FIRST AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT among M/I FINANCIAL CORP. and M/I HOMES, INC., as the Borrowers and GUARANTY BANK Dated as of April 27, 2006
Exhibit
10.1
FIRST
AMENDED AND RESTATED
among
M/I
FINANCIAL CORP.
and
M/I
HOMES, INC.,
as
the Borrowers
and
GUARANTY
BANK
Dated
as of April 27, 2006
SECTION
1. DEFINITIONS
1.1 Defined
Terms
1.2 Other
Definitional Provisions.
SECTION
2. AMOUNT
AND TERMS OF COMMITMENT
2.1 Commitment
2.2 Note
2.3 Procedure
for Borrowing
2.4 Commitment
Fee
2.5 Termination
or Reduction of Commitment
2.6 Computation
of Interest and Fees; Default Interest.
2.7 Extension
of Commitment Period
2.8 Use
of
Proceeds
2.9 Conversion
and Continuation Options.
2.10 Inability
to Determine Interest Rate
2.11 Illegality;
Impracticability
2.12 Requirements
of Law
2.13 Indemnity
SECTION
3. REPRESENTATIONS
AND WARRANTIES
3.1 Financial
Statements
3.2 Corporate
Existence; Compliance with Law
3.3 Corporate
Power; Authorization; Enforceable Obligations
3.4 No
Legal
Bar
3.5 No
Material Litigation
3.6 Regulation U
3.7 Investment
Company Act
3.8 Disclosure
3.9 Subsidiary
Information
SECTION
4. CONDITIONS
PRECEDENT
4.1 Conditions
to Initial Loan
4.2 Conditions
to All Loans
SECTION
5. AFFIRMATIVE
COVENANTS
5.1 Financial
Statements
5.2 Certificates;
Other Information
5.3 Maintenance
of Existence
5.4 Maintenance
of Property, Insurance
5.5 Inspection
of Property; Books and Records; Discussions
5.6 Notices
5.7 Maintenance
of Tangible Net Worth
5.8 Maintenance
of Liabilities to Tangible Net Worth Ratio
5.9 Maintenance
of EBIT to Interest Expense Ratio
5.10 Collateral
5.11 Secondary
Market Lenders
SECTION
6. NEGATIVE
COVENANTS
6.1 Limitation
on Indebtedness
6.2 Limitation
on Liens
6.3 Prohibition
on Contingent Obligations
6.4 Prohibition
on Fundamental Changes
6.5 Limitation
on Investments
6.6 Prohibition
on Subsidiaries
6.7 Prohibition
on Changes in Hedging Policy
6.8 Incorporation
of Covenants from M/I Homes Loan Agreement
SECTION
7. DEFAULTS,
EVENTS OF DEFAULT
SECTION
8. MISCELLANEOUS
8.1 Amendments
and Waivers; Acknowledgments.
8.2 Notices
8.3 No
Waiver: Cumulative Remedies
8.4 Survival
of Representations and Warranties
8.5 Payment
of Expenses; Indemnity.
8.6 Obligations
Joint and Several.
8.7 Successors
and Assigns
8.8 Adjustments;
Set-off
8.9 Waiver
of
Jury Trial, Punitive Damages, etc
8.10 Counterparts;
Effective Date
8.11 Governing
Law; Submission to Process
8.12 Limitation
on Interest
8.13 Amendment
and Restatement
8.14 Headings
Schedule
1 Secondary
Market Lenders
Exhibit
A Revolving
Loan Promissory Note
Exhibit
B Outline
of Legal Opinion
Exhibit
C Form
of
Compliance Certificate
Exhibit
D M/I
Financial Corp. Mortgage Loan Production and Derivative
Instruments
Policy
Exhibit
E Form
of
Borrowing Base Certificate
FIRST
AMENDED AND RESTATED
THIS
FIRST AMENDED AND RESTATED AGREEMENT (this "Agreement")
is
made to be effective as of April 27, 2006, by and among M/I FINANCIAL
CORP., an Ohio corporation ("Financial"),
M/I
HOMES, INC. (formerly known as 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
GUARANTY BANK, a federal savings bank (the "Bank").
RECITALS
A. M/I
Homes, Financial and the Bank are parties to that certain Revolving Credit
Agreement effective as of May 3, 2001, as heretofore amended, modified and
supplemented from time to time (the "Existing
Credit Agreement").
B. The
parties hereto have agreed, subject to the terms hereof, to amend and restate
the Existing Credit Agreement.
C. The
parties hereto intend that this Agreement and the other documents executed
in
connection herewith not effect a novation of the obligations of the Borrowers
under the Existing Credit Agreement, but merely effect a restatement and, where
applicable, an amendment of the terms governing such obligations.
In
consideration of the mutual covenants and agreements herein contained, the
Existing Credit Agreement is hereby amended and restated in its entirety, and
the parties covenant and agree as follows:
AGREEMENT
SECTION
1. DEFINITIONS
1.1 Defined
Terms.
As used
in the Agreement, the following terms have the following meanings:
"Agreement"
shall
mean this Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.
"Assessments"
shall
mean any impositions and assessments imposed on the Bank with respect to any
LIBOR Rate Loan for insurance or other fees, assessments and
surcharges
"Borrowing
Base"
shall
mean, as of any date, an amount equal to ninety-five percent (95%) of the
aggregate face amount of all Eligible Mortgage Loans in existence at such
date.
"Borrowing
Base Certificate"
shall
mean the Borrowing Base Certificate in the form of Exhibit E
hereto.
"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 Dallas, Texas are authorized or required by law to close, except that when
used in connection with LIBOR Rate Loans, "Business Day" shall mean any Business
Day on which dealings in Dollars between banks may be carried on in London,
England and Dallas, Texas.
"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 Rating Group (a division of
▇▇▇▇▇▇-▇▇▇▇, Inc.) or P-1 by ▇▇▇▇▇'▇ Investors Service, Inc. with a maturity
of
not more than 180 days.
"CD
Enhanced Loan"
shall
mean any Eligible Mortgage Loan which Borrowers intend to sell to a secondary
mortgage lender using a certificate of deposit as partial security.
"CD
Enhanced Loan Sublimit"
shall
mean the amount of $5,000,000.
"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 herein, which amount shall not exceed the lesser
of
(a)(i) from and including April 27, 2006 through and including
December 14, 2006, $40,000,000, (ii) from and including
December 15, 2006 through and including January 15, 2007, $65,000,000
and (iii) from and including January 16, 2007 through and including
April 26, 2007, $40,000,000, and (b) the Borrowing Base in existence
at such time.
"Commitment
Period"
shall
mean the period from and including the date hereof through and including
April 26, 2007, which is 364 days after the date hereof, 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 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) endorsements 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 (and not a rewritten or renewed) Mortgage Loan
with
respect to which each of the following statements is accurate and complete
(and
the Borrowers by including such Mortgage Loan in any computation of the
Borrowing Base shall be deemed to so represent to the Bank at and as of the
date
of such computation):
i. Such
Mortgage Loan is evidenced by a promissory note from the Obligor and is secured
by a first Mortgage on real property consisting of a completed or substantially
completed single family residence which is not used for commercial purposes
(use
by M/I Homes of any single family residence as a model home shall not be treated
as use for commercial purposes) and which is not a construction loan, or is
a
Mortgage Loan with respect to which all of the foregoing statements are true
except that such Mortgage Loan is a Second Mortgage Loan;
ii. Such
Mortgage Loan was made by Financial and purchased by Financial to enable a
natural person or persons either to purchase a home from M/I Homes or another
Person that is substantially completed or to refinance an existing mortgage
loan; provided that
(A) the aggregate amount of Eligible Mortgage Loans consisting of loans
made by Financial for the purchase of homes from any Person other than M/I
Homes
does not exceed the Other Mortgage Sublimit, (B) the aggregate amount of
Eligible Mortgage Loans used to refinance existing mortgage loans does not
exceed the ReFi Sublimit; (C) the aggregate amount of Eligible Mortgage
Loans that are CD Enhanced Loans does not exceed the CD Enhanced Sublimit,
and
(D) the aggregate amount of Eligible Mortgage Loans that are Second
Mortgage Loans does not exceed the Second Mortgage Sublimit;
iii. No
more
than sixty (60) days have elapsed since the date on which such Mortgage Loan
was
originated;
iv. Such
Mortgage Loan is subject to a Purchase Commitment which is in full force and
effect;
v. Such
Mortgage Loan conforms to ▇▇▇▇▇▇ ▇▇▇, FHA, FHLMC, GNMA or VA guidelines or
conforms to the guidelines of the secondary market lender which has provided
the
Purchase Commitment to which such Eligible Mortgage Loan is subject;
provided that
the
aggregate amount of Eligible Mortgage Loans which have a Risk Rating of less
than A does not exceed the Subprime Sublimit;
vi. Such
Mortgage Loan is a binding and valid obligation of the Obligor thereon, in
full
force and effect and enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other
similar terms affecting creditor's rights in general and by general principles
of equity;
vii. Such
Mortgage Loan is free of any default of any party thereto (including Financial),
counterclaims, offsets and defenses, including the defense of usury, and from
any rescission, cancellation or avoidance, and all right thereof, whether by
operation of law or otherwise;
viii. Such
Mortgage Loan is in all respects in accordance with all Requirements of Law
applicable thereto, including, without limitation, the federal Consumer Credit
Protection Act and the regulations promulgated thereunder and all applicable
usury laws and restrictions, and all notices, disclosures and other statements
or information required by law or regulation to be given, and any other act
required by law or regulation to be performed, in connection with such Mortgage
Loan have been given and performed as required;
ix. All
advance payments and other deposits on such Mortgage Loan have been paid in
cash, and no part of said sums has been loaned, directly or indirectly, by
Financial to the Obligor, and, other than as disclosed to the Bank in writing,
there have been no prepayments;
x. Such
Mortgage Loan is free and clear of all Liens other than Liens in favor of the
Bank; and
xi. The
property covered by such Mortgage Loan is insured against loss or damage by
fire
and all other hazards normally included within standard extended coverage in
accordance with the provisions of such Mortgage Loan with Financial named as
a
loss payee thereon.
"ERISA"
shall
mean the Employee Retirement Income Security Act of 1974, as amended from time
to time.
"Event
of Default"
shall
mean any of the events specified in Section 7
hereof,
provided that
any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"▇▇▇▇▇▇
Mae"
shall
mean the Federal National Mortgage Association, or any successor
thereto.
"FHA"
shall
mean the Federal Housing Authority, or any successor thereto.
"FHLMC"
shall
mean the Federal Home Loan Mortgage Corporation or any successor
thereto.
"GAAP"
shall
mean generally accepted accounting principles in the United States of America
as
in effect at the time any determination is made or financial statement is
required hereunder as promulgated by the American Institute of Certified Public
Accountants, the Accounting Principles Board, the Financial Accounting Standards
Board or any other body existing from time to time which is authorized to
establish or interpret such principles, applied on a consistent basis throughout
any applicable period, subject to any change required by a change in GAAP;
provided,
however,
that if
any change in generally accepted accounting principles from those applied in
preparing the financial statements referred to in subsection 3.1
hereof
affects the calculation of any financial covenant contained herein, 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.
