations as set forth in the immediately preceding sentence
shall be limited to the term of this Agreement, subject to the condition that
each L/C Participant unconditionally and irrevocably agrees with Agent that, if
a draft is paid at any time (whether during or after the term of this Agreement)
under any Standby L/C issued prior to the end of the term of this Agreement for
which Agent is not reimbursed in full by Borrower (including failure by Borrower
to provide cash collateral as provided in subsection 2.14(b) hereof) at any time
in accordance with the terms of this Agreement or for which Agent is required at
any time to return any portion of such reimbursement (whether because of
Borrower's bankruptcy or otherwise), such L/C Participant shall pay to Agent
upon demand at Agent's address for notices specified herein an amount equal to
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such L/C Participant's L/C Commitment Percentage of the amount of such draft, or
any part thereof, which is not so reimbursed or which Agent is required to
return.
(b) If any amount required to be paid by any L/C Participant to
Agent in respect of any unreimbursed portion of any payment made by Agent under
any Standby L/C is not paid to Agent on the date such payment is due but is paid
within three Business Days after such payment is due, such L/C Participant shall
pay to Agent on demand an amount equal to the product of (i) such amount,
multiplied by (ii) the daily average Federal funds rate, as quoted by Agent,
during the period from and including the date such payment is required to the
date on which such payment is immediately available to Agent, multiplied by
(iii) a fraction the numerator of which is the number of days that elapse during
such period and the denominator of which is 360. If any such amount required to
be paid by any L/C Participant pursuant to this subsection 2.16 is not paid to
Agent by such L/C Participant within three Business Days after the date such
payment is due, Agent shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from the fourth Business
Day after such due date until paid at the rate per annum applicable to Loans
made as Prime Rate Loans hereunder. A certificate of Agent submitted to any L/C
Participant with respect to any amounts owing under this subsection 2.16 shall
be conclusive in the absence of manifest error.
(c) Whenever, at any time after Agent has made payment under any
Standby L/C and has received from any L/C Participant its pro rata share of such
payment, Agent receives any payment related to such Standby L/C (whether
directly from Borrower or otherwise, including proceeds of collateral applied
thereto by Agent), or any payment of interest on account thereof, Agent will
distribute to such L/C Participant its pro rata share thereof; provided,
however, that in the event that any such payment received by Agent shall be
required to be returned by Agent, such L/C Participant shall return to Agent the
portion thereof previously distributed by Agent to it.
2.17 Payments. Borrower agrees (a) to reimburse Agent, for the pro
rata benefit of the L/C Participants in accordance with each L/C Participant's
respective L/C Commitment Percentage, forthwith upon its demand and otherwise in
accordance with the
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terms of the Standby L/C Application relating thereto, for any expenditure or
payment made by Agent or L/C Participants under any Standby L/C, and (b) to pay
interest on any unreimbursed portion of any such payments from the date of such
payment until reimbursement in full thereof at a rate per annum equal to (i)
prior to the date which is (A) one Business Day after the day on which Agent
demands reimbursement from Borrower for such payment if such demand is made
prior to 11:00 a.m., Columbus, Ohio time or (B) two Business Days after the day
on which Agent demands reimbursement if such demand is made at or after 11:00
a.m. Columbus, Ohio time, the rate which would then be payable on any
outstanding Loan made as a Prime Rate Loan which is not in default, and (ii)
thereafter, the rate which would then be payable on any outstanding Loan made as
a Prime Rate Loan which is in default.
2.18 Standby L/C Fees. In lieu of any letter of credit commissions and
fees provided for in any Standby L/C Application (other than standard issuance,
amendment and negotiation fees), Borrower agrees to pay Agent, for the pro rata
benefit of the L/C Participants according to each L/C Participant's respective
L/C Commitment Percentage, with respect to each Standby L/C, a Standby L/C fee
(which shall be refundable on a pro rata basis to the extent (i) such Standby
L/C is cancelled prior to its expiry date or (ii) the face amount of such
Standby L/C is reduced from time to time) equal to and payable in accordance
with one of the following options selected by Borrower with respect to each
Standby L/C: (a) one percent (1%) per annum on the face amount of each Standby
L/C, payable in advance not later than the date of issuance thereof; or (b) one
and one-quarter percent (1 1/4%) per annum on the face amount of the Standby
L/C, payable in advance on the first day of each January, April, July and
October, beginning on the first of such dates to occur after the date of
issuance of the Standby L/C, occurring prior to the expiry date of the Standby
L/C. In addition, Agent shall charge and retain for its own account, and
Borrower agrees to pay, Agent's usual and customary charges with respect to the
issuance and administration of the Standby L/C.
2.19 Letter of Credit Reserves. If any change in any law or regulation
or in the interpretation or application thereof by any court or other
governmental authority charged with the administration thereof shall either (a)
impose, modify, deem or
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make applicable any reserve, special deposit, assessment or similar requirement
against letters of credit issued by Agent, or (b) impose on Agent or any L/C
Participant any other condition regarding this Agreement or any Standby L/C, and
the result of any event referred to in clause (a) or (b) above shall be to
increase the cost to Agent or any L/C Participant of issuing or maintaining any
Standby L/C (which increase in cost shall be the result of Agent's or any L/C
Participant's reasonable allocation of the aggregate of such cost increases
resulting from such events), then, upon demand by Agent or any L/C Participant,
Borrower shall immediately pay to Agent, for the pro rata benefit of such L/C
Participant(s), from time to time as specified by Agent or such L/C
Participant(s), additional amounts which shall be sufficient to compensate Agent
or such L/C Participant(s) for such increased cost, together with interest on
each such amount from the date demanded until payment in full thereof at a rate
per annum equal to the then applicable interest rate on the Revolving Credit
Loans made as Prime Rate Loans. A certificate as to such increased cost incurred
by Agent or such L/C Participant(s), submitted by Agent or such L/C
Participant(s) to Borrower, shall be conclusive, absent manifest error, as to
the amount thereof. This provision shall survive the termination of this
Agreement and shall remain in full force and effect until there is no existing
or future obligation of Agent or any L/C Participant under any Standby L/C.
2.20 Further Assurances. Borrower hereby agrees to do and perform any
and all acts and to execute any and all further instruments reasonably requested
by Agent more fully to effect the purposes of this Agreement and the issuance of
Standby L/Cs hereunder, and further agrees to execute any and all instruments
reasonably requested by Agent in connection with the obtaining and/or
maintaining of any insurance coverage applicable to any Standby L/C.
2.21 Obligations Absolute. The contingent reimbursement obligations
and the Reimbursement Obligations of Borrower with respect to Standby L/Cs under
this Agreement shall be unconditional and irrevocable and shall be paid strictly
in accordance with the terms of this Agreement under all circumstances,
including without limitation the following:
(a) the existence of any claim, set-off, defense or other right
which Borrower may have at any time against any
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beneficiary, or any transferee, of any Standby L/C (or any Persons for whom any
such beneficiary or any such transferee may be acting), Agent, or any other
Person, whether in connection with this Agreement, the transaction contemplated
herein, or any unrelated transaction;
(b) any statement or any other document presented under any
Standby L/C proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(c) payment by Agent under any Standby L/C against presentation
of a draft or certificate which does not comply with the terms of such Standby
L/C provided that Agent has made such payment to the beneficiary set forth on
the face of such Standby L/C; or
(d) any other circumstances or happening whatsoever, whether or
not similar to any of the foregoing.
2.22 Existing Standby L/Cs; L/C Participations. Attached hereto as
Schedule 2 is a list of all Standby L/Cs previously issued by Bank One or HNB
for the account of Borrower that are outstanding and will remain in place as of
the first Borrowing Date ("Existing Standby L/Cs"). The amount of the Existing
Standby L/Cs shall be deemed to be included in the aggregate amount of Standby
L/Cs outstanding as of the first Borrowing Date for purposes of subsection 2.13
hereof. Where appropriate, in any provision in subsections 2.16 through 2.21
hereof that provides for Borrower to make payment to Agent or that grants other
rights to Agent with respect to Standby L/Cs, or that provides for the purchase
by L/C Participants of an interest in Standby L/Cs, the words "Bank One or HNB,
as appropriate" shall be substituted for "Agent" with respect to Existing
Standby L/Cs. Not later than the first Borrowing Date, each L/C Participant
shall enter into a letter agreement in substantially the form of Exhibit I
attached hereto whereby (a) each L/C Participant shall purchase (including
purchases of First Chicago's interests) or sell, as appropriate, participations
in each Existing Standby L/C in such amounts to make each L/C Participant's
respective percentage interest in each Existing Standby L/C equal to such L/C
Participant's L/C Commitment Percentage and (b) each L/C Participant shall share
in the fees paid and earned beginning as
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of the first Borrowing Date (including that portion of fees paid prior to the
first Borrowing Date that have not been earned as of the first Borrowing Date),
and shall pay to Bank One or HNB, as appropriate, for the account of Borrower
such L/C Participant's respective L/C Commitment Percentage of the refund (as
provided in subsection 2.18 hereof) of any fees for any Existing Standby L/C
that is terminated early or reduced in amount and for which a fee has been
allocated in accordance with such letter agreement.
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS
--------------------------------------
3.1 Conversion and Continuation Options.
(a) Borrower may elect from time to time to convert outstanding
Revolving Credit Loans from Eurodollar Rate Loans to Prime Rate Loans by giving
the Agent 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, Borrower may elect
from time to time to convert outstanding Revolving Credit Loans from Prime Rate
Loans to Eurodollar Rate Loans by giving the Agent telephonic or written notice
(the "Notice of Conversion"), which Notice of Conversion must be received prior
to 12:00 Noon, Columbus, Ohio time, at least three 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) and for each such Prime Rate Loan to be converted to a
Eurodollar Rate Loan, the respective amount and the respective length of the
initial Interest Period. Each conversion from Prime Rate Loans to Eurodollar
Rate Loans shall be in the principal amount of $10,000,000 or any larger amount
which is an even multiple of $1,000,000. After Borrower gives a Notice of
Conversion from Prime Rate Loans to Eurodollar Rate Loans, Agent, by 10:00 a.m.,
Columbus, Ohio time, two Business Days prior to the requested date for the
conversion, shall advise Borrower of the applicable interest rate(s) (which is
the sum of the applicable Eurodollar Rate(s) and the Applicable Eurodollar
Margin) for the Eurodollar Rate Loan(s) and Interest Period(s) requested in the
Notice of Conversion. Not more than two hours thereafter, Borrower shall give
Agent written irrevocable confirmation of whether or not
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Borrower wants to convert the Prime Rate Loans to Eurodollar Rate Loan(s) on
such requested date and, if so, the amount and the Interest Period for each such
Eurodollar Rate Loan. If Borrower's confirmation is not timely made, Borrower
shall be deemed to have withdrawn Borrower's Notice of Conversion and the Prime
Rate Loans that were the subject of such Notice of Conversion shall continue as
Prime Rate Loans. If Borrower's written confirmation is timely made, Borrower
shall be deemed to be requesting a conversion from Prime Rate Loans to
Eurodollar Rate Loan(s) in the amount(s) and for the Interest Period(s) stated
in the confirmation. By 2:00 p.m., Columbus, Ohio time, two Business Days prior
to the requested Borrowing Date, Agent shall give telephonic or written notice
to each Bank of Borrower's request for conversion, specifying (i) the date for
the conversion; (ii) the aggregate amount of Prime Rate Loans to be converted;
and (iii) and, for each such Prime Rate Loan to be converted to a Eurodollar
Rate Loan, the respective amount, the respective Eurodollar Rate, and the
respective length of the initial Interest Period applicable thereto. All or any
part of outstanding Eurodollar Rate Loans and Prime Rate Loans may be converted
as provided herein, provided that (i) (unless the Required Banks otherwise
consent) 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
one month 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 Borrower
giving Agent telephonic or written notice, which notice must be received prior
to 12:00 Noon, Columbus, Ohio time, at least three Business Days prior to such
last day of the then current Interest Period, and which notice shall specify the
amount of the Eurodollar Rate Loans to be continued as such and the respective
amount and the respective length of the Interest Period for each Eurodollar Rate
Loan. After Borrower gives such notice, Agent, by 10:00 a.m. two Business Days
prior to the end of the Interest Period, shall advise Borrower of the applicable
interest rate(s) (which is the sum of the applicable Eurodollar Rate(s) and the
Applicable Eurodollar Margin) for the Eurodollar Rate Loan(s) and Interest
Period(s) requested in such notice. Not more than two hours
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thereafter, Borrower shall give Agent written irrevocable confirmation of
whether or not Borrower wants to continue the Eurodollar Rate Loan(s) as such
and, if so, the amount and the Interest Period for each such Eurodollar Rate
Loan. If Borrower's confirmation is not timely made, Borrower shall be deemed to
have withdrawn Borrower's notice for a continuation and the Eurodollar Rate
Loans that were the subject of such request shall convert automatically to a
Prime Rate Loan upon the expiration of the then current Interest Period. If
Borrower's written confirmation is timely made, Borrower shall be deemed to be
requesting a continuation of the Eurodollar Rate Loan(s) in the amount(s) and
for the Interest Period(s) stated in such notice. Agent shall give prompt
telephonic or written notice to each Bank of such request for continuation,
specifying the aggregate amount of the Eurodollar Rate Loans to be continued as
such and, for each such Eurodollar Rate Loan to be continued, the respective
amount, the respective Eurodollar Rate, and the respective length of the
Interest Period applicable thereto. All or any part of outstanding Eurodollar
Rate Loans may be continued as provided herein, provided that (i) (unless the
Required Banks otherwise consent) 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 one month prior to the last day of the Commitment Period.
3.2 Inability to Determine Interest Rate. If prior to the first day of
any Interest Period, the Agent or the Required Banks shall have determined
(which determination shall be conclusive and binding upon Borrower) that, by
reason of circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate for such Interest
Period, the Agent shall give telecopy, telephonic or written notice thereof to
Borrower and the Banks as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Rate Loans requested to be made on the first day of
such Interest Period shall be made as Prime Rate Loans and (y) any Loans that
were to have been converted on the first day of such Interest Period to or
continued as Eurodollar Rate Loans shall be converted to or continued as Prime
Rate Loans. Until such notice has been withdrawn by the Agent, no further
Eurodollar Rate Loans shall be made or continued as such, nor
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shall Borrower have the right to convert Prime Rate Loans to Eurodollar Rate
Loans.
3.3 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 any Bank or its applicable lending office, branch or any affiliate thereof
with any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority occurring after the date hereof
(or, if later, the date on which such Bank becomes a Bank pursuant to any
permitted assignment) shall make it impracticable, for any Bank, or its
applicable lending office, branch or any affiliate thereof, to make or maintain
Eurodollar Rate Loans as contemplated by this Agreement, (a) such Bank shall
promptly give written notice of such circumstances to Borrower and the Agent
(which notice shall be withdrawn whenever such circumstances no longer exist),
(b) the commitment of such Bank hereunder to make Eurodollar Rate Loans,
continue Eurodollar Rate Loans as such and convert Prime Rate Loans to
Eurodollar Rate Loans shall forthwith be canceled and, until such time as it
shall no longer be unlawful for such Bank to make or maintain Eurodollar Rate
Loans, such Bank shall then have a commitment only to make a Prime Rate Loan
when a Eurodollar Rate Loan is requested and (c) such Bank's Loans then
outstanding as Eurodollar Rate Loans, if any, shall be converted automatically
to Prime Rate Loans on the respective last days of the then current Interest
Periods with respect to such Loans or within such earlier period 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,
Borrower shall pay to such Bank such amounts, if any, as may be required
pursuant to subsection 3.5, Indemnity.
3.4 Requirements of Law. If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof applicable to
any Bank, or its applicable lending office, branch or any affiliate thereof, or
compliance by any Bank, or its applicable lending office, branch or any
affiliate thereof, with any request or directive (whether or not having the
force of law) from any central bank or other Governmental Authority, in each
case made subsequent to the date
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hereof (or, if later, the date on which such Bank becomes a Bank pursuant to any
permitted assignment):
(a) shall subject such Bank, or its applicable lending office,
branch or any affiliate thereof, 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 such Bank in respect
thereof and changes in taxes 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 such Bank or its applicable lending
office, branch, or any affiliate thereof;
(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, any office of
such Bank which is not otherwise included in the determination of the Eurodollar
Rate hereunder; or
(c) shall impose on such Bank, or its applicable lending office,
branch or any affiliate thereof, any other condition;
and the result of any of the foregoing is to increase the cost to such Bank, by
an amount which such Bank, or its applicable lending office, branch or any
affiliate thereof, deems to be material, of making, converting into, continuing
or maintaining Eurodollar Rate Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, upon notice to Borrower
from such Bank, through the Agent, in accordance herewith, Borrower shall
promptly pay such Bank, upon its demand, any additional amounts necessary to
compensate such Bank for such increased cost or reduced amount receivable; in
addition, in any such case, Borrower may elect to convert the Eurodollar Rate
Loans made by such Bank hereunder to Prime Rate Loans by giving the Agent at
least one Business Day's notice of such election, in which case Borrower shall
promptly pay to such Bank, upon demand, without duplication, such amounts, if
any, as may be required pursuant to subsection 3.5. If any Bank becomes entitled
to
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claim any additional amounts pursuant to this subsection, it shall provide
prompt notice thereof to Borrower, through the Agent, certifying (x) that one of
the events described in this paragraph (a) has occurred and describing in
reasonable detail the nature of such event, (y) as to the increased cost or
reduced amount receivable hereunder resulting from such event and (z) as to the
additional amount demanded by such Bank and a reasonably detailed explanation of
the calculation thereof. Such a certificate as to any additional amounts payable
pursuant to this subsection submitted by such Bank, through the Agent, to
Borrower shall be conclusive in the absence of manifest error. This covenant
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.
3.5 Indemnity. Borrower agrees to indemnify each Bank and to hold each
Bank harmless from any loss or expense which such Bank may sustain or incur
(other than through such Bank's gross negligence or willful misconduct) as a
consequence of (a) default by Borrower in making a borrowing of, conversion into
or continuation of Eurodollar Rate Loans after Borrower has given Agent written
irrevocable confirmation that Borrower wants such Eurodollar Rate Loans in
accordance with subsection 2.3 or subsection 3.1, as appropriate, of this
Agreement, (b) default by Borrower in making any prepayment or conversion of a
Eurodollar Rate Loan after Borrower has given a notice thereof in accordance
with the provisions of this Agreement or (c) the making of a prepayment of
Eurodollar Rate Loans 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, or converted, or not so borrowed, converted or continued, for the
period from the date of such prepayment or conversion or of such failure to
borrow, convert or continue to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or continue, the Interest
Period that would have commenced on the date of such failure) 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 such Bank)
which would have accrued to such 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
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termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce Banks and Agent to enter into this Agreement and to
make the Revolving Credit Loans and Swingline Loans and to issue the Standby
L/Cs herein provided for, Borrower hereby covenants, represents and warrants to
each Bank and to Agent that on the date hereof:
4.1 Financial Statements. Borrower has heretofore furnished to each
Bank (a) the consolidated balance sheet of Borrower and Borrower's Subsidiaries
as of December 31, 1997, and the related consolidated statements of income, of
stockholders' equity and of cash flows for the fiscal year of Borrower then
ended, certified by an independent public accountant of recognized national
standing and (b) the consolidated unaudited balance sheet and income statement
of Borrower and Borrower's Subsidiaries as of October 31, 1998. Each of the
foregoing financial statements fairly presents the financial condition of
Borrower and Borrower's Subsidiaries as of the date thereof and the results of
the operations of Borrower and Borrower's Subsidiaries for the period then ended
(subject, in the case of the October 31, 1998 statements, to year-end audit
adjustments) and, from the respective dates of the foregoing financial
statements to the date hereof, there has been no material adverse change in such
condition.
4.2 Corporate Existence; Compliance with Law. Each of Borrower and
Borrower's Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, formation or
organization, as appropriate, (b) has the requisite power and authority to
conduct the business in which it is currently engaged, (c) is qualified as a
foreign entity to do business under the laws of any jurisdiction where the
failure to so qualify would have a material adverse effect on the business of
Borrower and Borrower's Subsidiaries taken as a whole, and (d) is in compliance
with all Requirements of Law except to the extent that the failure to comply
therewith would not, in the aggregate, have a material adverse effect on the
business, operations, property or financial or other condition of
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Borrower and Borrower's Subsidiaries taken as a whole and would not materially
adversely affect the ability of Borrower to perform Borrower's obligations under
this Agreement and the Notes.
4.3 Corporate Power; Authorization; Enforceable Obligations. Borrower
has the corporate power and authority to make, deliver and perform this
Agreement and the Notes and to borrow hereunder, and has taken all corporate
action necessary to be taken by it to authorize (a) the borrowings on the terms
and conditions of this Agreement and the Notes, and (b) the execution, delivery
and performance of this Agreement and the Notes. 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 Borrower in
connection with the borrowings hereunder or the execution, delivery,
performance, validity or enforceability of this Agreement and the Notes. This
Agreement has been, and each Note will be, duly executed and delivered on behalf
of Borrower and this Agreement constitutes, and each Note when executed and
delivered hereunder will constitute, a legal, valid and binding obligation of
Borrower enforceable against Borrower 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.
4.4 No Legal Bar. The execution, delivery and performance of this
Agreement and the Notes, the borrowings hereunder and the use of the proceeds
thereof do not and will not violate any Requirement of Law or Contractual
Obligation (including without limitation the Indenture) of Borrower or any of
Borrower's Subsidiaries and do not and will not result in, or require, the
creation or imposition of any Lien on any of its properties or revenues pursuant
to any Requirement of Law or Contractual Obligation.
4.5 No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the best
knowledge of Borrower, threatened by or against Borrower or any of Borrower's
Subsidiaries or against any of their respective properties or revenues (a) with
respect to this Agreement or the Notes or any of the transactions contemplated
hereby or thereby, or (b) which
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could reasonably be expected to have a material adverse effect on the business,
operations, property or financial or other condition of Borrower and Borrower's
Subsidiaries taken as a whole.
4.6 Regulation U. Neither Borrower nor any of Borrower's Subsidiaries
is engaged, nor will either of them engage, principally or as one of its
important activities, in 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 Agent, Borrower and each of Borrower's
Subsidiaries will furnish to Agent a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in said Regulation U to the
foregoing effect.
4.7 Investment Company Act. Neither Borrower nor any of Borrower's
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
4.8 ERISA. Borrower and Borrower's Subsidiaries are in compliance in
all material respects with ERISA. There has been no Reportable Event with
respect to any Plan. There has been no institution of proceedings or any other
action by PBGC or Borrower or any Commonly Controlled Entity to terminate or
withdraw or partially withdraw from any Plan under any circumstances which could
lead to material liabilities to PBGC or, with respect to a Multiemployer Plan,
the Reorganization or Insolvency (as each such term is defined in ERISA) of the
Plan.
4.9 Disclosure. No representations or warranties made by Borrower in
this Agreement or in any other document furnished from time to time in
connection herewith (as such other documents may be supplemented from time to
time) contains or will contain any untrue statement of a material fact or omits
or will omit to state any material fact necessary to make the statements herein
or therein not misleading.
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4.10 Subsidiary Information. Schedule 3 attached hereto contains the
name, principal place of business, all other places of business and percentage
of ownership of all of the Subsidiaries of Borrower.
4.11 M/I Ancillary Businesses Information. Schedule 4 attached hereto
contains the name, principal place of business, all other places of business and
percentage of ownership of all of the M/I Ancillary Businesses.
4.12 Schedules. Each of the Schedules to this Agreement contains true,
complete and correct information in all material respects.
4.13 Year 2000 Compliance. Borrower has identified the issues with
respect to Year 2000 Compliance and has a realistic and achievable program for
achieving Year 2000 Compliance on a timely basis. Based on such identification
and program, Borrower does not reasonably anticipate that any issue with respect
to Year 2000 Compliance will have a material adverse effect on Borrower's
consolidated operations, business or financial condition.
SECTION 5. CONDITIONS PRECEDENT
--------------------
5.1 Conditions to Initial Loan(s). The obligation of the Banks to make
the initial Loan(s), of Bank One to make Swingline Loans and of Agent to issue
any Standby L/C hereunder on the first Borrowing Date is subject to the
satisfaction of the following conditions precedent on or prior to such date:
(a) Notes.
(i) Each Bank shall have received its respective Revolving
Credit Note, conforming to the requirements hereof and duly executed and
delivered by a duly authorized officer of Borrower; and
(ii) Bank One shall have received its Swingline Note,
conforming to the requirements hereof and duly executed and delivered by a
duly authorized officer of Borrower.
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(b) Guaranties. Each Bank shall have received its respective
Guaranties to which Agent shall also be a party, conforming to the requirements
hereof and duly executed and delivered by a duly authorized officer (or other
person in a comparable position) of each of Borrower's Subsidiaries.
(c) Borrowing Base Compliance. Borrower shall have delivered to
each Bank and Agent a Borrowing Base Certificate in the form of Exhibit D
attached hereto ("Borrowing Base Certificate"), certified by a Responsible
Officer of M/I, which shows that the Borrowing Base as of November 30, 1998 is
at least equal to the Loans (including any Standby L/Cs either (i) issued
hereunder or (ii) issued under the Existing Credit Agreement and that remain in
place) requested hereunder.
(d) Legal Opinions of Counsel to Borrower. Each Bank and Agent
shall have received an executed legal opinion of Paul S. Coppel, Esq., counsel
to Borrower and Borrower's Subsidiaries, dated as of the date hereof and
addressed to each Bank and Agent, substantially in the form of Exhibit E
attached hereto, and otherwise in form and substance satisfactory to each Bank
and Agent and covering such other matters incident to the transactions
contemplated hereby as each Bank and Agent or their respective counsel may
reasonably require.
