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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, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-12434
M/I SCHOTTENSTEIN HOMES, INC.
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(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
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(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 24, 2000, the aggregate market value of voting common
stock held by non-affiliates of the registrant (5,352,560 shares) was
approximately $75,605,000. The number of shares of common stock of M/I
Schottenstein Homes, Inc. outstanding on February 24, 2000 was 8,133,640.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1999 (Part I, II and IV) Portions of the registrant's Definitive Proxy Statement
for the 2000 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 is one of the
nation's leading homebuilders. We sell and construct single-family homes to the
entry level, move-up and empty nester buyer under the Horizon, M/I Homes and
Showcase Homes tradenames. In 1998, the latest year for which information is
available, we were the 20th largest U.S. single-family homebuilder (based on
homes delivered) as ranked by Builder Magazine. Our homes are sold 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. We currently offer a number of
distinct lines of single-family homes ranging in base sales price from
approximately $95,000 to $930,000 with an average sales price in 1999 of
$209,000. During the year ended December 31, 1999, we delivered 3,941 homes and
had revenues of $852.0 million and net income of $41.6 million, the highest in
our history. M/I Schottenstein Homes, Inc. was incorporated, through predecessor
entities, in 1973 and commenced homebuilding activities in 1976.
We are the leading homebuilder in the Columbus, Ohio market, based on
revenue, and have been the number one builder of single-family detached homes in
this market for each of the last eleven years. In addition, we are currently one
of the top ten homebuilders in a majority of our other markets and believe we
are well positioned to further penetrate these markets. Our growth strategy
targets both product line expansion and geographical diversification. With
respect to geographical diversification, we have expanded into new markets
through the opening of new divisions rather than through acquisitions. To
complement the M/I Homes ($135,000 - $255,000 base sales price range) and
Showcase Homes ($200,000 - $450,000 base sales price range) lines, the
affordably priced Horizon line ($105,000 - $185,000 base sales price range),
which appeals to the first time home buyer, was introduced to the Columbus
market in 1993. Based on the success of this line, we have expanded this product
into a majority of our other markets. Included in our Horizon line, the Encore
series, which originated in our Indianapolis market, was introduced in Columbus
in 1999. These homes are also being offered in some of our other markets.
We distinguish ourselves from competitors by offering homes in
selective areas with a higher level of design and construction quality within a
given price range and by providing superior customer service. By offering homes
at a variety of price points, we attract a wide range of buyers, many of whom
are existing M/I homeowners. We support our homebuilding operations by providing
mortgage financing services through M/I Financial, and title-related services
through affiliated entities.
Our business strategy emphasizes the following key objectives:
Focus on profitability. We focus on improving profitability while
maintaining the high quality of our homes and customer service. We focus on
gross margins by stressing the features, benefits, quality and design of our
homes during the sale process and by minimizing speculative building. We also
value-engineer our homes by working with our subcontractors and suppliers to
provide attractive features while minimizing raw material and construction
costs.
Maintain conservative and selective land policies. Our profitability is
largely dependent on the quality of our subdivision locations; therefore, we
focus on locating and controlling land in the most desirable areas of our
markets. We are conservative in our land acquisition policies and only purchase
land that is already zoned and serviceable by utilities. We seek to control a
four- to five-year supply of land in each of our markets. We believe our
expertise in developing land gives us a competitive advantage in controlling
attractive locations at competitive costs, and, as a result, we have developed
approximately 70% of our communities as of December 31, 1999. At December 31,
1999, we owned 11,439 lots and controlled an additional 9,376 lots pursuant to
contracts.
Maintain or increase market position in current markets. We have been
the leading builder of single-family, detached homes in the Columbus market for
each of the last eleven years. We seek to maintain this leading position by
continuing to provide high quality homes and superior customer service. We
believe there are significant opportunities to profitably expand in each of our
other markets. These include increasing product offerings, continuing to acquire
land in desirable locations and constructing and selling homes with the same
commitment to customer service that has accounted for our success. In addition,
we continue to explore expansion into new markets through internal growth or
acquisition.
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Provide superior customer service. Our overriding philosophy is to
provide superior customer service to our homeowners. We offer a wide array of
functional and innovative designs and involve the homeowner in virtually every
phase of the building process from selling through construction, closing and
service after delivery. Our selling process focuses on the homes' features,
benefits, quality and design as opposed to merely price and square footage. In
certain markets, we utilize design centers to enhance the selling process and
increase the sale of optional features which typically carry higher margins. In
addition, we provide many of our customers with financing and attractive
warranties. As a result, based on the responses to our customer questionnaire,
for the ninth year in a row, more than 95% of our customers would recommend us
to a potential buyer.
Offer product breadth and innovative design. We devote significant
resources to the research and design of our homes to better meet the needs of
our customers. We offer a number of distinct product lines and more than 375
different floor plans and elevations. In addition to providing customers with a
wide variety of choices, we believe we offer a higher level of design and
construction quality within a given price range. We have also introduced and
utilized innovative design concepts such as themed communities, rear garages,
rear alley access, parks and porches.
Maintain decentralized operations with experienced management. Each of
our markets has unique characteristics and, therefore, is managed locally by
dedicated, on-site personnel. All of our managers possess intimate knowledge of
their particular market and are encouraged to be entrepreneurial in order to
best meet the needs of that market. Our incentive compensation structure rewards
each manager based on financial performance, income growth and customer
satisfaction.
SALES AND MARKETING
We market and sell our homes under the Horizon, M/I and Showcase
tradenames. Home sales are conducted by our own sales personnel in on-site sales
offices located within furnished model homes. Each sales consultant is trained
and equipped to fully explain the features and benefits of our 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.
We currently employ more than 125 sales consultants and operate approximately
150 model homes.
We advertise using newspapers, magazines, direct mail, billboards,
radio and television. The particular marketing medium used differs from division
to division based upon marketing demographics and other competitive factors. We
have significantly increased advertising on the world wide web through expansion
of our web site at www.mihomes.com and through homebuilder.com. In addition, we
encourage independent broker participation and, from time to time, utilize
various promotions and sales incentives to attract interest from these brokers.
Our commitment to quality design and construction along with our reputation for
superior customer service has resulted in a strong referral base and numerous
repeat buyers.
To enhance the selling process, we operate design centers in the
Cincinnati, Columbus, Tampa and, most recently, Indianapolis 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 our other markets, the color and option/upgrade selection process is handled
directly by our sales consultants. We also offer financing to our customers
through our wholly-owned subsidiary, M/I Financial, which has branches in all of
our markets except Virginia, Maryland and Phoenix. M/I Financial originates
loans for purchasers of our homes. The loans are then sold, along with the
servicing rights, to outside mortgage lenders. We also provide title-related
services to purchasers of our homes in a majority of our markets through
affiliated entities.
We generally do not commence construction of a home until we obtain 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 markets, a limited, strictly controlled number of "spec" homes
(i.e., homes started in the absence of an executed contract) are built in order
to facilitate delivery of homes on an immediate-need basis and to provide
presentation of new products. Using a conservative approach, spec homes are
approved for start only after consultation with the respective region and
division presidents.
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Our sales and marketing efforts are further enhanced by our inspection
and warranty programs. Through these programs, we offer 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, we inspect each home with the
customer to determine if any repairs are required. At the customer's written
request, we will also provide a free 1-year inspection and again make necessary
repairs. We pass along to our customers all warranties provided by manufacturers
or suppliers of components installed in each home. Our warranty expense was
approximately 1.0% of total costs and expenses for each of the years ended
December 31, 1999, 1998 and 1997.
DESIGN AND CONSTRUCTION
We devote significant resources to the research, design and development
of our homes in order to best meet the needs of home buyers in the markets in
which we operate. Virtually all of our floor plans and elevations are designed
by experienced and qualified in-house professionals using modern computer-aided
design technology. We offer more than 375 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
M/I Homes. Customers are introduced to their construction supervisor prior to
commencement of home construction at a pre-construction "buyer/builder
conference." The purpose of this conference is to review the home plans and all
relevant construction details with the customers and to explain the construction
process and schedule. Every customer is given a hard hat at the conference as an
open invitation to visit the site of their home at any time during the course of
construction. We want customers to be involved to understand the construction of
their home and to see the quality being built into their home. All of this is
part of our 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, we limit the use of
pre-assembled building components and pre-fabricated structural assemblies. The
efficiency of the building process is enhanced by our use of standardized
materials available from a variety of sources. We utilize independent
subcontractors for the installation of site improvements and the construction of
our homes. These subcontractors are supervised by our on-site construction
supervisors. All subcontractor work is performed pursuant to written agreements.
Such agreements are generally short-term, with terms from six to twelve months
and provide for a fixed price for labor and materials. The agreements are
structured to allow for price protection for a majority of the higher cost
phases of construction related to the homes in our Backlog. We seek 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
Our operations are organized into geographic divisions to maximize
operating efficiencies and use of local management. Our 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 continues to
be a stable market with diverse economic and employment bases and record high
permit activity in 1999. Columbus is also the home of The Ohio State University,
one of the largest universities in the world. Our 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, General
Electric and the Cincinnati International Airport, which serves as a regional
hub for Delta Airlines. We continue to expand our Horizon product line in this
market and focus on more affordable communities. In 1999, we were ranked the
number one homebuilder in Cincinnati, excluding the Northern Kentucky market in
which we do not participate.
Indianapolis is a growth market noted for its excellent transportation
system and relatively young population. For the sixth consecutive year,
single-family housing permits exceeded 10,000. A large aircraft maintenance hub
for United Airlines and an express mail sorting facility for the U.S. Postal
Service are significant employers in this market.
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;
employment levels increased by 5% in 1999.
In 1999, Orlando's economy grew at a healthy pace, with job growth
increasing by 4%. Contributing to this growth were improved tourism (both
domestic and foreign), strong in-migration and business expansion/relocation due
primarily to lower business costs. Single-family permits exceeded 16,000 in
1999, setting a new record.
Palm Beach County is one of the more affluent markets in the United
States. Job gains of 6% in 1999 were experienced in the construction, wholesale
trade and service sectors. Housing activity continued to be stable in 1999, with
over 6,000 single-family permits, slightly exceeding 1998 levels.
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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 1999, exceeding 17,000 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 single-family permits reaching 15,000 in 1999.
The Washington, D.C. metro economy was led in 1999 by job gains in the
construction, technology and service sectors. Housing activity was robust, with
over 28,000 single-family permits issued. Our operations are located primarily
in Fairfax, Prince William and Loudoun counties in Virginia and Prince Georges
and Montgomery counties in Maryland.
We entered the Phoenix market in late 1996. The Phoenix housing market
is one of the most active in the United States, generating over 35,000
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
On a regional basis, we offer homes ranging in base sales price from
approximately $95,000 to $930,000 and ranging in square footage from
approximately 1,100 to 5,400 square feet. There are more than 375 different
floor plans and elevations across all product lines. By offering a wide range of
homes, we are able to attract first-time home buyers, move-up home buyers and
empty nesters. It is our goal to sell more than one home to our customers.
In the Columbus market, which is our largest market, we offer all of
our distinct product lines. In addition, we offer a select number of our product
lines in our 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>
Horizon $105,000 - $185,000 1,500
M/I Homes $135,000 - $255,000 2,000
Showcase Homes $200,000 - $450,000 2,600
</TABLE>
In addition, we offer a line of attached townhomes exclusively in the
Maryland and Virginia markets. These townhomes are marketed primarily to
first-time buyers and range from 1,800 to 2,400 square feet of living space.
These townhomes utilize wood frame construction and feature aluminum exteriors
with brick fronts. In Maryland and Phoenix, the Company offers homes with up to
5,000 square feet of living space for base sales prices ranging up to $930,000.
In each of our lines of homes, certain options are available to the
purchaser for an additional charge. Major options include fireplaces, additional
bathrooms and higher quality flooring, cabinets and appliances. The options are
typically more numerous and significant on more expensive homes.
LAND DEVELOPMENT ACTIVITIES
Our land development activities and land holdings have increased
significantly in the past few years. We continue to purchase lots from outside
developers under option contracts, when possible, to limit our risk; however, we
constantly evaluate other alternatives to satisfy the need for lots in the most
cost effective manner. We develop ground internally when we can gain a
competitive advantage by doing so or when shortages of qualified land developers
make it impractical to purchase required lots from outside sources. We seek to
limit our investment in undeveloped land and
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lots to the amount reasonably expected to be sold in the next three to five
years. Although we purchase land and engage in land development activities
primarily for the purpose of furthering our homebuilding activities, we have
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, we acquire
land primarily through the use of contingent purchase contracts. These contracts
require the approval of our land committee and condition our 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 do we make a
commitment to purchase undeveloped land. To further reduce the risk involved in
acquiring raw land, we generally do not commence engineering or development
until zoning approvals are secured.
From time to time we enter into joint ventures, generally with other
homebuilders. At December 31, 1999, we had interests varying from 33% to 50% in
each of 32 joint ventures and limited liability companies ("LLCs"). These joint
ventures and LLCs develop raw ground into lots and, typically, we receive our
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 in addition to
its percentage interest. We are currently responsible for the management of 16
of these 32 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, we are required by some municipalities and
other governmental authorities to provide completion bonds for sewer, streets
and other improvements. We generally provide letters of credit in lieu of these
completion bonds. At December 31, 1999, $14.2 million of letters of credit were
outstanding for these purposes, as well as $19.9 million of completion bonds.
AVAILABLE LOTS AND LAND
We seek to balance the economic risk of owning lots and land with the
necessity of having lots available for our homes. At December 31, 1999, we had
3,497 developed lots and 2,156 lots under development in inventory. We also
owned raw land expected to be developed into approximately 3,845 lots.
In addition, at December 31, 1999, our interest in lots held by joint
ventures and LLCs consisted of 8 developed lots and 438 lots under development.
We also own interests in raw land held by our joint ventures and LLCs which is
zoned for 1,495 lots. It is anticipated that some of the lots owned will be sold
to others.
At December 31, 1999, we had options and purchase contracts, which
expire over the next 5 years, to acquire 2,634 developed lots and land to be
developed into approximately 6,742 lots, for a total of 9,376 lots, with an
aggregate current purchase price of approximately $190.8 million. Purchase of
these properties is contingent upon satisfaction of certain requirements by us
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, we believe,
reflects the developers' carrying cost of the lots.
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The following table sets forth our land position in lots (including our
interest in joint ventures and LLCs) by region in which we operate at December
31, 1999:
<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 2,239 1,827 4,279 8,345 7,231 15,576
Florida 685 326 629 1,640 656 2,296
Carolina 263 104 332 699 1,042 1.741
Virginia, Maryland and Phoenix 318 337 100 755 447 1,202
-----------------------------------------------------------------------------------------------------
Total 3,505 2,594 5,340 11,439 9,376 20,815
=====================================================================================================
</TABLE>
FINANCIAL SERVICES
Through our wholly-owned subsidiary, M/I Financial, we offer fixed and
adjustable rate mortgage loans, to buyers of our homes. M/I Financial has
branches in all of our housing markets, with the exception of Virginia, Maryland
and Phoenix. Of the 3,538 Homes Delivered in 1999 in the markets in which M/I
Financial operates, M/I Financial provided financing for 3,102 of these homes
representing approximately $492.3 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 sells the loans it originates to the secondary market
which provides the funding within several days. We retain a small servicing
portfolio which is currently sub-serviced by a financial institution.
M/I Financial hedges its interest rate risk using optional and
mandatory forward sales of mortgage-backed securities whereby we agree 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. 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.
Additionally, we hedge 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 we determine that we will be unable to use the
entire commitment prior to its expiration date. At December 31, 1999, we had
approximately $19.9 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 to completely perform as
contracted, we limit the entities with which management can enter into a
commitment 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 to which we committed 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.
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In 1996, we entered into a joint venture to provide title services 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. We compete in each of
our local market areas with numerous national, regional and local homebuilders,
some of which have greater financial, marketing, land acquisition and sales
resources. Builders of new homes compete not only for home buyers, but also for
desirable properties, financing, raw materials and skilled subcontractors. In
addition, we compete with the resale market for existing homes which provides
different attractions for home buyers over building a new home.
REGULATION AND ENVIRONMENTAL MATTERS
The homebuilding industry, including M/I Homes, 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. This 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. We must also obtain
licenses, permits and approvals from various governmental authorities for
development activities. In many areas, we are 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. We seek to reduce the
risk from restrictive zoning and density requirements by using contingent land
purchase contracts which require that land must meet various requirements,
including zoning, prior to our purchase.
We may be subject to periodic delays or precluded entirely from
developing projects due to building moratoriums, particularly in our Florida and
Raleigh markets. Generally, these moratoriums relate to insufficient water or
sewage facilities or inadequate road capacity within specific market areas or
subdivisions. Moratoriums experienced by us have not been of long duration and
have not had a material effect on our business.
Each of the states in which we operate 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 us and the
industry. Although we 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
our control.
EMPLOYEES
At February 24, 2000, we employed 889 people (including part-time
employees), of which 261 were employed in sales, 374 in construction and 254 in
management, administrative and clerical positions. We consider our employee
relations to be very good. No employees are represented by a collective
bargaining agreement.
ITEM 2. PROPERTIES
We own and operate an approximately 85,000 square foot office building
used for our home office and lease all of our other offices. Prior to September
1998, we leased our home office space from a limited liability company in which
we had a minority equity interest. We purchased the remaining interest in this
limited liability company in September of 1998. See Notes 2, 5 and 9 to the
Consolidated Financial Statements.
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Due to the nature of our 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
We are involved in routine litigation incidental to our business.
Management does not believe that any of this litigation is material to our
consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matters were submitted to a vote
of security holders.
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 our Annual Report to Shareholders for the year ended December 31,
1999.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by
reference from our Annual Report to Shareholders for the year ended December 31,
1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by
reference from our Annual Report to Shareholders for the year ended December 31,
1999.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by
reference from our Annual Report to Shareholders for the year ended December 31,
1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by
reference from our Annual Report to Shareholders for the year ended December 31,
1999.
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, 1999 and 1998.
10
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by
reference to our definitive Proxy Statement relating to the 2000 Annual Meeting
of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to our definitive Proxy Statement relating to the 2000 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 our definitive Proxy Statement relating to the 2000 Annual Meeting
of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to our definitive Proxy Statement relating to the 2000 Annual Meeting
of Shareholders.
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, 1999 and 1998
Consolidated Statements of Income - Years Ended December 31, 1999, 1998
and 1997
Consolidated Statements of Stockholders' Equity - Years Ended December
31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
2. Financial Statement Schedules. Page
----
<S> <C>
Independent Auditors' Report on financial statement schedules................................... 18
For the Years ended December 31, 1999, 1998 and 1997:
Schedule II - Valuation and Qualifying Accounts ............................................. 19
</TABLE>
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.
11
<PAGE> 12
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.