"GNMA"
shall
mean the Government National Mortgage Association or any successor
thereto.
"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 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 LIBOR Rate Loan, the period commencing on the Borrowing
Date, the conversion date or the continuation date with respect to such LIBOR
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.
"LIBOR
Rate"
shall
mean, with respect to any LIBOR Rate Loan, the rate per annum (expressed as
a
percentage) determined by the Bank to be equal to the sum of (a) the
quotient of the LIBOR Base Rate for the applicable LIBOR Rate Loan and the
applicable Interest Period, divided by (1 minus the applicable Reserve
Requirement), rounded up to the nearest 1/100 of 1%, plus
(b) the applicable Assessments.
"LIBOR
Base Rate"
shall
mean the rate determined by the Bank (rounded upward, if necessary, to the
nearest 1/100 of 1%) equal to the offered rate (and not the bid rate) for
deposits in U.S. Dollars of amounts comparable to the amount of the requested
LIBOR Rate Loan for the same period of time as the Interest Period selected
by
the Borrower in the requested borrowing, as set forth on the LIBOR Reference
Source at approximately 10:00 a.m. (Dallas, Texas time) on the first day of
the applicable Interest Period.
"LIBOR
Reference Source"
means
the rates per annum equal to the rates appearing on Bloomberg Professional
(or,
if not available, any other nationally recognized trading screen reporting
the
British Bankers' Association LIBOR rates) as the British Bankers' Association
LIBOR Rates for deposits in U.S. Dollars. In the event that such rates do not
appear on Bloomberg Professional, the "LIBOR
Reference Source"
for
purposes of this definition shall be determined by reference to such other
comparable publicly available service for displaying London inter-bank offered
rates as may be selected by the Bank.
"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.
"M/I
Homes Loan Agreement"
shall
mean that certain Amended and Restated Credit Agreement, effective as of
April 22, 2005, among M/I Homes, the lenders party thereto and JPMorgan
Chase Bank, N.A., as agent for such lenders, as heretofore and hereinafter
amended, modified, supplemented and restated, and any agreements under which
the
Indebtedness arising thereunder is refinanced or replaced.
"Mortgage"
shall
mean a mortgage or deed of trust, on standard forms in form and substance
satisfactory to Lender, securing a mortgage note and granting a perfected,
first
priority lien on residential real property consisting of land and a
single-family dwelling thereon which is completed and ready for
occupancy.
"Mortgage
Loan"
shall
mean a mortgage loan which is evidenced by a Mortgage Note and secured by a
Mortgage, together with the rights and obligations of a holder thereof and
payments thereon and proceeds therefrom.
"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, and (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; provided,
the
obligations to repurchase the mortgage loans described in clauses (a)
through (b) 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) 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.
"Obligations"
shall
mean all debts, liabilities and obligations of the Borrowers arising under
any
this Agreement and the Note, and shall also include all fees, expenses and
other
amounts owing to the Bank under this Agreement and the Note. Without limiting
the generality of the foregoing, "Obligations"
includes all amounts which would be owed by either Borrower to the Bank, but
for
the fact that they are unenforceable or not allowable due to the existence
of a
bankruptcy, reorganization or similar proceeding involving either Borrower
(including all such amounts which would become due or would be secured but
for
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of either Borrower under any bankruptcy,
insolvency, reorganization or similar debtor relief law).
"Obligor"
shall
mean the Person or Persons obligated to pay the Indebtedness which is the
subject of a Mortgage Loan.
"Other
Mortgage Sublimit"
shall
mean the amount of $5,000,000.
"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 are listed in Schedule 1
hereto
and Financial shall update the list of secondary market lenders quarterly as
set
forth in subsection 5.11
hereof),
pursuant to an agreement with Financial, either with respect to a particular
mortgage loan or with respect to mortgage loans meeting specified criteria,
to
purchase such mortgage loan or loans without recourse (except for Mortgage
Loan
Repurchase Obligations) for an amount not less than the difference of
(a) the face amount of the note evidencing such mortgage loan(s), minus
(b) the sum of (i) the points agreed upon between Financial and such
secondary market lender, and (ii) the amount of funds (for example, without
limitation, escrow funds and origination fees), other than points, received
by
Financial at the loan closing from the mortgagor.
"ReFi
Sublimit"
shall
mean the amount of $5,000,000.
"Regulation"
shall
mean, with respect to the charging and collecting of interest at the LIBOR
Rate,
any United States federal, state or foreign laws, treaties, rules or regulations
whether now in effect or hereinafter enacted or promulgated (including
Regulation D) or any interpretations, directives or requests applying to a
class of depository institutions including Payee under any United States
federal, state or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof, excluding any change the effect of
which is determined by the Bank to be reflected in a change in the LIBOR
Rate.
"Regulation D"
shall
mean Regulation D of the Board of Governors of the Federal Reserve System,
as from time to time amended or supplemented.
"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.
"Reserve
Requirement"
shall
mean the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained under
Regulation D by member banks of the Federal Reserve System in New York City
with deposits exceeding one billion U.S. Dollars against "Eurocurrency
Liabilities," as such quoted term is used in Regulation D. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by such member banks by reason of any
regulatory change against (a) any category of liabilities which includes
deposits by reference to which the LIBOR Base Rate is to be determined as
provided in this Agreement, or (b) any category of extensions of credit or
other assets which includes loans the interest rate on which is determined
on
the basis of rates referred to in the definition of "LIBOR
Base Rate"
set
forth above
"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.
"Risk
Rating"
shall
mean the risk rating of a mortgage loan determined by the underwriting
guidelines of Financial or other applicable standards of a secondary market
lender to which such mortgage loan is to be sold by Borrowers under a Purchase
Commitment, provided that
such
underwriting guidelines or other applicable standards comply with industry
standards in the sole and commercially reasonable judgment of the
Bank.
"Second
Mortgage Loan"
shall
mean a Mortgage Loan secured by a Mortgage (which creates a second priority
lien
and not a first priority lien) made in the ordinary course of Financial's
business to a natural person or persons for the purchase of residential real
property made in connection with a specific financing program to the natural
person or persons who have a first Mortgage Loan from Financial with respect
to
the same real property.
"Second
Mortgage Sublimit"
shall
mean the amount of $10,000,000.
"Single
Employer Plan"
shall
mean any Plan which is not a Multiemployer Plan (as such term is defined in
ERISA).
"Subprime
Sublimit"
shall
mean the amount of $5,000,000.
"Subsidiary"
shall
mean, with respect to any Person, any corporation, association, partnership,
joint venture, or other business or corporate entity, enterprise or organization
(a) in which such Person holds an ownership interest, directly or indirectly
(through one or more intermediaries), the result of which gives such Person
the
voting power (other than 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 governing body of such organization, association, partnership, joint
venture or other entity, or (b) the management of which is otherwise controlled,
directly or indirectly, through one or more intermediaries, or both, by such
Person.
"Tangible
Net Worth"
shall
mean at any date, with respect to Financial, the total of the capital stock
(net
of treasury stock, if any), paid in surplus, general contingency reserves and
retained earnings (deficit), in each case determined in accordance with GAAP,
minus the following items (without duplication of deductions), if any, appearing
on Financial's balance sheet prepared in accordance with GAAP:
i. The
book
amount of all deferred charges (including specifically deferred income
taxes);
ii. The
book
amount of all assets which would be treated as intangibles under GAAP;
and
iii. 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.
"VA"
shall
mean the Veterans Administration, or any successor thereto.
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)(i) from and including April 27, 2006 through and including
December 14, 2006, $40,000,000, (ii) from and including
December 15, 2006 through and including January 15, 2007, $65,000,000
and (iii) from and including January 16, 2007 through and including
April 26, 2007, $40,000,000, and (b) the Borrowing Base in existence
at such time. During the Commitment Period and as long as no Event of Default
exists, the Borrowers may use the Commitment by borrowing, prepaying the Loans
in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof.
Subject
to the terms and conditions of this Agreement (including the limitations on
the
availability of LIBOR 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) LIBOR 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 LIBOR 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 and (ii) in the case of
LIBOR Rate Loans if permitted hereunder at such time, the LIBOR Rate determined
for each such loan plus one and thirty-five one hundredths percent (1.35%),
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 fifteenth day
of
each month for the period ending on the last day of the immediately preceding
calendar month, beginning with May 15, 2006, and continuing on the 15th 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 and
(ii) in the case of LIBOR Rate Loans, the LIBOR Rate determined for each
such loan plus one and thirty-five one hundredths percent (1.35%) 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 LIBOR 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., central time, for
funding to be made that day) and 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 LIBOR Rate Loan, a Prime Rate
Loan or a combination thereof and (iv) if the borrowing is to be entirely
or partly of a LIBOR Rate Loan, the amount of the Prime Rate Loan, if any,
and
the amount of the LIBOR Rate Loan and the length of the initial Interest Period
therefor. Each borrowing pursuant to the Commitment shall be in the principal
amount (a) in the case of Prime Rate Loans, of $50,000 or any larger
amount, and (b) in the case of LIBOR Rate Loans, of $500,000 or any larger
amount, provided,
however,
with
respect to Prime Rate Loans and LIBOR Rate Loans that no borrowing shall exceed
the then undrawn amount of the Commitment. No more than five (5) LIBOR Rate
Loans shall be outstanding at any time. 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 ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇ office or other national or state bank or trust company which
is organized under the laws of the United Sates of America or any state therein,
which has capital, surplus and undivided profits of at least $500,000,000,
and
whose certificates of deposit have at least the third highest credit rating
given by ▇▇▇▇▇'▇ Investors Service, Inc. as directed by Financial 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-fifth of one percent (1/5%) 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 fifteenth day of each July,
October, January and April for the three-month period ending on the last day
of
the immediately preceding calendar month, 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.
The
Borrowers shall have the right, upon not less than five Business Days' written
notice to the Bank, to terminate the Commitment or, from time to time (and
so
long as no Default exists), reduce the amount of the Commitment, provided that
(i) any such reduction shall be accompanied by prepayment of the Loans made
hereunder, together with accrued interest on the amount so prepaid to the date
of such prepayment, to the extent, if any, that the amount of such Loans then
outstanding exceeds the amount of the Commitment as then reduced, and
(ii) any such termination of the Commitment shall be accompanied by
prepayment in full of the Loans then outstanding hereunder, together with
accrued interest thereon to the date of such prepayment, the payment of any
unpaid commitment fee then accrued hereunder and, if a Loan is a LIBOR Rate
Loan
that is prepaid other than at the end of the Interest Period applicable thereto,
by any amounts payable pursuant to Subsection 2.13,
Indemnity.
Any
such reduction shall be in the amount of $1,000,000 or a whole multiple of
$100,000 in excess thereof and shall reduce permanently the amount of the
Commitment then in effect.
2.6 Computation
of Interest and Fees; Default Interest.
(a) Commitment
fees on the Commitment and interest in respect of the Loans shall be calculated
on the basis of a 360 day year for the actual days elapsed. Any change in the
interest rate on the Note resulting from a change in the Prime Rate, or the
Reserve Requirements or the applicable Assessments shall become effective as
of
the opening of business on the day on which such change in the Prime Rate,
the
Reserve Requirements or the applicable Assessments shall become effective,
without notice to the Borrowers; however,
the
Bank shall give the Borrowers prompt notice of all changes in the Prime Rate,
the Reserve Requirements or the applicable Assessments.
