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Exhibit 10.1    
    

 
 

FIFTH AMENDMENT
  TO AMENDED AND RESTATED FINANCING AGREEMENT    
    

        THIS FIFTH AMENDMENT TO AMENDED AND RESTATED FINANCING AGREEMENT (this "Amendment") is made and entered into as of
May 5, 2003, by and among THE CIT GROUP/BUSINESS CREDIT, INC. a New York corporation (hereinafter "CITBC"), in its individual capacity and
as Agent (hereinafter the "Agent") for itself and the Lenders hereafter named, FOOTHILL CAPITAL CORPORATION, a California corporation
("FCC"), CONGRESS FINANCIAL CORPORATION (SOUTHWEST), a Texas corporation ("CFC"), LASALLE BANK NATIONAL
ASSOCIATION, a national banking association ("LaSalle"), and any other party hereafter becoming a Lender pursuant to Section 13 of the Agreement
(as hereinafter defined), each individually sometimes referred to as a "Lender" and collectively the
"Lenders"), LONE STAR TECHNOLOGIES, INC., a Delaware corporation (herein "Parent"), LONE STAR
STEEL COMPANY, a Delaware corporation (herein "LSSC"), FINTUBE TECHNOLOGIES, INC., an Oklahoma corporation (herein
"FTI"), LONE STAR LOGISTICS, INC., a Texas corporation ("Logistics"), STAR TUBULAR
SERVICES, INC., a Texas corporation formerly known as T&N Lone Star Warehouse Co. ("Star Tubular"), TEXAS & NORTHERN RAILWAY COMPANY, a
Texas corporation ("T&N Railway"), FINTUBE CANADA, INC., a Delaware corporation ("FCI"),
BELLVILLE TUBE COMPANY, L.P., a Texas limited partnership, as successor in interest by conversion to Bellville Tube Corporation, a Texas corporation
("BTCLP"), and WHEELING MACHINE PRODUCTS, INC., a Texas corporation, formerly known as Wheeling Acquisition Corporation and Star Tubular
Technologies (Houston), Inc. ("Wheeling") (herein Parent, LSSC, FTI, Logistics, Star Tubular, T&N Railway, FCI, BTCLP and Wheeling each
individually a "Company" and collectively as the "Companies"), ENVIRONMENTAL HOLDINGS, INC., a
Delaware corporation ("EHI"), ZINKLAHOMA, INC., a Delaware corporation ("Zinklahoma"), LONE STAR
STEEL INTERNATIONAL, INC., a Delaware corporation ("Steel International"), LONE STAR STEEL SALES COMPANY, a Delaware corporation
("Steel Sales"), ROTAC, INC., a Texas corporation ("Rotac"), LONE STAR ST HOLDINGS, INC.,
a Delaware corporation ("ST Holdings"), BELLVILLE TUBE GENERAL, LLC, a Nevada limited liability company
("BTG"), BELLVILLE TUBE LIMITED, LLC, a Nevada limited liability company ("BTL"), and
Star Tubular Technologies, Inc., a Delaware corporation ("STT") (herein EHI, Zinklahoma, Steel International, Steel Sales, Rotac, ST Holdings,
BTG, BTL and STT each individually as "Guarantor" and collectively as the "Guarantors"), STAR CAPITAL
FUNDING, INC., a Delaware corporation ("Star Capital"), DELTA LONE STAR ACQUISITION, INC., a Texas corporation
("Delta"), and STAR TUBULAR INTERNATIONAL, INC., a Texas corporation ("Star International")
(herein Star Capital, Delta and Star International each individually a "New Company" and collectively, the "New
Companies"). 

 
 

RECITALS:    
    

        A.    WHEREAS,
pursuant to the terms and subject to the conditions of that certain Amended and Restated Financing Agreement dated as of October 8, 2001 between the
Agent, the Companies and the Guarantors (such Amended and Restated Financing Agreement, as the same is hereby amended and may hereafter be amended from time to time, being hereinafter referred to as
the "Agreement"), the Companies were granted a $100,000,000 revolving line of credit which included a letter of credit facility; 

1

 

        B.    WHEREAS,
payment of the Obligations of the Companies is supported by the guaranties of the Guarantors (other than BTG, BTL and STT) pursuant to that certain Guaranty
dated as of October 8, 2001 executed by the Guarantors (other than BTG, BTL and STT), the guaranties of BTG and BTL pursuant to that certain Guaranty dated as of December 31, 2001
executed by BTG and BTL, and the guarantee of STT pursuant to that certain Guaranty dated as of September 30, 2002 executed by STT (collectively, the
"Guaranties"); 

        C.    WHEREAS,
to secure, in part, the Obligations (as defined in the Agreement), (i) the Companies and the Guarantors have heretofore executed in favor of the Agent
certain Loan Documents (as defined in the Agreement), including, without limitation, the Guaranties, which Loan Documents shall continue in full force and effect upon the execution of this Amendment,
all of the Loan Documents to continue to secure the payment by the Companies of the Obligations, all as more fully set forth therein and herein; 

        D.    WHEREAS,
the Companies have requested and, pursuant to the terms and subject to the conditions hereof and in connection herewith, the Agent and the Lenders have agreed to
add each of the New Companies as a Company and Obligor under the Loan Agreement; 

        E.
WHEREAS, in furtherance of the foregoing and to evidence the agreements of the parties hereto in relation thereto the parties hereto desire to amend the Agreement as hereinafter
provided; 

        NOW,
THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, agree as follows: 

 
 

AGREEMENT:    
    

 
 

ARTICLE I
  
    Definitions    
    

        1.01.   Capitalized terms used in this Amendment are defined in the Agreement, as amended hereby, unless
otherwise stated. 

 
 

ARTICLE II
  
    AMENDMENTS TO AGREEMENT    
    

        Effective as of the respective date herein indicated, the Agreement is hereby amended as follows: 

        2.01.   Amendment of Definition of "Company" and "Companies".  Effective
as of the date hereof, the references to "Company" and "Companies" in the preamble to the Agreement and throughout the Agreement shall be amended to include each of the New Companies (in addition to
the existing Companies). 

        2.02.   Amendment of Schedules.  Effective as of the date hereof,
Schedules 1, 7(1), 7(14)(f), 7(14)(g), 7(14)(l), 7(14)(o) and 7(14)(p) of the Agreement are amended to add to such Schedules the information requested thereon with respect to each of the New
Companies, such additions to such Schedules being described on Exhibit A attached hereto. 

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ARTICLE III
  
    Assumption of Obligations and Grant of Liens    
    

        3.01.   Assumption of Obligations.  Effective as of the date of this
Amendment, each of the New Companies hereby assumes and is jointly and severally liable with the Companies for all Obligations as of the date hereof and all Obligations incurred hereafter (including,
without limitation, the indebtedness and obligations under the Agreement and the other Loan Documents). The Companies shall continue to be jointly and severally liable for all Obligations. Each of the
New Companies also agrees (a) to be (i) a "Company" under the Agreement, (ii) a "Guarantor" under that certain Guaranty of Borrowers dated October 8, 2001 executed by the
Companies for the benefit of Agent and the other Lenders (the "Guaranty of Borrowers"), and (iii) an "Obligor" under that certain Subordination
Agreement dated October 8, 2001 executed by the Companies and the Guarantors for the benefit of Agent and the other Lenders (the "Subordination
Agreement"), (b) to be bound by the terms and provisions of the Agreement as a "Company" thereunder, the Guaranty of Borrowers as a "Guarantor" thereunder and the
Subordination Agreement as a Borrower and Obligor thereunder to the same extent and with the same force and effect as if such New Company had been originally named as a party in each of such
documents, (c) to assume all covenants, agreements and duties as a Guarantor and Obligor under the Agreement as a Company, as Guarantor under the Guaranty of Borrowers and as a Borrower and
Obligor under the Subordination Agreement. 

        3.02.   Grant of Lien by New Companies.  Each of the New Companies
hereby grants to Agent for the benefit of the Lenders a security interest in all Collateral now or hereafter owned by such New Company pursuant to the terms and provisions of Section 6 of the
Agreement. 

