COLLATERAL AGREEMENT

Exhibit 10.2

COLLATERAL AGREEMENT

made by

M/I HOMES, INC.,

and certain of its Subsidiaries

in favor of

PNC BANK, NATIONAL ASSOCIATION,

as Collateral Agent

Dated as of January 15, 2009

COLLATERAL AGREEMENT

COLLATERAL AGREEMENT, dated as of January 15, 2009, made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “ Grantors ”), in favor of PNC Bank, National Association, as collateral agent (in such capacity, the “Collateral Agent”), for JPMorgan Chase Bank, N.A., as Agent (the “ Agent ”), and the lenders (the “ Lenders ”) from time to time parties to the Second Amended and Restated Credit Agreement dated as of October 6, 2006 (as amended by a First Amendment to Second Amended and Restated Credit Agreement dated as of August 28, 2007, a Second Amendment to Second Amended and Restated Credit Agreement dated as of March 27, 2008, a Third Amendment (as defined below) and as further amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among M/I Homes, Inc., an Ohio corporation (“ Borrower ”), the Lenders and JPMorgan Chase Bank, N.A. as Agent (“Agent”).

W I T N E S S E T H :

WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to Borrower upon the terms and subject to the conditions set forth therein;

WHEREAS, Borrower is a member of an affiliated group of companies that includes each other Grantor,

WHEREAS, the proceeds of the extensions of credit under the Credit Agreement will be used in part to enable Borrower to make valuable transfers to one or more of the other Grantors in connection with the operation of their respective businesses;

WHEREAS, Borrower and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the making of the extensions of credit under the Credit Agreement;

WHEREAS, pursuant to the Third Amendment to Second Amended and Restated Credit Agreement dated as of January 15, 2009 (the “ Third Amendment ”), to and under the Credit Agreement, Borrower and the other Grantors have agreed to enter into this Agreement in order to grant a valid, binding, enforceable and perfected security interest in, and Lien on, certain of its assets, for the ratable benefit of the Secured Parties; and

WHEREAS, pursuant to Section 10(c) of the Third Amendment, it is required that the Grantors shall, have executed and delivered this Agreement to Collateral Agent for the ratable benefit of the Secured Parties;

NOW, THEREFORE, in consideration of the premises and to induce Agent and the Lenders to enter into the Third Amendment and to induce the Lenders to make their respective extensions of credit to Borrower under the Credit Agreement, each Grantor hereby agrees with Collateral Agent, for the ratable benefit of the Secured Parties, as follows:

SECTION 1.                                DEFINED TERMS

1.1            Definitions .  (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms are used herein as defined in the New York UCC:  Account, Chattel Paper, Commercial Tort Claims,

Document, Equipment, Farm Products, Fixtures, General Intangible, Goods, Instrument, Inventory, Investment Property, Letter-of-Credit Right and Supporting Obligation.    

(b)           The following terms shall have the following meanings:

“ Agreement ”:  this Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time.

“ Borrower Obligations ”:  “Obligations” as defined in the Credit Agreement and shall in any event include interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding, whether direct or indirect, absolute or   contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, this Agreement, the other Loan Documents, any Facility L/C, or any other document made, delivered or given in connection with any of the foregoing, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to Collateral Agent, Agent or to the Lenders that are required to be paid by Borrower pursuant to the terms of any of the foregoing agreements).

“ Cash Account ”:  collectively, each of Borrower’s Deposit Accounts and securities accounts (as defined in the New York UCC) identified on Schedule 5 and any subaccount, substitute or successor account that is identified in writing as a substitute or successor account.  The Cash Account is comprised of the Secured Borrowing Base Account.

“ Cash Collateral ”:  the collective reference to:

(a)           all cash, instruments, securities and funds deposited from time to time in the Cash Account;

(b)           all investments of funds in the Cash Account and all instruments and securities evidencing such investments; and

(c)           all interest, dividends, cash, instruments, securities and other property received in respect of, or as proceeds of, or in substitution or exchange for, any of the foregoing.

“ Collateral ”:  as defined in Section 2.

“ Collateral Account ”:  any collateral account established by Collateral Agent as provided in   Section 6.1 or 6.3.

“ Copyright Licenses ”:  any written agreement naming any Grantor as licensor or licensee, granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

“ Copyrights ”:  (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof.

“ Guarantor Obligations ”:  with respect to any Guarantor, all obligations and liabilities of such Guarantor or any other Guarantor which may arise under or in connection with the Guaranty Agreement or any other Loan Document, to which such Guarantor or any other Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Agent, Collateral Agent or to the Lenders that are required to be paid by such Guarantor or any other Guarantor pursuant to the terms of the Guaranty Agreement or any other Loan Document).

“ Guarantors ”:  the collective reference to each Grantor other than Borrower.

“ Intellectual Property ”:  the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“ Issuers ”:  the collective reference to each issuer of any Investment Property.