(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
an
Event of Default has occurred and is continuing, the entire unpaid balance
of
the Loans shall bear interest at a rate per annum which is the sum of
(i) three percent (3.0%), and (ii) the rate which would otherwise be
applicable thereto, from the date of such non-payment until paid in full
(before, as well as after, judgment).
2.7 Extension
of Commitment Period.
At any
time during the sixty days immediately preceding the last day of the Commitment
Period, the Borrowers may request in writing that the Bank extend the Commitment
Period for a period not to exceed 364 days and the Bank in its sole discretion
may elect to extend the Commitment Period for such period 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 Period and the 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 Existing Credit Agreement,
if
any. 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 LIBOR
Rate Loans to Prime Rate Loans by giving the Bank prior irrevocable notice
of
such election no later than 3:00 p.m., central time, for conversions to be
made that day, provided that
any such
conversion of LIBOR 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
LIBOR Rate Loans, the Borrowers may elect from time to time to convert
outstanding Loans from Prime Rate Loans to a LIBOR Rate Loan by giving the
Bank
telephonic or written notice (the "Notice
of Conversion")
no
later than 3:00 p.m., central time, on the date of 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 LIBOR Rate Loan. Each conversion from
Prime Rate Loans to a LIBOR Rate Loan shall be in the principal amount of
$500,000 or any larger amount. All or any part of outstanding LIBOR Rate Loans
and Prime Rate Loan may be converted as provided herein, provided that
(i) (unless
the Bank otherwise consents) no Prime Rate Loan may be converted into a LIBOR
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 LIBOR 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 LIBOR Rate Loans, any LIBOR 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 three Business Days prior to the last day of the then current
Interest Period, and which notice shall specify (i) the amount of the LIBOR
Rate Loans to be continued as such and (ii) the length of the Interest
Period for such LIBOR Rate Loans. All or any part of outstanding LIBOR Rate
Loans may be continued as provided herein, provided that
(i) (unless the Bank otherwise consents) no LIBOR Rate Loan may be
continued when any Default or Event of Default has occurred and is continuing
and (ii) no LIBOR Rate Loan may be continued as a LIBOR 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 LIBOR Rate, any LIBOR 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 LIBOR Rate Loans as contemplated by this Agreement, the commitment
of the Bank hereunder to make LIBOR Rate Loans shall forthwith be canceled
and,
until such time as it shall no longer be unlawful for the Bank to make or
maintain LIBOR Rate Loans, the Bank shall then have a commitment only to make
a
Prime Rate Loan when a LIBOR Rate Loan is requested, and the Bank's Loans then
outstanding as LIBOR Rate Loans, if any, shall be converted automatically to
Prime Rate Loans as required by law. If any such conversion of a LIBOR Rate
Loan
occurs on a day which is not the last day of the then current Interest Period
with respect thereto, the Borrowers shall pay to such Bank such amounts, if
any,
as may be required pursuant to subsection 2.13,
Indemnity.
2.12 Requirements
of Law.
If the
adoption of or any change in any Requirement of Law or in the interpretation
or
application thereof applicable to the Bank or compliance by the Bank with any
request or directive (whether or not having the force of law) from any
Governmental Authority, in each case made subsequent to the date
hereof:
(a) shall
(i) subject the Bank to any tax of any kind whatsoever with respect to any
LIBOR Rate Loans made by it or its obligation to make LIBOR 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 LIBOR 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 LIBOR 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 LIBOR 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 LIBOR 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 LIBOR Rate Loans provided for herein over
(ii) the amount of interest (as reasonably determined by the Bank) which
would have accrued to the Bank on such amount by placing such amount on deposit
for a comparable period with leading banks in the interbank eurodollar market.
This covenant shall survive the termination of this Agreement and the payment
of
the Loans and all other amounts payable hereunder.
SECTION
3. REPRESENTATIONS
AND WARRANTIES
In
order
to induce the Bank to enter into the Agreement and to make the Loans herein
provided for, the Borrowers hereby covenant, represent and warrant, jointly
and
severally, to the Bank that on the date hereof:
3.1 Financial
Statements.
Financial has heretofore furnished to the Bank the balance sheet of Financial
as
of December 31, 2005, 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, 2005 to the date hereof,
there has been no material adverse change in such condition.
3.2 Corporate
Existence; Compliance with Law.
Each of
the Borrowers (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, (b) has the
corporate power and authority to conduct the business in which it is currently
engaged, (c) is qualified as a foreign corporation under the laws of any
jurisdiction where the failure to so qualify would have a material adverse
effect on the business of such Borrower, and (d) is in compliance with all
Requirements of Law, except to the extent that the failure to comply therewith
would not, in the aggregate, have a material adverse effect on the business,
operations, property or financial or other condition of such Borrower and would
not materially adversely affect the ability of such Borrower to perform its
obligations under the Agreement and the Note.
3.3 Corporate
Power; Authorization; Enforceable Obligations.
Each of
the Borrowers has the corporate power and authority to make, deliver and perform
the Agreement and the Note and to borrow hereunder and has taken all corporate
action necessary to be taken by it to authorize the borrowings on the terms
and
conditions of the Agreement and the Note and to authorize the execution,
delivery and performance of the Agreement and the Note. No consent, waiver
or
authorization of, or filing with, any Person (including without limitation
any
Governmental Authority), is required to be made or obtained by either of the
Borrowers in connection with the borrowings hereunder or the execution,
delivery, performance, validity or enforceability of the Agreement and the
Note.
The Agreement has been, and the Note will be, duly executed and delivered on
behalf of each of the Borrowers and the Agreement constitutes, and the Note
when
executed and delivered hereunder will constitute, a legal, valid and binding
obligation of each of the Borrowers enforceable against each of the Borrowers
in
accordance with its terms, subject to the effect, if any, of bankruptcy,
insolvency, reorganization, arrangement or other similar laws relating to or
affecting the rights of creditors generally and the limitations, if any, imposed
by the general principles of equity and public policy.
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
"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, other than M/I Title Agency, Ltd. and
Washington/Metro Residential Title Agency, LLC.
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 J. ▇▇▇▇▇▇ ▇▇▇▇▇,
Esq., General Counsel of M/I Homes, dated the date hereof and addressed to
the
Bank, substantially complying with the requirements 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 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 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, 2005 audited financial statements to the first Borrowing
Date.
(j) Hedging
Policy.
The
Bank shall have received Financial's policy and procedures with respect to
hedging transactions, a copy of which shall be attached hereto as Exhibit D
(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.
(l) Fee
Letter.
The
Bank shall have received a fee letter in form and substance acceptable to the
Bank executed by Borrowers.
4.2 Conditions
to All Loans.
The
obligation of the Bank to make any Loan hereunder on any date (including without
limitation the first Borrowing Date) is subject to the satisfaction of the
following conditions precedent as of such date:
(a) Representations
and Warranties.
The
representations and warranties made by each of the Borrowers in the Agreement
and any representations and warranties made by each of the Borrowers which
are
contained in any certificate, document or financial or other statement furnished
at any time under or in connection herewith or therewith, shall be true and
correct in all material respects on and as of the date of such loan as if made
on and as of such date unless stated to relate to a specific earlier
date.
(b) No
Default or Event of Default.
No
Default or Event of Default shall have occurred and be continuing on such date
or after giving effect to the Loan to be made on such date.
Each
borrowing by the Borrowers under the Agreement shall constitute a representation
and warranty by each of the Borrowers as of the date of such borrowing that
the
conditions contained in the foregoing paragraphs (a) and (b) of this
subsection 4.2
have
been satisfied.
SECTION
5. AFFIRMATIVE
COVENANTS
The
Borrowers hereby agree, jointly and severally, that, from the date hereof and
so
long as the Commitment remains in 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 each of Financial and M/I Homes, a copy of the audited balance sheet of
Financial and M/I Homes, respectively, 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 or M/I Homes'
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 each of Financial
and
Mil Homes as at the end of each such month and the related unaudited statements
of income and retained earnings of each of Financial and M/I Homes 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 or M/I Homes, as applicable, as being fairly
stated in all material respects.
All
such
financial statements required by this subsection 5.1
shall be
complete and correct in all material respects and prepared in reasonable detail
and in accordance with GAAP (except, in the case of the financial statements
referred to in subparagraph (b), that such financial statements need not
contain footnotes).
5.2 Certificates;
Other Information.
Furnish
to the Bank:
(a) concurrently
with the delivery of each financial statement referred to in subsection 5.1(a)
above
and each financial statement referred to in subsection 5.1(b)
above, a
summary in form and substance satisfactory to the Bank of the hedging
investments described in subsection 6.5(vi)
hereof,
and a certificate of a Responsible Officer of Financial or M/I Homes, as
applicable (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 or M/I Homes 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, certified by a
Responsible Officer of Financial as being accurate in all material
respects;
(c) promptly
upon receipt thereof, copies of all final reports submitted to Financial by
independent certified public accountants in connection with each annual, interim
or special audit of the books of Financial made by such accountants, including
without limitation any final comment letter submitted by such accountants to
management in connection with their annual audit; and
(d) promptly,
on reasonable notice to Financial, such additional financial and other
information as the Bank may from time to time reasonably request.
5.3 Maintenance
of Existence.
Preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges, contracts,
copyrights, patents, trademarks, trade names and franchises necessary or
desirable in the normal conduct of its business, and comply with all Contractual
Obligations and Requirements of Law, except to the extent that the failure
to
take such actions or comply with such Contractual Obligations and Requirements
of Law would not, in the aggregate, have a material adverse effect on the
business, operations, property or financial or other condition of
Financial.
5.4 Maintenance
of Property, Insurance.
Keep
all property useful in and necessary to its business in good working order
and
condition; maintain with financially sound and reputable 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 to any proposed assignee so long as such assignee agrees
to
the confidentiality restrictions set forth in this section, and the Bank must
disclose such information if required to do so by law (including without
limitation by judicial or administrative process).
5.6 Notices.
Promptly give notice to the Bank:
(a) of
the
occurrence of any Default or Event of Default;
(b) of
any
(i) default under any other Contractual Obligation that would enable the
obligee of the Contractual Obligation to compel Financial to immediately pay
all
amounts owing thereunder or otherwise accelerate payments thereunder and would
have a material adverse effect on Financial, or (ii) litigation,
investigation or proceeding which may exist at any time between Financial and
any Governmental Authority, which, if adversely determined, would have a
material adverse effect on the business, operations, property or financial
or
other condition of Financial;
(c) of
any
litigation or proceeding affecting Financial (i)(A) in which the amount
involved is $100,000 or more and not covered by insurance, or (B) which, in
the reasonable opinion of a Responsible Officer of Financial, would, if
adversely determined, have a material adverse effect on Financial, or
(ii) in which injunctive or similar relief is sought and which, in the
reasonable opinion of a Responsible Officer of Financial, would, if adversely
determined, have a material adverse effect on Financial;
(d) of
the
following events, as soon as possible and in any event within 30 days after
Financial knows or has reason to know thereof: (i) the occurrence of any
Reportable Event with respect to any Plan with respect to which the PBGC has
not
waived the 30 day reporting requirement, or (ii) the institution of
proceedings or the taking or expected taking of any other action by PBGC or
Financial or any Commonly Controlled Entity to terminate or withdraw or
partially withdraw from any Plan under circumstances which could lead to
material liability to the PBGC or, with respect to a Multiemployer Plan, the
Reorganization or Insolvency (as each such term is defined in ERISA) of the
Plan
and in 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
officer or other Responsible Officer of Financial setting forth details of
the
occurrence referred to therein and stating what action Financial proposes to
take with respect thereto. For all purposes of clause (d) of this
subsection 5.6,
Financial shall be deemed to have all knowledge or knowledge of all facts
attributable to the administrator of such Plan if such Plan is a Single Employer
Plan.