(e) Corporate Proceedings of Borrower. Each Bank and Agent shall
have received a copy of the respective resolutions (in form and substance
satisfactory to each Bank and Agent) of the Board of Directors of M/I and the
sole shareholder of M/I Homes authorizing (i) the execution, delivery and
performance of this Agreement, (ii) the consummation of the transactions
contemplated hereby, (iii) the borrowings herein provided for, and (iv) the
execution, delivery and performance of the Notes and the other documents
provided for in this Agreement, all certified by the Secretary or the Assistant
Secretary of Borrower 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.
(f) Proceedings of Subsidiaries of Borrower which are Guarantors.
Each Bank and Agent shall have received a copy of the resolutions (in form and
substance satisfactory to Agent) of (i) M/I Schottenstein Homes, Inc., as the
sole shareholder of each
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of M/I Financial Corp., M/I Homes Construction, Inc. and M/I Service Corp., and
as the sole member of each of Manor Road - 1997, L.L.C., Northeast Office
Venture and 601RS, LLC; (ii) Manor Road - 1997, L.L.C., as the 99% member of
Chevy Chase Villas - 1997, L.L.C., and (iii) M/I Homes, as the sole member of
MHO, LLC, each resolution authorizing the execution, delivery and performance of
each Guaranty, all certified by the Secretary (or other person in a comparable
position) of the respective Subsidiary 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.
(g) Incumbency Certificate of Borrower. Each Bank and Agent shall
have received a certificate of the Secretary or an Assistant Secretary of each
of M/I and M/I Homes, dated the date hereof, as to the incumbency and signature
of the officer(s) of each executing this Agreement, the Notes and any
certificate or other documents to be delivered pursuant hereto or thereto.
(h) Incumbency Certificates of Subsidiaries. Each Bank and Agent
shall have received a certificate of the Secretary (or other person in a
comparable position) of each of the Subsidiaries of Borrower, dated the date
hereof, as to the incumbency and signatures of the officer(s) (or other
person(s) in a comparable position) of each executing its respective Guaranties.
(i) No Proceeding 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 Borrower or any
Subsidiary of Borrower or any of the officers, directors or managers of Borrower
or any Subsidiary of Borrower, seeking to restrain, prevent or change the
transactions contemplated by this Agreement in whole or in part or questioning
the validity or legality of the transactions contemplated by this Agreement or
seeking damages in connection with such transactions.
(j) Consents, Licenses, Approvals, etc. Each Bank and Agent shall
have received true copies (certified to be such by Borrower or other appropriate
party) of all consents,
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licenses and approvals required in accordance with applicable law in connection
with the execution, delivery, performance, validity and enforceability of this
Agreement, the Notes and the Guaranties, if the failure to obtain such consents,
licenses or approvals, individually or in the aggregate, would have a material
adverse effect on Borrower and Borrower's Subsidiaries taken as a whole, 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 each Bank and Agent.
(k) Compliance with Law. Neither Borrower nor any of Borrower's
Subsidiaries 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 Borrower and Borrower's Subsidiaries taken as a whole.
(l) 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 loans (including the issuance of Standby
L/Cs) on the first Borrowing Date hereunder.
(m) No Material Adverse Change. There shall have been no material
adverse change in the consolidated financial condition or business or operations
of Borrower and Borrower's Subsidiaries from the date of Borrower's October 31,
1998 unaudited consolidated financial statements to the first Borrowing Date.
(n) Additional Matters. All corporate and other proceedings and
all other documents and legal matters in connection with the transactions
contemplated by this Agreement, the Notes and the Guaranties shall be
satisfactory in form and substance to each Bank and Agent and their respective
counsel.
(o) Standby L/C Application. If the issuance of any Standby L/C
is part of the initial loan(s), Borrower shall have delivered to Agent a Standby
L/C Application in accordance
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with subsection 2.14 hereof for each Standby L/C that Borrower has requested
Agent to issue on the first Borrowing Date.
5.2 Conditions to All Loans. In addition to the other terms and
conditions of this Agreement with respect to the making of Loans and the
issuance of Standby L/Cs, the obligation of each Bank to make any Loan and of
Agent to issue of any Standby L/C hereunder on any date (including without
limitation the first Borrowing Date) is subject to the satisfaction of the
following conditions precedent as of such date:
(a) Representations and Warranties. The representations and
warranties made by Borrower in this Agreement and any representations and
warranties made by Borrower or any Subsidiary of Borrower 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 or Standby L/C to be issued on such date.
(c) Standby L/C Application. If the issuance of any Standby L/C
is part of any borrowing, Borrower shall have delivered to Agent a Standby L/C
Application in accordance with subsection 2.14 hereof for each Standby L/C that
Borrower has requested Agent to issue as part of such borrowing.
Each borrowing by Borrower (including the submission of a Standby L/C
Application) under this Agreement shall constitute a representation and warranty
by Borrower as of the date of such borrowing that the conditions contained in
the foregoing paragraphs (a), (b) and (c) of this subsection 5.2 have been
satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
---------------------
Borrower hereby agrees that, from the date hereof and so long as the
Commitment remains in effect, any portion of any
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Note or Reimbursement Obligation remains outstanding and unpaid, any Standby L/C
remains outstanding that is not fully collateralized with cash in a manner
satisfactory to Agent, or any other amount is owing to Agent or any Bank
hereunder, M/I shall, and in the case of subsections 6.6, 6.7, 6.8 and 6.9
hereof, shall cause each of its Subsidiaries to, and in the case of subsection
6.4 hereof, M/I Homes shall also:
6.1 Financial Statements. Furnish to each Bank and Agent:
(a) as soon as available, but in any event within 90 days after
the end of each fiscal year of Borrower, a copy of the audited consolidated
balance sheet of Borrower and Borrower's consolidated Subsidiaries as of the end
of such year and the related audited consolidated statements of income, of
stockholders' equity and of cash flows for such year, setting forth in each case
in comparative form the figures for the previous 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 Borrower's independent certified public
accountants concur; and
(b) as soon as available, but in any event not later than 45 days
after the end of each monthly accounting period (including the monthly
accounting period for the last month of each fiscal year of the Commitment
Period), the unaudited consolidated balance sheet of Borrower and Borrower's
consolidated Subsidiaries as of the end of each such month and the related
unaudited consolidated statements of income and of stockholders' equity of
Borrower and Borrower's consolidated Subsidiaries 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, and including in each case: (i) the
relevant figures broken down with respect to each division of Borrower and
Borrower's Subsidiaries and (ii) a listing of all residential and commercial
lots, land under development and unsold lots;
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all such financial statements to 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) of this
subsection 6.1, that such financial statements need not contain footnotes and
may be subject to year-end audit adjustments).
6.2 Certificates; Other Information. Furnish to each Bank and Agent:
(a) concurrently with the delivery of each financial statement
referred to in subsection 6.1(a) above and each financial statement referred to
in subsection 6.1(b) above, a summary in form and substance satisfactory to the
Required Banks of the status of the hedging investments described in subsection
7.9(j) hereof, and a certificate of a Responsible Officer of M/I (in the form of
Exhibit F attached hereto or such other form as shall be reasonably acceptable
to each Bank and Agent) stated to have been made after due examination by such
Responsible Officer (i) stating that, to the best of such officer's knowledge,
M/I and each of M/I's Subsidiaries 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 Notes 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 6.11, 6.12, 6.13, 6.14, 6.15, 7.1(d), 7.3,
7.6, 7.7, 7.8, 7.9(e), 7.9(k), 7.20 and 7.22 hereof;
(b) not later than March 31 of each year, comprehensive
projections for that year, setting forth projected income and cash flow for each
quarter of that year, and the projected balance sheet as of the end of each
quarter of that year, together with a summary of the assumptions upon which such
projections are based and a certificate in the form of Exhibit G hereto of the
chief financial officer or the controller of M/I with respect to such
projections;
(c) promptly after the same are sent, copies of all financial
statements, reports and notices which Borrower or any of Borrower's Subsidiaries
sends to its stockholders as
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stockholders and, so long as Borrower is a reporting company under the
Securities Exchange Act of 1934, promptly after the same are filed, copies of
all financial statements which Borrower may make to, or file with, and copies of
all material notices Borrower receives from, the Securities and Exchange
Commission or any public body succeeding to any or all of the functions of the
Securities and Exchange Commission;
(d) promptly upon receipt thereof, copies of all final reports
submitted to Borrower by independent certified public accountants in connection
with each annual, interim or special audit of the books of Borrower or any of
Borrower's Subsidiaries made by such accountants, including without limitation
any final comment letter submitted by such accountants to management in
connection with their annual audit; and
(e) promptly, on reasonable notice to Borrower, such additional
financial and other information as any Bank may from time to time reasonably
request.
6.3 Borrowing Base Certificate. Furnish to each Bank and Agent as soon
as available, but in any event within twenty-five (25) days after the end of
each month, a Borrowing Base Certificate in substantially the form of Exhibit D,
certified by the chief financial officer or the controller of M/I, showing the
calculation of the Borrowing Base for such month.
6.4 Compliance with Borrowing Base Requirements. At any time any
Borrowing Base Certificate required to be furnished to each Bank and Agent in
accordance with subsection 6.3 hereof indicates that the aggregate principal
amount of the Loans and undrawn and drawn Standby L/Cs then outstanding exceeds
the amount of Loans and Standby L/Cs then permitted hereunder, within five
calendar days after the delivery of such Borrowing Base Certificate to each Bank
and Agent, (a) reduce the principal amount of the Loans and undrawn and drawn
Standby L/Cs then outstanding by an amount sufficient to make the Loans and
undrawn and drawn Standby L/Cs then outstanding not more than the Loans and
Standby L/Cs then permitted hereunder, or (b) deliver to each Bank and Agent a
more current Borrowing Base Certificate that demonstrates that the aggregate
principal amount of the Loans and undrawn and drawn Standby L/Cs outstanding as
of the date of such
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Borrowing Base Certificate is not in excess of the Loans and Standby L/Cs
permitted hereunder at such time.
6.5 Interest Rate Protection. At any time the Eurodollar Base Rate for
an Interest Period of one month shall equal or exceed six and one-half percent
(6.50%) per annum and Borrower shall not have in effect an Interest Rate
Contract or series of Interest Rate Contracts that provide to Borrower an
effective fixed rate of interest on a total of fifty percent (50%) of the
maximum amount of Revolving Credit Loans available hereunder, the Required
Banks, by written notice from the Agent to Borrower, may require Borrower to
enter into an Interest Rate Contract or series of Interest Rate Contracts
satisfactory to the Required Banks that provide to Borrower, when combined with
all other Interest Rate Contracts then in effect, an effective fixed rate of
interest on a total of fifty percent (50%) of the maximum amount of Revolving
Credit Loans available hereunder. In such event, Borrower, within 30 days of
receipt of such notice from Agent, shall enter into an Interest Rate Contract or
series of Interest Rate Contracts, and provide a copy or copies thereof to each
Bank and Agent, which Interest Rate Contract or series of Interest Rate
Contracts shall, when combined with all other Interest Rate Contracts then in
effect, (i) provide interest rate protection to Borrower on a total of fifty
percent (50%) of the maximum Revolving Credit Loans available hereunder by
providing to Borrower an effective fixed rate of interest on a total of fifty
percent (50%) of the maximum amount of Revolving Credit Loans available
hereunder, (ii) be in effect for a period of at least two years from the later
of (A) the date of acquisition of such Interest Rate Contract or series of
Interest Rate Contracts or (B) the date of Agent's notice to Borrower hereunder
(provided that if such period exceeds the Maturity Date, including any permitted
extensions of the Maturity Date, the Interest Rate Contract(s) need only be in
effect until the Maturity Date), and (iii) be entered into with (A) any Bank, or
(B) a bank or other financial institution that has unsecured, uninsured and
unguaranteed long-term debt which is rated at least A-3 by Moody's Investor
Service, Inc. or at least A- by Standard & Poor's Corporation.
6.6 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
Indebtedness and other
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material obligations of whatever nature, except, (a) without prejudice to the
effectiveness of paragraph (5) of Section 9 hereof, for any Indebtedness or
other obligations (including any obligations for taxes), when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of Borrower or Borrower's Subsidiaries, as the case may
be, and (b) for any Indebtedness secured by a mortgage on real estate if such
Indebtedness is, by its terms, exculpatory (i.e., non-recourse to Borrower and
its Subsidiaries).
6.7 Maintenance of Existence. Except as may be permitted under
subsection 7.4 hereof, 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 M/I or of M/I and its Subsidiaries, taken as a whole. M/I and M/I's
Subsidiaries have no duty to renew or extend contracts which expire by their
terms.
6.8 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 each Bank and Agent,
upon written request, full information as to the insurance carried.
6.9 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
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representatives of each Bank and Agent 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
Borrower and Borrower's Subsidiaries with officers and employees of Borrower and
Borrower's Subsidiaries and, if notice thereof is given to Borrower prior to the
date of such discussions, with its independent certified public accountants.
6.10 Notices. Promptly give notice to each Bank and Agent:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any loan or
letter of credit agreement binding upon Borrower or any of Borrower's
Subsidiaries, (ii) default under any other Contractual Obligation that would
enable the obligee of the Contractual Obligations to compel Borrower or any of
Borrower's Subsidiaries to immediately pay all amounts owing thereunder or
otherwise accelerate payments thereunder and would have a material adverse
effect on Borrower and Borrower's Subsidiaries taken as a whole, or (iii)
litigation, investigation or proceeding which may exist at any time between
Borrower and Borrower's Subsidiaries 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 Borrower and Borrower's
Subsidiaries taken as a whole;
(c) of any litigation or proceeding affecting Borrower or any of
Borrower's Subsidiaries (i) (A) in which the amount involved is $500,000.00 or
more and not covered by insurance, or (B) which, in the reasonable opinion of a
Responsible Officer of M/I, would, if adversely determined, have a material
adverse effect on Borrower and Borrower's Subsidiaries taken as a whole, or (ii)
in which injunctive or similar relief is sought and which, in the reasonable
opinion of a Responsible Officer of M/I, would, if adversely determined, have a
material adverse effect on Borrower and Borrower's Subsidiaries taken as a
whole;
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(d) of the following events, as soon as possible and in any event
within 30 days after Borrower 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 Borrower or any Commonly Controlled Entity to terminate or withdraw
or partially withdraw from any Plan under circumstances which could lead to
material liability to the PBGC or, with respect to a Multiemployer Plan, the
Reorganization or Insolvency (as each such term is defined in ERISA) of the Plan
and in addition to such notice, deliver to each Bank and Agent whichever of the
following may be applicable: (A) a certificate of a Responsible Officer of M/I
setting forth details as to such Reportable Event and the action that Borrower
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 Borrower and Borrower's Subsidiaries
taken as a whole.
Each notice pursuant to this subsection 6.10 shall be accompanied by a statement
of the chief executive officer or chief financial officer or other Responsible
Officer of M/I setting forth details of the occurrence referred to therein and
stating what action Borrower proposes to take with respect thereto. For all
purposes of clause (d) of this subsection 6.10, Borrower 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.
6.11 Maintenance of Consolidated Tangible Net Worth. Maintain
Borrower's Consolidated Tangible Net Worth in amounts at all times equal to at
least the following amounts during the following periods:
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Period Amount
------ ------
Date hereof to and including $126,234,000.00
12/31/98
1/1/99 to and including Consolidated Tangible Net Worth required
12/31/99 for 1998 plus 50% of audited Consolidated
Earnings for fiscal year 1998
1/1/00 to and including Consolidated Tangible Net Worth required
12/31/00 for 1999 plus 50% of audited Consolidated
Earnings for fiscal year 1999
1/1/01 to and including Consolidated Tangible Net Worth required
12/31/01 for 2000 plus 50% of audited Consolidated
Earnings for fiscal year 2000
1/1/02 to and including Consolidated Tangible Net Worth required
12/31/02 for 2001 plus 50% of audited Consolidated
Earnings for fiscal year 2001
1/1/03 and thereafter Consolidated Tangible Net Worth required
for 2002 plus 50% of audited Consolidated
Earnings for fiscal year 2002
provided, however, that the Consolidated Tangible Net Worth requirements shall
not be reduced if Consolidated Earnings is zero or negative for any applicable
fiscal year or any applicable interim period; and further provided, however,
that each of the foregoing Consolidated Tangible Net Worth amounts shall be
increased by 90% of the aggregate increase in Borrower's Consolidated Tangible
Net Worth as a result of the issuance of additional stock of M/I after the date
hereof.
6.12 Maintenance of Debt to Worth. Maintain at all times during the
Commitment Period a ratio of Consolidated
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Unsubordinated Liabilities to the sum of Consolidated Tangible Net Worth and
Subordinated Indebtedness not in excess of 2.0 to 1.0.
6.13 Maintenance of Liquidity Ratio. Maintain at all times during the
Commitment Period a Liquidity Ratio of not less than (a) from the date hereof to
and including December 31, 1999, 0.95 to 1.0; and (b) from January 1, 2000 and
thereafter, 1.05 to 1.0.
6.14 Maintenance of Overall Leverage Ratio. Maintain at all times
during the Commitment Period (a) a ratio of Consolidated Tangible Net Worth to
Subordinated Indebtedness of not less than 1.0 to 1.0, and (b) a ratio of
Consolidated Liabilities to Consolidated Tangible Net Worth not in excess of 3.0
to 1.0.
6.15 Maintenance of EBITDA to Consolidated Interest Incurred Ratio.
Maintain at all times during the Commitment Period a ratio of EBITDA to
Consolidated Interest Incurred of not less than 1.70 to 1.0.
6.16 Guaranties of Wholly-Owned M/I Ancillary Businesses. Upon the
request of the Agent on behalf of the Required Banks, cause each of the M/I
Ancillary Businesses that is wholly-owned by the Borrower or by any Subsidiary,
that has total assets of at least $200,000.00 and that is not precluded by law
from executing a Guaranty to execute a Guaranty in favor of the Banks and the
Agent with respect to the Indebtedness of the Borrower hereunder.
SECTION 7. NEGATIVE COVENANTS
------------------
Borrower hereby agrees that, from the date hereof and so long as the
Commitment remains in effect, any portion of any Note or Reimbursement
Obligation remains outstanding and unpaid, any Standby L/C remains outstanding
that is not fully collateralized with cash in a manner satisfactory to Agent, or
any other amount is owing to Agent or any Bank hereunder, M/I shall not, nor
shall it permit any of its Subsidiaries or, in the case of subsections 7.1, 7.2,
7.3 and 7.21, permit any M/I Ancillary Business that is wholly-owned by M/I or
by any Subsidiary to, directly or indirectly:
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7.1 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness except:
(a) Indebtedness in respect of the Notes;
(b) Indebtedness of M/I and M/I Financial Corp. under the M/I
Financial Corp. Loan Agreement, which shall not exceed the aggregate principal
amount of $40,000,000 at any time;
(c) Subordinated Indebtedness of M/I, subject to the limitations
of subsection 6.14 hereof;
(d) Secured Indebtedness in respect of capitalized lease
obligations and purchase money obligations within the limitations set forth in
subsection 7.2(c) hereof; provided, however, that the aggregate amount of any
such secured Indebtedness at any one time outstanding shall not exceed
$10,000,000 on a consolidated basis;
(e) Indebtedness of Borrower and Borrower's Subsidiaries arising
out of or under unpaid reimbursement and guaranty obligations in respect of
payments actually made by (i) issuers or otherwise on all drafts or borrowings
under standby letters of credit and (ii) bonding companies on Construction
Bonds, as each is permitted by subsection 7.3(a) hereof, provided payment of
said Indebtedness is not yet due, and further provided that the aggregate amount
of said Indebtedness does not exceed $2,000,000 at any one time outstanding;
(f) Indebtedness of Borrower in respect of Standby L/Cs, provided
payment of said Indebtedness is not yet due;
(g) Indebtedness of M/I with respect to loans from any of the
Subsidiaries of M/I; provided that the amount of such loans from M/I Financial
Corp. to M/I shall not exceed $5,000,000 at any time that the aggregate
principal amount of the Loans outstanding is less than the aggregate principal
amount of the Loans available pursuant to subsection 2.1 hereof;
(h) Indebtedness of any wholly-owned Subsidiary of M/I, or
Indebtedness of Chevy Chase Villas, L.L.C., with respect to loans from M/I or
from any other Subsidiaries of
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Borrower; provided that each such Subsidiary which is not also a borrower
hereunder shall have delivered to each of the Banks, prior to the making of any
such loans, its respective Guaranty conforming to the requirements of this
Agreement;
(i) Indebtedness of M/I and/or 601RS, LLC not in excess of
$5,000,000 secured by a Lien permitted by subsection 7.2(j) hereof; and
(j) Exculpatory Indebtedness with respect to the Office Building
in a principal amount not to exceed $12,000,000.00 at any one time outstanding
secured by a first mortgage on the Office Building.
7.2 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether owned or hereafter
acquired, except:
(a) Liens in favor of Agent, for the ratable benefit of Banks,
including without limitation Liens in favor of Agent on M/I's real property
inventory situated in the State of Indiana to secure the Indebtedness to Banks;
(b) Liens granted by M/I Financial Corp. on mortgage notes
receivable, which Liens secure Indebtedness permitted under subsection 7.1(b)
hereof not in excess of $40,000,000;
(c) Liens securing Indebtedness permitted under subsection 7.1(d)
hereof; provided, however, that (i) such Liens do not at any time encumber any
property other than the property financed by such secured Indebtedness, and (ii)
the Indebtedness secured thereby shall not exceed the cost or fair market value,
whichever is lower, of the property being acquired on the date of acquisition;
(d) 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 Borrower and
Borrower's Subsidiaries in accordance with GAAP;
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(e) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than 30 days or which are being
contested in good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the books of Borrower and Borrower's
Subsidiaries in accordance with GAAP;
(f) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(g) (i) deposits to secure the performance of: bids; trade
contracts (other than for borrowed money or the purchase price of property or
services); leases; statutory and other obligations required by law; surety,
appeal and performance bonds (including Construction Bonds); and other
obligations of a like nature incurred in the ordinary course of business; and
(ii) Liens in favor of surety bond companies pursuant to indemnity agreements to
secure the reimbursement obligations of Borrower or any Subsidiary on
Construction Bonds, provided (A) the Liens securing Construction Bonds shall be
limited to the assets of, as appropriate, Borrower or such Subsidiary at, and
the rights of, as appropriate, Borrower or such Subsidiary arising out of, the
projects that are the subject of the Construction Bonds, (B) the Liens shall not
attach to any real estate, and (C) the aggregate amount of such Liens at any
time shall not exceed the dollar amount of Construction Bonds then outstanding,
and in any event shall not exceed the amount of reimbursement obligations on
Construction Bonds permitted to Borrower pursuant to subsection 7.3(a) hereof;
(h) 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, however, that the rental payments secured thereby are not
yet due;
(i) Liens arising as a result of a judgment or judgments against
M/I or any of its Subsidiaries which do not in the aggregate exceed $500,000 at
any one time outstanding, which are being diligently contested in good faith,
which are not the subject of any attachment, levy or enforcement proceeding, and
as
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to which appropriate reserves have been established in accordance with GAAP;
(j) a first priority Lien on an aircraft owned by 601RS, LLC from
time to time to secure the Indebtedness of 601RS, LLC and/or M/I not in excess
of $5,000,000;
(k) a first mortgage Lien to secure the Indebtedness permitted by
subsection 7.1(j) hereof; and
(l) a first Lien on all leases assigned to secure the
Indebtedness permitted by subsection 7.1(j) hereof.
7.3 Limitation 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 general partner in any limited
partnership or general partnership, except:
(a)(i) reimbursement and other obligations under standby letters
of credit (including letters of credit issued for the purpose of satisfying
bonding requirements) issued by Persons including the Banks; (ii) Contingent
Obligations of M/I as the guarantor of letters of credit issued for the account
of joint ventures in which M/I is a partner (including Guaranteed HNB Joint
Ventures Letters of Credit), provided that M/I's Contingent Obligation on any
such guaranty shall be limited to a percentage of the amount of that joint
venture's letters of credit equal to M/I's pro rata equitable ownership interest
in such joint venture, provided further that the sum of the obligations
permitted by clauses (a)(i) and (a)(ii) shall not exceed the aggregate amount of
$11,500,000 at any one time outstanding on a consolidated basis, which
$11,500,000 limitation shall not include any obligations in connection with
Standby L/Cs; and (iii) reimbursement obligations not in excess of $20,000,000
at any one time outstanding on a consolidated basis under Construction Bonds;
(b) Contingent Obligations consisting of (i) guaranties by M/I of
M/I Financial Corp.'s lease obligations in an amount not to exceed $1,000,000 in
any period of 12 consecutive months,(ii) M/I's obligations under the M/I
Financial
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Corp. Loan Agreement in a principal amount not to exceed $40,000,000, (iii)
guaranties by any Subsidiary of the obligations of Borrower under this
Agreement, and (iv) guaranties by any Subsidiary of any other obligation of M/I
to the Banks;
(c) Contingent Obligations related to Indebtedness of joint
ventures in which M/I has made Investments in Joint Ventures as permitted by
subsection 7.9(e) hereof and in which M/I is a partner, member or shareholder;
provided, however, that the aggregate amount of such Contingent Obligations at
any one time outstanding pursuant to this subsection 7.3(c) shall not exceed (i)
$10,000,000 less (ii) the aggregate amount of secured and unsecured Indebtedness
then outstanding pursuant to subsection 7.1(d) hereof; and
(d) other Contingent Obligations of M/I which do not in the
aggregate at any one time outstanding exceed $4,000,000, subject to the
limitations of subsection 7.9(k) hereof.
7.4 Limitation on Fundamental Changes. Subject to any investments
permitted pursuant to subsection 7.9(d) hereof, enter into any transaction of
merger, consolidation, amalgamation or reorganization (including without
limitation any election to be taxed as an S Corporation), or liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution), or, except for
the sale of land, lots and houses from inventory in the ordinary course of
business, 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, except any
Subsidiary of M/I may be (i) merged, amalgamated or consolidated with or into
M/I or any wholly-owned Subsidiary of M/I, or (ii) liquidated, wound up or
dissolved into, or all or substantially all of its business, property or assets
may be conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to M/I or any wholly-owned Subsidiary
of M/I; provided, however, that, in the case of such a merger, liquidation or
consolidation, M/I or such wholly-owned Subsidiary, as the case may be, shall be
the continuing or surviving corporation.