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- ----------------------------------------------------------------------------------------------------------------
<S> <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, hereby incorporated by reference to Exhibit 3.4 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
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,
hereby incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- ----------------------------------------------------------------------------------------------------------------
<S> <C>
10.4 First Amendment to Fourth Restated Revolving Credit Loan, Swingline Loan and Standby Letter of Credit Agreement
by and among the Company and M/I Homes, Inc.; Bank One, NA; The Huntington National Bank; National City Bank;
BankBoston, N.A.; The Fifth Third Bank of Columbus; Suntrust Bank, Central Florida, N.A.; AmSouth Bank and Bank
One, NA as agent for the banks, dated April 20, 1999, hereby incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
10.5 Fifth Restated Revolving Credit Loan, Swingline Loan and Standby Letter of Credit Agreement by and among the
Company and M/I Homes, Inc., as borrower and Bank One, NA; The Huntington National Bank; National City Bank;
BankBoston, N.A.; Fifth Third Bank, Central Ohio; Suntrust Bank, Central Florida, N.A.; AmSouth Bank; Comerica
Bank; Firstar Bank, N.A. as Banks and Bank One, NA, as agent for the Banks, dated November 23, 1999. (Filed
herewith.)
10.6 First Amendment to Fifth Restated Revolving Credit Loan, Swingline Loan and Standby Letter of Credit Agreement
by and among the Company and M/I Homes, Inc., as borrower and Bank One, NA; The Huntington National Bank;
National City Bank; BankBoston, N.A.; Fifth Third Bank, Central Ohio; Suntrust Bank, Central Florida, N.A.;
AmSouth Bank; Comerica Bank; Firstar Bank, N.A. as Banks and Bank One, NA, as agent for the Banks, dated
February 29, 2000. (Filed herewith.)
10.7 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.
10.8 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.
10.9 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.
10.10 M/I Schottenstein Homes, Inc. 1993 Stock Incentive Plan As Amended, dated April 22, 1999, hereby incorporated by
reference to Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
10.11 First Amendment to M/I Schottenstein Homes, Inc. 1993 Stock Incentive Plan As Amended, dated August 11, 1999,
hereby incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- ----------------------------------------------------------------------------------------------------------------
<S> <C>
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 Company's 1998 Chief Executive Officer Stock Bonus Program, hereby incorporated by reference to Exhibit 10.13 of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
10.17 Company's 1998 President, Senior Executive Vice President and Chief Financial Officer Stock Bonus Program,
hereby incorporated by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
10.18 Company's 1999 Chief Executive Officer Bonus Program, hereby incorporated by reference to Exhibit 10.15 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
10.19 Company's 1999 President Bonus Program, hereby incorporated by reference to Exhibit 10.16 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
10.20 Company's 1999 Chief Operating Officer Bonus Program, hereby incorporated by reference to Exhibit 10.17 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
10.21 Company's 1999 Chief Financial Officer Bonus Program, hereby incorporated by reference to Exhibit 10.18 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- ----------------------------------------------------------------------------------------------------------------
<S> <C>
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 First Amendment to M/I Schottenstein Homes, Inc. Director Deferred Compensation Plan, dated February 16, 1999,
hereby incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.
10.28 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.
10.29 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.
10.30 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.
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- ----------------------------------------------------------------------------------------------------------------
<S> <C>
10.31 M/I Schottenstein Homes, Inc. Executive Officer Compensation Plan, hereby incorporated by reference to the
Company's definitive Proxy Statement relating to the 1999 Annual Meeting of Shareholders.
10.32 M/I Schottenstein Homes, Inc. Executives' Deferred Compensation Plan, hereby incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
10.33 Amended and Restated M/I Schottenstein Homes, Inc. Executives' Deferred Compensation Plan, dated November 16,
1999. (Filed herewith.)
13 Annual Report to Shareholders for the year ended December 31, 1999. (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).
</TABLE>
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, 2000.
M/I SCHOTTENSTEIN HOMES, INC.
(Registrant)
By: /s/ ROBERT H. SCHOTTENSTEIN
--------------------------------
Robert H. Schottenstein
President and Director
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 day of March, 2000.
<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
Chief Executive Officer
(Principal Executive Officer)
STEVEN SCHOTTENSTEIN* /S/ KERRII B. ANDERSON
- ----------------------------------------- -------------------------------------------------
Steven Schottenstein Kerrii B. Anderson
Chief Operating Officer and Director Senior Vice President, Chief Financial
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
THOMAS D. IGOE *
- -----------------------------------------
Thomas D. Igoe
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, 1999 and 1998, and for each
of the three years in the period ended December 31, 1999, and have issued our
report thereon dated February 23, 2000; such financial statements and report are
included in your 1999 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 23, 2000
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 (1) Year
- ----------- ------- -------- ---------- ----
Valuation allowance deducted from asset account -
single-family lots, land and land development costs:
<S> <C> <C> <C> <C>
Year ended
December 31, 1999 $ 6,110,000 $ 1,150,000 $ 293,000 $ 6.967,000
=========== =========== =========== ===========
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
=========== =========== =========== ===========
</TABLE>
(1) Represents write-downs of investment in single-family lots, land
and land development costs.
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
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, hereby incorporated by
reference to Exhibit 3.4 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
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
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
- -------------- ---------------------------------------------------------------------------- ----------
<S> <C> <C>
December 31, 1998, hereby incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
10.4 First Amendment to Fourth Restated Revolving Credit Loan, Swingline Loan and
Standby Letter of Credit Agreement by and among the Company and M/I Homes,
Inc.; Bank One, NA; The Huntington National Bank; National City Bank;
BankBoston, N.A.; The Fifth Third Bank of Columbus; Suntrust Bank, Central
Florida, N.A.; AmSouth Bank and Bank One, NA as agent for the banks, dated
April 20, 1999, hereby incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
10.5 Fifth Restated Revolving Credit Loan, Swingline Loan and Standby Letter of
Credit Agreement by and among the Company and M/I Homes, Inc., as borrower and
Bank One, NA; The Huntington National Bank; National City Bank; BankBoston,
N.A.; Fifth Third Bank, Central Ohio; Suntrust Bank, Central Florida, N.A.;
AmSouth Bank; Comerica Bank; Firstar Bank, N.A. as Banks and Bank One, NA, as
agent for the Banks, dated November 23, 1999. (Filed herewith.)
10.6 This First Amendment to Fifth Restated Revolving Credit Loan, Swingline Loan
and Standby Letter of Credit Agreement by and among the Company and M/I Homes,
Inc., as borrower and Bank One, NA; The Huntington National Bank; National
City Bank; BankBoston, N.A.; Fifth Third Bank, Central Ohio; Suntrust Bank,
Central Florida, N.A.; AmSouth Bank; Comerica Bank; Firstar Bank, N.A. as
Banks and Bank One, NA, as agent for the Banks, dated February 29, 2000.
(Filed herewith.)
10.7 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.
10.8 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.
10.9 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.
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
- -------------- ---------------------------------------------------------------------------- ----------
<S> <C> <C>
10.10 M/I Schottenstein Homes, Inc. 1993 Stock Incentive Plan As Amended, dated
April 22, 1999, hereby incorporated by reference to Exhibit 10.4 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
10.11 First Amendment to M/I Schottenstein Homes, Inc. 1993 Stock Incentive Plan As
Amended, dated August 11, 1999, hereby incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 Company's 1998 Chief Executive Officer Stock Bonus Program, hereby
incorporated by reference to Exhibit 10.13 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
10.17 Company's 1998 President, Senior Executive Vice President and Chief Financial
Officer Stock Bonus Program, hereby incorporated by reference to Exhibit 10.14
of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998.
10.18 Company's 1999 Chief Executive Officer Bonus Program, hereby incorporated by
reference to Exhibit 10.15 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
- -------------- ---------------------------------------------------------------------------- ----------
<S> <C> <C>
10.19 Company's 1999 President Bonus Program, hereby incorporated by reference to
Exhibit 10.16 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
10.20 Company's 1999 Chief Operating Officer Bonus Program, hereby incorporated by
reference to Exhibit 10.17 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
10.21 Company's 1999 Chief Financial Officer Bonus Program, hereby incorporated by
reference to Exhibit 10.18 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 First Amendment to M/I Schottenstein Homes, Inc. Director Deferred
Compensation Plan, dated February 16, 1999, hereby incorporated by reference
to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
- -------------- ---------------------------------------------------------------------------- ----------
<S> <C> <C>
10.28 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.
10.29 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.
10.30 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.
10.31 M/I Schottenstein Homes, Inc. Executive Officer Compensation Plan, hereby
incorporated by reference to the Company's definitive Proxy Statement relating
to the 1999 Annual Meeting of Shareholders.
10.32 M/I Schottenstein Homes, Inc. Executives' Deferred Compensation Plan, hereby
incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999.
10.33 Amended and Restated M/I Schottenstein Homes, Inc. Executives' Deferred
Compensation Plan, dated November 16, 1999. (Filed herewith.)
13 Annual Report to Shareholders for the year ended December 31, 1999. (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>
24
<PAGE> 1
EXHIBIT 10.5
FIFTH RESTATED REVOLVING
CREDIT LOAN, SWINGLINE LOAN AND
STANDBY LETTER OF CREDIT AGREEMENT,
effective as of November 23, 1999
by and among
M/I SCHOTTENSTEIN HOMES, INC.
and
M/I HOMES, INC., as Borrower
and
BANK ONE, NA,
THE HUNTINGTON NATIONAL BANK,
NATIONAL CITY BANK,
BANKBOSTON, N.A.,
FIFTH THIRD BANK, CENTRAL OHIO,
SUNTRUST BANK, CENTRAL FLORIDA, N.A.,
AMSOUTH BANK,
COMERICA BANK
and
FIRSTAR BANK, N.A., as Banks
and
BANK ONE, NA,
as Agent for the Banks
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BACKGROUND INFORMATION.....................................................................................1
AGREEMENT..................................................................................................2
SECTION 1. DEFINITIONS............................................................................2
1.1 Defined Terms..........................................................................2
1.2 Other Definitional Provisions.........................................................20
SECTION 2. AMOUNT AND TERMS OF COMMITMENT, REVOLVING CREDIT LOANS, SWINGLINE LOANS AND
STANDBY LETTERS OF CREDIT.............................................................20
2.1 Revolving Credit Loan Commitments.....................................................20
2.2 Revolving Credit Notes................................................................21
2.3 Procedure for Borrowing...............................................................22
2.4 Revolving Credit Loan Commitment Fee..................................................23
2.5 Interest; Default Interest............................................................23
2.6 Termination or Reduction of Commitment................................................24
2.7 Maturity Date of Commitment; Extension................................................25
2.8 Computation of Interest and Fees......................................................25
2.9 Increased Costs.......................................................................26
2.10 Use of Proceeds.......................................................................26
2.11 Pro Rata Treatment and Payments.......................................................27
2.12 Swingline Loans.......................................................................27
2.13 The Standby L/Cs......................................................................29
2.14 Issuance of Standby L/Cs..............................................................30
2.15 Procedure for Opening Standby L/Cs....................................................30
2.16 Standby L/C Participations............................................................30
2.17 Payments..............................................................................31
2.18 Standby L/C Fees......................................................................32
2.19 Letter of Credit Reserves.............................................................32
2.20 Further Assurances....................................................................33
2.21 Obligations Absolute..................................................................33
2.22 Existing Standby L/Cs; L/C Participations.............................................33
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS................................................34
3.1 Conversion and Continuation Options...................................................34
3.2 Inability to Determine Interest Rate..................................................35
</TABLE>
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3.3 Illegality; Impracticability..........................................................36
3.4 Requirements of Law...................................................................36
3.5 Indemnity.............................................................................37
SECTION 4. REPRESENTATIONS AND WARRANTIES........................................................38
4.1 Financial Statements..................................................................38
4.2 Corporate Existence; Compliance with Law..............................................38
4.3 Corporate Power; Authorization; Enforceable Obligations...............................39
4.4 No Legal Bar..........................................................................39
4.5 No Material Litigation................................................................39
4.6 Regulation U..........................................................................39
4.7 Investment Company Act................................................................40
4.8 ERISA.................................................................................40
4.9 Disclosure............................................................................40
4.10 Subsidiary Information................................................................40
4.11 M/I Ancillary Businesses Information..................................................40
4.12 Schedules.............................................................................40
4.13 Year 2000 Compliance..................................................................40
4.14 Environment...........................................................................40
SECTION 5. CONDITIONS PRECEDENT..................................................................41
5.1 Conditions to Initial Loan(s).........................................................41
5.2 Conditions to All Loans...............................................................44
SECTION 6. AFFIRMATIVE COVENANTS.................................................................45
6.1 Financial Statements..................................................................45
6.2 Certificates; Other Information.......................................................46
6.3 Borrowing Base Certificate............................................................46
6.4 Compliance with Borrowing Base Requirements...........................................47
6.5 Interest Rate Protection..............................................................47
6.6 Payment of Obligations................................................................48
6.7 Maintenance of Existence..............................................................48
6.8 Maintenance of Property, Insurance....................................................48
6.9 Inspection of Property; Books and Records; Discussions................................48
6.10 Notices...............................................................................48
6.11 Maintenance of Consolidated Tangible Net Worth........................................50
6.12 Maintenance of Debt to Worth..........................................................50
6.13 Maintenance of Liquidity Ratio........................................................50
6.14 Maintenance of Overall Leverage Ratio.................................................51
6.15 Maintenance of EBITDA to Consolidated Interest Incurred Ratio.........................51
</TABLE>
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6.16 Guaranties of Wholly-Owned M/I Ancillary Businesses...................................51
6.17 Subsidiary Guarantors.................................................................51
6.18 Environment...........................................................................51
SECTION 7. NEGATIVE COVENANTS....................................................................52
7.1 Limitation on Indebtedness............................................................52
7.2 Limitation on Liens...................................................................53
7.3 Limitation on Contingent Obligations..................................................54
7.4 Limitation on Fundamental Changes.....................................................55
7.5 Limitation on Acquisitions............................................................56
7.6 Limitation on Dividends and Distributions.............................................56
7.7 Limitation on Certain Real Property Expenditures......................................57
7.8 Limitation on Speculative Houses and Eligible Model Houses............................57
7.9 Limitation on Investments.............................................................58
7.10 Limitation on Operating Leases........................................................59
7.11 Transactions with Affiliates and Officers.............................................59
7.12 Sale and Leaseback....................................................................60
7.13 Limitation on Payments of Subordinated Indebtedness and Modification of
Subordination Agreements..............................................................60
7.14 Sale of Subsidiary Securities.........................................................61
7.15 Construction on Real Property Not Owned...............................................61
7.16 Limitation on Subsidiaries............................................................62
7.17 Limitation on Location of Attached Houses.............................................62
7.18 Limitation on Rental Houses...........................................................62
7.19 Limitation on Investments in Commercial Real Estate...................................62
7.20 Limitation on Uncommitted Land........................................................62
7.21 Limitation on Negative Pledges........................................................62
7.22 Limitation on Standby L/Cs............................................................62
7.23 HNB Joint Ventures Letter of Credit Agreement.........................................63
7.24 Limitation on Investment in the Office Building.......................................63
SECTION 8. OPTIONAL SECURITY.....................................................................63
SECTION 9. DEFAULTS, EVENTS OF DEFAULT; DISTRIBUTION OF PROCEEDS AFTER EVENT OF DEFAULT..........63
SECTION 10. THE AGENT.............................................................................67
10.1 Appointment...........................................................................67
10.2 Delegation of Duties..................................................................67
10.3 Exculpatory Provisions................................................................67
10.4 Reliance by Agent.....................................................................68
10.5 Notice of Default.....................................................................68
</TABLE>
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10.6 Non-Reliance on Agent and Other Banks.................................................69
10.7 Indemnification.......................................................................69
10.8 Bank One in Its Individual Capacity...................................................69
10.9 Successor Agent.......................................................................70
SECTION 11. MISCELLANEOUS.........................................................................70
11.1 Amendments and Waivers................................................................70
11.2 Notices...............................................................................71
11.3 No Waiver; Cumulative Remedies........................................................74
11.4 Participants..........................................................................74
11.5 Survival of Representations and Warranties............................................75
11.6 Payment of Expenses and Taxes.........................................................75
11.7 Successors and Assigns; Assignment....................................................75
11.8 Adjustments; Set-off..................................................................77
11.9 Waiver of Jury Trial..................................................................78
11.10 Confidentiality.......................................................................78
11.11 Counterparts; Effective Date..........................................................79
11.12 Governing Law.........................................................................79
11.13 Headings..............................................................................79
11.14 Joint and Several Obligations.........................................................79
</TABLE>
SCHEDULES
1 = Commitment Percentages of Banks
2 = Standby Letters of Credit previously issued
3 = Principal Places of Business, etc. of All Subsidiaries
4 = Principal Places of Business, etc. of M/I Ancillary Businesses
EXHIBITS
A = Form of Guaranty Agreement
B = Form of Revolving Note
C = Form of Swingline Note
D = Form of Borrowing Base Certificate
E = Form of Opinion
F = Form of Responsible Officer's Certificate
G = Form of Chief Financial Officer's Certificate
H = Land Holdings
I = Letter Agreement re: Letters of Credit
J = Form of Assignment Agreement
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<PAGE> 6
#8564743.05
Execution Counterpart
FIFTH RESTATED REVOLVING CREDIT LOAN, SWINGLINE LOAN
----------------------------------------------------
AND STANDBY LETTER OF CREDIT AGREEMENT
--------------------------------------
THIS FIFTH RESTATED REVOLVING CREDIT LOAN, SWINGLINE LOAN AND STANDBY
LETTER OF CREDIT AGREEMENT (this "Agreement") is made to be effective as of
November 23, 1999, 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"), FIFTH THIRD
BANK, CENTRAL OHIO, an Ohio banking corporation ("Fifth Third"), SUNTRUST BANK,
CENTRAL FLORIDA, N.A., a national banking association ("STB"), AMSOUTH BANK, an
Alabama corporation ("ASB"), COMERICA BANK, a Michigan banking corporation
("Comerica") and FIRSTAR BANK, N.A., a national banking association ("Firstar")
(Bank One, HNB, NCB, BKB, Fifth Third, STB, ASB, Comerica, Firstar and each
other lender that shall become a "Bank" pursuant to subsection 11.7 hereof, each
a "Bank" and, 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. Borrower, certain of the Banks and Agent are parties to a certain
Fourth Restated Revolving Credit Loan, Swingline Loan and Standby Letter Credit
Agreement effective as of December 31, 1998, as amended by the First Amendment
thereto effective as of April 20, 1999 and Second Amendment thereto effective as
of August 27, 1999 (the "Existing Credit Agreement").
