-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WpegHGwaYQpTWwYxa2p0xZ846g0j/X8Ii4I3GMsCMThjcuguiLhZZQndhtzBEa3a WL0OaUTOt6Jn9/UHTkrd4A== 0000950152-98-006619.txt : 19980813 0000950152-98-006619.hdr.sgml : 19980813 ACCESSION NUMBER: 0000950152-98-006619 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: M I SCHOTTENSTEIN HOMES INC CENTRAL INDEX KEY: 0000799292 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 311210837 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12434 FILM NUMBER: 98683584 BUSINESS ADDRESS: STREET 1: 3 EASTON OVAL STE 500 CITY: COLUMBUS STATE: OH ZIP: 43219 BUSINESS PHONE: 6144188000 FORMER COMPANY: FORMER CONFORMED NAME: MI SCHOTTENSTEIN HOMES INC DATE OF NAME CHANGE: 19920703 10-Q 1 M/I SCHOTTENSTEIN HOMES, INC. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____ to _____ Commission file number 1-12434 M/I SCHOTTENSTEIN HOMES, INC. ----------------------------- (Exact name of registrant as specified in its charter) Ohio 31-1210837 ---- ---------- (State of incorporation) (I.R.S. Employer Identification No.) 3 Easton Oval, Suite 500, Columbus, Ohio 43219 ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) (614) 418-8000 -------------- (Telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, par value $.01 per share: 8,810,961 shares outstanding as of August 11, 1998 -1- 2 M/I SCHOTTENSTEIN HOMES, INC. FORM 10-Q INDEX
PAGE PART I. FINANCIAL INFORMATION NUMBER Item 1. Financial Statements Consolidated Balance Sheets June 30, 1998 and December 31, 1997 3 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 1998 and 1997 4 Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 1998 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 6 Notes to Interim Unaudited Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities 20 Item 3. Defaults upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21 Exhibit Index 22
-2- 3 CONSOLIDATED BALANCE SHEETS M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------- JUNE 30, December 31, (Dollars in thousands, except par values) 1998 1997 - ---------------------------------------------------------------------------------------------------------------- (UNAUDITED) ASSETS Cash $ 11,811 $ 10,836 Cash held in escrow 358 2,537 Receivables 32,981 43,819 Inventories: Single-family lots, land and land development costs 161,629 151,905 Houses under construction 157,378 100,916 Model homes and furnishings - at cost (less accumulated depreciation: June 30, 1998 - $44; December 31, 1997 - $47) 18,013 17,788 Land purchase deposits 1,084 645 Office furnishings, transportation and construction equipment - at cost (less accumulated depreciation: June 30, 1998 - $4,366; December 31, 1997 - $4,328) 8,325 8,647 Investment in unconsolidated joint ventures and limited liability companies 16,876 15,236 Other assets 11,761 13,691 - -------------------------------------------------------------------------------------------------------------- TOTAL $ 420,216 $ 366,020 ============================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes payable banks - homebuilding operations $ 105,000 $ 78,000 Note payable bank - financial operations 17,160 30,000 Mortgage notes payable 6,292 5,950 Subordinated notes 50,000 50,000 Accounts payable 52,256 42,793 Accrued compensation 6,919 13,042 Income taxes payable 2,362 4,072 Accrued interest, warranty and other 16,625 19,103 Customer deposits 12,627 7,554 - -------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 269,241 250,514 - -------------------------------------------------------------------------------------------------------------- Commitments and Contingencies - ---------------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock - $.01 par value; authorized 2,000,000 shares; none outstanding - - Common stock - $.01 par value; authorized - 38,000,000 shares; issued and outstanding - 8,810,961 shares at June 30, 1998; issued - 8,800,000 shares at December 31, 1997 88 88 Additional paid-in capital 61,046 50,573 Retained earnings 89,841 79,095 Treasury stock - at cost - 1,202,439 shares are held in treasury at December 31, 1997 - (14,250) - -------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 150,975 115,506 - -------------------------------------------------------------------------------------------------------------- TOTAL $ 420,216 $ 366,020 ==============================================================================================================
See Notes to Interim Unaudited Consolidated Financial Statements. -3- 4 CONSOLIDATED STATEMENTS OF INCOME M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES (Unaudited)
- --------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, (Dollars in thousands, except per share information) 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------------------- Revenue $175,606 $146,014 $292,836 $251,843 - --------------------------------------------------------------------------------------------------------------- Costs and expenses: Land and housing 140,307 117,459 231,578 201,532 General and administrative 9,494 8,388 16,481 14,798 Selling 11,576 9,620 20,397 17,537 Interest 3,011 2,699 5,659 5,061 - --------------------------------------------------------------------------------------------------------------- Total costs and expenses 164,388 138,166 274,115 238,928 - --------------------------------------------------------------------------------------------------------------- Income before income taxes 11,218 7,848 18,721 12,915 - --------------------------------------------------------------------------------------------------------------- Income taxes: Current 4,570 3,213 6,069 4,364 Deferred 23 - 1,526 864 - --------------------------------------------------------------------------------------------------------------- Total income taxes 4,593 3,213 7,595 5,228 - --------------------------------------------------------------------------------------------------------------- Net income $ 6,625 $ 4,635 $ 11,126 $ 7,687 =============================================================================================================== Per share data: Basic $ 0.80 $ 0.56 $ 1.40 $ 0.90 Diluted $ 0.79 $ 0.56 $ 1.38 $ 0.90 =============================================================================================================== Weighted average shares outstanding: Basic 8,323,049 8,300,000 7,965,576 8,507,182 Diluted 8,419,804 8,323,321 8,061,186 8,530,252 ===============================================================================================================
See Notes to Interim Unaudited Consolidated Financial Statements. -4- 5 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES (Unaudited)
============================================================================================================= SIX MONTHS ENDED JUNE 30, 1998 ============================================================================================================= Common Stock ------------ Additional Shares Paid-In Retained Treasury (Dollars in thousands) Outstanding Amount Capital Earnings Stock - ------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 7,597,561 $88 $ 50,573 $79,095 ($14,250) Net income - - - 11,126 - Stock options exercised 13,400 - 164 - - Dividends to stockholders - - - (380) - Sale of treasury shares, net of expenses 1,200,000 - 10,338 - 14,221 Retirement of treasury shares - - (29) - 29 - ------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1998 8,810,961 $88 $ 61,046 $89,841 - =============================================================================================================
See Notes to Interim Unaudited Consolidated Financial Statements. -5- 6 CONSOLIDATED STATEMENTS OF CASH FLOWS M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES (Unaudited)
=============================================================================================================== SIX MONTHS ENDED JUNE 30, (Dollars in thousands) 1998 1997 - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,126 $ 7,687 Adjustments to reconcile net income to net cash used by operating activities: Loss from property disposals 131 121 Depreciation and amortization 804 774 Deferred income tax 1,503 864 Decrease (increase) in cash held in escrow 2,179 (803) Decrease in receivables 10,838 8,750 Increase in inventories (61,335) (38,242) Increase (decrease) in other assets 346 (132) Increase in accounts payable 9,463 10,121 Decrease in income taxes payable (1,710) (340) Decrease in accrued liabilities (8,601) (8,626) Equity in undistributed income of unconsolidated joint ventures, limited liability companies and limited partnerships (255) (151) - ------------------------------------------------------------------------------------------------------------------ Net cash used in operating activities (35,511) (19,977) - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to model and office furnishings, transportation and construction equipment (515) (7,329) Investment in unconsolidated joint ventures and limited liability companies (7,556) (4,680) Distributions from unconsolidated joint ventures, limited liability companies and limited partnerships 639 519 - ------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (7,432) (11,490) - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Notes payable banks: Proceeds from borrowings 168,830 131,490 Principal repayments (154,670) (93,210) Mortgage notes payable: Proceeds from borrowings 342 - Principal repayments - (29) Net increase in customer deposits 5,073 2,026 Dividends paid (380) - Proceeds from exercise of stock options 164 - Proceeds from sale of treasury stock-net of expenses 24,559 - Payments to acquire treasury stock - (5,250) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 43,918 35,027 - ------------------------------------------------------------------------------------------------------------------ Net increase in cash 975 3,560 Cash balance at beginning of year 10,836 6,368 - ------------------------------------------------------------------------------------------------------------------ Cash balance at end of period $ 11,811 $ 9,928 ================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 4,821 $ 4,555 Income taxes $ 7,761 $ 4,810 NON-CASH TRANSACTIONS DURING THE PERIOD: Land acquired with mortgage notes payable $ 342 $ - Single-family lots distributed from unconsolidated joint ventures and limited liability companies $ 5,856 $ 4,482 ==================================================================================================================
See Notes to Interim Unaudited Consolidated Financial Statements. -6- 7 M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information. The results of operations for the six months ended June 30, 1998 and 1997 are not necessarily indicative of the results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company's Annual Report to Shareholders for the year ended December 31, 1997. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of financial results for the interim periods presented. NOTE 2. AMENDED LOAN AGREEMENTS On May 27, 1998, the Company entered into a new bank loan agreement. Borrowing capacity was increased from $186.0 million to $204.5 million and certain covenants were modified. The maturity date of the loan was extended from September 30, 2001 to September 30, 2002. On June 22, 1998, the Company and M/I Financial entered into a new bank loan agreement with the existing lender, pursuant to which the Company and M/I Financial have the ability to borrow at (a) the prime rate less 0.50%, or (b) LIBOR plus 1.60% or (c) a combination of (a) and (b). The new agreement terminates on June 22, 2001, at which time the unpaid balance is due. NOTE 3. INTEREST The Company capitalizes interest during development and construction. Capitalized interest is charged to interest expense as the related inventory is delivered. The summary of total interest for the three and six months ended June 30, 1998 and 1997 is as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, (Dollars in thousands) 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------- Interest capitalized, beginning of period $ 8,307 $ 7,125 $ 7,620 $ 6,862 Interest incurred 3,599 3,172 6,934 5,797 Interest expensed (3,011) (2,699) (5,659) (5,061) - ------------------------------------------------------------------------------------------------------------- Interest capitalized, end of period $ 8,895 $ 7,598 $ 8,895 $ 7,598 =============================================================================================================
-7- 8 NOTE 4. CONTINGENCIES At June 30, 1998, the Company had options and contingent purchase contracts to acquire land and developed lots with an aggregate purchase price of approximately $165.0 million. NOTE 5. PER SHARE DATA In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS 128 replaced the presentation of primary and fully diluted EPS with a presentation of basic and diluted EPS. All EPS amounts for all periods have been presented to conform to SFAS 128 requirements. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted computations include common share equivalents, when dilutive. NOTE 6. ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Disclosure about Segments of an Enterprise and Related Information". SFAS 133 is required to be adopted for the Company's 2000 annual financial statements. The Company has not yet determined what, if any, impact the adoption of this standard will have on its financial statements. NOTE 7. SALE OF TREASURY SHARES On April 27, 1998, the Company filed a registration statement with the Securities and Exchange Commission for up to 1,200,000 shares of common stock of the Company. All of such shares were sold on May 5, 1998. The Company received approximately $24.6 million, which was used to repay a portion of existing indebtedness. NOTE 8. DIVIDENDS On April 22, 1998, the Company paid to the stockholders of record on April 1, 1998, the first cash dividend in the Company's history of $0.05 per share (aggregate dividends paid of $380,000). On April 28, 1998, the Board of Directors approved a $0.05 per share cash dividend payable to stockholders of record of its common stock on July 1, 1998, which was paid on July 22, 1998 (aggregate dividends paid of $440,000). -8- 9 M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES FORM 10-Q - PART I MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 CONSOLIDATED Total Revenue. Total revenue for the three months ended June 30, 1998 increased $29.6 million and for the six months ended June 30, 1998 increased $41.0 million over the comparable periods of 1997. For the three-month period, housing revenue, other revenue and land revenue increased $27.4 million, $0.5 million and $1.7 million, respectively. Increases for the six-month period in housing revenue of $40.9 million and other revenue of $1.1 million were partially offset by a $1.0 million decrease in land revenue. The increase in housing revenue for both the three- and six-month periods was attributable to an increase in the number of Homes Delivered of 100 and 152, respectively, and an increase in the average sales price of Homes Delivered of 5.8% and 5.1%, respectively. For both periods, the increase in other revenue is primarily attributable to financial services where both the number of loans originated and the gains recognized from the sale of loans increased in the current year. The increase in land revenue for the three months ended June 30, 1998 was primarily due to an increase in the number of lots sold to third parties in the Washington, D.C. and Charlotte markets over the comparable period of 1997. The decrease in land revenue for the six months ended June 30, 1998 was primarily due to a decrease in the number of lots sold to third parties in the Washington, D.C. market from the comparable period of 1997. Income Before Income Taxes. Income before income taxes for the three months ended June 30, 1998 increased 42.9% and for the six months ended June 30, 1998 increased 45.0% over the comparable periods of 1997. The increase for the three months ended June 30, 1998 related primarily to housing, where income before income taxes increased from $6.4 million to $9.1 million and financial services, where income before income taxes increased from $1.4 million to $2.1 million. The increase for the six months ended June 30, 1998 also related primarily to housing, where income before income taxes increased from $9.8 million to $14.4 million and financial services, where income before income taxes increased from $3.1 million to $4.3 million. The increase in housing for both the three- and six-month periods was due to the increase in the number of Homes Delivered and an increase in the average sales price of Homes Delivered. The increase in housing was also due to an increase in gross margin. Housing gross margin increased from 18.1% for both the three- and six-months ended June 30, 1997 to 18.9% and 19.4% for the three- and six-months ended June 30, 1998. The increase in financial services was primarily due to an increase in the number of loans originated and the significant increase in income from the sale of servicing and marketing gains due to increased loan volume and the favorable interest rate environment during the last half of 1997 and the first half of 1998. -9- 10 HOMEBUILDING SEGMENT The following table sets forth certain information related to the Company's homebuilding segment:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, (Dollars in thousands) 1998 1997 1998 1997 ==================================================================================================================== Revenue: Housing sales $168,333 $140,908 $280,456 $239,588 Land and lot sales 4,451 2,793 6,355 7,395 Other income 87 408 563 704 - -------------------------------------------------------------------------------------------------------------------- Total Revenue $172,871 $144,109 $287,374 $247,687 ==================================================================================================================== Revenue: Housing sales 97.4 % 97.8 % 97.6 % 96.7 % Land and lot sales 2.5 1.9 2.2 3.0 Other income 0.1 0.3 0.2 0.3 - -------------------------------------------------------------------------------------------------------------------- Total Revenue 100.0 100.0 100.0 100.0 Land and housing costs 81.7 81.9 81.1 81.8 - -------------------------------------------------------------------------------------------------------------------- Gross Margin 18.3 18.1 18.9 18.2 General and administrative expenses 2.6 2.9 3.0 3.1 Selling expenses 6.7 6.7 7.1 7.1 - -------------------------------------------------------------------------------------------------------------------- Operating Income 9.0 8.5 8.8 8.0 ==================================================================================================================== MIDWEST REGION Unit Data: New contracts, net 626 442 1,347 1,029 Homes delivered 535 464 911 806 Backlog at end of period 1,493 1,131 1,493 1,131 Average sales price of homes in backlog $180 $177 $180 $177 Aggregate sales value of homes in backlog $268,000 $200,000 $268,000 $200,000 Number of active subdivisions 75 75 75 75 ==================================================================================================================== FLORIDA REGION Unit Data: New contracts, net 195 193 388 365 Homes delivered 182 165 308 277 Backlog at end of period 335 309 335 309 Average sales price of homes in backlog $187 $181 $187 $181 Aggregate sales value of homes in backlog $63,000 $56,000 $63,000 $56,000 Number of active subdivisions 35 35 35 35 ==================================================================================================================== NORTH CAROLINA, VIRGINIA, MARYLAND AND ARIZONA REGION Unit Data: New contracts, net 218 133 449 281 Homes delivered 159 147 266 250 Backlog at end of period 415 239 415 239 Average sales price of homes in backlog $326 $263 $326 $263 Aggregate sales value of homes in backlog $135,000 $63,000 $135,000 $63,000 Number of active subdivisions 35 35 35 35 ==================================================================================================================== TOTAL Unit Data: New contracts, net 1,039 768 2,184 1,675 Homes delivered 876 776 1,485 1,333 Backlog at end of period 2,243 1,679 2,243 1,679 Average sales price of homes in backlog $208 $190 $208 $190 Aggregate sales value of homes in backlog $466,000 $319,000 $466,000 $319,000 Number of active subdivisions 145 145 145 145 ====================================================================================================================
-10- 11 A home is included in "New Contracts" when the Company's standard sales contract, which requires a deposit and generally has no contingencies other than for buyer financing, is executed. In a limited number of markets, contracts are sometimes accepted contingent upon the sale of an existing home. "Homes Delivered" represents units for which the closing of the sale has occurred and title has transferred to the buyer. Revenue and cost of revenue for a home sale are recognized at the time of closing. "Backlog" represents homes for which the Company's standard sales contract has been executed, but which are not included in Homes Delivered because closings for these homes have not yet occurred as of the end of the periods specified. Most cancellations of contracts for homes in Backlog occur because customers cannot qualify for financing. These cancellations usually occur prior to the start of construction. Since the Company arranges financing with guaranteed rates for many of its customers, the incidence of cancellations after the start of construction is low. In the first six months of 1998, the Company delivered 1,485 homes, most of which were homes under contract in Backlog at December 31, 1997. Of the 1,544 contracts in Backlog at December 31, 1997, 11.7% have been canceled as of June 30, 1998. For homes in Backlog at December 31, 1996, 12.3% had been canceled as of June 30, 1997. For the homes in Backlog at December 31, 1996, the final cancellation percentage was 14.1%. Unsold speculative homes, which are in various stages of construction, totaled 148 and 131 at June 30, 1998 and 1997, respectively. THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 Total Revenue. Total revenue for the homebuilding segment for the three months ended June 30, 1998 increased 20.0% over the three months ended June 30, 1997. The increase was due to a 19.5% increase in housing revenue and a 59.4% increase in land revenue. The increase in housing revenue was partially due to a 12.9% increase in the number of Homes Delivered. Homes Delivered were higher in all of the Company's regions, led by the Midwest Region where the number of Homes Delivered increased 15.3%. The increase in housing revenue was also due to a 5.8% increase in the average sales price of Homes Delivered. The average sales price of Homes Delivered increased in all of the Company's markets, with the exception of Charlotte, due to product mix and higher land and regulatory costs which have been passed on to the home buyer. The increase in land revenue from $2.8 million to $4.5 million was primarily attributable to the Washington, D.C. and Charlotte markets. The Virginia and Charlotte divisions had significant lot sales to outside homebuilders in the three months ended June 30, 1998 which did not occur in the prior year. Home Sales and Backlog. The Company recorded a 35.3% increase in the number of New Contracts in the three months ended June 30, 1998 as compared to the corresponding period of 1997. New Contracts recorded in the second quarter of 1998 were higher in nearly all of the Company's markets. The Company believes the increase in New Contracts was partially due to favorable market conditions and low interest rates. The number of New Contracts recorded in future periods will be dependent on numerous factors, including future economic conditions, timing of land development, consumer confidence and interest rates available to potential home buyers. At June 30, 1998, the total sales value of the Company's Backlog of 2,243 homes was approximately $466.0 million, representing a 46.1% increase in sales value and a 33.6% increase in units over the levels reported at June 30, 1997. The increase in units at June 30, 1998 is a result of record high new contracts recorded in the first half of 1998. The average sales price of homes in Backlog increased 9.5% from June 30, 1997 to June 30, 1998. This increase was primarily due to increases in the Maryland and Phoenix markets where the Company is building in more upscale and certain niche subdivisions. -11- 12 Gross Margin. The overall gross margin for the homebuilding segment was 18.3% for the three months ended June 30, 1998 compared to 18.1% for the three months ended June 30, 1997. The gross margin from housing sales was 18.9% in the second quarter of 1998 as compared to 18.1% in the second quarter of 1997. The gross margin from lot and land sales decreased from 27.4% to 13.8%. Gross margins in the current year were higher than the prior year in nearly all of the Company's markets. Management continues to focus on maintaining accurate, up-to-date costing information so that sales prices can be set to achieve the desired margins. The Company has also focused on acquiring or developing lots in premier locations so that it can obtain higher margins. The Company's ability to maintain these levels of margins is dependent on a number of factors, some of which are beyond the Company's control, including possible shortages of qualified subcontractors. General and Administrative Expenses. General and administrative expenses increased from $4.2 million for the three months ended June 30, 1997 to $4.5 million for the three months ended June 30, 1998. However, general and administrative expenses as a percentage of total revenue decreased from 2.9% for the three months ended June 30, 1997 to 2.6% for the three months ended June 30, 1998. The increase in expense was primarily attributable to the increase in incentive compensation recorded in the second quarter of 1998 compared to the second quarter of 1997 due to the significant increase in net income. Additionally, real estate taxes increased in the current year as the Company's investment in land development activities increased over prior year balances. Selling Expenses. Selling expenses increased from $9.6 million for the three months ended June 30, 1997 to $11.6 million for the three months ended June 30, 1998. Selling expenses as a percentage of total revenue remained constant at 6.7% for the three months ended June 30, 1997 and 1998. The increase in expense was primarily due to an increase in advertising and model expenses. There were also increases in sales commissions paid to outside Realtors and internal salespeople as a result of the increase in sales volume. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Total Revenue. Total revenue for the six months ended June 30, 1998 increased 16.0% from the comparable period of 1997. This increase was due to a 17.l% increase in housing revenue and was offset by a 14.1% decrease in land revenue. The increase in housing revenue was partially due to an 11.4% increase in the number of Homes Delivered. Homes Delivered were higher in all of the Company's regions, led by the Midwest Region where the number of Homes Delivered increased 13.0%. The increase in housing revenue was also due to a 5.1% increase in the average sales price of Homes Delivered. The average sales price of Homes Delivered increased in all of the Company's markets with the exception of Indianapolis and Virginia, due to product mix and higher land and regulatory costs which have been passed on to the home buyer. The decrease in land revenue from $7.4 million to $6.4 million was primarily attributable to the Washington, D.C. market. The Maryland division had significant lot sales to outside homebuilders in the six months ended June 30, 1997 which did not occur in the current year. Home Sales and Backlog. The Company recorded a 30.4% increase in the number of New Contracts recorded in the first half of 1998 compared to the corresponding period of 1997. New Contracts recorded in the current year were higher than the prior year in nearly all of the Company's markets. The Company believes the increase in New Contracts was partially due to favorable market conditions and low interest rates. The number of New Contracts recorded in future periods will be dependent on numerous factors, including future economic conditions, timing of land development, consumer confidence and interest rates available to potential home buyers. -12- 13 Gross Margin. The overall gross margin for the homebuilding segment was 18.9% for the six months ended June 30, 1998 compared to 18.2% for the comparable period of 1997. The gross margin from housing sales was 19.4% in the first half of 1998 compared to 18.1% in the first half of 1997. The gross margin from lot and land sales decreased from 27.7% to 14.5%. Management continues to focus on maintaining accurate, up-to-date costing information so that sales prices can be set to achieve the desired margins. The Company has also focused on acquiring or developing lots in premier locations so that it can obtain higher margins. The Company's ability to maintain these levels of margins is dependent on a number of factors, some of which are beyond the Company's control, including possible shortages of qualified subcontractors. The decrease in gross margin from lot and land sales was primarily due to the Washington, D.C. market. The Maryland division had significant lot sales to outside homebuilders in the first half of 1997 at very high margins which did not occur in the current year. General and Administrative Expenses. General and administrative expenses increased from $7.6 million for the six months ended June 30, 1997 to $8.6 million for the six months ended June 30, 1998. However, general and administrative expenses as a percentage of total revenue decreased from 3.1% for the six months ended June 30, 1997 to 3.0% for the comparable period in the current year. The increase in expense was primarily attributable to the increase in real estate tax expense, incentive compensation and rent expense. Real estate taxes increased in the current year as the Company's investment in land development activities increased over prior year balances. More incentive compensation was recorded in the first half of 1998 compared to the first half of 1997 due to the significant increase in net income. The increase in rent was primarily due to increased costs for office space compared to 1997 in the Columbus market. Selling Expenses. Selling expenses increased from $17.5 million for the six months ended June 30, 1997 to $20.4 million for the six months ended June 30, 1998. Selling expenses as a percentage of total revenue remained constant at 7.1% for the six months ended June 30, 1998 compared to the same period of the prior year. The increase in expense was primarily due to an increase in advertising and model expenses. There were also increases in sales commissions paid to outside Realtors and internal salespeople as a result of the increase in sales volume. FINANCIAL SERVICES SEGMENT - M/I FINANCIAL The following table sets forth certain information related to the Company's financial services segment:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, (Dollars in thousands) 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------------- Number of loans originated 712 567 1,245 990 Revenue: Loan origination fees $ 999 $ 750 $ 1,821 $1,312 Sale of servicing and marketing gains 1,439 1,176 3,247 2,721 Other 1,182 630 2,020 1,258 - ---------------------------------------------------------------------------------------------------------- Total Revenue 3,620 2,556 7,088 5,291 - ---------------------------------------------------------------------------------------------------------- General and administrative expenses 1,514 1,123 2,765 2,159 - ---------------------------------------------------------------------------------------------------------- Operating Income $2,106 $ 1,433 $4,323 $ 3,132 ==========================================================================================================