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7.5 Limitation on Acquisitions. Except for the acquisition of land,
lots and houses in the ordinary course of business to the extent not otherwise
prohibited hereunder, acquire all or any material part of the business or assets
of, any Person without the prior written consent of the Required Banks.
7.6 Limitation on Dividends and Distributions. Make any distributions
or declare any dividends (other than dividends payable solely in common stock of
M/I) on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, retirement or other
acquisition of any shares of any class of stock of M/I, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of M/I or any of
M/I's Subsidiaries (each of the foregoing a "Stockholder Payment"), except (a)
so long as no Default or Event of Default has occurred and is continuing or
would result therefrom, M/I and any of M/I's Subsidiaries may make Stockholder
Payments in a total amount that, when added to all other Stockholder Payments
permitted by this Agreement, does not exceed the sum of (i) twenty-five percent
(25%) of cumulative Consolidated Earnings (taking into account losses, if any)
of M/I subsequent to December 31, 1997 plus (ii) $800,000.00; and (b) any
Subsidiary of M/I may declare and pay dividends or make distributions, and such
dividends or distributions shall not be considered Stockholder Payments. In
determining compliance with the foregoing, M/I shall be in compliance if, as of
the last day of the calendar month immediately preceding the month in which any
such Stockholder Payments are made, the cumulative Stockholder Payments
previously made plus the Stockholder Payments made during the current month
would not in the aggregate exceed the amount permitted by clause (a), above.
7.7 Limitation on Certain Real Property Expenditures. Purchase or
acquire any Eligible Raw Land and Land Under Development by the expenditure of
cash, the incurrence of Indebtedness, as a result of Investment in Joint
Venture(s), or otherwise, if as a result of such purchase or acquisition the
aggregate cost of all the foregoing then owned by Borrower and Borrower's
Subsidiaries (including their pro rata share of any undeveloped land that
constitutes part of an Investment in Joint Venture) shall at any time exceed (a)
as to undeveloped land only,
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40% of the sum of (i) Consolidated Tangible Net Worth and (ii) Subordinated
Indebtedness; and (b) as to the sum of undeveloped land and land under
development, 100% of the sum of (i) Consolidated Tangible Net Worth and (ii)
Subordinated Indebtedness; provided further, that the aggregate cost of any
individual tract of land acquired by Borrower or any of Borrower's Subsidiaries,
or their pro rata share of any tract that constitutes part of an Investment in
Joint Venture may not exceed $4,000,000 except for land holdings set forth on
Exhibit H attached hereto. For purposes of this subsection 7.7, the cost of
undeveloped land and land under development shall be determined in accordance
with GAAP. Further, for purposes of this subsection 7.7, any tract of land shall
cease to be classified as undeveloped land after (i) commencement of the
development of such tract into residential lots in good faith and provided the
development thereof is completed over a period of not more than one year, or
(ii) such tract is the subject of a valid, noncontingent contract of sale with a
person who is not an Affiliate or Subsidiary and who is satisfactory to the
Required Banks in their sole discretion, provided the sale contemplated by such
contract is to be completed not more than two years after the date of the
contract. In the event the development of any tract is discontinued for a period
of 60 days or longer or not completed within one year, such tract shall
automatically be deemed to be undeveloped land.
7.8 Limitation on Speculative Houses and Eligible Model Houses. Permit
the aggregate cost, as determined in accordance with GAAP on a consolidated
basis, of (a) Speculative Houses owned by Borrower and Borrower's Subsidiaries
to exceed $27,500,000 at any one time outstanding, of which not more than
$5,000,000 may consist of attached (including townhouse condominiums and
condominiums) single family homes, or (b) Eligible Model Houses owned by
Borrower and Borrower's Subsidiaries to exceed $30,000,000 at any one time
outstanding, of which not more than $3,000,000 may consist of attached
(including townhouse condominiums and condominiums) single family homes.
7.9 Limitation on Investments. Make or commit to make any advance,
loan, extension of credit or capital contribution to, or purchase of any stock,
bonds, note, debenture or other security of, or make any other investment in,
any Person (all such transactions being herein called "investments"), except:
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(a) investments in Cash Equivalents;
(b) extensions of credit in connection with the sale of land,
secured by land sold, which do not exceed in the aggregate $1,000,000 at any one
time outstanding and which have a maximum maturity of five years;
(c) loans and advances to officers and employees of Borrower or
Borrower's Subsidiaries, to other Persons in the ordinary course of business or
as permitted by the respective Code of Regulations of M/I and M/I Homes, which
do not exceed in the aggregate $500,000 at any one time outstanding;
(d) any investments in M/I Financial Corp.; M/I Homes; M/I Homes
Construction, Inc.; Manor Road - 1997, L.L.C.; Chevy Chase Villas, L.L.C.;
Northeast Office Venture; 601RS, LLC; MHO, LLC; M/I Service Corp.; or any other
Subsidiary created with the consent of the Required Banks hereafter;
(e) any Investments in Joint Ventures, the aggregate cost of
which, as determined in accordance with GAAP (excluding, however, Borrower's or
Borrower's Subsidiaries' equity in the undistributed earnings or losses in each
such joint venture, whether such joint venture is a general or limited
partnership, a limited liability company, a corporation or any other form of
business association), does not at any one time outstanding exceed $27,500,000;
provided, however, that with respect to each such joint venture, whether such
joint venture is a general partnership, a limited partnership, a limited
liability company, a corporation or any other form of business association,
Borrower shall have at least a 33 1/3% ownership interest in such joint venture
and all decisions with respect to the management and control of each such joint
venture's business (other than decisions with respect to development of
undeveloped land owned by such joint venture) shall require the consent and
approval of Borrower; and provided further, however, that no such investment may
be made if it causes or results (singly or with other actions or events) in (i)
any violation of subsection 7.3 hereof or any other covenant or condition
hereof, or (ii) any other Default or Event of Default;
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(f) first mortgage loans made in the ordinary course of M/I
Financial Corp.'s business to natural persons for the purchase of residential
real property;
(g) second mortgage loans made in the ordinary course of M/I
Financial Corp.'s business to natural persons for the purchase of residential
real property, provided that such second mortgage loans (i) shall be made only
in connection with a specific financing program to natural persons who have a
first mortgage loan from M/I Financial Corp. with respect to the same real
property, and (ii) shall not in the aggregate exceed $4,000,000 at any one time
outstanding;
(h) first mortgage loans made in the ordinary course of M/I
Financial Corp.'s business to natural persons for the purpose of refinancing an
existing first mortgage loan, provided that the amount of such refinancing
mortgage loans shall not exceed $5,000,000 in the aggregate at any one time
outstanding;
(i) investments by M/I Financial Corp. in the stock of Fannie Mae
to the extent required for M/I Financial Corp. to sell mortgages to Fannie Mae,
but the amount of such investments in Fannie Mae stock shall in no event exceed
$100,000;
(j) investments by M/I Financial Corp. in the ordinary course of
its 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;
(k) investments in, advances to, and Contingent Obligations
related to the obligations of, the M/I Ancillary Businesses in an amount not to
exceed $100,000 in the aggregate; and
(l) other investments or advances directly related to the
Borrower's business, provided that the aggregate amount of such investments and
advances shall not at any time exceed $2,000,000.00 in the aggregate.
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7.10 Limitation on Operating Leases. Enter into or renew any Operating
Lease if as a result thereof: (a) the aggregate rentals payable by Borrower and
all of Borrower's Subsidiaries under all Operating Leases on a consolidated
basis, except for any Operating Lease with respect to the Office Building, would
exceed in any period of 12 consecutive months the aggregate amount of
$4,200,000; or (b) the term of (i) any Operating Lease with respect to Eligible
Model Houses and furnishings for Eligible Model Houses would exceed three years,
and (ii) any other Operating Lease, except for any Operating Lease with respect
to the Office Building, would exceed five years, provided that so long as the
initial term or any renewal of an Operating Lease included within this clause
(b) does not exceed five years or three years, as appropriate, the aggregate of
the initial term and all renewals of such Operating Lease may exceed five years
or three years, as appropriate, if any right of renewal is solely at the option
of the Borrower or Borrower's Subsidiaries; or (c) the aggregate rentals payable
by Borrower and all of Borrower's Subsidiaries under all Operating Leases with
respect to the Office Building would exceed, for the periods set forth below,
the amounts that correspond to such periods, as set forth below:
<TABLE>
<CAPTION>
Aggregate
Year of the Operating Lease Rentals Per
--------------------------- Lease Year
----------
<S> <C>
Beginning with Lease Year 1 $1,131,576.00
Through and including Lease Year 5
Beginning with Lease Year 6 $1,217,693.00
Through and including Lease Year 10
Beginning with Lease Year 11 $1,275,104.00
Through and including Lease Year 15
Beginning with Lease Year 16 Through $1,303,810.00
and including Lease Year 20
</TABLE>
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7.11 Transactions with Affiliates and Officers.
(a) Except for (i) any consulting agreements or employment
agreements to which Borrower is a party and which were in effect as of March 1,
1994 and (ii) compensation arrangements in the ordinary course of business with
the officers, directors, and employees of Borrower and Borrower's Subsidiaries,
enter into any transaction, including without limitation the purchase, sale or
exchange of property or the rendering of any services, with any Affiliate or any
officer or director thereof, or enter into, assume or suffer to exist any
employment or consulting contract with any Affiliate or an officer or director
thereof, except any transaction or contract which is in the ordinary course of
Borrower's or any of Borrower's Subsidiaries' business and which is upon fair
and reasonable terms no less favorable to Borrower or Borrower's Subsidiaries
than it would obtain in a comparable arm's length transaction with a Person not
an Affiliate;
(b) make any advance or loan to any Affiliate or any director or
officer thereof or of Borrower or to any trust of which any of the foregoing is
a beneficiary, or to any Person on the guarantee of any of the foregoing, except
as expressly permitted by subsection 7.9(c) hereof; or
(c) pay any fees or expenses to, or reimburse or assume any
obligation for the reimbursement of any expenses incurred by, any Affiliate or
any officer or director thereof, except as may be permitted in accordance with
clauses (a) and (b) of this subsection 7.11.
7.12 Sale and Leaseback. Enter into any arrangement with any Person
providing for the leasing by Borrower or any of Borrower's Subsidiaries of real
or personal property which has been or is to be sold or transferred by Borrower
or any of Borrower's Subsidiaries to such Person or to any other Person to whom
funds have been or are to be advanced by such Person on the security of such
property or rental obligations of Borrower or any of Borrower's Subsidiaries;
provided, however, that such arrangements shall be permitted with respect to
Eligible Model Houses, so long as any such arrangement with respect to Eligible
Model Houses does not result in: (a) the creation of a lease which is required
to be capitalized in accordance with GAAP; (b) the initial term of such
arrangement plus any options or renewals exercisable by lessor or lessee
exceeding three years; or (c) the
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violation of any term, condition or covenant hereof, including without
limitation subsection 7.10 hereof.
7.13 Limitation on Payments of Subordinated Indebtedness and
Modification of Subordination Agreements.
Without the prior written consent of the Required Banks,
(a) repay, prepay, purchase, redeem, or otherwise acquire any of
M/I's Subordinated Indebtedness; or
(b) make any other payments, including without limitation payment
of interest, on any Subordinated Indebtedness if an Event of Default exists or
if such payment would cause an Event of Default to occur; or
(c) permit the modification, waiver or amendment of any of the
terms of any Subordinated Indebtedness; or
(d) permit (whether or not within the control of M/I or any of
M/I's Subsidiaries) the modification, waiver, or amendment of, or release of any
parties to, any subordination agreement with respect to any Subordinated
Indebtedness; provided, however, nothing contained in this subsection 7.13 shall
prevent M/I from making regularly scheduled payments on any Subordinated
Indebtedness if no Event of Default exists and the payment would not cause an
Event of Default to occur. With respect to the Subordinated Indebtedness
pursuant to the BankBoston Agreement, "regularly scheduled payments" shall mean
only (i) on August 29, 2004, the payment of the principal balance of the Fixed
Rate Senior Subordinated Note made by M/I to the order of BankBoston, N.A. on
August 29, 1997 in the principal face amount of $50,000,000 and each other note
executed and delivered by M/I in exchange or replacement for such note pursuant
to the BankBoston Agreement (collectively, the "BankBoston Notes"); and (ii) on
each February 28, May 29, August 29 and November 29 (or within any applicable
cure period) during the term of the BankBoston Notes interest on the BankBoston
Notes.
The parties hereby agree that this clarification regarding what
payments of Subordinated Indebtedness pursuant to
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the BankBoston Agreement constitute "regularly scheduled payments" is not
intended to modify the rights and obligations of BankBoston, N.A. (including any
of its successors and assigns) and M/I, or the rights of the Banks and the
Agent, pursuant to or arising out of the Subordinated Indebtedness pursuant to
the BankBoston Agreement; provided that nothing herein shall be construed to be
a consent by the Banks (in their capacity as Banks under this Agreement) and the
Agent to any payment of any Subordinated Indebtedness that is prohibited by this
Agreement.
7.14 Sale of Subsidiary Securities. Sell any security, debt or equity
of any Subsidiary, or permit any Subsidiary to sell or issue any security, debt
or equity to any Person other than Borrower or any Bank; provided, however,
Borrower may sell through M/I Financial Corp. mortgage loans on a non-recourse
basis, subject to Mortgage Loan Repurchase Obligations; provided further,
however, that this subsection 7.14 shall not prohibit Indebtedness of any
Subsidiary permitted under subsection 7.1 hereof.
7.15 Construction on Real Property Not Owned. Make investments in
construction on real property that is not then owned by Borrower or a
Subsidiary; provided, however, that Borrower and Borrower's Subsidiaries may
make investments in construction on such real property if the contract price for
the land, plus the cost of investment in construction less any related Customer
Deposits with respect to all such real property does not in the aggregate exceed
$1,000,000 at any one time outstanding.
7.16 Limitation on Subsidiaries. Create any Subsidiaries without the
prior written consent of the Required Banks, provided that nothing in this
subsection 7.16 shall prevent investments in the M/I Ancillary Businesses to the
extent permitted in subsection 7.9(k).
7.17 Limitation on Location of Attached Houses. Construct or make
investments in construction of any attached (including townhouse condominiums
and condominiums) single family houses in any area outside of the Washington,
D.C. Market.
7.18 Limitation on Rental Houses. Permit investments in Rental Houses,
determined in accordance with GAAP, to exceed $500,000 in aggregate at any time.
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7.19 Limitation on Investments in Commercial Real Estate. Permit
investments (including investments attributed to Borrower's pro rata share of
land owned by partnerships in which Borrower is a general or limited partner or
by limited liability companies of which Borrower is a member) in commercial real
estate (including raw land, land under development and commercial Developed Lots
but excluding the Office Building), determined in accordance with GAAP, to
exceed $1,500,000.00 in the aggregate at any one time outstanding.
7.20 Limitation on Uncommitted Land. Permit the ratio of (a)
Uncommitted Land to (b) the sum of Borrower's (i) Consolidated Tangible Net
Worth, and (ii) Subordinated Indebtedness to exceed at any one time: (A) from
the date hereof through and including December 31, 1999, 1.35 to 1.0; (B) from
January 1, 2000 through and including December 31, 2000, 1.30 to 1.0; (C) from
January 1, 2001 through and including December 31, 2001, 1.25 to 1.0; and (D)
from January 1, 2002 and thereafter, 1.20 to 1.0.
7.21 Limitation on Negative Pledges. Enter into any agreement other
than this Agreement which prohibits or limits the ability of Borrower, any of
Borrower's Subsidiaries or any of the M/I Ancillary Businesses that are
wholly-owned by the Borrower or by any Subsidiary to create, incur, assume or
suffer to exist any Lien upon any of its assets, rights, revenues or property,
real, personal or mixed, tangible or intangible, whether now owned or hereafter
acquired.
7.22 Limitation on Standby L/Cs. Have drawn and undrawn Standby L/Cs
outstanding at any time in an amount in excess of the amounts permitted at such
time by subsection 2.13 hereof for (a) Standby L/Cs, including those issued for
the purpose of satisfying bonding requirements, and (b) Standby L/Cs, exclusive
of those issued for the purpose of satisfying bonding requirements,
respectively.
7.23 HNB Joint Ventures Letter of Credit Agreement. Modify or amend
the HNB Joint Ventures Letter of Credit Agreement in any way without the written
consent of the Required Banks.
7.24 Limitation on Investment in the Office Building. Incur capital
expenditures in connection with the Office Building
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which exceed, based upon the original cost, the aggregate amount of
$17,500,000.00.
SECTION 8. OPTIONAL SECURITY
-----------------
Notwithstanding any other provision of this Agreement, from time to
time if Agent requests and Borrower consents, Borrower may grant to Agent, for
the pro rata benefit of Banks, mortgages on specific parcels of real property
owned by Borrower in the State of Indiana, each securing Borrower's Indebtedness
to Banks hereunder. Unless an Event of Default has occurred and is continuing,
each such mortgage shall be released by Agent upon Borrower's sale of the
subject real property, without the requirement of any payment to Agent (other
than reimbursement of costs incurred) or the consent of any Banks. If an Event
of Default that has not been waived by all Banks has occurred and is continuing,
Agent shall release any such mortgage(s) only upon (a) payment to Agent for the
pro rata benefit of Banks (in accordance with the pro rata distribution as
described in Section 9 hereof with respect to distribution of Proceeds after
Default) of the amount secured by such mortgage(s) and (b) the consent of all
Banks.
SECTION 9. DEFAULTS, EVENTS OF DEFAULT; DISTRIBUTION OF PROCEEDS
-----------------------------------------------------
AFTER EVENT OF DEFAULT
----------------------
Upon the occurrence of any of the following events:
(1) Borrower shall fail to pay any principal of any Note or make
any reimbursement (including payment of Reimbursement Obligations) in connection
with any Standby L/C when due in accordance with the terms thereof; or
(2) Borrower shall fail to pay (a) any interest on any Note or in
connection with any Standby L/C, or (b) any fee, charge or other amount payable
hereunder, within three days after Agent or any Bank notifies Borrower that such
interest, fee or amount has become due in accordance with the terms thereof or
hereof and has not been paid; or Borrower shall fail to comply with the
provisions of any one or more of subsections 6.4, 6.5, 7.4, 7.5, 7.10, 7.12,
7.13, 7.14, 7.16, 7.17, 7.21, 7.22, 7.24 or the limitations set forth in 7.9(j)
hereof; or
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(3) any representation or warranty made or deemed made by
Borrower herein or which is contained in any certificate, document or financial
or other 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) Borrower shall default in the observance or performance of
any covenant or agreement contained in (a) subsection 6.3 hereof and such
default remains uncured for five days (notice to Borrower from Agent or any Bank
of such default is not required), (b) subsections 6.2(c), 6.2(d), 6.6, 6.10,
6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 7.1, 7.2, 7.3, 7.6, 7.7, 7.8, 7.9 (other
than failure to comply with the limitations of 7.9(j)), 7.11, 7.15, 7.18, 7.19
or 7.20 hereof and such default remains uncured ten days after Agent or any Bank
notifies Borrower that such default has occurred, (c) subsection 6.9 hereof and
such default remains uncured for ten days after Agent or any Bank notifies
Borrower that such default has occurred, provided, that for any default under
subsection 6.9 for which cure cannot reasonably be accomplished within ten days,
if cure is commenced within such ten-day period, Borrower may have an additional
period of up to 30 days after notice to cure such default before it is an Event
of Default, (d) any one or more of subsections 6.1(b), 6.2(a) or 6.2(b) hereof
and such default remains uncured 15 days after Agent or any Bank notifies
Borrower that such default has occurred, or (e) any other provision of this
Agreement (including without limitation subsections 6.1(a), 6.2(e), 6.7 and 6.8
hereof) which default shall remain uncured 30 days after Agent or any Bank
notifies Borrower that such a default has occurred, which notice shall specify
the nature of the default; or
(5) (a) Borrower or any of Borrower's Subsidiaries 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
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receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or Borrower or any of Borrower's Subsidiaries
shall make a general assignment for the benefit of its creditors; or (b) there
shall be commenced against Borrower or any of Borrower's Subsidiaries 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 Borrower or any of
Borrower's Subsidiaries 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) Borrower or
any of Borrower's Subsidiaries 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) Borrower or any of Borrower's
Subsidiaries shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(6) Borrower or any Subsidiary of Borrower shall (a) default in
any payment of principal of or interest on any Indebtedness (other than the
Notes and Reimbursement Obligations) or in the payment of any Contingent
Obligation beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness or Contingent Obligation was created,
and the aggregate principal amount then outstanding of all such Indebtedness and
Contingent Obligations of Borrower and all Subsidiaries exceeds $500,000.00, or
(b) default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or Contingent Obligation or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Contingent Obligation (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or such Contingent
Obligation to become payable; provided, however,
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that it shall not constitute a Default or Event of Default if (x) Borrower or
any Subsidiary of Borrower defaults on Indebtedness secured by a mortgage on
real estate if such Indebtedness is by its terms exculpatory, i.e., non-recourse
to Borrower and Borrower's Subsidiaries, or (y) a draw is made on a standby
letter of credit or payment is made on a performance bond, so long as any
reimbursement obligation of Borrower with respect to such letter of credit or
performance bond is made within the time required by the document creating the
reimbursement obligation; or
(7) (a) any party in interest (as defined in Section 3(14) of
ERISA) affiliated with Borrower or any of Borrower's Subsidiaries 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 funding 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
Required Banks, 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 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, the continuance of such proceedings 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 Borrower or any of Borrower's Subsidiaries
to any tax, penalty or other liabilities in the aggregate material in relation
to the business, operations, property or financial or other condition of
Borrower or of Borrower and Borrower's Subsidiaries taken as a whole; or
(8) one or more judgments or decrees shall be entered against
Borrower or any of Borrower's Subsidiaries involving in the aggregate a
liability (not covered by insurance) of $500,000.00 or more and all such
judgments or decrees in excess
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of $500,000.00 shall not have been vacated, satisfied, discharged, or stayed or
bonded pending appeal within 30 days from the entry thereof; or
(9) any Person or group of related Persons (other than Irving E.
Schottenstein, and the immediate family of Irving E. Schottenstein or trusts for
the benefit of his children and grandchildren) owns or controls more than
twenty-five percent (25%) of the outstanding voting capital stock of Borrower;
or
(10) any subordination agreement that evidences any Subordinated
Indebtedness (i) ceases to be the legal, valid and binding agreement of any
Person party thereto, enforceable against such Person in accordance with its
terms or a payment is made by Borrower in violation of any provision thereof, or
(ii) shall be terminated, invalidated or set aside, or be declared ineffective
or inoperative or the Indebtedness related thereto is in any way not fully
subordinate to all of Borrower's Indebtedness and other liabilities to Banks and
Agent under this Agreement and the Notes and to Borrower's obligations, if any,
as a guarantor or otherwise of the Indebtedness and other liabilities of M/I
Financial Corp. (including without limitation the obligations with respect to
the M/I Financial Corp. Loan Agreement);
then, and in any such event, (a) if such event is an Event of Default specified
in paragraph (5) above, the Commitment, if still outstanding, shall
automatically and immediately terminate and the full amount of all outstanding
Revolving Credit Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and/or the Notes shall immediately become due
and payable, (b) if such event is any other Event of Default and is continuing,
either or both of the following actions may be taken: (i) with the consent of
the Required Banks Agent may, or upon the request of the Required Banks Agent
shall, by notice to Borrower, declare the Commitment to be terminated forthwith,
whereupon the Commitment shall immediately terminate and Agent shall have the
rights set forth in subsection 2.14(b) hereof with respect to the Standby L/Cs
upon the termination of the Commitment; and (ii) with the consent of the
Required Banks Agent may, or upon the request of the Required Banks Agent shall,
by notice of default to Borrower, declare the full amount of all outstanding
Revolving Credit Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the Notes to be due and payable
forthwith, whereupon the same shall immediately become due and payable, and (c)
if such event is any payment Event of Default, then, in addition to the rights
given to Agent in clause (b), each Bank may, by notice of default to Borrower
and each other Bank, declare the full amount of all of the obligations owing by
Borrower to such Bank pursuant to the Revolving Credit Loans (with accrued
interest thereon) and all other amounts owing to such Bank under this Agreement
and the Notes to be due
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and payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section 9, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
Additionally, Agent and each Bank may exercise any and all other rights and
remedies available to Agent and each Bank at law or in equity to the extent not
inconsistent with the rights specifically granted to Agent and each Bank
hereunder.
Notwithstanding any provisions concerning distribution of payments to
the contrary in this Agreement, so long as any Event of Default exists that has
not been waived by all Banks, each Bank shall share in any payments or proceeds,
including proceeds of any collateral, received by Agent or any Bank (including
without limitation proceeds received by HNB with respect to Guaranteed HNB Joint
Ventures Letters of Credit) made or received at any time from and after any
Event of Default ("Proceeds after Default") in an amount equal to the Proceeds
after Default multiplied by such Bank's Total Commitment Percentage as set forth
on Schedule 1 hereto as such Schedule may be amended from time to time;
provided, however, if any one or more of the Bank(s) has not made any funding
when required hereunder, the distribution of Proceeds after Default shall be
adjusted so that each Bank shall receive Proceeds after Default in an amount
equal to (a) the Proceeds after Default multiplied by (b) the percentage
(rounded to five decimal places) of the total amount outstanding funded by all
Banks that such Bank has actually funded (including the amount of such Bank's
participation in outstanding Standby L/Cs). If necessary, Agent and each Bank
shall use the adjustments procedure set forth in subsection 11.8(a) hereof to
make the appropriate distributions to Banks as set forth in this paragraph of
this Section 9.