        3.03.   Authorized Filing.  Each of the New Companies authorizes Agent
to file financing statements covering the Collateral in an authenticated record without its signature and ratifies any such filings made prior to the date hereof by Agent. 

 
 

ARTICLE IV
  
    Conditions Precedent    
    

        4.01.   Conditions to Effectiveness.  The effectiveness of this
Amendment is subject to the satisfaction of the following conditions precedent in a manner satisfactory to Agent, unless specifically waived in writing by Agent: 

        (a)   Agent
shall have received each of the following, each in form and substance satisfactory to Agent, in its sole discretion, and, where applicable, each duly executed by
each party thereto, other than Agent: 

        (i)    This
Amendment, duly executed by Companies, the Guarantors and the New Companies; 

        (ii)   Certified
copies of the resolutions of the Board of Directors or Executive Committee of each of the Companies, the Guarantors and the New Companies, authorizing the
execution, delivery and performance of this Amendment and any and all other Loan Documents executed by any of the Companies, the Guarantors or the New Companies in connection therewith, along with a
certificate of incumbency certified by the secretary of each of the New Companies, and, if there has been any change from the most recent incumbency certificates delivered by any of the Companies or
the Guarantors a certificate of incumbency certified by the secretary of each of the Companies and each of the Guarantors, with specimen signatures of the officers of the Companies, the Guarantors and
the New Companies who are authorized to sign such documents, all in form and substance satisfactory to the Agent; 

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        (iii)  Pledge
Amendment duly signed by the Parent pledging all of its ownership interest in the New Companies, together with stock powers duly signed in blank and the
original stock certificate evidencing Parent's ownership in the New Companies; 

        (iv)  A
signed copy of the Asset Purchase Agreement dated as of May 1, 2003 among Delta, USS-CHC Tubular Processing d/b/a Delta Tubular Processing,
Camp-Hill Tubular Processing Company, L.P., and USS Tubular Processing, Inc. (the "Delta Purchase Agreement"); 

        (v)   A
closing certificate, in form and substance satisfactory to Agent, executed by Delta, confirming the acquisition under the Delta Purchase Agreement is closed; 

        (vi)  Opinion
from Fulbright & Jaworski L.L.P. opining, in form and substance satisfactory to Agent, which shall cover such matters incident to the transactions
contemplated by this Amendment as Agent may reasonably require and the Companies, the Guarantors and the New Companies hereby authorize and direct such counsel to deliver such opinions to Agent; 

        (vii) Evidence
satisfactory to the Agent that casualty insurance policies of all Companies and Guarantors listing Agent as loss payee or additional insured, as the case may
be, have been amended to cover the New Companies as well as all Companies and all Guarantors, and are in full force and effect, in form and substance satisfactory to Agent; and 

        (viii) All
other documents Agent may request with respect to any matter relevant to this Amendment or the transactions contemplated hereby. 

        (b)   The
representations and warranties contained herein and in the Agreement and the other documents executed in connection with the Agreement (herein referred to as
"Loan Documents"), as each is amended hereby, shall be true and correct as of the date hereof, as if made on the date hereof, except for such
representations and warranties as are by their express terms limited to a specific date. 

        (c)   No
Default or Event of Default shall have occurred and be continuing, unless such Default or Event of Default has been otherwise specifically waived in writing by Agent. 

        (d)   All
corporate proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident
thereto shall be satisfactory to Agent. 

        4.02.   Conditions to Eligibility.  None of the New Companies' Accounts
and Inventory shall be considered by Agent as Eligible Accounts Receivable or Eligible Inventory under the Agreement until satisfaction of the following conditions precedent in a manner satisfactory
to Agent, unless specifically waived in writing by Agent: 

        (a)   Within
sixty (60) days from the date of this Amendment, Agent shall have received landlord waivers, bailee letters or other agreements of any lessor,
warehouseman, processor or other Person in possession of, having a Lien upon, or having rights or interest in the Inventory or Equipment of such New Company, each in form and substance satisfactory to
Agent; provided, however, the consequences of failing to provide any such waivers or other agreements for a location shall be limited to the Inventory
at such location not qualifying as Eligible Inventory. 

        (b)   Agent
shall have completed to the satisfaction of Agent an examination and verification of the Accounts, Inventory, Equipment, books and records of such New Company. 

        (c)   Within
sixty (60) days from the date of this Amendment, such New Company shall enter into tri-party blocked account agreements with Agent and the
depository institutions of the Depository Accounts, in form and substance acceptable to Agent and as required by Section 3.4(a) of the Agreement. 

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ARTICLE V
  
    NO Waiver    
    

        5.01.   No Waiver.  Nothing contained herein shall be construed as a
waiver by Agent of any covenant or provision of the Agreement, the other Loan Documents, this Amendment or any other contract or instrument between the Obligors and Agent, and the failure of Agent at
any time or times hereafter to require strict performance by the Obligors of any provision thereof shall not waive, affect or diminish any right of Agent to thereafter demand strict compliance
therewith. Agent hereby reserves all rights granted under the Agreement, the other Loan Documents, this Amendment, and any other contract or instrument between the Obligors and Agent. 

 
 

ARTICLE VI
  
    Ratifications, Representations and Warranties    
    

        6.01.   Ratifications.  The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and the other Loan Documents, and, except as expressly modified and superseded by this Amendment,
the terms and provisions of the Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. The Companies, the Guarantors and Agent agree that the
Agreement and the other Loan Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. 

        6.02.   Representations and Warranties.  The Companies and the
Guarantors hereby represent and warrant to Agent that (a) the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in connection
herewith have been authorized by all requisite corporate or limited partnership or limited liability company action (as applicable) on the part of the Companies and the Guarantors and will not violate
the Articles (or Certificates) of Incorporation or Bylaws of the Companies and the Guarantors that are corporations or the limited partnership agreements or certificates of limited partnership of the
Companies and the Guarantors that are limited partnerships or the articles of formation/organization, regulations or limited liability company agreements of the Companies that are limited liability
companies; (b) each of the Company's and Guarantor's Board of Directors or Executive Committee (or the general partner of the applicable limited partnership) or the members or the Board of
Managers of the applicable limited liability company has authorized the execution, delivery and performance of this Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith; (c) the representations and warranties contained in the Agreement, as amended hereby, and any other Loan Document are true and correct on and as of the date hereof and on
and as of the date of execution hereof as though made on and as of each such date; (d) no Default or Event of Default under the Agreement, as amended hereby, has occurred and is continuing,
unless such Default or Event of Default has been specifically waived in writing by Agent; (e) the Companies and the Guarantors are in full compliance with all covenants and agreements contained
in the Agreement and the other Loan Documents, as amended hereby; and (f) the Companies and the Guarantors have not amended their Articles (or Certificates) of Incorporation or their Bylaws or
similar organizational documents since the date of the Agreement, except as otherwise disclosed to Agent. 

5

 

 
 

ARTICLE VII
  
    Miscellaneous Provisions    
    

        7.01.   Survival of Representations and Warranties.  All representations
and warranties made in the Agreement or any other Loan Document, including, without limitation, any document furnished in connection with this Amendment, shall survive the execution and delivery of
this Amendment and the other Loan Documents, and no investigation by Agent or any closing shall affect the representations and warranties or the right of Agent to rely upon them. 

        7.02.   Reference to Agreement.  Each of the Agreement and the other
Loan Documents, and any and all other Loan Documents, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Agreement, as
amended hereby, are hereby amended so that any reference in the Agreement and such other Loan Documents to the Agreement shall mean a reference to the Agreement, as amended hereby. 

        7.03.   Expenses of Agent.  As provided in the Agreement, Companies
agree to pay on demand all costs and expenses incurred by Agent in connection with the preparation, negotiation, and execution of this Amendment and the other Loan Documents executed pursuant hereto
and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Agent's legal counsel, and all costs and expenses incurred by Agent in
connection with the enforcement or preservation of any rights under the Agreement, as amended hereby, or any other Loan Documents, including, without, limitation, the costs and fees of Agent's legal
counsel. 