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 Total Revenue. Total revenue for the three months ended June 30, 1998 was $3.6 million, a 41.6% increase over the $2.6 million recorded for the comparable period of 1997. Loan origination fees increased -13- 14 33.2% from $0.8 million for the three months ended June 30, 1997 to $1.0 million for the three months ended June 30, 1998. The increase was due to a 25.6% increase in the number of loans originated over the comparable period of the prior year, along with an increase in the average loan amount. Revenue from the sale of servicing and marketing gains increased 22.4% from $1.2 million for the three months ended June 30, 1997 to $1.4 million for the three months ended June 30, 1998. The increase was primarily due to an increase of 25.6% in the number of loans originated during the second quarter of 1998 compared to the comparable period of 1997. Revenue from other sources increased 87.6% from $0.6 million for the three months ended June 30, 1997 to $1.2 million for the three months ended June 30, 1998. The increase was primarily due to earnings from the Company's interest in a limited liability company that provides title services that expanded into Florida late in 1997. Revenue from other sources also increased because of an increase in loan application fees received during the period over the number received during the prior year. There were 247 more applications taken in the second quarter of 1998 than in the second quarter of 1997. General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 1998 were $1.5 million, a 34.8% increase from the comparable period of the prior year. The increase was primarily due to an increase in loan application expenses. There were 247 more applications taken in the second quarter of 1998 than in the second quarter of 1997. General and administrative expenses also increased because of expenses related to the expansion of title services into Florida late in 1997. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Total Revenue. Total revenue for the six months ended June 30, 1998 was $7.1 million, a 34.0% increase over the $5.3 million recorded for the comparable period of 1997. Loan origination fees increased 38.8% from $1.3 million for the six months ended June 30, 1997 to $1.8 million for the six months ended June 30, 1998. This increase was due to a 25.8% increase in the number of loans originated over the comparable period of the prior year, along with an increase in the average loan amount. Revenue from the sale of servicing and marketing gains increased 19.3% from $2.7 million for the six months ended June 30, 1997 to $3.2 million for the six months ended June 30, 1998. This was primarily due to a 25.8% increase in the number of loans originated during the first half of 1998 compared to the comparable period of 1997. The increase in servicing fees was due to more fixed rate mortgages originated during the six months ended June 30, 1998 from the comparable period of 1997. The company earns higher premiums on fixed rate mortgages as opposed to adjustable rate mortgages. The increase in marketing gains was primarily due to favorable market conditions during the last part of 1997 and early part of 1998 that increased marketing gains on loans that closed during the first quarter of 1998. The increase in marketing and service fees was also due to an increase in average loan amounts. M/I Financial uses hedging methods whereby it has the option, but is not required, to complete the hedging transaction. This allowed the Company to record servicing and marketing gains during a period of falling interest rates while limiting the risk of loss from a rising interest rate market. Revenue from other sources increased 60.6% from $1.3 million for the six months ended June 30, 1997 to $2.0 million for the six months ended June 30, 1998. This increase was primarily due to earnings from the Company's interest in a limited liability company that provides title services that expanded into Florida late in 1997. Revenue from other sources also increased because of an increase in -14- 15 loan application fees received during the period over the number received during the prior year. There were 428 more applications taken in the first six months of 1998 over the comparable period of the prior year. General and administrative expenses. General and administrative expenses for the six months ended June 30, 1998 were $2.8 million, a 28.1% increase over the comparable period of the prior year. The increase was primarily due to an increase in loan application expenses. There were 428 more applications taken in the first six months of 1998 over the comparable period of the prior year. General and administrative expenses also increased because of expenses related to the expansion of title services into Florida in 1997. OTHER OPERATING RESULTS Corporate General and Administrative Expenses. Corporate general and administrative expenses increased to $3.5 million and $5.3 million for the three and six months ended June 30, 1998, respectively, from $3.1 million and $5.1 million recorded for the comparable periods of 1997. As a percentage of total revenue, general and administrative expenses for the three and six months ended June 30, 1998 increased to 2.0% and 1.8%, respectively, from 2.1% and 2.0% for the comparable periods in the prior year. These increases were primarily attributable to increases in incentive compensation, profit sharing and charitable contributions expensed in the current year due to the significant increase in net income. Interest Expense. Corporate and homebuilding interest expense for the three and six months ended June 30, 1998 increased to $2.9 and $5.5 million, respectively, from $2.7 and $5.0 million recorded for the comparable periods of the prior year. Interest expense was higher in the current year due to an increase in the average borrowings outstanding. This was partially offset by an increase in the net amount of interest capitalized during the first half of 1998 compared to the first half of 1997. Average borrowings outstanding and capitalized interest increased due to a significant increase in the Company's backlog and land development activities. LIQUIDITY AND CAPITAL RESOURCES The Company's financing needs depend upon its sales volume, asset turnover, land acquisition and inventory balances. The Company has incurred substantial indebtedness, and may incur substantial indebtedness in the future, to fund the growth of its homebuilding activities. The Company's principal source of funds for construction and development activities has been from internally generated cash and from bank borrowings, which are primarily unsecured. Additionally, in May 1998, the Company sold treasury shares and received approximately $24.6 million. Notes Payable Banks. On May 27, 1998, the Company entered into a new bank loan agreement. Borrowing capacity was increased from $186.0 million to $204.5 million and certain covenants were modified. The maturity date of the loan was extended from September 30, 2001 to September 30, 2002. At June 30, 1998, the Company had bank borrowings outstanding of $105.0 million under its Bank Credit Facility, which permits aggregate borrowings, other than for the issuance of letters of credit, not to exceed the lesser of: (i) $204.5 million and (ii) the Company's borrowing base, which is calculated based on specified percentages of certain types of assets held by the Company as of each month end, less the sum of (A) outstanding letters of credit issued for purposes other than to satisfy bonding requirements and (B) the aggregate amount of outstanding letters of credit, other than letters of credit issued for the purpose of satisfying bonding requirements, for joint ventures in which the Company is a partner and which are -15- 16 guaranteed by the Company. The Bank Credit Facility matures September 30, 2002, at which time the unpaid balance of the revolving credit loans outstanding will be due and payable. Under the terms of the Bank Credit Facility, the banks will determine annually whether or not to extend the maturity date of the commitments by one year. At June 30, 1998, borrowings under the Bank Credit Facility were at the prime rate or, at the Company's option, LIBOR plus a margin of between 1.60% and 2.35% based on the Company's ratio of Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") to consolidated interest incurred and were primarily unsecured. The Bank Credit Facility contains restrictive covenants which require the Company, among other things, to maintain minimum net worth and working capital amounts, to maintain a minimum ratio of EBITDA to consolidated interest incurred and to maintain certain other financial ratios. The Bank Credit Facility also places limitations on the amount of additional indebtedness that may be incurred by the Company, the acquisition of undeveloped land, dividends that may be paid and the aggregate cost of certain types of inventory the Company can hold at any one time. An additional $17.2 million was outstanding as of June 30, 1998 under the M/I Financial loan agreement, which permits borrowings of $30.0 million to finance mortgage loans initially funded by M/I Financial for customers of the Company and a limited amount for loans to others. The Company and M/I Financial are co-borrowers under the M/I Financial loan agreement. This agreement limits the borrowings to 95% of the aggregate face amount of certain qualified mortgages and contains restrictive covenants requiring M/I Financial to maintain minimum net worth and certain minimum financial ratios. On June 22, 1998, the Company and M/I Financial entered into a new bank loan agreement with the existing lender, pursuant to which the Company and M/I Financial have the ability to borrow at (a) the prime rate less 0.50%, or (b) LIBOR plus 1.60% or (c) a combination of (a) and (b). The new agreement terminates on June 22, 2001, at which time the unpaid balance is due. At June 30, 1998, the Company had the right to borrow up to $234.5 million under its credit facilities, including $30.0 million under the M/I Financial loan agreements. At June 30, 1998, the Company had $112.3 million of unused borrowing availability under its loan agreements. The Company also had approximately $33.2 million of completion bonds and letters of credit outstanding at June 30, 1998. Subordinated Notes. At June 30, 1998, there was outstanding $50.0 million of Senior Subordinated Notes. The notes bear interest at a fixed rate of 9.51% and mature August 29, 2004. Land and Land Development. Over the past several years, the Company's land development activities and land holdings have increased significantly, and the Company expects this trend will continue in the foreseeable future. Single-family lots, land and land development increased 6.4% from December 31, 1997 to June 30, 1998. These increases are primarily due to the shortage of qualified land developers in certain of the Company's markets as well as the Company developing more land due to the competitive advantages that can be achieved by developing land internally rather than purchasing lots from developers or competing homebuilders. This is particularly true for the Company's Horizon product line, in which lots are generally not available from third party developers at economically feasible prices due to the price points the Company targets. The Company continues to purchase lots from outside developers under option contracts, when possible, to limit its risk; however, the Company will continue to evaluate all of its alternatives to satisfy the Company's demand for lots in the most cost effective manner. The $27.0 million increase in notes payable banks - homebuilding operations, from December 31, 1997 to June 30, 1998 reflects increased borrowings primarily attributable to the increase in houses under construction, along with an increase in single-family lots, land -16- 17 and land development costs. Houses under construction increased $56.5 million from December 31, 1997 to June 30, 1998, and single-family lots, land and land development costs increased $9.7 million. It is expected that borrowing needs will increase as the Company continues to increase its investment in land under development and developed lots. As of June 30, 1998, the Company had closed on five phases of a six-phase land purchase contract in the Maryland division. This contract was entered into in 1994 and required a greater investment than the Company generally commits. It has been the Company's policy to sell a portion of these lots to outside homebuilders. The Company has an option to purchase the remaining phase. At June 30, 1998, mortgage notes payable outstanding were $6.3 million, secured by lots and land with a recorded book value of $10.7 million. As its capital requirements increase, the Company may increase its borrowings under its bank line of credit. In addition, the Company continually explores and evaluates alternative sources from which to obtain additional capital. Sale of Treasury Shares. On April 27, 1998, the Company filed a registration statement with the Securities and Exchange Commission for up to 1,200,000 shares of common stock of the Company. All of such shares were sold on May 5, 1998. The Company received approximately $24.6 million, which was used to repay a portion of existing indebtedness. Year 2000 Compliance. The Company is currently in the process of modifying or replacing certain management information systems to address issues regarding the year 2000. In accordance with current accounting guidance, modification costs for the year 2000 will be charged to expense as incurred while replacement costs will be capitalized and amortized over the asset's useful life. It is not presently believed that these changes will have an adverse impact on operations or that the expenditures related thereto will be material to the Company's financial position or results of operations in any given year. INTEREST RATES AND INFLATION The Company's business is significantly affected by general economic conditions of the United States and, particularly, by the impact of interest rates. Higher interest rates may decrease the potential market by making it more difficult for home buyers to qualify for mortgages or to obtain mortgages at interest rates acceptable to them. Increases in interest rates also would increase the Company's interest expense as the rate on the revolving loans is based upon floating rates of interest. The weighted average interest rate on the Company's outstanding debt for the six months ended June 30, 1998 was 8.5% compared to 8.4% for the six months ended June 30, 1997. In conjunction with its mortgage banking operations, the Company uses hedging methods to reduce its exposure to interest rate fluctuations between the commitment date of the loan and the time the loan closes. In recent years, the Company generally has been able to raise prices by amounts at least equal to its cost increases and, accordingly, has not experienced any detrimental effect from inflation. Where the Company develops lots for its own use, inflation may increase the Company's profits because land costs are fixed well in advance of sales efforts. The Company is generally able to maintain costs with subcontractors from the date a home sales contract is accepted; however, in certain situations, unanticipated costs may occur between the time a sales contract is executed and the time a home is constructed, which results in lower gross profit margins. -17- 18 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company wishes to take advantage of the safe harbor provisions included in the Private Securities Litigation Reform Act of 1995. Accordingly, in addition to historical information, this Management's Discussion and Analysis of Results of Operations and Financial Condition contains certain forward-looking statements, including, but not limited to, statements regarding the Company's future financial performance and financial condition. These statements involve a number of risks and uncertainties. Any forward-looking statements made by the Company herein and in future reports and statements are not guarantees of future performance, and actual results may differ materially from those in such forward-looking statements as a result of various factors including, but not limited to, those referred to below. General Real Estate, Economic and Other Conditions. The homebuilding industry is significantly affected by changes in national and local economic and other conditions, including employment levels, changing demographic considerations, availability of financing, interest rates, consumer confidence and housing demand. In addition, homebuilders are subject to various risks, many of them outside the control of the homebuilder, including competitive overbuilding, availability and cost of building lots, availability of materials and labor, adverse weather conditions which can cause delays in construction schedules, cost overruns, changes in government regulations, and increases in real estate taxes and other local government fees. The Company cannot predict whether interest rates will be at levels attractive to prospective home buyers. If interest rates increase, and in particular mortgage interest rates, the Company's business could be adversely affected. Land Development Activities. The Company develops the lots for a majority of its subdivisions. Therefore, the medium- and long-term financial success of the Company will be dependent on the Company's ability to develop its subdivisions successfully. Acquiring land and committing the financial and managerial resources to develop a subdivision involves significant risks. Before a subdivision generates any revenue, material expenditures are required for items such as acquiring land and constructing subdivision infrastructure (such as roads and utilities). The Company's Markets. The Company's operations are concentrated in the Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and Palm Beach County, Florida; Charlotte and Raleigh, North Carolina; Virginia and Maryland metropolitan areas; and Phoenix, Arizona. Adverse general economic conditions in these markets could have a material adverse impact on the operations of the Company. For the six months ended June 30, 1998, approximately 45% of the Company's housing revenue and a significant portion of the Company's operating income were derived from operations in its Columbus, Ohio market. The Company's performance could be significantly affected by changes in this market. Competition. The homebuilding industry is highly competitive. The Company competes in each of its local market areas with numerous national, regional and local homebuilders, some of which have greater financial, marketing, land acquisition, and sales resources than the Company. Builders of new homes compete not only for home buyers, but also for desirable properties, financing, raw materials and skilled subcontractors. The Company also competes with the resale market for existing homes which provides certain attractions for home buyers over building a new home. Governmental Regulation and Environmental Considerations. The homebuilding industry is subject to increasing local, state and Federal statutes, ordinances, rules and regulations concerning zoning, resource protection (preservation of woodlands and hillside areas), building design, and construction and similar matters, including local regulations which impose restrictive zoning and density requirements in -18- 19 order to limit the number of homes that can eventually be built within the boundaries of a particular location. Such regulation affects construction activities, including construction materials which must be used in certain aspects of building design, as well as sales activities and other dealings with home buyers. The Company must also obtain licenses, permits and approvals from various governmental agencies for its development activities, the granting of which are beyond the Company's control. Furthermore, increasingly stringent requirements may be imposed on homebuilders and developers in the future. Although the Company cannot predict the impact on the Company of compliance with any such requirements, such requirements could result in time consuming and expensive compliance programs. The Company is also subject to a variety of local, state and Federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. The particular environmental laws which apply to any given project vary greatly according to the project site and the present and former uses of the property. These environmental laws may result in delays, cause the Company to incur substantial compliance costs (including substantial expenditures for pollution and water quality control) and prohibit or severely restrict development in certain environmentally sensitive regions. Although there can be no assurance that it will be successful in all cases, the Company has a general practice of requiring an environmental audit and resolution of environmental issues prior to purchasing land in an effort to avoid major environmental issues in the Company's developments. In addition, the Company has been, and in the future may be, subject to periodic delays or may be precluded from developing certain projects due to building moratoriums. These moratoriums generally relate to insufficient water supplies, sewage facilities, delays in utility hook-ups, or inadequate road capacity within the specific market area or subdivision. These moratoriums can occur prior to, or subsequent to, commencement of operations by the Company without notice to, or recourse by, the Company. Risk of Material and Labor Shortages. The Company is presently not experiencing any serious material or labor shortages. However, the residential construction industry in the past has, from time to time, experienced serious material and labor shortages in insulation, drywall, certain carpentry and framing work and cement, as well as fluctuating lumber prices and supplies. Delays in construction of homes due to these shortages could adversely affect the Company's business. Significant Voting Control by Principal Shareholders. As of June 30, 1998, members of the Irving E. Schottenstein family owned approximately 31% of the outstanding Common Shares of the Company. Therefore, members of the Irving E. Schottenstein family have significant voting power with respect to the election of the Board of Directors of the Company and, in general, the determination of the outcome of various matters submitted to the shareholders of the Company for approval. Dependence on Key Executives. The Company is managed by a relatively small number of executive officers. The loss of the services of one or more of these executive officers could have an adverse effect on the Company's business and operations. -19- 20 PART II - OTHER INFORMATION Item 1. Legal Proceedings - none. Item 2. Changes in Securities - none. Item 3. Defaults upon Senior Securities - none. Item 4. Submission of Matters to a Vote of Security Holders On April 28, 1998, the Company held its 1998 annual meeting of shareholders. The shareholders voted on the election of three directors to three-year terms and whether to amend and restate the Regulations of M/I Schottenstein Homes, Inc. The results of the voting are as follows: 1. Election of Directors For Withheld --- -------- Friedrich K.M. Bohm 7,103,136 45,170 Jeffrey H. Miro 7,103,036 45,270 Robert H. Schottenstein 7,103,836 44,470 2. To amend and restate the Regulations of M/I Schottenstein Homes, Inc. For 4,442,436 Against 1,965,049 Abstain 4,775 Broker non-votes 736,046 Item 5. Other Information - none. Item 6. Exhibits and Reports on Form 8-K The exhibits required to be filed herewith are set forth below. No reports were filed on Form 8-K for the quarter for which this report is filed. Exhibit Number Description - ------ ----------- 10.1 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. 10.2 Revolving Credit Agreement by and among the Company, M/I Financial Corp. and Bank One, NA, dated June 22, 1998. -20- 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. M/I Schottenstein Homes, Inc. (Registrant) Date: August 11, 1998 by: /s/ ROBERT H. SCHOTTENSTEIN --------------------------- Robert H. Schottenstein President Date: August 11, 1998 by: /s/ KERRII B. ANDERSON ---------------------- Kerrii B. Anderson Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) -21- 22 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE NO. ------ ----------- -------- 10.1 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. 10.2 Revolving Credit Agreement by and among the Company, M/I Financial Corp. and Bank One, NA, dated June 22, 1998.