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SECTION 10. THE AGENT
---------
10.1 Appointment. Each Bank hereby irrevocably designates and appoints
Bank One, NA as Agent of such Bank under this Agreement and each of the Notes
and the Guaranties, and each Bank hereby irrevocably authorizes Bank One, NA, as
Agent for such Bank, to take such action on its behalf under the provisions of
this Agreement, the Notes and the Guaranties and to exercise such powers and
perform such duties as are expressly delegated to Agent by the terms of this
Agreement, the Notes and the Guaranties, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement or any Note or Guaranty, Agent shall not have any
duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any Note or Guaranty or otherwise exist against Agent.
10.2 Delegation of Duties. Agent may execute any of its duties under
this Agreement by or through agents or attorneys-in-fact and shall be entitled
to advice of counsel concerning all matters pertaining to such duties. Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions. Neither Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or any Note or Guaranty (except for
its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by Borrower or any of Borrower's Subsidiaries
or any officer thereof contained in this Agreement or any Note or Guaranty or in
any certificate, report, statement or other document referred to or provided for
in, or received by Agent under or in connection with, this Agreement or any Note
or Guaranty or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, the Notes or the Guaranties, or
for any failure of Borrower or any of Borrower's Subsidiaries to perform its
obligations hereunder or thereunder. Agent shall be under no
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obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, the Notes, or the Guaranties, or to inspect the properties, books or
records of Borrower or any of Borrower's Subsidiaries.
10.4 Reliance by Agent. Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, Guaranty, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to Borrower or any of
Borrower's Subsidiaries), independent accountants and other experts selected by
Agent. Agent may deem and treat the payee of any Note as the owner thereof for
all purposes. Agent shall be fully justified in failing or refusing to take any
action under this Agreement, the Notes or the Guaranties unless it shall first
receive such advice or concurrence of the Required Banks or, in the case of
items set forth in subsection 11.1 hereof that require written consent of all
Banks, all Banks as it deems appropriate or it shall first be indemnified to its
satisfaction by all Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement, the Notes and the Guaranties in accordance with a request
of the Required Banks or, in the case of items set forth in subsection 11.1
hereof that require written consent of all Banks, all Banks, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all Banks and all future holders of the Notes.
10.5 Notice of Default. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless
Agent has received notice from any Bank or Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". If Agent receives such a notice, Agent shall give notice
thereof to Banks. Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Banks or, in
the case of items set forth
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in subsection 11.1 hereof that require written consent of all Banks, all Banks;
provided that, unless and until Agent shall have received such directions, Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall
reasonably deem advisable in the best interests of Banks.
10.6 Non-Reliance on Agent and Other Banks. Each Bank expressly
acknowledges that neither Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates has made any representations or
warranties to it and that no act by Agent hereinafter taken, including any
review of the affairs of Borrower and Borrower's Subsidiaries shall be deemed to
constitute any representation or warranty by Agent to any Bank. Each Bank
represents to Agent that it has, independently and without reliance upon Agent
or any other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of
Borrower and Borrower's Subsidiaries and made its own decision to make its
extensions of credit hereunder and enter into this Agreement. Each Bank also
represents that it will, independently and without reliance upon Agent or any
other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement, the Notes and
the Guaranties, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of Borrower and Borrower's Subsidiaries. Except for
notices, reports and other documents expressly required to be furnished to the
Banks by Agent hereunder, Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of
Borrower or any of Borrower's Subsidiaries which may come into the possession of
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
10.7 Indemnification. Each Bank agrees to indemnify Agent in its
capacity as such (to the extent not reimbursed by Borrower and any of Borrower's
Subsidiaries and without limiting the obligation of Borrower and Borrower's
Subsidiaries to do so),
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ratably according to the respective amounts of its original (a) Revolving Credit
Loan Commitment Percentage, in the case of Revolving Credit Loans, and (b) L/C
Commitment Percentage, in the case of Standby L/Cs, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against Agent in any way relating to or
arising out of this Agreement, the Notes, the Guaranties or any documents
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted by Agent under or in connection with any of the
foregoing; provided that no Bank shall be liable for the payment of any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from Agent's
gross negligence or willful misconduct. The agreements in this subsection shall
survive the payment of the Notes and all other amounts payable hereunder.
10.8 Bank One in Its Individual Capacity. Bank One and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with Borrower or any of Borrower's Subsidiaries as though Bank One were
not the Agent hereunder. With respect to its loans made or renewed by it and any
Note issued to it and with respect to any Standby L/C issued by it either as
Bank One or Agent, Bank One shall have the same rights and powers under this
Agreement as any Bank and may exercise the same as though it were not the Agent,
and the terms "Bank" and "Banks" shall include Bank One in its individual
capacity.
10.9 Successor Agent. Agent may resign as agent upon 30 days' notice
to the Banks. If Agent shall resign as agent under this Agreement, then the
Required Banks shall appoint from among the Banks a successor agent for the
Banks, whereupon such successor agent shall succeed to the rights, powers and
duties of Agent, and the term "Agent" shall mean such successor agent effective
upon its appointment, and the former Agent's rights, powers and duties as Agent
shall be terminated, without any other or further act or deed on the part of
such former Agent or any of the parties to this Agreement or any holders of the
Notes. After any retiring Agent's resignation hereunder as agent, the
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provisions of this Section 10 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
SECTION 11. MISCELLANEOUS
-------------
11.1 Amendments and Waivers. Agent and Borrower may, from time to
time, with the written consent of the Required Banks, enter into written
amendments, supplements or modifications for the purpose of adding any
provisions to this Agreement or the Notes or changing in any manner the rights
of Banks or Borrower hereunder or thereunder, and with the consent of the
Required Banks, Agent on behalf of Banks may execute and deliver to Borrower a
written instrument waiving, on such terms and conditions as Agent may specify in
such instrument, any of the requirements of this Agreement, the Notes or any
Default or Event of Default and its consequences; provided, however, that no
such waiver and no such amendment, supplement or modification shall extend the
final maturity of any Note, or reduce the rate or extend the time of payment of
interest or fees thereon or reduce the principal amount thereof, or change the
amount or terms of any Bank's Revolving Credit Loan or L/C Commitment
Percentage, or change the Borrowing Base, or amend, modify, change any provision
of the Guaranties, or release any Guaranties, or amend, modify, change or waive
any provision of this subsection, or reduce the percentage specified in the
definition of Required Banks, or consent to the assignment or transfer by
Borrower of any of its rights and obligations under this Agreement, or consent
to the modification or termination of any subordination agreement or provisions
that evidence Subordinated Indebtedness, or consent to the release of any
collateral (except as provided in Section 8 hereof with respect to collateral
that is the subject of a mortgage in the State of Indiana), or amend, modify or
change any other provision of this Agreement that requires the consent of all
Banks, in each case without the written consent of all Banks; and provided,
further, that no such waiver and no such amendment, supplement or modification
shall alter in any way Bank One's rights or obligations with respect to
Swingline Loans without the consent of Bank One; and provided, further, that no
such waiver and no such amendment, supplement or modification shall amend,
modify, change or waive any provision relating to the rights or obligations of
Agent without the consent of Agent. Any such waiver and any such amendment,
supplement or modification shall be
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binding upon Borrower, Agent and each Bank, and all future holders of the Notes.
In the case of any waiver, Borrower, Agent and each Bank shall be restored to
their former position and rights hereunder and under the outstanding Notes, and
any Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
11.2 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 confirmed by sender's electronic facsimile
machine, addressed as follows in the case of Borrower, Agent and each Bank, or
to such other address as may be hereafter notified by the respective parties
hereto and any future holders of any Note:
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Borrower: M/I Schottenstein Homes, Inc. ("M/I")
3 Easton Oval
Columbus, Ohio 43219
Attention: Irving E. Schottenstein
with a copy to: Phillip G. Creek
Facsimile: (614) 418-8080
with a copy to: Paul S. Coppel, Esq.
Facsimile: (614) 418-8030
M/I Homes, Inc. ("M/I Homes")
14505 North Hayden Road
Suite 341
Scottsdale, Arizona 85260
Attention: Gary Haarer
Agent and/or
Bank One: Bank One, NA
100 East Broad Street
7th Floor
Columbus, Ohio 43271
Attention: Thomas D. Igoe
Facsimile: (614) 248-5518
HNB: The Huntington National Bank
41 South High Street
8th Floor
Columbus, Ohio 43287
Attention: R.H. Friend
Facsimile: (614) 480-5791
NCB: National City Bank
155 East Broad Street
3rd Floor
Columbus, Ohio 43251
Attention: Ralph A. Kaparos
Facsimile: (614) 463-8572
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BKB: BankBoston, N.A.
115 Perimeter Center Place
Suite 500
Atlanta, Georgia 30346
Attention: Kevin C. Hake
Facsimile: (770) 390-8434
Fifth Third: The Fifth Third Bank of Columbus
21 East State Street
Columbus, Ohio 43215
Attention: Mark E. Ransom
Facsimile: (614) 341-2606
STB: SunTrust Bank, Central
Florida, N.A.
Mail Code 0-1108
200 South Orange Avenue
Orlando, Florida 32801
Attention: Stephen Leister
Facsimile: (407) 237-6894
ASB: AmSouth Bank
Sonat Building, 10th Floor
Residential Construction Lending
1900 Fifth Avenue North
P.O. Box 11007
Birmingham, Alabama 35203
Attention: Ronny Hudspeth
Facsimile: (205) 801-0138
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of Agent or any Bank, any right, remedy, power
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein
provided are cumulative and, except for rights the exercise of which require
consent of the Required Banks or all Banks, as appropriate, under this
Agreement, not exclusive of any rights, remedies, powers and privileges provided
by law.
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11.4 Participants.
(a) Any Bank may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to one
or more banks or other financial institutions ("Participants") participating
interests in any Revolving Credit Loan owing to such Bank, any Note held by such
Bank, any interest (including any Reimbursement Obligation) in any Standby L/C
with respect to such Bank, any Revolving Credit Loan Commitment of such Bank, or
any other interest of such Bank hereunder; provided, however, that upon the sale
of any participating interest the selling Bank shall provide promptly to
Borrower and Agent notice of such sale; and provided further, however, that no
Participant's consent shall be required to approve any amendments, waivers or
other modifications of this Agreement or of any document contemplated by this
Agreement, and no participation agreement shall provide any Participant with
such rights. In the event of any such sale by a Bank of participating interests
to a Participant, such Bank's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, such Bank shall remain solely
responsible for the performance thereof, and such Bank shall remain the holder
of any such Note for all purposes under this Agreement, and, except as provided
in the immediately following sentence, Borrower, the other Banks, and Agent
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement. However, any
Participant that is an affiliate of any Bank shall have the right to deal
directly with any other Bank and Borrower with respect to any matter that is the
subject of this Agreement, and Banks and Borrower agree to deal directly with
such affiliate Participant(s); provided, however, that each Bank needs to deal
only with other Banks (and not such other Banks' affiliate Participant(s)), in
those matters in which the consent of any one or more Banks is required. The
rights set forth in the immediately preceding sentence shall apply only to
Participants that are affiliates of any Bank, and such rights do not apply to
any Participants that are not affiliates of any Bank. Borrower agrees that if
amounts outstanding under this Agreement or the Notes are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of a Default or an Event of Default, each Participant shall be deemed
to have the right of set-off provided to Banks in this Agreement in respect of
its participating interest in amounts
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owing under this Agreement or any Note or Reimbursement Obligation to the same
extent as if the amount of its participating interests were owing directly to it
as a Bank under this Agreement, any Note or any Standby L/C or participation in
any Standby L/C.
(b) Borrower authorizes each Bank and Agent to disclose to any
Participant and any prospective Participant any and all financial information in
such Bank's or Agent's possession concerning Borrower and any of Borrower's
Subsidiaries which has been delivered to such Bank or Agent by Borrower or
Borrower's Subsidiaries pursuant to this Agreement or which has been delivered
to such Bank or Agent by Borrower or Borrower's Subsidiaries in connection with
such Bank's or Agent's credit evaluation of Borrower and Borrower's Subsidiaries
prior to entering into this Agreement. Any Participant or prospective
Participant shall be subject to the confidentiality provisions of this
Agreement.
(c) Except for the sale of participating interests as described
in this subsection 11.4 and the assignments as described in subsection 11.7
hereof, no Bank may sell or assign its rights and interests under this Agreement
without the written consent of each Bank and Borrower, provided that after the
occurrence of a Default or an Event of Default that has not been waived by all
Banks, Borrower's consent to such sale or assignment shall not be required.
11.5 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 this Agreement and the Notes and shall remain in full force and
effect until this Agreement is terminated, all Standby L/Cs are cancelled or are
fully collateralized with cash in a manner satisfactory to Agent and all
indebtedness (including Reimbursement Obligations with respect to Standby L/Cs
that are not fully collateralized with cash) created or evidenced by this
Agreement and/or each Note is paid in full.
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11.6 Payment of Expenses and Taxes. Borrower agrees:
(a) to pay or reimburse Agent and each Bank for all its
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, supplement or modification to,
this Agreement, the Notes, the Guaranties, the Standby L/Cs 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 Agent and each Bank; and
(b) to pay or reimburse Agent and each Bank for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the Notes, the Guaranties, the Standby L/Cs and any
such other documents, including without limitation the reasonable fees and
disbursements of counsel to Agent and each Bank.
11.7 Successors and Assigns; Assignment.
(a) This Agreement shall be binding upon and inure to the benefit
of Borrower, Agent and each Bank, all future holders of the Notes and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of all Banks, which consent may be withheld by any Bank in its
sole discretion; and provided further that the rights of each Bank to transfer
or assign its rights and/or obligations hereunder shall be limited as set forth
below in part (b) of this subsection 11.7. Notwithstanding the above (including
anything set forth in part (b) of this subsection 11.7), nothing herein shall
restrict, prevent or prohibit any Bank from (A) pledging its Loans hereunder to
a Federal Reserve Bank in support of borrowings made by such Bank from such
Federal Reserve Bank, (B) granting assignments in such Bank's Loans and/or
Commitment hereunder to its parent company and/or to any affiliate of such Bank
or to any existing Bank or affiliate thereof, or (C) selling participations as
set forth in subsection 11.4 hereof.
(b) In addition to the assignments permitted by subsection
11.7(a), each Bank may, with the prior written consent of the Borrower and the
Agent (provided that no consent of the
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<PAGE> 98
Borrower shall be required during the existence and continuation of an Event of
Default), which consent shall not be unreasonably withheld or delayed, assign
all or a portion of its rights and obligations hereunder pursuant to an
assignment agreement substantially in the form of Exhibit J attached hereto and
made a part hereof (the "Assignment Agreement") to one or more Eligible
Assignees; provided that (i) any such assignment shall be in a minimum aggregate
amount of the lesser of (a) $10,000,000 or any larger amount which is an even
multiple of $1,000,000 or (b) the remaining amount of the Commitment held by
such Bank, and (ii) each such assignment shall be of a constant, not varying,
percentage of all of the assigning Bank's rights and obligations under the
Commitment being assigned. Any assignment under this subsection 11.7(b) shall be
effective upon satisfaction of the conditions set forth above and delivery to
the Agent of a duly executed Assignment Agreement together with a transfer fee
of $3,500 payable to the Agent for its own account. Upon the effectiveness of
any such assignment, the assignee shall become a "Bank" for all purposes of this
Agreement and the other documents contemplated hereby and, to the extent of such
assignment, the assigning Bank shall be relieved of its obligations hereunder to
the extent of the Loans and Commitment components being assigned. The Borrower
agrees that upon notice of any such assignment and surrender of the appropriate
Note , it will promptly provide to the assigning Bank and to the assignee
separate promissory notes in the amount of their respective interests
substantially in the form of the original Note (but with notation thereon that
it is given in substitution for and replacement of the original Note or any
replacement notes thereof).
By executing and delivering an Assignment Agreement in accordance
with this subsection 11.7(b), the assigning Bank thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each other and the other
parties hereto as follows: (i) such assigning Bank warrants that it is the legal
and beneficial owner of the interest being assigned thereby free and clear of
any adverse claim and the assignee warrants that it is an Eligible Assignee;
(ii) except as set forth in clause (i) above, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, any of the other documents contemplated hereby or any other
instrument or document furnished pursuant hereto or thereto, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, any of the other documents contemplated hereby or any other
instrument or document furnished
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<PAGE> 99
pursuant hereto or thereto or the financial condition of Borrower or the
performance or observance by Borrower of any of its obligations under this
Agreement, any of the other documents contemplated hereby or any other
instrument or document furnished pursuant hereto or thereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment Agreement; (iv) such assignee confirms that it has received a copy of
this Agreement, the other documents contemplated hereby and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment Agreement; (v) such assignee will
independently and without reliance upon the Agent, such assigning Bank or any
other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and other documents contemplated hereby;
(vi) such assignee appoints and authorizes the Agent to take such action on its
behalf and to exercise such powers under this Agreement or any other document
contemplated thereby as are delegated to the Agent by the terms hereof or
thereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Agreement and the other documents
contemplated hereby are required to be performed by it as a Bank.
11.8 Adjustments; Set-off.
(a) If any Bank (a "benefited Bank") shall at any time receive
any payment of all or part of its Loans or Reimbursement Obligations owing to
it, or interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in paragraph (5) of Section 9 hereof, or otherwise) in a
greater proportion than any such payment to any other Bank in respect of such
other Bank's Loans or Reimbursement Obligations owing to it, or interest
thereon, such benefited Bank shall purchase for cash from the other Banks such
portion of each such other Bank's Loans or Reimbursement Obligations owing to
it, as shall be necessary to cause such benefited Bank to share the
-99-
<PAGE> 100
excess payment or benefits of such collateral or proceeds ratably with each of
the Banks; provided, however, that if all or any portion of such excess payment
or benefits is thereafter recovered from such benefited Bank, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest. Borrower agrees that each Bank so
purchasing a portion of another Bank's Loans or Reimbursement Obligations owing
to it may exercise all rights of payment (including, without limitation, rights
of set-off) with respect to such portion as fully as if such Bank were the
direct holder of such portion.
(b) In addition to those rights and remedies of each Bank
provided by law, subject to the terms and conditions of this Agreement, upon the
occurrence of an Event of Default and acceleration of the obligations owing in
connection with this Agreement, each Bank shall have the right, without prior
notice to Borrower or Borrower's Subsidiaries, any such notice being expressly
waived by Borrower and Borrower's Subsidiaries to the extent permitted by
applicable law, to set-off and apply against any indebtedness, whether matured
or unmatured, of Borrower to such Bank, any amount held by or owing from such
Bank to or for the credit or the account of Borrower or Borrower's Subsidiaries
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 each Bank against
Borrower and Borrower's Subsidiaries or against any trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, receiver, custodian
or execution, judgment or attachment creditor of Borrower and Borrower's
Subsidiaries, or against anyone else claiming through or against Borrower and
Borrower's Subsidiaries 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 such Bank prior to the making, filing
or issuance of, or service upon such Bank of, or of notice of, any such
petition; assignment for the benefit of creditors; appointment or application
for the appointment of a receiver; or issuance of execution, subpoena, order or
warrant. Each Bank agrees promptly to notify Borrower and, if set-off is made
against Borrower's Subsidiaries, Borrower's Subsidiaries after any such set-off
and application
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<PAGE> 101
made by such Bank, provided that the failure to give such notice shall not
affect the validity of such set-off and application.
11.9 WAIVER OF JURY TRIAL. AGENT, EACH BANK AND BORROWER, 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 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. NONE OF AGENT, ANY BANK OR BORROWER 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 ANY OF AGENT, ANY BANK OR BORROWER EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
11.10 Confidentiality. Agent and each Bank shall hold all confidential
information obtained pursuant to the requirements of the Agreement which has
been identified as such by Borrower in accordance with Borrower's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to its examiners, affiliates, outside auditors, counsel and other
professional advisors in connection with the Agreement or as reasonably required
by any bona fide Participant or prospective Participant in connection with any
contemplated participation therein or as required or requested by any
governmental agency or representative thereof or pursuant to legal process.
Without limiting the foregoing, it is expressly understood that such
confidential information which, at the time of disclosure is in the public
domain or which, after disclosure, other than disclosure by Agent or any Bank,
becomes part of the public domain or information which is obtained by Agent or
any Bank prior to the time of disclosure and identification by Borrower under
this subsection, or information received by Agent or any Bank from a third party
shall not be subject to the confidentiality requirements of this subsection
11.10. Nothing in this subsection or otherwise shall prohibit Agent or any Bank
from disclosing any confidential information to any other Bank in
-101-
<PAGE> 102
connection with the Loans contemplated by this Agreement or render it liable in
connection with any such disclosure.
11.11 Counterparts; Effective Date. This Agreement may be executed by
one or more of the parties to this Agreement on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. This Agreement shall become effective
upon the receipt by Agent and each Bank of executed counterparts of this
Agreement by each of the parties hereto.
11.12 Governing Law. This Agreement, the Notes and the rights and
obligations of the parties under this Agreement and the Notes shall be governed
by, and construed and interpreted in accordance with, the local laws of the
State of Ohio.
11.13 Headings. The headings of the Sections and subsections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part hereof.
11.14 Joint and Several Obligations. The obligations of Borrower under
this Agreement shall be joint and several.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
-102-
<PAGE> 103
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
M/I SCHOTTENSTEIN HOMES, INC.
By
------------------------------
Robert H. Schottenstein
Title: President and Assistant Secretary
M/I HOMES, INC.
By
------------------------------
Robert H. Schottenstein
Title:
BANK ONE, NA,
as Agent and as a Bank
By
------------------------------
Thomas D. Igoe
Title: Senior Vice President
THE HUNTINGTON NATIONAL BANK
By
------------------------------
R. H. Friend
Title: Vice President
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<PAGE> 104
NATIONAL CITY BANK
By
------------------------------
Ralph A. Kaparos
Title: Senior Vice President
BANKBOSTON, N.A.
By
------------------------------
Daniel L. Silbert
Title: Vice President
THE FIFTH THIRD BANK OF COLUMBUS
By
------------------------------
Mark E. Ransom
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By
------------------------------
Harold Bitler
Title: First Vice President
AMSOUTH BANK
By
------------------------------
Ronny Hudspeth
Title: Senior Vice President
-104-
<PAGE> 1
Exhibit 10.13
M/I SCHOTTENSTEIN HOMES, INC.
1998 STOCK BONUS PLAN
CHIEF EXECUTIVE OFFICER
The above individual is eligible to earn a bonus, payable in stock, as outlined
below:
ACTUAL PRE-TAX NET INCOME OVER $32,000,000: Provided the actual pre-tax net
income of the Company exceeds $32,000,000, the above individual will receive a
given dollar amount in stock under the 1998 Executive Deferred Compensation
Plan. The shares of stock received shall be calculated based on the market value
of the Company's common stock as of the closing of the market on December 31.
<TABLE>
<CAPTION>
PRE-TAX NET INCOME DOLLAR AMOUNT
------------------ -------------
<S> <C>
$32,000,000 - $33,999,999 $ 15,000
$34,000,000 - $35,999,999 $ 30,000
$36,000,000 - $37,999,999 $ 45,000
$38,000,000 - $39,999,999 $ 75,000
$40,000,000 - $41,999,999 $ 90,000
$42,000,000 - $43,999,999 $ 105,000
$44,000,000 + $ 120,000
</TABLE>
PAYMENT:
The stock bonus will be payable by March 15 of the following year in which the
bonus is earned. The individual must be employed in this capacity with the
Company on the date bonuses are distributed to receive payment. In the event of
a promotion or transfer, the bonus may be allocated to time employed with each
position. No amounts are considered due or payable if the employment
relationship with the Company is terminated.
The Company reserves the right to revise this program as it considers necessary.
ACKNOWLEDGED:
- --------------------------- -------------------- ---------------------
Name Title Date
<PAGE> 1
Exhibit 10.14
M/I SCHOTTENSTEIN HOMES, INC.
1998 STOCK BONUS PLAN
APPLICABLE TO THE FOLLOWING POSITIONS:
PRESIDENT, SENIOR EXECUTIVE VICE PRESIDENT, CFO, TREASURER, AND GENERAL COUNSEL
The above individuals are eligible to earn a bonus, payable in stock, as
outlined below:
ACTUAL PRE-TAX NET INCOME OVER $32,000,000: Provided the actual pre-tax net
income of the Company exceeds $32,000,000, the above individuals will receive a
designated percentage of December 31 base salary in stock under the 1998
Executive Deferred Compensation Plan. The shares of stock received shall be
calculated based on the market value of the Company's common stock as of the
closing of the market on December 31.
<TABLE>
<CAPTION>
PRE-TAX NET INCOME PERCENTAGE OF DECEMBER 31 BASE SALARY
------------------ -------------------------------------
<S> <C>
$32,000,000 - $33,999,999 5.0%
$34,000,000 - $35,999,999 10.0%
$36,000,000 - $37,999,999 15.0%
$38,000,000 - $39,999,999 25.0%
$40,000,000 - $41,999,999 30.0%
$42,000,000 - $43,999,999 35.0%
$44,000,000 + 40.0%
</TABLE>
PAYMENT:
The stock bonus will be payable by March 15 of the following year in which the
bonus is earned. The individual must be employed in this capacity with the
Company on the date bonuses are distributed to receive payment. In the event of
a promotion or transfer, the bonus may be allocated to time employed with each
position. No amounts are considered due or payable if the employment
relationship with the Company is terminated.
The Company reserves the right to revise this program as it considers necessary.
ACKNOWLEDGED:
- --------------------------- -------------------- -----------------------
Name Title Date
<PAGE> 1
Exhibit 10.15
M/I SCHOTTENSTEIN HOMES, INC.