        7.04.   Severability.  Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid
or unenforceable. 

        7.05.   Successors and Assigns.  This Amendment is binding upon and
shall inure to the benefit of Agent and Companies and their respective successors and assigns, except that Companies may not assign or transfer any of their rights or obligations hereunder without the
prior written consent of Agent. 

        7.06.   Counterparts.  This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 

        7.07.   Effect of Waiver.  No consent or waiver, express or implied, by
Agent to or for any breach of or deviation from any covenant or condition by Companies shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. 

        7.08.   Headings.  The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of this Amendment. 

        7.09.   Applicable Law.  THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 

6

 

        7.10.   Final Agreement.  THE AGREEMENT AND THE OTHER LOAN DOCUMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS
AMENDED HEREBY, 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. NO MODIFICATION,
RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY COMPANIES AND AGENT. 

        7.11.   Release by the Companies.  THE COMPANIES HEREBY ACKNOWLEDGE THAT
THEY HAVE NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE
"OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM AGENT. THE COMPANIES HEREBY VOLUNTARILY AND KNOWINGLY RELEASE AND FOREVER DISCHARGE AGENT, THE OTHER LENDERS, AND
THEIR RESPECTIVE PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE "RELEASED PARTIES"), FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES,
AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR
BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE COMPANIES MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT,
VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS
OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. 

7

 

        7.12.   Release by the Guarantors.  Each Guarantor hereby consents to
the terms of this Amendment, confirms and ratifies the terms of the Guaranty executed by such Guarantor, acknowledges that such Guaranty is in full force and effect and ratifies the same, and
acknowledges that such Guarantor has no defense, counterclaim, set-off or any other claim to diminish such Guarantor's liability under such document. THE GUARANTORS EACH HEREBY VOLUNTARILY
AND KNOWINGLY RELEASES AND FOREVER DISCHARGES THE RELEASED PARTIES, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR
UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS
EXECUTED, WHICH THE GUARANTORS MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS,
OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER CREDIT DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. 

[The Remainder of this Page Intentionally Left Blank]

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        IN
WITNESS WHEREOF, this Amendment has been executed and is effective as of the date first above-written. 

	COMPANIES:	 	 	 	 
	

LONE STAR TECHNOLOGIES, INC.

FINTUBE TECHNOLOGIES, INC.

LONE STAR STEEL COMPANY

LONE STAR LOGISTICS, INC.

STAR TUBULAR SERVICES, INC.,
 formerly known as T&N LONE STAR WAREHOUSE CO.
 TEXAS & NORTHERN RAILWAY COMPANY

FINTUBE CANADA, INC.

WHEELING MACHINE PRODUCTS, INC.,
 formerly known as WHEELING ACQUISITION CORPORATION and STAR TUBULAR TECHNOLOGIES (HOUSTON), INC.	
 	

 

	

By:	
 	

/s/ Robert F. Spears
	

 
	Name:	 	Robert F. Spears	 
	Title:	 	Vice President of each of the foregoing companies	 
	
BELLVILLE TUBE COMPANY, L.P.

as successor in interest by conversion to Bellville Tube Corporation	

 
	

By:	
 	

Bellville Tube General, LLC,

its general partner	

 
	

 	
 	

By: /s/ Robert F. Spears
 Name: Robert F. Spears

Title: Vice President	

 
	
NEW COMPANIES:	

 
	

STAR CAPITAL FUNDING, INC.

DELTA LONE STAR ACQUISITION, INC.

STAR TUBULAR INTERNATIONAL, INC.	

 
	

By:	
 	

/s/ Robert F. Spears
	

 
	Name:	 	Robert F. Spears	 
	Title:	 	Vice President of each of the foregoing companies	 
	 	 	 	 

9

 

	
GUARANTORS:	

 
	

ENVIRONMENTAL HOLDINGS, INC.

ZINKLAHOMA, INC.

LONE STAR STEEL INTERNATIONAL, INC.

LONE STAR STEEL SALES COMPANY

ROTAC, INC.

LONE STAR ST HOLDINGS, INC.

STAR TUBULAR TECHNOLOGIES, INC.	

 
	

By:	
 	

/s/ Robert F. Spears
	

 
	Name:	 	Robert F. Spears	 
	Title:	 	Vice President of each of the foregoing companies	 
	
BELLVILLE TUBE GENERAL, LLC

BELLVILLE TUBE LIMITED, LLC	

 
	

By:	
 	

/s/ Robert F. Spears
	

 
	Name:	 	Robert F. Spears	 
	Title:	 	Vice President of each of the foregoing limited liability companies	 
	 	 	 	 

10

 

	
LENDERS:	

 
	

THE CIT GROUP/BUSINESS CREDIT, INC.
 as Agent and Lender	

 
	

By:	
 	

/s/ Mark Porter
	

 
	Name:	 	Mark Porter	 
	Title:	 	Vice President	 
	

Revolving Loan Commitment: $40,000,000.00	

 
	
FOOTHILL CAPITAL CORPORATION
 as Lender	

 
	

By:	
 	

/s/ Lan Wong
	

 
	Name:	 	Lan Wong	 
	Title:	 	Assistant Vice President	 
	

Revolving Loan Commitment: $25,000,000.00	

 
	
LASALLE NATIONAL BANK
 as Lender	

 
	

By:	
 	

/s/ June Courtney
	

 
	Name:	 	June Courtney	 
	Title:	 	Senior Vice President	 
	

Revolving Loan Commitment: $10,000,000.00	

 
	
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
 as Lender	

 
	

By:	
 	

/s/ Joe T. Curdy
	

 
	Name:	 	Joe T. Curdy	 
	Title:	 	Assistant Vice President	 
	

Revolving Loan Commitment: $25,000,000.00	

 

11

 
 
 

EXHIBIT A
  to
  FIFTH AMENDED AND RESTATED FINANCING AGREEMENT    
    

 
  Addition to Schedule 1    
    

	Debtor
	 	Secured Party
	 	Financing Statement #
	 	Date of Filing
	 	Collateral

	None	 	 	 	 	 	 	 	 

 
 

Addition to Schedule 7(l)    
    

        Exact Name of Obligors: 

	Name of Entity
	 	State of Incorporation

	Star Capital Funding, Inc.	 	Delaware
	Delta Lone Star Acquisition, Inc.	 	Texas
	Star Tubular International, Inc.	 	Texas
	

Federal Tax I.D. No.:	
 	

 
	
Name of Entity
	
 	

Federal Tax I.D. No.

	Star Capital Funding, Inc.	 	32-0064170
	Delta Lone Star Acquisition, Inc.	 	43-2009505
	Star Tubular International, Inc.	 	57-1164568
	

Chief Executive Office(s):	
 	

 
	

 Star Capital Funding, Inc.

15660 Dallas Parkway, Suite 500

Dallas, Texas 75248	
 	

 
	

Delta Lone Star Acquisition, Inc.

15660 Dallas Parkway, Suite 500

Dallas, Texas 75248	
 	

 
	

Star Tubular International, Inc.

15660 Dallas Parkway, Suite 500

Dallas, Texas 75248	
 	

 
	

Tradenames:	
 	

 
	

None	
 	

 
	

Prior Names:	
 	

 
	
Name of Entity
	
 	

Prior Name

	Star Capital Funding, Inc.	 	None
	Delta Lone Star Acquisition, Inc.	 	Delta Tubular Processing
	Star Tubular International, Inc.	 	None
	 	 	 

12

 

	

Charter No.:	
 	

 
	
Name of Entity
	
 	

Charter No.

	Star Capital Funding, Inc.	 	3619681
	Delta Lone Star Acquisition, Inc.	 	800183239 (Filing Number)
	Star Tubular International, Inc.	 	800193796 (Filing Number)

 
 

Addition to Schedule 7(14)(f)    
    

        Locations of Owned Real Property: 

        None

        Locations
of Leased Real Property: 

15660
North Dallas Parkway, Suite 500

Dallas, Texas 75248 

 
 

Additions to Schedule 7(14)(g)    
    

        In August 2001 Lone Star Technologies, Inc. entered into an agreement with Cargill, Incorporated to acquire the assets of the Tubular Products
Division of North Star Steel Company for $430 million and the acquisition of certain working capital liabilities. Consummation of the acquisition was subject to completion of arrangements for
debt and equity financing, which Lone Star believes that the jury verdict and subsequent judgment were not supported by the facts and plans to file a motion is not granted, Lone Star plans to
file an appeal. The judgment reduced Lone Star's 2002 operating income by $32 million and, if not overturned will reduce Lone Star's available cash by that amount, plus
post-judgment interference. 

