Exhibit 10.5
FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement (the “Agreement”), dated as of
October 20, 2009 is made by                                         , a
                                         (“the Grantor”) in favor of Wilmington
Trust Company, as Collateral Agent (in such capacity, the “Agent”) for the
benefit of itself, the Trustee (as defined below) and the Noteholders (as
defined below).
WHEREAS, K. Hovnanian Enterprises, Inc., a California corporation (the
“Borrower”), Hovnanian Enterprises, Inc. (“Hovnanian”) and each of the other
Guarantors party thereto entered into the indenture dated as of May 27, 2008, as
amended, supplemented, amended and restated or otherwise modified from time to
time, with Wilmington Trust Company (as successor to Deutsche Bank National
Trust Company) as trustee pursuant to which the Issuer issued 11 1/2 % Senior
Secured Notes due 2013;
WHEREAS, the Borrower, Hovnanian and each of the other Guarantors party thereto
have entered into the indenture dated as of December 3, 2008, as amended,
supplemented, amended and restated or otherwise modified from time to time, with
Wilmington Trust Company as trustee pursuant to which the Issuer issued 18.0%
Senior Secured Notes due 2017;
WHEREAS, the Borrower, Hovnanian and each of the other Guarantors have entered
into the Indenture dated as of October 20, 2009 (as amended, supplemented,
amended and restated or otherwise modified from time to time, the “Indenture”)
with Wilmington Trust Company, a Delaware banking corporation, as trustee (in
such capacity, the “Trustee”), pursuant to which the Issuer (as defined in the
Indenture) issued 10 5/8% Senior Secured Notes due 2016 (collectively, the
“Secured Notes”) upon the terms and subject to the conditions set forth therein;
WHEREAS, the Borrower, Hovnanian, certain subsidiaries of Hovnanian party
thereto, PNC Bank, National Association, as Senior Credit Agent and Wilmington
Trust Company, as Mortgage Tax Collateral Agent have entered into the
Intercreditor Agreement dated as of May 27, 2008 (the “May 2008 Intercreditor
Agreement”);
WHEREAS, the Borrower, Hovnanian, certain subsidiaries of Hovnanian party
thereto, PNC Bank, National Association, as Senior Credit Agent and First-Lien
Administrative Agent, the Senior Trustee, the Senior Noteholder Collateral
Agent, the Junior Trustee, the Junior Agent and Wilmington Trust Company, as
Mortgage Tax Collateral Agent have entered into the Intercreditor Agreement
dated as of December 3, 2008, as amended, supplemented, amended or restated or
otherwise modified from time to time (together with the May 2008 Intercreditor
Agreement, the “Intercreditor Agreements”);

 

 

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WHEREAS, the Secured Notes constitute First Lien Indebtedness under each of the
Intercreditor Agreements;
WHEREAS, the Borrower is a member of an affiliated group of companies that
includes Hovnanian, the Borrower’s parent company, and each other Guarantor;
WHEREAS, the Borrower and the other Guarantors are engaged in related
businesses, and each Guarantor will derive substantial direct and indirect
benefit from the issuance of the Secured Notes;
WHEREAS, pursuant to and under the Indenture and the First Lien Security
Agreement dated as of October 20, 2009 (the “Security Agreement”) among the
Borrower, Hovnanian, each of the signatories listed on Schedule A thereto
(together with any other entity that may become a party thereto) and the Agent,
the Grantor has agreed to enter into this Agreement in order to grant a security
interest to the Agent in certain Patents, Trademarks, Copyrights and other
Intellectual Property as security for such loans and other obligations as more
fully described herein; and
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree
as follows:
1. Defined Terms.
(a) Except as otherwise expressly provided herein, (i) capitalized terms used in
this Agreement shall have the respective meanings assigned to them in the
Security Agreement and (ii) the rules of construction set forth in Section 1.02
of the Indenture shall apply to this Agreement. Where applicable and except as
otherwise expressly provided herein, terms used herein (whether or not
capitalized) shall have the respective meanings assigned to them in the Uniform
Commercial Code as enacted in New York as amended from time to time (the
“Code”).
(b) “Copyright Licenses” shall mean any written agreement naming any Grantor as
licensor or licensee, granting any right under any Copyright, including, without
limitation, the grant of rights to distribute, exploit and sell materials
derived from any Copyright, including, without limitation, any of the foregoing
referred to in Schedule A.
(c) “Copyrights” shall mean (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 referred to in Schedule A,
and (ii) the right to obtain all renewals thereof.