AWARD FORMULAS AND PERFORMANCE GOALS
CHIEF EXECUTIVE OFFICER
EFFECTIVE JANUARY 1, 1999
In accordance with the terms of the M/I Schottenstein Homes Executive Officer
Compensation Plan (the "Plan"), the Executive Officer Compensation Committee
(the "Committee") shall, for each Participant, establish the award formulas and
performance goals (as those terms are defined in the Plan) to be measured to
determine the amount of bonus awards for each Plan Year. The following are the
performance goals and award formulas for the 1999 plan year for the Chief
Executive Officer. Subject to the maximum limit set forth in Section 7.4 of the
Plan, the maximum award the Chief Executive Officer is eligible to receive for
the 1999 Plan Year shall be an amount equal to 500% of his 1999 base salary.
I. ACTUAL NET INCOME: In the event the ACTUAL NET INCOME of the Company is
equal to $15,000,000, the Chief Executive Officer will receive a graduating
cents per dollar amount based on the following schedule.
<TABLE>
<CAPTION>
Million Increments greater Cents per Incremental
than or equal to $15,000,000: Million awarded:
----------------------------- ----------------
<S> <C>
$15,000,000.00 - $15,999,999.99 $0.05000 Cents
$16,000,000.00 - $16,999,999.99 $0.05250 Cents
$17,000,000.00 - $17,999,999.99 $0.05500 Cents
$18,000,000.00 - $18,999,999.99 $0.05750 Cents
$19,000,000.00 - $19,999,999.99 $0.06000 Cents
$20,000,000.00 - $20,999,999.99 $0.06375 Cents
$21,000,000.00 - $21,999,999.99 $0.06750 Cents
$22,000,000.00 - $22,999,999.99 $0.07125 Cents
$23,000,000.00 - $23,999,999.99 $0.07500 Cents
$24,000,000.00 - $24,999,999.99 $0.07875 Cents
$25,000,000.00 - $25,999,999.99 $0.08375 Cents
$26,000,000.00 - $26,999,999.99 $0.08875 Cents
$27,000,000.00 - $27,999,999.99 $0.09375 Cents
$28,000,000.00 - $28,999,999.99 $0.09875 Cents
$29,000,000.00 - $29,999,999.99 $0.10375 Cents
$30,000,000.00 - $30,999,999.99 $0.10500 Cents
$31,000,000.00 - $31,999,999.99 $0.10625 Cents
$32,000,000.00 - $32,999,999.99 $0.10750 Cents
$33,000,000.00 - $33,999,999.99 $0.10875 Cents
$34,000,000.00 - $34,999,999.99 $0.11000 Cents
$35,000,000.00 - $35,999,999.99 $0.11125 Cents
$36,000,000.00 - $36,999,999.99 $0.11250 Cents
$37,000,000.00 + $0.11375 Cents
</TABLE>
II. If the Company achieves at least a 92% affirmative response to Question
Number 14 on the Homeowner Questionnaire, the Chief Executive Officer will
receive a given portion of his December 31 base salary as follows:
<TABLE>
<CAPTION>
Customer Response Achieved: Percent of December 31 Salary:
--------------------------- ------------------------------
<S> <C>
92.00% - 92.99% 50.00% - 50.99%
93.00% - 93.99% 60.00% - 60.99%
94.00% - 94.99% 75.00% - 75.99%
95.00% - 95.99% 85.00% - 85.99%
96.00% - 96.99% 90.00% - 90.99%
97.00% - 97.99% 95.00% - 95.99%
98.00% - 98.99% 100.00% - 100.99%
99.00% - 99.99% 105.00% - 105.99%
100% 110.00%
</TABLE>
<PAGE> 2
M/I SCHOTTENSTEIN HOMES, INC.
AWARD FORMULAS AND PERFORMANCE GOALS CHIEF
EXECUTIVE OFFICER
EFFECTIVE JANUARY 1, 1999
III. If the Return on Equity (defined as net income for the 1999 year divided by
equity at the beginning of the calendar year) of the Corporation is at
least 10%, the Chief Executive Officer will receive a given portion of his
December 31 base salary as follows:
<TABLE>
<CAPTION>
Return on Equity Results: Percentage of December 31 Salary:
------------------------- ---------------------------------
<S> <C>
10.00% 50.00%
11.00% 60.00%
12.00% 65.00%
13.00% 70.00%
14.00% 75.00%
15.00% 80.00%
16.00% 85.00%
17.00% 90.00%
18.00% 95.00%
19.00% 100.00%
20.00% 105.00%
</TABLE>
PAYMENT
- -------
In accordance with the terms of the Plan, the Committee will determine the
amount of the award earned by the Chief Executive Officer after the end of the
1999 Plan Year. Of this amount, not less than 5% will be paid in company stock
under the 1998 Executive Deferred Compensation Plan.
ACKNOWLEDGED:
- ------------------------------------------------ ------------------------
Name Date
<PAGE> 1
Exhibit 10.16
M/I SCHOTTENSTEIN HOMES, INC.
AWARD FORMULAS AND PERFORMANCE GOALS
PRESIDENT
EFFECTIVE JANUARY 1, 1999
In accordance with the terms of the M/I Schottenstein Homes Executive Officer
Compensation Plan (the "Plan"), the Executive Officer Compensation Committee
(the "Committee") shall, for each Participant, establish the award formulas and
performance goals (as those terms are defined in the plan) to be measured to
determine the amount of bonus awards for each plan year. The following are the
performance goals and award formulas for the 1999 plan year for the President.
Subject to the maximum limit set forth in Section 7.4 of the Plan, the President
is eligible to receive for the 1999 plan year shall be an amount equal to 350%
of his 1999 base salary.
I. ACTUAL NET INCOME: In the event the ACTUAL NET INCOME of the Company is
equal to $15,000,000, the above individual will receive a graduating cents
per dollar amount based on the following schedule.
<TABLE>
<CAPTION>
Million Increments greater Cents per Incremental
than or equal to $15,000,000: Million awarded:
----------------------------- ----------------
<S> <C>
$15,000,000.00 - $15,999,999.99 $0.01000 Cents
$16,000,000.00 - $16,999,999.99 $0.01375 Cents
$17,000,000.00 - $17,999,999.99 $0.01750 Cents
$18,000,000.00 - $18,999,999.99 $0.02125 Cents
$19,000,000.00 - $19,999,999.99 $0.02500 Cents
$20,000,000.00 - $20,999,999.99 $0.02750 Cents
$21,000,000.00 - $21,999,999.99 $0.03000 Cents
$22,000,000.00 - $22,999,999.99 $0.03250 Cents
$23,000,000.00 - $23,999,999.99 $0.03750 Cents
$24,000,000.00 - $24,999,999.99 $0.04000 Cents
$25,000,000.00 - $25,999,999.99 $0.04250 Cents
$26,000,000.00 - $26,999,999.99 $0.04500 Cents
$27,000,000.00 - $27,999,999.99 $0.04750 Cents
$28,000,000.00 - $28,999,999.99 $0.05000 Cents
$29,000,000.00 - $29,999,999.99 $0.05250 Cents
$30,000,000.00 - $30,999,999.99 $0.05500 Cents
$31,000,000.00 - $31,999,999.99 $0.05750 Cents
$32,000,000.00 - $32,999,999.99 $0.06000 Cents
$33,000,000.00 - $33,999,999.99 $0.06250 Cents
$34,000,000.00 - $34,999,999.99 $0.06500 Cents
$35,000,000.00 - $35,999,999.99 $0.06750 Cents
$36,000,000.00 - $36,999,999.99 $0.07000 Cents
$37,000,000.00 + $0.07250 Cents
</TABLE>
II. If the Company achieves at least a 92% affirmative response to Question
Number 14 on the Homeowner Questionnaire, the above individual will receive
a given portion of his December 31 base salary as follows:
<TABLE>
<CAPTION>
Customer Response Achieved: Percent of December 31 Salary:
--------------------------- ------------------------------
<S> <C>
92.00% - 92.99% 50.00% - 50.99%
93.00% - 93.99% 60.00% - 60.99%
94.00% - 94.99% 75.00% - 75.99%
95.00% - 95.99% 85.00% - 85.99%
96.00% - 96.99% 90.00% - 90.99%
97.00% - 97.99% 95.00% - 95.99%
98.00% - 98.99% 100.00% - 100.99%
99.00% - 99.99% 105.00% - 105.99%
100% 110.00%
</TABLE>
<PAGE> 2
M/I SCHOTTENSTEIN HOMES, INC.
AWARD FORMULAS AND PERFORMANCE GOALS
PRESIDENT
EFFECTIVE JANUARY 1, 1999
III. If the Return on Equity (defined as net income for 1999, divided by equity
at the beginning of the calendar year) of the Corporation is at least 10%,
the above individual will receive a given portion of his December 31 base
salary as follows:
<TABLE>
<CAPTION>
Return on Equity Results: Percentage of December 31 Salary:
------------------------- ---------------------------------
<S> <C>
10.00% 50.00%
11.00% 60.00%
12.00% 65.00%
13.00% 70.00%
14.00% 75.00%
15.00% 80.00%
16.00% 85.00%
17.00% 90.00%
18.00% 95.00%
19.00% 100.00%
20.00% 105.00%
</TABLE>
PAYMENT
- -------
In accordance with the terms of the Plan, the Committee will determine the
amount of the award earned by the President after the end of the 1999 Plan Year.
Of this amount, not less than 5% will be paid in Company stock under the 1998
Executive Deferred Compensation Plan.
ACKNOWLEDGED:
- ------------------------------------------------- --------------------
Name Date
<PAGE> 1
Exhibit 10.17
M/I SCHOTTENSTEIN HOMES, INC.
AWARD FORMULAS AND PERFORMANCE GOALS
CHIEF OPERATING OFFICER
EFFECTIVE JANUARY 1, 1999
In accordance with the terms of the M/I Schottenstein Homes Executive Officer
Compensation Plan (the "Plan"), the Executive Officer Compensation Committee
(the "Committee") shall, for each Participant, establish the award formulas and
performance goals (as those terms are defined in the plan) to be measured to
determine the amount of bonus awards for each plan year. The following are the
performance goals and award formulas for the 1999 plan year for the Chief
Operating Officer. Subject to the maximum limit set forth in Section 7.4 of the
Plan, the Chief Operating Officer is eligible to receive for the 1999 plan year
shall be an amount equal to 350% of his 1999 base salary.
I. ACTUAL NET INCOME: In the event the ACTUAL NET INCOME of the Company is
equal to $15,000,000, the above individual will receive a graduating cents
per dollar amount based on the following schedule.
<TABLE>
<CAPTION>
Million Increments greater Cents per Incremental
than or equal to $15,000,000: Million awarded:
----------------------------- ----------------
<S> <C>
$15,000,000.00 - $15,999,999.99 $0.01000 Cents
$16,000,000.00 - $16,999,999.99 $0.01375 Cents
$17,000,000.00 - $17,999,999.99 $0.01750 Cents
$18,000,000.00 - $18,999,999.99 $0.02125 Cents
$19,000,000.00 - $19,999,999.99 $0.02500 Cents
$20,000,000.00 - $20,999,999.99 $0.02750 Cents
$21,000,000.00 - $21,999,999.99 $0.03000 Cents
$22,000,000.00 - $22,999,999.99 $0.03250 Cents
$23,000,000.00 - $23,999,999.99 $0.03750 Cents
$24,000,000.00 - $24,999,999.99 $0.04000 Cents
$25,000,000.00 - $25,999,999.99 $0.04250 Cents
$26,000,000.00 - $26,999,999.99 $0.04500 Cents
$27,000,000.00 - $27,999,999.99 $0.04750 Cents
$28,000,000.00 - $28,999,999.99 $0.05000 Cents
$29,000,000.00 - $29,999,999.99 $0.05250 Cents
$30,000,000.00 - $30,999,999.99 $0.05500 Cents
$31,000,000.00 - $31,999,999.99 $0.05750 Cents
$32,000,000.00 - $32,999,999.99 $0.06000 Cents
$33,000,000.00 - $33,999,999.99 $0.06250 Cents
$34,000,000.00 - $34,999,999.99 $0.06500 Cents
$35,000,000.00 - $35,999,999.99 $0.06750 Cents
$36,000,000.00 - $36,999,999.99 $0.07000 Cents
$37,000,000.00 + $0.07250 Cents
</TABLE>
II. If the Company achieves at least a 92% affirmative response to Question
Number 14 on the Homeowner Questionnaire, the above individual will receive
a given portion of his December 31 base salary as follows:
<TABLE>
<CAPTION>
Customer Response Achieved: Percent of December 31 Salary:
--------------------------- ------------------------------
<S> <C>
92.00% - 92.99% 50.00% - 50.99%
93.00% - 93.99% 60.00% - 60.99%
94.00% - 94.99% 75.00% - 75.99%
95.00% - 95.99% 85.00% - 85.99%
96.00% - 96.99% 90.00% - 90.99%
97.00% - 97.99% 95.00% - 95.99%
98.00% - 98.99% 100.00% - 100.99%
99.00% - 99.99% 105.00% - 105.99%
100% 110.00%
</TABLE>
<PAGE> 2
M/I SCHOTTENSTEIN HOMES, INC.
AWARD FORMULAS AND PERFORMANCE GOALS CHIEF
OPERATING OFFICER
EFFECTIVE JANUARY 1, 1999
III. If the Return on Equity (defined as net income for 1999, divided by equity
at the beginning of the calendar year) of the Corporation is at least 10%,
the above individual will receive a given portion of his December 31 base
salary as follows:
<TABLE>
<CAPTION>
Return on Equity Results: Percentage of December 31 Salary:
------------------------- ---------------------------------
<S> <C>
10.00% 50.00%
11.00% 60.00%
12.00% 65.00%
13.00% 70.00%
14.00% 75.00%
15.00% 80.00%
16.00% 85.00%
17.00% 90.00%
18.00% 95.00%
19.00% 100.00%
20.00% 105.00%
</TABLE>
PAYMENT
- -------
In accordance with the terms of the Plan, the Committee will determine the
amount of the award earned by the Chief Operating Officer after the end of the
1999 Plan Year. Of this amount, not less than 5% will be paid in Company stock
under the 1998 Executive Deferred Compensation Plan.
ACKNOWLEDGED:
- ---------------------------------------------------------- ---------------
Name Date
<PAGE> 1
Exhibit 10.18
M/I SCHOTTENSTEIN HOMES, INC.
AWARD FORMULAS AND PERFORMANCE GOALS
CHIEF FINANCIAL OFFICER
EFFECTIVE JANUARY 1, 1999
In accordance with the terms of the M/I Schottenstein Homes Executive Officer
Compensation Plan (the "Plan"), the Executive Officer Compensation Committee
(the "Committee") shall, for each Participant, establish the award formulas and
performance goals (as those terms are defined in the plan) to be measured to
determine the amount of bonus awards for each plan year. The following are the
performance goals and award formulas for the 1999 plan year for the Chief
Financial Officer. Subject to the maximum limit set forth in Section 7.4 of the
Plan, the Chief Financial Officer is eligible to receive for the 1999 plan year
shall be an amount equal to 175% of her 1999 base salary.
I. ACTUAL NET INCOME: In the event the ACTUAL NET INCOME of the Company is
equal to $15,000,000, the above individual will receive a graduating cents
per dollar amount based on the following schedule.
<TABLE>
<CAPTION>
Million Increments greater Cents per Incremental
than or equal to $15,000,000: Million awarded:
----------------------------- ----------------
<S> <C>
$15,000,000.00 - $15,999,999.99 $0.001500 Cents
$16,000,000.00 - $16,999,999.99 $0.002750 Cents
$17,000,000.00 - $17,999,999.99 $0.004000 Cents
$18,000,000.00 - $18,999,999.99 $0.005250 Cents
$19,000,000.00 - $19,999,999.99 $0.006500 Cents
$20,000,000.00 - $20,999,999.99 $0.007750 Cents
$21,000,000.00 - $21,999,999.99 $0.009000 Cents
$22,000,000.00 - $22,999,999.99 $0.010250 Cents
$23,000,000.00 - $23,999,999.99 $0.011500 Cents
$24,000,000.00 - $24,999,999.99 $0.012750 Cents
$25,000,000.00 - $25,999,999.99 $0.014000 Cents
$26,000,000.00 - $26,999,999.99 $0.015250 Cents
$27,000,000.00 - $27,999,999.99 $0.016500 Cents
$28,000,000.00 - $28,999,999.99 $0.017750 Cents
$29,000,000.00 - $29,999,999.99 $0.019000 Cents
$30,000,000.00 - $30,999,999.99 $0.021500 Cents
$31,000,000.00 - $31,999,999.99 $0.024000 Cents
$32,000,000.00 - $32,999,999.99 $0.026500 Cents
$33,000,000.00 - $33,999,999.99 $0.029000 Cents
$34,000,000.00 - $34,999,999.99 $0.031500 Cents
$35,000,000.00 - $35,999,999.99 $0.034000 Cents
$36,000,000.00 - $36,999,999.99 $0.036500 Cents
$37,000,000.00 + $0.039000 Cents
</TABLE>
II. If the Company achieves at least a 92% affirmative response to Question
Number 14 on the Homeowner Questionnaire, the above individual will receive
a given portion of her December 31 base salary as follows:
<TABLE>
<CAPTION>
Customer Response Achieved: Percent of December 31 Salary:
--------------------------- ------------------------------
<S> <C>
92.00% - 92.99% 20.00% - 20.99%
93.00% - 93.99% 25.00% - 25.99%
94.00% - 94.99% 30.00% - 30.99%
95.00% - 95.99% 35.00% - 35.99%
96.00% - 96.99% 40.00% - 40.99%
97.00% - 97.99% 45.00% - 45.99%
98.00% - 98.99% 50.00% - 50.99%
99.00% - 99.99% 55.00% - 55.99%
100% 60.00%
</TABLE>
<PAGE> 2
M/I SCHOTTENSTEIN HOMES, INC.
AWARD FORMULAS AND PERFORMANCE GOALS
CHIEF FINANCIAL OFFICER
EFFECTIVE JANUARY 1, 1999
III. If the Return on Equity (defined as net income for 1999, divided by equity
at the beginning of the calendar year) of the Corporation is at least 10%,
the above individual will receive a given portion of her December 31 base
salary as follows:
<TABLE>
<CAPTION>
Return on Equity Results: Percentage of December 31 Salary:
------------------------- ---------------------------------
<S> <C>
10.00% 10.00%
11.00% 15.00%
12.00% 20.00%
13.00% 25.00%
14.00% 30.00%
15.00% 35.00%
16.00% 40.00%
17.00% 45.00%
18.00% 50.00%
19.00% 55.00%
20.00% 60.00%
</TABLE>
PAYMENT
- -------
In accordance with the terms of the Plan, the Committee will determine the
amount of the award earned by the Chief Financial Officer after the end of the
1999 Plan Year. Of this amount, not less than 5% will be paid in Company stock
under the 1998 Executive Deferred Compensation Plan.
ACKNOWLEDGED:
- --------------------------------------------- --------------------
Name Date
<PAGE> 1
Exhibit 13
1998 M/I SCHOTTENSTEINHOMES, INC. ANNUAL REPORT
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT: (Year Ended December 31)
Revenue $ 739,613 $ 614,004 $ 577,192 $ 527,822 $ 491,719
Gross Margin 151,114 119,341 109,103 95,861 88,165
Income before extraordinary loss 27,651 17,437 14,110 9,876 11,613
Income per common share before
extraordinary loss:
Basic 3.29 2.15 1.60 1.12 1.32
Diluted 3.26 2.14 1.60 1.12 1.32
Weighted average common shares outstanding:
Basic 8,392,560 8,108,293 8,800,000 8,800,000 8,800,000
Diluted 8,487,872 8,150,015 8,818,543 8,800,000 8,800,000
Dividends per common share (1) 0.15 - - - -
BALANCE SHEET: (December 31)
Total assets 427,147 366,020 305,359 281,143 277,614
Notes and mortgage notes payable 105,293 113,950 100,345 102,549 112,765
Subordinated notes 50,000 50,000 25,000 24,513 24,513
Stockholders' equity 166,640 115,506 112,319 99,496 89,620
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No dividends were paid by the Company during any period prior to 1998 in
which the stock was publicly held. In January 1994, the Company made
distributions of $1,082,000 to the former S corporation stockholders
related to the Company's earnings from January 1, 1993 to November 8, 1993
(the date the Company's status as an S corporation was terminated).
SELECTED CONSOLIDATED QUARTERLY FINANCIAL AND OPERATING DATA
<TABLE>
Three Months Ended
- ---------------------------------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31,
(Dollars in thousands, except per share amounts) 1998 1998 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New contracts, net 998 926 1,039 1,145
Homes delivered 1,136 1,008 876 609
Backlog 2,023 2,161 2,243 2,080
Total revenue $ 237,983 $ 208,794 $ 175,606 $ 117,230
Gross margin $ 47,555 $ 42,301 $ 35,299 $ 25,959
Income before income taxes $ 14,072 $ 13,760 $ 11,218 $ 7,503
Net income $ 8,315 $ 8,210 $ 6,625 $ 4,501
Net income per common share:
Basic $ 0.94 $ 0.93 $ 0.80 $ 0.59
Diluted $ 0.93 $ 0.92 $ 0.79 $ 0.58
Weighted average common shares outstanding:
Basic 8,813,061 8,812,102 8,323,049 7,604,132
Diluted 8,905,545 8,909,013 8,419,804 7,698,571
Dividends per common share $ 0.05 $ 0.05 $ 0.05 -
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
- ---------------------------------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31,
(Dollars in thousands, except per share amounts) 1997 1997 1997 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New contracts, net 861 823 768 907
Homes delivered 991 828 776 557
Backlog 1,544 1,674 1,679 1,687
Total revenue $ 204,203 $ 157,958 $ 146,014 $ 105,829
Gross margin $ 38,251 $ 30,779 $ 28,555 $ 21,756
Income before income taxes $ 8,778 $ 7,729 $ 7,848 $ 5,067
Net income $ 5,142 $ 4,608 $ 4,635 $ 3,052
Net income per common share:
Basic $ 0.68 $ 0.59 $ 0.56 $ 0.35
Diluted $ 0.67 $ 0.59 $ 0.56 $ 0.35
Weighted average common shares outstanding:
Basic 7,597,561 7,834,252 8,300,000 8,716,667
Diluted 7,659,181 7,884,022 8,323,321 8,739,445
</TABLE>
<PAGE> 2
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
SEGMENT INFORMATION
- -------------------------------------------------------------------------------
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
The Company's reportable segments are strategic business units that offer
different products and services. The business segments of the Company are
defined as homebuilding and financial services. The homebuilding operations
include the development and sale of land and the construction and sale of
single-family attached and detached homes. The homebuilding segment includes
similar operations in several geographic regions which have been aggregated for
segment reporting purposes. The financial services operations include the
origination of mortgage loans, primarily for purchasers of the Company's homes,
and title services. The loans and the majority of the servicing rights are sold
to outside mortgage lenders.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Intersegment revenue represents
the elimination of revenue included in financial services revenue for fees paid
by the homebuilding operations to lock in interest rates. Fees paid by the
homebuilding segment to the financial services segment were at market prices for
the services provided. Unallocated expenses include salaries and other
administrative expenses which are not identifiable with a specific segment.
Unallocated assets consist primarily of a building, cash, deferred taxes and
other assets not associated with a specific business segment. The information
below is presented in conformity with SFAS 131 "Disclosure about Segments of an
Enterprise and Related Information" for all periods presented.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Homebuilding $ 728,503 $ 606,195 $ 570,719
Financial services 14,609 10,627 9,037
Intersegment (3,499) (2,818) (2,564)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 739,613 $ 614,004 $ 577,192
- ------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization:
Homebuilding $ 999 $ 857 $ 778
Financial services 77 117 153
Unallocated Amounts 685 649 446
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 1,761 $ 1,623 $ 1,377
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Homebuilding $ 12,744 $ 11,583 $ 12,782
Financial services 384 159 321
Unallocated Amounts - - -
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 13,128 $ 11,742 $ 13,103
- ------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes and Extraordinary Loss:
Homebuilding $ 36,523 $ 23,947 $ 20,245
Financial Services 8,209 5,494 4,029
Unallocated amounts 1,821 (19) (1,197)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS $ 46,553 $ 29,422 $ 23,077
- ------------------------------------------------------------------------------------------------------------------------
Income Taxes:
Homebuilding $ 15,354 $ 10,097 $ 7,938
Financial services 2,782 1,896 1,498
Unallocated amounts 766 (8) (469)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAXES $ 18,902 $ 11,985 $ 8,967
- ------------------------------------------------------------------------------------------------------------------------
Assets:
Homebuilding $ 361,789 $ 300,476 $ 257,130
Financial services 42,132 44,223 35,350
Unallocated amounts 23,226 21,321 12,879
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 427,147 $ 366,020 $ 305,359
- ------------------------------------------------------------------------------------------------------------------------
Capital Expenditures:
Homebuilding $ 1,055 $ 6,773 $ 474
Financial services 82 180 38
Unallocated amounts 95 1,555 99
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL EXPENDITURES $ 1,232 $ 8,508 $ 611
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 3
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
CONSOLIDATED
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
TOTAL REVENUE. Total revenue for 1998 of $739.6 million set a new
record for the Company and represented an increase of $125.6 million over 1997.
Increases in housing revenue of $127.4 million and other revenue of $3.1 million
were partially offset by a $4.9 million decrease in land revenue. The increase
in housing revenue was attributable to a 15.1% increase in the number of Homes
Delivered and a 6.0% increase in the average sales price of Homes Delivered. The
increase in other revenue is primarily attributable to financial services in
which both the number of loans originated and the gains recognized from the sale
of loans increased in the current year. The decrease in land revenue was
primarily due to less expensive lots being sold to third parties in the
Washington, D.C. market.
INCOME BEFORE INCOME TAXES. Income before income taxes for 1998
increased 58.2% over 1997. The increase related primarily to housing, which
increased from $23.8 million to $38.2 million and financial services, which
increased from $5.5 million to $8.2 million. The increase in housing was due to
the increase in the number of Homes Delivered and an increase in gross margin.