B. Borrower, Banks and Agent wish to modify the Existing Credit
Agreement by, among other things, (i) adding Comerica and Firstar as Banks, (ii)
increasing the Revolving Credit Loan Commitment and L/C Commitment (each as
defined in the Existing Credit Agreement), (iii) reallocating the Commitments
(as defined in the Existing Credit Agreement) and (iv) modifying certain
covenants.
Accordingly, Borrower, Banks and Agent hereby agree as follows:
<PAGE> 7
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.
"Agent" shall have the meaning set forth in the preamble hereof.
"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 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:
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If the ratio of EBITDA to
Consolidated Interest Applicable Eurodollar Margin
Incurred is: for Eurodollar Rate Loans is
------------------------ ----------------------------
less than 1.75 to 1.0 2.30% per annum
equal to or greater
than 1.75 to 1.0 but less than 2.0 to 1.0
2.10% per annum
equal to or greater
than 2.0 to 1.0 but
less than 2.50 to 1.0 1.95% per annum
equal to or greater
than 2.50 to 1.0 but less than 3.0 to 1.0
1.75% 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) hereof and the related compliance certificate required to be
delivered pursuant to subsection 6.2(a) hereof 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
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
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<PAGE> 9
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.
"Banks" shall have the meaning set forth in the preamble hereof.
"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
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<PAGE> 10
(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 its Subsidiaries and (ii) the aggregate outstanding amount of Liens
incurred by Borrower and its Subsidiaries of the type permitted by subsection
7.2(i) hereof. In calculating the "Borrowing Base", the "value" of each
component of the Borrowing Base set forth in clauses (a) through (g) above (and
any subcomponent thereof) shall not exceed the amount thereof permitted under
Section 7 of this Agreement (including amounts permitted pursuant to any waiver
of any provision of said Section that is consented to by the Banks in accordance
with subsection 11.1 of this Agreement).
"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 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 a Bank hereunder 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.
"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.
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<PAGE> 11
"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.
"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, 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.
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<PAGE> 12
"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.
"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 $1,000,000 at any one time.
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<PAGE> 13
"Dollars" and "$" 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 1933 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 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
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<PAGE> 14
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.
"Eligible Mortgage Loan" shall mean at any date an original (not a
rewritten or renewed) loan evidenced by a note and secured by a first mortgage
on residential real property which (a) 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 of
Borrower or any Subsidiary 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 of
Borrower or any Subsidiary 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.
"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
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<PAGE> 15
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.
"Existing Office Building Mortgage Indebtedness" shall have the meaning
set forth in subsection 7.1(j) hereof.
"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
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<PAGE> 16
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.
"Guaranty Agreement" shall mean a Guaranty Agreement substantially in
the form of Exhibit A attached to this Agreement, between each of Borrower's
Subsidiaries listed on the signature pages thereto (and each M/I Ancillary
Business and Subsidiary of the Borrower which becomes a "Guarantor" thereunder
as provided in subsections 6.16 and 6.17 hereof) and Bank One, N.A., as Agent
for the Banks, as the same shall be modified and supplemented and in effect from
time to time.
"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> 17
"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 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.
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<PAGE> 18
"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 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.
"Maturity Date" shall mean September 30, 2003.
"Maximum Swingline Amount" shall mean $5,000,000.
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<PAGE> 19
"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.
"M/I Ancillary Businesses" shall mean the businesses listed as M/I
Ancillary Businesses on Schedule 4 hereto and each business in which investments
are made as permitted under subsection 7.9(k) hereof and (unless already an M/I
Ancillary Business) which are at such time designated as an "M/I Ancillary
Business" by M/I, each of which shall be a corporation, limited partnership,
limited liability partnership or limited liability company which is engaged
solely in activities reasonably related to the sale of single family housing,
provided that such investment or other ownership 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. As used herein, the term
"Subsidiary" shall not include any M/I Ancillary Business.
"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 by
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<PAGE> 20
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.
"Net Cost of Shares Acquired" shall mean an amount equal to the
aggregate cost of any Stock Acquisition by M/I or a Subsidiary of M/I subsequent
to December 31, 1997 less the aggregate amount of cash proceeds received by M/I
from the sale of capital stock of M/I pursuant to stock options subsequent to
December 31, 1997, provided, however, that such net cost shall in no case be
less than zero.
"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.
"Participants" shall have the meaning set forth in subsection 11.4
hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Person" shall mean an individual, a partnership (including without
limitation a joint venture), a limited liability company (including without
limitation a joint venture), a corporation (including without limitation a joint
venture), a business trust, a joint stock company,
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<PAGE> 21
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.
"Proceeds after Default" shall have the meaning set forth in Section 9
hereof.
"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, Agent 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 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.
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"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.
"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 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, as determined in
accordance with GAAP, of: (a) all uncompleted houses for which there has been a
Start of
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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 Agent pursuant to the Existing Credit Agreement, or by Bank
One in its individual capacity or as Agent 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 as
provided in clause (b) of this definition.
"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).
"Stock Acquisition" shall have the meaning set forth in subsection
7.6(b) hereof.
"Stockholder Payment" shall have the meaning set forth in subsection
7.6(a) 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
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<PAGE> 24
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 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. Unless
otherwise specified, "Subsidiary" means a Subsidiary of Borrower (including
Subsidiaries of Subsidiaries); provided that "Subsidiary" shall not include any
M/I Ancillary Business.
"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
hereof.
"Swingline Note" shall have the meaning provided in subsection 2.12
hereof.
"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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<PAGE> 25
"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.
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
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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 Fifty Million and 00/100
Dollars ($250,000,000.00) 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 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 after the day that is one
month prior to the last day of the Commitment Period, and (b) that the maximum
number of Tranches that may be outstanding at any one time as Revolving Credit
Loans may not exceed eight 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.
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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
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 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
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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. Unless the Agent shall
have been notified by any Bank prior to the Borrowing Date that such Bank does
not intend to make available to the Agent its portion of the Loan(s) to be made
on such date, the Agent may assume that such Bank has made such amount available
to the Agent on such Borrowing Date, and the Agent, in reliance upon such
assumption, may (in its sole discretion and without any obligation to do so)
make available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Agent by such Bank and the Agent has
made available same to the Borrower, the Agent shall be entitled to recover such
corresponding amount from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent shall
promptly notify the Borrower, and the Borrower shall immediately pay such
corresponding amount to the Agent. The Agent shall also be entitled to recover
from the Bank or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Agent to the Borrower to the date such
corresponding amount is recovered by the Agent, at a rate per annum equal to (x)
if paid by such Bank, the overnight Federal funds rate or (y) if paid by the
Borrower, the then applicable rate of interest, calculated in accordance with
subsection 2.5 hereof, for the respective Loan(s). The provisions for conversion
and continuation of the Loans are set forth in subsection 3.1 hereof.
2.4 Revolving Credit Loan Commitment Fee. Borrower agrees to pay to
Agent for the benefit of each Bank 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 each Bank's Revolving Credit Loan Commitment (for which purpose
only, the aggregate principal amount of any Swingline Loans shall be deemed a
utilization of Bank One's Revolving Credit Commitment) 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) 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
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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).
(c) Interest shall be payable in arrears and shall be due on
each Interest Payment Date.
2.6 Termination or Reduction of Commitment.
(a) 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 (i)
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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 hereof, 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 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
hereof, 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
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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 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.
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), each of the Banks
party thereto 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
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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 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
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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 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 immediately succeeding
Business Day pro rata based on each Bank's Revolving
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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 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 Five Million and 00/100 Dollars ($35,000,000), 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
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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 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
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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 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 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
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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 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.
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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 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 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
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fees paid and earned beginning as 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 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
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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
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
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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 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 hereof, 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 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
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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 hereof. If any Bank becomes
entitled to 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 hereof, 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
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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 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, 1998, 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 September 30, 1999. 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 September 30, 1999 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
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effect on the business, operations, property or financial or other condition of
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 BankBoston Agreement) 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 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
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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.
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.
4.14 Environment. Borrower and Borrower's Subsidiaries have been issued
and will maintain all required federal, state, and local permits, licenses,
certificates and approvals relating to (1) emissions; (2) discharges to service
water or groundwater; (3) noise emissions; (4) solid or liquid waste disposal;
(5) the use, generation, storage, transportation or disposal of
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toxic or hazardous substances or hazardous wastes; or (6) other environmental,
health or safety matters, except to the extent the failure to have any such
permit, license, certificate or approval would not have a material adverse
effect on Borrower's consolidated operations, business or financial condition.
Neither Borrower nor any of Borrower's Subsidiaries have received notice of, or
has actual knowledge of any material violations of any federal, state or local
environmental, health or safety laws, codes or ordinances or any rules or
regulations promulgated thereunder. Except in accordance with a valid
governmental permit, license, certificate or approval, there has been no
material emission, spill, release or discharge into or upon (1) the air; (2)
soils; (3) service water or groundwater; (4) the sewer, septic system or waste
treatment, storage or disposal system servicing the premises of any toxic or
hazardous substances or hazardous wastes at or from the premises; and
accordingly the premises of Borrower and Borrower's Subsidiaries have not been
adversely affected, in any material respect, by any toxic or hazardous
substances or wastes. There has been no complaint, order, directive, claim,
citation or notice by any Governmental Authority or any person or entity with
respect to material violations of law or damages by reason of Borrower or
Borrower's Subsidiaries (1) air emissions; (2) spills, releases or discharges to
soils or improvements located thereon, surface water, groundwater or the sewer,
septic system or waste treatment, storage or disposal system servicing the
premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) use,
generation, storage, transportation or disposal of toxic or hazardous substances
or hazardous wastes; or (6) other environmental, health or safety matters
affecting Borrower or any of Borrower's Subsidiaries. Neither Borrower nor any
of Borrower's Subsidiaries have any material indebtedness, obligation or
liability, absolute or contingent, matured or unmatured, with respect to the
storage, treatment, cleanup or disposal of any solid waste, hazardous wastes, or
other toxic or hazardous substances. For purposes of this subsection 4.14, a
violation, emission, spill, release, discharge, damage, adverse effect,
indebtedness, obligation or liability shall be deemed material if, and only if,
such violation, emission, spill, release, discharge, damage, adverse effect,
indebtedness, obligation or liability would 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
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(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.
(b) Guaranty Agreement. The Guaranty Agreement shall have been
duly executed and delivered by the parties thereto, conforming to the
requirements hereof.
(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 October 31, 1999 is at
least equal to the Loans requested hereunder plus the amount of any Standby L/Cs
either (i) issued hereunder or (ii) issued under the Existing Credit Agreement
or any predecessor to the Existing Credit Agreement and which remain in place as
Standby L/Cs 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 of M/I Financial Corp., M/I Homes
Construction, Inc. and M/I Service Corp., and as the sole member of Northeast
Office Venture and 601RS, LLC; and (ii) M/I Homes, as the sole member of MHO,
LLC, each resolution authorizing the execution, delivery and performance of the
Guaranty Agreement, 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.
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(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 the Guaranty Agreement.
(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, 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
Guaranty Agreement, 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.
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(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
September 30, 1999 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 Guaranty Agreement 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 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.
(d) BankBoston Agreement. Each Loan made or Standby L/C issued
hereunder shall constitute Superior Indebtedness (as defined therein) under the
BankBoston Agreement.
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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), (c) and (d) 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 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, 6.9 and 6.18 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;
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).
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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 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(a), 7.3(c), 7.6, 7.7, 7.8, 7.9(e), 7.9(k), 7.9(l), 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 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
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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 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.
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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 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 i ts
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 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;
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(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 $750,000.00
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;
(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
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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:
Period Amount
Date hereof to and including 12/31/99 $140,059,603.00
1/1/00 to and including 12/31/00 Consolidated Tangible Net Worth
required for 1999 plus 50% of
audited Consolidated Earnings for
fiscal year 1999
1/1/01 to and including 12/31/01 Consolidated Tangible Net Worth
required for 2000 plus 50% of
audited Consolidated Earnings for
fiscal year 2000
1/1/02 to and including 12/31/02 Consolidated Tangible Net Worth
required 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 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.
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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 2.5
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 the Guaranty Agreement to become a "Guarantor" under the Guaranty
Agreement pursuant to documentation in form and substance satisfactory to the
Agent, and to deliver such proof of corporate or other appropriate action,
incumbency of officers, opinions of counsel and other documents delivered by the
subsidiaries of the Borrower pursuant to Section 5.1 hereof or as the Agent
shall have requested.
6.17 Subsidiary Guarantors. Without limiting the obligation of Borrower
to obtain the consent of the Required Banks pursuant to subsection 7.16 hereof
with respect to the creation of any such Subsidiary, cause each new wholly-owned
Subsidiary of Borrower or any Subsidiary of Borrower formed or acquired after
the date hereof, to become a "Guarantor" under the Guaranty Agreement pursuant
to documentation in form and substance satisfactory to the Agent, and to deliver
such proof of corporate or other appropriate action, incumbency of officers,
opinions of counsel and other documents delivered by the subsidiaries of the
Borrower pursuant to Section 5.1 hereof or as the Agent shall have requested.
6.18 Environment. (a) Comply with all federal, state and local
environmental, health and safety laws, codes and ordinances and all rules and
regulations issued thereunder except to the extent the failure to do so would
not have a material adverse effect on Borrower's consolidated operations,
business or financial condition; (b) notify the Agent promptly of any notice of
a hazardous discharge or environmental complaint received from any governmental
agency or any other party (and the Agent shall notify the Banks promptly
following its receipt of any such notice) that, if adversely determined, could
have a material adverse effect on Borrower's consolidated operations, business
or financial condition; and (c) notify the Agent promptly of any hazardous
discharge from or affecting its premises (and the Agent shall notify the Banks
promptly following its receipt of any such notice) that could have a material
adverse effect on Borrower's consolidated operations, business or financial
condition. In the case of clauses (b) and (c) above, (i) promptly contain and
remove any such hazardous discharge, in compliance with all applicable laws;
(ii) promptly pay any fine or penalty assessed in connection therewith; (iii)
permit the Agent to inspect the premises, to conduct tests thereon and to
inspect all books, correspondence and records pertaining thereto; and (iv) at
the Agent's request, and at
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M/I's expense, provide a report of a qualified environmental engineer,
satisfactory in scope, form and content to the Required Banks, that the
condition has been corrected.
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 and, in the case of subsections 7.1,
7.2, 7.3 and 7.21 hereof, permit any M/I Ancillary Business that is wholly-owned
by M/I or by any Subsidiary to, directly or indirectly:
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) 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
Indebtedness at any one time outstanding shall not exceed $15,000,000 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;
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(h) Indebtedness of any wholly-owned Subsidiary of M/I with
respect to loans from M/I or from any other Subsidiaries of Borrower; provided
that each such Subsidiary which is not also a borrower hereunder shall have
delivered to the Agent, prior to the making of any such loans, the Guaranty
Agreement (or become a party thereto pursuant to documentation in form and
substance satisfactory to the Agent), in each case 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) Indebtedness of Northeast Office Venture currently
outstanding and secured by a mortgage on the Office Building in the principal
amount of $8,209,403 (the "Existing Office Building Mortgage Indebtedness") and
extensions, renewals and replacements of the Existing Office Building Mortgage
Indebtedness not to exceed $12,000,000.00, provided that any such extension,
renewal or replacement is non-recourse to M/I or any of its Subsidiaries and
does not include any assignment of leases.
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;
(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
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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 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 Existing
Office Building Mortgage 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
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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 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)
$15,000,000 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
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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.
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.
(a) Limitation on Dividends. Make any distributions or declare
any dividends (other than dividends payable solely in the common stock of MI) on
any class of capital 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 (i) so long
as no Default or Event of Default has occurred and is continuing or would result
therefrom, M/I may from time to time make Stockholder Payments in amounts that,
when added to all other Stockholder Payments made subsequent to December 31,
1997 do not exceed an amount equal to (A) twenty five percent (25%) of
cumulative Consolidated Earnings (taking into account losses, if any) of M/I
subsequent to December 31, 1997 plus (B) $800,000 less (C) the Net Cost of
Shares Acquired; and (ii) 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 subsequent to December 31, 1997 plus the
Stockholder Payments made during the current month would not in the aggregate
exceed the amount permitted by clause (i) of this subsection 7.6(a).
(b) Limitation on Stock Acquisitions. 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 capital stock of M/I, whether now or hereafter outstanding, either directly
or indirectly, whether in cash or property or in the obligations of M/I or any
of M/I's Subsidiaries (a "Stock Acquisition") except so long as no Default or
Event of Default has occurred and is continuing or would result therefrom, M/I
may from time to time make Stock Acquisitions in amounts that, when added to all
other Stock Acquisitions made subsequent to December 31, 1997 do not exceed an
amount equal to (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) the sum of $800,000 and the aggregate amount of cash proceeds
received by M/I from the sale of shares of M/I capital stock pursuant to
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stock options subsequent to December 31, 1997 less (iii) the aggregate amount of
Stockholder Payments made subsequent to December 31, 1997. 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 Stock
Acquisitions are made, the cumulative Stock Acquisitions previously made
subsequent to December 31, 1997 plus the Stock Acquisitions made during the
current month would not in the aggregate exceed the amount permitted by this
subsection 7.6(b).
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, 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 $32,000,000 at any one time outstanding, of which not more than
$10,000,000 in the aggregate may consist of attached (including townhouse
condominiums and condominiums) single family homes in the Washington, D.C.
Market and in Florida, provided that (i) not more than $5,000,000 of which may
be located in the Washington, D.C. Market and (ii) not more than $5,000,000 of
which may be located in Florida 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 $6,000,000 in the aggregate may consist of attached
(including townhouse condominiums and condominiums) single family homes in the
Washington, D.C. Market and in Florida, provided that (i) not more than
$3,000,000 of
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which may be located in the Washington, D.C. Market and (ii) not more than
$3,000,000 of which may be located in Florida.
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:
(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 $2,000,000 at any one time outstanding;
(d) any investments in M/I Financial Corp.; M/I Homes; M/I
Homes Construction, Inc.; 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 $30,000,000;
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;
(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;
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(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.
7.10 Limitation on Operating Leases. Enter into or renew any Operating
Lease if, as a result thereof, on a consolidated basis: (a) the aggregate
rentals payable by Borrower and all of Borrower's Subsidiaries under all
Operating Leases would exceed in any period of 12 consecutive months the
aggregate amount of $5,000,000; 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, or (ii) any other Operating Lease 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.
7.11 Transactions with Affiliates and Officers.
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(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 any Subsidiary 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 four years; or (c) the 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
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(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 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 (i) security, debt or equity sold or issued
to Borrower or (ii) debt sold to a 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
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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) hereof.
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 and Florida.
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.
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.
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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 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, 6.17, 7.4, 7.5, 7.10,
7.12, 7.13, 7.14, 7.16, 7.17, 7.21, 7.22, 7.23, 7.24 hereof or the limitations
set forth in 7.9(j) hereof; or
(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
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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, 6.18, 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 hereof 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 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
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(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, 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
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$500,000.00 or more and all such judgments or decrees in excess 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 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.