-22- 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. M/I Schottenstein Homes, Inc. ----------------------------- (Registrant) Date: August __, 1998 by: _________________________ Robert H. Schottenstein President Date: August __, 1998 by: _________________________ Kerrii B. Anderson Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) -23- EX-10.1 2 EXHIBIT 10.1 1 Exhibit 10.1 THIRD RESTATED REVOLVING CREDIT LOAN, SWINGLINE LOAN AND STANDBY LETTER OF CREDIT AGREEMENT THIS THIRD RESTATED REVOLVING CREDIT LOAN, SWINGLINE LOAN AND STANDBY LETTER OF CREDIT AGREEMENT (this "Agreement") is made to be effective as of May 27, 1998, by and among M/I SCHOTTENSTEIN HOMES, INC., an Ohio corporation ("Borrower"), BANK ONE, NA, a national banking association ("Bank One"), THE HUNTINGTON NATIONAL BANK, a national banking association ("HNB"), THE FIRST NATIONAL BANK OF CHICAGO, a national banking association ("First Chicago"), NATIONAL CITY BANK, successor by merger with National City Bank of Columbus, a national banking association ("NCB"), BANKBOSTON, N.A., a national banking association, ("BKB"), THE FIFTH THIRD BANK OF COLUMBUS, an Ohio banking corporation ("Fifth Third"), and SUNTRUST BANK, CENTRAL FLORIDA, N.A., a national banking association ("STB") (Bank One, HNB, First Chicago, NCB, BKB, Fifth Third and STB is 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, Bank One, HNB, First Chicago, NCB, BKB, Fifth Third and Agent are parties to a certain Second Restated Revolving Credit Loan and Standby Letter of Credit Agreement effective as of December 30, 1996, as amended by the First Amendment thereto effective as of March 14, 1997, the Second Amendment thereto effective as of May 7, 1997, the Third Amendment thereto effective as of September 29, 1997 and the Fourth Amendment thereto effective as of December 29, 1997 (the "Existing Credit Agreement"). B. Borrower, Banks and Agent want to modify the Existing Credit Agreement by adding STB as a Bank, increasing the 2 amount of credit available to Borrower as Revolving Credit Loans (as defined in the Existing Credit Agreement), increasing the Revolving Credit Loan Commitment (as defined in the Existing Credit Agreement) of NCB, providing for swingline loans and modifying certain covenants. C. Borrower, Banks and Agent further want to modify the Existing Credit Agreement to reflect the extension of the maturity date of the Commitment from September 30, 2001 to September 30, 2002 pursuant to that written notice dated September 30, 1997 from Bank One, as Agent, to Borrower provided pursuant to subsection 2.7 of the Existing Credit Agreement. AGREEMENT SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms have the following respective meanings: "601RS, Inc." shall mean 601RS, Inc., an Ohio corporation and a wholly-owned Subsidiary of Borrower. "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. -2- 3 "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: If the ratio of EBITDA to Applicable Eurodollar Margin Consolidated Interest for Eurodollar Rate Loan is: Incurred is: ----------------------------- ------------------------- less than 1.75 to 1.0 Eurodollar Rate Loans are not available equal to or greater than 1.75 to 1.0 but less than 2.0 to 1.0 2.35% per annum equal to or greater than 2.0 to 1.0 but less than 2.50 to 1.0 2.10% per annum equal to or greater than 2.50 to 1.0 but less than 3.0 to 1.0 1.85% per annum equal to or greater than 3.0 to 1.0 1.60% per annum If, however, the financial statements required to be delivered pursuant to subsection 6.1(b) and the related compliance -3- 4 certificate required to be delivered pursuant to subsection 6.2(a) are not delivered when due, then: (a) if such financial statements and compliance certificate are delivered after the date such financial statements and compliance certificate were required to be delivered but before the expiration of any applicable cure period and the Applicable Eurodollar Margin increases from that previously in effect as a result of a change in the ratio of EBITDA to Consolidated Interest Incurred as determined from such financial statements and compliance certificate, then the Applicable Eurodollar Margin during the period from the date upon which such financial statements were required to be delivered but before the expiration of any applicable cure period until the date upon which they actually are delivered shall be the Applicable Eurodollar Margin as so increased; (b) if such financial statements and compliance certificate are delivered after the date such financial statements and compliance certificate were required to be delivered but before the expiration of any applicable cure period and the Applicable Eurodollar Margin decreases from that previously in effect as a result of a change in the ratio of EBITDA to Consolidated Interest Incurred as determined from such financial statements and compliance certificate, then such decrease in the Applicable Eurodollar Margin shall not become applicable until the date upon which the financial statements and compliance certificates are actually delivered; and (c) if such financial statements and certificate are not delivered prior to the expiration of the applicable cure period, the Applicable Eurodollar Margin for the period beginning as of the date upon which such financial statements and compliance certificate were required to be delivered without regard to any applicable cure period until two Business Days following the date upon which they actually are delivered shall be, per annum, one percent (1.0%) plus the Applicable Eurodollar Margin that was in effect at the time of such expiration (it being understood that the foregoing shall not limit the rights of the Agent and the Banks set forth in Section 9). -4- 5 "BankBoston Agreement" shall mean the credit agreement dated August 29, 1997 between Borrower 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 mean Bank One, HNB, First Chicago, NCB, BKB, Fifth Third and STB. "Bellwood L.L.C." shall mean Bellwood L.L.C., a Virginia limited liability company and a Subsidiary of Borrower, which is owned 99% by Lot 5 - 1997, L.L.C. and 1% by KSI Services, Inc., a Virginia corporation. "Borrowing Base" shall mean, as of any date of determination, an amount equal to the sum of: (a) the amount calculated by multiplying .90 by the value of Eligible Production Inventory; plus (b) the amount calculated by multiplying .85 by the aggregate value of Eligible Model Houses which are not over two (2) years old (as measured from the date of the completion of construction); plus (c) the amount calculated by multiplying .75 by the aggregate value of Eligible Model Houses which are over two (2) years old (as measured from the date of the completion of construction); plus (d) the amount calculated by multiplying .80 by the value of Eligible Developed Lots Sold; plus (e) the amount calculated by multiplying .50 by the value of Eligible Developed Lots Unsold; plus (f) the amount calculated by multiplying .25 by the value of Eligible Raw Land and Land Under Development; plus (g) the amount calculated by multiplying .25 by the value of Investments in Joint Ventures; -5- 6 less the sum of (i) the aggregate amount of Customer Deposits then held by Borrower and (ii) the aggregate outstanding amount of Liens incurred by Borrower and permitted by subsection 7.2(i) hereof. "Borrowing Base Certificate" shall have the meaning set forth in subsection 5.1(c) hereof. "Borrowing Date" shall mean any Business Day specified pursuant to (a) subsection 2.3 hereof as a date on which Banks make a disbursement of the Revolving Credit Loans hereunder, (b) subsection 2.12 hereof as a date on which Bank One makes at Borrower's request, a disbursement of the Swingline Loans hereunder, or (c) subsection 2.13 hereof as a date on which Agent issues, at Borrower's request, a Standby L/C hereunder. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in Columbus, Ohio are authorized or required by law to close, except that when used in connection with Eurodollar Rate Loans, "Business Day" shall mean any Business Day on which dealings in Dollars between banks may be carried on in London, England and Columbus, Ohio. "Cash Equivalents" shall mean (a) securities with maturities of 180 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and bankers' acceptances, each issued by Bank One, HNB, First Chicago, NCB, BKB, Fifth Third or STB and each with a maturity of 180 days or less from the date of acquisition, and (c) commercial paper of a domestic issuer rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc. with a maturity of not more than 180 days. "Chevy Chase Villas, L.L.C." shall mean Chevy Chase Villas, L.L.C., a Virginia limited liability company and a Subsidiary of Borrower, which is owned 99% by Manor Road - 1997, L.L.C. "Code" shall mean the Internal Revenue Code of 1986, as amended or superseded from time to time. Any reference -6- 7 to a specific provision of the Code shall be construed to include any comparable provision of the Code as hereafter amended or superseded. "Commitment" shall mean the aggregate of (a) the Revolving Credit Loan Commitments and (b) the L/C Commitments as set forth on Schedule 1 hereto. "Commitment Period" shall mean the period from and including the date hereof to the Maturity Date, or such earlier or later date as the Commitment shall terminate as provided herein. "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 its 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 its 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 its Subsidiaries irrespective of whether such interest is expensed or capitalized by Borrower or its 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 its 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 -7- 8 the total amount of liabilities, deferred credits and minority interests, as the same would appear in a consolidated balance sheet of Borrower and its 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. "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) -8- 9 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 $1,000,000 at any one time. "Dollars" and "$" 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 the Borrower and its 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 -9- 10 of assets (including the establishment of reserves), minus (x) interest income, minus (y) all extraordinary gains. "Eligible Assignee" shall mean (a) any Bank or any affiliate of a Bank and (b) any other commercial bank, financial institution, institutional lender or "accredited investor" (as defined in Regulation D promulgated under the Securities Act of 1993 by the Securities and Exchange Commission) with capital of at least $500,000,000 and with an office in the United States. "Eligible Developed Lots Sold" shall mean all Developed Lots which Borrower or any Subsidiary has recorded as 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 -10- 11 except for the costs of any furnishings, but shall be reduced by the then outstanding aggregate amount of Indebtedness secured by any Eligible Model Houses and permitted by subsection 7.1(d) hereof; provided, however, that (a) the aggregate value of attached (including townhouse condominiums and condominiums) single family homes constituting Eligible Model Houses shall not exceed $3,000,000, and (b) the aggregate value of all Eligible Model Houses shall not exceed $30,000,000. "Eligible Mortgage Loan" shall mean at any date an original (not a rewritten or renewed) loan evidenced by a note and secured by a first mortgage on residential real property which (a) M/I Financial Corp. has made to enable a natural person or persons to purchase a home from Borrower, any Subsidiary of Borrower or another Person that is substantially completed, (b) is not more than 60 days old as determined by the date of the note which evidences such loan, and (c) is subject, or M/I Financial Corp. reasonably believes is subject, to a Purchase Commitment; provided, however, that the amount of Eligible Mortgage Loans consisting of loans made by M/I Financial Corp. for the purchase of homes from any Person other than Borrower or any Subsidiary of Borrower shall not, in the aggregate at any one time outstanding, exceed the amount of $5,000,000. "Eligible Production Inventory" shall mean all detached or attached (including townhouse condominiums and condominiums) single family houses which are completed (including Speculative Houses but excluding Eligible Model Houses and Rental Houses, if any) or for which there has been a Start of Construction (including Speculative Houses but excluding Eligible Model Houses and Rental Houses, if any), and the lots on which such houses are located. The value of Eligible Production Inventory shall be calculated in accordance with GAAP and shall include all associated costs required to be capitalized under GAAP, but shall be reduced by the then outstanding aggregate amount of Indebtedness secured by any Eligible Production Inventory and permitted by subsection 7.1(d) hereof; provided that the cost of obtaining commitments for financing terms to be provided to the buyers of Eligible Production Inventory shall be excluded. "Eligible Raw Land and Land Under Development" shall mean all land other than land included in the definition of -11- 12 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 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 -12- 13 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. "Fannie Mae" shall mean the Federal National Mortgage Association, or any successor thereto. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect at the time any determination is made or financial statement is required hereunder as promulgated by the American Institute of Certified Public Accountants, the Accounting Principles Board, the Financial Accounting Standards Board or any other body existing from time to time which is authorized to establish or interpret such principles, applied on a consistent basis throughout any applicable period, subject to any change required by a change in GAAP; provided, however, that if any change in generally accepted accounting principles from those applied in preparing the financial statements referred to in subsection 4.1 hereof affects the calculation of any financial covenant contained herein, Borrower, Banks and Agent hereby agree to amend the Agreement to the effect that each such financial covenant is not more or less restrictive than such covenant as in effect on the date hereof using generally accepted accounting principles consistent with those reflected in such financial statements. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranteed HNB Joint Ventures Letters of Credit" shall mean that portion of the standby letters of credit (including joint venture letters of credit issued by HNB prior to the date of this Agreement that will remain in place after the -13- 14 effective date of this Agreement) issued by HNB pursuant to the HNB Joint Ventures Letter of Credit Agreement for the account of joint ventures of which Borrower is a partner which Borrower has guaranteed in accordance with the terms of the HNB Joint Ventures Letter of Credit Agreement, provided that the portion of such letters of credit that has been guaranteed by Borrower shall not exceed in the aggregate $6,500,000 at any one time outstanding. "Guaranties" (individually, "Guaranty") shall mean the guaranties of the Indebtedness evidenced by this Agreement and by all documents contemplated by this Agreement, including without limitation the Notes, as this Agreement and such documents may be amended or restated from time to time, which guaranties are substantially in the form of Exhibit A attached to this Agreement, executed by each of Borrower's Subsidiaries (which are M/I Financial Corp., 601RS, Inc., M/I Homes, Inc., M/I Homes Construction, Inc., Bellwood L.L.C., Lot 5 - 1997, L.L.C., Manor Road - 1997, L.L.C. and Chevy Chase Villas, L.L.C.) in favor of the respective Banks and to which Agent shall also be a party, and any guaranties in favor of Agent and the respective Banks executed by (a) each other permitted Subsidiary, if any, of Borrower and/or (b) the M/I Ancillary Businesses that are wholly-owned by the Borrower or by any Subsidiary. "HNB Joint Ventures Letter of Credit Agreement" shall mean the Agreement to Issue Letters of Credit dated as of June 8, 1994, as amended and to be amended from time to time, with respect to standby letters of credit issued or to be issued by HNB for the account of certain joint ventures of which Borrower is a partner. "Indebtedness" shall mean as to any Person, at a particular time, (a) indebtedness for borrowed money or for the deferred purchase price of property or services (including without limitation any such indebtedness which is non-recourse to the credit of such Person but is secured by assets of such Person) other than current (due and payable within 12 months or less), unsecured obligations for operating expense items incurred in the ordinary course of business, (b) any other indebtedness evidenced by promissory notes or other debt instruments, (c) obligations under material leases which shall have been or should be, in accordance with GAAP, recorded as capitalized leases, (d) indebtedness arising under acceptance facilities, (e) indebtedness -14- 15 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. "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 the Borrower in its 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 the 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 -15- 16 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 the Borrower shall not select an Interest Period for a Eurodollar Rate Loan as a Revolving Credit Loan if the last day of such Interest Period would be after the last day of the Commitment Period. "Interest Rate Contract" shall mean any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate insurance arrangement, or any other agreement or arrangement designed to provide protection against fluctuation in interest rates. "Investments in Joint Ventures" shall mean investments (as defined in subsection 7.9 hereof) in joint ventures that are general partnerships, limited partnerships, limited liability companies, corporations or any other business association formed for the purpose of acquiring land, the majority of which land is zoned residential and is to be developed into residential lots for attached or detached single family housing (including a townhouse condominium building or condominium building), and/or performing such development. The value of Investments in Joint Ventures shall be calculated in accordance with GAAP. "L/C Commitment" shall mean, as to any L/C Participant, the percentage (the "L/C Commitment Percentage") and amount set forth opposite its name on Schedule 1 hereto under the headings "L/C Commitment Percentage" and "L/C Commitment"; and collectively, as to all L/C Participants, the "L/C Commitments". -16- 17 "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. "Lot 5 - 1997, L.L.C." shall mean Lot 5 - 1997, L.L.C., a Virginia limited liability company and a wholly-owned Subsidiary of Borrower. -17- 18 "Manor Road - 1997, L.L.C." shall mean Manor Road - 1997, L.L.C., a Virginia limited liability company and a wholly-owned Subsidiary of Borrower. "Maturity Date" shall mean September 30, 2002. "Maximum Swingline Amount" shall mean $5,000,000. "M/I Ancillary Businesses" shall mean businesses that are corporations, limited partnerships, limited liability partnerships or limited liability companies which are engaged solely in activities reasonably related to the sale of single family housing and in which the Borrower or any Subsidiary has an investment or other interest, provided that such investment or other interest shall be as (a) a shareholder if the business is a corporation, (b) a limited partner if the business is a limited partnership, (c) a limited liability partner if the business is a limited liability partnership, or (d) a limited liability member if the business is a limited liability company. "M/I Financial Corp." shall mean M/I Financial Corp., an Ohio corporation and a wholly-owned Subsidiary of Borrower. "M/I Financial Corp. Loan Agreement" shall mean the Revolving Credit Agreement by and among M/I Financial Corp., Borrower and Bank One, effective as of July 18, 1997, 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 Borrower. "M/I Homes, Inc." shall mean M/I Homes, Inc., an Arizona corporation and a wholly-owned Subsidiary of Borrower. "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 -18- 19 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 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. "Notes" shall mean the Revolving Credit Notes and the Swingline Note. "Office Building" shall mean the office building constructed by the Office Building Limited Liability Company at 3 Easton Oval, Columbus, Ohio 43219 in which Borrower is a tenant. "Office Building Limited Liability Company" shall mean Northeast Office Venture, Limited Liability Company, formed under Delaware law, the ownership interest of which is 33-1/3% in Borrower. "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. -19- 20 "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Person" shall mean an individual, a partnership (including without limitation a joint venture), a limited liability company (including without limitation a joint venture), a corporation (including without limitation a joint venture), a business trust, a joint stock company, a trust, an unincorporated association, a Governmental Authority or any other entity of whatever nature (including without limitation a joint venture). "Plan" shall mean any pension plan which is covered by Title IV of ERISA and in respect of which Borrower or a Commonly Controlled Entity is an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" shall mean the rate of interest per annum announced by Agent from time to time as its prime rate, with any change thereto effective as of the opening of business on the day of the change; which Prime Rate is not necessarily the best interest rate offered by Agent. "Prime Rate Loans" shall mean Loans the rate of interest applicable to which is based on the Prime Rate. "Purchase Commitment" shall mean a commitment from a secondary market lender, pursuant to an agreement with M/I Financial Corp., either with respect to a particular mortgage loan or with respect to mortgage loans meeting specified criteria, to purchase such mortgage loan or loans without recourse (except for Mortgage Loan Repurchase Obligations) for an amount not less than the difference of (a) the face amount of the note evidencing such mortgage loan(s), minus (b) the sum of (i) the points agreed upon between M/I Financial Corp. and such secondary market lender, and (ii) the amount of funds (for example, without limitation, escrow funds and origination fees), other than points, received by M/I Financial Corp. at the loan closing from the mortgagor. "Reimbursement Obligations" shall mean Borrower's obligations to reimburse (a) Agent or, (b) in the case of Standby L/Cs previously issued which will remain in place after the -20- 21 execution of this Agreement, Bank One or HNB, as appropriate, as a result of draws on one or more Standby L/Cs. "Rental Houses" shall mean (a) all completed detached or attached (including townhouse condominiums and condominiums) single family houses which are rented to third parties or held for rental by Borrower or which were previously so held and are currently held for sale and (b) detached or attached (including townhouse condominiums and condominiums) single family houses for which there has been a Start of Construction which upon completion will be rented to third parties or will be held for rental by Borrower. The value of Rental Houses shall be calculated in accordance with GAAP and shall include all associated costs required to be capitalized under GAAP. "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "Required Banks" shall mean, at any particular time, Banks having at least 55% of the aggregate amount of the Commitment, whether or not Borrower has drawn all or any portion of the Commitment; provided that for purposes of consent to waiver or amendment of the covenants contained in subsection 6.14 hereof, Required Banks shall mean, at any particular time, Banks having at least 67% of the aggregate amount of the Commitment, whether or not Borrower has drawn all or any portion of the Commitment. "Requirement of Law" shall mean as to any Person, the Certificate (or Articles) of Incorporation, By-Laws (or Code of Regulations), Close Corporation Agreement (where applicable) or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination, including without limitation all environmental laws, rules, regulations and determinations, of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" shall mean as to Borrower or any of its 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, -21- 22 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 (which value shall be reduced by the then outstanding aggregate amount of Indebtedness secured by any Speculative Houses and permitted by subsection 7.1(d) hereof) as determined in accordance with GAAP of: (a) all uncompleted houses for which there has been a Start of Construction except (1) Eligible Model Houses, (2) Rental Houses, if any, and (3) those which are less than nine months old as measured from the date on which construction was begun and are subject to valid noncontingent, except for financing, contracts of sale (A) to Persons who are not Affiliates or Subsidiaries, and (B) that provide for closing within 30 days after completion; and (b) all completed houses except (1) Eligible Model Houses, (2) Rental Houses, if any, and (3) those subject to valid noncontingent, except for financing, contracts of sale (A) to Persons who are not Affiliates or Subsidiaries, and (B) that -22- 23 provide for closing on or before the later of 60 days after the date of the contract or 30 days after completion of construction. "Standby L/C" shall mean an irrevocable letter of credit, including any extensions or renewals, (a) issued by Agent pursuant to this Agreement or (b) previously issued by Bank One pursuant to the Existing Credit Agreement, or by Bank One or HNB pursuant to any predecessor to the Existing Credit Agreement, and which will remain in place as of the first Borrowing Date, in which each L/C Participant agrees to purchase a participation equal to its L/C Commitment Percentage and the issuing bank agrees to make payments in Dollars for the account of Borrower, on behalf of Borrower or any Subsidiary thereof in respect of obligations of Borrower or such Subsidiary incurred pursuant to contracts made or performances undertaken or to be undertaken or like matters relating to contracts to which Borrower or such Subsidiary is or proposes to become a party in the ordinary course of Borrower's or such Subsidiary's business. The term "Standby L/C" shall not include any letters of credit issued (x) pursuant to the HNB Joint Ventures Letter of Credit Agreement or (y) by any Bank other than pursuant to this Agreement or the Existing Credit Agreement. "Standby L/C Application" shall have the meaning set forth in subsection 2.14 hereof. "Start of Construction" shall mean the commencement of the digging of the foundation or footer for a detached or attached single family house (including a townhouse condominium building or condominium building). "Stockholder Payment" shall have the meaning set forth in subsection 7.6 hereof. "Subordinated Indebtedness" at any date shall mean (i) the unsecured Indebtedness of Borrower created as a result of the BankBoston Agreement, and (ii) all other future unsecured subordinated Indebtedness of Borrower, 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) Borrower's obligations to Banks and Agent under this Agreement and the Notes and (b) Borrower's obligations, if any, as a guarantor or otherwise of the -23- 24 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. "Swingline Expiry Date" shall mean the date which is ten (10) Business Days prior to the Maturity Date. "Swingline Loan" shall have the meaning provided in subsection 2.12. "Swingline Note" shall have the meaning provided in Subsection 2.12. "Tranche" shall mean the collective reference to those Eurodollar Rate Loans, the then current Interest Periods with respect to all of which begin on the same date and end on the same date (whether or not such Eurodollar Rate Loans shall originally have been made on the same day). "Uncommitted Land" shall mean the aggregate value as determined in accordance with GAAP of: (a) Eligible Raw Land and Land Under Development, (b) Eligible Developed Lots Unsold, (c) Borrower's pro rata share of land that constitutes part of Investments in Joint Ventures which is not subject to an agreement for sale, and (d) deposits for land purchases and purchase options. -24- 25 "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. "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 its 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 its 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 -25- 26 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 the sum of (i) the aggregate principal amount of undrawn and drawn Standby L/Cs, exclusive of the amount of Standby L/Cs issued for the purpose of satisfying bonding requirements, then outstanding, (ii) the aggregate principal amount of undrawn and drawn Guaranteed HNB Joint Ventures Letters of Credit, exclusive of the amount of Guaranteed HNB Joint Ventures Letters of Credit issued for the purpose of satisfying bonding requirements, then outstanding and (iii) the aggregate principal amount of Swingline Loans which remain outstanding after giving effect to any repayment of Swingline Loans with the proceeds of a borrowing of Revolving Credit Loans, or (b) Two Hundred Four Million Five Hundred Thousand and 00/100 Dollars ($204,500,000.00) minus the aggregate principal amount of all Swingline Loans which remain outstanding after giving effect to any repayment of Swingline Loans with the proceeds of a borrowing of Revolving Credit Loans. During the Commitment Period and as long as no Event of Default exists, Borrower may use the Revolving Credit Loan Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. -26- 27 Subject to the terms and conditions of this Agreement (including the limitations on the availability of Eurodollar Rate Loans and including the termination of the Commitment as set forth in Section 9 hereof), the Revolving Credit Loans may from time to time be (i) Eurodollar Rate Loans, (ii) Prime Rate Loans, or (iii) a combination thereof, as determined by Borrower and notified to Agent in accordance with subsection 2.3 hereof, provided (a) that no Revolving Credit Loan shall be made as a Eurodollar Rate Loan if the ratio of EBITDA to Consolidated Interest Incurred as of the most recent Adjustment Date, determined from the financial statements and compliance certificate that relate to the last month of the fiscal quarter immediately preceding such Adjustment Date, is less than 1.75 to 1.0, (b) that no Revolving Credit Loan shall be made as a Eurodollar Rate Loan after the day that is one month prior to the last day of the Commitment Period, and (c) that the maximum number of Tranches that may be outstanding at any one time as Revolving Credit Loans may not exceed seven in the aggregate. 