5.7 Maintenance
of Tangible Net Worth.
Maintain at all times its Tangible Net Worth in an amount equal to at least
$3,500,000.
5.8 Maintenance
of Liabilities to Tangible Net Worth Ratio.
Maintain at all times a ratio of Liabilities to Tangible Net Worth not in excess
of 10.0 to 1.0.
5.9 Maintenance
of EBIT to Interest Expense Ratio.
Maintain a ratio of EBIT to Interest Expense, determined as of the end of each
monthly accounting period of each fiscal year and as of the end of each fiscal
year, on a rolling 12 month basis (with the period of determination being the
12
month period ending on the date as of which such determination is made), of
not
less than 1.50 to 1.0.
5.10 Collateral.
Promptly provide to 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 Loans, all rights
to
receive payments under or with respect to such Mortgage Loans, all mortgage
notes evidencing such Mortgage Loans, all Mortgages securing such mortgage
notes, all Purchase Commitments relating thereto, and all proceeds of the
foregoing 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) as the Bank shall
reasonably request to perfect the Bank's security interest in such collateral.
Beginning on the fifth (5th) day after the funding of a Mortgage Loan, each
such
mortgage note, and the related mortgage (or a certified copy thereof) and
Purchase Commitment, shall be held by Financial at its address set forth in
Section 8.2,
unless
they have been delivered to the Bank or to a secondary market
lender.
5.11 Secondary
Market Lenders.
(a) Provide to the Bank on the first Business Day of each calendar quarter,
commencing on June 1, 2006, 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 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 at any time outstanding, which are being
diligently contested in good faith, which are not the subject of any attachment,
levy or enforcement proceeding, and as to which appropriate reserves have been
established in accordance with GAAP;
(g) Liens
to
secure purchase money obligations and capitalized leases, provided that the
aggregate amount of the obligations secured by such Liens shall not exceed
$250,000 at any time; 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.
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) Eligible Mortgage Loans,
(ii) Cash Equivalents, (iii) 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 (iv) 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 other than M/I Title Agency, Ltd. and Washington/Metro
Residential Title Agency, LLC.
6.7 Prohibition
on Changes in Hedging Policy.
Amend
or modify Financial's policy or procedures with respect to hedging transactions,
in any material respect, from the Hedging Policy provided to the Bank pursuant
to subsection 4.1(j)
hereof
and attached hereto as Exhibit D.
6.8 Incorporation
of Covenants from M/I Homes Loan Agreement.
Without
limitation of any thing contained herein, each of the covenants set forth in
Sections 6.11,
6.12
and
6.13
of the
M/I Homes Loan Agreement, as in effect on the date hereof, are incorporated
herein by this reference and shall be treated for all purposes as being included
in this Agreement; provided that any modification of any such covenant pursuant
to the M/I Homes Loan Agreement which causes it to be more favorable to Bank
shall automatically be incorporated herein. No other modification of such
covenants shall be incorporated herein unless the Bank agrees thereto in
writing. Any violation or breach of any such covenant shall be a violation
or
breach of this Agreement and the Bank shall have all rights and remedies with
respect thereto that are available hereunder, under the Note and under
applicable law.
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 hereof; 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 (3) days after
the
date when due in accordance with the terms thereof or hereof; or
(3) any
representations or warranty made or deemed made by the Borrowers herein or
which
is contained in any certificate, document or financial or other written
statement furnished at any time under or in connection herewith or therewith
shall prove to have been incorrect in any material respect on or as of the
date
made or deemed made; or
(4) (a) Financial
shall commence any case, proceeding or other action (i) under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its
debts, or (ii) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its assets,
or Financial shall make a general assignment for the benefit of its creditors;
or (b) there shall be commenced against Financial any case, proceeding or
other action of a nature referred to in clause (a) above which
(i) results in the entry of an order for relief or any such adjudication or
appointment, and (ii) remains undismissed, undischarged or unbonded for a
period of 60 days; or (c) there shall be commenced against Financial any
case, proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part
of
its assets which results in the entry of an 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 top 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 "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 or more and all
such judgments or decrees in excess of $200,000 shall not have been vacated,
satisfied, discharged, or stayed or bonded pending appeal within 30 days from
the entry thereof; or
(8) M/I
Homes
shall cease to own directly one hundred percent (100%) of all of the issued
and
outstanding stock of Financial; or
(9) any
Borrowing Base Certificate required to be furnished to the Bank in accordance
with subsection 5.2(b)
hereof
indicates that the principal amount of the Loans then outstanding exceeds the
Commitment then permitted hereunder and, within five calendar days after the
delivery of such Borrowing Base Certificate to the Bank, the Borrowers have
not
cured this event by (a) the reduction of the principal amount of the Loans
then outstanding to an amount not in excess of the Commitment then permitted
hereunder, or (b) the delivery to the Bank of a more current Borrowing Base
Certificate that demonstrates that the principal amount of the Loans outstanding
as of the date of such Borrowing Base Certificate is not in excess of the
Commitment permitted hereunder at such time; or
(10) there
is
a Default or an Event of Default (as those terms are defined in the M/I Homes
Loan Agreement) under the M/I Homes Loan Agreement or any one or more of the
Notes (as that term is defined in the M/I Homes Loan Agreement), M/I Homes
defaults in the payment or compliance with the terms of 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 any collateral shall be pledged to secure the M/I Homes Loan
Agreement;
then,
and
in any such event, (a) if such event is an Event of Default specified in
subsection (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 Obligations owing under this 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; Acknowledgments.
(a) 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.
(b) Each
of
Financial and M/I Homes hereby represents, warrants, acknowledges and admits
that (i) it has been advised by counsel in the negotiation, execution, and
delivery of this Agreement, (ii) it has made an independent decision to
enter into this Agreement, without reliance on any representation, warranty,
covenant or undertaking by Bank, whether written, oral or implicit, other than
as expressly set out in this Agreement, (iii) there are no representations,
warranties, covenants, undertakings or agreements by Bank except as expressly
set out in this Agreement, (iv) Lender has no fiduciary duty to any of
Financial or M/I Homes with respect to the transactions contemplated hereby,
(v) the relationship pursuant hereto between Borrowers, on one hand, and
Lender, on the other hand, is and shall be solely that of debtor and creditor
respectively, (vi) no partnership or joint venture exists with respect
hereto between the Borrowers and Lender, (vii) should an Event of Default
or Default occur or exist, Lender will determine in its sole discretion and
for
its own reasons what remedies and actions it will or will not exercise or take
at that time, (viii) without limiting any of the foregoing, Borrowers are
not relying upon any representation or covenant by Lender, or any representative
thereof, and no such representation or covenant has been made, that Lender
will,
at the time of an Event of Default or Default, or at any other time, waive,
negotiate, discuss, or take or refrain from taking any action permitted
hereunder with respect to any such Event of Default or Default or any other
provision hereof and (ix) Lender has relied upon the truthfulness of the
acknowledgments in this section in deciding to execute and deliver this
Agreement.
(c) This
written agreement represents the final agreement between the parties and may
not
be contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties.
there
are no unwritten oral agreements between the parties.
8.2 Notices.
All
notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing or by telecopy or other electronic facsimile
and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered by hand, or when deposited in the United States
Mail, Registered or Certified, Return Receipt Requested, postage prepaid, or,
in
the case of telecopy or other electronic facsimile notice, when receipt thereof
is confirmed by sender's electronic facsimile machine, addressed as follows
in
the case of the Borrowers and the Bank, or to such address or other address
as
may be hereafter notified by the respective parties hereto and any future
holders of the Note:
Financial: M/I
Financial Corp.
▇
▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇▇ ▇. Creek
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
with
a
copy to: J. ▇▇▇▇▇▇
▇▇▇▇▇, Esq.
M/I
Homes, Inc.
▇
▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
M/I
Homes: M/I
Homes, Inc.
▇
▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇
▇.
▇▇▇▇▇▇▇▇▇▇▇▇▇
with
a
copy to: ▇▇▇▇▇▇▇
▇. Creek
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
with
a
copy to: J. ▇▇▇▇▇▇
▇▇▇▇▇, Esq.
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
The
Bank: Guaranty
Bank
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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.
8.5 Payment
of Expenses; Indemnity.
(a) Payment
of Expenses.
Borrowers will promptly (and in any event, within 30 days after any invoice
or
other statement or notice) pay: (i) all transfer, stamp, mortgage,
documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any other
document referred to herein, and (ii) all reasonable costs and expenses
incurred by or on behalf of Lender, including attorneys' fees, advisors' fees,
travel costs and miscellaneous expenses, in connection with (A) the
negotiation, preparation, execution and delivery of this Agreement, and any
and
all consents, amendments, waivers or other documents or instruments relating
hereto, (B) the borrowing hereunder and other action reasonably required in
the course of administration hereof, (C) monitoring or confirming (or
preparation or negotiation of any document related to) Borrowers' compliance
with any covenants or conditions contained in this Agreement, or (D) the
defense or enforcement of this Agreement or the defense of Lender's exercise
of
its right hereunder.
(b) Indemnity.
Borrowers agree to indemnify Lender, upon demand, from and against any and
all
liabilities, obligations, claims, losses, damages, penalties, fines, actions,
judgments, suits, settlements, costs, expenses or disbursements (including
reasonable fees of attorneys, accountants, experts and advisors) of any kind
or
nature whatsoever (in this section collectively called "liabilities and costs")
which to any extent (in whole or in part) may be imposed on, incurred by, or
asserted against Lender growing out of, resulting from or in any other way
associated with this Agreement and the transactions and events (including the
enforcement or defense thereof) at any time associated herewith or contemplated
herein.
The
foregoing indemnification shall apply whether or not such liabilities and costs
are in any way or to any extent owed, in whole or in part, under any claim
or
theory of strict liability, or are caused, in whole or in part, by any negligent
act or omission of any kind by Lender,
provided
only
that Lender shall not be entitled under this section to receive indemnification
for that portion, if any, of any liabilities and costs which is proximately
caused by its own individual gross negligence or willful misconduct, as
determined in a final judgment. If any Person (including Borrowers or any of
their affiliates) ever alleges such gross negligence or willful misconduct
by
Lender, the indemnification provided for in this section shall nonetheless
be
paid upon demand, subject to later adjustment or reimbursement, until such
time
as a court of competent jurisdiction enters a final judgment as to the extent
and effect of the alleged gross negligence or willful misconduct. As used in
this section the term "Lender"
shall
refer not only to Lender but also each director, officer, agent, attorney,
employee, representative and affiliate of Lender.