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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.
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 Guaranty Agreement, 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 Guaranty Agreement 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 Guaranty Agreement, together
with such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement or any Note or the
Guaranty Agreement, 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 the Guaranty
Agreement 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 the Guaranty Agreement
(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,
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representations or warranties made by Borrower or any of Borrower's Subsidiaries
or any officer thereof contained in this Agreement or any Note or the Guaranty
Agreement 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 the Guaranty Agreement or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, the
Notes or the Guaranty Agreement, or for any failure of Borrower or any of
Borrower's Subsidiaries to perform its obligations hereunder or thereunder.
Agent shall be under no 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 Guaranty Agreement, 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, the Guaranty Agreement, 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 Guaranty
Agreement 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
Guaranty Agreement 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 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.
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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 Guaranty Agreement, 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), 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 Guaranty Agreement 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
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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 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 Guaranty
Agreement, or release the guaranties provided under the Guaranty Agreement, 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 binding upon Borrower,
Agent and each Bank,
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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 Carlson
Agent and/or
Bank One: Bank One, NA
100 East Broad Street
7th Floor
Columbus, Ohio 43271
Attention: Thomas D. Igoe/
Thomas Redmond
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/
Joseph L. Kwasny, Jr.
Facsimile: (614) 463-8572
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<PAGE> 78
BKB: BankBoston, N.A.
115 Perimeter Center Place
Suite 500
Atlanta, Georgia 30346
Attention: Kevin C. Hake
Facsimile: (770) 390-8434
Fifth Third: Fifth Third Bank, Central Ohio
21 East State Street
Columbus, Ohio 43215
Attention: Mark E. Ransom
Facsimile: (614) 341-2606
STB: SunTrust Bank, Central Florida, N.A.
Mail Code 1931
303 Peachtree Street, N.E.
3rd Floor
Atlanta, Georgia 30308
Attention: Donald L. Gaudette, Jr.
Facsimile: (404) 588-8505
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
Comerica: Comerica Bank
500 Woodward Avenue
Detroit, Michigan 48226
Attention: Charles Weddell
Facsimile: (313) 222-9295
Firstar: Firstar Bank, NA
175 South Third Street, 4th Fl.
Columbus, Ohio 43215
Attention: Roger Reeves
Facsimile: (614) 232-8033
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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.
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 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.
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<PAGE> 80
(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.
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 Guaranty Agreement, 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 Guaranty Agreement, 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
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<PAGE> 81
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) hereof, each Bank may, with the prior written consent of the Borrower
and the Agent (provided that no consent of the 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
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<PAGE> 82
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 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 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
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<PAGE> 83
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
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
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<PAGE> 84
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 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.]
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<PAGE> 85
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 Executed at Columbus, Ohio
-----------------------------------------
Robert H. Schottenstein
Title: President and Assistant Secretary
M/I HOMES, INC.
By Executed at Scottsdale, Arizona
-----------------------------------------
Robert H. Schottenstein
Title: Vice Chairman
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<PAGE> 86
BANKS
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
NATIONAL CITY BANK
By
-----------------------------------------
-----------------------------------------
Title:
-----------------------------------
BANKBOSTON, N.A.
By
-----------------------------------------
Daniel L. Silbert
Title: Vice President
FIFTH THIRD BANK, CENTRAL OHIO
By
-----------------------------------------
Mark E. Ransom
Title: Vice President
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<PAGE> 87
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By
-----------------------------------------
Donald L. Gaudette, Jr.
Title: Director
AMSOUTH BANK
By
-----------------------------------------
Ronny Hudspeth
Title: Senior Vice President
COMERICA BANK
By
-----------------------------------------
Charles L. Weddell
Title: Vice President
FIRSTAR BANK, N.A.
By
-----------------------------------------
Roger W. Reeves
Title: Vice President
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<PAGE> 1
Exhibit 10.6
#8631318.02
Execution Counterpart
FIRST AMENDMENT TO FIFTH RESTATED REVOLVING CREDIT LOAN, SWINGLINE
LOAN AND STANDBY LETTER OF CREDIT AGREEMENT
This First Amendment to Fifth Restated Revolving Credit Loan,
Swingline Loan and Standby Letter of Credit Agreement (this "Amendment") is made
to be effective as of February 29, 2000, 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"),
FIFTH THIRD BANK, CENTRAL OHIO, an Ohio banking corporation ("Fifth Third"),
SUNTRUST BANK, CENTRAL FLORIDA, N.A., a national banking association ("STB"),
AMSOUTH BANK, an Alabama corporation ("ASB"), COMERICA BANK, a Michigan banking
corporation ("Comerica") and FIRSTAR BANK, N.A., a national banking association
("Firstar") (Bank One, HNB, NCB, BKB, Fifth Third, STB, ASB, Comerica and
Firstar, each a "Bank" and, 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. Borrower, Banks and Agent are parties to a certain Fifth
Restated Revolving Credit Loan, Swingline Loan and Standby Letter of Credit
Agreement effective as of November 23, 1999 (the "Credit Agreement").
B. Borrower has requested that the Credit Agreement be amended
in certain respects and the Banks and Agent are prepared to do so on and subject
to the terms hereof.
AGREEMENT
1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Credit Agreement are used herein as defined therein.
2. Amendment. Subject to the satisfaction of the terms and
conditions of this Amendment and of the Credit Agreement, as amended hereby,
subsection 7.3(a)(iii) of the Credit Agreement is hereby amended to read in its
entirety as follows:
<PAGE> 2
"(iii) reimbursement obligations not in excess of
$30,000,000 at any one time outstanding on a consolidated
basis under Construction Bonds;"
3. Representations and Warranties. In order to induce Banks
and Agent to enter into this Amendment, Borrower hereby represents and warrants
to each Bank and to Agent that on the date hereof:
(a) it has the corporate power and authority to make,
deliver and perform this Amendment and to borrow under the
Credit Agreement as amended by this Amendment and has taken
all corporate action necessary to be taken by it to authorize
the borrowings on the terms and conditions of the Credit
Agreement as amended by this Amendment and to authorize the
execution, delivery and performance of the Credit Agreement as
amended by this Amendment;
(b) each of Borrower's Subsidiaries has the corporate
or limited liability company power and authority to make,
deliver and perform its Guarantor's Consent and Reaffirmation
of Guaranty Agreement attached to this Amendment and has taken
all corporate or limited liability company action necessary to
authorize the execution, delivery and performance of such
Guarantor's Consent and Reaffirmation of Guaranty Agreement;
and
(c) each of Borrower and Borrower's Subsidiaries (i)
is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or
formation, as appropriate, (ii) has the corporate or limited
liability company power and authority to conduct the business
in which it is currently engaged, (iii) is qualified as a
foreign corporation or limited liability company 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 (iv) 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
Borrower and Borrower's Subsidiaries taken as a whole and
would not materially and adversely affect the ability of
Borrower to perform its obligations under this Agreement and
the Notes.
4. Full Force and Effect. The Credit Agreement, including
without limitation Borrower's representations, warranties and covenants, as
amended by this Amendment, shall
2
<PAGE> 3
remain in full force and effect in accordance with its terms as amended hereby,
and upon the effective date of this Amendment, the terms "Agreement" and "this
Agreement" shall mean the Credit Agreement as amended by this Amendment.
5. Conditions Precedent. The obligations of Agent and Banks
pursuant to this Amendment are subject to the satisfaction of the following
conditions precedent prior to the effective date of this Amendment:
5.1. Execution of Amendment. This Amendment shall
have been executed by Borrower, Required Banks and Agent.
5.2. Execution of Guarantor Consents. The Guarantor's
Consent and Reaffirmation of Guaranty Agreement attached to
this Amendment shall have been duly executed and delivered by
each Guarantor.
5.3. No Default or Event of Default. No Default or
Event of Default shall have occurred and be continuing under
the Credit Agreement as of the effective date of this
Amendment.
6. Miscellaneous. This Amendment may be executed by one or
more of the parties to this Amendment on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument. This Amendment shall be governed by, and construed in
accordance with, the local laws of the State of Ohio.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, Borrower, Banks and Agent have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
BORROWER
M/I SCHOTTENSTEIN HOMES, INC.
Executed at Columbus, Ohio By
-----------------------------------------
Robert H. Schottenstein
Title: President, Assistant Secretary
and Vice Chairman
M/I HOMES, INC.
Executed at Scottsdale, Arizona
By
-----------------------------------------
Robert H. Schottenstein
Title: Vice Chairman
4
<PAGE> 5
BANKS
BANK ONE, NA,
as Agent and as a Bank
By
-----------------------------------------
Thomas E. Redmond
Title: Managing Director
THE HUNTINGTON NATIONAL BANK
By
-----------------------------------------
R. H. Friend
Title: Vice President
NATIONAL CITY BANK
By
-----------------------------------------
------------------------
Title: ________________
BANKBOSTON, N.A.
By
-----------------------------------------
Daniel L. Silbert
Title: Vice President
FIFTH THIRD BANK, CENTRAL OHIO
By
-----------------------------------------
Mark E. Ransom
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA,
5
<PAGE> 6
N.A.
By
-----------------------------------------
Donald Gaudette, Jr.
Title: Director/Vice President
AMSOUTH BANK
By
-----------------------------------------
Ronny Hudspeth
Title: Senior Vice President
COMERICA BANK
By
-----------------------------------------
Charles L. Weddell
Title: Vice President
FIRSTAR BANK, N.A.
By
-----------------------------------------
Roger W. Reeves
Title: Vice President
6
<PAGE> 7
GUARANTOR'S CONSENT AND REAFFIRMATION OF GUARANTY AGREEMENT
Each of the undersigned Guarantors hereby (a) acknowledges
that it has read the foregoing First Amendment to Fifth Restated Revolving
Credit Loan, Swingline Loan and Standby Letter of Credit Agreement made to be
effective as of February 29, 2000 (the "First Amendment"), and (b)(i) reaffirms
all of its obligations under the Guaranty Agreement dated as of November 23,
1999 (the "Guaranty Agreement") between Bank One, NA, agent, the undersigned and
each other Guarantor party thereto after giving effect to the First Amendment,
(ii) agrees that each reference to Credit Agreement and all words of similar
import in the Guaranty Agreement shall mean the Credit Agreement as amended by
the First Amendment and (iii) agrees that all of such Guarantor's
representations, warranties and covenants in the Guaranty Agreement shall
continue in full force and effect notwithstanding the First Amendment.
GUARANTORS
M/I FINANCIAL CORP., an Ohio corporation
By:_____________________________________
Paul S. Rosen
President
M/I HOMES CONSTRUCTION, INC., an Arizona
corporation
By:_____________________________________
Robert H. Schottenstein, Vice Chairman of M/I
Homes Construction, Inc.
NORTHEAST OFFICE VENTURE LIMITED
LIABILITY COMPANY, a Delaware limited
liability company, by M/I Schottenstein
Homes, Inc., its sole member
By:_____________________________________
Robert H. Schottenstein
President, Assistant Secretary and Vice Chairman
of M/I Schottenstein Homes, Inc.
7
<PAGE> 8
601RS, LLC, an Ohio limited liability company, by
M/I Schottenstein Homes, Inc., its sole
member
By:_________________________________________
Robert H. Schottenstein
President, Assistant Secretary and Vice Chairman
of M/I Schottenstein Homes, Inc.
M/I SCHOTTENSTEIN HOMES SERVICE
CORP., an Ohio corporation
By:_________________________________________
Robert H. Schottenstein
President of M/I Schottenstein Homes
Service Corp.
MHO, LLC, an Arizona limited liability company,
by M/I Homes, Inc., its sole member
By:_________________________________________
Robert H. Schottenstein
Vice Chairman of M/I Homes, Inc.
8
<PAGE> 1
Exhibit 10.33
M/I SCHOTTENSTEIN HOMES, INC.
EXECUTIVES' DEFERRED COMPENSATION PLAN
--------------------------------------
SECTION 1. PURPOSE
-------
The Company desires and intends to recognize the value to the Company and its
Affiliates of the past and present services of its Executives, to encourage
their continued service to the Company and its Affiliates and to be able to
attract and retain Executives by adopting and implementing this Plan to provide
such Executives an opportunity to defer compensation otherwise payable to them
from the Company and/or Affiliate. In addition, the Company desires to allow
such Executives an opportunity to invest in the Common Shares of the Company by
providing that amounts deferred under this Plan will be distributed in Common
Shares.
This Plan was initially adopted effective November 1, 1998 and is amended and
restated in its entirety as provided in this document effective on the date that
it is adopted by the Company.
SECTION 2. CERTAIN DEFINITIONS
-------------------
The following terms will have the meanings provided below.
"Additions" means the credits applied to Deferred Compensation Accounts
as provided in Section 4 hereof.
"Adjustment Date" means the last business day of each quarter of each
Plan Year during which the Plan is in effect. However, solely for purposes of
crediting dividends, this term means the last business day of the calendar month
during which the dividend is paid.
"Affiliate" means any organization or entity which, together with the
Company, is a member of a controlled group of corporations or of a commonly
controlled group of trades or businesses [as defined in Sections 414(b) and (c)
of the Code], or of an affiliated service group [as defined in Code Section
414(m)] or other organization described in Code Section 414(o).
"Annual Cash Bonus" means, with respect to any calendar year or other
period, the bonus which, absent its deferral hereunder, would be payable to a
Participant for services rendered as an Executive. However, the term will not
include any bonus or special distribution made in connection with any other
employer provided benefit or fringe benefit program,
"Beneficiary" means the person or persons designated in writing as such
and filed with the Plan Administrator at any time by a Participant. Any such
designation may be withdrawn or changed in writing (without the consent of the
Beneficiary), but only the last designation on file with the Plan Administrator
shall be effective.
<PAGE> 2
"Board" means the Board of Directors of the Company.
"Change of Control" means (i) the acquisition by any person or group of
persons (within the meaning of Section 13 or 14 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), other than Irving E. Schottenstein or
any of his immediate family members or lineal descendants, any heir of the
foregoing, any trust for the benefit of any of the foregoing, any private
charitable foundation or any partnership, limited liability company or
corporation owned or controlled by some or all of the foregoing, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 25 percent or more of the outstanding voting capital stock of the Company or
(ii) the failure of the directors of the Company on the date hereof (the
"Current Board"), or such directors who are elected or recommended or endorsed
for election to the board of directors of the Company by a majority of the
Current Board or their successors so elected, recommended or endorsed to
constitute a majority of the board of directors of the Company.
"Code" means the Internal Revenue Code of 1986, as may be amended from
time to time.
"Common Shares" means the common shares of the Company, par value $.01.
"Company" means M/I Schottenstein Homes, Inc., an Ohio corporation, its
subsidiaries, and any successor entity.
"Deferred Compensation Account" means the separate Deferred
Compensation Account established for each Participant pursuant to Section 4 of
the Plan.
"Disability" shall mean any condition which renders the Participant
unable to continue employment with the Company as determined by the Plan
Administrator, in the Plan Administrator's sole and absolute discretion.
"Discretionary Deferral" means the amount each Participant has elected
to be credited to such Participant's Deferred Compensation Account with respect
to any Plan Year pursuant to the terms of Section 4(B) of the Plan.
"Effective Date" means November 1, 1998.
"Executive" means those select management or highly compensated
employees whom the Board designates as eligible to participate in this Plan. As
of the Effective Date, these include those persons who are employed as the
Company's Chief Executive Officer; President; Chief Operating Officer; Senior
Vice President, Chief Financial Officer; Senior Vice President, Treasurer;
President Land Operations, General Counsel; Region Presidents, President,
Columbus Land; Vice President, Research and Design; Vice President, Research and
Design, Florida; Vice President, Marketing; Division Presidents; and the
President of M/I Financial.
2
<PAGE> 3
"Executive Stock Bonus Plan" means the separate incentive compensation
program extended by the Company to select members of its management from time to
time.
"Fair Market Value" of the Common Shares means the most recent closing
price of the Common Shares on any national securities exchange on which the
Common Shares are then listed.
"Mandatory Deferral" means the mandatory amount credited to each
Participant's Deferred Compensation Account with respect to any Plan Year,
pursuant to the terms of Section 4(B) of the Plan.
"Participant" has the meaning specified in Section 3 of the Plan.
"Plan" means the M/I Schottenstein Homes, Inc. Executives' Deferred
Compensation Plan, as reflected in this document, as the same may be amended
from time to time after the Effective Date.
"Plan Administrator" means the Company or the person or committee to
whom the Company has delegated all of its powers and duties to administer the
Plan.
"Plan Year" means the fiscal year of the Company.
"Retirement" means the Participant's voluntary termination of
employment with the Company after completing not less than ten years of
employment. Whether an Executive's termination was voluntary shall be as
determined by the Plan Administrator, in the Plan Administrator's sole and
absolute discretion.
"Termination Date" means the date of a Participant's termination of
employment with the Company for any reason other than Retirement or Disability.
"Trust" means the trust fund that, in the discretion of the Company,
may be established for purposes of segregating certain assets of the Company for
payment of benefits hereunder as the same may be amended from time to time. Such
Trust may be irrevocable, but the assets thereof shall, at all times, remain the
property of the Company subject to the claims of the Company's creditors.
SECTION 3. PARTICIPANTS
------------
Each person who is an Executive on the Effective Date shall be designated by the
Plan Administrator as eligible for participation in the Plan on the Effective
Date. Each individual who becomes an Executive after the Effective Date will be
eligible to participate in the Plan as of the date on which he becomes an
Executive or the date specified by the Plan Administrator, whichever is latest.
An Executive so designated shall immediately become a "Participant" in the Plan.
A Participant shall continue to participate in the Plan until his status as a
Participant is
3
<PAGE> 4
terminated by a complete distribution of his Deferred Compensation Account
pursuant to the terms of the Plan, by written directive of the Plan
Administrator or if he or she is no longer an Executive.
SECTION 4. DEFERRED COMPENSATION ACCOUNTS
------------------------------
A. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNTS. The Plan
Administrator will establish a Deferred Compensation Account for each
Participant. The Plan Administrator will establish a subaccount for each
participant for each Plan Year.