2.2 Revolving Credit Notes. The Revolving Credit Loans made by Banks pursuant hereto shall be evidenced by promissory notes of Borrower, substantially in the form of Exhibit B attached hereto (each a "Revolving Credit Note" and collectively the "Revolving Credit Notes"), payable to the order of the respective Bank and evidencing the obligation of Borrower to pay the aggregate unpaid principal amount of the Revolving Credit Loans made by such Bank, with interest thereon as prescribed in subsection 2.5 hereof. Each Bank is hereby authorized to record electronically or otherwise the date and amount of each Revolving Credit Loan disbursement made by such Bank, and the date and amount of each payment or prepayment of principal thereof, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, the failure of such Bank to make any such recordation(s) shall not affect the obligation of Borrower to repay outstanding principal, interest, or any other amount due hereunder or under the Revolving Credit Notes in accordance with the terms hereof and thereof. Each Revolving Credit Note shall (a) be dated as of the date hereof, (b) be stated to mature on the Maturity Date, which Maturity Date may be extended as provided in subsection 2.7 hereof, and (c) bear interest for the period from and including the date thereof on the unpaid principal amount thereof from time to time outstanding at the applicable interest -27- 28 rate per annum determined as provided in subsection 2.5 hereof. Interest on each Revolving Credit Note shall be payable as specified in subsection 2.5 hereof. 2.3 Procedure for Borrowing. Borrower may borrow under the Revolving Credit Loan Commitments (subject to the limitations on the availability of Eurodollar Rate Loans), during the Commitment Period, provided Borrower shall give Agent telephonic or written notice (the "Notice of Borrowing"), which 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 -28- 29 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 Rate Loans, the amount of each Prime Rate Loan, if any, and the respective amounts of each such Eurodollar Rate Loan, the applicable Eurodollar Rate for each such Eurodollar Rate Loan and the respective lengths of the initial Interest Periods therefor. Subject to satisfaction of the terms and conditions of this Agreement, each Bank shall deposit funds with Agent for the account of Borrower by 2:00 p.m. on the Borrowing Date by wire transfer or other immediately available funds equal to its Revolving Credit Loan Commitment Percentage of the Revolving Credit Loans to be made on the Borrowing Date. The Loan(s) will then be made available to Borrower by Agent crediting the account of Borrower on the books of Agent with the aggregate amounts made available to Agent by Banks, and in like funds as received by Agent. The provisions for conversion and continuation of the Loans are set forth in subsection 3.1. 2.4 Revolving Credit Loan Commitment Fee. Borrower agrees to pay to Agent for the pro rata benefit of Banks a commitment fee for the Commitment Period, computed at the rate of 1/4 of 1 percent (1/4%) per annum on the average daily unused amount of the aggregate Revolving Credit Loan Commitments during the Commitment Period, payable quarterly in arrears and due on the -29- 30 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 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); -30- 31 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) Provided that each Bank consents in writing, Borrower shall have the right to terminate the Commitment or, from time to time (and so long as no Default or Event of Default exists), reduce the amount of the Commitment, upon not less than five Business Days' written notice to each Bank specifying (i) either a reduction or termination and (ii) in the case of a reduction, whether any prepayment, if required by this Agreement, shall be of Prime Rate Loans, Eurodollar Rate Loans or a combination thereof, and, in each case if a combination thereof, the principal allocable to each. (b) Any reduction of the Commitment shall be in the amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the amount of the Commitment then in effect. Any such reduction shall be accompanied by prepayment of the Revolving Credit Loans made hereunder to the extent, if any, that the amount of such Revolving Credit Loans then outstanding exceeds the amount of the Revolving Credit Loan Commitments, as then reduced, together with accrued interest on the amount so prepaid to the date of such prepayment, and (ii) if a Revolving Credit Loan is a Eurodollar Rate Loan that is prepaid other than at the end of the Interest Period applicable thereto, by any amounts payable pursuant to subsection 3.5, Indemnity. Any such reduction of the L/C Commitment, if the L/C Commitment is being reduced, shall be accompanied by either (A) return to Agent of the outstanding Standby L/Cs or (B) payment by Borrower to Agent of cash to fully collateralize outstanding Standby L/Cs, to the extent, if any, that the amount of such Standby L/Cs then outstanding exceeds the L/C Commitment portion of the Commitment as then reduced. -31- 32 (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, 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. -32- 33 2.8 Computation of Interest and Fees. Commitment fees on the Commitment and interest in respect of the Revolving Credit Loans shall be calculated on the basis of a 360 day year for the actual days elapsed. Any change in the interest rate on the Loans and the Notes resulting from a change in the Prime Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business of the day on which such change in the Prime Rate or the Eurocurrency Reserve Requirements shall become effective, without notice to Banks or Borrower. However, Agent 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 -33- 34 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 its 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), Bank One, HNB, First Chicago, NCB, BKB and Fifth Third shall cancel the Existing Credit Agreement (except for Standby L/Cs that remain in existence and all reimbursement agreements related to such Standby L/Cs) and all promissory notes and guaranties executed pursuant to the Existing Credit Agreement. Thereafter, the proceeds of the Revolving Credit Loans made hereunder shall be used by Borrower for lawful purposes in its 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 -34- 35 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 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 -35- 36 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 its behalf), request each -36- 37 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 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. -37- 38 (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 Twenty-Five Million and 00/100 Dollars ($25,000,000), of which the amount of Standby L/Cs issued for purposes other than satisfying bonding requirements shall not exceed the lesser of (x) (i) the Borrowing Base (determined as of the most recent month end or, if Borrower elects to provide an interim Borrowing Base Certificate pursuant to subsection 6.4 hereof, as of the date stated in such Borrowing Base Certificate) minus (ii) the sum of (A) the aggregate principal amount of Revolving Credit Loans then outstanding, (B) the aggregate principal amount of Swingline Loans then outstanding and (C) the aggregate principal amount of undrawn and drawn Guaranteed HNB Joint Ventures Letters of Credit, exclusive of the amount of Guaranteed HNB Joint Ventures Letters of Credit issued for the purpose of satisfying bonding requirements, then outstanding, or (y) Twelve Million and 00/100 Dollars ($12,000,000). -38- 39 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 -39- 40 Participant's own account and risk, an undivided interest equal to such L/C Participant's L/C Commitment Percentage in Agent's obligations and rights under each Standby L/C and the amount of each draft paid by Agent. Each L/C Participant's obligations as set forth in the immediately preceding sentence shall be limited to the term of this Agreement, subject to the condition that each L/C Participant unconditionally and irrevocably agrees with Agent that, if a draft is paid at any time (whether during or after the term of this Agreement) under any Standby L/C issued prior to the end of the term of this Agreement for which Agent is not reimbursed in full by Borrower (including failure by Borrower to provide cash collateral as provided in subsection 2.14(b) hereof) at any time in accordance with the terms of this Agreement or for which Agent is required at any time to return any portion of such reimbursement (whether because of Borrower's bankruptcy or otherwise), such L/C Participant shall pay to Agent upon demand at Agent's address for notices specified herein an amount equal to 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. -40- 41 (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 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 -41- 42 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. -42- 43 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 -43- 44 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 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) The 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, the 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 -44- 45 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 the 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 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 Conversion. Not more than two hours thereafter, the Borrower shall give Agent written irrevocable confirmation of whether or not the 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 the Borrower's confirmation is not timely made, the 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 the Borrower's written confirmation is timely made, the Borrower shall be deemed to be requesting a conversion from Prime Rate Loans to Eurodollar Rate Loan(s) in the amount(s) and for the Interest Period(s) stated in the confirmation. By 2:00 p.m., Columbus, Ohio time, two Business Days prior to the requested Borrowing Date, Agent shall give telephonic or written notice to each Bank of Borrower's request for conversion, specifying (i) the date for the conversion; (ii) the aggregate amount of Prime Rate Loans to be converted; and (iii) and, for each such Prime Rate Loan to be converted to a Eurodollar Rate Loan, the respective amount, the respective Eurodollar Rate, and the respective length of the initial Interest Period applicable thereto. All or any part of outstanding Eurodollar Rate Loans and Prime Rate Loans may be converted as provided herein, provided that (i) (unless the Required Banks otherwise consent) no Prime Rate Loan may be converted into a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing and (ii) no Prime Rate Loan may be converted into a -45- 46 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 the 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 the Borrower gives such notice, Agent, by 10:00 a.m. two Business Days prior to the end of the Interest Period, 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 such notice. Not more than two hours thereafter, the Borrower shall give Agent written irrevocable confirmation of whether or not the 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 the Borrower's confirmation is not timely made, the 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 the Borrower's written confirmation is timely made, the 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 -46- 47 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 the 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 the Borrower and the Banks as soon as practicable thereafter. If such notice is given (x) any Eurodollar Rate Loans requested to be made on the first day of such Interest Period shall be made as Prime Rate Loans and (y) any Loans that were to have been converted on the first day of such Interest Period to or continued as Eurodollar Rate Loans shall be converted to or continued as Prime Rate Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar Rate Loans shall be made or continued as such, nor shall the 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 the 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 -47- 48 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, the Borrower shall pay to such Bank such amounts, if any, as may be required pursuant to subsection 3.5, Indemnity. 3.4 Requirements of Law. If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof applicable to any Bank, or its applicable lending office, branch or any affiliate thereof, or compliance by any Bank, or its applicable lending office, branch or any affiliate thereof, with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the date hereof (or, if later, the date on which such Bank becomes a Bank pursuant to any permitted assignment): (a) shall subject such Bank, or its applicable lending office, branch or any affiliate thereof, to any tax of any kind whatsoever with respect to any Eurodollar Rate Loans made by it or its obligation to make Eurodollar Rate Loans, or change the basis of taxation of payments to such Bank in respect thereof and changes in taxes measured by or imposed upon the overall net income, or franchise taxes, or taxes measured by or imposed upon overall capital or net worth, or branch taxes (in the case of such capital, net worth or branch taxes, imposed in lieu of such net income tax), of such Bank or its applicable lending office, branch, or any affiliate thereof; (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Bank which is not otherwise included in the determination of the Eurodollar Rate hereunder; or -48- 49 (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 the Borrower from such Bank, through the Agent, in accordance herewith, the 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, the 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 the Borrower shall promptly pay to such Bank, upon demand, without duplication, such amounts, if any, as may be required pursuant to subsection 3.5. If any Bank becomes entitled to claim any additional amounts pursuant to this subsection, it shall provide prompt notice thereof to the 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 the 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. The 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 the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Rate Loans after the Borrower has given Agent written irrevocable confirmation that Borrower wants such Eurodollar Rate Loans in accordance with -49- 50 subsection 2.3 or subsection 3.1, as appropriate, of this Agreement, (b) default by the Borrower in making any prepayment or conversion of a Eurodollar Rate Loan after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Rate Loans on a day which is not the last day of an Interest Period with respect thereto (whether by acceleration, demand or otherwise). Such indemnification may include, without limitation, an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or converted, or not so borrowed, converted or continued, for the period from the date of such prepayment or conversion or of such failure to borrow, convert or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Eurodollar Rate Loans provided for herein over (ii) the amount of interest (as reasonably determined by such Bank) which would have accrued to such Bank on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. This covenant shall survive the 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 its Subsidiaries as of December 31, 1997, and the related consolidated statements of income, of stockholders' equity and of cash flows for the fiscal year of Borrower then ended, certified by an independent public accountant of recognized national standing and (b) the consolidated unaudited balance sheet and income statement of Borrower and its Subsidiaries as of March 31, 1998. Each of the foregoing financial statements fairly -50- 51 presents the financial condition of Borrower and its Subsidiaries as of the date thereof and the results of the operations of Borrower and its Subsidiaries for the period then ended (subject, in the case of the March 31, 1998 statements, to year-end audit adjustments) and, from the respective dates of the foregoing financial statements to the date hereof, there has been no material adverse change in such condition. 4.2 Corporate Existence; Compliance with Law. Each of Borrower and its 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 its Subsidiaries taken as a whole, and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith would not, in the aggregate, have a material adverse effect on the business, operations, property or financial or other condition of Borrower and its Subsidiaries taken as a whole and would not materially adversely affect the ability of Borrower to perform its 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, -51- 52 arrangement or other similar laws relating to or affecting the rights of creditors generally and the limitations, if any, imposed by the general principles of equity and public policy. 4.4 No Legal Bar. The execution, delivery and performance of this Agreement and the Notes, the borrowings hereunder and the use of the proceeds thereof do not and will not violate any Requirement of Law or Contractual Obligation (including without limitation the Indenture) of Borrower or any of its 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 its 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 its Subsidiaries taken as a whole. 4.6 Regulation U. Neither Borrower nor any of its 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 its 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 its Subsidiaries is an "investment company" or a company -52- 53 "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 4.8 ERISA. Borrower and its 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 its operations, business or financial condition. -53- 54 SECTION 5. CONDITIONS PRECEDENT 5.1 Conditions to Initial Loan(s). The obligation of the Banks to make the initial Loan(s), of Bank One to make Swingline Loans and of Agent to issue any Standby L/C hereunder on the first Borrowing Date is subject to the satisfaction of the following conditions precedent on or prior to such date: (a) Notes. (i) Each Bank shall have received its respective Revolving Credit Note, conforming to the requirements hereof and duly executed and delivered by a duly authorized officer of Borrower; and (ii) Bank One shall have received its Swingline Note, conforming to the requirements hereof and duly executed and delivered by a duly authorized officer of Borrower. (b) Guaranties. Each Bank shall have received its respective Guaranties to which Agent shall also be a party, conforming to the requirements hereof and duly executed and delivered by a duly authorized officer (or other person in a comparable position) of each of Borrower's Subsidiaries. (c) Borrowing Base Compliance. Borrower shall have delivered to each Bank and Agent a Borrowing Base Certificate in the form of Exhibit D attached hereto ("Borrowing Base Certificate"), certified by a Responsible Officer of Borrower, which shows that the Borrowing Base as of March 31, 1998 is at least equal to the Loans (including any Standby L/Cs either (i) issued hereunder or (ii) issued under the Existing Credit Agreement and that remain in place) requested hereunder. (d) Legal Opinions of Counsel to Borrower. Each Bank and Agent shall have received an executed legal opinion of Paul S. Coppel, Esq., counsel to Borrower and its 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 -54- 55 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 resolutions (in form and substance satisfactory to each Bank and Agent) of the Board of Directors of Borrower 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. 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., 601RS, Inc., M/I Homes, Inc. and M/I Homes Construction, Inc., and as the sole member of each of Lot 5 - 1997, L.L.C. and Manor Road - 1997, L.L.C.; (ii) Lot 5 - 1997, L.L.C., as the 99% member of Bellwood L.L.C.; and (iii) Manor Road - 1997, L.L.C., as the 99% member of Chevy Chase Villas - 1997, L.L.C., each resolution authorizing the execution, delivery and performance of each Guaranty, all certified by the Secretary (or other person in a comparable position) of the respective Subsidiary as of the date hereof. Such certificate shall state that the resolutions set forth therein have not been amended, modified, revoked or rescinded as of the date hereof. (g) Incumbency Certificate of Borrower. Each Bank and Agent shall have received a certificate of the Secretary or an Assistant Secretary of Borrower, dated the date hereof, as to the incumbency and signature of the officer(s) of Borrower 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 -55- 56 incumbency and signatures of the officer(s) (or other person(s) in a comparable position) of each executing its respective Guaranties. (i) No Proceeding or Litigation; No Injunctive Relief. No action, suit or proceeding before any arbitrator or any Governmental Authority shall have been commenced, no investigation by any Governmental Authority shall have been commenced and no action, suit, proceeding or investigation by any Governmental Authority shall have been threatened, against Borrower or any Subsidiary of Borrower or any of the officers, directors or managers of Borrower or any Subsidiary of Borrower, seeking to restrain, prevent or change the transactions contemplated by this Agreement in whole or in part or questioning the validity or legality of the transactions contemplated by this Agreement or seeking damages in connection with such transactions. (j) Consents, Licenses, Approvals, etc. Each Bank and Agent shall have received true copies (certified to be such by Borrower or other appropriate party) of all consents, licenses and approvals required in accordance with applicable law in connection with the execution, delivery, performance, validity and enforceability of this Agreement, the Notes and the Guaranties, if the failure to obtain such consents, licenses or approvals, individually or in the aggregate, would have a material adverse effect on Borrower and its 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 its 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 its 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 -56- 57 prior to or after giving effect to the making of the initial loans (including the issuance of Standby L/Cs) on the first Borrowing Date hereunder. (m) No Material Adverse Change. There shall have been no material adverse change in the consolidated financial condition or business or operations of Borrower and its Subsidiaries from the date of Borrower's December 31, 1997 audited financial statements to the first Borrowing Date. (n) Additional Matters. All corporate and other proceedings and all other documents and legal matters in connection with the transactions contemplated by this Agreement, the Notes and the Guaranties shall be satisfactory in form and substance to each Bank and Agent and their respective counsel. (o) Standby L/C Application. If the issuance of any Standby L/C is part of the initial loan(s), Borrower shall have delivered to Agent a Standby L/C Application in accordance 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 -57- 58 date or after giving effect to the Loan to be made or Standby L/C to be issued on such date. (c) Standby L/C Application. If the issuance of any Standby L/C is part of any borrowing, Borrower shall have delivered to Agent a Standby L/C Application in accordance with subsection 2.14 hereof for each Standby L/C that Borrower has requested Agent to issue as part of such borrowing. Each borrowing by Borrower (including the submission of a Standby L/C Application) under this Agreement shall constitute a representation and warranty by Borrower as of the date of such borrowing that the conditions contained in the foregoing paragraphs (a), (b) and (c) of this subsection 5.2 have been satisfied. SECTION 6. AFFIRMATIVE COVENANTS Borrower hereby agrees that, from the date hereof and so long as the Commitment remains in effect, any portion of any 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, Borrower shall, and in the case of subsections 6.6, 6.7, 6.8 and 6.9 hereof, shall cause each of its Subsidiaries to: 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 its 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 -58- 59 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 its 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 its 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 its Subsidiaries, (ii) a listing of all residential and commercial lots, land under development and unsold lots, and (iii) a statement of the calculation of Borrower's ratio of Consolidated Unsubordinated Liabilities to the sum of Consolidated Tangible Net Worth and Subordinated Indebtedness as of the end of such month, all of the foregoing certified by a Responsible Officer as being fairly stated in all material respects, subject to year-end audit adjustments; all such financial statements to be complete and correct in all material respects and prepared in reasonable detail and in accordance with GAAP (except, in the case of the financial statements referred to in subparagraph (b) of this subsection 6.1, that such financial statements need not contain footnotes and may be subject to year-end audit adjustments). 6.2 Certificates; Other Information. Furnish to each Bank and Agent: (a) concurrently with the delivery of each financial statement referred to in subsection 6.1(a) above and each financial statement referred to in subsection 6.1(b) above, a summary in form and substance satisfactory to the Required Banks of the status of the hedging investments described in subsection 7.9(j) hereof, and a certificate of a Responsible Officer of Borrower (in the form of Exhibit F attached hereto or such other form as shall be reasonably acceptable to each Bank -59- 60 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, Borrower and each of its Subsidiaries during such period has observed or performed in all material respects all of its covenants and other agreements, and satisfied every condition contained in this Agreement and the Notes to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, and (ii) showing in detail the calculations supporting such statement in respect of subsections 6.11, 6.12, 6.13, 6.14, 6.15, 7.1(d), 7.3, 7.6, 7.7, 7.8, 7.9(e), 7.9(k), 7.9(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 Borrower 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 its 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 its 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 -60- 61 (e) promptly, on reasonable notice to Borrower, such additional financial and other information as any Bank may from time to time reasonably request. 