8.6 Obligations
Joint and Several.
(a) Each
Borrower shall be jointly and severally liable for all of the obligations of
the
Borrowers under this Agreement, regardless of which Borrower actually receives
the proceeds of the Loans or the benefit of any other extensions of credit
hereunder, or the manner in which the Borrowers or the Bank account therefor
in
their respective books and records.
(b) Each
Borrower acknowledges that it will enjoy significant benefits from the business
conducted by the other Borrower because of, inter alia,
their
combined ability to bargain with other Persons including without limitation
their ability to receive the credit extensions under this Agreement, which
would
not have been available to an individual Borrower acting alone. Each Borrower
has determined that it is in its best interest to procure the credit facilities
contemplated hereunder, with the credit support of the other Borrower as
contemplated by this Agreement.
(c) The
Bank
advised the Borrowers that it is unwilling to enter into this Agreement and
make
available the credit facilities extended hereby or thereby to a Borrower unless
the other Borrower agrees, among other things, to be jointly and severally
liable for the due and proper payment of the Loans of the other Borrower under
this Agreement. Each Borrower has determined that it is in its best interest
and
in pursuit of its purposes that it so induce the Bank to extend credit pursuant
to this Agreement (i) because of the desirability to each Borrower of the
credit facilities hereunder and the interest rates and the modes of borrowing
available hereunder, (ii) because each Borrower may engage in transactions
jointly with other Borrower, and (iii) because each Borrower may require,
from time to time, access to funds under this Agreement for the purposes herein
set forth. Each Borrower, individually, expressly understands, agrees and
acknowledges, that the credit facilities contemplated hereunder would not be
made available on the terms herein in the absence of the collective credit
of
the Borrowers, and the joint and several liability of all such Persons
hereunder. Accordingly, each Borrower individually acknowledges that the benefit
of the accommodations made under this Agreement to the Borrowers as a whole
constitutes reasonably equivalent value, regardless of the amount of the
indebtedness actually borrowed by, advanced to, or the amount of credit provided
to, or the amount of collateral provided by, any individual
Borrower.
(d) Each
Borrower has determined that it has and, after giving effect to the transactions
contemplated by this Agreement (including, without limitation, the
inter-Borrower arrangement set forth in this Section) will have, assets having
a
fair saleable value in excess of the amount required to pay its probable
liability on its existing debts as they fall due for payment and that the sum
of
its debts is not and will not then be greater than all of its property at a
fair
valuation, that such Borrower has, and will have, access to adequate capital
for
the conduct of its business and the ability to pay its debts from time to time
incurred in connection therewith as such debts mature and that the value of
the
benefits to be derived by such Borrower from the access to funds under this
Agreement (including, without limitation, the inter-Borrower arrangement set
forth in this Section) in reasonably equivalent to the obligations undertaken
pursuant hereto.
(e) To
the
extent that applicable law otherwise would render the full amount of the joint
and several obligations of any Borrower hereunder invalid or unenforceable,
such
Borrower's obligations hereunder shall be limited to the maximum amount which
does not result in such invalidity or unenforceability; provided,
however,
that
each Borrower's obligations hereunder shall be presumptively valid and
enforceable to their fullest extent in accordance with the terms hereof, as
if
this Section were not a part of this Agreement.
(f) To
the
extent that either Borrower shall make a payment under this Section of all
or
any of the Obligations (other than credit facilities made to that Borrower
for
which it is primarily liable) (a "Joint
Liability Payment")
which,
taking into account all other Joint Liability Payments then previously or
concurrently made by the other Borrower, exceeds the amount which such Borrower
would otherwise have paid if each Borrower had paid the aggregate Obligations
satisfied by such Joint Liability Payments in the same proportion that such
Borrower's "Allocable
Amount"
(as
defined below) (as determined immediately prior to such Joint Liability
Payments) bore to the aggregate Allocable Amounts of each of the Borrowers
as
determined immediately prior to the making of such Joint Liability Payments,
then, following indefeasible payment in full in cash of the Obligations and
termination of the Commitment, such Borrower shall be entitled to receive
contribution and indemnification payments from, and be reimbursed by, the other
Borrower for the amount of such excess, pro rata based upon their respective
Allocable Amounts in effect immediately prior to such Joint Liability Payments.
As of any date of determination, the "Allocable
Amount"
of
either Borrower shall be equal to the maximum amount of the claim which could
then be recovered from such Borrower under this Section without rendering such
claim voidable or avoidable under Section 548 of Chapter 11 of the
Bankruptcy Code or under any applicable state Uniform fraudulent Transfer Act,
Uniform Fraudulent Conveyance Act or similar statute or common law.
(g) The
Bank
is hereby authorized, without notice or demand and with affecting the liability
of the other Borrower hereunder, to, at any time and from time to time,
(i) renew, extend or otherwise increase the time for payment of the
Obligations; (ii) accept partial payments of the Obligations; and
(iii) settle, release, compromise, collect or otherwise liquidate the
Obligations in any manner, without affecting or impairing the obligations of
either Borrower. Except as specifically provided in this Agreement, the Bank
shall have the exclusive right to determine the time and manner of application
of any payments or credits, whether received from either Borrower or any other
source, and such determination shall be binding on both Borrowers. All such
payments and credits may be applied, reversed and reapplied, in whole or in
part, to any of the Obligations. The Bank shall determine in its sole discretion
without affecting the validity or enforceability of the Obligations of the
other
Borrower.
(h) Each
Borrower hereby agrees that, except as hereinafter provided, its obligations
hereunder shall be unconditional, irrespective of (i) the absence of any
attempt to collect the Obligations from any obligor or other action to enforce
the same; (ii) the waiver or consent by the Bank with respect to any
provision of any instrument evidencing the Obligations, or any part thereof,
or
any other agreement heretofore, now or hereafter executed by either Borrower
and
delivered to the Bank; (iii) failure by the Bank to preserve its rights
with respect to the Obligations; (iv) the institution of any proceeding
under the United States Bankruptcy Code, or any similar proceeding, by or
against either Borrower or the Bank's election in any such proceeding of the
application of Section 1111(b)(2) of the United States Bankruptcy Code;
(v) any borrowing or grant of a security interest by either Borrower as
debtor-in-possession, under Section 364 of the United States Bankruptcy
Code; (vi) the disallowance, under Section 502 of the United States
Bankruptcy Code, or all or any portion of the Bank's claim(s) for repayment
of
any of the Obligations; or (vii) any other circumstance other than payment
in full of the Obligations which might otherwise constitute a legal or equitable
discharge or defense of a guarantor or surety.
(i) Until
all
Obligations have been paid and satisfied in full and the Commitment hereunder
is
terminated, no payment made by or for the account of either Borrower including,
without limitation, a payment made by such Borrower on behalf of the liabilities
of the other Borrower shall entitle such Borrower, by subrogation or otherwise,
to any payment from the other Borrower or from or out of the other Borrower's
property and such Borrower shall not exercise any right or remedy against the
other Borrower or any property of the other Borrower by reason of any
performance of such Borrower of its joint and several obligations
hereunder.
(j) Any
notice given by one Borrower hereunder shall constitute and be deemed to be
notice given by both Borrowers, jointly and severally. Notice given by the
Bank
to any one Borrower hereunder in accordance with the terms hereof shall
constitute notice to each Borrower. The knowledge of one Borrower shall be
imputed to the other Borrower and any consent by one Borrower shall constitute
the consent of and shall bind the other Borrower.
(k) This
Section is intended only to define the relative rights of the Borrowers and
nothing set forth in this Section is intended to or shall impair the obligations
of the Borrowers, jointly and severally, to pay any amounts as and when the
same
shall become due and payable in accordance with the terms of this Agreement.
Nothing contained in this Section shall limit the liability of either Borrower
to pay the credit facilities made directly or indirectly to that Borrower and
accrued interest, fees and expenses with respect thereto for which such Borrower
shall be primarily liable.
(l) The
parties hereto acknowledge that the rights of contribution and indemnification
hereunder shall constitute assets of each Borrower to which such contribution
and indemnification is owing. The rights of either indemnifying Borrower against
the other Borrower under this Section shall be exercisable upon the full and
indefeasible payment of the Obligations and the termination of the credit
facilities hereunder.
(m) This
Agreement is a primary and original obligation of each of the Borrowers and
each
of the Borrowers shall be liable for all existing and future Obligations of
any
other Borrower as fully as if such Obligations were directly incurred by such
Borrower.
(n) Each
Borrower, as joint and several primary obligor of the Obligations directly
incurred by the other Borrower, authorizes the Bank, without giving notice
to
such Borrower or obtaining such Borrower's consent or any other Borrower's
consent and without affecting the liability of such Borrower for the Obligations
directly incurred by the other Borrower, from time to time to:
(i) compromise,
settle, renew, extend the time for payment, change the manner or terms of
payment, discharge the performance of, decline to enforce, or release all or
any
of the Obligations; grant other indulgences to the other Borrower in respect
thereof; or modify in any manner any documents relating to the
Obligations;
(ii) declare
all Obligations due and payable upon the occurrence and during the continuance
of an Event of Default;
(iii) apply
payments received by the Bank from either Borrower to any Obligations, in such
order as the Bank shall determine, in its sole discretion; and
(iv) exercise,
in its sole discretion, any right, remedy or combination thereof which may
then
be available to the Bank, since it is such Borrower's intent that the
Obligations be absolute, independent and unconditional obligations of such
Borrower under all circumstances.
(o) Each
Borrower further agrees that its obligations hereunder shall not be impaired
in
any manner whatsoever by any bankruptcy, extensions, moratoria or other relief
granted to the other Borrower pursuant to any statute presently in force or
hereafter enacted.
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.
Lender may at any time assign all or a portion of its rights and obligations
under this Agreement; provided if at the time of such an assignment, no Default
has occurred and is continuing, such assignment shall not be made without the
prior written consent of Borrowers, which consent shall not be unreasonably
withheld.
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 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, Punitive Damages, etc.
Borrowers
and Lender hereby knowingly, voluntarily, intentionally, and irrevocably
(a) waive, to the maximum extent not prohibited by law, any right to a
trial by jury in respect of any litigation based hereon, or directly or
indirectly at any time arising out of, under or in connection with this
Agreement, the Note or any transaction contemplated hereby and thereby or
associated herewith and therewith, before or after maturity; (b) waives, to
the maximum extent not prohibited by law, any right it may have to claim or
recover in any such litigation any "Special Damages", as defined below;
certifies that no party hereto nor any representative of Lender or counsel
for
any party hereto has represented, expressly or otherwise, or implied that such
party would not, in the event of litigation, seek to enforce the foregoing
waivers; and (d) acknowledges that it has been induced to enter into this
Agreement, the Note and the transactions contemplated hereby and thereby by,
among other things, the mutual waivers and certifications contained in this
section. as used in this section, "Special
Damages"
includes all special, consequential, exemplary, or punitive damages (regardless
of how named), but does not include any payments or funds which any party hereto
has expressly promised to pay or deliver to any other party
hereto.