 

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(d) “Intellectual Property” shall mean the collective reference to all rights,
priorities and privileges, whether arising under United States, multinational or
foreign laws, in, to and under 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.
(e) “Patent License” shall mean all written agreements 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, including, without limitation, any of
the foregoing referred to in Schedule A.
(f) “Patents” shall mean (i) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions
thereof, including, without limitation, any of the foregoing referred to in
Schedule A, (ii) all applications for letters patent of the United States or any
other country and all divisions, continuations and continuations-in-part
thereof, including, without limitation, any of the foregoing referred to in
Schedule A, and (iii) all rights to obtain any reissues or extensions of the
foregoing.
(g) “Secured Obligations” shall mean all now existing and hereafter arising
Obligations (as defined in the Indenture) of the Borrower and each and every
other Grantor, together with any extensions, renewals, replacements or
refundings thereof, and all costs and expenses of enforcement and collection,
including reasonable attorney’s fees.
(h) “Secured Parties” shall mean the collective reference to the Agent, the
Trustee and the Noteholders, in each case to which any Secured Obligations are
owed.
(i) “Trademarks” shall mean (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 owned or hereafter 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, and all common-law rights related thereto, including,
without limitation, any of the foregoing referred to in Schedule A, and (ii) the
right to obtain all renewals thereof.
(j) “Trademark License” shall mean any written agreement providing for the grant
by or to any Grantor of any right to use any

 

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Trademark, including, without limitation, any of the foregoing referred to in
Schedule A.
2. To secure the full payment and performance of all Secured Obligations, the
Grantor hereby grants to the Agent a security interest in the entire right,
title and interest of such Grantor in and to all of its Intellectual Property;
provided, however, that notwithstanding any of the other provisions set forth in
this Section 2 (and notwithstanding any recording of the Agent’s Lien made in
the U.S. Patent and Trademark Office, U.S. Copyright Office, or other registry
office in any other jurisdiction), this Agreement shall not constitute a grant
of a security interest in any property to the extent that such grant of a
security interest is prohibited by any applicable Law of an Official Body,
requires a consent not obtained of any Official Body pursuant to such Law or is
prohibited by, or constitutes a breach or default under or results in the
termination of or gives rise to any right of acceleration, modification or
cancellation or requires any consent not obtained under, any contract, license,
agreement, instrument or other document evidencing or giving rise to such
property, except to the extent that such Law or the term in such contract,
license, agreement, instrument or other document or similar agreement providing
for such prohibition, breach, default or termination or requiring such consent
is ineffective under applicable Law including 9-406, 9-407, 9-408 or 9-409 of
the New York UCC (or any successor provision or provisions); provided, further,
that no security interest shall be granted in any United States “intent-to-use”
trademark or service mark applications unless and until acceptable evidence of
use of the trademark or service mark has been filed with and accepted by the
U.S. Patent and Trademark Office pursuant to Section 1(c) or Section 1(d) of the
Lanham Act (U.S.C. 1051, et seq.), and to the extent that, and solely during the
period in which, the grant of a security interest therein would impair the
validity or enforceability of such “intent-to-use” trademark or service mark
applications under applicable federal Law. After such period and after such
evidence of use has been filed and accepted, the Grantor acknowledges that such
interest in such trademark or service mark applications will become part of the
Collateral. The Agent agrees that, at the Grantor’s reasonable request and
expense, it will provide such Grantor confirmation that the assets described in
this paragraph are in fact excluded from the Collateral during such limited
period only upon receipt of an Officer’s Certificate or an Opinion of Counsel to
that effect.
3. The Grantor covenants and warrants that:
(a) To the knowledge of the Grantor, on the date hereof, all material
Intellectual Property owned by the Grantor is valid, subsisting and unexpired,
has not been abandoned and does not, to the knowledge of the Grantor, infringe
the intellectual property rights of any other Person;
(b) The Grantor is the owner of each item of Intellectual Property listed on
Schedule A, free and clear of any and all Liens or claims of others except for
the Permitted Liens. No financing statement or

 