“ New York UCC ”:  the Uniform Commercial Code as from time to time in effect in the State of New York.

“ Obligations ”:  (i) in the case of Borrower, Borrower Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations.

“ Patent License ”:  all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent.

“ Patents ”:  (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof; and (iii) all rights to obtain any reissues or extensions of the foregoing.

  Proceeds ”:  all “proceeds” as such term is defined in Section 9-102(a)(64) of the New York UCC and, in any event, shall include, without limitation, all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto.

“ Receivable ”:  any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance.  “Receivable” includes any Account.

“ Secured Parties ”:  the collective reference to the Agent, Collateral Agent, the Lenders and any other parties to which Borrower Obligations or Guarantor Obligations, as applicable, are owed.

“ Securities Act ”:  the Securities Act of 1933, as amended.

“ Trademark License ”:  any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark.

“ Trademarks ”:  (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, and (ii) the right to obtain all renewals thereof.

1.2            Other Definitional Provisions .  i) The words “hereof,” “herein”, “hereto” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified.

(b)           The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

(c)           Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof.

SECTION 2.      GRANT OF SECURITY INTEREST

Each Grantor hereby grants to Collateral Agent, for the ratable benefit of the Secured Parties, a security interest in, all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or   at any time in the future may acquire any right, title or interest (collectively, the “ Collateral ”), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor’s Obligations:

(a)           all Accounts;

(b)           all Cash Collateral;

(c)           all Chattel Paper;

(d)           the Cash Account;

(e)           all Commercial Tort Claims;

(f)           all Documents;

(g)           all Equipment;

(h)           all Fixtures;

(i)           all General Intangibles;

(j)           all Goods;

(k)           all Instruments;

(l)           all Intellectual Property;

(m)           all Inventory;

(n)           all Investment Property;

(o)           all Letter-of-Credit Rights;

(p)           to the extent not otherwise described above, all rights to receipt of federal income tax refunds for the 2008 fiscal year of Borrower (collectively, “Tax Refunds”) and all other personal property (except for any property specifically excluded from any clause in this section above, and any property specifically excluded from any defined term used in any clause of this section above);

(q)           all books and records pertaining to the Collateral; and

(r)           to the extent not otherwise included, all Proceeds, Supporting Obligations and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing;

provided , however , that notwithstanding any of the other provisions set forth in this Section 2, this Agreement shall not constitute a grant of a security interest in, and the term Collateral shall not include, (i) any property now owned or hereafter acquired by any Grantor to the extent that such grant of a security interest is prohibited by any requirements of law of a governmental authority, requires a consent not obtained of any governmental authority pursuant to such requirement of law or is prohibited by, or constitutes a breach or default under or results in the termination of or requires any consent not obtained under, any contract, license, agreement, instrument or other document (including, without limitation, an Aircraft Security Agreement dated as of April 4, 2008 between Wachovia Financial Services, Inc. and M/I Properties LLC) to which such property or such Grantor is subject or evidencing or giving rise to such property or, in the case of any Investment Property, any applicable shareholder or similar agreement, except to the extent that such requirement of law or the term in such contract, license, agreement, instrument or other document (other than (1) any such contract, license, agreement instrument or document evidencing Indebtedness, guarantee obligations or similar financing arrangements of any Grantor or (2) any shareholder, joint-venture or similar agreement, in each case to the extent permitted under the Credit Agreement) providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable law (ii) any intent-to-use trademark application to the extent and for so long as creation by a Grantor of a security interest therein would result in the loss by such Grantor of any material rights therein and (iii) any property now owned or hereafter acquired of any Grantor subject to a Lien or security interest in favor of any third party on the date hereof permitted under the Credit Agreement and any replacement Lien or security interest with respect to such property permitted under the Credit Agreement.

SECTION 3.        REPRESENTATIONS AND WARRANTIES

To induce Agent and the Lenders to enter into the Third Amendment and to induce the Lenders to make their respective extensions of credit to Borrower under the Credit Agreement, each Grantor hereby represents and warrants to the Agent, Collateral Agent and each Lender that:

3.1            Title; No Other Liens .  Except for the security interest granted to Collateral Agent for the ratable benefit of the Secured Parties pursuant to this Agreement and the other Liens permitted to exist on the Collateral by the Credit Agreement, such Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others.  No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of Collateral Agent, for the ratable benefit of the Secured Parties, pursuant to this Agreement or as are permitted by the Credit Agreement.

3.2            Perfected First Priority Liens .  The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 2 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to Collateral Agent in completed and duly executed form) will constitute valid perfected (to the extent such security interest can be perfected by such filings or actions) security interests in all of the Collateral in favor of Collateral Agent, for the ratable benefit of the Secured Parties, as collateral security for such Grantor’s Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except, in the case of Collateral other than the Cash Collateral, for Liens permitted by the Credit Agreement.