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; Submission to Process.
This
Agreement and the Note shall be deemed contracts and instruments made under
the
laws of the State of Texas and shall be construed as enforced in accordance
with
and governed by the laws of the State of Texas and the laws of the United States
of America, without regard to principles of conflicts of law. Each of financial
and M/I Homes hereby irrevocably submits itself to the non-exclusive
jurisdiction of the state and federal courts sitting in the State of Texas
and
agrees and consents that service of process may be made upon it in any legal
proceeding relating hereto or the note by any means allowed under Texas or
federal law. The parties hereto hereby waive and agree not to assert, by way
of
motion, as a defense or otherwise, that any proceeding arising out of or in
any
way related hereto or the Note is brought in an inconvenient forum or that
the
venue thereof is improper, and further agree to a transfer of any such
proceeding to a federal court sitting in the State of Texas to the extent that
it has subject matter jurisdiction, and otherwise to a state court in the County
of Dallas, Texas. In furtherance thereof, Borrowers and Lender each hereby
acknowledge and agree that it was not inconvenient for them to negotiate and
receive funding of the transactions contemplated by this Agreement in such
county and that it will be neither inconvenient nor unfair to litigate or
otherwise resolve any disputes or claims in a court sitting in such
county.
8.12 Limitation
on Interest.
Lender
and Borrowers intend to contract in strict compliance with applicable usury
law
from time to time in effect. In furtherance thereof such Persons stipulate
and
agree that none of the terms and provisions contained herein or in the Note
shall ever be construed to create a contract to pay, for the use, forbearance
or
detention of money, interest in excess of the maximum amount of interest
permitted to be charged by applicable law from time to time in effect. Neither
Borrowers nor any present or future guarantors, endorsers, or other Persons
hereafter becoming liable for payment of any obligation hereunder or under
the
Note shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable law from time to time in effect, and the
provisions of this section shall control over all other provisions herein or
in
the Note which may be in conflict or apparent conflict herewith. Lender
expressly disavows any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any obligation
hereunder or under the Note is accelerated. If (a) the maturity of any
obligation hereunder or under the Note is accelerated for any reason,
(b) any obligation hereunder or under the Note is prepaid and as a result
any amounts held to constitute interest are determined to be in excess of the
legal maximum, or (c) Lender or any other holder of any or all of the
obligations hereunder or under the Note shall otherwise collect moneys which
are
determined to constitute interest which would otherwise increase the interest
on
any or all of the obligations hereunder or under the Note to an amount in excess
of that permitted to be charged by applicable law then in effect, then all
sums
determined to constitute interest in excess of such legal limit shall, without
penalty, be promptly applied to reduce the then outstanding principal of the
related obligations hereunder or under the Note or, at Lender's or holder's
option, promptly returned to Borrowers or the other payor thereof upon such
determination. In determining whether or not the interest paid or payable,
under
any specific circumstance, exceeds the maximum amount permitted under applicable
law, Lender and Borrowers (and any other payors thereof) shall to the greatest
extent permitted under applicable law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize, prorate,
allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the obligations hereunder or
under the Note in accordance with the amounts outstanding from time to time
thereunder and the maximum legal rate of interest from time to time in effect
under applicable law in order to lawfully charge the maximum amount of interest
permitted under applicable law. In the event applicable law provides for an
interest ceiling under Chapter 303 of the Texas Finance Code (the
"Texas
Finance Code")
as
amended, for that day, the ceiling shall be the "weekly ceiling" as defined
in
the Texas Finance Code; provided that if any applicable law permits greater
interest, the law permitting the greatest interest shall apply. As used in
this
section the term "applicable law" means the laws of the State of Texas including
the laws of the United States of America, as such laws now exist or may be
changed or amended or come into effect in the future.
8.13 Amendment
and Restatement.
This
Agreement amends and restates the Existing Credit Agreement in its
entirety.
8.14 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 has been intentionally left blank.]
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.
|
GUARANTY
BANK
By: /s/
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇▇
Senior
Vice President
|
M/I
FINANCIAL CORP.
By:/s/
▇▇▇▇▇▇▇ ▇. Creek
▇▇▇▇▇▇▇
▇. Creek
Chief
Financial Officer and Treasurer
|
|
M/I
HOMES, INC.
By:
/s/
▇▇▇▇▇▇▇ ▇. Creek
▇▇▇▇▇▇▇
▇. Creek
Senior
Vice President, Chief
Financial
Officer and Assistant Secretary
|
SCHEDULE
1
SECONDARY
MARKET LENDERS
|
▇▇▇▇▇
Fargo Home Mortgage
▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
Countrywide
Funding Corp.
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
|
|
Astoria
Federal Savings
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
Huntington
Mortgage Company
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
|
|
Fifth
Third Bank
▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
|
▇▇▇▇▇▇▇
Mac (FHLMC)
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
|
|
▇▇▇▇▇▇
Mae (FNMA)
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
|
Unizan
Bank
▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
|
|
National
City
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
Washington
Mutual
▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
|
CitiMortgage,
Inc.
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
▇▇
Bank
▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
|
|
Chase
Manhattan Mortgage Corp.
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
Guaranty
Residential Lending
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
|
GMAC
Bank
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
Universal
Savings Bank
▇▇▇▇
▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
EXHIBIT
A
REVOLVING
LOAN PROMISSORY NOTE
$65,000,000.00 Dallas,
Texas April
27,
2006
FOR
VALUE
RECEIVED, the undersigned M/I FINANCIAL CORP. and M/I HOMES, INC. ("Borrowers"),
jointly and severally promise to pay to the order of GUARANTY BANK (herein
called "Bank"),
the
principal sum of Sixty-Five Million and No/100 Dollars ($65,000,000.00) or,
if
less, the aggregate unpaid principal amount of the Loans made under this
Note by
Bank to Borrowers pursuant to the terms of the Loan Agreement (as hereinafter
defined), together with interest on the unpaid principal balance thereof
as
hereinafter set forth, both principal and interest payable as herein provided
in
lawful money of the United States of America at the offices of the Bank,
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ or at such other place within Dallas
County, Texas, as from time to time may be designated by the holder of this
Note.
This
Note
(a) is issued and delivered under that certain First Amended and Restated
Revolving Credit Agreement of even date herewith among Borrowers and Bank
(herein, as from time to time supplemented, amended or restated, called the
"Loan
Agreement"),
and
is the Note as defined therein, and (b) is subject to the terms and
provisions of the Loan Agreement, which contains provisions for payments
and
prepayments hereunder and acceleration of the maturity hereof upon the happening
of certain stated events. Payments on this Note shall be made and applied
as
provided herein and in the Loan Agreement. Reference is hereby made to the
Loan
Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned
to
terms used and not defined herein.
On
the
fifteenth (15th) day of each calendar month, beginning on May 15, 2006,
Borrower shall pay to the holder hereof all unpaid interest which has accrued
on
the Loans through and including the last day of the immediately preceding
calendar month. The principal amount of this Note, together with all interest
accrued hereon, shall be due and payable in full on the last day of the
Commitment Period which, if it does not occur sooner pursuant to the terms
of
the Loan Agreement, or if it is not extended pursuant to subsection 2.7,
Extension of Commitment Period, of the Loan Agreement, shall be April 26,
2007.
Prime
Rate Loans (exclusive of any past due principal or interest) from time to
time
outstanding shall bear interest on each day outstanding at the Prime Rate
in
effect on such day. LIBOR Rate Loans (exclusive of any past due principal
or
interest) from time to time outstanding shall bear interest on each day
outstanding at the LIBOR Rate determined for such day plus one and thirty-five
one-hundredths percent (1.35%). Notwithstanding the foregoing provisions
of this
paragraph, if an Event of Default has occurred and is continuing, all Loans
from
time to time outstanding shall bear interest on each day outstanding at a
rate
per annum which is the sum of (i) three percent (3.0%), 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), and
such
interest shall be due and payable immediately as it accrues. Notwithstanding
the
foregoing provisions of this paragraph, if at any time the rate at which
interest is payable on this Note exceeds the maximum nonusurious rate of
interest Bank is permitted to contract for, take, charge, or receive with
respect to the Loans (the "Maximum
Rate"),
this
Note shall bear interest at the Maximum Rate only but shall continue to bear
interest at the Maximum Rate until such time as the total amount of interest
accrued hereon equals (but does not exceed) the total amount of interest
which
would have accrued hereon had there been no Maximum Rate applicable
hereto.
Notwithstanding
the foregoing paragraph and all other provisions of this Note, in no event
shall
the interest payable hereon, whether before or after mat city, exceed the
maximum amount of interest which, under applicable law, may be charged on
this
Note, and this Note is expressly made subject to the provisions of the Loan
Agreement which more fully set out the limitations on how interest accrues
hereon. In the event applicable law provides for a ceiling under
Section 303 of the Texas Finance Code, that ceiling shall be the weekly
rate ceiling and shall be used in this Note for calculating the Maximum Rate
and
for all other purposes. The term "applicable law" as used in this Note shall
mean the laws of the State of Texas or the laws of the United States, whichever
laws allow the greater interest, as such laws now exist or may be changed
or
amended or come into effect in the future.
If
this
Note is placed in the hands of an attorney for collection after default,
or if
all or any part of the indebtedness represented hereby is proved, established
or
collected in any court or in any bankruptcy, receivership, debtor relief,
probate or other court proceedings, Borrower and all endorsers, sureties
and
guarantors of this Note jointly and severally agree to pay reasonable attorneys'
fees and collection costs to the holder hereof in addition to the principal
and
interest payable hereunder.
Borrower
and all endorsers, sureties and guarantors of this Note hereby severally
waive
demand, presentment, notice of demand and of dishonor and nonpayment of this
Note, protest, notice of protest, notice of intention to accelerate the maturity
of this Note, declaration or notice of acceleration of the maturity of this
Note, diligence in collecting, the bringing of any suit against any party
and
any notice of or defense on account of any extensions, renewals, partial
payments or changes in any manner of or in this Note or in any of its terms,
provisions and covenants, or any releases or substitutions of any security,
or
any delay, indulgence or other act of any trustee or any holder hereof, whether
before or after maturity.
No
waiver
by Bank of any of its rights or remedies hereunder or under any other document
evidencing or securing this Note or otherwise shall be considered a waiver
of
any other subsequent right or remedy of Bank; no delay or omission in the
exercise or enforcement by Bank of any rights or remedies shall ever by
construed as a waiver of any right or remedy of Bank; and no exercise or
enforcement of any such rights or remedies shall ever be held to exhaust
any
right or remedy of Bank.
THIS
NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED BY
THE
LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY
APPLICABLE FEDERAL LAW.
|
M/I
FINANCIAL CORP.
By:
/s/
▇▇▇▇▇▇▇ ▇. Creek
▇▇▇▇▇▇▇
▇. Creek
Chief
Financial Officer and Treasurer
|
M/I
HOMES, INC.