B. PARTICIPANT DEFERRALS. With respect to each Plan Year and subject to
the requirements and limits described in Section 4.H below, (i) five percent of
each Participant's Annual Cash Bonus will be credited to his or her Deferred
Compensation Account as a Mandatory Deferral and (ii) a Participant may elect to
have an additional portion of his or her Annual Cash Bonus credited to this
account as a Discretionary Deferral. Before June 30 of each Plan Year, each
Participant must advise the Plan Administrator in writing, on a form prescribed
by the Plan Administrator (each, a "Deferral Notice"), of the following: (a) the
number of Common Shares owned by such Participant (determined in accordance with
Section 4(H) below), (b) the amount of any Discretionary Deferral, and (c) the
date the Participant elects to receive distribution of the Mandatory Deferral
and the Discretionary Deferral for that Plan Year; provided, however, subject to
Section 5(D) of the Plan, the earliest date the Participant may elect to receive
distribution of the Mandatory Deferral and the Discretionary Deferral for any
Plan Year shall be the date which is three years after the end of that Plan
Year. Notwithstanding the preceding sentence, for Plan Year 1998, a Participant
may complete a Deferral Notice at any time prior to December 1, 1998. In the
event a Participant fails to deliver a Deferral Notice, (1) the Mandatory
Deferral shall be made (unless not required under the limits described in
Section 4(H) below), (2) no Discretionary Deferral shall be made, (3) the
Participant shall be deemed to have elected to receive distribution of the
Mandatory Deferral for that Plan Year on the date which is three years after the
end of that Plan Year, and (4) the Participant shall be deemed to have elected
to receive distribution upon a change in control under the terms of Section 5(D)
of the Plan. Each Deferral Notice shall apply only to Annual Cash Bonuses
payable to, or earned by, the Participant for that Plan Year. A Deferral Notice
relating to a particular Plan Year shall remain in effect for that Plan Year
unless and until changed by the Participant. A Participant may from time to
time, extend the date specified by the Participant for distribution of his or
her Mandatory Deferral and Discretionary Deferral for any Plan Year by
delivering an Amendment to Deferral Notice on a form prescribed by the Plan
Administrator (each, an "Amendment to Deferral Notice"), but only if the
Amendment to Deferral Notice is received by the Plan Administrator no later than
six months before the distribution date designated in the Deferral Notice or
Amendment to Deferral Notice then in effect.
C. EXECUTIVE STOCK BONUS PLAN AWARDS. Amounts awarded under the
Executive Stock Bonus Plan during any Plan Year also will be credited to the
recipient's Deferred Compensation Account and distributed as if it were a
Mandatory Deferral for that Plan Year.
4
<PAGE> 5
D. COMPANY CONTRIBUTIONS. After the end of each Plan Year, the Company
will allocate to the Participant's Deferred Compensation Account for that Plan
Year, the percentage of the Annual Cash Bonus equal to the aggregate of (i) the
amount required as a Mandatory Deferral, and (ii) the amount specified as the
Discretionary Deferral in the Deferral Notice. Any amounts so allocated by the
Company are called "Company Contributions."
E. ADJUSTMENT OF ACCOUNT BALANCES. The amount credited to the annual
Deferred Compensation Account of each Participant for each Plan Year shall be
divided by the average Fair Market Value of the Common Shares determined as of
the last four Adjustment Dates. Upon completion of this calculation, each
Deferred Compensation Account shall be credited with the resulting number of
whole Common Shares and any remaining amounts shall continue to be credited to
the Deferred Compensation Account until converted to whole Common Shares based
on their Fair Market Value as of the most recent Adjustment Date. The Deferred
Compensation Account of each Participant shall be credited with cash dividends
on Common Share at the times and equal in amount to the cash dividends actually
paid with respect to Common Shares on and after the date credited to the
Deferred Compensation Account. The amount of cash dividends credited to each
Deferred Compensation Account (and any other amounts then credited to such
account) shall be divided by the then Fair Market Value of the Common Shares
determined as of the most recent Adjustment Date; and the Deferred Compensation
Account of each Participant shall be credited with the resulting number of whole
Common Shares and any remaining amounts shall continue to be credited to the
Deferred Compensation Account until it may be converted to whole Common Shares
based on their Fair Market Value as of the most recent Adjustment Date. The Plan
Administrator may prescribe any reasonable method or procedure for the
accounting of for these adjustments.
F. STOCK ADJUSTMENTS. The number of Common Shares in the Deferred
Compensation Account of each Participant and the minimum and maximum share
limits described in Section 4.H shall be adjusted from time to time to reflect
stock splits, stock dividends or other changes in the Common Shares resulting
from a change in the Company's capital structure.
G. PARTICIPANT'S RIGHTS IN ACCOUNTS. A Participant's only right with
respect to his Deferred Compensation Account (and amounts allocated thereto)
will be to receive distributions in accordance with the provisions of Section 5
of the Plan.
H. LIMITS ON DEFERRALS. The mandatory deferral described in Section 4.B
will not be applied in any year for which a Participant's Annual Cash Bonus
(before application of the Participant's Deferral Notice) is less than $50,000.
If the Annual Cash Bonus for any year is $50,000 or larger, the Mandatory
Deferral will be applied to the entire amount of the bonus, not just the portion
that exceeds $50,000. The Mandatory Deferral will not be required with respect
to any Plan Year, if contemporaneously with such Participant's delivery of the
Deferral Notice for that Plan Year, the Participant provides evidence acceptable
to the Plan Administrator establishing that the Participant "owns" a number of
Common Shares greater than or equal to the minimum number of Common Shares
required of such Participant as set forth in the following table. For purposes
of the immediately preceding sentence, the number of Common Shares "owned" by a
Participant shall be the aggregate of (i) the number of Common Shares then
credited to the Participant's Deferred Compensation Account, plus (ii) the
number of Common Shares the Participant owns individually (i.e. without regard
to this Plan), plus (iii) the number of Common Shares the Participant owns
indirectly by application of Section 318 of the Code. If the completion of the
Mandatory Deferral for a Participant (i.e. the credit of 5% of the Participant's
Annual Cash Bonus) for any Plan Year would result in the Participant
5
<PAGE> 6
"owning" (as determined in accordance with the immediately preceding sentence)
more than the minimum number of Common Shares required of such Participant as
set forth in the following table, the amount of the Mandatory Deferral for that
Plan Year shall be automatically reduced to the extent necessary so that the
amount owned by the Participant is equal to the minimum number of Common Shares
required of such Participant as set forth in the following table. A
Discretionary Deferral will not be permitted with respect to any Plan Year, if
at the end of that Plan Year, the number of Common Shares then credited to the
Participant's Deferred Compensation Account is greater than or equal to, the
maximum number of Common Shares permitted to be credited to such Participant's
Deferred Compensation Account as set forth in the following table. If the
completion of a Discretionary Deferral for any Plan Year would result in the
number of Common Shares credited to the Participant's Deferred Compensation
Account to be greater than the maximum number of Common Shares permitted to be
credited to such Participant's Deferred Compensation Account as set forth in the
following table, the amount of the Discretionary Deferral for that Plan Year
shall be automatically reduced to the extent necessary so that the number of
Common Shares credited to such Participant's Deferred Compensation Account is
equal to the maximum number of Common Shares permitted to be credited to such
Participant's Deferred Compensation Account as set forth in the following table.
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
(b) (c)
TITLE MINIMUM NUMBER OF COMMON SHARES MAXIMUM NUMBER OF COMMON SHARES
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Chief Executive Officer None None
- ---------------------------------------- -------------------------------------- --------------------------------------
President None None
- ---------------------------------------- -------------------------------------- --------------------------------------
Chief Operating Officer
None None
- ---------------------------------------- -------------------------------------- --------------------------------------
Senior Vice President, Chief Financial 10,000 None
Officer
- ---------------------------------------- -------------------------------------- --------------------------------------
Senior Vice President, Treasurer 10,000 None
- ---------------------------------------- -------------------------------------- --------------------------------------
President Land Operations, General 10,000 None
Counsel
- ---------------------------------------- -------------------------------------- --------------------------------------
Region Presidents 10,000 10,000
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
6
<PAGE> 7
<TABLE>
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
President, M/I Financial 10,000 10,000
- ---------------------------------------- -------------------------------------- --------------------------------------
Vice President, Research and 5,000 7,500
Development
- ---------------------------------------- -------------------------------------- --------------------------------------
Vice President, Marketing 5,000 7,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Division Presidents 5,000 7,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Other Executives To be established To be established
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
SECTION 5. PAYMENT OF DEFERRED BENEFITS
----------------------------
A. TIME OF PAYMENT. Distribution of a Participant's Deferred
Compensation Account for a specific Plan Year shall be made within sixty (60)
days of the earlier of (i) the date specified by the Participant in the Deferral
Notice delivered to the Plan Administrator or in any properly delivered
Amendment to Deferral Notice; (ii) the Participant's Termination Date.
B. METHOD OF DISTRIBUTION. The Common Shares credited to a
Participant's Deferred Compensation Account (as adjusted in accordance with the
terms of Sections 4(E) and 4(F)) with respect to each Plan Year, shall be
distributed to the Participant in a single bulk distribution of such Common
Shares in accordance with the Participant's Deferral Notice or Amendment to
Deferral Notice then in effect for that Plan Year or, if no Deferral Notice has
been given, then in accordance with the terms of this Agreement.
C. HARDSHIP DISTRIBUTIONS. Prior to the time all or any portion of a
Participant's Deferred Compensation Account becomes payable with respect to any
Plan Year, the Plan Administrator, in its sole discretion, may elect to
distribute all or a portion of such account in the event such Participant
requests a distribution due to severe financial hardship. For purposes of this
Plan, severe financial hardship shall be deemed to exist in the event the Plan
Administrator determines that a Participant needs a distribution to meet
immediate and heavy financial needs resulting from a sudden or unexpected
illness or accident of the Participant or a member of the Participant's family,
loss of the Participant's property due to casualty or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant. A distribution based on financial
hardship shall not exceed the amount required to meet the immediate financial
need created by the hardship and shall be made by distributing the smaller of
(i) the number of Common Shares credited to his or her Deferred Compensation
Account or (ii) the number of Common Shares with a Fair Market Value equal to
the amount needed to meet the financial hardship, reduced by the maximum amount
that the Participant could borrow or withdraw from any other deferred
compensation program in which he or she participates, including a plan described
in Section 401(a) of the Code.
7
<PAGE> 8
D. CHANGE OF CONTROL. Regardless of any other Plan provision to the
contrary, the portion of a Participant's Deferred Compensation Account
applicable to any Plan Year will be distributed as soon as administratively
practical (but no later than 60 days) after a Change of Control but only if the
Participant elected this distribution event in his or her Deferral Notice or
Amendment to Deferral Notice then in effect for that Plan Year. Any election a
Participant makes in his or her Deferral Notice with respect to a distribution
after a Change of Control may be changed by delivering an Amendment to Deferral
Notice to the Plan Administrator before the Change of Control occurs. Any
modification made after that date will not be implemented.
E. DESIGNATION OF BENEFICIARY. Upon the death of a Participant prior to
the distribution of his Deferred Compensation Account, such Deferred
Compensation Account shall be paid to the Beneficiary designated by the
Participant. If there is no designated Beneficiary or no designated Beneficiary
surviving at a Participant's death, payment of the Participant's Deferred
Compensation Account shall be made to the Participant's estate.
F. Taxes. In the event any taxes are required by law to be withheld or
paid from any payments made pursuant to the Plan, the Plan Administrator shall
pay these taxes from the proceeds of a personal check which the Participant
shall give the Plan Administrator to pay these taxes. The Plan Administrator
will pay these amounts to the appropriate taxing authority.
SECTION 6. ASSIGNMENT OR ALIENATION
------------------------
The right of a Participant, Beneficiary or any other person to the payment of a
benefit under this Plan may not be assigned, transferred, pledged or encumbered
except by will or by the laws of descent and distribution.
SECTION 7. PLAN ADMINISTRATION
-------------------
The Plan Administrator will have the right to interpret and construe the Plan
and to determine all questions of eligibility and of status, rights and benefits
of Participants and all other persons claiming benefits under the Plan. In all
such interpretations and constructions, the Plan Administrator's determination
will be based upon uniform rules and practices applied in a nondiscriminatory
manner and will be binding upon all persons affected thereby. Subject to the
provisions of Section 8 below, any decision by the Plan Administrator with
respect to any such matters will be final and binding on all parties. The Plan
Administrator will have absolute discretion in carrying out its responsibilities
under this Section 7.
8
<PAGE> 9
SECTION 8. CLAIMS PROCEDURE
----------------
A. FILING CLAIMS. Any Participant or Beneficiary entitled to benefits
under the Plan will file a claim request with the Plan Administrator.
B. NOTIFICATION TO CLAIMANT. If a claim is wholly or partially denied,
the Plan Administrator will furnish to the claimant a notice of the decision
within ninety (90) days in writing and in a manner calculated to be understood
by the claimant, which notice will contain the following information:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions upon which the
denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary;
and
(iv) an explanation of the Plan's claims review procedure
describing the steps to be taken by a claimant who wishes to
submit his claims for review.
C. REVIEW PROCEDURE. A claimant or his authorized representative may,
with respect to any denied claim:
(i) request a review upon a written application filed within sixty
(60) days after receipt by the claimant of written notice of
the denial of his claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
Any request or submission will be in writing and will be directed to the Plan
Administrator (or its designee). The Plan Administrator (or its designee) will
have the sole responsibility for the review of any denied claim and will take
all steps appropriate in the light of its findings.
D. DECISION ON REVIEW. The Plan Administrator (or its designee) will
render a decision upon review. If special circumstances (such as the need to
hold a hearing on any matter pertaining to the denied claim) warrant additional
time, the decision will be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the request for review. Written
notice of any such extension will be furnished to the claimant prior to the
commencement of the extension. The decision on review will be in writing and
will include specific reasons for the decision, written in a manner calculated
to be understood by the claimant, as well as specific references to the
pertinent provisions of the Plan on which the decision is
9
<PAGE> 10
based. If the decision on review is not furnished to the claimant within the
time limits prescribed above, the claim will be deemed denied on review.
SECTION 9. UNSECURED AND UNFUNDED OBLIGATION
---------------------------------
Notwithstanding any provision herein to the contrary, the benefits offered under
the Plan shall constitute an unfunded, unsecured promise by the Company to pay
benefits determined hereunder which are accrued by Participants while such
Participants are Executives. No provision shall at any time be made with respect
to segregating any assets of the Company for payment of any benefits hereunder,
except to the extent that the Company, in its discretion, establishes a Trust
for such purpose. To the extent any benefits provided under the Plan are
actually paid from a Trust, neither the Company nor any Affiliate shall have any
further obligation therefor, but to the extent not so paid, such benefits shall
remain the obligations of, and shall be paid by, the Company. No Participant,
Beneficiary or any other person shall have any interest in any particular assets
of the Company or any Affiliate by reason of the right to receive a benefit
under the Plan and any such Participant, Beneficiary or other person shall have
only the rights of a general unsecured creditor of the Company with respect to
any rights under the Plan. Nothing contained in the Plan shall constitute a
guaranty by the Company, any Affiliate or any other entity or person that the
assets of the Company will be sufficient to pay any benefit hereunder. All
expenses and fees incurred in the administration of the Plan and of any Trust
shall be paid by the Company, provided that, in the event that a Trust is
established, at the direction of the Company, such expenses and fees shall be
paid from the Trust, provided that such amounts are not paid by the Company or
an Affiliate.
SECTION 10. AMENDMENT AND TERMINATION OF THE PLAN
-------------------------------------
The Company reserves the right, by a resolution of the Board, to amend the Plan
at any time, and from time to time, in any manner which it deems desirable,
provided that no amendment will adversely affect the accrued benefits of any
Participant under the Plan. The Company also reserves the right, by a resolution
of the Board, to terminate this Plan at any time without providing any advance
notice to any Participant; and in the event of any Plan termination, the Company
reserves the right to then distribute all amounts allocated to Participants'
Deferred Compensation Accounts.
SECTION 11. BINDING UPON SUCCESSORS
-----------------------
The Plan shall be binding upon and inure to the benefit of the Company, its
successors and assigns and the Participants and their heirs, executors,
administrators and legal representatives. In the event of the merger or
consolidation of the Company with or into any other corporation, or in the event
substantially all of the assets of the Company shall be transferred to another
corporation, the successor corporation resulting from the merger or
consolidation, or the transferee of such assets, as the case may be, shall, as a
condition to the consummation of the
10
<PAGE> 11
merger, consolidation or transfer, assume the obligations of the Company
hereunder and shall be substituted for the Company hereunder.
SECTION 12. NO GUARANTEE OF PLAN PERMANENCY
-------------------------------
This Plan does not contain any guarantee of provisions for continued service on
the Board to any Executive or Participant nor is it guaranteed by the Company to
be a permanent plan.
SECTION 13. GENDER
------
Any reference in the Plan made in the masculine pronoun shall apply to both men
and women.
SECTION 14. INCAPACITY OF RECIPIENT
-----------------------
In the event that a Participant or Beneficiary is declared incompetent and a
guardian, conservator or other person legally charged with the care of his
person or of his estate is appointed, any benefits under the Plan to which such
Participant or Beneficiary is entitled shall be paid to such guardian,
conservator or other person legally charged with the care of his person or his
estate. Except as provided hereinabove, when the Plan Administrator, in its sole
discretion, determines that a Participant or Beneficiary is unable to manage his
financial affairs, the Plan Administrator may, but shall not be required to,
direct distribution(s) to any one or more of the spouse, lineal ascendants or
descendants or other closest living relatives of such Participant or Beneficiary
who demonstrates to the satisfaction of the Plan Administrator the propriety of
making such distribution(s). Any payment made under this Section 14 shall be in
complete discharge of any liability under the Plan for such payment. The Plan
Administrator shall not be required to see to the application of any such
distribution made to any person.
SECTION 15. GOVERNING LAW
-------------
This Plan shall be construed in accordance with and governed by the laws of the
State of Ohio.
SECTION 16. INABILITY TO LOCATE PARTICIPANT OR BENEFICIARY
----------------------------------------------
Each Participant is obliged to keep the Plan Administrator apprised of his or
her current mailing address and that of his or her Beneficiary. The Plan
Administrator's obligation to search for any Participant or Beneficiary is
limited to sending a registered or certified letter to the Participant's or
Beneficiary's last known address. Any amounts credited to the Deferred
Compensation Account of any Participant or Beneficiary that does not present
himself or herself to the Plan Administrator will be forfeited no later than 12
months after that benefit otherwise would have been payable. However, this
forfeited benefit will be restored and paid if the Plan Administrator
11
<PAGE> 12
subsequently receives a claim for benefits which is approved under the
procedures described in Section 8.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
a duly authorized officer as of the _____ day of ___________, 2000.
M/I SCHOTTENSTEIN HOMES, INC.