3.3            Jurisdiction of Organization:  Chief Executive Office .  On the date hereof, such Grantor’s jurisdiction of organization, identification number from the jurisdiction of organization (if any), and the location of such Grantor’s chief executive office or sole place of business or principal residence, as the case may be, are specified on Schedule 3 .  Such Grantor has furnished to Collateral Agent a certified charter, certificate of   incorporation or other organization document and good standing certificate as of a date which is recent to the date hereof.

3.4            Farm Products .  None of the Collateral constitutes, or is the Proceeds of, Farm Products.

3.5            Investment Property .  Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of or claims of, any other Person, except the security   interest created by this Agreement and the Liens permitted by the Credit Agreement.

3.6            Intellectual Property .  ii) On the date hereof, all Intellectual Property material to such Grantor’s business is valid, subsisting, unexpired and enforceable, has not been abandoned and does not infringe the intellectual property rights of any other Person.

(b)           No holding, decision or judgment has been rendered by any governmental authority which would limit, cancel or question the validity of, or such Grantor’s rights in, any Intellectual Property in any respect that could reasonably be expected to have, in any one case or in the aggregate, a materially adversely affect on the financial condition, operations, properties, or business of Borrower or any Guarantor or any Subsidiary of Borrower or the ability of Borrower or any Guarantor to perform its obligations under the Loan Documents to which it is a party.

(c)           No action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question the validity of any Intellectual Property material to such Grantor’s business or such Grantor’s ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property material to such Grantor’s business.

SECTION 4.       COVENANTS

Each Grantor covenants and agrees with the Agent, Collateral Agent and the Lenders that, from and after the date of this Agreement until the Maturity Date and the payment in full of all outstanding Obligations (or, with respect to outstanding Facility L/Cs, cash collateralization or other arrangements reasonably satisfactory to Issuers of and Agent):

(b)           Borrower shall deliver to Collateral Agent evidence with respect to such insurance as Collateral Agent may from time to time reasonably request in writing.

4.2            Payment of Obligations .  Such Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto (to the extent required by GAAP) have been provided on the books of such Grantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein.

4.3            Maintenance of Perfected Security Interest; Further Documentation .  iv) Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest to the extent required by this Agreement having at least the priority described in Section 3.2 and shall defend such security interest against the claims and demands of all Persons whomsoever other than, in the case of Collateral other than the Cash Collateral, any holder of Liens permitted by the Credit Agreement, subject to the rights of such Grantor under the Loan Documents to dispose of the Collateral.

(b)           At any time and from time to time, upon the written request of Collateral Agent, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as Collateral Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) filing any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby, (ii) in the case of the Cash Account and any other relevant Collateral, taking any actions necessary to enable Collateral Agent to obtain “control” (within the meaning of the applicable Uniform Commercial Code) with respect thereto, (iii) in the case of Investment Property comprised of certificated securities and any other relevant Collateral (other than Goods, Instruments and Chattel Paper received held in the ordinary course of business), delivering such certificates together with such stock powers and other writings as shall be necessary or appropriate to perfect the security interest of Collateral by delivery or possession and (iv) promptly notify the Collateral Agent in a writing identifying with reasonable specificity any commercial tort claim that becomes Collateral hereunder.

(c)           Concurrently, with the filing of the Borrower’s 2008 Federal tax return claiming a Tax Refund, the Borrower will submit a Form 8302 to the United States Internal Revenue Service directing that all amounts refunded to the Borrower be paid directly into the Secured Borrowing Base Account.

4.4            Changes in Name, etc .  Such Grantor will not, except upon prior written notice to Collateral Agent and delivery to Collateral Agent of all additional executed financing statements and other documents reasonably requested by Collateral Agent to maintain the validity, perfection and priority of the security interests provided for herein, (i) change its jurisdiction of organization or (ii) change its name.

4.5           Notices .  Such Grantor will advise Agent promptly, in reasonable detail, of:  

(a)           any Lien (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would adversely affect the ability of Collateral Agent to exercise any of its remedies hereunder; and

(b)           of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby.

4.6           Intentionally Omitted.

4.7            Intellectual Property .  v) Such Grantor (either itself or through licensees) will (i) continue to use each material Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable requirements of law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless Collateral Agent, for the ratable benefit of the Secured Parties, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way.

(b)           Such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any material Patent may become forfeited, abandoned or dedicated to the public.

(c)           Such Grantor (either itself or through licensees) (i) will employ each material Copyright and (ii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of the Copyrights may become invalidated or otherwise impaired.  Such Grantor will not (either itself or through licensees) do any act whereby any material portion of the Copyrights may fall into the public domain.

(d)           Such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person.

(e)           Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the material Intellectual Property, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability.

(f)           In the event that any material Intellectual Property is infringed, misappropriated or diluted by a third party, such Grantor shall take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property.

 

SECTION 5.       INVESTING AMOUNTS IN THE CASH ACCOUNT

     5.1       Investments .  To the extent that the security interest of Collateral Agent is the C