 
 

Additions to Schedule 7(14)(l)    
    

        None 

 
 

Additions to Schedule 7(14)(o)    
    

        Subsidiaries of Lone Star Technologies, Inc.: 

Bellville
Tube Corporation

Environmental Holdings, Inc.

Lone Star Steel Company

Lone Star ST Holdings, Inc.

Star Tubular Technologies, Inc.

Star Capital Funding, Inc.

Delta Lone Star Acquisition, Inc.

Star Tubular International, Inc.

 
 

Additions to Schedule 7(14)(p)    
    

        None 

13

QuickLinks

Exhibit 10.1

FIFTH AMENDMENT TO AMENDED AND RESTATED FINANCING AGREEMENT

RECITALS

AGREEMENT

ARTICLE I Definitions

ARTICLE II AMENDMENTS TO AGREEMENT

ARTICLE III Assumption of Obligations and Grant of Liens

ARTICLE IV Conditions Precedent

ARTICLE V NO Waiver

ARTICLE VI Ratifications, Representations and Warranties

ARTICLE VII Miscellaneous Provisions

EXHIBIT A to FIFTH AMENDED AND RESTATED FINANCING AGREEMENT

Addition to Schedule 1

Addition to Schedule 7(l)

Addition to Schedule 7(14)(f)

Additions to Schedule 7(14)(g)

Additions to Schedule 7(14)(l)

Additions to Schedule 7(14)(o)

Additions to Schedule 7(14)(p)Exhibit 4.1

 

 

K. HOVNANIAN ENTERPRISES, INC.,

as Issuer

 

HOVNANIAN ENTERPRISES, INC.

and

the other Guarantors party hereto

 

and

 

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Trustee

 

 

 

Indenture

 

Dated as of May 9, 2003

 

 

 

73⁄4% Senior Subordinated Notes Due 2013

 

 

 

 

CROSS-REFERENCE
TABLE(1)

 

	
  TIA Sections

  	
   

  	
  Indenture Sections

  
	
   

  	
   

  	
   

  
	
  §

  	
  310

  	
  (a)

  	
   

  	
  7.10

  
	
   

  	
   

  	
  (b)

  	
   

  	
  7.08

  
	
  §

  	
  312

  	
   

  	
   

  	
  12.02

  
	
  §

  	
  313

  	
   

  	
   

  	
  7.06

  
	
  §

  	
  314

  	
  (a)

  	
   

  	
  4.15, 4.16

  
	
   

  	
   

  	
  (c)

  	
   

  	
  12.04

  
	
   

  	
   

  	
  (e)

  	
   

  	
  12.05

  
	
  §

  	
  315 

  	
  (a)

  	
   

  	
  7.01, 7.02

  
	
   

  	
   

  	
  (b)

  	
   

  	
  7.02, 7.05

  
	
   

  	
   

  	
  (c)

  	
   

  	
  7.01

  
	
   

  	
   

  	
  (d)

  	
   

  	
  7.02

  
	
   

  	
   

  	
  (e)

  	
   

  	
  5.09

  
	
  §

  	
  316

  	
  (a)

  	
   

  	
  2.06, 5.01, 5.03, 5.04

  
	
   

  	
   

  	
  (b)

  	
   

  	
  5.06

  
	
   

  	
   

  	
  (c)

  	
   

  	
  12.02

  
	
  §

  	
  317

  	
  (a) (1)

  	
   

  	
  5.07

  
	
   

  	
   

  	
  (a) (2)

  	
   

  	
  5.07

  
	
   

  	
   

  	
  (b)

  	
   

  	
  2.04

  
	
  §

  	
  318

  	
   

  	
   

  	
  12.01

  

 

1

 

 

TABLE OF CONTENTS

 

	
  RECITALS

  
	
   

  
	
  ARTICLE 1

  
	
  DEFINITIONS AND INCORPORATION BY REFERENCE

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.

  	
   

  	
  Definitions

  
	
  SECTION 1.02.

  	
   

  	
  Rules of Construction

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2

  
	
  THE NOTES

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01.

  	
   

  	
  Form, Dating and Denominations; Legends

  
	
  SECTION 2.02.

  	
   

  	
  Execution and Authentication; Exchange
  Notes; Additional Notes

  
	
  SECTION 2.03.

  	
   

  	
  Registrar, Paying Agent and Authenticating
  Agent; Paying Agent to Hold Money in Trust

  
	
  SECTION 2.04.

  	
   

  	
  Replacement Notes

  
	
  SECTION 2.05.

  	
   

  	
  Outstanding Notes

  
	
  SECTION 2.06.

  	
   

  	
  Temporary Notes

  
	
  SECTION 2.07.

  	
   

  	
  Cancellation

  
	
  SECTION 2.08.

  	
   

  	
  CUSIP and ISIN Numbers

  
	
  SECTION 2.09.

  	
   

  	
  Registration, Transfer and Exchange

  
	
  SECTION 2.10.

  	
   

  	
  Restrictions on Transfer and Exchange

  
	
  SECTION 2.11.

  	
   

  	
  Regulation S Temporary Global Notes

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  
	
  REDEMPTION; OFFER TO PURCHASE

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
   

  	
  Optional Redemption

  
	
  SECTION 3.02.

  	
   

  	
  Method and Effect of Redemption

  
	
  SECTION 3.03.

  	
   

  	
  Offer to Purchase

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  
	
  COVENANTS

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
   

  	
  Payment of Notes

  
	
  SECTION 4.02.

  	
   

  	
  Maintenance of Office or Agency

  
	
  SECTION 4.03.

  	
   

  	
  Existence

  

 

 

	
  SECTION 4.04.

  	
   

  	
  Payment of Taxes and Other Claims

  
	
  SECTION 4.05.

  	
   

  	
  Maintenance of Properties and Insurance

  
	
  SECTION 4.06.

  	
   

  	
  Limitations on Indebtedness

  
	
  SECTION 4.07.

  	
   

  	
  Limitation on Restricted Payments

  
	
  SECTION 4.08.

  	
   

  	
  Limitation on Liens

  
	
  SECTION 4.09.

  	
   

  	
  Limitations on Restrictions Affecting
  Restricted Subsidiaries

  
	
  SECTION 4.10.

  	
   

  	
  Limitations on Dispositions of Assets

  
	
  SECTION 4.11.

  	
   

  	
  Guarantees by Restricted Subsidiaries

  
	
  SECTION 4.12.

  	
   

  	
  Repurchase of Notes upon a Change of
  Control

  
	
  SECTION 4.13.

  	
   

  	
  Limitation on Transactions with Affiliates

  
	
  SECTION 4.14.

  	
   

  	
  Limitations on Mergers, Consolidations and
  Sales of Assets

  
	
  SECTION 4.15.

  	
   

  	
  Reports to Holders of Notes

  
	
  SECTION 4.16.

  	
   

  	
  Reports to Trustee

  
	
  SECTION 4.17.

  	
   

  	
  Notice of Other Defaults

  
	
  SECTION 4.18.

  	
   

  	
  Limitation on Senior Subordinated
  Indebtedness

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5

  
	
  REMEDIES

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01.

  	
   

  	
  Events of Default

  
	
  SECTION 5.02.

  	
   

  	
  Other Remedies

  
	
  SECTION 5.03.

  	
   

  	
  Waiver of Defaults by Majority of Holders

  
	
  SECTION 5.04.

  	
   

  	
  Direction of Proceedings

  
	
  SECTION 5.05.

  	
   

  	
  Application of Moneys Collected by Trustee

  
	
  SECTION 5.06.