By:_______________________________________
Its:_______________________________________
12
<PAGE> 1
Exhibit 13
1999 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
Selected Consolidated Financial Data
- --------------------------------------------------------------------------------
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT: (Year Ended December 31)
Revenue $ 852,445 $ 739,613 $ 614,004 $ 577,192 $ 527,822
Gross margin $ 184,570 $ 151,114 $ 119,341 $ 109,103 $ 95,861
Income before extraordinary loss $ 41,611 $ 27,651 $ 17,437 $ 14,110 $ 9,876
Income per common share before
extraordinary loss:
Basic $ 4.75 $ 3.29 $ 2.15 $ 1.60 $ 1.12
Diluted $ 4.68 $ 3.26 $ 2.14 $ 1.60 $ 1.12
Weighted average common shares outstanding:
Basic 8,761,822 8,392,560 8,108,293 8,800,000 8,800,000
Diluted 8,883,189 8,487,872 8,150,015 8,818,543 8,800,000
Dividends per common share $ 0.20 $ 0.15 -- -- --
BALANCE SHEET: (December 31)
Total assets $ 531,562 $ 427,147 $ 366,020 $ 305,359 $ 281,143
Notes and mortgage notes payable $ 162,075 $ 105,293 $ 113,950 $ 100,345 $ 102,549
Subordinated notes $ 50,000 $ 50,000 $ 50,000 $ 25,000 $ 24,513
Stockholders' equity $ 200,512 $ 166,640 $ 115,506 $ 112,319 $ 99,496
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SELECTED CONSOLIDATED QUARTERLY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- ---------------------------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
(Dollars in thousands, except per share amounts) 1999 1999 1999 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New contracts, net 888 819 1,198 1,167
Homes delivered 1,154 1,097 1,001 689
Backlog 2,154 2,420 2,698 2,501
Total revenue $ 255,002 $ 235,106 $ 213,513 $ 148,824
Gross margin $ 53,727 $ 50,307 $ 46,301 $ 34,235
Income before income taxes $ 18,558 $ 20,071 $ 17,475 $ 12,676
Net income $ 1,228 $ 12,143 $ 10,571 $ 7,669
Net income per common share:
Basic $ 1.30 $ 1.38 $ 1.20 $ 0.87
Diluted $ 1.28 $ 1.36 $ 1.18 $ 0.86
Weighted average common shares outstanding:
Basic 8,657,695 8,782,259 8,796,249 8,812,283
Diluted 8,772,940 8,915,592 8,938,142 8,918,866
Dividends per common share $ 0.05 $ 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) 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>
20
<PAGE> 2
1999 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
Segment Information
- --------------------------------------------------------------------------------
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
Our reportable segments are strategic business units that offer different
products and services. The business segments are defined as homebuilding and
financial services. The homebuilding operations include the construction and
sale of single-family attached and detached homes and the development and sale
of land. 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 our 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 income includes interest from other segments.
Unallocated expenses include salaries and other administrative expenses which
are not identifiable with a specific segment. Unallocated assets consist
primarily of cash, deferred taxes and other assets not associated with a
specific business segment.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Homebuilding $ 839,689 $ 729,103 $ 607,812
Financial services 17,290 14,609 10,627
Intersegment (4,534) (4,099) (4,435)
- -----------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 852,445 $ 739,613 $ 614,004
=================================================================================================================
Depreciation and Amortization:
Homebuilding $ 1,487 $ 999 $ 857
Financial services 106 77 117
Unallocated amounts 645 685 649
- -----------------------------------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 2,238 $ 1,761 $ 1,623
=================================================================================================================
Interest Expense:
Homebuilding $ 14,221 $ 12,744 $ 11,583
Financial services 179 384 159
Unallocated amounts - - -
- -----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 14,400 $ 13,128 $ 11,742
=================================================================================================================
Income Before Income Taxes:
Homebuilding $ 51,006 $ 36,523 $ 23,947
Financial services 10,459 8,209 5,494
Unallocated amounts 7,315 1,821 (19)
- -----------------------------------------------------------------------------------------------------------------
TOTAL INCOME BEFORE INCOME TAXES $ 68,780 $ 46,553 $ 29,422
=================================================================================================================
Income Taxes:
Homebuilding $ 20,388 $ 15,354 $ 10,097
Financial services 3,857 2,782 1,896
Unallocated amounts 2,924 766 (8)
- -----------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAXES $ 27,169 $ 18,902 $ 11,985
=================================================================================================================
Assets:
Homebuilding $ 477,271 $ 362,362 $ 301,269
Financial services 38,945 42,132 44,223
Unallocated amounts 15,346 22,653 20,528
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 531,562 $ 427,147 $ 366,020
=================================================================================================================
Capital Expenditures:
Homebuilding $ 1,142 $ 967 $ 7,723
Financial services 208 82 180
Unallocated amounts 175 183 605
- -----------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL EXPENDITURES $ 1,525 $ 1,232 $ 8,508
=================================================================================================================
</TABLE>
21
<PAGE> 3
1999 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
Management's Discussion & Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
CONSOLIDATED
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
TOTAL REVENUE. Total revenue for 1999 was $852.4 million, another
record and an increase of $112.8 million over 1998. The overall increase was the
result of an increase of $110.6 million in homebuilding revenue and a $2.7
million increase in financial services revenue. The increase in homebuilding was
the result of growth of $117.5 million in housing revenue offset by a $6.9
million decline in land revenue. Housing increased as a result of an 8.6%
increase in the number of Homes Delivered and a 7.4% increase in the average
sales price of Homes Delivered in comparison to 1998. The decrease in land
revenue was primarily due to a decrease in lot sales to outside homebuilders in
the Washington, D.C. market. The increase of $2.7 million in financial services
revenue occurred as a result of increases in the number of loans originated, the
average loan amount and revenue earned from the sale of loans.
INCOME BEFORE INCOME TAXES. Income before income taxes increased $22.2
million over 1998. The increase related to homebuilding and financial services,
for which income before income taxes increased by $14.5 million and $2.3
million, respectively. The increase in homebuilding was due to an increase in
the number and average sales price of Homes Delivered. In addition, housing
gross margin increased from 19.3% in 1998 to 20.2% in 1999. The increase in
income before income taxes for financial services was primarily the result of a
significant increase in income from the sale of loans due to increases in loan
volume and the average loan amount, and the favorable interest rate environment
during the last part of 1998 and early 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
TOTAL REVENUE. Total revenue for 1998 of $739.6 million 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 revenue earned 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 homebuilding, which
increased from $23.9 million to $36.5 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 the significant increase in income
from the sale of loans due to increased loan volume and the favorable interest
rate environment during 1997 and throughout 1998.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
We have experienced, and expect 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. We believe 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 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
(Dollars in thousands) 1999 1999 1999 1999
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $255,002 $235,106 $213,513 $148,824
Unit data:
New contracts, net 888 819 1,198 1,167
Homes delivered 1,154 1,097 1,001 689
Backlog at end of
period 2,154 2,420 2,698 2,501
</TABLE>
<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>
22
<PAGE> 4
1999 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
Management's Discussion & Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
HOMEBUILDING SEGMENT
The following table sets forth certain information related to our homebuilding
segment:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Housing sales $823,159 $705,620 $578,185
Lot and land sales 14,959 21,873 26,814
Other income 1,571 1,610 2,813
- -----------------------------------------------------------------------
Total revenue $839,689 $729,103 $607,812
- -----------------------------------------------------------------------
Revenue:
Housing sales 98.0% 96.9% 95.4%
Lot and land sales 1.8 3.0 4.4
Other income 0.2 0.1 0.2
- -----------------------------------------------------------------------
Total revenue 100.0 100.0 100.0
Land and housing costs 80.5 81.7 82.1
- -----------------------------------------------------------------------
Gross Margin 19.5 18.3 17.9
General and administrative
expenses 2.9 3.0 3.1
Selling expenses 6.4 6.5 6.6
- -----------------------------------------------------------------------
Operating Income 10.2 8.8 8.2
Allocated expenses 4.1 3.8 4.2
- -----------------------------------------------------------------------
Income Before Income Taxes 6.1% 5.0% 4.0%
- -----------------------------------------------------------------------
MIDWEST REGION
Unit data:
New contracts, net 2,523 2,524 2,059
Homes delivered 2,454 2,259 1,910
Backlog at end of period 1,391 1,322 1,057
Average sales price of
homes in Backlog $ 192 $ 183 $ 178
Aggregate sales value of
homes in Backlog $267,000 $242,000 $188,000
Number of active subdivisions 73 73 75
- -----------------------------------------------------------------------
FLORIDA REGION
Unit data:
New contracts, net 696 730 700
Homes delivered 662 652 666
Backlog at end of period 367 333 255
Average sales price of
homes in Backlog $ 214 $ 196 $ 188
Aggregate sales value of
homes in Backlog $ 78,000 $ 65,000 $ 48,000
Number of active subdivisions 24 27 30
- -----------------------------------------------------------------------
NORTH CAROLINA, VIRGINIA AND
MARYLAND, AND ARIZONA REGION
Unit data:
New contracts, net 853 854 600
Homes delivered 825 718 576
Backlog at end of period 396 368 232
Average sales price of
homes in Backlog $ 365 $ 359 $ 303
Aggregate sales value of
homes in Backlog $145,000 $132,000 $ 70,000
Number of active subdivisions 38 40 35
- -----------------------------------------------------------------------
TOTAL
Unit data:
New contracts, net 4,072 4,108 3,359
Homes delivered 3,941 3,629 3,152
Backlog at end of period 2,154 2,023 1,544
Average sales price of
homes in Backlog $ 228 $ 217 $ 198
Aggregate sales value of
homes in Backlog $490,000 $439,000 $306,000
Number of active subdivisions 135 140 140
- -----------------------------------------------------------------------
</TABLE>
A home is included in "New Contracts" when our standard sales contract is
executed. "Homes Delivered" represents homes for which the closing of the sale
has occurred and title has transferred to the buyer.
"Backlog" represents homes for which the standard sales contract has been
executed, but which are not included in Homes Delivered because closings for
these homes have not yet occurred as of the end of the period specified. Most
cancellations of contracts for homes in Backlog occur because customers cannot
qualify for financing and usually occur prior to the start of construction.
Since we arrange financing with guaranteed rates for many of our customers, the
incidence of cancellations after the start of construction is low. The
cancellation rate of homes in backlog at December 31, 1998, 1997 and 1996 was
11.1%, 12.8% and 14.1%, respectively. Unsold speculative homes, which are in
various stages of construction, totaled 135, 159 and 158 at December 31, 1999,
1998 and 1997, respectively.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
TOTAL REVENUE. Total revenue for the homebuilding segment was $839.7, an
increase of $110.6 from 1998 to 1999. This increase was due to a 16.7% increase
in housing revenue offset by a 31.6% decrease in land revenue. The increase in
housing revenue was partially due to an increase of 8.6% in the number of Homes
Delivered. Homes Delivered increased in the majority of our markets, but most
significantly in Charlotte, Indianapolis, Phoenix and Tampa. Housing also
experienced an increase of 7.4% in the average sales price of Homes Delivered.
This increase occurred in the majority of our markets due to product mix and
higher land and regulatory costs which were passed on to the home buyer. The
Phoenix market had a significant affect on the increase due to both increased
closings and a substantially higher average sales price. The decrease in land
revenue of $6.9 million was primarily attributable to the Washington, D.C.
market, where both the Virginia and Maryland divisions had decreases in lot
sales to outside homebuilders in comparison to 1998.
HOME SALES AND BACKLOG. New Contracts recorded in 1999 were slightly
lower than the prior year. New Contracts recorded were lower in all of our
regions. New Contracts recorded in January 2000 were 11.8% lower than New
Contracts recorded in January 1999; however, it was the third best January in
our history. We believe the decrease overall was mainly attributable to an
increase in sales prices, as a result of increased material and labor costs, and
three increases in the prime lending rate during the third and fourth quarters
of 1999. The number of New Contracts recorded in future periods will be
dependent on numerous factors, including future economic conditions, timing of
land development, consumer confidence, number of subdivisions and interest rates
available to potential home buyers.
23
<PAGE> 5
1999 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
Management's Discussion & Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
At December 31, 1999, the total sales value of the Company's Backlog of
2,154 homes was approximately $490.0 million, representing an 11.6% increase in
sales value and a 6.5% increase in units over the levels reported at December
31, 1998. The average sales price of homes in Backlog increased 5.1% from
December 31, 1998 to December 31, 1999. This increase was primarily due to
increases in markets where we are building in more upscale and certain niche
subdivisions.
GROSS MARGIN. The gross margin for the homebuilding segment was 19.5% for
1999, an increase of 1.2% over 1998. The increase consisted of an increase in
gross margin from housing sales of 0.9% and an increase in gross margin from
land and lot sales of 14.4%. The increase in housing gross 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 increase was also due to an increase in
internally developed land. The increase in land and lot sales gross margin was
due to the sale of land in Maryland at an unusually high margin. Lot and land
gross margins can vary significantly depending on the sales price, the cost of
the subdivision and the stage of development in which the sale takes place.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $21.9 million or 3.0% of total revenue for 1998 to $24.3 million
or 2.9% of total revenue for 1999. While the percentage remained fairly
constant, the increase in expense was primarily attributable to the increase in
payroll and related costs required to support the growth in income and
operations.
SELLING EXPENSES. Selling expenses increased from $47.1 million or 6.5%
in 1998 to $53.4 million or 6.4% in 1999. While the percentage remained
relatively stable, the increase in expense was due to the increases in sales
commissions paid to outside Realtors and internal salespeople as a result of the
increase in Homes Delivered.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
TOTAL REVENUE. Total revenue for the homebuilding segment for 1998 was
$729.1 million, a 20.0% 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 our 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 our 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 our
markets. We believe the increase in New Contracts was partially due to favorable
market conditions and low interest rates.
At December 31, 1998, the total sales value of our 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 markets where
we are building in more upscale and certain niche subdivisions.
GROSS MARGIN. The overall gross margin for the homebuilding segment was
18.3% 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. We have 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 1998. Lot and
land gross margins can vary significantly depending on the sales price, the cost
of the subdivision and the phase in which the sale takes place.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $18.6 million for 1997 to $21.9 million for 1998. However,
general and administrative expenses as a percentage of total revenue decreased
from 3.1% from 1997 to 3.0% for 1998. The increase in expense was primarily
attributable to an increase in real estate taxes and incentive compensation.
Real estate taxes increased in 1998 as our 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 $47.1 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
24
<PAGE> 6
1999 M/I SCHOTTENSTEIN HOMES, INC. ANNUAL REPORT
Management's Discussion & Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
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.
FINANCIAL SERVICES SEGMENT
The following table sets forth certain information related to our financial
services segment:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1999 1998 1997
===========================================================
<S> <C> <C> <C>
Number of loans
originated 3,102 2,958 2,395
Revenue:
Loan origination fees $ 4,633 $ 3,931 $ 3,212
Sale of loans 7,331 6,256 4,522
Other 5,326 4,422 2,893
===========================================================
Total Revenue 17,290 14,609 10,627
- -----------------------------------------------------------
General & administrative
expenses 6,831 6,400 5,133
- -----------------------------------------------------------
Operating Income $10,459 $ 8,209 $ 5,494
- -----------------------------------------------------------
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
TOTAL REVENUE. Total revenue for the year ended December 31, 1999 was
$17.3 million, an 18.4% increase over the $14.6 million recorded for 1998. Loan
origination fees increased 17.9% from 1998 to 1999. The increase was due to a
4.9% increase in the number of loans originated during 1999 compared to 1998,
along with an increase in the average loan amount. At December 31, 1999, M/I
Financial was operating in eight of our eleven markets. Of these eight markets,
88% of our Homes Delivered were financed through M/I Financial.
Revenue from the sale of loans increased 17.2% to $7.3 million in 1999.
The increase was primarily due to more mortgages originated during 1999 as
compared to 1998. We also continued to concentrate on the securitization of
loans with FNMA and FHLMC. The increase was also due to more favorable terms
negotiated with investors, resulting in an increase in servicing release
premiums. The increase was also caused by favorable market conditions during the
last part of 1998 and early part of 1999. M/I Financial uses hedging methods
whereby it has the option, but is not required, to complete the hedging
transaction.
Revenue from other sources increased 20.4% from 1998 to 1999. This
increase was primarily due to increased earnings from title services as a result
of increased closings. Additionally, we expanded into the Washington, D.C. title
agency market in early 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1999 were $6.8 million, a 6.7% increase over
1998. This was mainly due to an increase in general expenses to support the
growth related to origination and title services.
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 our
eleven markets. Of these eight markets, 90% of our Homes Delivered were financed
through M/I Financial.
Revenue from the sale of loans 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, favorable market conditions during the second, third and fourth
quarters of 1998 and the continued shift toward fixed rate loans. We also
concentrated on the securitization of loans with FNMA and FHLMC. 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 our 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.
OTHER OPERATING RESULTS
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses increased to $17.5 million in 1999 from $16.4 million in
1998. However, as a percentage of total revenue, general and administrative
expenses decreased from 2.2% to 2.1%. The increase in expense was primarily
attributable to an increase in incentive
25
<PAGE> 7
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
Management's Discussion & Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
compensation and charitable contributions expensed in 1999 due to the
significant increase in net income.
Corporate general and administrative expenses increased to $16.4 million
in 1998 from $14.5 million in 1997. However, as a percentage of total revenue,
general and administrative expenses for 1998 and 1997 decreased from 2.4% to
2.2%. The increase in expense was primarily attributable to an increase in
incentive compensation, profit sharing and charitable contributions in 1998 due
to the significant increase in net income.
INTEREST EXPENSE. Homebuilding interest expense for 1999 increased to
$14.2 million from $12.7 million in 1998. Interest expense was higher in 1998
due to an increase in the average borrowings outstanding which increased due to
a significant increase in our backlog and land inventories. This was partially
offset by a decrease in the weighted average interest rate and an increase in
capitalized interest. Capitalized interest increased due to a significant
increase in land under development.
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 our backlog and land inventories. Also, in 1998, we
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 on which we do not capitalize interest.
INCOME TAXES. The effective tax rate decreased from 40.6% to 39.5% from
1998 to 1999. The decrease is primarily attributed to lower state taxes in 1999.
The effective tax rate decreased slightly from 40.7% to 40.6% from 1997
to 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our financing needs depend upon our sales volume, asset turnover, land
acquisition and inventory balances. We have incurred substantial indebtedness,
and may incur substantial indebtedness in the future, to fund the growth of our
homebuilding activities. Our principal source of funds for construction and
development activities has been from internally generated cash and from bank
borrowings, which are primarily unsecured.
NOTES PAYABLE BANKS. At December 31, 1999, we had bank borrowings
outstanding of $132.0 million under our Bank Credit Facility. The Bank Credit
Facility permits aggregate borrowings, other than for the issuance of letters of
credit, not to exceed the lesser of: (i) $250.0 million and (ii) our borrowing
base. 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. In 1999, the banks did not extend the maturity date. 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.
An additional $15.4 million was outstanding as of December 31, 1999 under
the M/I Financial loan agreement, which permits borrowings of $30.0 million to
finance mortgage loans initially funded by M/I Financial for our customers and a
limited amount for loans to others. The Company and M/I Financial are
co-borrowers under the M/I Financial loan agreement. This agreement limits the
borrowings to 95% of the aggregate face amount of certain qualified mortgages.