Housing gross margin increased from 18.0% in 1997 to 19.3% in 1998. The increase
in financial services was primarily due to an increase in the number of loans
originated and the significant increase in income from the sale of servicing and
marketing gains due to increased loan volume and the favorable interest rate
environment during 1997 and throughout 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
TOTAL REVENUE. Total revenue for 1997 of $614.0 million set a new record
for the Company and represented an increase of $36.8 million over 1996. Housing
revenue, land revenue and other revenue increased $17.2 million, $17.9 million
and $1.7 million, respectively. The increase in housing revenue was attributable
to a 6.1% increase in the average sales price of Homes Delivered, partially
offset by a 2.9% decrease in the number of Homes Delivered. The increase in land
revenue was primarily due to an increase in the number of lots sold to third
parties in the Washington, D.C. market. The increase in other revenue is
primarily attributable to financial services where the gains recognized from the
sale of loans increased in 1997.
INCOME BEFORE INCOME TAXES. Income before income taxes and extraordinary
loss for 1997 increased 27.5% over 1996. This increase related to both housing
and land, where income before income taxes and extraordinary loss increased from
$19.0 to $23.8 million, and financial services, where income before income taxes
increased from $4.0 to $5.5 million. The increase in housing was primarily due
to the increase in the average sales price of Homes Delivered. The increase in
land was primarily due to a significant increase in the number of lots sold to
third parties at relatively high margins in the Washington, D.C. market. 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 throughout 1997. Income before income taxes also increased due to a decrease
in interest expense from $13.1 million in 1996 to $11.7 million in 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 the replacement of the 14% Subordinated
Notes with new Subordinated Notes at a significantly lower rate. Capitalized
interest increased due to a significant increase in the Company's land
development activities.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
The Company has experienced, and expects to continue to experience,
significant seasonality and quarter-to-quarter variability in homebuilding
activity levels. In general, Homes Delivered increase substantially in the third
and fourth quarters. The Company believes that this seasonality reflects the
tendency of home buyers to shop for a new home in the spring with the goal of
closing in the fall or winter, as well as the scheduling of construction to
accommodate seasonal weather conditions. The following tables reflect this cycle
for the Company during the four quarters of 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
Dec. 31, Sept. 30, June 30, March 31,
(Dollars in thousands) 1998 1998 1998 1998
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $237,983 $208,794 $175,606 $117,230
Unit data:
New contracts, net 998 926 1,039 1,145
Homes delivered 1,136 1,008 876 609
Backlog at end of
period 2,023 2,161 2,243 2,080
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
DEC. 31, SEPT. 30,JUNE 30, MARCH 31,
(Dollars in thousands) 1997 1997 1997 1997
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $204,203 $157,958 $146,014 $105,829
Unit data:
New contracts, net 861 823 768 907
Homes delivered 991 828 776 557
Backlog at end of
Period 1,544 1,674 1,679 1,687
- -----------------------------------------------------------
</TABLE>
22
<PAGE> 4
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
HOMEBUILDING SEGMENT
The following table sets forth certain information related to the Company's
homebuilding segment:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Housing sales $705,620 $578,185 $560,980
Lot and land sales 21,873 26,814 8,915
Other income 1,010 1,196 824
- --------------------------------------------------------------------
Total revenue $728,503 $606,195 $570,719
- --------------------------------------------------------------------
Revenue:
Housing sales 96.9% 95.4% 98.3%
Lot and land sales 3.0 4.4 1.6
Other income 0.1 0.2 0.1
- --------------------------------------------------------------------
Total revenue 100.0 100.0 100.0
Land and housing costs 81.3 82.1 82.5
- --------------------------------------------------------------------
Gross Margin 18.7 17.9 17.5
General and administrative
expenses 2.8 3.1 2.8
Selling Expenses 6.5 6.6 6.6
- --------------------------------------------------------------------
Operating Income 9.4 8.2 8.1
Allocated expenses 4.4 4.2 4.6
- --------------------------------------------------------------------
Income Before Income Taxes 5.0% 4.0% 3.5%
- --------------------------------------------------------------------
MIDWEST REGION
Unit data:
New contracts, net 2,524 2,059 1,910
Homes delivered 2,259 1,910 1,939
Backlog at end of period 1,322 1,057 908
Average sales price of
homes in Backlog $183 $178 $174
Aggregate sales value of
homes in Backlog $242,000 $188,000 $158,000
Number of active subdivisions 73 75 80
- --------------------------------------------------------------------
FLORIDA REGION
Unit data:
New contracts, net 730 700 663
Homes delivered 652 666 667
Backlog at end of period 333 255 221
Average sales price of
homes in Backlog $196 $188 $163
Aggregate sales value of
homes in Backlog $ 65,000 $ 48,000 $ 36,000
Number of active subdivisions 27 30 35
- --------------------------------------------------------------------
NORTH CAROLINA, VIRGINIA AND MARYLAND, AND ARIZONA REGION
Unit data:
New contracts, net 854 600 589
Homes delivered 718 576 640
Backlog at end of period 368 232 208
Average sales price of
homes in Backlog $359 $303 $246
Aggregate sales value of
homes in Backlog $132,000 $ 70,000 $ 51,000
Number of active subdivisions 40 35 35
- --------------------------------------------------------------------
TOTAL
Unit data:
New contracts, net 4,108 3,359 3,162
Homes delivered 3,629 3,152 3,246
Backlog at end of period 2,023 1,544 1,337
Average sales price of
homes in Backlog $217 $198 $183
Aggregate sales value of
homes in Backlog $439,000 $306,000 $245,000
Number of active subdivisions 140 140 150
- --------------------------------------------------------------------
</TABLE>
A home is included in "New Contracts" when the Company's standard sales
contract, which requires a deposit and generally has no contingencies other than
for buyer financing, is executed. In a limited number of markets, contracts are
sometimes accepted contingent upon the sale of an existing home. "Homes
Delivered" represents homes for which the closing of the sale has occurred and
title has transferred to the buyer. Revenue and cost of revenue for a home sale
are recognized at the time of 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 these homes have not yet occurred as of the end of the
period 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 1998, the Company delivered 3,629
homes, including most of the homes under contract in Backlog at December 31,
1997. Of the 1,544 contracts in Backlog at December 31, 1997, 12.8% were
cancelled. The cancellation percentages were 14.1% and 14.4% for homes in
Backlog as of December 31, 1996 and December 31, 1995, respectively. Unsold
speculative homes, which are in various stages of construction, totaled 159, 158
and 122 at December 31, 1998, 1997 and 1996, respectively.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
TOTAL REVENUE. Total revenue for the homebuilding segment for 1998 was
$728.5 million, a 20.2% increase over 1997. This increase was due to a 22.0%
increase in housing revenue and was offset by an 18.4% decrease in land revenue.
The increase in housing revenue was partially due to a 15.1% increase in the
number of Homes Delivered. Homes Delivered were higher in all of the Company's
markets with the exception of Orlando and Charlotte. The increase in housing
revenue was also due to a 6.0% increase in the average sales price of Homes
Delivered. The average sales price of Homes Delivered increased in nearly all of
the Company's markets due to product mix and higher land and regulatory costs
which have generally been passed on to the home buyer. The decrease in land
revenue from $26.8 million to $21.9 million was primarily attributable to the
Washington, D.C. market. The Maryland division sold less expensive lots to
outside homebuilders in 1998.
HOME SALES AND BACKLOG. New Contracts recorded in 1998 were 22.3%
higher than the prior year. New Contracts recorded were higher in nearly all of
the Company's markets. The Company believes the increase in New Contracts was
partially due to favorable market conditions and low interest rates. The number
of New Contracts recorded in future periods will be dependent on
23
<PAGE> 5
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
numerous factors, including future economic conditions, timing of land
development, consumer confidence and interest rates available to potential home
buyers.
At December 31, 1998, the total sales value of the Company's Backlog of
2,023 homes was approximately $439.0 million, representing a 43.5% increase in
sales value and a 31.0% increase in units over the levels reported at December
31, 1997. The increase in units is a result of record high new contracts
recorded in 1998. The average sales price of homes in Backlog increased 9.6%
from December 31, 1997 to December 31, 1998. This increase was primarily due to
increases in the Washington, D.C.
and Phoenix markets where the Company is building in more upscale and certain
niche subdivisions.
GROSS MARGIN. The overall gross margin for the homebuilding segment was
18.7% for 1998 and 17.9% for 1997. The gross margin from housing sales was 19.3%
in 1998 compared to 18.0% in 1997. The gross margin from lot and land sales
decreased from 22.9% to 14.4%. The increase in margin is attributable to
favorable market conditions and Management's continued focus on maintaining
accurate, up-to-date costing information so that sales prices can be set to
achieve the desired margins. The Company has also focused on acquiring or
developing lots in premier locations to obtain higher margins. The decrease in
gross margin from lot and land sales was primarily due to the Washington, D.C.
market. The Maryland and Virginia divisions had significant lot sales to outside
homebuilders in 1997 at very high margins which did not occur in the current
year. Lot and land gross margins can vary significantly depending on the sales
price, the cost of the subdivision and the phase in which the sale takes place.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $18.6 million for 1997 to $20.7 million for 1998.
However, general and administrative expenses as a percentage of total revenue
decreased from 3.1% from 1997 to 2.8% for 1998. The increase in expense was
primarily attributable to an increase in real estate taxes and incentive
compensation. Real estate taxes increased in the current year as the Company's
investment in land development activities increased over prior year balances.
More incentive compensation was recorded in 1998 compared to 1997 due to the
increase in net income.
SELLING EXPENSES. Selling expenses increased from $40.1 million for 1997
to $47.0 million for 1998. However, selling expenses as a percentage of total
revenue decreased from 6.6% for 1997 to 6.5% for 1998. The increase in expense
was primarily due to increases in sales commissions paid to outside Realtors and
internal salespeople as a result of the increase in sales volume. There were
also increases in advertising, model and sales incentive compensation expenses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
TOTAL REVENUE. Total revenue for the homebuilding segment for 1997 was
$606.2 million, a 6.2% increase over 1996. This increase was attributable to a
3.1% increase in housing revenue and a 200.8% increase in land revenue. The
increase in housing revenue was due to a 6.1% increase in the average sales
price of Homes Delivered. Excluding the Phoenix division, which had no Homes
Delivered in 1996, the average sales price of Homes Delivered in 1997 increased
in nine of the Company's twelve divisions, led by the Columbus market where the
Company is building in more upscale and certain niche subdivisions. This
increase was partially offset by a 2.9% decrease in the number of Homes
Delivered in 1997. The decrease in the number of Homes Delivered was primarily
due to changes in lot availability in certain markets.
The increase in land revenue from $8.9 million to $26.8 million was
primarily attributable to the Washington, D.C. market. Both the Maryland and
Virginia divisions had significant lot sales to third party homebuilders. It
continues to be part of the Company's strategy to sell to third parties in these
divisions.
HOME SALES AND BACKLOG. The Company recorded a 6.2% increase in the
number of New Contracts recorded in 1997 over the prior year. New Contracts
recorded increased in all three of the Company's regions. The increase in the
number of New Contracts was due mainly to the Horizon division, in which the
number of New Contracts increased by 168 units. The Horizon division, which
builds lower priced homes, expanded into desirable locations in the Columbus
market.
At December 31, 1997, the total sales value of the Company's Backlog of
1,544 homes was approximately $306.0 million, representing a 24.9% increase in
sales value and a 15.5% increase in units from the levels reported at December
31, 1996. The average sales price of homes in Backlog increased 8.2% from
December 31, 1996 to December 31, 1997. This increase was due to sales price
increases in the Columbus, Cincinnati, Orlando and Maryland markets 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,
had an average selling price of over $750,000. The increase in units at December
31, 1997 was a result of record high New Contracts recorded along with a
decrease in deliveries in 1997.
GROSS MARGIN. The overall gross margin for the homebuilding segment was
17.9% for 1997 and 17.5% for 1996. The gross margin from housing sales was 18.0%
in 1997 compared to 17.9% recorded in 1996. The overall increase in gross margin
was mainly due to lot and land sales, where margins increased from 15.7% to
22.9%. Both the Maryland and Virginia divisions had significant
24
<PAGE> 6
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
increases in the number of lots sold to third party homebuilders. Management
focuses on maintaining accurate, up-to-date costing information so that sales
prices can be set to achieve the desired margins. The Company also focuses on
acquiring or developing lots in premier locations to obtain higher margins.
Gross margins were also higher due to the national accounts program which the
Company continues to expand. Through this program, the Company has been able to
lower costs on many of the components used in building its homes through volume
discounts and other negotiated price reductions from its suppliers.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
as a percentage of total revenue increased from 2.8% for 1996 to 3.1% for 1997.
This increase was primarily attributable to the increase in bonuses, rental
expense and real estate tax expense. More bonuses were recorded in 1997 compared
to 1996 due to the significant increase in net income. The increase in rent was
primarily due to new office space in the Columbus market. Real estate taxes
increased in 1997 as the Company's investment in land development activities
increased over prior year balances. Additionally, the Company incurred start-up
expenses of approximately $900,000 in its newest market, Phoenix, Arizona.
SELLING EXPENSES. Selling expenses increased from $37.9 million for 1996
to $40.1 million for 1997 and as a percentage of total revenue remained constant
at 6.6% for 1997 and 1996. The increase in dollars was primarily due to
increases in sales commissions for internal salespeople as a result of the
increase in sales volume.
FINANCIAL SERVICES SEGMENT
The following table sets forth certain information related to the Company's
financial services segment:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------
<S> <C> <C> <C>
Number of loans
originated 2,958 2,395 2,427
Revenue:
Loan origination fees $ 3,931 $ 3,212 $3,094
Sale of servicing and
marketing gains 6,256 4,522 3,550
Other 4,422 2,893 2,393
- --------------------------------------------------------
TOTAL REVENUE 14,609 10,627 9,037
- --------------------------------------------------------
General & administrative
Expenses 6,400 5,133 5,008
- --------------------------------------------------------
Operating Income $ 8,209 $ 5,494 $4,029
- --------------------------------------------------------
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
TOTAL REVENUE. Total revenue for 1998 was $14.6 million, a 37.5%
increase over the $10.6 million recorded for 1997. Loan origination fees
increased 22.4% from 1997 to 1998. This increase was due to a 23.5% increase in
the number of loans originated during 1998 over 1997, along with an increase in
the average loan amount. At December 31, 1998, M/I Financial was operating in
eight of the Company's eleven markets. Of these eight markets, 90% of the parent
Company's Homes Delivered were financed through M/I Financial.
Revenue from the sale of servicing and marketing gains increased 38.3%
to $6.3 million in 1998. The increase was primarily due to a 23.5% increase in
mortgages originated in 1998 over 1997. The increase in marketing gains was
primarily due to favorable market conditions during the second, third and fourth
quarters of 1998, increased volume and the continued shift toward fixed rate
loans. The Company uses hedging methods whereby the Company has the option, but
is not required, to complete the hedging transaction. The Company also
concentrated on the securitization of loans with FNMA and FHLMC and separated
the sale of loans and servicing into two transactions on this product. This
change, along with more favorable terms negotiated with investors, resulted in
an increase in servicing release premiums. The increase in marketing and service
fees was also due to an increase in average loan amounts.
Revenue from other sources increased 52.8% from 1997 to 1998. This
increase was primarily due to earnings from the Company's interest in a limited
liability company that provides title services and expanded into Florida late in
1997. Revenue from other sources also increased because of an increase in loan
application fees received in 1998 compared to 1997. There were 616 more
applications taken in 1998 compared to 1997. Interest income increased due to
more mortgages originated in 1998 compared to 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for 1998 were $6.4 million, a 24.7% increase over 1997. Loan
application expenses increased due to 616 more loan applications taken during
1998. Bank interest expense increased due to an increase in mortgages
originated. Incentive compensation increased due to a significant increase in
net income. General and administrative expenses also increased because of
expenses related to the expansion of title services into Florida late in 1997
compared to the full year of 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
TOTAL REVENUE. Total revenue for the year ended December 31, 1997 was
$10.6 million, a 17.6% increase over the $9.0 million recorded for 1996. Loan
origination
25
<PAGE> 7
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
fees increased 3.8% from 1996 to 1997, even though the number of loans
originated decreased 1.3%. The increase in loan origination fees was due
primarily to a higher capture rate of the Company's higher end product lines and
higher sales prices of Homes Delivered. At December 31, 1997, M/I Financial was
operating in eight of the Company's eleven markets. Of these eight markets, 81%
of the parent Company's Homes Delivered were financed through M/I Financial.
Revenue from the sale of servicing and marketing gains increased 27.4% to
$4.5 million in 1997. This increase 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 first quarter of 1997. The
Company also negotiated more favorable terms with investors which resulted in an
increase in service release premiums. Revenue from other sources increased 20.9%
from 1996 to 1997. The increase was primarily due to earnings from the Company's
interest in a limited liability company that provides title services that began
operations early in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 2.5% to $5.1 million for the year ended December 31, 1997 compared to
the $5.0 million recorded in 1996. This increase was primarily due to higher
rental costs for the Company's corporate department and Columbus operations. The
Company moved into new office space early in 1997.
OTHER OPERATING RESULTS
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses increased to $17.7 million in 1998 from $14.6 million in
1997. However, as a percentage of total revenue, general and administrative
expenses for 1998 and 1997 remained constant at 2.4%. The increase in expense
was primarily attributable to an increase in incentive compensation, profit
sharing and charitable contributions expensed in 1998 due to the significant
increase in net income.
Corporate general and administrative expenses for the year ended December
31, 1997 totaled $14.6 million, a 2.9% increase from the $14.2 million recorded
for 1996. As a percentage of total revenue, general and administrative expenses
decreased to 2.4% in 1997 from 2.5% in 1996. This decrease resulted from an
increase in total revenue.
INTEREST EXPENSE. Homebuilding interest expense for 1998 increased to
$12.7 million from $11.6 million in 1997. Interest expense was higher in the
current year due to an increase in the average borrowings outstanding which
increased due to a significant increase in the Company's backlog and land
development activities. Also, in 1998, the Company experienced less of an
increase in capitalized interest than in 1997 as a result of an increase in the
proportion of raw land and developed lots to total inventory.
Homebuilding interest expense for the year ended December 31, 1997
totaled $11.6 million, a 9.4% decrease from the $12.8 million recorded for the
preceding year. Interest expense was lower in 1997 due to a decrease in the
weighted average interest rate and an increase in the net amount of interest
capitalized during 1997 as compared to 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 new
Subordinated Notes at a significantly lower rate in December 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 in 1997.
INCOME TAXES. The effective tax rate decreased slightly from 40.7% to
40.6% from 1997 to 1998.
The effective tax rate for 1997 increased to 40.7% from 38.9% for 1996.
In 1996, the Company made a significant charitable contribution of commercial
land, owned since 1986, decreasing the effective rate.
EXTRAORDINARY LOSS. In December 1996, the Company redeemed all of its
outstanding 14% Subordinated Notes, due December 2001, at a price of 106% of
par. The principal amount redeemed was $24.5 million and the redemption resulted
in an extraordinary loss of $1.3 million, net of income taxes of $0.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing needs are dependant on 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 homebuilding activities. The Company's principal
source of funds for construction and development activities has been from
internally generated cash and bank borrowings, which are primarily unsecured.
Additionally, in May 1998, the Company sold treasury shares and received
approximately $24.6 million.
NOTES PAYABLE BANKS. On December 31, 1998, the Company entered into a
new bank loan agreement which increased the limit on the amount of outstanding
letters of credit to $30.0 million. The remaining terms of the agreement remain
substantially the same as those in the agreement that it replaces.
At December 31, 1998, the Company had bank borrowings outstanding of
$70.0 million under its Bank Credit Facility, which permits aggregate
borrowings, other than for the issuance of letters of credit, not to exceed the
lesser of: (i) $204.5 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
26
<PAGE> 8
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
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 Bank Credit Facility matures September 30, 2003, at which time the
unpaid balance of the revolving credit loans outstanding will be due and
payable. Under the terms of the Bank Credit Facility, the banks will determine
annually whether or not to extend the maturity date of the commitments by one
year. At December 31, 1998, borrowings under the Bank Credit Facility were at
the prime rate or, at the Company's option, LIBOR plus a margin of between 1.60%
and 2.35% based on the Company's ratio of Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") to consolidated interest incurred and
were primarily unsecured. The Bank Credit Facility contains restrictive
covenants which require the Company, among other things, to maintain minimum net
worth and working capital amounts, to maintain a minimum ratio of EBITDA to
consolidated interest incurred and to maintain certain other financial ratios.
The Bank Credit Facility also places limitations on the amount of additional
indebtedness that may be incurred by the Company, the acquisition of undeveloped
land, dividends that may be paid and the aggregate cost of certain types of
inventory the Company can hold at any one time.
On February 26, 1998 and September 23, 1998 the Company entered into
$50.0 million and $25.0 million interest rate SWAP agreements with certain
banks. The SWAP agreements expire February 26, 2001 and September 25, 2000,
respectively, and require the Company to make fixed interest rate payments to
the bank in return for variable payments. During the twelve months ended
December 31, 1998, these agreements resulted in a decrease of $26,000 of
interest expense.
An additional $23.5 million was outstanding as of December 31, 1998
under the M/I Financial loan agreement, which permits borrowings of $30.0
million to finance mortgage loans initially funded by M/I Financial for
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 December
31, 1998, borrowings under the M/I Financial loan agreement were at (a) the
prime rate less 0.50%, and/or (b) LIBOR plus 1.60% or (c) a combination of (a)
and (b). The agreement terminates on June 20, 2001, at which time the unpaid
balance is due.
At December 31, 1998, the Company had the right to borrow up to $234.5
million under its credit facilities, including $30.0 million under the M/I
Financial loan agreements. At December 31, 1998, the Company had $141.0 million
of unused borrowing availability under its loan agreements. The Company also had
approximately $30.6 million of completion bonds and letters of credit
outstanding at December 31, 1998.
SUBORDINATED NOTES. At December 31, 1998, there was outstanding $50.0
million of Senior Subordinated Notes. The notes bear interest at a fixed rate of
9.51% and mature August 29, 2004.
LAND AND LAND DEVELOPMENT. Over the past several years, the Company's
land development activities and land holdings have increased significantly, and
the Company believes this trend will continue in the foreseeable future.
Single-family lots, land and land development increased 12.0% from December 31,
1997 to December 31, 1998. These increases are primarily due to the shortage of
qualified land developers in certain of the Company's markets as well as the
Company developing more land due to the competitive advantages that can be
achieved by developing land internally rather than purchasing lots from
developers or competing homebuilders. This is particularly true for the
Company's Horizon product line, in which lots are generally not available from
third party developers at economically feasible prices due to the price points
the Company targets. 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 its
demand for lots in the most cost effective manner.
The $8.0 million decrease in notes payable banks - homebuilding
operations, from December 31, 1997 to December 31, 1998 was the result of
decreased borrowings primarily attributable to the increase in the number of
Homes Delivered in 1998 offset by increases in houses under construction and
single-family lots, land and land development costs. Houses under construction
increased $36.0 million from December 31, 1997 to December 31, 1998, and
single-family lots, land and land development costs increased $18.2 million. It
is expected that borrowing needs will increase as the Company continues to
increase its investment in land under development and developed lots.
At December 31, 1998, mortgage notes payable outstanding were $11.8
million, secured by a building, lots and land with a recorded book value of
$15.5 million.
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.
SALE OF TREASURY SHARES. On April 27, 1998, the Company filed a
registration statement with the Securities and Exchange Commission for up to
1,200,000 shares of common stock of the Company. All of such shares were sold on
May 5, 1998. The Company received approximately $24.6 million, which was used to
repay a portion of existing indebtedness.
27
<PAGE> 9
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
YEAR 2000 COMPLIANCE. The Company is currently in the process of
modifying or replacing certain management information systems to address issues
regarding the year 2000. In accordance with current accounting guidance,
modification costs for the year 2000 are charged to expense as incurred while
replacement costs are capitalized and amortized over the asset's useful life. It
is not presently believed that these changes will have an adverse impact on
operations or that the expenditures related thereto will be material to the
Company's financial position or results of operations in any given year.
The "Year 2000" problem arises as a result of many automated
calculations being written in computer code which does not properly recognize
dates after 1999. Problems associated with this issue can occur not only on
"mainframe" applications, but also with such devices as personal computers,
telecommunication equipment and programmable logic controllers associated with
certain manufacturing equipment. Without correction, it is possible that
business and operational functions that rely on this improper code could fail
and cause significant business disruption and loss.
The manner of resolving the identified Year 2000 shortcomings has
included strategies such as implementing Year 2000 compliant versions of third
party software, modifying portions of existing software and replacing
non-compliant business systems with new third party software. A combination of
internal and external resources is being used to help identify, implement and
test solutions associated with Year 2000 issues. Management believes that
quantifying the extent to which the Company's Year 2000 remediation efforts are
complete is not practicable and could be potentially misleading. However, based
on existing plans, it is anticipated that the Company's ongoing efforts to
remediate data processing systems to be Year 2000 compliant will be completed by
the last half of 1999.
Another risk presented by the Year 2000 issue is that significant
customers, regulatory agencies and suppliers of the Company could fail to become
fully Year 2000 compliant. This failure, in turn, could result in a significant
adverse effect to the Company's operations. The Company is in the process of
making inquiries of its significant suppliers as to the state of their Year 2000
readiness. It is believed that these inquiries will become increasingly more
meaningful as the year 2000 approaches. Regardless, there can be no assurance
that the data processing and non-information technology systems utilized by
these other companies will become Year 2000 compliant on a timely basis. The
impact of noncompliance cannot currently be estimated.
Taken together, the Company believes that its substantial past and
current investments in these information technology initiatives will provide the
foundation necessary to support and enhance operations in the years to come.
Nevertheless, achieving Year 2000 compliance is dependent on many factors, some
of which are not completely within the Company's control. Should either the
Company's internal systems or the internal systems of one or more significant
vendors or suppliers fail to achieve Year 2000 compliance, the Company's
business and its results of operations could be adversely affected.