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other public notice with respect to all or any part of the Collateral is on file
or of record in any public office, except as permitted pursuant to this
Agreement or as permitted by the Indenture;
4. The Grantor agrees that, until all of the Secured Obligations shall have been
indefeasibly satisfied in full, it will not enter into any agreement (for
example, a license agreement) which is inconsistent with Grantor’s obligations
under this Agreement, without Agent’s prior written consent which shall not be
unreasonably withheld except Grantor may license technology in the ordinary
course of business without the Agent’s consent to suppliers and customers to
facilitate the manufacture and use of such Grantor’s products.
5. Agent shall have, in addition to all other rights and remedies given it by
this Agreement and those rights and remedies set forth in the Security Agreement
and the Indenture, those allowed by applicable Law and the rights and remedies
of a secured party under the Uniform Commercial Code as enacted in any
jurisdiction in which the Intellectual Property may be located and, without
limiting the generality of the foregoing, solely if an Event of Default has
occurred and is continuing, Agent may immediately, without demand of performance
and without other notice (except as set forth below) or demand whatsoever to the
Grantor, all of which are hereby expressly waived, and without advertisement,
sell at public or private sale or otherwise realize upon, in a city that the
Agent shall designate by notice to the Grantor, in Pittsburgh, Pennsylvania or
elsewhere, the whole or from time to time any part of the Intellectual Property,
or any interest which the Grantor may have therein and, after deducting from the
proceeds of sale or other disposition of the Intellectual Property all expenses
(including fees and expenses for brokers and attorneys), shall apply the
remainder of such proceeds toward the payment of the Secured Obligations as the
Agent, in its sole discretion, shall determine. Any remainder of the proceeds
after payment in full of the Secured Obligations shall be paid over to the
Grantor. Notice of any sale or other disposition of the Intellectual Property
shall be given to the Grantor at least ten (10) days before the time of any
intended public or private sale or other disposition of the Intellectual
Property is to be made, which the Grantor hereby agrees shall be reasonable
notice of such sale or other disposition. At any such sale or other disposition,
Agent may, to the extent permissible under applicable Law, purchase the whole or
any part of the Intellectual Property sold, free from any right of redemption on
the part of the Grantor, which right is hereby waived and released. The Agent
shall endeavor to provide the Borrower with notice at or about the time of the
exercise of remedies in the preceding sentence, provided that the failure to
provide such notice shall not in any way compromise or adversely affect the
exercise of such remedies or the Agent’s rights hereunder.
6. All of Agent’s rights and remedies with respect to the Intellectual Property,
whether established hereby, by the Security Agreement or by the Indenture or by
any other agreements or by Law, shall be cumulative and may be exercised
singularly or concurrently. In the event of any irreconcilable

 

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inconsistency in the terms of this Agreement and the Security Agreement, the
Security Agreement shall control.
7. The provisions of this Agreement are severable, and if any clause or
provision shall be held invalid and unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such clause or provision in any other jurisdiction, or any clause
or provision of this Agreement in any jurisdiction.
8. The benefits and burdens of this Agreement shall inure to the benefit of and
be binding upon the respective successors and permitted assigns of the parties,
provided, however, that except as permitted by the Indenture, the Grantor may
not assign or transfer any of its rights or obligations hereunder or any
interest herein and any such purported assignment or transfer shall be null and
void.
9. This Agreement and the rights and obligations of the parties under this
agreement shall be governed by, and construed and interpreted in accordance
with, the Law of the State of New York.
10. The Grantor (i) hereby irrevocably submits to the nonexclusive general
jurisdiction of the courts of the State of New York and the courts of the United
States of America for the Southern District of New York, or any successor to
said court (hereinafter referred to as the “New York Courts”) for purposes of
any suit, action or other proceeding which relates to this Agreement or any
other Noteholder Document, (ii) to the extent permitted by applicable Law,
hereby waives and agrees not to assert by way of motion, as a defense or
otherwise in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of the New York Courts, that such suit,
action or proceeding is brought in an inconvenient forum, that the venue of such
suit, action or proceeding is improper, or that this Agreement or any Noteholder
Document may not be enforced in or by the New York Courts, (iii) hereby agrees
not to seek, and hereby waives, any collateral review by any other court, which
may be called upon to enforce the judgment of any of the New York Courts, of the
merits of any such suit, action or proceeding or the jurisdiction of the New
York Courts, and (iv) waives personal service of any and all process upon it and
consents that all such service of process be made by certified or registered
mail addressed as provided in Section 13 hereof or at such other address of
which the Agent shall have been notified pursuant thereto and service so made
shall be deemed to be completed upon actual receipt thereof. Nothing herein
shall limit any Secured Party’s right to bring any suit, action or other
proceeding against the Grantor or any of any of the Grantor’s assets or to serve
process on the Grantor by any means authorized by Law.
11. This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts (including by telecopy),

 

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and all of said counterparts taken together shall be deemed to constitute one
and the same instrument.
12. THE GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY A JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER
NOTEHOLDER DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
13. All notices, requests and demands to or upon the Agent or the Grantor shall
be effected in the manner provided for in Section 13.03 of the Indenture.
14. In the performance of its obligations, powers and rights hereunder, the
Agent shall be entitled to the privileges, powers and immunities afforded to it
as Collateral Agent under the Indenture. The Agent shall be entitled to refuse
to take or refrain from taking any discretionary action or exercise any
discretionary powers set forth in the Security Agreement unless it has received
with respect thereto written direction of the Issuer or a majority of
Noteholders in accordance with the Indenture. Notwithstanding anything to the
contrary contained herein, the Agent shall have no responsibility for the
creation, perfection, priority, sufficiency or protection of any liens securing
Secured Obligations (including, but not limited to, no obligation to prepare,
record, file, re-record or re-file any financing statement, continuation
statement or other instrument in any public office).
[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, each of the undersigned has caused this Intellectual
Property Security Agreement to be duly executed and delivered as of the date
first above written.

            WILMINGTON TRUST COMPANY, as Collateral Agent
      By:           Name:           Title:      

            Grantor:           
By:           Name:           Title:      

 

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SCHEDULE A
LIST OF REGISTERED AND APPLIED FOR PATENTS, COPYRIGHTS
AND TRADEMARKS

 

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