The agreement terminates on June 22, 2001, at which time the unpaid balance is
due.
At December 31, 1999, we had the right to borrow up to $280.0 million
under our credit facilities, including $30.0 million under the M/I Financial
loan agreements. At December 31, 1999, we had $132.6 million of unused borrowing
availability under our loan agreements. We also had approximately $48.5 million
of completion bonds and letters of credit outstanding at December 31, 1999.
SUBORDINATED NOTES. At December 31, 1999, there was outstanding $50.0
million of Senior Subordinated Notes. The notes bear interest at a fixed rate of
9.51% and mature August 29, 2004.
LAND AND LAND DEVELOPMENT. Over the past several years, our land
development activities and land holdings have increased significantly.
Single-family lots, land and land development costs increased 49.5% from
December 31, 1998 to December 31, 1999. This increase was primarily due to the
shortage of qualified land developers in certain markets. Additionally, we
developed more land due to the competitive advantages that can be achieved by
developing land internally rather than purchasing lots from developers or
competing homebuilders. We continue to purchase some lots from outside
developers under option contracts, when possible; however, we will continue to
evaluate all of our alternatives to satisfy our increasing demand for lots in
the most cost effective manner.
The $62.0 million increase in notes payable banks - homebuilding
operations from December 31, 1998 to December 31, 1999 reflects increased
borrowings primarily attributable to increases in houses under construction and
single-family lots, land and land development costs. Houses under construction
increased $26.3 million from December 31, 1998 to December 31, 1999, and
single-family lots, land and land development costs increased $84.3 million.
Borrowing needs may continue to increase as we invest in land under development
and developed lots, depending upon the market and competition.
At December 31, 1999, mortgage notes payable outstanding were $14.7
million, secured by an office building, lots and land with a recorded book value
of $21.6 million.
26
<PAGE> 8
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
Management's Discussion & Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
PURCHASE OF TREASURY SHARES. On February 16 and December 15, 1999, our
Board of Directors approved the repurchase of up to 1,000,000 shares of
outstanding common stock. On February 15, 2000, our Board of Directors
authorized the repurchase of up to 2,000,000 shares, replacing the existing
repurchase programs. The purchases may occur in the open market and/or in
privately negotiated transactions as market conditions warrant. As of December
31, 1999 we had purchased 509,000 shares at an average price of $14.59.
IMPACT OF NEW ACCOUNTING STANDARDS. In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." In June 1999, FASB issued Statement of Financial Accounting
Standards No. 137 (SFAS 137), "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS 137
deferred the adoption of SFAS 133 until our 2001 annual financial statements. We
have not yet determined what, if any, impact the adoption of this standard will
have on our consolidated financial statements.
YEAR 2000 COMPLIANCE. During 1999, we successfully upgraded our computer
system and software to be Year 2000 compliant. The cost to upgrade was
immaterial. We experienced no material problems with our systems or significant
customers, regulatory agencies or suppliers related to the Year 2000.
INTEREST RATES AND INFLATION
Our business is significantly affected by general economic conditions of
the United States and, particularly, by the impact of interest rates. Higher
interest rates may decrease the potential market by making it more difficult for
home buyers to qualify for mortgages or to obtain mortgages at interest rates
that are acceptable to them. Increases in interest rates also would increase our
interest expense as the rate on the revolving loans is based upon floating rates
of interest. The weighted average interest rate on our outstanding debt was 8.2%
for 1999 and 8.5% for 1998 and 1997.
In conjunction with our mortgage banking operations, we use hedging
methods to reduce our exposure to interest rate fluctuations between the
commitment date of the loan and the time the loan closes.
In recent years, we generally have been able to raise prices by amounts
at least equal to our cost increases and, accordingly, have not experienced any
detrimental effect from inflation. Where we develop lots for our own use,
inflation may increase our profits because land costs are fixed well in advance
of sales efforts. We are generally able to maintain costs with subcontractors
from the date a home is started to the date of close. However, in certain
situations, unanticipated costs may occur between the time of start and the time
a home is constructed, resulting in lower gross profit margins.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
We wish to take advantage of the safe harbor provisions included in the
Private Securities Litigation Reform Act of 1995. Accordingly, in addition to
historical information, this Management's Discussion & Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements,
including, but not limited to, statements regarding our future financial
performance and financial condition. These statements involve a number of risks
and uncertainties. Any forward-looking statements that we make herein and in
future reports and statements are not guarantees of future performance, and
actual results may differ materially from those in such forward-looking
statements as a result of various factors including, but not limited to, those
referred to below.
GENERAL REAL ESTATE, ECONOMIC AND OTHER CONDITIONS. The homebuilding
industry is significantly affected by changes in national and local economic and
other conditions. Many of these conditions are beyond our control. These
conditions include employment levels, changing demographics, availability of
financing, consumer confidence and housing demand. In addition, homebuilders are
subject to risks related to competitive overbuilding, availability and cost of
building lots, availability of materials and labor, adverse weather conditions
which can cause delays in construction schedules, cost overruns, changes in
government regulations and increases in real estate taxes and other local
government fees. Interest rate increases also adversely affect the industry as
it is impossible to predict whether rates will be at levels that are attractive
to prospective home buyers. The prime lending rate increased three times in the
third and fourth quarters of 1999. This caused mortgage interest rates to
increase, and we believe as a result, sales have decreased. If mortgage interest
rates continue to increase, our business could be adversely affected.
LAND DEVELOPMENT ACTIVITIES. We develop the lots for a majority of our
subdivisions. Therefore, our short- and long-term financial success will be
dependent on our ability to develop these subdivisions successfully. Acquiring
land and committing the financial and managerial resources to develop a
subdivision involves significant risks. Before a subdivision generates any
revenue, we must make material expenditures for items such as acquiring land and
constructing subdivision infrastructure (such as roads and utilities).
THE COMPANY'S MARKETS. We have operations in Columbus and Cincinnati,
Ohio; Indianapolis, Indiana;
27
<PAGE> 9
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
Management's Discussion & Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
Tampa, Orlando and Palm Beach County, Florida; Charlotte and Raleigh, North
Carolina; the Virginia and Maryland suburbs of Washington, D.C.; and Phoenix,
Arizona. Adverse general economic conditions in these markets could have a
material adverse impact on our operations. In 1999, approximately 40% of our
housing revenue and a significant portion of our operating income were derived
from operations in the Columbus market.
COMPETITION. The homebuilding industry is highly competitive. We compete
in each of our local market areas with numerous national, regional and local
homebuilders, some of which have greater financial, marketing, land acquisition,
and sales resources than we do. Builders of new homes compete not only for home
buyers, but also for desirable properties, financing, raw materials and skilled
subcontractors. We also compete with the resale market for existing homes which
provides certain attractions for home buyers over building a new home.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATIONS. The
homebuilding industry is subject to increasing local, state and Federal
statutes, ordinances, rules and regulations concerning zoning, resource
protection (preservation of woodlands and hillside areas), building design, and
construction and similar matters, including local regulations which impose
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
location. Such regulation affects construction activities, including
construction materials which must be used in certain aspects of building design,
as well as sales activities and other dealings with home buyers. We must also
obtain licenses, permits and approvals from various governmental agencies for
our development activities, the granting of which are beyond our control.
Furthermore, increasingly stringent requirements may be imposed on homebuilders
and developers in the future. Although we cannot predict the impact on us of
compliance with any such requirements, such requirements could result in time
consuming and expensive compliance programs.
We are also subject to a variety of local, state and Federal statutes,
ordinances, rules and regulations concerning the protection of health and the
environment. The particular environmental laws, which apply to any given
project, vary greatly according to the project site and the present and former
uses of the property. These environmental laws may result in delays, cause us to
incur substantial compliance costs (including substantial expenditures for
pollution and water quality control) and prohibit or severely restrict
development in certain environmentally sensitive regions. Although there can be
no assurance that we will be successful in all cases, we have a general practice
of requiring an environmental audit and resolution of environmental issues prior
to purchasing land in an effort to avoid major environmental issues in our
developments.
In addition, we have been, and in the future may be, subject to periodic
delays or may be precluded from developing certain projects due to building
moratoriums. These moratoriums generally relate to insufficient water supplies
or sewage facilities, delays in utility hook-ups or inadequate road capacity
within the specific market area or subdivision. These moratoriums can occur
prior to, or subsequent to, commencement of our operations without notice or
recourse.
RISK OF MATERIAL AND LABOR SHORTAGES. The residential construction
industry has, from time to time, experienced significant material and labor
shortages in insulation, drywall, brick, cement and certain areas of carpentry
and framing, as well as fluctuations in lumber prices and supplies. In 1999, we
experienced shortages in certain areas such as drywall and brick material, along
with framing and plumbing labor. Continued shortages in these areas could delay
construction of homes which could adversely affect our business; however, at
this time, we do not anticipate a material effect for fiscal year 2000.
SIGNIFICANT VOTING CONTROL BY PRINCIPAL SHAREHOLDERS. As of December 31,
1999, members of the Irving E. Schottenstein family owned approximately 34% of
our outstanding common shares. Therefore, members of the Irving E. Schottenstein
family have significant voting power.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our primary
market risk results from fluctuations in interest rates. We are exposed to
interest rate risk through the borrowings under our unsecured revolving credit
facilities which permit borrowings up to $280.0 million. To minimize the effect
of the interest rate fluctuation, we have three interest rate swap arrangements
with certain banks for a total notional amount of $75.0 million. Under these
agreements we pay a fixed rate of 5.10% on $25.0 million and 6.25% on $50.0
million.
Assuming a hypothetical 10% change in short-term interest rates, interest
expense would not change significantly, as the interest rate swap agreements
would partially offset the impact.
Additionally, M/I Financial offers fixed and adjustable rate mortgage
loans to buyers of our homes. The loans are granted at current market interest
rates which are guaranteed from the loan lock date through the transfer of the
title of the home to the buyer. M/I Financial hedges its interest rate risk
using optional and mandatory forward sales to hedge risk from the loan lock date
generally to the date a loan is closed. At December 31, 1999, the notional
principal amount under these forward sales agreements was approximately $106.0
million and the related fair value of these agreements was approximately $1.2
million. The hedging agreements outstanding at December 31, 1999 mature within
90-120 days. Gains or losses on these agreements are recognized at the time the
loan is sold.
28
<PAGE> 10
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, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Columbus, Ohio
February 23, 2000
29
<PAGE> 11
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands, except per share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 852,445 $ 739,613 $ 614,004
- ---------------------------------------------------------------------------------------------------------------
Costs and expenses:
Land and housing 667,875 588,499 494,663
General and administrative 48,430 44,254 38,092
Selling 52,960 47,179 40,085
Interest 14,400 13,128 11,742
- ---------------------------------------------------------------------------------------------------------------
Total costs and expenses 783,665 693,060 584,582
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 68,780 46,553 29,422
- ---------------------------------------------------------------------------------------------------------------
Income taxes (credit):
Current 26,520 18,328 14,172
Deferred 649 574 (2,187)
- ---------------------------------------------------------------------------------------------------------------
Total income taxes 27,169 18,902 11,985
- ---------------------------------------------------------------------------------------------------------------
Net income $ 41,611 $ 27,651 $ 17,437
- ---------------------------------------------------------------------------------------------------------------
Net income per common share:
Basic $ 4.75 $ 3.29 $ 2.15
Diluted $ 4.68 $ 3.26 $ 2.14
Weighted average shares outstanding (in thousands):
Basic 8,762 8,393 8,108
Diluted 8,883 8,488 8,150
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 12
1999 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) 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 5,665 $ 10,068
Cash held in escrow 828 870
Receivables 39,988 42,361
Inventories:
Single-family lots, land and land development costs 254,385 170,115
Houses under construction 163,266 136,965
Model homes and furnishings - at cost (less accumulated
depreciation: 1999 - $41; 1998 - $45) 12,349 15,054
Land purchase deposits 2,702 1,366
Building, office furnishings, transportation and
construction equipment - at cost (less accumulated
depreciation: 1999 - $5,733; 1998 - $4,962) 19,368 20,015
Investment in unconsolidated joint ventures and
limited liability companies 20,238 17,850
Other assets 12,773 12,483
- -------------------------------------------------------------------------------------------------------------
TOTAL $ 531,562 $ 427,147
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable banks - homebuilding operations $ 132,000 $ 70,000
Note payable bank - financial services operations 15,400 23,500
Mortgage notes payable 14,675 11,793
Senior subordinated notes 50,000 50,000
Accounts payable 63,198 51,364
Accrued compensation 18,244 18,131
Accrued interest, warranty and other 23,827 23,810
Customer deposits 13,706 11,909
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 331,050 260,507
- -------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
- -------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - $.01 par value; authorized -
2,000,000 shares; none outstanding -- --
Common stock - $.01 par value; authorized 38,000,000
shares; issued - 8,813,061 shares 88 88
Additional paid-in capital 62,282 61,067
Retained earnings 145,337 105,485
Treasury stock - at cost - 496,221 shares
at December 31, 1999 (7,195) --
- -------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 200,512 166,640
- -------------------------------------------------------------------------------------------------------------
TOTAL $ 531,562 $ 427,147
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 13
1999 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, except per share amounts) Outstanding Amount Capital Earnings Stock
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 8,800,000 $ 88 $ 50,573 $ 61,658 --
Net income -- -- -- 17,437 --
Purchase of treasury shares (1,202,439) -- -- -- $ (14,250)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 7,597,561 88 50,573 79,095 (14,250)
Net income -- -- -- 27,651 --
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 (2,439 shares) -- -- (29) -- 29
Stock options exercised 15,500 -- 185 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 8,813,061 88 61,067 105,485 --
Net income -- -- -- 41,611 --
Dividends to stockholders, $0.20 per
common share -- -- -- (1,759) --
Purchase of treasury shares (509,000) -- -- -- (7,429)
Stock options exercised 12,100 -- (78) -- 221
Deferred stock awards -- -- 1,291 -- --
Stock awards issued 679 -- 2 -- 13
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 8,316,840 $ 88 $ 62,282 $ 145,337 $ (7,195)
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 14
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,611 $ 27,651 $ 17,437
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss from property disposals 103 126 128
Depreciation and amortization 2,238 1,761 1,623
Deferred income taxes (credit) 649 306 (2,187)
Decrease (increase) in cash held in escrow 42 1,667 (2,144)
Decrease (increase) in receivables 2,373 1,458 (9,372)
Increase in inventories (86,194) (38,134) (13,720)
Decrease (increase) in other assets (1,101) 737 (432)
Increase in accounts payable 11,834 8,588 10,777
Increase in accrued liabilities 1,421 5,811 7,609
Equity in undistributed income of unconsolidated
joint ventures and limited liability companies (618) (610) (376)
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (27,642) 9,361 9,343
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,525) (1,232) (8,508)
Purchase of limited liability company -- (2,500) --
Investment in unconsolidated joint ventures and
limited liability companies (21,726) (20,669) (15,701)
Distributions from unconsolidated joint ventures and
limited liability companies 970 1,305 1,145
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (22,281) (23,096) (23,064)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings - net of repayments 53,900 (14,500) 7,700
Principal repayments of mortgage notes payable (1,147) (371) (45)
Subordinated notes:
Proceeds from issuance -- -- 50,000
Principal repayments -- -- (25,000)
Debt issuance costs -- -- (699)
Net increase in customer deposits 1,797 4,355 483
Dividends paid (1,759) (1,261) --
Proceeds from exercise of stock options 158 185 --
Proceeds from sale of treasury shares - net of expenses -- 24,559 --
Payments to acquire treasury shares (7,429) -- (14,250)
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 45,520 12,967 18,189
- ------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (4,403) (768) 4,468
Cash balance at beginning of year 10,068 10,836 6,368
- ------------------------------------------------------------------------------------------------------
Cash balance at end of year $ 5,665 $ 10,068 $ 10,836
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest - net of amount capitalized $ 13,249 $ 12,916 $ 11,143
Income taxes $ 27,857 $ 18,019 $ 11,602
NON-CASH TRANSACTIONS DURING THE YEAR:
Building and lots and land acquired with mortgage notes
payable - net $ 4,029 $ 6,214 $ 5,950
Single-family lots distributed from unconsolidated
joint ventures and limited liability companies $ 18,986 $ 17,360 $ 12,694
Deferred stock awards $ 1,291 -- --
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 15
1999 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 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 conducts mortgage banking activities through M/I Financial
Corp. ("M/I Financial") that originates mortgage loans primarily for purchasers
of the Company's homes. The loans and the servicing rights are sold to outside
mortgage lenders. The Company is also a majority owner in two title insurance
agencies that provide title services to purchasers of the Company's homes. The
Company also has an investment in two other title insurance agencies (see Note
2).
CASH AND CASH HELD IN ESCROW. Cash and cash held in escrow were primarily
held in one bank at December 31, 1999 and 1998.
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
capitalized interest, are charged to cost of sales as housing sales are closed.
Capitalized interest is included in interest expense when the respective 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 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 or the average cost
basis, when appropriate. Reserves are established for inventories where the net
realizable value is deemed to be less than cost.
Management believes such reserves are adequate.
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 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest capitalized, beginning of year $ 7,957 $ 7,620 $ 6,862
Interest incurred 15,329 13,465 12,500
Interest expensed (14,400) (13,128) (11,742)
- ------------------------------------------------------------------------------------------
Interest capitalized, end of year $ 8,886 $ 7,957 $ 7,620
- ------------------------------------------------------------------------------------------
</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) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Housing sales $823,159 $705,620 $578,185
Housing cost of sales 657,220 569,773 473,995
Lot and land sales 14,959 21,873 26,814
Lot and land cost of sales 10,655 18,726 20,668
- --------------------------------------------------------------------------
</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 servicing rights to outside mortgage lenders. The
revenue from these transactions is recorded when the loans are 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 $6,461,000, $5,257,000 and $4,791,000
for 1999, 1998 and 1997, respectively.
DEPRECIATION. Depreciation of building, model and office furnishings,
transportation and construction equipment is computed using both straight-line
and
34
<PAGE> 16
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
accelerated methods based on the estimated useful lives of the assets.
Depreciation expense was $2,077,000, $1,599,000 and $1,368,000 in 1999, 1998 and
1997, 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 $755,000 and $917,000 relating to the
Subordinated Notes are included in other assets at December 31, 1999 and 1998,
respectively.
ADVERTISING. The Company expenses advertising costs as incurred. The
Company expensed $8,113,000, $7,284,000 and $5,569,000 in 1999, 1998 and 1997,
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 and deferred stock.
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
$1,450,000, $1,250,000 and $950,000 in 1999, 1998 and 1997 respectively
(including payment of expenses incurred by the plan).