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 would also
increase the Company's interest expense as the rate on the revolving loans is
based on floating rates of interest. The weighted average interest rate on the
Company's outstanding debt was 8.5% for 1998 and 1997, and 9.5% for 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. (See Note 14 to the
Consolidated Financial Statements.)
In recent years, the Company generally has been able to raise prices by
amounts at least equal to its cost increases and, accordingly, has not
experienced any detrimental effect from inflation. Where the Company develops
lots for its own use, inflation may increase the Company's profits because land
costs are fixed well in advance of sales efforts. The Company is generally able
to maintain costs with subcontractors from the date a home's sales contract is
accepted to the date of close. However, in certain situations, unanticipated
costs may occur between the time a sales contract is executed and the time a
home is constructed, resulting in lower gross profit margins.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
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 & 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 AND OTHER CONDITIONS. The homebuilding
industry is significantly
28
<PAGE> 10
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
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, homebuilders are subject to various risks, many of them outside the
control of the homebuilder, 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 home buyers. 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 short- 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 and
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).
THE COMPANY'S MARKETS. The Company's operations are in Columbus and
Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and Palm Beach County,
Florida; Charlotte and Raleigh, North Carolina; the Virginia and Maryland
suburbs of Washington, D.C., and Phoenix, Arizona. Adverse general economic
conditions in these markets could have a material adverse impact on the
operations of the Company. For the year ended December 31, 1998, approximately
40% of the Company's housing revenue and a significant portion of the Company's
operating income were derived from operations in its Columbus, Ohio market. The
Company's performance could be significantly affected by changes in this market.
COMPETITION. The homebuilding industry is highly competitive. The Company
competes in each of its local market areas with numerous national, regional and
local homebuilders, some of which have greater financial, marketing, land
acquisition, and sales resources than the Company. Builders of new homes compete
not only for home buyers, 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 attractions for home buyers
over building a new home.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATIONS. The
homebuilding industry is subject to increasing local, state and Federal
statutes, ordinances, rules and regulations concerning zoning, resource
protection (preservation of woodlands and hillside areas), building design, and
construction and similar matters, including local regulations which impose
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
location. Such regulation affects construction activities, including
construction materials which must be used in certain aspects of building design,
as well as sales activities and other dealings with home buyers. 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 homebuilders 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 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 or sewage facilities, delays in utility hook-ups or inadequate road
capacity within the specific market area or subdivision. These moratoriums can
occur prior to, or subsequent to, commencement of 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 serious
material and labor 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 December 31,
1998, members of the Irving E. Schottenstein family owned approximately 31% of
29
<PAGE> 11
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
the outstanding Common Shares of the Company. In particular, Irving E.
Schottenstein, in his own name and as trustee of trusts for his children, had
the right to vote 2,678,300 Common Shares. Therefore, members of the Irving E.
Schottenstein family have significant voting power with respect to the election
of the Board of Directors of the Company and, in general, the determination of
the outcome of various matters submitted to the shareholders of the Company for
approval.
IMPACT OF NEW ACCOUNTING STANDARDS. In June, 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 is required to be adopted for the Company's 2000 annual
financial statements. The Company has not yet determined what, if any, impact
the adoption of this standard will have on its financial statements.
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of
M/I Schottenstein Homes, Inc.:
We have audited the accompanying consolidated balance
sheets of M/I Schottenstein Homes, Inc. and its subsidiaries
as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of M/I Schottenstein Homes, Inc. and its
subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
February 25, 1999
31
<PAGE> 13
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
Year Ended December 31,
(Dollars in thousands, except per share amounts) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 739,613 $ 614,004 $ 577,192
- -------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Land and housing 588,499 494,663 468,089
General and administrative 44,254 38,092 34,980
Selling 47,179 40,085 37,943
Interest 13,128 11,742 13,103
- -------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 693,060 584,582 554,115
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary loss 46,553 29,422 23,077
- -------------------------------------------------------------------------------------------------------------------------
Income taxes (credit):
Current 18,328 14,172 11,049
Deferred 574 (2,187) (2,082)
- --------------------------------------------------------------------------------------------------------------------------
Total income taxes 18,902 11,985 8,967
- -------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss 27,651 17,437 14,110
- -------------------------------------------------------------------------------------------------------------------------
Extraordinary loss from extinguishment of debt,
net of income taxes of $823 - - (1,287)
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 27,651 $ 17,437 $ 12,823
- -------------------------------------------------------------------------------------------------------------------------
Per share data - basic:
Income before extraordinary loss $ 3.29 $ 2.15 $ 1.60
Extraordinary loss - - (.14)
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 3.29 $ 2.15 $ 1.46
- -------------------------------------------------------------------------------------------------------------------------
Per share data - diluted:
Income before extraordinary loss $ 3.26 $ 2.14 $ 1.60
Extraordinary loss - - (.14)
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 3.26 $ 2.14 $ 1.46
- -------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 8,392,560 8,108,293 8,800,000
Diluted 8,487,972 8,150,015 8,818,543
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 14
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands, except par values) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 10,068 $ 10,836
Cash held in escrow 870 2,537
Receivables 42,361 43,819
Inventories:
Single-family lots, land and land development costs 170,115 151,905
Houses under construction 136,965 100,916
Model homes and furnishings - at cost (less accumulated
depreciation: 1998 - $45; 1997 - $47) 15,054 17,788
Land purchase deposits 1,366 645
Building, office furnishings, transportation and
construction equipment - at cost (less accumulated
depreciation: 1998 - $4,962; 1997 - $4,328) 20,015 8,647
Investment in unconsolidated joint ventures and
limited liability companies 17,850 15,236
Other assets 12,483 13,691
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $ 427,147 $ 366,020
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable banks - homebuilding operations $ 70,000 $ 78,000
Note payable bank - financial services operations 23,500 30,000
Mortgage notes payable 11,793 5,950
Senior subordinated notes 50,000 50,000
Accounts payable 51,364 42,793
Accrued compensation 18,131 13,042
Income taxes payable 4,380 4,072
Accrued interest, warranty and other 19,430 19,103
Customer deposits 11,909 7,554
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 260,507 250,514
- ------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - $.01 par value; authorized -
2,000,000 shares; none outstanding - -
Common stock - $.01 par value; authorized 38,000,000
shares; issued - 8,813,061 shares at December 31, 1998;
issued - 8,800,000 shares at December 31, 1997 88 88
Additional paid-in capital 61,067 50,573
Retained earnings 105,485 79,095
Treasury stock - at cost - 1,202,439 shares held in treasury
at December 31, 1997 - (14,250)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 166,640 115,506
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $ 427,147 $ 366,020
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 15
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
------------------ Additional
Shares Paid-in Retained Treasury
(Dollars In Thousands) Outstanding Amount Capital Earnings Stock
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 8,800,000 $ 88 $ 50,573 $ 48,835 -
Net income - - - 12,823 -
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 8,800,000 88 50,573 61,658 -
Net income - - - 17,437 -
Purchase of treasury stock (1,202,439) - - - $(14,250)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 7,597,561 88 50,573 79,095 (14,250)
Net income - - - 27,651 -
Stock options exercised 15,500 - 185 - -
Dividends to stockholders, 0.15 per
common share - - - (1,261) -
Sale of treasury shares, net
of expenses 1,200,000 - 10,338 - 14,221
Retirement of treasury shares - - (29) - 29
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 8,813,061 $ 88 $ 61,067 $ 105,485 -
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 16
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
Year Ended December 31,
(Dollars in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,651 $ 17,437 $ 12,823
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss from extinguishment of debt - - 2,110
Loss from property disposals 126 128 1,008
Depreciation and amortization 1,761 1,623 1,377
Deferred income taxes 306 (2,187) (2,082)
Decrease (increase) in cash held in escrow 1,667 (2,144) 14
Decrease (increase) in receivables 1,458 (9,372) (10,835)
Increase in inventories (38,134) (19,670) (612)
Decrease (increase) in other assets 737 (432) (1,589)
Increase in accounts payable 8,588 10,777 2,797
Increase (decrease) in income taxes payable 308 2,570 (1,269)
Increase in accrued liabilities 5,503 5,039 9,983
Equity in undistributed income of unconsolidated
joint ventures and limited liability companies (610) (376) (223)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,361 3,393 13,502
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,232) (8,508) (611)
Purchase of limited liability company (2,500) - -
Investment in unconsolidated joint ventures and
limited liability companies (20,669) (15,701) (12,718)
Distributions from unconsolidated joint ventures and
limited liability companies 1,305 1,145 871
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,096) (23,064) (12,458)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable banks:
Proceeds from borrowings 355,790 293,135 422,551
Principal repayments (370,290) (285,435) (424,451)
Mortgage notes payable:
Proceeds from borrowings - 5,950 -
Principal repayments (371) (45) (463)
Subordinated notes:
Proceeds from issuance - 50,000 25,000
Principal repayments - (25,000) (24,513)
Debt issuance costs - (699) (650)
Redemption premium - - (1,478)
Dividends paid (1,261) - -
Proceeds from exercise of stock options 185 - -
Proceeds from sale of treasury shares - net of expenses 24,559 - -
Net increase in customer deposits 4,355 483 1,599
Payments to acquire treasury stock - (14,250) -
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 12,967 24,139 (2,405)
- ----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (768) 4,468 (1,361)
Cash balance at beginning of year 10,836 6,368 7,729
- ---------------------------------------------------------------------------------------------------------------------
Cash balance at end of year $ 10,068 $ 10,836 $ 6,368
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest - net of amount capitalized $ 12,916 $ 11,143 $ 12,875
Income taxes $ 18,019 $ 11,602 $ 11,495
NON-CASH TRANSACTIONS DURING THE YEAR:
Building and lots and land acquired with mortgage notes
payable-net $6,214 $5,950 $159
Single-family lots distributed from unconsolidated
joint ventures and limited liability companies $ 17,360 $ 12,694 $ 10,713
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE> 17
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of M/I Schottenstein Homes, Inc. and its
subsidiaries (the "Company"). All significant intercompany transactions have
been eliminated. The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company is engaged primarily in the construction and sale of
single-family residential property in Columbus and Cincinnati, Ohio; Tampa,
Orlando and Palm Beach County, Florida; Charlotte and Raleigh, North Carolina;
Indianapolis, Indiana; the Virginia and Maryland suburbs of Washington, D.C.
and, as of 1997, Phoenix, Arizona. The Company designs, sells and builds
single-family homes on finished lots, which it develops or purchases ready for
home construction. The Company also purchases undeveloped land to develop into
finished lots for future construction of single-family homes and for sale to
others.
The Company also conducts mortgage banking activities through M/I
Financial Corp. ("M/I Financial"), which originates mortgage loans primarily for
purchasers of the Company's homes. The loans and the majority of the servicing
rights are sold to outside mortgage lenders.
Additionally, the Company is a majority owner in a title insurance
agency. The agency provides title services to purchasers of the Company's homes.
CASH AND CASH HELD IN ESCROW. Cash and cash held in escrow were primarily
held in one bank at December 31, 1998 and 1997.
INVENTORIES. Inventories are recorded at cost which is not in excess of
net realizable value. Houses under construction include lot costs, construction
costs, capitalized interest and indirect costs. These costs, other than
interest, are charged, under the specific identification method, to cost of
sales as housing sales are closed. Previously capitalized interest is included
in interest expense when the related housing sales are closed. Lot costs are
transferred to houses under construction from land costs when construction
commences.
Depreciation on model home furnishings is recorded using an accelerated
method over the estimated useful lives of the assets.
Land and land development costs are allocated to development phases based
on relative estimated market values. Development costs, capitalized interest and
real estate taxes incurred during land development are allocated to each
residential lot in a development phase based on relative estimated market
values.
INTEREST. The Company capitalizes interest during development and
construction. Capitalized interest is charged to interest expense as the related
inventory is delivered. The summary of total interest for 1998, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Interest capitalized, beginning of year $ 7,620 $ 6,862 $ 7,560
Interest incurred 13,465 12,500 12,405
Interest Expensed (13,128) (11,742) (13,103)
- --------------------------------------------------------------------------
Interest Capitalized, End Of Year $ 7,957 $ 7,620 $ 6,862
- --------------------------------------------------------------------------
</TABLE>
REVENUE RECOGNITION. Revenue and cost of revenue from the sale of real
estate are recognized at the time title is transferred to the buyer and the
buyer has met the minimum down payment requirement. Discounts and other sales
incentives are included as a reduction of homebuilding revenue.
The following summarizes both housing and lot and land sales and cost of
sales included in revenue and cost of revenue:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Housing sales $705,620 $578,185 $560,980
Housing cost of sales 569,773 473,995 460,574
Lot and land sales 21,873 26,814 8,915
Lot and land cost of sales 18,726 20,668 7,515
- -----------------------------------------------------------
</TABLE>
M/I Financial recognizes revenue from application fees when received,
while revenue from loan origination fees is recorded when each loan closes. M/I
Financial sells its loans and the majority of its servicing rights to outside
mortgage lenders. The revenue from these transactions is recorded when each loan
is sold and the servicing is purchased by the investor. M/I Financial uses
various methods to hedge the interest rate risk related to the loans it has
committed to make to home buyers (see Note 14). Gains or losses resulting from
these hedging transactions are included in revenue when the gain or loss from
the sale of the related loan is recorded.
WARRANTY COST. The Company provides a two-year limited warranty on
materials and workmanship and a thirty-year limited warranty against major
structural defects. Warranty expense was $5,257,000, $4,791,000 and $5,492,000
for 1998, 1997 and 1996, respectively.
DEPRECIATION. Depreciation of building, model and office furnishings,
transportation and construction equipment is computed using both straight-line
and accelerated methods
36
<PAGE> 18
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
based on the estimated useful lives of the assets. Depreciation expense was
$1,599,000, $1,368,000 and $1,193,000 in 1998, 1997 and 1996, respectively.
AMORTIZATION. The costs incurred in connection with the issuance of
Subordinated Notes (see Note 8) are being amortized over the terms of the
related debt. Amortization of these costs is included in interest expense.
Unamortized debt issuance costs of $917,000 and $1,078,000 relating to the
Subordinated Notes are included in other assets at December 31, 1998 and 1997,
respectively.
ADVERTISING. The Company expenses advertising costs as incurred. The
Company expensed $7,267,000, $5,555,000 and $4,765,000 in 1998, 1997 and 1996,
respectively.
PER SHARE DATA. Per share data is calculated based on the weighted
average number of common shares outstanding during the year. The difference
between basic and diluted shares outstanding is due to the effect of dilutive
stock options.
PROFIT SHARING. The Company has a trusteed, deferred profit-sharing plan
which covers substantially all Company employees and permits members to make
contributions to the plan on a pre-tax salary reduction basis in accordance with
the provisions of Section 401(k) of the Internal Revenue Code. Company
contributions to the plan are made at the discretion of the Board and totaled
$1,250,000 in 1998, $950,000 in 1997 and $825,000 in 1996 (including payment of
expenses incurred by the plan).
IMPACT OF NEW ACCOUNTING STANDARDS. In June 1998, the Financial
Accounting Standards Board issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is required to be adopted for the
Company's 2000 annual financial statements. The Company has not yet determined
what, if any, impact the adoption of this standard will have on its financial
statements.
2. TRANSACTIONS WITH RELATED PARTIES
Related parties are entities owned by, or partially owned by, certain
stockholders of the Company or joint ventures and limited liability companies
(see Notes 4 and 5) in which investments by the Company are accounted for by the
equity method.
The Company purchased lots and undeveloped land from the joint ventures
and limited liability companies of approximately $533,000, $1,300,000 and
$1,159,000 in 1998, 1997 and 1996, respectively. The Company received
distributions of $17,360,000, $12,694,000 and $10,713,000 in developed lots at
cost in 1998, 1997 and 1996, respectively.
On March 17, 1997 and August 1, 1997, the Company purchased 500,000 and
702,439 shares, respectively, of the Company's common stock from the Melvin L.
Schottenstein family interests and trusts at an average per share price of
$11.85. These shares were held as treasury shares by the Company until they were
sold to the public on May 5, 1998.
The Company paid rent of $849,000 and $943,000 in 1998 and 1997,
respectively, to a limited liability company in which the Company owned a 1/3
interest. The Company purchased the remaining 2/3 interest in 1998 (see Notes 5
and 9).
The Company owns a 49.9% interest in a title insurance agency and
accounts for this investment under the equity method of accounting. The total
investment was approximately $5,000 at December 31, 1998 and 1997. Approximately
$1,573,000 and $1,343,000 of title insurance premiums and closing fees were paid
to the agency in 1998 and 1997, respectively.
3. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- ----------------------------------------------------------
<S> <C> <C>
Mortgage loans to be funded $40,263 $42,868
Accounts receivable 2,098 951
- ----------------------------------------------------------
Total receivables $42,361 $43,819
- ----------------------------------------------------------
</TABLE>
Mortgage loans to be funded relate to houses sold and closed prior to
December 31 which were subsequently funded by unrelated lending institutions.
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND LIMITED LIABILITY
COMPANIES - LAND RELATED
At December 31, 1998, the Company had interests varying from 33% to 50%
in joint ventures and limited liability companies that engage in land
development activities. These interests are recorded using the equity method of
accounting.
The Company receives its percentage interest of profits or its percentage
interest of the lots developed in the form of a capital distribution. The
Company received distributions of $17,360,000, $12,694,000 and $10,713,000 in
developed lots at cost in 1998, 1997 and 1996, respectively, and purchased lots
totaling $533,000, $1,300,000 and $1,159,000 in 1998, 1997 and 1996 from the
joint ventures and limited liability companies.
Summarized condensed combined financial information for the joint
ventures and limited liability companies, which is included in the homebuilding
segment, as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 is as follows:
37
<PAGE> 19
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUMMARIZED CONDENSED COMBINED BALANCE SHEETS
December 31,
(Dollars in thousands) 1998 1997
- -------------------------------------------------------
<S> <C> <C>
Assets:
Single-family lots, land and
land development costs $39,689 $35,369
Other assets 1,422 1,783
- --------------------------------------------------------
Total $41,111 $37,152
- --------------------------------------------------------
Liabilities:
Debt $ 0 $1,464
Other liabilities 5,028 5,041
- --------------------------------------------------------
Total liabilities 5,028 6,505
Partners' equity:
Company's equity 16,039 13,609
Other 20,044 17,038
- --------------------------------------------------------
Total partners' equity 36,083 30,647
- --------------------------------------------------------
Total $41,111 $37,152
- --------------------------------------------------------
SUMMARIZED CONDENSED COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31,
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------
Revenue $ 604 $1,159 $1,334
Costs and expenses 682 1,250 1,153
- ----------------------------------------------------------
Income (loss) $ (78) $ (91) $ 181
- ----------------------------------------------------------
</TABLE>
Joint venture and limited liability company earnings include $21,000,
$94,000 and $20,000 of intercompany profit not included in the Company's revenue
for 1998, 1997 and 1996, respectively. In addition, included in the Company's
investment in the joint ventures and limited liability companies at December 31,
1998 and 1997 is $449,000 and $350,000, respectively, of capitalized interest
and other costs. Letters of credit totalling approximately $9,272,000 are
outstanding at December 31, 1998 and serve as completion bonds for joint venture
and limited liability company development work in progress.
5. INVESTMENT IN LIMITED LIABILITY COMPANIES - NON-LAND RELATED
The Company was a 1/3 owner of a limited liability company (the "LLC")
(ownership interest of $1,169,000 at December 31, 1997) that built, owned and
operated an office building in Columbus, Ohio. This interest was recorded using
the equity method of accounting.
Summarized condensed financial information for the LLC at December 31,
1997 was as follows: Assets, Liabilities and Partners' Equity were $12,168,000,
$8,460,000 and $3,708,000, respectively. In addition, revenue and net loss for
the year ended December 31, 1997 were $943,000 and ($123,000), respectively.
In September 1998, the Company acquired the remaining 2/3-ownership
interest for cash of $2,500,000. At the time of the acquisition, the Company had
a $973,000 investment in the LLC. The purchase price was allocated to assets and
liabilities as follows: total assets - $11,863,000; total liabilities -
$8,390,000, including a mortgage payable of $8,333,000.
6. NOTES PAYABLE BANKS
At December 31, 1998, the Company's homebuilding operations had revolving
credit loans of $70,000,000 and letters of credit totalling $17,992,000
outstanding under a loan agreement with six banks. Borrowings under the loan
agreement are at LIBOR plus a margin of between 1.60% and 2.35% and are
primarily unsecured. This agreement provides for total borrowing availability
not to exceed the lesser of $204,500,000 under the revolving credit agreement
and $30,000,000, including $4,000,000 for joint ventures in which the Company is
a partner, in the form of letters of credit; or the Company's borrowing base,
which is calculated based on specified percentages of certain types of assets
held by the Company as of each month end. The revolving credit facility and
letter of credit commitment expire September 30, 2003, at which time the unpaid
balance of the revolving credit loans outstanding is due and payable. Under the
terms of the agreement, the banks shall make an annual determination as to
whether or not to extend the maturity date of the commitment by one year. The
Company is required to pay interest at LIBOR plus a margin and a commitment fee
of 1/4 of 1% based upon the average daily unused portion of the note. The terms
of the loan agreement contain restrictive covenants which require the Company,
among other things, to maintain minimum net worth and working capital amounts
and to maintain certain financial ratios. This agreement also places limitations
on the amount of additional indebtedness that may be incurred by the Company, on
the acquisition of undeveloped land, on dividends that may be paid and on the
aggregate cost of certain types of inventory the Company can hold at any one
time. At December 31, 1998, approximately $6,451,000 of retained earnings was
available for cash dividends and repurchases of the Company's stock under the
terms of the loan agreement.
At December 31, 1998, $23,500,000 was outstanding under a revolving loan
agreement with a bank ("M/I Financial loan agreement") pursuant to which the
Company was permitted to borrow up to $30,000,000 to finance mortgage loans
initially funded by M/I Financial for customers of the Company and a limited
amount for loans to others. This agreement limits the borrowings to 95% of the
aggregate face amount of the mortgages and contains restrictive covenants
requiring M/I Financial to maintain minimum net worth and certain minimum
financial ratios. Under the loan agreement, interest is calculated at (a) the
prime rate less 0.50%, (b) LIBOR plus 1.60% or (c) a combination of (a) and (b).
A commitment fee of 1/4 of 1% is payable quarterly based upon the average daily
unused portion of the note. The agreement terminates on June 20, 2001, at which
time the unpaid balance is due.
At December 31, 1998, the Company's homebuilding operations had
$134,500,000 of unused borrowing availability under its loan agreement. The
weighted average interest rate of the Company's total bank borrowings was
38
<PAGE> 20
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
8.5%, 8.0% and 8.4% at December 31, 1998, 1997 and 1996, respectively.
On February 26, 1998 and September 23, 1998 the Company entered into $50.0
million and $25.0 million interest rate SWAP agreements with certain banks. The
SWAP agreements expire February 26, 2001 and September 25, 2000, respectively,
and require the Company to make fixed interest rate payments to the bank in
return for variable payments. During the twelve months ended December 31, 1998,
these agreements resulted in a decrease of $26,000 of interest expense.
7. MORTGAGE NOTES PAYABLE
Mortgage notes payable of $11,793,000 and $5,950,000 at December 31, 1998
and 1997, respectively, represent mortgages collateralized by a building and
land and lots (book value of $15,450,000 and $8,196,000 at December 31, 1998 and
1997, respectively).
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Interest Maturity
(Dollars In Thousands) Amount Rate Date
- -----------------------------------------------------------
<S> <C> <C> <C>
Building $ 8,303 8.117% 4/1/17
Land and lots 3,490 5.770% 6/30/02
- ----------------------------------------------------------
Total $ 11,793 - -
==========================================================
</TABLE>
8. SUBORDINATED NOTES
In December 1991, the Company issued $20,000,000 principal amount of 14%
Subordinated Notes and in April 1992, issued an additional $4,513,000. In
December 1996, the Company redeemed all of these notes at a price of 106% of
par. The redemption resulted in an extraordinary loss of $1,287,000, net of
income taxes of $823,000.
In August 1997, the Company issued $50,000,000 of Senior Subordinated
Notes. The Senior Subordinated Notes bear interest at a fixed rate of 9.51% and
mature August 29, 2004.
9. LEASE COMMITMENTS
The Company leases various office facilities, automobiles, model
furnishings, and model homes under operating leases with remaining terms of 1 to
5 years. At December 31, 1998, the future minimum rental commitments, totaling
$5,924,000 under non-cancelable operating leases with initial terms in excess of
one year are as follows: 1999 - $3,751,000; 2000 - $1,319,000; 2001 - $472,000;
2002 - $312,000; 2003 - $70,000; and thereafter - $0.
The Company's lease with a related party for approximately 27,000 square
feet of office space expired August 31, 1996. The Company extended the lease on
a month-to-month basis through February 1997. Rental expense was $57,000 and
$347,000 for 1997 and 1996, respectively.
The Company entered into a 20-year lease for its new office building and
moved into this new facility in December 1996. Rental expense was $849,000 and
$943,000 for 1998 and 1997, respectively. In September 1998, the Company
purchased this facility.
The Company's total rental expense was $7,056,000, $6,515,000 and
$5,048,000 for 1998, 1997 and 1996, respectively.
10. PREFERRED STOCK
The Articles of Incorporation authorize the issuance of 2,000,000 shares
of preferred stock, par value $.01 per share. The Board of Directors of the
Company is authorized, without further stockholder action, to divide any or all
shares of the authorized preferred stock into series and to fix and determine
the designations, preferences and relative, participating, optional or other
special rights (excluding, under current Ohio law, voting rights) and
qualifications, limitations or restrictions thereon, of any series so
established, including dividend rights, liquidation preferences, redemption
rights and conversion privileges.
11. SUBSEQUENT EVENT
On November 17, 1998 and February 16, 1999, the Board of Directors
approved a $0.05 per share cash dividend payable to stockholders of record of
its common stock on January 1 and April 1, 1999, payable on January 22 and April
22, 1999. The Company's loan agreement and Subordinated Note place limits on
dividends (see Note 6).