  	
   

  	
  Proceedings by Holders

  
	
  SECTION 5.07.

  	
   

  	
  Proceedings by Trustee

  
	
  SECTION 5.08.

  	
   

  	
   Remedies Cumulative and Continuing

  
	
  SECTION 5.09. 

  	
   

  	
  Undertaking to Pay Costs

  
	
  SECTION 5.10. 

  	
   

  	
  Notice of Defaults

  
	
  SECTION 5.11. 

  	
   

  	
  Waiver of Stay, Extension or Usury Laws

  
	
  SECTION 5.12. 

  	
   

  	
  Trustee May File Proof of Claim

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6

  
	
  GUARANTEE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
   

  	
  Guarantee

  
	
  SECTION 6.02.

  	
   

  	
  Obligations of each Guarantor Unconditional

  
	
  SECTION 6.03.

  	
   

  	
  Release of a Guarantor

  
	
  SECTION 6.04.

  	
   

  	
  Execution and Delivery of Guaranty

  

 

ii

 

	
  SECTION 6.05.

  	
   

  	
  Limitation on Guarantor Liability

  
	
  SECTION 6.06.

  	
   

  	
  Article 6 Not to Prevent Events of Default

  
	
  SECTION 6.07.

  	
   

  	
  Waiver by the Guarantors

  
	
  SECTION 6.08.

  	
   

  	
  Subrogation and Contribution

  
	
  SECTION 6.09.

  	
   

  	
  Stay of Acceleration

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7

  
	
  THE TRUSTEE

  
	
   

  	
   

  	
   

  
	
  SECTION 7.01.

  	
   

  	
  General

  
	
  SECTION 7.02.

  	
   

  	
  Certain Rights of Trustee

  
	
  SECTION 7.03.

  	
   

  	
  Individual Rights of Trustee

  
	
  SECTION 7.04.

  	
   

  	
  Trustee’s Disclaimer

  
	
  SECTION 7.05.

  	
   

  	
  Notice of Default

  
	
  SECTION 7.06.

  	
   

  	
  Reports by Trustee to Holders

  
	
  SECTION 7.07.

  	
   

  	
  Compensation and Indemnity

  
	
  SECTION 7.08.

  	
   

  	
  Replacement of Trustee

  
	
  SECTION 7.09.

  	
   

  	
  Successor Trustee by Merger

  
	
  SECTION 7.10.

  	
   

  	
  Eligibility

  
	
  SECTION 7.11.

  	
   

  	
  Money Held in Trust

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8

  
	
  DEFEASANCE AND DISCHARGE

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01.

  	
   

  	
  Discharge of Issuer’s Obligations

  
	
  SECTION 8.02.

  	
   

  	
  Legal Defeasance

  
	
  SECTION 8.03.

  	
   

  	
  Covenant Defeasance

  
	
  SECTION 8.04.

  	
   

  	
  Application of Trust Money

  
	
  SECTION 8.05.

  	
   

  	
  Repayment to Issuer

  
	
  SECTION 8.06.

  	
   

  	
  Reinstatement

  
	
  SECTION 8.07.

  	
   

  	
  Indemnity for U.S. Government Obligations

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9

  
	
  AMENDMENTS, SUPPLEMENTS AND WAIVERS

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01.

  	
   

  	
  Amendments Without Consent of Holders

  
	
  SECTION 9.02.

  	
   

  	
  Amendments With Consent of Holders

  
	
  SECTION 9.03.

  	
   

  	
  Effect of Consent

  
	
  SECTION 9.04.

  	
   

  	
  Trustee’s Rights and Obligations

  
	
  SECTION 9.05.

  	
   

  	
  Conformity with Trust Indenture Act

  
	
  SECTION 9.06.

  	
   

  	
  Payments for Consents

  

 

iii

 

	
  ARTICLE 10

  
	
  SUBORDINATION OF NOTES

  
	
   

  	
   

  	
   

  
	
  SECTION 10.01.

  	
   

  	
  Notes Subordinated to Senior Debt of the
  Issuer

  
	
  SECTION 10.02.

  	
   

  	
  Issuer Not to Make Payments with Respect to
  Notes in Certain Circumstances

  
	
  SECTION 10.03.

  	
   

  	
  Notes
  Subordinated to Prior Payment of All Senior Debt of the Issuer on Dissolution,
  Winding Up, Liquidation or Reorganization of Issuer

  
	
  SECTION 10.04.

  	
   

  	
  Holders to Be Subrogated to Rights of Holders
  of Senior Debt of the Issuer

  
	
  SECTION 10.05.

  	
   

  	
  Obligations of the Issuer Unconditional

  
	
  SECTION 10.06.

  	
   

  	
  Trustee Entitled to Assume Payments Not
  Prohibited in Absence of Notice

  
	
  SECTION 10.07.

  	
   

  	
  Application by Trustee of Monies Deposited
  with it

  
	
  SECTION 10.08.

  	
   

  	
  Subordination Rights Not Impaired by Acts
  or Omissions of Issuer or Holders of Senior Debt of the Issuer

  
	
  SECTION 10.09.

  	
   

  	
  Holders Authorize Trustee to Effectuate
  Subordination of Notes

  
	
  SECTION 10.10.

  	
   

  	
  Right of Trustee to Hold Senior Debt of the
  Issuer

  
	
  SECTION 10.11.

  	
   

  	
  Trustee Not Fiduciary for Holders of Senior
  Debt of the Issuer

  
	
  SECTION 10.12.

  	
   

  	
  Article 10 Not to Prevent Events of Default

  
	
  SECTION 10.13.

  	
   

  	
  Officers’ Certificate

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11

  
	
  SUBORDINATION OF GUARANTEES

  
	
   

  	
   

  	
   

  
	
  SECTION 11.01.

  	
   

  	
  Guarantees Subordination to Senior Debt of
  a Guarantor

  
	
  SECTION 11.02.

  	
   

  	
  Guarantor Not to Make Payments with Respect
  to Notes in Certain Circumstances

  
	
  SECTION 11.03.

  	
   

  	
  Guarantee
  Subordinated to Prior Payment of All Senior Debt of a Guarantor on
  Dissolution, Winding Up, Liquidation or Reorganization of a Guarantor

  
	
  SECTION 11.04.

  	
   

  	
  Holders to Be Subrogated to Rights of
  Holders of Senior Debt of a Guarantor

  
	
  SECTION 11.05.

  	
   

  	
   Obligations of the Guarantors Unconditional

  

 

iv

 

	
  SECTION 11.06.

  	
   

  	
  Trustee Entitled to Assume Payments Not
  Prohibited in Absence of Notice

  
	
  SECTION 11.07.

  	
   

  	
  Application by Trustee of Monies Deposited
  with it

  
	
  SECTION 11.08.

  	
   

  	
  Subordination
  Rights Not Impaired by Acts or Omissions of Any Guarantor or Holders of
  Senior Debt of a Guarantor

  
	
  SECTION 11.09.

  	
   

  	
  Holders Authorize Trustee to Effectuate
  Subordination of Notes

  
	
  SECTION 11.10.

  	
   

  	
  Right of Trustee to Hold Senior Debt of a
  Guarantor

  
	
  SECTION 11.11.

  	
   

  	
  Trustee Not Fiduciary for Holders of Senior
  Debt of a Guarantor

  
	
  SECTION 11.12.

  	
   

  	
  Article 11 Not to Prevent Events of Default

  
	
  SECTION 11.13.

  	
   

  	
  Subordination of Indebtedness Owed by the
  Issuer to a Guarantor

  
	
  SECTION 11.14.

  	
   

  	
  Officers’ Certificate

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12

  
	
  MISCELLANEOUS

  
	
   

  	
   

  	
   

  
	
  SECTION 12.01.

  	
   

  	
  Trust Indenture Act of 1939

  
	
  SECTION 12.02.

  	
   

  	
  Holder Communications; Holder Actions

  
	
  SECTION 12.03.

  	
   

  	
  Notices

  
	
  SECTION 12.04.

  	
   

  	
  Certificate and Opinion as to Conditions
  Precedent

  
	
  SECTION 12.05.