By:/s/
▇▇▇▇▇▇▇ ▇. Creek
▇▇▇▇▇▇▇
▇. Creek
Senior
Vice President, Chief
Financial
Officer and Assistant
Secretary
|
EXHIBIT
B
OUTLINE
OF LEGAL OPINION
The
legal
opinion should generally opine as to the following matters regarding the
Borrowers:
1. Due
incorporation and valid corporate existence;
2. Requisite
corporate power and authority for execution, delivery and performance of
the
loan documents and for business conduct;
3. Due
authorization of the loan documents;
4. Compliance
with the loan documents will not violate, conflict, breach or cause a default
under corporate legislation or material agreements; and
5. Receipt
of all necessary license, permits, etc. to carry out the loan
documents.
6. Federal
courts sitting in the State of Ohio and Ohio courts should give effect to
the
choice of the laws of the State of Texas to govern the Agreement and the
Note.
EXHIBIT
C
FORM
OF COMPLIANCE CERTIFICATE
[Letterhead
of M/I-Financial Corp.]
[Date]
▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Guaranty
Bank
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Dear
▇▇▇▇▇▇:
This
letter is to comply with Section 5.2(a),
Certificates, Other Information, related to the First Amended and Restated
Revolving Credit Agreement dated April 27, 2006 (as amended, the
"Revolving
Credit Agreement")
and is
for the period ending [Insert Appropriate Period] except the calculations
for
EBIT and Interest Expense have been calculated for the rolling 12 month period
indicated on the attached statement. Capitalized terms used but not defined
have
the meanings given to such terms in the Revolving Credit Agreement.
The
undersigned certifies that, after due examination by the undersigned and
to the
best of my knowledge, M/I Financial Corp. during the period stated above
has
observed or performed in all material respects all of its covenants and the
agreements, and satisfied every condition, contained in the Revolving Credit
Agreement and Note to be observed, performed or satisfied by it, and that
the
undersigned has no knowledge of any Default of Event of Default except [List
any
defaults or events of defaults; if none, end sentence before
"except."]
Additionally,
I have enclosed a statement showing in detail the calculation of certain
sections of the Revolving Credit Agreement as required in the Revolving Credit
Agreement. All figures in this calculation are as of the end of the accounting
period stated in the first paragraph of this letter. The undersigned certifies
that the enclosed calculation is accurate in all material respects.
Certified
by:
Name
Printed, Title
Enclosure:
Statement
of Calculation of Certain Covenants
M/I
FINANCIAL CORP.
STATEMENT
OF CALCULATION OF CERTAIN COVENANTS
[Date]
Capitalized
terms used but not defined in this Compliance Certificate shall have the
meanings specified in the Revolving Credit Agreement.
|
Subsection
No.
|
Covenant
|
|
|
1.
|
5.7,
page 22
|
M/I
Financial must maintain at all times its Tangible Net Worth equal
to at
least $3,500,000.
|
|
M/I
Financial's Tangible Net Worth = $_______________
|
||
|
2.
|
5.8,
page 22
|
M/I
Financial must maintain at all times a ratio of Liabilities to
Tangible
Net Worth not in excess of 10.0 to 1.0.
|
|
M/I
Financial's Liabilities = $______________
|
||
|
M/I
Financial's Tangible Net Worth (from line 1) = $__________
|
||
|
Ratio
of Liabilities to Tangible Net Worth = ___:___.
|
||
|
3.
|
5.9,
page 22
|
M/I
Financial must 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
to which
such determination is made), of not less than 1.50 to 1.0.
|
|
EBIT
for the 12 month period beginning ______________ and ending ____________
=
$______________.
|
||
|
Interest
Expense for the 12 month period beginning _____________ and ending
_______________ = $__________
|
||
|
Ratio
of EBIT to Interest Expense = ___:___.
|
||
|
4.
|
6.3,
page 24
|
M/I
Financial may not incur any Contingent Obligations, except as specifically
stated:
|
|
In
making first mortgage loans permitted under the Revolving Credit
Agreement, M/I Financial may, 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. Aggregate amount of certificates of deposit
=
$________________.
|
||
|
Other
Contingent Obligations = $______________.
|
||
|
5.
|
6.5,
pages 24
|
M/I
Financial may not make any investments except as specifically
stated:
|
|
(i) Eligible
Mortgage Loans:
(a) First
mortgage loans in the ordinary course of M/I Financial's business
to
natural persons for the purchase of residential real
property=$_______.
(b) First
mortgage loans made by M/I Financial for the purpose of homes from
any
Person other than M/I Homes=$________________.
The
amount of mortgage loans in (b) cannot exceed $5,000,000 in aggregate
at
any one time outstanding.
(c) First
mortgage loans in the ordinary course of M/I Financial's business
to
natural persons to refinance an existing first mortgage
loan=$___________.
The
amount of first mortgage loans in (c) cannot exceed $5,000,000
in
aggregate at any one time outstanding.
(d) CD
Enhanced loans in the ordinary course of M/I Financial's
business=$______________.
The
amount of CD Enhanced loans in (d) cannot exceed $5,000,000 in
aggregate
at any one time outstanding.
(e) Second
mortgage loans in the ordinary course of M/I Financial's business
to
natural persons for the purchase of residential real
property=$__________.
The
amount of mortgage loans in (e) cannot exceed $10,000,000 in aggregate
at
any one time outstanding.
Are
all of the mortgage loans in (e) made in connection with a specific
financing program to natural persons who have a first mortgage
from M/I
Financial with respect to the same real property? _________
(f) Mortgage
loans having a Risk Rating of less than A=$___________.
The
amount of mortgage loans having a Risk Rating of less than A cannot
exceed
$5,000,000 in the aggregate at any one time outstanding.
(ii) Cash
Equivalents = $_____________.
(iii) Investments
in ordinary course of M/I Financial's business in standard instruments
hedging against interest rate risk incurred in the origination
and sale of
mortgage loans =$___________
Is
each hedging instrument(s) matched to specific groups of mortgages?
__________
Are
any hedging transactions:
(A) investments
in future contracts? ____
(B) investments
in options contracts? _____
(C) investments
in other derivative investment vehicles acquired as independent
investments? ______
(See
attached schedule.)
(v) Loan
and advances to M/I Homes = $________
(Subsection
6.5 imposes no limit on loans and advances to M/I Homes.)
Does
M/I Financial have any investments other than specifically listed
above?
____________
|
EXHIBIT
D
MORTGAGE
LOAN PRODUCTION AND DERIVATIVE INSTRUMENTS POLICY
General
1. Interest
Rate Lock Commitments
which
are derivative
instruments
under
SFAS 133, entered into by MIF must be approved by either the President and
CEO
or VP of Secondary Marketing, or other authorized personnel.
2. The
interest rate risk on the Pipeline
must be
minimized by covering at least 70% but not more than 105% of the related
total
notional amount of risk exposure with mandatory coverage. Additional optional
coverage may be used at the discretion of the President and CEO or Vice
President of Secondary marketing.
3. Fair
value risk on Mortgage
Loan Inventory Held for Sale
resulting from the ultimate financing of a home must be 100%
covered.
4. Only
the
following types of securities (or derivative instruments) are approved for
use
in covering risk arising
from the aforementioned derivative instruments.
|
l
|
Forward
Mortgage Backed Securities ("FMBS")
|
|
l
|
Option
Contracts
|
|
l
|
Mandatory
or Best Effort Whole Loan
Commitments
|
The
type
of derivative from the above "approved for use" list used to cover the risk
is
at the discretion of the President and CEO of MIF and the VP of Secondary
Marketing for FMBSs and option contracts. In addition to the aforementioned
positions, the Assistant Manager of Secondary Marketing may determine the
use of
Mandatory or Best Effort Whole Loan Commitments.
Any
new
type of security used to cover the aforementioned risk must be approved in
writing by the Chief Financial Officer prior to entering into such
transaction.
5. Authorization
for entering into or trading of any "approved for user securities on behalf
of
MIF may only be executed by individuals authorized to do so by Company
Resolution and currently include the following positions:
President
and CEO
VP
of
Secondary Marketing
Assistant
Manager of Secondary Marketing
6. Counterparties
on any securities mentioned above must be approved in writing by the Chief
Financial Officer and are limited to prominent investment banking firms or
agency (FNMA or FHLMC) trading desks. Refer to Attachment A for the current
approved list of counterparties.
7. MIF
shall
not put a hedge in place with the intention of speculation on future changes
in
the market solely for profit.
8. Monthly,
MIF shall report the notional amount of its derivative instruments and related
hedged items to the Chief Financial Officer and Controller of the Company.
Such
report shall be complete and consistently compiled from month to month. Any
significant changes in the methodology surrounding the compilation, shall
be
immediately reported in writing to the Controller of the Company
Accounting
- Overall
9. All
securities mentioned above, unless designated as a cash
flaw hedge
or a
fair
value hedge
must be
initially recorded on the balance sheet at their fair market value at the
date
of inception. Such derivative must then be revalued in the financial statements
at least quarterly throughout the contract life. Revaluation and accounting
for
such transactions will be governed by the procedures and methodology outline
in
the Accounting - Specific section below.
10. Any
derivative that is designated as a cash
flow
or
fair
value
hedge
must first be approved by the Corporate Controller for such designation
(typically securities that hedge mortgage loan inventory). Hedge designation
criteria under SFAS 133 are extremely stringent and include specific
documentation
and
effectiveness
testing.
To achieve hedge designation, MIF must complete Attachment B at inception
of the
program of same-type transactions and provide to the Corporate Controller
to
verify that hedge designation is proper. In addition, MIF Management, on
a
quarterly basis must evaluate the effectiveness
of the
hedge using either regression analysis or ratio analysis. The method chosen
must
be used throughout the life of the hedge program. Such analysis of effectiveness
must be
provided to the Corporate Controller on a quarterly basis. Revaluation and
accounting for such transactions shall be governed by the procedures and
methodology outlined in, Accounting - Specific section.
Accounting
- Specific
1. Interest
Rate Lock Commitments ("IRLC")
IRLC,
as
a non-designated derivative, shall be recorded at fair market value at the
date
of inception. Any changes ("fair value adjustment") in fair value from date
of
inception shall be determined on a monthly basis and recorded in current
earnings in financial services revenue. The calculation of the fair value
adjustment shall depend on how the interest rate risk on the related IRLC
is
covered or minimized:
(a) For
IRLC's that are covered by FMBS or Option Contracts, the fair value adjustment
shall be based on quoted market prices for securities backed by similar loans.
Such quoted market prices shall be obtained from either Bridge or Telerate
services or dealer quotes.
(b) For
IRLC's that are covered by mandatory or best efforts whole loan commitments,
the
fair value adjustment shall be based on the posted price of the contract
provided by the related counterparty.
2. FMBS
or
Options on FMBS
FMBS
or
Options on FMBS, shall be recorded at fair value at the date of inception.
Any
changes or "fair value adjustments" from the date of inception shall be marked
to fair value on a monthly basis in current earnings through financial services
revenue using quoted market prices. Such quoted market prices shall be obtained
from either Bridge or Telerate services or dealer quotes.
3. Best
Effort or Whole Loan Delivery commitments
As
non-designated derivative instruments, these commitments shall be marked
to fair
value on a monthly basis in current earnings through financial service revenues
using posted prices provided by the related counterparty.