ASSET IMPAIRMENTS. Annually, or more frequently if events or
circumstances change, a determination is made by management to ascertain whether
single-family lots, land and land development costs and property and equipment
have been impaired based on the sum of expected future undiscounted cash flows
from operating activities. If the estimated net cash flows are less than the
carrying amount of such assets, the Company will recognize an impairment loss in
an amount necessary to write down the assets to a fair value as determined from
expected future discounted cash flows.
IMPACT OF NEW ACCOUNTING STANDARDS. In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137 (SFAS 137), "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS 137
deferred the adoption of SFAS 133 until the Company's 2001 annual financial
statements. The Company has not yet determined what, if any, impact the adoption
of this standard will have on its consolidated financial statements.
DEFERRED STOCK PLANS. Effective November 1, 1998, the Company adopted a
non-qualified deferred compensation stock plan (the "Executives' Deferred
Compensation Plan"). The purpose of the Executives' Deferred Compensation Plan
(the "Plan") is to provide certain eligible employees of the Company an
opportunity to defer a portion of their compensation and to invest in the
Company's common stock, by providing that amounts deferred under the Plan will
be distributed in the Company's common stock. Compensation expense recorded
related to the Plan was $661,000 and $1,111,000 in 1999 and 1998, respectively.
In 1997, the Company adopted the Director Deferred Compensation Plan (the
"Plan") to provide its directors with an opportunity to defer all or a portion
of their eligible compensation and to invest in the Company's common stock.
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.
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 two title insurance agencies and
accounts for these investments under the equity method of accounting. The total
of these investments was approximately $10,000 at December 31, 1999 and $5,000
at December 31, 1998 and 1997. Approximately $1,785,000, $1,573,000 and
$1,343,000 of title insurance premiums and closing fees were paid to these
agencies in 1999, 1998 and 1997, respectively.
35
<PAGE> 17
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Mortgage loans to be funded $36,764 $40,263
Accounts receivable 3,224 2,098
- ------------------------------------------------------------
Total receivables $39,988 $42,361
- ------------------------------------------------------------
</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, 1999, 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 $18,986,000, $17,360,000 and $12,694,000 in
developed lots at cost in 1999, 1998 and 1997, respectively, and purchased lots
totaling $187,000, $533,000 and $1,300,000 in 1999, 1998 and 1997 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, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999 is as follows:
SUMMARIZED CONDENSED COMBINED BALANCE SHEETS
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Assets:
Single-family lots, land and
land development costs $47,505 $39,689
Other assets 970 1,422
- -----------------------------------------------------------------------
Total $48,475 $41,111
- -----------------------------------------------------------------------
Liabilities:
Debt $ 93 $ --
Other liabilities 5,549 5,028
- -----------------------------------------------------------------------
Total liabilities 5,642 5,028
Partners' equity:
Company's equity 19,143 16,039
Other 23,690 20,044
- -----------------------------------------------------------------------
Total Partners' equity 42,833 36,083
- -----------------------------------------------------------------------
Total $48,475 $41,111
- -----------------------------------------------------------------------
</TABLE>
SUMMARIZED CONDENSED COMBINED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 168 $ 604 $ 1,159
Costs and expenses 450 682 1,250
- -----------------------------------------------------------------------------
Income (loss) $(282) $ (78) $ (91)
- -----------------------------------------------------------------------------
</TABLE>
Included in the Company's investment in joint ventures and limited
liability companies at December 31, 1999 and 1998 is $482,000 and $449,000,
respectively, of capitalized interest and other costs. Letters of credit
totaling approximately $6,931,000 are outstanding at December 31, 1999 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. 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
On November 23, 1999, the Company entered into a new bank loan agreement
with our lenders. The new agreement increased the amount of credit to $250.0
million, increased the amount of letters of credit available to $35.0 million,
added two additional lenders and made immaterial modifications to the covenants.
The remaining terms of the agreement remain substantially the same as those in
the agreement that it replaced.
At December 31, 1999, the Company's homebuilding operations had revolving
credit loans of $132,000,000 and letters of credit totaling $27,461,000
outstanding under a loan agreement with nine 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 $250,000,000 under the revolving credit agreement
and $35,000,000 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. 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 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
36
<PAGE> 18
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
due and payable. The Company is also required to pay 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 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, 1999, approximately $7,808,000 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, 1999, $15,400,000 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 based on 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, 1999, the Company had $132,600,000 of unused borrowing
availability under its loan agreement. The weighted average interest rate of the
Company's total bank borrowings was 7.5%, 7.8% and 8.0% at December 31, 1999,
1998 and 1997, respectively.
On February 26, 1998 and September 23, 1998 the Company entered into
$50.0 million and $25.0 million interest rate SWAP agreements to exchange a
floating LIBOR rate for a fixed rate of 5.50% and 5.10%, respectively. The $25.0
SWAP agreement expires September 25, 2000; the $50.0 SWAP agreement was
cancelled on February 28, 2000 (see Note 11). During 1999 and 1998 these
agreements resulted in an increase (decrease) of $135,000 and $(26,000),
respectively, of interest expense.
7. MORTGAGE NOTES PAYABLE
Mortgage notes payable of $14,675,000 and $11,793,000 at December 31,
1999 and 1998, respectively, represent mortgages collateralized by a building
and land and lots (book value of $21,583,000 and $15,450,000 at December 31,
1999 and 1998, respectively).
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
INTEREST MATURITY
(Dollars in thousands) AMOUNT RATE DATE
- ---------------------------------------------------------------
<S> <C> <C> <C>
Building $ 8,177 8.117 % 4/1/17
Land and lots 6,498 5.77%-10.00% 8/30/02
- ---------------------------------------------------------------
Total $14,675 - -
===============================================================
</TABLE>
<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 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. The Senior Subordinated Notes contain covenants that
include restrictions on the incurrence of additional debt, stock repurchases and
the payment of dividends.
9. LEASE COMMITMENTS
The Company leases various office facilities, automobiles, model
furnishings, and model homes under operating leases with remaining terms of 1 to
4 years. At December 31, 1999, the future minimum rental commitments, totaling
$5,810,000 under non-cancelable operating leases with initial terms in excess of
one year are as follows: 2000 - $3,488,000; 2001 - $1,460,000; 2002 - $624,000;
2003 - $234,000; 2004 - $4,000; and $0 thereafter.
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 $6,608,000, $7,056,000 and
$6,515,000 for 1999, 1998 and 1997, 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.
37
<PAGE> 19
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS
On November 16, 1999 and February 15, 2000, the Board of Directors
approved a $0.05 per share cash dividend payable to stockholders of record of
its common stock on January 3 and April 3, 2000, payable on January 21 and April
21, 2000. The Company's loan agreement and Subordinated Notes place limits on
dividends (see Notes 6 and 8).
On February 1, 2000 the Company entered into two $25.0 million interest
rate SWAP agreements to exchange a floating LIBOR rate for a fixed rate of
6.25%. The SWAP agreements expire January 31, 2003. The bank exercised their
option to cancel the existing $50.0 million interest rate SWAP agreement on
February 28, 2000.
From January 1, 2000 through February 25, 2000, the Company purchased
183,200 shares of our outstanding common stock at an average price of $13.70.
Also, on February 15, 2000, the Board of Directors authorized the repurchase of
up to 2,000,000 shares, replacing the existing repurchase programs.
12. STOCK INCENTIVE PLAN
The Company's Stock Incentive Plan includes stock option, restricted
stock and stock appreciation programs, under which the maximum number of shares
of common stock that may be granted under the plan in each calendar year shall
be 5% of the total issued and outstanding shares of common stock as of the first
day of each such year the plan is in effect. 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:
<TABLE>
<CAPTION>
Weighted
Option Price Avg. Exercise
Shares Per Share Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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 11.05
- -------------------------------------------------------------------------------
Options outstanding
December 31, 1997 221,200 $6.75-$16.125 $11.327
Granted 46,100 22.75 22.75
Exercised (15,500) 6.75-16.125 11.927
Forfeited (6,050) 6.75-22.75 12.145
- -------------------------------------------------------------------------------
Options outstanding
December 31, 1998 245,750 $6.75-$22.75 $13.412
Granted 51,950 18.563 18.563
Exercised (12,100) 6.75-16.125 11.747
Forfeited (7,900) 6.75-22.75 16.082
- -------------------------------------------------------------------------------
Options outstanding
December 31, 1999 277,700 $6.75-$22.75 $14.372
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Weighted
Option Price Avg. Exercise
Shares Per Share Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Options exercisable at
December 31, 1997 67,720 $6.75-10.875
55,760 16.125-22.75
-------
Total 123,480 $11.977
December 31, 1998 88,980 6.75-10.875
71,270 16.125-22.75
-------
Total 160,250 $12.395
December 31, 1999 108,070 6.75-10.875
83,830 16.125-22.75
-------
Total 191,900 $12.764
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, options outstanding have a weighted average
remaining contractual life of 6.5 years.
In February 2000, the Company granted options for an additional 75,350
shares with the same terms as the previous awards, at a price of $13.38 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 1999:
expected volatility of 40.16%; risk-free interest rate of 7.00%; dividend rate
of 0.26%; and an expected life of 4 years, 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, and 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. 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, 1999, 1998 and 1997.
13. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Federal $23,368 $15,897 $ 8,927
State and local 3,801 3,005 3,058
- -------------------------------------------------------------
Total $27,169 $18,902 $11,985
- -------------------------------------------------------------
</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) 1999 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Federal taxes at statutory rate $24,073 $16,294 $10,298
Deduct federal tax effect of:
State and local taxes -
net of federal tax benefit 2,471 2,277 1,988
Other 625 331 (301)
- -------------------------------------------------------------------------
Total $27,169 $18,902 $11,985
- -------------------------------------------------------------------------
</TABLE>
The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities at December 31, 1999 and 1998 are as
follows:
38
<PAGE> 20
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Assets:
Warranty, insurance and other
reserves $4,164 $4,099
Inventory reserve 2,888 2,885
Inventories 1,183 772
State taxes 454 177
Depreciation 35 -
Other 343 1,102
- ------------------------------------------------------------------------
Total deferred tax assets 9,067 9,035
- ------------------------------------------------------------------------
Liabilities:
Depreciation 1,284 975
Prepaid expenses and deferred charges 1,690 1,318
- ------------------------------------------------------------------------
Total deferred tax liabilities 2,974 2,293
- ------------------------------------------------------------------------
Net deferred tax asset $6,093 $6,742
- ------------------------------------------------------------------------
</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, 1999, M/I Financial is
committed to fund $125,667,000 in mortgage loans to home buyers. Of this total,
approximately $8,595,000 are adjustable rate loans and $117,072,000 are fixed
rate loan commitments. The loans are granted at current market interest rates
which are 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 lock date of the loan and the time the
home closes. The method to be used is determined at the time of the loan lock
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.
One of the methods that M/I Financial used 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 is the
Company determines that they will be unable to use the entire commitment prior
to its expiration date. The Company expended $354,000, $93,000 and $498,000 in
1999, 1998 and 1997, 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, 1999, the Company had approximately
$19,875,000 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 hedge
on the interest rate risk exposure in the mortgage loan commitments and is
included in the gain or loss of the sale of the loans to third party investors.
At December 31, 1999, these agreements matured within 90 to 120 days. Securities
under forward sales agreements averaged approximately $122,500,000 during 1999
and the maximum amount outstanding at any month end during 1999 was
$149,000,000. Hedging gains of $6,180,000 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, 1999 and 1998. 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>
1999 1998
---------------------------- ----------------------------
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash, including
cash in escrow $ 6,493 $ 6,493 $10,938 $ 10,938
Mortgage loans
to be funded 36,764 36,772 40,263 40,807
Accounts receivable 3,224 3,224 2,098 2,098
Liabilities:
Notes payable banks $147,400 $147,400 $93,500 $ 93,500
Mortgage notes payable 14,675 14,675 11,793 11,793
Subordinated notes 50,000 50,000 50,000 50,000
Accounts payable 63,198 63,198 51,364 51,364
Other liabilities 55,777 55,777 53,850 53,850
Unrecognized Financial
Instruments:
Letters of credit -- $ 430 -- $ 230
Commitments to
extend real estate loans -- 7,111 -- 4,111
Forward sale of
mortgage-backed
securities -- 1,228 -- (32)
Interest rate swap
Agreements -- 274 -- (657)
</TABLE>
39
<PAGE> 21
1999 M/I SCHOTTENSTEIN HOMES, INC.
ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments at December 31,
1999 and 1998:
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, 1999 and 1998 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, 1999 and 1998.
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.
SUBORDINATED NOTES. The estimated fair value was determined based upon
market quotes at December 31, 1999 and 1998.
LETTERS OF CREDIT. Letters of credit and outstanding completion bonds of
$48,530,000 and $30,644,000 represent potential commitments at December 31, 1999
and 1998. 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, 1999 and
1998
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company had sales agreements outstanding, some
of which have open contingencies for approval of financing, to deliver 2,154
homes with an aggregate purchase price of approximately $490,000,00. At December
31, 1999, the Company had options and contingent purchase contracts to acquire
land and developed lots with an aggregate purchase price of approximately
$190,789,000. Purchase of properties is contingent upon satisfaction of certain
requirements by the Company and the sellers.
At December 31, 1999, the Company had outstanding approximately
$48,530,000 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 consolidated financial statements of the Company.
16. BUSINESS SEGMENTS
The business segment information for 1999, 1998 and 1997 included on page
21 of the annual report is an integral part of these consolidated financial
statements.
40
<PAGE> 22
1999 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 January 31, 2000, there were approximately 260 record
holders of the Company's common stock. At that time there were 8,813,061 shares
issued and 8,316,840 shares outstanding. The table below presents the highest
and lowest prices for the Company's common stock during each of the quarters
presented:
<TABLE>
<CAPTION>
1999 HIGH LOW
- -------------------------------------------------------------
<S> <C> <C>
First quarter $22.25 $16.63
Second quarter 22.00 17.63
Third quarter 20.13 16.50
Fourth quarter 18.19 13.13
</TABLE>
<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>
The highest and lowest prices for the Company's common stock from January
1, 2000 through February 25, 2000 was $15.65 and $12.75.
Prior to fiscal 1998, the Company had not paid any dividends. On February
9, 1998, the Board of Directors approved cash dividends of $.05 per share. The
Company has subsequently paid cash dividends each quarter. On November 16, 1999
and February 15, 2000, the Board of Directors approved cash dividends of $.05
per share, payable to stockholders of record of its common stock on January 3
and April 3, 2000, payable on January 21 and April 21, 2000. The Company's loan
agreement and Subordinated Notes place limits on dividends (see Notes 6 and 8 to
the consolidated financial statements).
41
<PAGE> 23
EXECUTIVE OFFICERS
IRVING E. SCHOTTENSTEIN
Chairman and
Chief Executive Officer
ROBERT H. SCHOTTENSTEIN
President
STEVEN SCHOTTENSTEIN
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
Regional President
ROBERT C. MOESLE
Regional President
PAUL S. ROSEN
Senior Vice President
LLOYD T. SIMPSON
Regional President
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
THOMAS D. IGOE (2, 4)
Retired Senior Vice President,
Bank One NA
JEFFREY H. MIRO (2, 4)
Chairman,
Miro, Weiner and Kramer
ROBERT H. SCHOTTENSTEIN (1, 2)
President
STEVEN SCHOTTENSTEIN (1)
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
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 BankBoston, N.A.
c/o EquiServe, Limited Partnership
P.O. Box 8040
Boston, Massachusetts 02266-8040
www.equiserve.com
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
Columbus, Ohio
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 9:00 A.M. on April 19,
2000, 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
(1) Executive Committee
(2) Compensation Committee
(3) Audit Committee
(4) Executive Officer Compensation Committee
* Chairman
42
<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 Homes Service Corp., an Ohio Corporation. M/I
Schottenstein Homes Service 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. M/I Title Agency Ltd., an Ohio limited liability company. 90% L.L.C.
owned by the Company.
9. 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 23, 2000, 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, 1999.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Columbus, Ohio
March 24, 2000
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
I, Steven Schottenstein, am Chief Operating 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 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, 1999 (the "1999 Form 10-K"), including specifically but
without limitation, power and authority to sign for me in my name, in the
capacity indicated above, the 1999 Form 10-K and any and all amendments to such
1999 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> 2
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, 1999
(the "1999 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacity indicated above, the 1999
Form 10-K and any and all amendments to such 1999 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
<PAGE> 3
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, 1999 (the
"1999 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacities indicated above, the 1999
Form 10-K and any and all amendments to such 1999 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> 4
POWER OF ATTORNEY
I, Friedrich K. M. 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, 1999
(the "1999 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacity indicated above, the 1999
Form 10-K and any and all amendments to such 1999 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. M. Bohm
---------------------------
Friedrich K. M. Bohm
Director
<PAGE> 5
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, 1999 (the
"1999 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacity indicated above, the 1999
Form 10-K and any and all amendments to such 1999 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> 6
POWER OF ATTORNEY
I, Robert H. Schottenstein, am President and a director of M/I
Schottenstein Homes, Inc. (the "Company"), and I 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, 1999 (the "1999 Form 10-K"),
including specifically but without limitation, power and authority to sign for
me in my name, in the capacity indicated above, the 1999 Form 10-K and any and
all amendments to such 1999 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> 7
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, 1999 (the
"1999 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacity indicated above, the 1999
Form 10-K and any and all amendments to such 1999 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> 8
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"), and I 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, 1999 (the "1999 Form 10-K"),
including specifically but without limitation, power and authority to sign for
me in my name, in the capacities indicated above, the 1999 Form 10-K and any and
all amendments to such 1999 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> 9
POWER OF ATTORNEY
I, Thomas D. Igoe, 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, 1999 (the
"1999 Form 10-K"), including specifically but without limitation, power and
authority to sign for me in my name, in the capacity indicated above, the 1999
Form 10-K and any and all amendments to such 1999 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/ Thomas D. Igoe
---------------------
Thomas D. Igoe
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE TWELVE MONTHS THEN ENDED OF M/I SCHOTTENSTEIN HOMES,
INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,493
<SECURITIES> 0
<RECEIVABLES> 39,988
<ALLOWANCES> 0
<INVENTORY> 432,702
<CURRENT-ASSETS> 479,183
<PP&E> 25,101
<DEPRECIATION> 5,733
<TOTAL-ASSETS> 531,562
<CURRENT-LIABILITIES> 118,975
<BONDS> 14,675
0
0
<COMMON> 88
<OTHER-SE> 200,424
<TOTAL-LIABILITY-AND-EQUITY> 531,562
<SALES> 838,118
<TOTAL-REVENUES> 852,445
<CGS> 667,875
<TOTAL-COSTS> 667,875
<OTHER-EXPENSES> 101,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,400
<INCOME-PRETAX> 68,780
<INCOME-TAX> 27,169
<INCOME-CONTINUING> 41,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,611
<EPS-BASIC> 4.75
<EPS-DILUTED> 4.68
</TABLE>