6.3 Borrowing Base Certificate. Furnish to each Bank and Agent as soon as available, but in any event within twenty-five (25) days after the end of each month, a Borrowing Base Certificate in substantially the form of Exhibit D, certified by the chief financial officer or the controller of Borrower, 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 -61- 62 event, Borrower, within 30 days of receipt of such notice from Agent, shall enter into an Interest Rate Contract or series of Interest Rate Contracts, and provide a copy or copies thereof to each Bank and Agent, which Interest Rate Contract or series of Interest Rate Contracts shall, when combined with all other Interest Rate Contracts then in effect, (i) provide interest rate protection to Borrower on a total of fifty percent (50%) of the maximum Revolving Credit Loans available hereunder by providing to Borrower an effective fixed rate of interest on a total of fifty percent (50%) of the maximum amount of Revolving Credit Loans available hereunder, (ii) be in effect for a period of at least two years from the later of (A) the date of acquisition of such Interest Rate Contract or series of Interest Rate Contracts or (B) the date of Agent's notice to Borrower hereunder (provided that if such period exceeds the Maturity Date, including any permitted extensions of the Maturity Date, the Interest Rate Contract(s) need only be in effect until the Maturity Date), and (iii) be entered into with (A) any Bank, or (B) a bank or other financial institution that has unsecured, uninsured and unguaranteed long-term debt which is rated at least A-3 by Moody's Investor Service, Inc. or at least A- by Standard & Poor's Corporation. 6.6 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its Indebtedness and other 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 its 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 -62- 63 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 Borrower or of Borrower and its Subsidiaries, taken as a whole. Borrower and its Subsidiaries have no duty to renew or extend contracts which expire by their terms. 6.8 Maintenance of Property, Insurance. Keep all property useful in and necessary to its business in good working order and condition; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, general liability and business interruption insurance) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to each Bank and Agent, upon written request, full information as to the insurance carried. 6.9 Inspection of Property; Books and Records; Discussions. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities, subject in the case of interim statements to year-end audit adjustments; and permit 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 its Subsidiaries with officers and employees of Borrower and its 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; -63- 64 (b) of any (i) default or event of default under any loan or letter of credit agreement binding upon Borrower or any of its Subsidiaries, (ii) default under any other Contractual Obligation that would enable the obligee of the Contractual Obligations to compel Borrower or any of its Subsidiaries to immediately pay all amounts owing thereunder or otherwise accelerate payments thereunder and would have a material adverse effect on Borrower and its Subsidiaries taken as a whole, or (iii) litigation, investigation or proceeding which may exist at any time between Borrower and its 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 its Subsidiaries taken as a whole; (c) of any litigation or proceeding affecting Borrower or any of its Subsidiaries (i) (A) in which the amount involved is $500,000.00 or more and not covered by insurance, or (B) which, in the reasonable opinion of a Responsible Officer of Borrower, would, if adversely determined, have a material adverse effect on Borrower and its 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 Borrower, would, if adversely determined, have a material adverse effect on Borrower and its 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 Borrower 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 -64- 65 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 its 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 Borrower setting forth details of the occurrence referred to therein and stating what action Borrower proposes to take with respect thereto. For all purposes of clause (d) of this subsection 6.10, Borrower shall be deemed to have all knowledge or knowledge of all facts attributable to the administrator of such Plan if such Plan is a Single Employer Plan. 6.11 Maintenance of Consolidated Tangible Net Worth. Maintain its Consolidated Tangible Net Worth in amounts at all times equal to at least the following amounts during the following periods: -65- 66
Period Amount ------ ------ Date hereof to and including 12/31/98 $126,234,000.00 1/1/99 to and including 12/31/99 Consolidated Tangible Net Worth required for 1998 plus 50% of audited Consolidated Earnings for fiscal year 1998 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 and thereafter Consolidated Tangible Net Worth required for 2001 plus 50% of audited Consolidated Earnings for fiscal year 2001
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 Borrower 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 through and including December 31, -66- 67 1998, 0.90 to 1.0; (b) from January 1, 1999 through and including December 31, 1999, 0.95 to 1.0; and (c) from January 1, 2000 and thereafter, 1.05 to 1.0. 6.14 Maintenance of Overall Leverage Ratio. Maintain at all times during the Commitment Period (a) a ratio of Consolidated Tangible Net Worth to Subordinated Indebtedness of not less than 1.0 to 1.0, and (b) a ratio of Consolidated Liabilities to Consolidated Tangible Net Worth not in excess of (i) from the date hereof through and including December 31, 1998, 3.1 to 1.0, and (ii) from January 1, 1999 and thereafter, 3.0 to 1.0. 6.15 Maintenance of EBITDA to Consolidated Interest Incurred Ratio. Maintain at all times during the Commitment Period a ratio of EBITDA to Consolidated Interest Incurred of not less than 1.70 to 1.0. 6.16 Guaranties of Wholly-Owned M/I Ancillary Businesses. Upon the request of the Agent on behalf of the Required Banks, cause each of the M/I Ancillary Businesses that is wholly-owned by the Borrower or by any Subsidiary, that has total assets of at least $200,000.00 and that is not precluded by law from executing a Guaranty to execute a Guaranty in favor of the Banks and the Agent with respect to the Indebtedness of the Borrower hereunder. SECTION 7. NEGATIVE COVENANTS Borrower hereby agrees that, from the date hereof and so long as the Commitment remains in effect, any portion of any Note or Reimbursement Obligation remains outstanding and unpaid, any Standby L/C remains outstanding that is not fully collateralized with cash in a manner satisfactory to Agent, or any other amount is owing to Agent or any Bank hereunder, Borrower shall not, nor shall it permit any of its Subsidiaries or, in the case of subsections 7.1, 7.2, 7.3 and 7.21, permit any M/I Ancillary Business that is wholly-owned by the Borrower or by any Subsidiary to, directly or indirectly: -67- 68 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 Borrower 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 Borrower, subject to the limitations of subsection 6.14 hereof; (d) Secured Indebtedness in respect of capitalized lease obligations and purchase money obligations within the limitations set forth in subsection 7.2(c) hereof; provided, however, that the aggregate amount of any such secured Indebtedness at any one time outstanding shall not exceed $10,000,000 on a consolidated basis; (e) Indebtedness of Borrower and its 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 Borrower with respect to loans from any of the Subsidiaries of Borrower; provided that the amount of such loans from M/I Financial Corp. shall not exceed $5,000,000 at any time that the aggregate principal amount of the Loans outstanding is less than the aggregate principal amount of the Loans available pursuant to subsection 2.1 hereof; (h) Indebtedness of any wholly-owned Subsidiary of Borrower, or Indebtedness of Bellwood L.L.C. or Chevy Chase -68- 69 Villas, L.L.C., with respect to loans from Borrower or from any other Subsidiaries of Borrower; provided that each such Subsidiary shall have delivered to each of the Banks, prior to the making of any such loans, its respective Guaranty conforming to the requirements of this Agreement; and provided further that any such Indebtedness of Bellwood L.L.C. and Lot 5 - 1997, L.L.C. shall not, on a combined basis after the elimination of any intercompany loans between Bellwood L.L.C. and Lot 5 - 1997, L.L.C., in the aggregate exceed $25,000,000; and (i) Indebtedness of Borrower and/or 601RS, Inc. not in excess of $5,000,000 secured by a Lien permitted by subsection 7.2(j) hereof. 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 Borrower'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 its Subsidiaries in accordance with GAAP; -69- 70 (e) carriers', warehousemen's, mechanics', materialmen's, repairmen's, or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of Borrower and its 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; and (i) Liens arising as a result of a judgment or judgments against Borrower 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, -70- 71 and as to which appropriate reserves have been established in accordance with GAAP. (j) a first priority Lien on an aircraft owned by 601RS, Inc. from time to time to secure the Indebtedness of 601RS, Inc. and/or Borrower not in excess of $5,000,000. 7.3 Limitation on Contingent Obligations. Agree to or assume, guarantee, indorse or otherwise in any way be or become responsible or liable for, directly or indirectly, any Contingent Obligation, including but not limited to Contingent Obligations incurred as a general partner in any limited partnership or general partnership, except: (a)(i) reimbursement and other obligations under standby letters of credit (including letters of credit issued for the purpose of satisfying bonding requirements) issued by Persons including the Banks; (ii) Contingent Obligations of Borrower as the guarantor of letters of credit issued for the account of joint ventures in which Borrower is a partner (including Guaranteed HNB Joint Ventures Letters of Credit), provided that Borrower'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 Borrower'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 Borrower 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) Borrower's obligations under the M/I Financial Corp. Loan Agreement in a principal amount not to exceed $40,000,000, and (iii) guaranties by any Subsidiary of the obligations of Borrower (including without limitation any guaranty by M/I Financial Corp. of any obligation of Borrower to Banks); -71- 72 (c) Contingent Obligations related to Indebtedness of joint ventures in which Borrower has made Investments in Joint Ventures as permitted by subsection 7.9(e) hereof and in which Borrower is a partner, member or shareholder; provided, however, that the aggregate amount of such Contingent Obligations at any one time outstanding pursuant to this subsection 7.3(c) shall not exceed (i) $10,000,000 less (ii) the aggregate amount of secured and unsecured Indebtedness then outstanding pursuant to subsection 7.1(d) hereof; and (d) other Contingent Obligations of Borrower which do not in the aggregate at any one time outstanding exceed $2,000,000, subject to the limitations of subsection 7.9(l) hereof. 7.4 Limitation on Fundamental Changes. 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 Borrower may be (i) merged, amalgamated or consolidated with or into Borrower or any wholly-owned Subsidiary of Borrower, 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 Borrower or any wholly-owned Subsidiary of Borrower; provided, however, that, in the case of such a merger, liquidation or consolidation, Borrower 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. -72- 73 7.6 Limitation on Dividends and Distributions. Make any distributions or declare any dividends (other than dividends payable solely in common stock of Borrower) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement or other acquisition of any shares of any class of stock of Borrower, 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 Borrower or any of its Subsidiaries (each of the foregoing a "Stockholder Payment"), except (a) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, Borrower and any of its Subsidiaries may make Stockholder Payments in a total amount that, when added to all other Stockholder Payments permitted by this Agreement, does not exceed the sum of (i) twenty-five percent (25%) of cumulative Consolidated Earnings (taking into account losses, if any) of Borrower subsequent to December 31, 1997 plus (ii) $800,000.00; and (b) any Subsidiary of Borrower 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, Borrower shall be in compliance if, as of the last day of the calendar month immediately preceding the month in which any such Stockholder Payments are made, the cumulative Stockholder Payments previously made plus the Stockholder Payments made during the current month would not in the aggregate exceed the amount permitted by clause (a), above. 7.7 Limitation on Certain Real Property Expenditures. Purchase or acquire any Eligible Raw Land and Land Under Development by the expenditure of cash, the incurrence of Indebtedness, as a result of Investment in Joint Venture(s), or otherwise, if as a result of such purchase or acquisition the aggregate cost of all the foregoing then owned by Borrower and its 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 its -73- 74 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 and except for Bellwood (as hereinafter defined); and, provided further, that the aggregate cost (net of any cash received from the sale of land or lots) to Borrower and all of its Subsidiaries with respect to the purchase or acquisition and the development of the 522-acre tract of land located in Prince William County, Virginia near Manassas, Virginia, which tract is referred to from time to time, and herein, as "Bellwood," shall not at any time exceed $25,000,000. 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 its Subsidiaries to exceed $27,500,000 at any one time outstanding, of which not more than $5,000,000 may consist of attached (including townhouse condominiums and condominiums) single family homes, or (b) Eligible Model Houses owned by Borrower and its Subsidiaries to exceed $30,000,000 at any one time outstanding, of which not more than $3,000,000 may consist of attached (including townhouse condominiums and condominiums) single family homes. 7.9 Limitation on Investments. Make or commit to make any advance, loan, extension of credit or capital contribution to, or purchase of any stock, bonds, note, debenture or other security -74- 75 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 its Subsidiaries, to other Persons in the ordinary course of business or as permitted by the Code of Regulations of Borrower, which do not exceed in the aggregate $500,000 at any one time outstanding; (d) any investments in M/I Financial Corp., 601RS, Inc., M/I Homes, Inc., M/I Homes Construction, Inc., Lot 5 - 1997, L.L.C., Bellwood L.L.C., Manor Road - 1997, L.L.C. or Chevy Chase Villas, L.L.C. or any other Subsidiary created with the consent of the Required Banks hereafter; provided that the aggregate cost (net of any repayments, distributions or dividends) of investments by Borrower and all of the Subsidiaries in Bellwood L.L.C. shall not at any time exceed $25,000,000; and provided further that the aggregate cost (net of any repayments, distributions or dividends) of investments by Borrower and all of the Subsidiaries in Lot 5 - 1997, L.L.C. shall not at any time exceed $25,000,000; (e) any Investments in Joint Ventures, the aggregate cost of which, as determined in accordance with GAAP (excluding, however, Borrower's or its Subsidiaries' equity in the undistributed earnings or losses in each such joint venture, whether such joint venture is a general or limited partnership, a limited liability company, a corporation or any other form of business association), does not at any one time outstanding exceed $27,500,000; provided, however, that with respect to each such joint venture, whether such joint venture is a general partnership, a limited partnership, a limited liability company, a corporation or any other form of business association, Borrower shall have at least a 33-1/3% ownership interest in such joint venture and all decisions with respect to the management and control of each such joint venture's business (other than -75- 76 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; (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; -76- 77 (k) investments in the Office Building Limited Liability Company specifically for the purpose of constructing, owning and operating the Office Building in an amount not to exceed $1,500,000 in the aggregate; (l) 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 (m) 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: (a) the aggregate rentals payable by Borrower and all of its Subsidiaries under all Operating Leases on a consolidated basis, except for any Operating Lease with respect to the Office Building, would exceed in any period of 12 consecutive months the aggregate amount of $4,200,000; or (b) the term of (i) any Operating Lease with respect to Eligible Model Houses and furnishings for Eligible Model Houses would exceed three years, and (ii) any other Operating Lease, except for any Operating Lease with respect to the Office Building, would exceed five years, provided that so long as the initial term or any renewal of an Operating Lease included within this clause (b) does not exceed five years or three years, as appropriate, the aggregate of the initial term and all renewals of such Operating Lease may exceed five years or three years, as appropriate, if any right of renewal is solely at the option of the Borrower or its Subsidiaries; or (c) the aggregate rentals payable by Borrower and all of its Subsidiaries under all Operating Leases with respect to the Office Building would exceed, for the periods set forth below, the amounts that correspond to such periods, as set forth below:
Aggregate Rentals Per Year of the Operating Lease Lease Year --------------------------- ---------- Beginning with Lease Year 1 $1,131,576.00
-77- 78
Aggregate Rentals Per Year of the Operating Lease Lease Year --------------------------- ---------- Through and including Lease Year 5 Beginning with Lease Year 6 $1,217,693.00 Through and including Lease Year 10 Beginning with Lease Year 11 $1,275,104.00 Through and including Lease Year 15 Beginning with Lease Year 16 Through and including Lease Year 20 $1,303,810.00
7.11 Transactions with Affiliates and Officers. (a) Except for (i) any consulting agreements or employment agreements to which Borrower is a party and which were in effect as of March 1, 1994, (ii) any agreements entered into in connection with the construction of the Office Building by the Office Building Limited Liability Company and/or with Borrower's leasehold improvements to, the Office Building, and (iii) compensation arrangements in the ordinary course of business with the officers, directors, and employees of Borrower and its 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 its Subsidiaries' business and which is upon fair and reasonable terms no less favorable to Borrower or its Subsidiaries than it would obtain in a comparable arm's length transaction with a Person not an Affiliate; (b) make any advance or loan to any Affiliate or any director or officer thereof or of Borrower or to any trust of which any of the foregoing is a beneficiary, or to any Person on the guarantee of any of the foregoing, except as expressly permitted by subsection 7.9(c) hereof; or -78- 79 (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 its Subsidiaries of real or personal property which has been or is to be sold or transferred by Borrower or any of its 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 its Subsidiaries; provided, however, that such arrangements shall be permitted with respect to Eligible Model Houses, so long as any such arrangement with respect to Eligible Model Houses does not result in: (a) the creation of a lease which is required to be capitalized in accordance with GAAP; (b) the initial term of such arrangement plus any options or renewals exercisable by lessor or lessee exceeding three years; or (c) the 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 its Subordinated Indebtedness; or (b) make any other payments, including without limitation payment of interest, on any Subordinated Indebtedness if an Event of Default exists or if such payment would cause an Event of Default to occur; or (c) permit the modification, waiver or amendment of any of the terms of any Subordinated Indebtedness; or (d) permit (whether or not within the control of Borrower or any of its Subsidiaries) the modification, waiver, or amendment of, or release of any parties to, any subordination -79- 80 agreement with respect to any Subordinated Indebtedness; provided, however, nothing contained in this subsection 7.13 shall prevent Borrower 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 the Borrower 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 the Borrower 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 beginning with November 29, 1997, 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 the Borrower, or the rights of the Banks and the Agent, pursuant to or arising out of the Subordinated Indebtedness pursuant to the BankBoston Agreement; provided that nothing herein shall be construed to be a consent by the Banks (in their capacity as Banks under this Agreement) and the Agent to any payment of any Subordinated Indebtedness that is prohibited by this Agreement. 7.14 Sale of Subsidiary Securities. Sell any security, debt or equity of any Subsidiary, or permit any Subsidiary to sell or issue any security, debt or equity to any Person other than Borrower or any Bank; provided, however, Borrower may sell through M/I Financial Corp. mortgage loans on a non-recourse basis, subject to Mortgage Loan Repurchase Obligations; provided further, however, that this subsection 7.14 shall not prohibit Indebtedness of any Subsidiary permitted under subsection 7.1 hereof. 7.15 Construction on Real Property Not Owned. Make investments in construction on real property that is not then owned by Borrower or a Subsidiary; provided, however, that -80- 81 Borrower and its Subsidiaries may make investments in construction on such real property if the contract price for the land, plus the cost of investment in construction less any related Customer Deposits with respect to all such real property does not in the aggregate exceed $1,000,000 at any one time outstanding. 7.16 Limitation on Subsidiaries. Create any Subsidiaries without the prior written consent of the Required Banks, provided that nothing in this subsection 7.16 shall prevent investments in the M/I Ancillary Businesses to the extent permitted in subsection 7.9(l). 7.17 Limitation on Location of Attached Houses. Construct or make investments in construction of any attached (including townhouse condominiums and condominiums) single family houses in any area outside of the Washington, D.C. Market. 7.18 Limitation on Rental Houses. Permit investments in Rental Houses, determined in accordance with GAAP, to exceed $500,000 in aggregate at any time. 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), determined in accordance with GAAP, to exceed $1,500,000 in the aggregate at any one time outstanding; provided, however, that any investments permitted by subsection 7.9(k) hereof shall not be included in the $1,500,000 investment limitation of this subsection 7.19. 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, 1998, 1.40 to 1.0; (B) from January 1, 1999 through and including December 31, 1999, 1.35 to 1.0; (C) from January 1, 2000 through and including December 31, 2000, 1.30 to 1.0; (D) from January 1, 2001 through and including December 31, 2001, 1.25 to 1.0; and (E) from January 1, 2002 and thereafter, 1.20 to 1.0. -81- 82 7.21 Limitation on Negative Pledges. Enter into any agreement other than this Agreement which prohibits or limits the ability of Borrower, any of its Subsidiaries or any of the M/I Ancillary Businesses that are wholly-owned by the Borrower or by any Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its assets, rights, revenues or property, real, personal or mixed, tangible or intangible, whether now owned or hereafter acquired. 7.22 Limitation on Standby L/Cs. Have drawn and undrawn Standby L/Cs outstanding at any time in an amount in excess of the amounts permitted at such time by subsection 2.13 hereof for (a) Standby L/Cs, including those issued for the purpose of satisfying bonding requirements, and (b) Standby L/Cs, exclusive of those issued for the purpose of satisfying bonding requirements, respectively. 7.23 HNB Joint Ventures Letter of Credit Agreement. Modify or amend the HNB Joint Ventures Letter of Credit Agreement in any way without the written consent of the Required Banks. 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. -82- 83 SECTION 9. DEFAULTS, EVENTS OF DEFAULT; DISTRIBUTION OF PROCEEDS AFTER EVENT OF DEFAULT Upon the occurrence of any of the following events: (1) Borrower shall fail to pay any principal of any Note or make any reimbursement (including payment of Reimbursement Obligations) in connection with any Standby L/C when due in accordance with the terms thereof; or (2) Borrower shall fail to pay (a) any interest on any Note or in connection with any Standby L/C, or (b) any fee, charge or other amount payable hereunder, within three days after Agent or any Bank notifies Borrower that such interest, fee or amount has become due in accordance with the terms thereof or hereof and has not been paid; or Borrower shall fail to comply with the provisions of any one or more of subsections 6.4, 6.5, 7.4, 7.5, 7.10, 7.12, 7.13, 7.14, 7.16, 7.17, 7.21, 7.22 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 any time under or in connection herewith or therewith, shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (4) Borrower shall default in the observance or performance of any covenant or agreement contained in (a) subsection 6.3 hereof and such default remains uncured for five days (notice to Borrower from Agent or any Bank of such default is not required), (b) subsections 6.2(c), 6.2(d), 6.6, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 7.1, 7.2, 7.3, 7.6, 7.7, 7.8, 7.9 (other than failure to comply with the limitations of 7.9(j)), 7.11, 7.15, 7.18, 7.19 or 7.20 hereof and such default remains uncured ten days after Agent or any Bank notifies Borrower that such default has occurred, (c) subsection 6.9 hereof and such default remains uncured for ten days after Agent or any Bank notifies Borrower that such default has occurred, provided, that for any default under subsection 6.9 for which cure cannot reasonably be accomplished within ten days, if cure is commenced within such ten-day period, Borrower may have an additional period of up to 30 days after notice to cure such -83- 84 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 its 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 its Subsidiaries shall make a general assignment for the benefit of its creditors; or (b) there shall be commenced against Borrower or any of its 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 its 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 its 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 its 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 -84- 85 (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 its 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 its 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 -85- 86 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 its 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 its Subsidiaries taken as a whole; or (8) one or more judgments or decrees shall be entered against Borrower or any of its Subsidiaries involving in the aggregate a liability (not covered by insurance) of $500,000.00 or more and all such judgments or decrees in excess 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, the Marital Trusts of Melvin L. Schottenstein, and the immediate families of Irving E. Schottenstein and Melvin L. Schottenstein or trusts for the benefit of their respective 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 -86- 87 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. 