4. Mortgage
Loans Held for Sale and Related Risk Coverage
Mortgage
loans held for sale shall be marked to fair value, through financial services
revenue, on a quarterly basis using quoted market prices backed by similar
loans. Such quoted market prices shall be obtained from either Bridge or
Telerate services or dealer quotes. The change in fair value of the related
risk
coverage will also be revalued for the same market change and recorded in
current earnings through financial services revenue, provided that the hedge
relationship is perfectly effective. To the extent that a hedge is highly
effective (i.e., >80% and <120% correlated), but not perfectly effective
(i.e., 100% correlated), that ineffectiveness must be taken immediately to
the
income statement. The income statement impact of the "ineffective" portion
of
these ▇▇▇▇▇▇ must be disclosed in the annual report.
If
a
hedge fails to meet the >80% and <120% criteria, no hedge accounting is
permitted. The entire market revaluation of the derivative must be taken
to the
income statement immediately each quarter.
5. Options
Fees
paid
for options on FMBSs shall be expensed when incurred. Such options are valued
at
$0 on the balance sheet until such time they become "in the money"
options.
Any
significant changes to methodology of the above calculations, fundamental
changes in factors and sources of factors, or significant changes to underlying
assumptions used in the calculation must be communicated in writing to the
Chief
Financial Officer, prior to implementation of such change. The CFO must approve
the change in writing.
DEFINITIONS
AND OTHER INFORMATION
Cash
Flow ▇▇▇▇▇▇ are
▇▇▇▇▇▇ of a risk related to future anticipated cash flows. For example: a
whole
loan contract that ▇▇▇▇▇▇ the cash flow of a future sale of a mortgage
loan.
Derivative
Instruments are
securities, contracts or others that meet the following four
criteria:
l Has
an
"underlying" (for example, an exchange rate, a commodity price, an interest
rate).
l Has
a
"notional" (for example, a number of currency units or number of tons).
Together, the underlying and the notional determine the amount of derivative
settlement and whether or not settlement is required.
l Has
little or no initial investment (value at inception is minimal - ongoing
value
will depend on market fluctuations in the "underlying")
l Can
be
settled net (in most cases, this means the derivative can be settled in cash,
rather than requiring physical delivery of the "notional")
Documentation
to
support the hedge designation at inception of the hedge must
include:
l Specific
description of the hedge being designated and the specific transaction it
will
hedge.
l Type
of
FAS 133 hedge (see definition of cash flow and fair value ▇▇▇▇▇▇).
l Description
of the methodology that will be used to calculate correlation/effectiveness.
This documentation must be sufficiently specific that a third party could
perform the analysis independently based on this documentation and get the
same
results.
l Retrospective
analysis of effectiveness.
l Prospective
analysis of effectiveness.
l For
▇▇▇▇▇▇ of forecasted transactions, documentation to substantiate the likelihood
of the forecasted transaction occurring. Effectiveness measures the correlation
between the changes in the derivative instrument and the hedged item. In
order
to receive any SFAS 133 hedge accounting treatment, a hedge must be proven
to be
highly effective - with a correlation of >80% and < 120%. The method used
for analysis of effectiveness may be statistical, such as regression analysis,
or may be ratio analysis. However, methodology must be reasonable and consistent
among similar ▇▇▇▇▇▇.
The
analysis must include a retrospective analysis and a prospective analysis
of
correlation at inception of the hedge. On a going basis (at least quarterly),
the prospective analysis must be updated to support ongoing hedge treatment.
In
addition, at the end of each quarter, a retrospective analysis of actual
changes
in the quarter must be performed, resulting in the actual entries booked
for the
quarter.
Fair
Value ▇▇▇▇▇▇ are
▇▇▇▇▇▇ of an exposure related to an asset or liability already recorded on
the
balance sheet. For example: a whole loan commitment that ▇▇▇▇▇▇ the change
in
fair value of mortgage loan inventory from the time of closing to the date
of
sale to a third party.
Accounting
for these ▇▇▇▇▇▇ requires that the revaluation be taken immediately to the
income statement. However, the hedged transaction (i.e., the asset or liability)
is also revalued for the same market change and is also taken immediately
to the
income statement such that the change in the hedge and the hedged item
offset.
Interest
Rate Lock Commitment (IRLC)
is a
commitment with a borrower to provide mortgage loans at pre-determined interest
rates.
Mortgage
Loan Inventory Held far Sale
are
residential mortgage loans receivable collateralized by the underlying
property.
PROCEDURES
l MBS
trading for M/I Financial will only be executed by individuals authorized
by the
Corporate Resolution. Whole loan trading will only be executed by individuals
approved by the President and CEO or Vice President of MIFC.
l Individuals
performing M8S trades will complete a trade ticket, initial and
date
l FMBS
trades will be verbally confirmed with the Dealer by an authorized trader
or
another individual authorized by the President or Vice President of MIF.
The
verbal confirmation must be done by an individual other than the original
trader. Once confirmed, the trade sheet will be initialed by the individual.
MIFC will assign an internal trade number to be used for tracking
l A
copy of
the completed trade ticket will be faxed to the Corporate Accounting department
by the end of the business day on which the trade was executed.
l The
written trade confirmation from the Dealer will be sent directly to the
Accounting department. If a written confirmation is not received within 5
business days, the Accounting department must contact the Dealer for the
document. The Accounting department will date stamp the confirmation upon
receipt.
l In
the
event a written confirmation is received by the Accounting department for
which
they have not received a trade ticket, the Accounting department must
immediately contact the Vice President of MIF.
l The
Accounting department will be responsible to verify all trade information
for
accuracy immediately upon receipt of confirmation. Any discrepancies should
be
immediately discussed with the Dealer and if the difference cannot be resolved,
the Accounting department should contact the Vice President of MIF.
l When
MIF
buys back securities (pair-off), Accounting will be notified with a separate
trade ticket. This ticket will show the cash that should be wired or received
along with the settlement (delivery) date. It will be the responsibility
of the
Accounting department to ensure the cash is received and/or wired on the
settlement date. If the money is due to MIFC and not received on the settlement
date, the Accounting department must contact the Dealer for verification.
Accounting will record receivable or payable of each pair off in accounts
payable- pair off.
l Individuals
performing whole loan trades will be given written instructions from an
authorized trader. These instructions will include the investor name and
commitment period.
l The
written confirmation of the mandatory or best effort whole loan commitment
will
be reviewed by the Secondary Marketing Department.
l Monthly,
MIF will provide Corporate Accounting with fair value adjustments for determined
in accordance with Company Policy stated above.
l Reporting
- the following reports will be prepared by MIF and distributed as
follows:
¡ Daily
Position Report will be prepared daily by the MIF Secondary Marketing department
and confirmed by the Vice President of Secondary Marketing or the Assistant
Manager of Secondary Marketing.
¡ Trade
Log
- a listing of all the Dealers and trades will be prepared monthly by the
MIF
Secondary Marketing department and verified by the Vice President of
MIF.
¡ Monthly
▇▇▇▇ to Market - a ▇▇▇▇ to market report will be prepared by the Secondary
Marketing department and confirmed by the Vice President of MIF for the mortgage
pipeline and all trades covering the pipeline, which may include
options.
¡ In
addition to the monthly ▇▇▇▇ to market report, on a quarterly basis, the
Secondary Marketing Department will provide a summary of all "out-of-the
money"
option coverage that is not included in monthly ▇▇▇▇ to market
REFERENCES
Effective
July 2000, accounting for all hedging activities and derivatives worldwide
is
ruled by Financial Accounting Standard (FAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by Financial Accounting Standard
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, and Financial
Accounting Standard No. 138, "Accounting for Certain Derivative Instruments
and
Certain Hedging Activities" and Statement No. 149 Amendment
of Statement 133 on Derivative Instruments and Hedging Activities.
Additional
guidance is provided via a series of implementation issues addressed by the
Derivatives Implementation Group (DIG), under the guidance of the Financial
Accounting Standards Board.
ATTACHMENTS
Attachment
A - Approved Counterparties
Attachment
B - Example Hedge Designation Documentatio
Attachment
A
M/I
Financial Corporation
Approved
List of Counterparties
AVM
Bear
▇▇▇▇▇▇▇
Credit
Suisse First Boston
FNMA
▇▇▇▇▇▇
Brothers
▇▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇
Securities
▇▇▇▇▇▇
Sparks
Attachment
B
M/I
Financial Corporation
Sample
Documentation Template:
Date
of
Hedge Designation: MM/DDIYY
Hedged
Transaction: Mortgage loans held for sale (Mortgage loan
Inventory)
Nature
of Risk Being Hedged:
The
variability of changes in the fair value (cash flow) in mortgage inventory
due
to changes in MBS market. Changes in the value of the securities are expected
to
be highly effective in offsetting the changes in the value of mortgage loan
inventory attributable to fluctuations in the MBS market.
Hedge
Objective:
The
objective of the hedge is to eliminate the variability of changes in fair
value
in the mortgage loan inventory from the time of closing with the third party
to
the date of sale and ultimate funding by the investor.
Hedge
Instrument:
Type
=
Fair Value Hedge
Instrument
= Mortgage Backed Security
Notional
- Varies
Maturity
= Varies
Coupon
Rate = Varies
Settlement
- Monthly
Method
of Assessing Hedge Effectiveness:
Regression
analysis will be used to assess hedge effectiveness. The MBS should have
terms
that match the critical terms of the mortgage loan inventory and thus would
be
expected to perfectly offset the hedged changes in fair value exposure noted
above.
The
change in value of the MBS designated as the hedging instrument due to changes
in the MBS market will be compared to the change in value of the mortgage
loan
inventory due to changes in the MBS market.
Both
at
hedge inception and on an ongoing basis, this hedging relationship is expected
to be highly effective in achieving offsetting changes in cash
flows.
Hedge
effectiveness will be assessed on a quarterly basis using regression
analysis.
EXHIBIT
E
FORM
OF BORROWING BASE CERTIFICATE
[Letterhead
of M/I Financial Corp.]
[Date]
▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Guaranty
Bank
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Dear
▇▇▇▇▇▇:
This
letter is to comply with Section 5.2(b),
Certificates, Other Information, related to the First Amended and Restated
Revolving Credit Agreement dated April 27, 2006, and is for the monthly
accounting period ended _________________. Capitalized terms used but not
defined have the meanings given to such terms in the Revolving Credit
Agreement.
Set
forth
below is the calculation of the borrowing base. All figures in this calculation
are as at the end of the monthly accounting period set forth in the first
paragraph of this letter. The undersigned certifies that the calculation
set
forth herein is true in all material respects.
|
1.
|
Eligible
Mortgage Loans with attached Schedule =
$___________.
|
|
2.
|
95%
of Item 1 = $______________.
|
|
3.
|
Commitment
(which is the lesser of (i) from and including April 27, 2006
through and including December 14, 2006, $40,000,000, (ii) from
and including December 15, 2006 through and including
January 15, 2007, $65,000,000 and (iii) from and including
January 16, 2007 through and including April 26, 2007,
$40,000,000, or Item 2) =
$_____________.
|
|
4.
|
Principal
amount of Loans outstanding =
$______________.
|
|
5.
|
Amount
by which Commitment exceeds the principal amount of Loans outstanding
(Item 3-Item 4)
=$__________________.
|
Certified
by:
Name
Printed, Title