  	
   

  	
  Statements Required in Certificate or
  Opinion

  
	
  SECTION 12.06.

  	
   

  	
  Payment Date Other Than a Business Day

  
	
  SECTION 12.07.

  	
   

  	
  Governing Law

  
	
  SECTION 12.08.

  	
   

  	
  No Adverse Interpretation of Other
  Agreements

  
	
  SECTION 12.09.

  	
   

  	
  Successors

  
	
  SECTION 12.10.

  	
   

  	
  Duplicate Originals

  
	
  SECTION 12.11.

  	
   

  	
  Separability

  
	
  SECTION 12.12.

  	
   

  	
  Table of Contents and Headings

  
	
  SECTION 12.13.

  	
   

  	
  No Liability of Directors, Officers,
  Employees, Incorporators and Stockholders

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
   

  	
  Form of Note

  
	
  EXHIBIT B

  	
   

  	
  Form of Supplemental Indenture

  
	
  EXHIBIT C

  	
   

  	
  Restricted Legend

  
	
  EXHIBIT D

  	
   

  	
  DTC Legend

  
	
  EXHIBIT E

  	
   

  	
  Regulation S Certificate

  

 

v

 

	
  EXHIBIT F

  	
   

  	
  Rule 144A Certificate

  
	
  EXHIBIT G

  	
   

  	
  Institutional Accredited Investor Certificate

  
	
  EXHIBIT H

  	
   

  	
  Certificate of Beneficial Ownership

  
	
  EXHIBIT I

  	
   

  	
  Regulation S Temporary Global Note Legend

  

 

vi

 

INDENTURE,
dated as of May 9, 2003, between K. HOVNANIAN ENTERPRISES, INC., a California
corporation (the “Issuer”),
HOVNANIAN ENTERPRISES, INC., a Delaware corporation (the “Company”), each of the other Guarantors (as
defined hereafter) and WACHOVIA BANK, NATIONAL ASSOCIATION, as Trustee.

 

RECITALS

 

The Issuer has
duly authorized the execution and delivery of the Indenture to provide for the
issuance of up to $150,000,000 aggregate principal amount of the Issuer’s 73⁄4%
Senior Subordinated Notes Due 2013, and, if and when issued, any Additional
Notes (subject to the limitations set forth in Section 2.02), together with any
Exchange Notes issued therefor as provided herein (the “Notes”). 
All things necessary to make the Indenture a valid agreement of the
Issuer, in accordance with its terms, have been done, and the Issuer has done
all things necessary to make the Notes (in the case of the Additional Notes,
when duly authorized), when executed by the Issuer and authenticated and
delivered by the Trustee and duly issued by the Issuer, the valid obligations
of the Issuer as hereinafter provided.

 

In addition,
the Guarantors party hereto have duly authorized the execution and delivery of
the Indenture as guarantors of the Notes. 
All things necessary to make the Indenture a valid agreement of each
Guarantor, in accordance with its terms, have been done, and each Guarantor has
done all things necessary to make the Note Guarantees, when executed by each
Guarantor, and the Notes, when executed by the Issuer and authenticated and
delivered by the Trustee and duly issued by the Issuer, the valid obligations of
such Guarantor as hereinafter provided.

 

This Indenture
is subject to, and will be governed by, the provisions of the Trust Indenture
Act that are required to be a part of and govern indentures qualified under the
Trust Indenture Act.

 

THIS
INDENTURE WITNESSETH

 

For and in
consideration of the premises and the purchase of the Notes by the Holders
thereof, the parties hereto covenant and agree, for the equal and proportionate
benefit of all Holders, as follows:

 

 

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

 

SECTION 1.01.  Definitions.

 

“Acquired Indebtedness” means (a) with
respect to any Person that becomes a Restricted Subsidiary (or is merged into
the Company, the Issuer or any Restricted Subsidiary) after the Issue Date,
Indebtedness of such Person or any of its Subsidiaries existing at the time
such Person becomes a Restricted Subsidiary (or is merged into the Company, the
Issuer or any Restricted Subsidiary) that was not incurred in connection with,
or in contemplation of, such Person becoming a Restricted Subsidiary (or being
merged into the Company, the Issuer or any Restricted Subsidiary) and (b) with
respect to the Company, the Issuer or any Restricted Subsidiary, any
Indebtedness expressly assumed by the Company, the Issuer or any Restricted
Subsidiary in connection with the acquisition of any assets from another Person
(other than the Company, the Issuer or any Restricted Subsidiary), which
Indebtedness was not incurred by such other Person in connection with or in
contemplation of such acquisition. Indebtedness incurred in connection with or
in contemplation of any transaction described in clause (a) or (b) of the
preceding sentence shall be deemed to have been incurred by the Company or a
Restricted Subsidiary, as the case may be, at the time such Person becomes a
Restricted Subsidiary (or is merged into the Company, the Issuer or any
Restricted Subsidiary) in the case of clause (a) or at the time of the
acquisition of such assets in the case of clause (b), but shall not be deemed
Acquired Indebtedness.

 

“Additional Interest” means additional
interest or liquidated damages owed to the Holders pursuant to a Registration
Rights Agreement.

 

“Additional Notes” means any notes issued
under the Indenture in addition to the Original Notes, including any Exchange
Notes issued in exchange for such Additional Notes, having the same terms in
all respects as the Original Notes except that interest will accrue on the
Additional Notes from their date of issuance.

 

“Affiliate” means, when used with reference
to a specified Person any Person direct or indirectly controlling, or
controlled by or under direct or indirect common control with the Person
specified.

 

“Agent” means any Registrar, Paying Agent or
Authenticating Agent.

 

“Agent Member” means a member of, or a
participant in, the Depositary.

 

2

 

“Asset Acquisition” means (a) an Investment
by the Company, the Issuer or any Restricted Subsidiary in any other Person if,
as a result of such Investment, such Person shall become a Restricted
Subsidiary or shall be consolidated or merged with or into the Company, the
Issuer or any Restricted Subsidiary or (b) the acquisition by the Company, the
Issuer or any Restricted Subsidiary of the assets of any Person, which
constitute all or substantially all of the assets or of an operating unit or
line of business of such Person or which is otherwise outside the ordinary
course of business.

 

“Asset Disposition” means any sale,
transfer, conveyance, lease or other disposition (including, without
limitation, by way of merger, consolidation or sale and leaseback or sale of
shares of Capital Stock in any Subsidiary) (each, a “transaction”) by the Company, the Issuer or any Restricted
Subsidiary to any Person of any Property having a Fair Market Value in any
transaction or series of related transactions of at least $5 million. The term
“Asset Disposition” shall not include:

 

(a)          a transaction between the Company, the Issuer
and any Restricted Subsidiary or a transaction between Restricted Subsidiaries,

 

(b)         a transaction in the ordinary course of
business, including, without limitation, sales (directly or indirectly),
dedications and other donations to governmental authorities, leases and sales
and leasebacks of (A) homes, improved land and unimproved land and (B) real
estate (including related amenities and improvements),

 

(c)          a transaction involving the sale of Capital
Stock of, or the disposition of assets in, an Unrestricted Subsidiary,

 

(d)         any exchange or swap of assets of the Company,
the Issuer or any Restricted Subsidiary for assets that (x) are to be used by
the Company, the Issuer or any Restricted Subsidiary in the ordinary course of
its Real Estate Business and (y) have a Fair Market Value not less than the
Fair Market Value of the assets exchanged or swapped,

 

(e)          any sale, transfer, conveyance, lease or
other disposition of assets and properties that is governed by Section 4.14
hereof, or

 

(f)            dispositions of mortgage loans and related
assets and mortgage-backed securities in the ordinary course of a mortgage
lending business.

 

3

 

“Attributable Debt” means, with respect to
any Capitalized Lease Obligations, the capitalized amount thereof determined in
accordance with GAAP.

 

“Authenticating Agent” refers to a Person
engaged to authenticate the Notes in the stead of the Trustee.

 

“Bankruptcy Law” means title 11 of the
United States Code, as amended, or any similar federal or state law for the
relief of debtors.