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 -87- 88 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 Guaranties, and each Bank hereby irrevocably authorizes Bank One, NA, as Agent for such Bank, to take such action on its behalf under the provisions of this Agreement, the Notes and the Guaranties and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement, the Notes and the Guaranties, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or any Note or Guaranty, Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any Note or Guaranty or otherwise exist against Agent. 10.2 Delegation of Duties. Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible -88- 89 for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 10.3 Exculpatory Provisions. Neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any Note or Guaranty (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by Borrower or any of Borrower's Subsidiaries or any officer thereof contained in this Agreement or any Note or Guaranty or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any Note or Guaranty or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Notes or the Guaranties, or for any failure of Borrower or any of Borrower's Subsidiaries to perform its obligations hereunder or thereunder. Agent shall be under no obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, the Notes, or the Guaranties, or to inspect the properties, books or records of Borrower or any of Borrower's Subsidiaries. 10.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, Guaranty, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrower or any of Borrower's Subsidiaries), independent accountants and other experts selected by Agent. Agent may deem and treat the payee of any Note as the owner thereof for all purposes. Agent shall be fully justified in failing or refusing to take any action under this Agreement, the Notes or the Guaranties unless it shall first receive such advice or concurrence of the Required Banks or, in the case of items set forth in subsection 11.1 hereof that require written consent of all Banks, all Banks as it deems appropriate or it shall first be -89- 90 indemnified to its satisfaction by all Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement, the Notes and the Guaranties in accordance with a request of the Required Banks or, in the case of items set forth in subsection 11.1 hereof that require written consent of all Banks, all Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Banks and all future holders of the Notes. 10.5 Notice of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless Agent has received notice from any Bank or Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". If Agent receives such a notice, Agent shall give notice thereof to Banks. Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Banks or, in the case of items set forth in subsection 11.1 hereof that require written consent of all Banks, all Banks; provided that, unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall reasonably deem advisable in the best interests of Banks. 10.6 Non-Reliance on Agent and Other Banks. Each Bank expressly acknowledges that neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by Agent hereinafter taken, including any review of the affairs of Borrower and Borrower's Subsidiaries shall be deemed to constitute any representation or warranty by Agent to any Bank. Each Bank represents to Agent that it has, independently and without reliance upon Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of Borrower and Borrower's Subsidiaries and made its own decision to make its extensions of credit hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon Agent or any other Bank, and based on -90- 91 such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, the Notes and the Guaranties, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of Borrower and Borrower's Subsidiaries. Except for notices, reports and other documents expressly required to be furnished to the Banks by Agent hereunder, Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of Borrower or any of Borrower's Subsidiaries which may come into the possession of Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 10.7 Indemnification. Each Bank agrees to indemnify Agent in its capacity as such (to the extent not reimbursed by Borrower and any of Borrower's Subsidiaries and without limiting the obligation of Borrower and Borrower's Subsidiaries to do so), ratably according to the respective amounts of its original (a) Revolving Credit Loan Commitment Percentage, in the case of Revolving Credit Loans, and (b) L/C Commitment Percentage, in the case of Standby L/Cs, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement, the Notes, the Guaranties or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by Agent under or in connection with any of the foregoing; provided that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. 10.8 Bank One in Its Individual Capacity. Bank One and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with Borrower or any of -91- 92 Borrower's Subsidiaries as though Bank One were not the Agent hereunder. With respect to its loans made or renewed by it and any Note issued to it and with respect to any Standby L/C issued by it either as Bank One or Agent, Bank One shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" shall include Bank One in its individual capacity. 10.9 Successor Agent. Agent may resign as agent upon 30 days' notice to the Banks. If Agent shall resign as agent under this Agreement, then the Required Banks shall appoint from among the Banks a successor agent for the Banks, whereupon such successor agent shall succeed to the rights, powers and duties of Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation hereunder as agent, the 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 -92- 93 of the Guaranties, or release any Guaranties, or amend, modify or change 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. Any such waiver and any such amendment, supplement or modification shall be binding upon Borrower, Agent and each Bank, and all future holders of the Notes. In the case of any waiver, Borrower, Agent and each Bank shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 11.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing or by telecopy or other electronic facsimile and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when deposited in the United States mail, Registered or Certified, Return Receipt Requested, postage prepaid, or, in the case of telecopy or other electronic facsimile notice, when receipt confirmed by sender's electronic facsimile machine, addressed as follows in the case of Borrower, Agent and each Bank, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of any Note: Borrower: M/I Schottenstein Homes, Inc. 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 -93- 94 Agent and/or Bank One: Bank One, NA 100 East Broad Street 7th Floor Columbus, Ohio 43271 Attention: Thomas D. Igoe Facsimile: (614) 248-5518 HNB: The Huntington National Bank 41 South High Street 8th Floor Columbus, Ohio 43287 Attention: R.H. Friend Facsimile: (614) 480-5791 First Chicago: The First National Bank of Chicago One First National Plaza Mail Suite 0151 Chicago, Illinois 60670 Attention: Michael A. Parisi Facsimile: (312) 732-1117 NCB: National City Bank 155 East Broad Street 3rd Floor Columbus, Ohio 43251 Attention: Ralph A. Kaparos Facsimile: (614) 463-8572 BKB: BankBoston, N.A. 115 Perimeter Center Place Suite 500 Atlanta, Georgia 30346 Attention: Kevin C. Hake Facsimile: (770) 390-8434 Fifth Third: The Fifth Third Bank of Columbus 21 East State Street Columbus, Ohio 43215 Attention: Mark E. Ransom Facsimile: (614) 341-2606 -94- 95 STB: SunTrust Bank, Central Florida, N.A. Mail Code 0-1108 200 South Orange Avenue Orlando, Florida 32801 Attention: Stephen Leister Facsimile: (407) 237-6894 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 -95- 96 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. (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 -96- 97 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 Guaranties, the Standby L/Cs and any other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, including without limitation the reasonable fees and disbursements of counsel to Agent and each Bank; and (b) to pay or reimburse Agent and each Bank for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the Guaranties, the Standby L/Cs and any such other documents, including without limitation the reasonable fees and disbursements of counsel to Agent and each Bank. 11.7 Successors and Assigns; Assignment. (a) This Agreement shall be binding upon and inure to the benefit of Borrower, Agent and each Bank, all future holders of the Notes and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of all Banks, which consent may be withheld by any Bank in -97- 98 its sole discretion; and provided further that the rights of each Bank to transfer or assign its rights and/or obligations hereunder shall be limited as set forth below in part (b) of this subsection 11.7. Notwithstanding the above (including anything set forth in part (b) of this subsection 11.7), nothing herein shall restrict, prevent or prohibit any Bank from (A) pledging its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank, (B) granting assignments in such Bank's Loans and/or Commitment hereunder to its parent company and/or to any affiliate of such Bank or to any existing Bank or affiliate thereof, or (C) selling participations as set forth in subsection 11.4 hereof. (b) In addition to the assignments permitted by subsection 11.7(a), each Bank may, with the prior written consent of the Borrower and the Agent (provided that no consent of the 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 -98- 99 given in substitution for and replacement of the original Note or any replacement notes thereof). By executing and delivering an Assignment Agreement in accordance with this subsection 11.7(b), the assigning Bank thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Bank warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and the assignee warrants that it is an Eligible Assignee; (ii) except as set forth in clause (i) above, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, any of the other documents contemplated hereby or any other instrument or document furnished pursuant hereto or thereto, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any of the other documents contemplated hereby or any other instrument or document furnished pursuant hereto or thereto or the financial condition of the Borrower or the performance or observance by the 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 -99- 100 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 shall have the right, without prior notice to Borrower or its Subsidiaries, any such notice being expressly waived by Borrower and its 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 its 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 its 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 its Subsidiaries, or against anyone else claiming through or against Borrower and its Subsidiaries or such trustee in -100- 101 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, its 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 its 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 -101- 102 Participant in connection with any contemplated participation therein or as required or requested by any governmental agency or representative thereof or pursuant to legal process. Without limiting the foregoing, it is expressly understood that such confidential information which, at the time of disclosure is in the public domain or which, after disclosure, other than disclosure by Agent or any Bank, becomes part of the public domain or information which is obtained by Agent or any Bank prior to the time of disclosure and identification by Borrower under this subsection, or information received by Agent or any Bank from a third party shall not be subject to the confidentiality requirements of this subsection 11.10. Nothing in this subsection or otherwise shall prohibit Agent or any Bank from disclosing any confidential information to any other Bank in 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. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] -102- 103 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. M/I SCHOTTENSTEIN HOMES, INC. By_________________________________ Robert H. Schottenstein Title: President and Assistant Secretary BANK ONE, NA, as Agent and as a Bank By_________________________________ Thomas D. Igoe Title: Senior Vice President THE HUNTINGTON NATIONAL BANK By_________________________________ Print: R. H. Friend Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By_________________________________ Print: __________________________ Title: __________________________ -103- 104 NATIONAL CITY BANK By_________________________________ Ralph A. Kaparos Title: Senior Vice President BANKBOSTON, N.A. By_________________________________ Kevin C. Hake Title: Director THE FIFTH THIRD BANK OF COLUMBUS By_________________________________ Mark E. Ransom Title: Vice President SUNTRUST BANK, CENTRAL FLORIDA, N.A. By______________________________________ Print: _______________________________ Title: _______________________________ -104- EX-10.2 3 EXHIBIT 10.2 1 Exhibit 10.2 REVOLVING CREDIT AGREEMENT THIS AGREEMENT is made to be effective as of June 22, 1998, by and among M/I FINANCIAL CORP., an Ohio corporation ("Financial"), M/I SCHOTTENSTEIN HOMES, INC., an Ohio corporation ("M/I Homes") (Financial and M/I Homes are sometimes hereinafter referred to collectively as the "Borrowers"), and BANK ONE, NA, a national banking association (the "Bank"). The Borrowers and the Bank, in consideration of the covenants and agreements contained herein, intending to be legally bound, hereby recite and agree as follows: RECITALS A. M/I Homes, the Bank, The Huntington National Bank, The First National Bank of Chicago, National City Bank, BankBoston, N.A., The Fifth Third Bank of Columbus, SunTrust Bank, Central Florida, N.A. and the Bank as agent for the foregoing banks are parties to a certain Third Restated Revolving Credit Loan, Swingline Loan and Standby Letter of Credit Agreement effective as of May 27, 1998 (together with any amendments and restatements thereto, the "M/I Homes Loan Agreement"). B. M/I Homes owns 100% of the issued and outstanding common stock of Financial. C. The Borrowers and the Bank are parties to a Revolving Credit Agreement effective as of July 18, 1997 in the principal amount of $30,000,000.00 (the "1997 Credit Agreement"), which matures on June 25, 1998. D. The Borrowers and the Bank want to enter into a new credit facility in the principal amount of Thirty Million and 00/100 Dollars ($30,000,000.00), which will pay off and replace the 1997 Credit Agreement on the terms and conditions hereinafter set forth. AGREEMENT SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in the Agreement, the following terms have the following meanings: 2 "Agreement" shall mean this Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Borrowing Date" shall mean any Business Day specified pursuant to subsection 2.3 hereof as a date on which the Borrowers request the Bank to make a disbursement pursuant to the Loans hereunder. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in Columbus, Ohio are authorized or required by law to close, except that when used in connection with Eurodollar Rate Loans, "Business Day" shall mean any Business Day on which dealings in Dollars between banks may be carried on in London, England and Columbus, Ohio. "Cash Equivalents" shall mean (a) securities with maturities of 180 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and bankers acceptances each issued by the Bank and each with maturities of 180 days or less from the date of acquisition, and (c) commercial paper of a domestic issuer rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc. with a maturity of not more than 180 days. "Code" shall mean the Internal Revenue Code of 1986, as amended or superseded from time to time. Any reference to a specific provision of the Code shall be construed to include any comparable provision of the Code as hereafter amended or superseded. "Commitment" shall mean the Bank's agreement to make the Loans to the Borrowers pursuant to subsection 2.1 hereof in the amount referred to therein, which amount shall not exceed at any time the lesser of (a) $30,000,000.00, or (b) 95% of the aggregate face amount of all Eligible Mortgage Loans in existence at such time. "Commitment Period" shall mean the period from and including the date hereof through and including June 20, 2001, or such earlier date as the Commitment shall terminate as provided herein, subject to any extension of the Commitment Period pursuant to subsection 2.7 of this Agreement. "Commonly Controlled Entity" shall mean an entity, whether or not incorporated, which is under common control with Financial within the meaning of Section 414(b) or (c) of the Code. "Contingent Obligation" shall mean as to any Person, any reimbursement obligations of such Person in respect of drafts 2 3 that may be drawn under letters of credit, any reimbursement obligation of such Person in respect of surety bonds (including reimbursement obligations in respect of construction bonds), and any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations primarily to pay money ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including without limitation any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the obligee under any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the obligee under such primary obligation against loss in respect thereof; provided, however, that the term "Contingent Obligation" shall not include (i) indorsements of instruments for deposit or collection in the ordinary course of business, (ii) Financial's guaranty of the obligations of M/I Homes with respect to the M/I Homes Loan Agreement, and (iii) Mortgage Loan Repurchase Obligations. "Contractual Obligation" shall mean as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Default" shall mean any of the events specified in Section 7 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "EBIT" shall mean for any rolling 12 month period with respect to Financial, the net income (or deficit) after all charges and reserves (excluding, however, extraordinary items of gain or loss), but before deduction of (a) interest expense deducted in computation of net income, and (b) income taxes, all as determined in accordance with GAAP. "Eligible Mortgage Loan" shall mean at any date an original (not a rewritten or renewed) loan evidenced by a note and secured by a first mortgage on residential real property which (a) Financial has made to enable a natural person or persons either (i) to purchase a home from M/I Homes or another Person that is substantially completed or (ii) to re-finance an existing mortgage loan (provided that the total amount of such re-financing mortgage loans made by Financial shall not exceed the limit set 3 4 forth in subsection 6.5 hereof), (b) is not more than 60 days old, as determined by the date of the note which evidences such loan, and (c) is subject, or Financial reasonably believes is subject, to a Purchase Commitment; provided, however, that the amount of Eligible Mortgage Loans consisting of loans made by Financial for the purchase of homes from any Person other than M/I Homes shall not, in the aggregate at any one time outstanding, exceed the amount of $5,000,000.00. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements" shall mean, for any day as applied to a Eurodollar Rate Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate" shall mean with respect to each day during each Interest Period, the rate per annum equal to the rate at which the Bank is offered Dollar deposits, for a one month period, at or about 10:00 A.M., Columbus, Ohio time, in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Eurodollar Rate Loans are then being conducted. "Eurodollar Rate" shall mean with respect to each day during each Interest Period pertaining to a Eurodollar Rate Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Eurodollar Rate Loans" shall mean Loans the rate of interest applicable to which is the Eurodollar Rate. "Event of Default" shall mean any of the events specified in Section 7 hereof, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Fannie Mae" shall mean the Federal National Mortgage Association, or any successor thereto. 4 5 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect at the time any determination is made or financial statement is required hereunder as promulgated by the American Institute of Certified Public Accountants, the Accounting Principles Board, the Financial Accounting Standards Board or any other body existing from time to time which is authorized to establish or interpret such principles, applied on a consistent basis throughout any applicable period, subject to any change required by a change in GAAP; provided, however, that if any change in generally accepted accounting principles from those applied in preparing the financial statements referred to in subsection 3.1 hereof affects the calculation of any financial covenant contained herein, the Borrowers and the Bank hereby agree to amend the Agreement to the effect that each such financial covenant is not more or less restrictive than such covenant as in effect on the date hereof using generally accepted accounting principles consistent with those reflected in such financial statements. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Indebtedness" shall mean, as to any Person at a particular time, (a) indebtedness for borrowed money or for the deferred purchase price of property or services (including without limitation any such indebtedness which is non-recourse to the credit of such Person but is secured by assets of such Person) other than current (due and payable within 12 months or less), unsecured obligations for operating expense items incurred in the ordinary course of business, (b) any other indebtedness evidenced by promissory notes or other debt instruments, (c) obligations under material leases which shall have been or should be, in accordance with GAAP, recorded as capitalized leases, (d) indebtedness arising under acceptance facilities, (e) indebtedness arising under unpaid reimbursement obligations in respect of all drafts actually drawn under letters of credit issued for the account of such Person,(f) indebtedness arising under unpaid reimbursement obligations in respect of all payments actually made under surety bonds (including payments actually made under construction bonds) and (g) the incurrence of withdrawal liability under Title IV of ERISA by such Person or a Commonly Controlled Entity to a Multiemployer Plan. "Interest Expense" shall mean for any rolling 12 month period, with respect to Financial, the total amount of all charges for the use of funds, whether captioned interest or otherwise, in 5 6 a statement of income or operations of Financial for such rolling 12 month period prepared in accordance with GAAP. "Interest Period" shall mean with respect to any Eurodollar Rate Loan, the period commencing on the Borrowing Date, the conversion date or the continuation date with respect to such Eurodollar Rate Loan and ending no less than five nor more than twenty days thereafter, as selected by the Borrowers. "Liabilities" shall mean at any date the total of all amounts which would be properly classified as liabilities in a balance sheet of Financial at such date prepared in accordance with GAAP, consistently applied, including without limitation deferred income taxes, deferred compensation of any type and capital lease obligations, if any. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, charge, encumbrance, lien (statutory or other), or preference, priority or other security agreement or similar preferential arrangement of any kind or nature whatsoever (including without limitation any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the authorized filing by or against a Person of any financing statement as debtor under the Uniform Commercial Code or comparable law of any jurisdiction). A restriction, covenant, easement, right of way, or similar encumbrance affecting any interest in real property owned by either of the Borrowers and which does not secure an obligation to pay money is not a Lien. "Loans" shall mean the revolving credit loans made pursuant to subsection 2.1 hereof. "Mortgage Loan Repurchase Obligations" shall mean those obligations (as more particularly described in this definition) of Financial under a Purchase Commitment to repurchase (a) Eligible Mortgage Loans, (b) first mortgage loans that are not Eligible Mortgage Loans solely because either (i) the mortgagor did not purchase from M/I Homes the home subject to such mortgage loan, or (ii) such mortgage loan is more than 60 days old, as determined by the date of the note which evidences such loan, at the time of the purchase of the mortgage loan by a secondary market lender pursuant to a Purchase Commitment, (c) those second mortgage loans permitted by clause (ii) of subsection 6.5 hereof, and (d) those first mortgage refinancing loans permitted by clause (iii) of subsection 6.5 hereof; provided, the obligations to repurchase the mortgage loans described in clauses (a) through (d) of this definition shall exist only if (A) such mortgage loans do not meet for any reason the investor guidelines regarding loan origination, loan processing or loan closing and regarding underwriting 6 7 criteria for such Purchase Commitment, or defects are noted in origination, processing or closing of Mortgage Loans by investor, (B) Financial or its employees engage in any fraudulent conduct or misrepresentation, (C) the mortgagor fails to make timely payment of any of the first, second, third or fourth installments due under such mortgage loan, and such delinquency remains uncured for a period of more than 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. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Person" shall mean an individual, a partnership (including without limitation a joint venture), a limited liability company (including without limitation a joint venture), a corporation (including without limitation a joint venture), a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or any other entity of whatever nature (including without limitation a joint venture). "Plan" shall mean any pension plan which is covered by Title IV of ERISA and in respect of which the Borrowers or a Commonly Controlled Entity is an "employer" as defined in Section 3(5) of ERISA or an affiliate of an employer as defined in Section 407(d)(7) of ERISA. "Prime Rate" shall mean the rate of interest per annum announced by the Bank from time to time as its prime rate, with any change thereto effective as of the opening of business on the day of the change; the Prime Rate is not necessarily the best interest rate offered by the Bank. "Prime Rate Loans" shall mean loans the rate of interest applicable to which is based on the Prime Rate. "Purchase Commitment" shall mean a commitment from a secondary market lender acceptable to the Bank (the names and addresses of secondary market lenders acceptable to the Bank as of the effective date of this Agreement have been delivered to the Bank and certified by a Responsible Officer, and Financial shall update the list of secondary market lenders quarterly as set forth 7 8 in subsection 5.11 hereof), pursuant to an agreement with Financial, either with respect to a particular mortgage loan or with respect to mortgage loans meeting specified criteria, to purchase such mortgage loan or loans without recourse (except for Mortgage Loan Repurchase Obligations) for an amount not less than the difference of (a) the face amount of the note evidencing such mortgage loan(s), minus (b) the sum of (i) the points agreed upon between Financial and such secondary market lender, and (ii) the amount of funds (for example, without limitation, escrow funds and origination fees), other than points, received by Financial at the loan closing from the mortgagor. "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "Requirement of Law" shall mean as to any Person, the Certificate (or Articles) of Incorporation, By-Laws (or Code of Regulations), Close Corporation Agreement (where applicable) or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination, including without limitation all environmental laws, rules, regulations and determinations, of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" shall mean as to either of the Borrowers, the Chairman of the Board, Chief Executive Officer, President, a Senior Executive Vice President or a Senior Vice President of such Borrower and, with respect to financial matters, the chief financial officer, treasurer or controller of such Borrower, in each case acting in his or her capacity as such. "Single Employer Plan" shall mean any Plan which is not a Multiemployer Plan (as such term is defined in ERISA). "Subsidiary" shall mean as to any Person, a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. "Tangible Net Worth" shall mean at any date, with respect to Financial, the total of the capital stock (net of treasury stock, if any), paid in surplus, general contingency reserves and retained earnings (deficit), in each case determined in accordance with GAAP, minus the following items (without 8 9 duplication of deductions), if any, appearing on Financial's balance sheet prepared in accordance with GAAP: (a) The book amount of all deferred charges (including specifically deferred income taxes); (b) The book amount of all assets which would be treated as intangibles under GAAP; and (c) The amount of any write-up in the book value of any asset resulting from a revaluation thereof from the book value entered upon acquisition. 