Additionally, the Board of Directors approved the repurchase of up to
500,000 shares of the Company's outstanding common stock. The purchases may
occur in the open market and/or in privately negotiated transactions as market
conditions warrant.
In January 1999, the Company adopted the Executives' Deferred
Compensation Plan. The Company has reserved 500,000 shares of common stock for
issuance under this plan.
12. STOCK INCENTIVE PLAN
In November 1993, the Company adopted the M/I Schottenstein Homes, Inc.
1993 Stock Incentive Plan. This plan includes stock option, restricted stock and
stock appreciation programs, under which an aggregate of 425,000 shares of
common stock have been reserved for issuance. No awards have been granted under
the restricted stock and stock appreciation programs. Stock options are granted
at the market price at the close of business on the date of grant. Options
awarded vest 20% annually over five years and expire after ten years. The
following summarizes the transactions under the stock option program:
39
<PAGE> 21
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Option Price Avg. Exercise
Shares Per Share Price
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
December 31, 1995 134,400 $6.75-$16.125 $11.684
Granted 60,700 10.875 10.875
Forfeited (1,250) 10.875-16.125 11.925
- ----------------------------------------------------------
Options outstanding
December 31, 1996 193,850 $6.75-$16.125 $11.429
Granted 28,600 10.625 10.625
Forfeited (1,250) 6.75-16.125 11.050
- ----------------------------------------------------------
Options outstanding
December 31, 1997 221,200 $6.75-$16.125 $11.327
Granted 46,100 22.750 22.750
Exercised (15,500) 6.75-16.125 11.927
Forfeited (6,050) 6.75-22.750 12.145
- ----------------------------------------------------------
Options outstanding
December 31, 1998 245,750 $6.75-$22.750 $13.412
- ----------------------------------------------------------
Options exercisable at
December 31, 1996 79,590 $6.75-$16.125 $12.338
December 31, 1997 123,480 6.75-16.125 11.977
December 31, 1998 160,250 6.75-22.750 12.395
- ----------------------------------------------------------
</TABLE>
At December 31, 1998, options outstanding have a weighted average
remaining contractual life of 7.0 years.
In February 1999, the Company granted options for an additional 51,950
shares with the same terms as the previous awards, at a price of $18.56 which
represents the market value at the date of grant.
As required under SFAS 123, the fair value of each option grant was
estimated on the date of grant. The Company used the Black-Scholes
option-pricing model with the following assumptions used for grants in 1998:
expected volatility of 35.82%; risk-free interest rate of 7.00%; dividend rate
of 0.22%; and an expected life of 4 years, for grants in 1997: expected
volatility of 37.64%; risk-free interest rate of 7.00%; no dividends; and an
expected life of 4 years, and for grants in 1996: expected volatility of 37.29%;
risk-free interest rate of 8.50%; no dividends; and an expected life of 4 years.
Based on these calculations, the fair value of the stock options at the date of
grant were immaterial to the Company's financial statements at December 31,
1998, 1997 and 1996.
13. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------
<S> <C> <C> <C>
Federal $15,897 $ 8,927 $7,060
State And Local 3,005 3,058 1,907
- ----------------------------------------------------------
Total $18,902 $11,985 $8,967
- ----------------------------------------------------------
</TABLE>
Reconciliations of the differences between income taxes computed at
federal statutory tax rates and consolidated provision for income taxes are as
follows:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Federal taxes at statutory rate $16,294 $10,298 $8,077
Deduct federal tax effect of:
Charitable contribution - - (414)
State taxes -
net of federal tax benefit 2,277 1,988 1,240
Other 331 (301) 64
- ----------------------------------------------------------
Total $18,902 $11,985 $8,967
- ----------------------------------------------------------
</TABLE>
The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1998 1997
- -------------------------------------------------------
Assets:
<S> <C> <C>
Warranty, insurance and other
reserves $4,099 $3,795
Inventory writedowns 2,885 2,686
Inventories 772 706
State taxes 177 263
Depreciation - 136
Other 1,102 1,071
- --------------------------------------------------------
Total deferred tax assets 9,035 8,657
- --------------------------------------------------------
Liabilities:
Depreciation 975 -
Prepaid expenses and deferred charges 1,318 1,341
- --------------------------------------------------------
Total deferred tax liabilities 2,293 1,341
- --------------------------------------------------------
Net deferred tax asset $6,742 $7,316
- --------------------------------------------------------
</TABLE>
14. FINANCIAL INSTRUMENTS
M/I Financial offers fixed and adjustable rate mortgage loans, primarily
to buyers of the Company's homes. At December 31, 1998, M/I Financial is
committed to fund $107,554,000 in mortgage loans to home buyers. Of this total,
approximately $2,513,000 are adjustable rate loans and $105,041,000 are fixed
rate loan commitments. The loans are granted at current market interest rates
and the rate is guaranteed through the transfer of the title of the home to the
buyer (the "Closing"). M/I Financial uses hedging methods to reduce its exposure
to interest rate fluctuations between the commitment date of the loan and the
time the home closes. The method to be used is determined at the time of the
loan commitment based on the market conditions and alternatives available. M/I
Financial's policy requires that there be no interest rate risk on loans closed
and waiting to be sold. Also according to policy, the pipeline of committed
loans is to be hedged at 70 to 95% of the committed balance, which is the
balance of loans expected to be closed.
One of the methods that M/I Financial uses to hedge the interest rate
risk relative to unclosed loans is to purchase commitments from outside
investors to acquire the loans at the interest rate at which the loan will be
closed. The cost, if any, of these purchase commitments is recorded as an asset
and is expensed as loans are closed under the related commitments. Any remaining
unused balance is expensed when the commitment expires, or earlier if the
Company determines that they will be unable to use the entire commitment prior
to its expiration date. The Company
40
<PAGE> 22
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
expended $93,000, $498,000 and $1,345,000 in 1998, 1997 and 1996, respectively,
related to purchase commitments from outside investors to acquire mortgage
loans. Such costs are expensed as a component of cost of goods sold. At December
31, 1998, the Company had approximately $15,000,000 of commitments to deliver
mortgage loans to outside investors.
The Company also hedges its interest rate risk using optional and
mandatory forward sales of mortgage-backed securities. In these agreements, the
Company agrees to sell and later agrees to buy similar but not identical
mortgage-backed securities. The Company also has the option of delivering these
securities. Generally, the agreements are fixed-coupon agreements whereby the
interest rate and maturity date of both transactions are approximately the same
and are established to correspond with the closing of the fixed interest rate
mortgage loan commitments of the Company. The difference between the two values
of the mortgage-backed securities in the agreements at settlement provide a
hedge on the interest rate risk exposure in the mortgage loan commitments and is
included in the gain or loss on the sale of the loans to third party investors.
At December 31, 1998, these agreements matured within 90 to 120 days. Securities
under forward sales agreements averaged approximately $89,420,000 during 1998
and the maximum amount outstanding at any month end during 1998 was
$104,000,000. Hedging gains of $2,735,000 were deferred at year end as the
mortgage loans and commitment contracts qualified for hedge accounting.
To reduce the credit risk associated with accounting losses, which would
be recognized if counterparties failed completely to perform as contracted, the
Company limits the entities that management can enter into a commitment with to
the primary dealers in the market. The risk of accounting loss is the difference
between the market rate at the time a counterparty fails and the rate the
Company committed to for the mortgage loans and any purchase commitments
recorded with the counterparty.
The following table presents the carrying amounts and fair values of the
Company's financial instruments and the fair value of the Company's unrecognized
financial instruments at December 31, 1998 and 1997. SFAS 107, "Disclosures
about Fair Value of Financial Instruments", defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale.
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
(Dollars In Thousands) Amount Value Amount Value
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash, including
cash in escrow $10,938 $10,938 $ 13,373 $ 13,373
Mortgage loans
to be funded 40,263 40,807 42,868 43,705
Accounts receivable 2,098 2,098 951 951
Prepaid financing
commitments 23 - 121 -
Liabilities:
Notes payable banks $93,500 $93,500 $108,000 $108,000
Mortgage notes payable 11,793 11,793 5,950 5,950
Subordinated notes
Accounts payable 50,000 50,000 50,000 50,000
Other liabilities 51,364 51,364 42,793 42,793
Unrecognized Financial 53,850 53,850 43,771 43,771
Instruments:
Letters of credit
Commitments to - $230 - $195
extend real estate loans - 4,111 - 2,333
Forward sale of
mortgage-backed
securities - (32) - (490)
Interest Rate Swap
Agreements - (657) - -
</TABLE>
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments at December 31,
1998 and 1997:
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND OTHER LIABILITIES. The
carrying amounts of these items are a reasonable estimate of their fair value.
MORTGAGE LOANS TO BE FUNDED. The estimated fair value of mortgage loans
to be funded at December 31, 1998 and 1997 includes the estimated gains and
servicing rights which will be realized when the loans are sold. The estimated
fair value was determined based on market quotes at December 31, 1998 and 1997.
PREPAID FINANCING COMMITMENTS. The estimated fair value was determined
using fees currently charged for similar commitments and by estimating the
prepaid financing commitments that will be utilized by the Company.
NOTES PAYABLE BANKS. The interest rates currently available to the
Company fluctuate with the LIBOR rate of the lending institutions and thus their
carrying value is a reasonable estimate of fair value.
MORTGAGE NOTES PAYABLE. The estimated fair value was determined by
comparing the interest rates and terms of the note agreements to debt
instruments with similar terms and remaining maturities.
41
<PAGE> 23
1998 M/I SCHOTTENSTEIN, INC. ANNUAL REPORT
STOCK MARKET PRICES AND DIVIDENDS
- --------------------------------------------------------------------------------
SUBORDINATED NOTES. The estimated fair value was determined based upon
market quotes at December 31, 1998 and 1997.
LETTERS OF CREDIT. Letters of credit and outstanding completion bonds of
$30,644,000 and $28,184,000 represent potential commitments at December 31, 1998
and 1997. The letters of credit generally expire within one to two years. The
estimated fair value of letters of credit was determined using fees currently
charged for similar arrangements.
COMMITMENTS TO EXTEND REAL ESTATE LOANS, FORWARD SALE OF MORTGAGE-BACKED
SECURITIES AND INTEREST RATE SWAP AGREEMENTS. The fair value of these financial
instruments was determined based upon market quotes at December 31, 1998 and
1997.
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company had sales agreements outstanding, some
of which have open contingencies for approval of financing, to deliver 2,023
homes with an aggregate purchase price of approximately $439,000,000. At
December 31, 1998, the Company had options and contingent purchase contracts to
acquire land and developed lots with an aggregate purchase price of
approximately $176,975,000. Purchase of the properties is contingent upon
satisfaction of certain requirements by the Company and the sellers.
At December 31, 1998, the Company had outstanding approximately
$30,644,000 of completion bonds and standby letters of credit, which serve as
completion bonds for development work in progress, deposits on land and lot
purchase contracts and miscellaneous deposits.
The Company is involved from time to time in routine litigation.
Management does not believe that the ultimate resolution of this litigation will
be material to the financial statements of the Company.
16. BUSINESS SEGMENTS
The business segment information for 1998, 1997 and 1996 included on page
21 of this annual report is an integral part of these financial statements.
42
<PAGE> 24
1998 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
STOCK MARKET PRICES AND DIVIDENDS
- -------------------------------------------------------------------------------
The Company's common stock is traded on the New York Stock Exchange under
the symbol "MHO". As of February 26, 1999, there were approximately 245 record
holders of the Company's common stock. At that time there were 8,813,061 shares
issued and outstanding. The table below presents the highest and lowest prices
for the Company's common stock during each of the quarters presented:
<TABLE>
<CAPTION>
1998 HIGH LOW
- --------------------------------------
<S> <C> <C>
First quarter $24.56 $17.75
Second quarter 26.81 18.13
Third quarter 25.69 18.13
Fourth quarter 24.69 16.75
</TABLE>
<TABLE>
<CAPTION>
1998 HIGH LOW
- --------------------------------------
<S> <C> <C>
First quarter $11.75 $ 8.25
Second quarter 11.38 10.13
Third quarter 15.50 11.25
Fourth quarter 19.50 13.00
</TABLE>
The highest and lowest prices for the Company's common stock from January
1, 1999 through February 26, 1999 was $22.25 and $17.31.
Prior to fiscal 1998, the Company had never paid any dividends. However,
on February 9, 1998, the Board of Directors approved cash dividends of $.05 per
share. The dividends were payable to stockholders of record of its common stock
on April 1, 1998 and paid on April 22, 1998. The Company has subsequently
paid cash dividends each quarter. On February 16, 1999, the Board of Directors
approved cash dividends of $.05 per share, payable to stockholders of record of
its common stock on April 1, 1999. The Company's loan agreement and
Subordinated Note place limits on dividends (see Note 6 to the consolidated
financial statements).
43
<PAGE> 25
- ----------------------------------
EXECUTIVE OFFICERS
- ----------------------------------
IRVING E. SCHOTTENSTEIN
Chairman and
Chief Executive Officer
ROBERT H. SCHOTTENSTEIN
Vice Chairman and
President
STEVEN SCHOTTENSTEIN
Vice Chairman and
Chief Operating Officer
KERRII B. ANDERSON
Senior Vice President,
Chief Financial Officer
- ----------------------------------
OTHER KEY OFFICERS
- ----------------------------------
PAUL S. COPPEL
President Land Operations and
General Counsel
PHILLIP G. CREEK
Senior Vice President,
Treasurer
JAMES B. FELDMAN
President,
Charlotte Region
GARY A. HAARER
President,
Arizona Region
ROBERT C. MOESLE
President,
Washington, D.C. Region
PAUL S. ROSEN
Senior Vice President
LLOYD T. SIMPSON
President,
Ohio Region
- ----------------------------------
DIRECTORS
- ----------------------------------
IRVING E. SCHOTTENSTEIN (1*, 2)
Chairman of the Board and
Chief Executive Officer
KERRII B. ANDERSON
Senior Vice President,
Chief Financial Officer
FRIEDRICH K.M. BOHM (2, 3, 4*)
Managing Partner and
Chief Executive Officer,
NBBJ
JEFFREY H. MIRO (2, 4)
Chairman,
Miro, Weiner and Kramer
ROBERT H. SCHOTTENSTEIN (1, 2)
Vice Chairman and
President
STEVEN SCHOTTENSTEIN (1)
Vice Chairman and
Chief Operating Officer
LEWIS R. SMOOT, SR. (1, 2, 3*, 4)
President and
Chief Executive Officer,
The Smoot Corporation
NORMAN L. TRAEGER (2*, 3, 4)
President,
The Discovery Group
(1) Executive Committee
(2) Compensation Committee
(3) Audit Committee
(4) Executive Officer Compensation Committee
* Chairman
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
3 Easton Oval
Columbus, Ohio 43219
www.mihomes.com
STOCK EXCHANGE LISTING
New York Stock Exchange (MHO)
TRANSFER AGENT AND REGISTRAR
EquiServe
P.O. Box 8040
Boston, Massachusetts 02266-8040
www.equiserve.com
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at
9:00 A.M. on April 22, 1999, at the offices of the
Company, 3 Easton Oval, Columbus, Ohio.
FORM 10-K
Stockholders may receive a copy of the Company's
annual report to the Securities and Exchange
Commission on Form 10-K without charge by writing to:
Investor Relations
M/I Schottenstein Homes, Inc.
3 Easton Oval
Suite 500
Columbus, OH 43219
44
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
1. M/I Financial Corp., an Ohio corporation. M/I Financial Corp. is
wholly-owned by the Company.
2. M/I Homes, Inc., an Arizona corporation. M/I Homes, Inc. is
wholly-owned by the Company.
3. MHO, L.L.C., an Arizona limited liability corporation. MHO, L.L.C. is
wholly-owned by M/I Homes, Inc.
4. M/I Homes Construction, Inc., an Arizona corporation. M/I Homes
Construction, Inc. is wholly-owned by the Company.
5. M/I Schottenstein Services Corp., an Ohio Corporation. M/I
Schottenstein Services Corp. is wholly-owned by the Company.
6. 601RS, L.L.C., an Ohio limited liability corporation. 601RS, L.L.C. is
wholly-owned by the Company.
7. Northeast Office Venture, L.L.C., a Delaware limited liability
corporation. Northeast Office Venture is wholly-owned by the Company.
8. Manor Road - 1997, L.L.C., a Virginia limited liability corporation.
Manor Road - 1997, L.L.C. is wholly-owned by the Company.
9. Chevy Chase Villas, L.L.C., a Virginia limited liability corporation.
99% L.L.C. owned by Manor Road - 1997, L.L.C.
10. M/I Title Agency Ltd., an Ohio limited liability company. 90% L.L.C.
owned by the Company.
11. Washington Metro Residential Title Agency L.L.C., a Virginia limited
liability corporation. 70% L.L.C. owned by the Company.
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-76518 and No. 333-70135 of M/I Schottenstein Homes, Inc. on Form S-8 of our
reports dated February 25, 1999, appearing in and incorporated by reference in
this Annual Report on Form 10-K of M/I Schottenstein Homes, Inc. for the year
ended December 31, 1998.
/s/ Deloitte & Touche LLP
- ---------------------------
Deloitte & Touche LLP
Columbus, Ohio
March 24, 1999
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
I, Irving E. Schottenstein, am Chief Executive Officer and a director
of M/I Schottenstein Homes, Inc. (the "Company"), and I do hereby constitute and
appoint Robert H. Schottenstein and Kerrii B. Anderson, or either of them, my
true and lawful attorneys and agents, each with full power of substitution, to
do any and all acts and things in my name and on my behalf in my capacities as
principal executive officer and a director of the Company and to execute any and
all instruments for me and in my name in the capacities indicated above, which
said attorneys or agents, or either of them, may deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission thereunder, in connection with the filing of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the
"1998 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacities indicated above, the 1998
Form 10-K and any and all amendments to such 1998 Form 10-K; and I do hereby
ratify and confirm all that the said attorneys and agents, or their substitute
or substitutes, or either of them, shall do or cause to be done by virtue
hereof.
/s/ Irving E. Schottenstein
-------------------------------------
Irving E. Schottenstein
Chief Executive Officer (principal
executive officer)
Director
<PAGE> 2
POWER OF ATTORNEY
I, Robert H. Schottenstein, am President and a director of M/I
Schottenstein Homes, Inc. (the "Company"), do hereby constitute and appoint
Kerrii B. Anderson my true and lawful attorney and agent, with full power of
substitution, to do any and all acts and things in my name and on my behalf in
my capacity as a director of the Company and to execute any and all instruments
for me and in my name in the capacity indicated above, which said attorney or
agent may deem necessary or advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission thereunder, in connection
with the filing of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 (the "1998 Form 10-K"), including specifically but
without limitation, power and authority to sign for me in my name, in the
capacity indicated above, the 1998 Form 10-K and any and all amendments to such
1998 Form 10-K; and I do hereby ratify and confirm all that the said attorney
and agent, or her substitute or substitutes, shall do or cause to be done by
virtue hereof.
/s/ Robert H. Schottenstein
-------------------------------------
Robert H. Schottenstein
President and Director
<PAGE> 3
POWER OF ATTORNEY
I, Steven Schottenstein, am Chief Operating Officer and a director of
M/I Schottenstein Homes, Inc. (the "Company"), do hereby constitute and appoint
Robert H. Schottenstein and Kerrii B. Anderson, or either of them, my true and
lawful attorneys and agents, each with full power of substitution, to do any and
all acts and things in my name and on my behalf in my capacity as a director of
the Company and to execute any and all instruments for me and in my name in the
capacity indicated above, which said attorneys or agents, or either of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Exchange Act of 1934, as amended, and any rules, regulations and requirements of
the Securities and Exchange Commission thereunder, in connection with the filing
of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (the "1998 Form 10-K"), including specifically but without limitation,
power and authority to sign for me in my name, in the capacity indicated above,
the 1998 Form 10-K and any and all amendments to such 1998 Form 10-K; and I do
hereby ratify and confirm all that the said attorneys and agents, or their
substitute or substitutes, or either of them, shall do or cause to be done by
virtue hereof.
/s/ Steven Schottenstein
-------------------------------------
Steven Schottenstein
Chief Operating Officer and Director
<PAGE> 4
POWER OF ATTORNEY
I, Kerrii B. Anderson, am Chief Financial Officer (principal financial
and accounting officer) and a director of M/I Schottenstein Homes, Inc. (the
"Company"), do hereby constitute and appoint Robert H. Schottenstein my true and
lawful attorney and agent, with full power of substitution, to do any and all
acts and things in my name and on my behalf in my capacity as the principal
financial and accounting officer of the Company and to execute any and all
instruments for me and in my name in the capacities indicated above, which said
attorney or agent may deem necessary or advisable to enable the Company to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission
thereunder, in connection with the filing of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 (the "1998 Form 10-K"),
including specifically but without limitation, power and authority to sign for
me in my name, in the capacities indicated above, the 1998 Form 10-K and any and
all amendments to such 1998 Form 10-K; and I do hereby ratify and confirm all
that the said attorney and agent, or her substitute or substitutes, shall do or
cause to be done by virtue hereof.
/s/ Kerrii B. Anderson
-------------------------------------
Kerrii B. Anderson
Chief Financial Officer (principal
financial and accounting officer)
Director
<PAGE> 5
POWER OF ATTORNEY
I, Jeffrey H. Miro, a director of M/I Schottenstein Homes, Inc. (the
"Company"), do hereby constitute and appoint Robert H. Schottenstein and Kerrii
B. Anderson, or either of them, my true and lawful attorneys and agents, each
with full power of substitution, to do any and all acts and things in my name
and on my behalf in my capacity as a director of the Company and to execute any
and all instruments for me and in my name in the capacity indicated above, which
said attorneys or agents, or either of them, may deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission thereunder, in connection with the filing of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the
"1998 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacity indicated above, the 1998
Form 10-K and any and all amendments to such 1998 Form 10-K; and I do hereby
ratify and confirm all that the said attorneys and agents, or their substitute
or substitutes, or either of them, shall do or cause to be done by virtue
hereof.
/s/ Jeffrey H. Miro
-------------------------------------
Jeffrey H. Miro
Director
<PAGE> 6
POWER OF ATTORNEY
I, Norman L. Traeger, a director of M/I Schottenstein Homes, Inc. (the
"Company"), do hereby constitute and appoint Robert H. Schottenstein and Kerrii
B. Anderson, or either of them, my true and lawful attorneys and agents, each
with full power of substitution, to do any and all acts and things in my name
and on my behalf in my capacity as a director of the Company and to execute any
and all instruments for me and in my name in the capacity indicated above, which
said attorneys or agents, or either of them, may deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission thereunder, in connection with the filing of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the
"1998 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacity indicated above, the 1998
Form 10-K and any and all amendments to such 1998 Form 10-K; and I do hereby
ratify and confirm all that the said attorneys and agents, or their substitute
or substitutes, or either of them, shall do or cause to be done by virtue
hereof.
/s/ Norman L. Traeger
-------------------------------------
Norman L. Traeger
Director
<PAGE> 7
POWER OF ATTORNEY
I, Friedrich K. Bohm, a director of M/I Schottenstein Homes, Inc. (the
"Company"), do hereby constitute and appoint Robert H. Schottenstein and Kerrii
B. Anderson, or either of them, my true and lawful attorneys and agents, each
with full power of substitution, to do any and all acts and things in my name
and on my behalf in my capacity as a director of the Company and to execute any
and all instruments for me and in my name in the capacity indicated above, which
said attorneys or agents, or either of them, may deem necessary or advisable to
enable the Company to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission thereunder, in connection with the filing of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the
"1998 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacity indicated above, the 1998
Form 10-K and any and all amendments to such 1998 Form 10-K; and I do hereby
ratify and confirm all that the said attorneys and agents, or their substitute
or substitutes, or either of them, shall do or cause to be done by virtue
hereof.
/s/ Friedrich K. Bohm
-------------------------------------
Friedrich K. Bohm
Director
<PAGE> 8
POWER OF ATTORNEY
I, Lewis R. Smoot, Sr., a director of M/I Schottenstein Homes, Inc.
(the "Company"), do hereby constitute and appoint Robert H. Schottenstein and
Kerrii B. Anderson, or either of them, my true and lawful attorneys and agents,
each with full power of substitution, to do any and all acts and things in my
name and on my behalf in my capacity as a director of the Company and to execute
any and all instruments for me and in my name in the capacity indicated above,
which said attorneys or agents, or either of them, may deem necessary or
advisable to enable the Company to comply with the Securities Exchange Act of
1934, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission thereunder, in connection with the filing of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(the "1998 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacity indicated above, the 1998
Form 10-K and any and all amendments to such 1998 Form 10-K; and I do hereby
ratify and confirm all that the said attorneys and agents, or their substitute
or substitutes, or either of them, shall do or cause to be done by virtue
hereof.
/s/ Lewis R. Smoot, Sr.
-------------------------------------
Lewis R. Smoot, Sr.
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR THEN ENDED OF M/I SCHOTTENSTEIN HOMES, INC.
ANS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,938
<SECURITIES> 0
<RECEIVABLES> 42,361
<ALLOWANCES> 0
<INVENTORY> 323,500
<CURRENT-ASSETS> 376,799
<PP&E> 24,977
<DEPRECIATION> 4,962
<TOTAL-ASSETS> 427,147
<CURRENT-LIABILITIES> 105,214
<BONDS> 11,793
0
0
<COMMON> 88
<OTHER-SE> 166,552
<TOTAL-LIABILITY-AND-EQUITY> 427,147
<SALES> 727,493
<TOTAL-REVENUES> 739,613
<CGS> 588,499
<TOTAL-COSTS> 588,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,128
<INCOME-PRETAX> 46,553
<INCOME-TAX> 18,902
<INCOME-CONTINUING> 27,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,651
<EPS-PRIMARY> 3.29
<EPS-DILUTED> 3.26
</TABLE>