 

“Board of Directors” means the board of
directors of the Issuer, or any committee thereof duly authorized to act on its
behalf.

 

“Board Resolution” means a resolution duly
adopted by the Board of Directors which, as of the date of any certification
thereof, remains in full force and effect.

 

“Business Day” means any day except a
Saturday, Sunday or other day on which commercial banks in New York City or in
the city where the Corporate Trust Office of the Trustee is located are
authorized by law to close.

 

“Capital Stock” means, with respect to any
Person, any and all shares, interests, participations or other equivalents
(however designated) of or in such Person’s capital stock or other equity
interests, and options, rights or warrants to purchase such capital stock or
other equity interests, whether now outstanding or issued after the Issue Date,
including, without limitation, all Disqualified Stock and Preferred Stock.

 

“Capitalized Lease Obligations” of any
Person means the obligations of such Person to pay rent or other amounts under
a lease that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of such obligations will be the
capitalized amount thereof determined in accordance with GAAP.

 

“Cash Equivalents” means

 

(a)          U.S. dollars;

 

(b)         securities issued or directly and fully
guaranteed or insured by the U.S. government or any agency or instrumentality
thereof having maturities of one year or less from the date of acquisition;

 

(c)          certificates of deposit and eurodollar time
deposits with maturities of one year or less from the date of acquisition,
bankers’

 

4

 

acceptances
with maturities not exceeding six months and overnight bank deposits, in each
case with any domestic commercial bank having capital and surplus in excess of
$500 million;

 

(d)         repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (b)
and (c) entered into with any financial institution meeting the qualifications
specified in clause (c) above;

 

(e)          commercial paper rated P-1, A-1 or the
equivalent thereof by Moody’s or S&P, respectively, and in each case
maturing within six months after the date of acquisition; and

 

(f)            investments in money market funds
substantially all of the assets of which consist of securities described in the
foregoing clauses  (a) through (e).

 

“Certificate of Beneficial Ownership” means
a certificate substantially in the form of Exhibit H.

 

“Certificated Note” means a Note in
registered individual form without interest coupons.

 

“Change of Control” means

 

(a)                                  any
sale, lease, or other transfer (in one transaction or a series of transactions)
of all or substantially all of the consolidated assets of the Company and its
Restricted Subsidiaries to any Person (other than a Restricted Subsidiary); provided, however,
that a transaction where the holders of all classes of Common Equity of the
Company immediately prior to such transaction own, directly or indirectly, more
than 50% of all classes of Common Equity of such Person immediately after such
transaction shall not be a Change of Control;

 

(b)                                 a
“person” or “group” (within the meaning of Section 13(d) of the Exchange Act
(other than (x) the Company or (y) the Permitted Hovnanian Holders) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of Common
Equity of the Company representing more than 50% of the voting power of the
Common Equity of the Company;

 

(c)                                  Continuing
Directors cease to constitute at least a majority of the Board of Directors of
the Company;

 

(d)                                 the
stockholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company; provided,
however, that a

 

5

 

liquidation or
dissolution of the Company which is part of a transaction that does not
constitute a Change of Control under the proviso contained in clause (a) above
shall not constitute a Change of Control; or

 

(e)                                  a
change of control shall occur as defined in the instrument governing any
publicly traded debt securities of the Company or the Issuer which requires the
Company or the Issuer to repay or repurchase such debt securities.

 

“Clearstream” means Clearstream Banking,
société anonyme, Luxembourg, formerly Cedelbank.

 

“Commission” means the Securities and
Exchange Commission.

 

“Common Equity” of any Person means Capital
Stock of such Person that is generally entitled to (a) vote in the election of
directors of such Person or (b) if such Person is not a corporation, vote or
otherwise participate in the selection of the governing body, partners,
managers or others that will control the management or policies of such Person.

 

“Company” means Hovnanian Enterprises, Inc.,
or any successor obligor under the Indenture and the Note Guarantees pursuant
to Section 4.14.

 

“Consolidated Adjusted Tangible Assets” of
the Company as of any date means the Consolidated Tangible Assets of the
Company, the Issuer and the Restricted Subsidiaries at the end of the fiscal
quarter immediately preceding the date less any assets securing any
Non-Recourse Indebtedness, as determined in accordance with GAAP.

 

“Consolidated Cash Flow Available for Fixed Charges”
means, for any period, Consolidated Net Income for such period plus (each to
the extent deducted in calculating such Consolidated Net Income and determined
in accordance with GAAP) the sum for such period, without duplication, of:

 

(a)                                  income
taxes,

 

(b)                                 Consolidated
Interest Expense,

 

(c)                                  depreciation
and amortization expenses and other non-cash charges to earnings, and

 

(d)                                 interest
and financing fees and expenses which were previously capitalized and which are
amortized to cost of sales, minus

 

6

 

all other non-cash
items (other than the receipt of notes receivable) increasing such Consolidated
Net Income.

 

“Consolidated Fixed Charge Coverage Ratio”
means, with respect to any determination date, the ratio of (x) Consolidated
Cash Flow Available for Fixed Charges for the prior four full fiscal quarters
(the “Four Quarter Period”) for
which financial results have been reported immediately preceding the
determination date (the “Transaction Date”),
to (y) the aggregate Consolidated Interest Incurred for the Four Quarter
Period. For purposes of this definition, “Consolidated
Cash Flow Available for Fixed Charges” and “Consolidated Interest Incurred” shall be
calculated after giving effect on a pro
forma basis for the period of such calculation to:

 

(a)                                  the
incurrence or the repayment, repurchase, defeasance or other discharge or the
assumption by another Person that is not an Affiliate (collectively, “repayment”) of any Indebtedness of the
Company, the Issuer or any Restricted Subsidiary (and the application of the
proceeds thereof) giving rise to the need to make such calculation, and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), at any time on or after the first day of the Four Quarter
Period and on or prior to the Transaction Date, as if such incurrence or
repayment, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four Quarter Period, except that Indebtedness
under revolving credit facilities shall be deemed to be the average daily
balance of such Indebtedness during the Four Quarter Period (as reduced on such
pro forma basis by the application of any proceeds of the incurrence of
Indebtedness giving rise to the need to make such calculation);

 

(b)                                 any
Asset Disposition or Asset Acquisition (including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of the Company, the Issuer or any Restricted Subsidiary (including any Person
that becomes a Restricted Subsidiary as a result of any such Asset Acquisition)
incurring Acquired Indebtedness at any time on or after the first day of the
Four Quarter Period and on or prior to the Transaction Date), as if such Asset
Disposition or Asset Acquisition (including the incurrence or repayment of any
such Indebtedness) and the inclusion, notwithstanding clause (b) of the
definition of “Consolidated Net Income,” of any Consolidated Cash Flow
Available for Fixed Charges associated with such Asset Acquisition as if it
occurred on the first day of the Four Quarter Period; provided, however, that the Consolidated
Cash Flow Available for Fixed Charges associated with any Asset Acquisition
shall not be included to the extent the net income so associated would be
excluded pursuant to the definition of “Consolidated Net Income,” other than
clause (b) thereof, as if it applied to the Person or assets involved before
they were acquired; and

 

7

 

(c)                                  the
Consolidated Cash Flow Available for Fixed Charges and the Consolidated
Interest Incurred attributable to discontinued operations, as determined in
accordance with GAAP, shall be excluded.

 

Furthermore,
in calculating “Consolidated Cash Flow Available for Fixed Charges” for
purposes of determining the denominator (but not the numerator) of this
“Consolidated Fixed Charge Coverage Ratio,”

 

(a)                                  interest
on Indebtedness in respect of which a pro
forma calculation is required that is determined on a fluctuating
basis as of the Transaction Date (including Indebtedness actually incurred on
the Transaction Date) and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date, and

 

(b)                                 notwithstanding
clause (a) above, interest on such Indebtedness determined on a fluctuating
basis, to the extent such interest is covered by agreements relating to
Interest Protection Agreements, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.

 

“Consolidated Interest Expense” of the
Company for any period means the Interest Expense of the Company, the Issuer
and the Restricted Subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP.