1.2 Other Definitional Provisions. (a) All terms defined in the Agreement shall have the defined meanings when used in the Note or any certificate or other document made or delivered pursuant hereto or thereto unless otherwise defined therein. (b) As used herein, in the Note or in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrowers not defined in subsection 1.1, and accounting terms partly defined in subsection 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The definition of any document or instrument includes all schedules, attachments and exhibits thereto and all renewals, extensions, supplements and amendments thereof; terms otherwise defined herein have the same meanings throughout the Agreement. (d) "Hereunder," "herein," "hereto," "the Agreement" and words of similar import refer to this entire document; "including" is used by way of illustration and not by way of limitation, unless the context clearly indicates the contrary; and the singular includes the plural and conversely. SECTION 2. AMOUNT AND TERMS OF COMMITMENT 2.1 Commitment. Subject to the terms and conditions of the Agreement, the Bank agrees to make revolving credit loans (the "Loans") to the Borrowers from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed the lesser of (a) Thirty Million and 00/100 Dollars ($30,000,000.00), or (b) ninety-five percent (95%) of the aggregate face amount of all Eligible Mortgage Loans in existence at such time. During the Commitment Period and as long as no Event of Default exists, the Borrowers may use the Commitment by borrowing, prepaying the Loans in whole or in part, 9 10 and reborrowing, all in accordance with the terms and conditions hereof. Subject to the terms and conditions of this Agreement (including the limitations on the availability of Eurodollar Rate Loans and including the termination of the Commitment as set forth in Section 7 hereof), the Loans may from time to time be (i) Eurodollar Rate Loans, (ii) Prime Rate Loans, or (iii) a combination thereof, as determined by the Borrowers, provided that no Loan shall be made as a Eurodollar Rate Loan after the day that is five days prior to the last day of the Commitment Period. 2.2 Note. The Loans made by the Bank pursuant hereto shall be evidenced by a promissory note of the Borrowers, substantially in the form of Exhibit A attached hereto and made a part hereof (the "Note"), payable to the order of the Bank and evidencing the obligation of the Borrowers to pay the aggregate unpaid principal amount of the Loans made by the Bank, with interest thereon at a rate per annum equal to (i) in the case of Prime Rate Loans, the Prime Rate in effect from time to time minus one-half of one percent (1/2%) and (ii) in the case of Eurodollar Rate Loans if permitted hereunder at such time, the Eurodollar Rate determined for each such loan plus one and six tenths percent (1.60%), subject with respect to each of the aforesaid interest rates to the default interest rate provisions of subsection 2.6(c) hereof. Interest shall be payable in arrears and shall be due on the last day of each month, beginning with July 31, 1998, and continuing on the last day of each month thereafter, and on the last day of the Commitment Period. If not sooner paid, the entire principal amount of the Loans outstanding and any remaining unpaid interest on the Loans shall be due and payable on the last day of the Commitment Period. The Bank is hereby authorized to record electronically or otherwise the date and amount of each Loan disbursement made by the Bank and the date and amount of each payment or prepayment of principal thereof, and any such recordation shall constitute conclusive evidence, absent manifest error, of the accuracy of the information so recorded; provided, however, the failure of the Bank to make any such recordation(s) shall not affect the obligation of the Borrowers to repay outstanding principal, interest, or any other amount due hereunder or under the Note in accordance with the terms hereof and thereof. The Note shall (a) be dated as of the date hereof, (b) be stated to mature on the last day of the Commitment Period, and (c) bear interest from and including the date thereof on the unpaid principal amount thereof from time to time outstanding at a rate per annum equal to (i) in the case of Prime Rate Loans, the Prime Rate in effect from time to time minus one-half of one percent (1/2%) and (ii) in the case of Eurodollar Rate Loans, the Eurodollar Rate determined for each such loan plus one and 10 11 six-tenths percent (1.60%) subject with respect to each of the aforesaid interest rates to the default interest rate provisions of subsection 2.6(c) hereof. 2.3 Procedure for Borrowing. The Borrowers may borrow under the Commitment (subject to the limitations on the availability of Eurodollar Rate Loans) during the Commitment Period, provided the Borrowers shall give the Bank irrevocable telephonic or written notice (which notice must be received by the Bank prior to 3:00 P.M., Columbus, Ohio time for funding to be made that day) on or before the requested Borrowing Date, specifying (i) the date of the requested borrowing (which shall be a Business Day), (ii) the amount of the requested borrowing, (iii) whether the borrowing is to be of a Eurodollar Rate Loan, a Prime Rate Loan or a combination thereof and (iv) if the borrowing is to be entirely or partly of a Eurodollar Rate Loan, the amount of the Prime Rate Loan, if any, and the amount of the Eurodollar Rate Loan and the length of the initial Interest Period therefor. Each borrowing pursuant to the Commitment shall be in the principal amount (a) in the case of Prime Rate Loans, of $50,000.00 or any larger amount, and (b) in the case of Eurodollar Rate Loans, of $500,000.00 or any larger amount, provided, however, with respect to Prime Rate Loans and Eurodollar Rate Loans that no borrowing shall exceed the then undrawn amount of the Commitment. On the Borrowing Date, the Bank shall make available to the Borrowers the funds requested, subject to the satisfaction of the terms and conditions of the Agreement, by crediting the account of Financial on the books of the Bank at its 100 East Broad Street, Columbus, Ohio office with the funds requested. If for any reason the Bank is unable to make funds available to the Borrowers as aforesaid, the Bank shall notify the Borrowers immediately. The provisions for conversion and continuation of the Loans are set forth in subsection 2.9. 2.4 Commitment Fee. The Borrowers agree to pay to the Bank a commitment fee for the Commitment Period, computed at the rate of one-quarter of one percent (1/4%) per annum on the average daily unused amount of the Commitment of the Bank during the Commitment Period, payable quarterly in arrears and due on the last day of each September, December, March and June and on the last day of the Commitment Period, commencing on the first of such dates to occur after the date hereof. 2.5 Termination or Reduction of Commitment. (a) The Borrowers shall have the right, upon not less than five Business Days' written notice to the Bank, to terminate the Commitment or, from time to time (and so long as no Default exists), reduce the amount of the Commitment, provided that (i) any such reduction shall be accompanied by prepayment of the Loans made hereunder, together with accrued interest on the amount so prepaid to the 11 12 date of such prepayment, to the extent, if any, that the amount of such Loans then outstanding exceeds the amount of the Commitment as then reduced, and (ii) any such termination of the Commitment shall be accompanied by prepayment in full of the Loans then outstanding hereunder, together with accrued interest thereon to the date of such prepayment, the payment of any unpaid commitment fee then accrued hereunder and, if a Loan is a Eurodollar Rate Loan that is prepaid other than at the end of the Interest Period applicable thereto, by any amounts payable pursuant to Subsection 2.13, Indemnity. Any such reduction shall be in the amount of $1,000,000.00 or a whole multiple of $100,000.00 in excess thereof and shall reduce permanently the amount of the Commitment then in effect. 2.6 Computation of Interest and Fees; Default Interest. (a) Commitment fees on the Commitment and interest in respect of the Loans shall be calculated on the basis of a 360 day year for the actual days elapsed. Any change in the interest rate on the Note resulting from a change in the Prime Rate or the Eurodollar Reserve Requirements shall become effective as of the opening of business on the day on which such change in the Prime Rate or the Eurocurrency Reserve Requirements shall become effective, without notice to the Borrowers; however, the Bank shall give the Borrowers prompt notice of all changes in the Prime Rate or the Eurodollar Reserve Requirements. (b) Each determination of an interest rate by the Bank pursuant to the Agreement shall be conclusive and binding on the Borrowers in the absence of manifest error. (c) If all or a portion of the principal amount of any of the Loans made hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), any such overdue principal amount and, to the extent permitted by applicable law, any overdue installment of interest on any Loan, shall, without limiting any other rights of the Bank, bear interest at a rate per annum which is the sum of (i) one percent (1.0%), and (ii) the rate which would otherwise be applicable thereto, from the date of such non-payment until paid in full (before, as well as after, judgment). 2.7 Extension of Commitment Period. At any time during the sixty days immediately preceding the last day of the 12 13 Commitment Period, the Bank in its sole discretion may elect to extend the Commitment Period for a period not to exceed 360 days by written notice from the Bank to the Borrowers which written notice shall include the number of days by which the Commitment Period shall be extended. Each notice granting an extension shall be attached to the Note and shall constitute an amendment extending the Commitment maturity date of the Note by the number of days specified in the notice. If the Bank does not elect to extend the Commitment Period, the Bank shall not be required to give notice to the Borrowers of such election not to extend. If the Borrowers have not received notice from the Bank as stated herein that the Bank has elected to extend the Commitment Period by one year, the Commitment Period shall be deemed not to have been extended. 2.8 Use of Proceeds. The proceeds of the initial Loan made hereunder shall be used by the Borrowers to pay in full the obligations outstanding under the 1997 Credit Agreement. Upon the Borrowers' irrevocable payment in full of the obligations outstanding under the 1997 Credit Agreement, the Bank shall cancel the 1997 Credit Agreement and the promissory note related to the 1997 Credit Agreement. The remaining proceeds of the initial Loan made hereunder and the proceeds of subsequent Loans made hereunder shall be used by the Borrowers for lawful purposes in Financial's business. 2.9 Conversion and Continuation Options. (a) The Borrowers may elect from time to time to convert outstanding Loans from Eurodollar Rate Loans to Prime Rate Loans by giving the Bank at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Rate Loans may only be made on the last day of an Interest Period with respect thereto. Subject to the limitations on the availability of Eurodollar Rate Loans, the Borrowers may elect from time to time to convert outstanding Loans from Prime Rate Loans to a Eurodollar Rate Loan by giving the Bank telephonic or written notice (the "Notice of Conversion") at least two Business Days prior to the requested date for the conversion, which Notice of Conversion shall specify (i) the date for the conversion, (ii) the aggregate amount of Prime Rate Loans to be converted and (iii) the length of the initial Interest Period for such Eurodollar Rate Loan. Each conversion from Prime Rate Loans to a Eurodollar Rate Loan shall be in the principal amount of $500,000.00 or any larger amount. All or any part of outstanding Eurodollar Rate Loans and Prime Rate Loans may be converted as provided herein, provided that (i) (unless the Bank otherwise consents) no Prime Rate Loan may be converted into a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing and (ii) no Prime 13 14 Rate Loan may be converted into a Eurodollar Rate Loan after the date that is five days prior to the last day of the Commitment Period. (b) Subject to the limitations on the availability of Eurodollar Rate Loans, any Eurodollar Rate Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrowers giving the Bank telephonic or written notice, at least two Business Days prior to the last day of the then current Interest Period, and which notice shall specify (i) the amount of the Eurodollar Rate Loans to be continued as such and (ii) the length of the Interest Period for such Eurodollar Rate Loans. All or any part of outstanding Eurodollar Rate Loans may be continued as provided herein, provided that (i) (unless the Bank otherwise consents) no Eurodollar Rate Loan may be continued when any Default or Event of Default has occurred and is continuing and (ii) no Eurodollar Rate Loan may be continued as a Eurodollar Rate Loan after the date that is five days prior to the last day of the Commitment Period. 2.10 Inability to Determine Interest Rate. If by reason of circumstances affecting the relevant market adequate and reasonable means do not exist for ascertaining the Eurodollar Rate, any Eurodollar Rate Loans requested to be made shall be made as Prime Rate Loans. 2.11 Illegality; Impracticability. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful, or if compliance by the Bank with any request or directive (whether or not having the force of law) from any Governmental Authority occurring after the date hereof shall make it impracticable for the Bank to make or maintain Eurodollar Rate Loans as contemplated by this Agreement, the commitment of the Bank hereunder to make Eurodollar Rate Loans shall forthwith be canceled and, until such time as it shall no longer be unlawful for the Bank to make or maintain Eurodollar Rate Loans, the Bank shall then have a commitment only to make a Prime Rate Loan when a Eurodollar Rate Loan is requested and the Bank's Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate Loans as required by law. If any such conversion of a Eurodollar Rate Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrowers shall pay to such Bank such amounts, if any, as may be required pursuant to subsection 2.13, Indemnity. 2.12 Requirements of Law. If the adoption of or any change in any Requirement of Law or in the interpretation or 14 15 application thereof applicable to the Bank or compliance by the Bank with any request or directive (whether or not having the force of law) from any Governmental Authority, in each case made subsequent to the date hereof: (a) shall (i) subject the Bank to any tax of any kind whatsoever with respect to any Eurodollar Rate Loans made by it or its obligation to make Eurodollar Rate Loans or change the basis of taxation of payments to the Bank in respect thereof, (ii) change any franchise tax or any tax measured by or imposed upon the overall net income of the Bank or (iii) change any branch tax or any tax measured by or imposed upon overall capital or net worth of the Bank; (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, the Bank which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (c) shall impose on the Bank any other condition; and the result of any of the foregoing is to increase the cost to the Bank, by an amount which the Bank deems to be material, of making Eurodollar Rate Loans or to reduce any amount receivable hereunder in respect thereof, then the Borrowers shall promptly pay the Bank, upon its demand, any additional amounts necessary to compensate the Bank for such increased cost or reduced amount receivable; in addition, in any such case, the Borrowers may elect to convert the Eurodollar Rate Loans made by the Bank hereunder to Prime Rate Loans in which case the Borrowers shall promptly pay to the Bank, upon demand, without duplication, such amounts, if any, as may be required pursuant to subsection 2.13. 2.13 Indemnity. The Borrowers agree to indemnify the Bank and to hold the Bank harmless from any loss or expense which the Bank may sustain or incur (other than through the Bank's gross negligence or willful misconduct) as a consequence of the Borrowers' making a prepayment of a Eurodollar Rate Loan on a day which is not the last day of an Interest Period with respect thereto (whether by acceleration, demand or otherwise). Such indemnification may include, without limitation, an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid for the period from the date of such prepayment to the last day of the applicable Interest Period in each case at the applicable rate of interest for such Eurodollar Rate Loans provided for herein over (ii) the amount of interest (as reasonably determined by the Bank) which 15 16 would have accrued to the Bank on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. SECTION 3. REPRESENTATIONS AND WARRANTIES In order to induce the Bank to enter into the Agreement and to make the Loans herein provided for, the Borrowers hereby covenant, represent and warrant, jointly and severally, to the Bank that on the date hereof: 3.1 Financial Statements. Financial has heretofore furnished to the Bank the balance sheet of Financial as of December 31, 1997, and the related audited statements of income and retained earnings and of changes in cash flows for the fiscal year of Financial then ended, certified by Deloitte & Touche, independent public accountants. Such financial statement fairly presents the financial condition of Financial as of the date thereof and the results of the operations of Financial for the period then ended, and from December 31, 1997 to the date hereof, there has been no material adverse change in such condition. 3.2 Corporate Existence; Compliance with Law. Each of the Borrowers (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power and authority to conduct the business in which it is currently engaged, (c) is qualified as a foreign corporation under the laws of any jurisdiction where the failure to so qualify would have a material adverse effect on the business of such Borrower, and (d) is in compliance with all Requirements of Law, except to the extent that the failure to comply therewith would not, in the aggregate, have a material adverse effect on the business, operations, property or financial or other condition of such Borrower and would not materially adversely affect the ability of such Borrower to perform its obligations under the Agreement and the Note. 3.3 Corporate Power; Authorization; Enforceable Obligations. Each of the Borrowers has the corporate power and authority to make, deliver and perform the Agreement and the Note and to borrow hereunder and has taken all corporate action necessary to be taken by it to authorize the borrowings on the terms and conditions of the Agreement and the Note and to authorize the execution, delivery and performance of the Agreement and the Note. No consent, waiver or authorization of, or filing with, any Person (including without limitation any Governmental Authority), is required to be made or obtained by either of the Borrowers in connection with the borrowings hereunder or the 16 17 execution, delivery, performance, validity or enforceability of the Agreement and the Note. The Agreement has been, and the Note will be, duly executed and delivered on behalf of each of the Borrowers and the Agreement constitutes, and the Note when executed and delivered hereunder will constitute, a legal, valid and binding obligation of each of the Borrowers enforceable against each of the Borrowers in accordance with its terms, subject to the effect, if any, of bankruptcy, insolvency, reorganization, arrangement or other similar laws relating to or affecting the rights of creditors generally and the limitations, if any, imposed by the general principles of equity and public policy. 3.4 No Legal Bar. The execution, delivery and performance of the Agreement and the Note, the borrowings hereunder and the use of the proceeds thereof do not and will not violate any Requirement of Law or Contractual Obligation of either of the Borrowers and do not and will not result in, or require, the creation or imposition of any Lien on any of the properties of either of the Borrowers or their respective revenues pursuant to any Requirement of Law or Contractual Obligation. 3.5 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Borrowers, threatened by or against either of the Borrowers or against any of their respective properties or revenues (a) with respect to the Agreement or the Note or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a material adverse effect on the business, operations, property or financial or other condition of either of the Borrowers. 3.6 Regulation U. Neither of the Borrowers is engaged in, nor will either of them engage in, principally or as one of its important activities, the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. No part of the proceeds of any Loans hereunder will be used for "purchasing" or "carrying" "margin stock" as so defined or for any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of such Board of Governors. If requested by the Bank, the Borrowers will furnish to the Bank a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation U to the foregoing effect. 3.7 Investment Company Act. Neither of the Borrowers is an "investment company" or a company "controlled" by an 17 18 "investment company," within the meaning of the Investment Company Act of 1940, as amended. 3.8 Disclosure. No representations or warranties made by either of the Borrowers in the Agreement or in any other document furnished from time to time in connection herewith (as such other documents may be supplemented from time to time) contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary to make the statements herein or therein not misleading. 3.9 Subsidiary Information. Financial has no Subsidiaries. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Initial Loan. The obligation of the Bank to make its initial disbursement under the Loans on the first Borrowing Date is subject to the satisfaction of the following conditions precedent on or prior to such date: (a) Note. The Bank shall have received the Note, conforming to the requirements hereof and duly executed and delivered by a duly authorized officer of each of the Borrowers. (b) Legal Opinions of Counsel to the Borrowers. The Bank shall have received an executed legal opinion of Paul S. Coppel, General Counsel of M/I Schottenstein Homes, Inc., dated the date hereof and addressed to the Bank, substantially in the form of Exhibit B hereto, and otherwise in form and substance satisfactory to the Bank and covering such other matters incident to the transactions contemplated hereby as the Bank and its counsel may reasonably require. (c) Corporate Proceedings of the Borrowers. The Bank shall have received a copy of the resolutions (in form and substance satisfactory to the Bank) of the sole shareholder (M/I Homes) of Financial and of the Executive Committee of the Board of Directors of M/I Homes authorizing (i) the execution, delivery and performance of the Agreement, (ii) the consummation of the transactions contemplated hereby, (iii) the borrowings herein provided for, and (iv) the execution, delivery and performance of the Note and the other documents provided for in the Agreement, all certified by the Secretary or the Assistant Secretary of each of the Borrowers as of the date hereof. Such certificate 18 19 shall state that the resolutions set forth therein have not been amended, modified, revoked or rescinded as of the date hereof. (d) Incumbency Certificate of the Borrowers. The Bank shall have received a certificate of the Secretary or an Assistant Secretary of each of the Borrowers, dated the date hereof, as to the incumbency and signature of the officers of each of the Borrowers executing the Agreement, the Note and any certificate or other documents to be delivered pursuant hereto or thereto. (e) No Proceedings or Litigation; No Injunctive Relief. No action, suit or proceeding before any arbitrator or any Governmental Authority shall have been commenced, no investigation by any Governmental Authority shall have been commenced and no action, suit, proceeding or investigation by any Governmental Authority shall have been threatened, against either of the Borrowers or any of the officers or directors of either of the Borrowers seeking to restrain, prevent or change the transactions contemplated by the Agreement in whole or in part or questioning the validity or legality of the transactions contemplated by the Agreement or seeking damages in connection with such transactions. (f) Consents, Licenses, Approvals, etc. The Bank shall have received true copies (certified to be such by the Borrowers or other appropriate party) of all consents, licenses and approvals required in accordance with applicable law in connection with the execution, delivery, performance, validity and enforceability of the Agreement and the Note, if the failure to obtain such consents, licenses or approvals, individually or in the aggregate, would have a material adverse effect on either of the Borrowers or would adversely affect the validity or enforceability of any of the foregoing documents, and approvals obtained shall be in full force and effect and be satisfactory in form and substance to the Bank. (g) Compliance with Law. Neither of the Borrowers shall be in violation in any material respect of any applicable statute, regulation or ordinance, including without limitation statutes, regulations or ordinances relating to environmental matters, of any governmental entity, or any agency thereof, in any respect materially and adversely affecting the 19 20 business, property, assets, operations or condition, financial or otherwise, of either of the Borrowers. (h) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing hereunder prior to or after giving effect to the making of the initial disbursement of the Loans hereunder. (i) No Material Adverse Change. There shall have been no material adverse change in the financial condition or business or operations of Financial from the date of Financial's December 31, 1997 audited financial statements to the first Borrowing Date. (j) Hedging Policy. The Bank shall have received Financial's policy with respect to hedging transactions, a copy of which shall be attached hereto as Exhibit E (the "Hedging Policy"), certified by a Responsible Officer. (k) Additional Matters. All corporate and other proceedings and all other documents and legal matters in connection with the transactions contemplated by the Agreement and the Note shall be satisfactory in form and substance to the Bank and its counsel. 4.2 Conditions to All Loans. The obligation of the Bank to make any Loan hereunder on any date (including without limitation the first Borrowing Date) is subject to the satisfaction of the following conditions precedent as of such date: (a) Representations and Warranties. The representations and warranties made by each of the Borrowers in the Agreement and any representations and warranties made by each of the Borrowers which are contained in any certificate, document or financial or other statement furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects on and as of the date of such loan as if made on and as of such date unless stated to relate to a specific earlier date. (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loan to be made on such date. 20 21 Each borrowing by the Borrowers under the Agreement shall constitute a representation and warranty by each of the Borrowers as of the date of such borrowing that the conditions contained in the foregoing paragraphs (a) and (b) of this subsection 4.2 have been satisfied. SECTION 5. AFFIRMATIVE COVENANTS The Borrowers hereby agree, jointly and severally, that, from the date hereof and so long as the Commitment remains in effect, the Note remains outstanding and unpaid or any other amount is owing to the Bank hereunder, Financial shall (and, in the case of subsection 5.6(e)hereof, M/I Homes shall also): 5.1 Financial Statements. Furnish to the Bank: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of Financial, a copy of the audited balance sheet of Financial as at the end of such year and the related audited statements of income and retained earnings and cash flows for such year, together with the opinion of independent certified public accountants of nationally recognized standing, which opinion shall not contain a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit or qualification which would affect the computation of financial covenants contained herein other than a qualification for consistency due to a change in the application of GAAP with which Financial's independent certified public accountants concur; and (b) as soon as available, but in any event not later than 45 days after the end of each monthly accounting period, the unaudited balance sheet of Financial as at the end of each such month and the related unaudited statements of income and retained earnings of Financial for such month and the portion of the fiscal year through such date setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer of Financial as being fairly stated in all material respects. All such financial statements required by this subsection 5.1 shall be complete and correct in all material respects and prepared in reasonable detail and in accordance with GAAP (except, in the case of the financial statements referred to in subparagraph (b), that such financial statements need not contain footnotes). 21 22 5.2 Certificates; Other Information. Furnish to the Bank: (a) concurrently with the delivery of each financial statement referred to in subsection 5.1(a) above and each financial statement referred to in subsection 5.1(b) above, a summary in form and substance satisfactory to the Bank of the hedging investments described in subsection 6.5(vi) hereof, and a certificate of a Responsible Officer of Financial (in the form of Exhibit C or such other form as shall be reasonably acceptable to the Bank) stated to have been made after due examination by such Responsible Officer (i) stating that, to the best of such officer's knowledge, Financial during such period has observed or performed in all material respects all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the Note to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, and (ii) showing in detail the calculations supporting such statement in respect of subsections 5.7, 5.8, 5.9, 6.3 and 6.5; (b) as soon as available, but in any event not later than 20 days after the end of each monthly accounting period, a borrowing base certificate in the form of Exhibit D attached hereto and made a part hereof, certified by a Responsible Officer of Financial as being accurate in all material respects; (c) promptly upon receipt thereof, copies of all final reports submitted to Financial by independent certified public accountants in connection with each annual, interim or special audit of the books of Financial made by such accountants, including without limitation any final comment letter submitted by such accountants to management in connection with their annual audit; and (d) promptly, on reasonable notice to Financial, such additional financial and other information as the Bank may from time to time reasonably request. 5.3 Maintenance of Existence. Preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges, contracts, copyrights, patents, trademarks, trade names and franchises 22 23 necessary or desirable in the normal conduct of its business, and comply with all Contractual Obligations and Requirements of Law, except to the extent that the failure to take such actions or comply with such Contractual Obligations and Requirements of Law would not, in the aggregate, have a material adverse effect on the business, operations, property or financial or other condition of Financial. 5.4 Maintenance of Property, Insurance. Keep all property useful in and necessary to its business in good working order and condition; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, general liability and business interruption insurance) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Bank, upon written request, full information as to the insurance carried. 5.5 Inspection of Property; Books and Records; Discussions. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities, subject in the case of interim statements to year-end audit adjustments; and permit representatives of the Bank to visit and inspect any of its properties, and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be requested, and to discuss the business, operations, properties and financial and other condition of Financial with officers and employees of Financial and, if notice thereof is given to the Borrowers prior to the date of such discussions, with its independent certified public accountants. The Bank shall keep confidential the information it receives pursuant to subsection 5.2 hereof and this subsection 5.5, provided that the Bank may disclose such information to its regulators, auditors and counsel on a need to know basis, and the Bank must disclose such information if required to do so by law (including without limitation by judicial or administrative process). 5.6 Notices. Promptly give notice to the Bank: (a) of the occurrence of any Default or Event of Default; (b) of any (i) default under any other Contractual Obligation that would enable the obligee of the Contractual Obligation to compel Financial to immediately pay all amounts owing thereunder or otherwise accelerate payments thereunder and would have a material adverse effect on Financial, or (ii) litigation, investigation or proceeding which may exist at any time between Financial and any Governmental Authority, which, if adversely determined, would have 23 24 a material adverse effect on the business, operations, property or financial or other condition of Financial; (c) of any litigation or proceeding affecting Financial (i) (A) in which the amount involved is $100,000.00 or more and not covered by insurance, or (B) which, in the reasonable opinion of a Responsible Officer of Financial, would, if adversely determined, have a material adverse effect on Financial, or (ii) in which injunctive or similar relief is sought and which, in the reasonable opinion of a Responsible Officer of Financial, would, if adversely determined, have a material adverse effect on Financial; (d) of the following events, as soon as possible and in any event within 30 days after Financial knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan with respect to which the PBGC has not waived the 30 day reporting requirement, or (ii) the institution of proceedings or the taking or expected taking of any other action by PBGC or Financial or any Commonly Controlled Entity to terminate or withdraw or partially withdraw from any Plan under circumstances which could lead to material liability to the PBGC or, with respect to a Multiemployer Plan, the Reorganization or Insolvency (as each such term is defined in ERISA) of the Plan and in addition to such notice, deliver to the Bank whichever of the following may be applicable: (A) a certificate of a Responsible Officer of Financial setting forth details as to such Reportable Event and the action that Financial or such Commonly Controlled Entity proposes to take with respect thereto, together with a copy of any notice of such Reportable Event that may be required to be filed with PBGC, or (B) any notice delivered by PBGC evidencing its intent to institute such proceedings or any notice to PBGC that such Plan is to be terminated, as the case may be; and (e) of a material adverse change in the business, operations, property or financial or other condition of Financial or M/I Homes. Each notice pursuant to this subsection 5.6 shall be accompanied by a statement of the chief executive officer or chief financial 24 25 officer or other Responsible Officer of Financial setting forth details of the occurrence referred to therein and stating what action Financial proposes to take with respect thereto. For all purposes of clause (d) of this subsection 5.6, Financial shall be deemed to have all knowledge or knowledge of all facts attributable to the administrator of such Plan if such Plan is a Single Employer Plan. 5.7 Maintenance of Tangible Net Worth. Maintain at all times its Tangible Net Worth in an amount equal to at least $3,500,000.00. 5.8 Maintenance of Liabilities to Tangible Net Worth Ratio. Maintain at all times a ratio of Liabilities to Tangible Net Worth not in excess of 10.0 to 1.0. 5.9 Maintenance of EBIT to Interest Expense Ratio. Maintain a ratio of EBIT to Interest Expense, determined as of the end of each monthly accounting period of each fiscal year and as of the end of each fiscal year, on a rolling 12 month basis (with the period of determination being the 12 month period ending on the date as of which such determination is made), of not less than 1.50 to 1.0. 5.10 Collateral. Promptly provide to the Bank, at any time and from time to time as the Bank may request in its sole discretion, a first priority security interest in all of Financial's then existing or thereafter acquired mortgage notes receivable and all proceeds thereof as security for the Borrowers' obligations to the Bank under this Agreement and the Note, and promptly execute and deliver all such documentation (including without limitation Financial's mortgage notes receivable) as the Bank shall reasonably request to perfect the Bank's security interest in such collateral. 5.11 Secondary Market Lenders. (a) Provide to the Bank on the first Business Day of each calendar quarter, commencing on July 1, 1998, and continuing on the first Business Day of each January, April, July and October thereafter, for the Bank's review and approval, the current list of secondary market lenders that purchase mortgage loans from Financial, and (b) by the end of such calendar quarter, remove from the list and cease to sell mortgage loans to any secondary market lender that is not acceptable to the Bank in the Bank's sole discretion. SECTION 6. NEGATIVE COVENANTS The Borrowers hereby agree, jointly and severally, that, from the date hereof and so long as the Commitment remains 25 26 in effect, the Note remains outstanding and unpaid or any other amount is owing to the Bank hereunder, Financial shall not, directly or indirectly: 6.1 Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness (other than purchases on open account in the ordinary course of Financial's business) except for (a) Indebtedness evidenced by this Agreement and the Note, (b) Indebtedness for which Liens are permitted pursuant to subsection 6.2(g) hereof, provided that the aggregate amount of such Indebtedness does not exceed the amount of the Liens permitted by subsection 6.2(g), and (c) unsecured Indebtedness of Financial to M/I Homes for loans and advances from M/I Homes and for property and services provided by M/I Homes. 6.2 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except: (a) Liens, if any, in favor of the Bank including without limitation Liens on mortgage notes receivable; (b) Liens for taxes and special assessments not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of Financial in accordance with GAAP; (c) Carriers', warehousemen's, materialmen's, mechanics', repairmen's, or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of Financial in accordance with GAAP; (d) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (e) Liens of landlords, arising solely by operation of law, on fixtures and moveable property located on premises leased in the ordinary course of business, provided that the rental payments secured thereby are not yet due; (f) Liens arising as a result of a judgment or judgments against Financial which do not in the aggregate exceed $200,000.00 at any time outstanding, 26 27 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; (g) Liens to secure purchase money obligations and capitalized leases, provided that the aggregate amount of the obligations secured by such Liens shall not exceed $250,000.00 at any time; and (h) Liens in connection with the purchase and pledge by Financial, in making first mortgage loans permitted hereunder, of certificates of deposits to investors purchasing such first mortgage loans, in accordance with, and subject to the limitations set forth in, subsection 6.3 hereof. 6.3 Prohibition on Contingent Obligations. Agree to or assume, guarantee, indorse or otherwise in any way be or become responsible or liable for, directly or indirectly, any Contingent Obligation, including but not limited to Contingent Obligations incurred as a result of sales of any notes with recourse or as a general partner in a partnership; provided, however, that in making first mortgage loans permitted hereunder, Financial may, in lieu of requiring down payments from mortgagors, purchase and pledge to investors purchasing such first mortgage loans certificates of deposit in an aggregate amount not to exceed $2,500,000.00. 6.4 Prohibition on Fundamental Changes. Enter into any transaction of merger, consolidation, amalgamation or reorganization, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its business or assets, whether now owned or hereafter acquired, or make any material change in the method by which it conducts business. 6.5 Limitation on Investments. Make or commit to make any advance, loan, extension of credit or capital contribution to, or purchase of, any stock, bonds, notes, debentures or other securities of, or make any other investment in, any Person (all such transactions being herein called "investments") except for (i) first mortgage loans made in the ordinary course of Financial's business to natural persons for the purchase of residential real property, (ii) second mortgage loans made in the ordinary course of Financial's business to natural persons for the purchase of residential real property, provided that such second mortgage loans (A) shall be made only in connection with a specific financing program to natural persons who have a first 27 28 mortgage loan from Financial with respect to the same real property, and (B) shall not exceed $4,000,000.00 in aggregate at any one time outstanding, (iii) first mortgage loans made in the ordinary course of Financial's business to natural persons for the purpose of re-financing an existing first mortgage loan, provided that the amount of such re-financing mortgage loans shall not exceed $5,000,000.00 in aggregate at any one time outstanding, (iv) investments in Cash Equivalents, (v) investments in Fannie Mae stock to the extent required for Financial to sell mortgages to Fannie Mae, but the amount of such investments in Fannie Mae stock shall in no event exceed $100,000.00, (vi) investments in the ordinary course of Financial's business in standard instruments hedging against interest rate risk incurred in the origination and sale of mortgage loans, in each case matching a hedging instrument or instruments to specific mortgages or specific groups of mortgages, but in no event including investments in futures contracts, options contracts or other derivative investment vehicles acquired as independent investments, and (vii) loans and advances to M/I Homes; provided, however, that nothing in this subsection 6.5 shall prohibit or otherwise restrict Financial from purchasing and pledging certificates of deposit in accordance with, and subject to the limitations set forth in, subsection 6.3 hereof. 6.6 Prohibition on Subsidiaries. Create or form any Subsidiaries. 6.7 Prohibition on Change in Hedging Policy. Amend or modify Financial's policy with respect to hedging transactions from the Hedging Policy provided to the Bank pursuant to subsection 4.1(j) hereof and attached hereto as Exhibit E. SECTION 7. DEFAULTS, EVENTS OF DEFAULT Upon the occurrence of any of the following events: (1) the Borrowers shall fail to pay any principal of the Note when due in accordance with the terms thereof; or (2) the Borrowers shall fail to pay any interest on the Note or any fee, charge, reimbursement or other amount payable hereunder, within three days after the Bank notifies the Borrowers that such interest, fee or amount has become due in accordance with the terms thereof or hereof and has not been paid; or (3) any representations or warranty made or deemed made by the Borrowers herein or which is contained in any certificate, document or financial or other written statement furnished at any time under or in connection herewith or therewith 28 29 shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (4) (a) Financial shall commence any case, proceeding or other action (i) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Financial shall make a general assignment for the benefit of its creditors; or (b) there shall be commenced against Financial any case, proceeding or other action of a nature referred to in clause (a) above which (i) results in the entry of an order for relief or any such adjudication or appointment, and (ii) remains undismissed, undischarged or unbonded for a period of 60 days; or (c) there shall be commenced against Financial any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (d) Financial shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (a), (b) or (c) above; or (e) Financial shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (5) Financial shall default in (a) the observance or performance of any covenant or agreement contained in subsection 5.6, 5.10 or subsection 6.7 herein or shall fail to comply with the limitations of subsection 6.5(vi) herein, (b) the observance or performance of any covenant or agreement contained in any other provision of Section 6 or in any provision of subsections 5.1, 5.2, 5.7, 5.8, 5.9 and 5.11 herein and such default remains uncured ten days after the Bank notifies the Borrowers that such default has occurred, or (c) the observance or performance of any other covenant or agreement contained herein, which default shall remain unremedied for 30 days after the Borrowers receive written notice from the Bank that such a default has occurred, which notice shall specify the nature of the default; or (6) (a) any Person affiliated with Financial shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (b) any 29 30 "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 Bank, likely to result in the termination of such Plan for purposes of Title IV of ERISA, and, in the case of a Reportable Event, the continuance of such Reportable Event remains unremedied for 30 days after notice of such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given or, in the case of institution of proceedings, such proceedings continue for 30 days after commencement thereof, (d) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, or (e) any other event or condition shall occur or exist with respect to a Single Employer Plan, and in each case in clauses (a) through (e) above, such event or condition, together with all other such events or conditions, if any, could subject Financial to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of Financial; or (7) one or more judgments or decrees shall be entered against Financial involving in the aggregate a liability (not covered by insurance) of $200,000.00 or more and all such judgments or decrees in excess of $200,000.00 shall not have been vacated, satisfied, discharged, or stayed or bonded pending appeal within 30 days from the entry thereof; or (8) M/I Homes shall cease to own directly one hundred percent (100%) of all of the issued and outstanding stock of Financial; or (9) any borrowing base certificate required to be furnished to the Bank in accordance with subsection 5.2(b) hereof indicates that the principal amount of the Loans then outstanding exceeds the Commitment then permitted hereunder and, within five calendar days after the delivery of such borrowing base certificate to the Bank, the Borrowers have not cured this event by (a) the reduction of the principal amount of the Loans then outstanding to an amount not in excess of the Commitment then permitted hereunder, or (b) the delivery to the Bank of a more current borrowing base certificate that demonstrates that the principal amount of the Loans outstanding as of the date of such borrowing base certificate is not in excess of the Commitment permitted hereunder at such time; or (10) there is a Default or an Event of Default (as those terms are defined in the M/I Homes Loan Agreement) under the M/I Homes Loan Agreement or any one or more of the Notes (as that 30 31 term is defined in the M/I Homes Loan Agreement), M/I Homes defaults with respect to any other Indebtedness or Contractual Obligation or Contingent Obligation and the Bank in its reasonable discretion deems such default material, or Financial defaults on its Guaranty of the M/I Homes Loan Agreement; or (11) the M/I Homes Loan Agreement is terminated, voluntarily or involuntarily, for any reason, or the Bank shall cease to be a Bank (as that term is defined in the M/I Homes Loan Agreement) under the M/I Homes Loan Agreement; then, and in any such event, (a) if such event is an Event of Default specified in subsection 7(4) above, automatically the Commitment, if still outstanding, shall immediately terminate and the Loans hereunder (with accrued interest thereon), and all other amounts owing under the Agreement or the Note shall immediately become due and payable, and (b) if such event is any other Event of Default and is continuing, either or both of the following actions may be taken: (i) the Bank may, by notice to the Borrowers, declare the Commitment to be terminated forthwith, whereupon the Commitment shall immediately terminate; and (ii) the Bank may, by notice of default to the Borrowers, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under the Agreement and the Note to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section 7, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrowers. SECTION 8. MISCELLANEOUS 8.1 Amendments and Waivers. The Bank and the Borrowers may, from time to time, enter into written amendments, supplements or modifications for the purpose of adding any provisions to the Agreement or the Note or changing in any manner the rights of the Bank or the Borrowers hereunder or thereunder, and the Bank may execute and deliver to the Borrowers a written instrument waiving, on such terms and conditions as the Bank may specify in such instrument, any of the requirements of the Agreement or the Note or any Default or Event of Default and its consequences. Any such waiver and any such amendment, supplement or modification shall be binding upon the Borrowers, the Bank, and all future holders of the Note. In the case of any waiver, the Borrowers and the Bank shall be restored to their former position and rights hereunder and under the outstanding Note, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 31 32 8.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing or by telecopy or other electronic facsimile and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when deposited in the United States Mail, Registered or Certified, Return Receipt Requested, postage prepaid, or, in the case of telecopy or other electronic facsimile notice, when receipt thereof is confirmed by sender's electronic facsimile machine, addressed as follows in the case of the Borrowers and the Bank, or to such address or other address as may be hereafter notified by the respective parties hereto and any future holders of the Note: 32 33 Financial: M/I Financial Corp. 3 Easton Oval Columbus, Ohio 43219 Attention: Kerrii B. Anderson Facsimile: (614) 418-8080 with a copy to: Paul S. Coppel, Esq. M/I Schottenstein Homes, Inc. 3 Easton Oval Columbus, Ohio 43219 Facsimile: (614) 418-8030 M/I Homes: M/I Schottenstein Homes, Inc. 3 Easton Oval Columbus, Ohio 43219 Attention: Robert H. Schottenstein, with a copy to Phillip G. Creek Facsimile: (614) 418-8080 with a copy to Paul S. Coppel, Esq. Facsimile: (614) 418-8030 The Bank: Bank One, NA 100 East Broad Street 7th Floor Columbus, Ohio 43271 Attention: Thomas D. Igoe Facsimile: (614) 248-5518 8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 8.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of the Agreement and the Note and shall remain in full force and effect until the Agreement is terminated and all indebtedness created or evidenced by the Agreement or the Note is paid in full. 33 34 8.5 Payment of Expenses and Taxes. The Borrowers agree, jointly and severally, (a) to pay or reimburse the Bank for all of its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, the Agreement, the Note, and any other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, including without limitation the reasonable fees and disbursements of counsel to the Bank, and (b) to pay or reimburse the Bank for all of its costs and expenses incurred in connection with the enforcement or preservation of any rights under the Agreement, the Note, and any such other documents, including without limitation the fees and disbursements of counsel to the Bank. 8.6 Obligations Joint and Several. The obligations of the Borrowers under the Agreement, the Note and any documents related hereto or thereto are joint and several. 8.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrowers, all future holders of the Note and their respective successors and assigns, except that the Borrowers may not assign or transfer any of their respective rights or obligations under the Agreement without the prior written consent of the Bank. 8.8 Adjustments; Set-off. In addition to any rights and remedies of the Bank provided by law, upon the occurrence of an Event of Default and acceleration of the obligations owing in connection with the Agreement, the Bank shall have the right, without prior notice to the Borrowers, any such notice being expressly waived by the Borrowers to the extent permitted by applicable law, to set off and apply against any indebtedness, whether matured or unmatured, of either or both of the Borrowers to the Bank, any amount held by or owing from the Bank to or for the credit or the account of either or both of the Borrowers at, or at any time after, the happening of any of the above mentioned events, and the aforesaid right of set-off may be exercised by the Bank against either or both of the Borrowers or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, custodian or execution, judgment or attachment creditor of either or both of the Borrowers or against anyone else claiming through or against either or both of the Borrowers or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, custodian or 34 35 execution, judgment or attachment creditor, notwithstanding the fact that such right of set off shall not have been exercised by the Bank prior to the making, filing or issuance of or service upon the Bank of, or of notice of, any such petition, assignment for the benefit of creditors; appointment or application for the appointment of a receiver; or issuance of execution, subpoena, order or warrant. The Bank agrees promptly to notify the Borrowers after any such set off and application made by the Bank, provided that the failure to give such notice shall not affect the validity of such set off and application. 8.9 WAIVER OF JURY TRIAL. THE BORROWERS AND THE BANK, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THE AGREEMENT, THE NOTE OR ANY RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY OF THEM. NEITHER OF THE BORROWERS NOR THE BANK SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER OF THE BORROWERS OR THE BANK EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM. 8.10 Counterparts; Effective Date. The Agreement may be executed by one or more of the parties to the Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. The Agreement shall become effective upon the receipt by the Bank of executed counterparts of the Agreement by each of the parties hereto. 8.11 Governing Law. The Agreement, the Note and the rights and obligations of the parties under the Agreement and the Note shall be governed by, and construed and interpreted in accordance with, the local laws of the State of Ohio. 8.12 Headings. The headings of the Sections and subsections of the Agreement are inserted for convenience only and shall not be deemed to constitute a part hereof. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] 35 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers to be effective as of the day and year first above written. BANK ONE, NA M/I FINANCIAL CORP. By___________________________ By____________________________ Thomas D. Igoe Paul S. Rosen Title: Senior Vice President Title: President M/I SCHOTTENSTEIN HOMES, INC. By____________________________ Robert H. Schottenstein Title: President and Assistant Secretary 36 EX-27 4 EXHIBIT 27
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet as of June 30, 1998 and the Consolidated Statement of Income for the six months then ended of M/I Schottenstein Homes, Inc. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 12,169 0 32,981 0 338,104 383,254 12,691 4,366 420,216 90,789 6,292 0 0 88 150,887 420,216 286,811 292,836 231,578 231,578 0 0 5,659 18,721 7,595 11,126 0 0 0 11,126 1.40 1.38
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