 

“Consolidated Interest Incurred” for any
period means the Interest Incurred of the Company, the Issuer and the
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP.

 

“Consolidated Net Income” for any period
means the aggregate net income (or loss) of the Company and its Subsidiaries
for such period, determined on a consolidated basis in accordance with GAAP; provided that there will be excluded from
such net income (loss) (to the extent otherwise included therein), without
duplication:

 

(a)                                  the
net income (or loss) of (x) any Unrestricted Subsidiary (other than a Mortgage
Subsidiary) or (y) any Person (other than a Restricted Subsidiary or a Mortgage
Subsidiary) in which any Person other than the Company, the Issuer or any
Restricted Subsidiary has an ownership interest, except, in each case, to the
extent that any such income has actually been received by the Company, the
Issuer or any Restricted Subsidiary in the form of cash dividends or similar
cash distributions during such period, which dividends or distributions are not
in excess of the Company’s, the Issuer’s or such Restricted Subsidiary’s (as

 

8

 

applicable)
pro rata share of such Unrestricted Subsidiary’s or such other Person’s net
income earned during such period,

 

(b)                                 except
to the extent includable in Consolidated Net Income pursuant to the foregoing
clause (a), the net income (or loss) of any Person that accrued prior to the
date that (i) such Person becomes a Restricted Subsidiary or is merged with or
into or consolidated with the Company, the Issuer or any of its Restricted
Subsidiaries (except, in the case of an Unrestricted Subsidiary that is
redesignated a Restricted Subsidiary during such period, to the extent of its
retained earnings from the beginning of such period to the date of such
redesignation) or (ii) the assets of such Person are acquired by the Company or
any Restricted Subsidiary,

 

(c)                                  the
net income of any Restricted Subsidiary to the extent that (but only so long
as) the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of that income is not permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary during
such period,

 

(d)                                 the
gains or losses, together with any related provision for taxes, realized during
such period by the Company, the Issuer or any Restricted Subsidiary resulting
from (i) the acquisition of securities, or extinguishment of Indebtedness, of
the Company or any Restricted Subsidiary or (ii) any Asset Disposition by the
Company or any Restricted Subsidiary,

 

(e)                                  any
extraordinary gain or loss together with any related provision for taxes,
realized by the Company, the Issuer or any Restricted Subsidiary, and

 

(f)                                    any
non-recurring expense recorded by the Company, the Issuer or any Restricted
Subsidiary in connection with a merger accounted for as a
“pooling-of-interests” transaction;

 

provided further, that for purposes of
calculating Consolidated Net Income solely as it relates to clause (iii) of
Section 4.07(a) hereof, clause (d)(ii) above shall not be applicable.

 

“Consolidated Net Worth” of any Person as of
any date means the stockholders’ equity (including any Preferred Stock that is
classified as equity under GAAP, other than Disqualified Stock) of such Person
and its Restricted Subsidiaries on a consolidated basis at the end of the
fiscal quarter immediately preceding such date, as determined in accordance
with GAAP, less any amount attributable to Unrestricted Subsidiaries.

 

9

 

“Consolidated Tangible Assets” of the
Company as of any date means the total amount of assets of the Company, the
Issuer and the Restricted Subsidiaries (less applicable reserves) on a
consolidated basis at the end of the fiscal quarter immediately preceding such
date, as determined in accordance with GAAP, less (a) Intangible Assets and (b)
appropriate adjustments on account of minority interests of other Persons
holding equity investments in Restricted Subsidiaries.

 

“Continuing Director” means a director who
either was a member of the Board of Directors of the Company on the date of the
Indenture or who became a director of the Company subsequent to such date and
whose election or nomination for election by the Company’s stockholders, was
duly approved by a majority of the Continuing Directors on the Board of
Directors of the Company at the time of such approval, either by a specific
vote or by approval of the proxy statement issued by the Company on behalf of
the entire Board of Directors of the Company in which such individual is named
as nominee for director.

 

“control” when used with respect to any
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms “controlling” and “controlled” have
meanings correlative to the foregoing.

 

“Corporate Trust Office” means the office of
the Trustee at which the corporate trust business of the Trustee is principally
administered, which at the date of the Indenture is located at 21 South Street,
Morristown, NJ 07960.

 

“Credit Facilities” means, collectively,
each of the credit facilities and lines of credit of the Company or one or more
Restricted Subsidiaries in existence on the Issue Date and one or more other
facilities and lines of credit among or between the Company or one or more
Restricted Subsidiaries and one or more lenders pursuant to which the Company
or one or more Restricted Subsidiaries may incur indebtedness for working
capital and general corporate purposes (including acquisitions), as any such
facility or line of credit may be amended, restated, supplemented or otherwise
modified from time to time, and includes any agreement extending the maturity
of, increasing the amount of, or restructuring, all or any portion of the
Indebtedness under such facility or line of credit or any successor facilities
or lines of credit and includes any facility or line of credit with one or more
lenders refinancing or replacing all or any portion of the Indebtedness under
such facility or line of credit or any successor facility or line of credit.

 

“Currency Agreement” of any Person means any
foreign exchange contract, currency swap agreement or other similar agreement
or arrangement designed to protect such Person or any of its Subsidiaries
against fluctuations in currency values.

 

10

 

“Custodian” means any receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy Law.

 

“Default” means any event, act or condition
that is, or after notice or the passage of time or both would be, an Event of
Default.

 

“Depositary” means the depositary of each
Global Note, which will initially be DTC.

 

“Designation Amount” has the meaning
provided in the definition of Unrestricted Subsidiary.

 

“Disqualified Stock” means any Capital Stock
that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, (a) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final maturity date of the Notes or (b)
is convertible into or exchangeable or exercisable for (whether at the option of
the issuer or the holder thereof) (i) debt securities or (ii) any Capital Stock
referred to in (a) above, in each case, at any time prior to the final maturity
date of the Notes; provided, however, that any Capital Stock that would
not constitute Disqualified Stock but for provisions thereof giving holders
thereof (or the holders of any security into or for which such Capital Stock is
convertible, exchangeable or exercisable) the right to require the Company to
repurchase or redeem such Capital Stock upon the occurrence of a change in
control occurring prior to the final maturity date of the Notes shall not
constitute Disqualified Stock if the change in control provision applicable to
such Capital Stock are no more favorable to such holders than Section 4.12
hereof and such Capital Stock specifically provides that the Company will not
repurchase or redeem any such Capital Stock pursuant to such provisions prior
to the Company’s repurchase of the Notes as are required pursuant to Section
4.12 hereof.

 

“DTC” means The Depository Trust Company, a
New York corporation.

 

“DTC Legend” means the legend set forth in
Exhibit D.

 

“Euroclear” means Euroclear Bank S.A./N.V.,
and its successors or assigns, as operator of the Euroclear System.

 

“Event of Default” has the meaning assigned
to such term in Section 5.01.

 

“Exchange Act” means the Securities Exchange
Act of 1934.

 

11

 

“Exchange Notes” means the Notes of the
Issuer issued pursuant to the Indenture in exchange for, and in an aggregate
principal amount equal to, the Initial Notes or any Initial Additional Notes in
compliance with the terms of a Registration Rights Agreement and containing
terms substantially identical to the Initial Notes or any Initial Additional Notes
(except that (i) such Exchange Notes will be registered under the Securities
Act and will not be subject to transfer restrictions or bear the Restricted
Legend, and (ii) the provisions relating to Additional Interest will be
eliminated).

 

“Exchange Offer” means an offer by the
Issuer to the Holders of the Initial Notes or any Initial Additional Notes to
exchange outstanding Notes for Exchange Notes, as provided for in a
Registration Rights Agreement.

 

“Exchange Offer Registration Statement”
means the Exchange Offer Registration Statement as defined in a Registration
Rights Agreement.

 

“Fair Market Value” means, with respect to
any asset, the price (after taking into account any liabilities relating to
such assets) that would be negotiated in an arm’s-length transaction for cash
between a willing seller and a willing and able buyer, neither of which is
under any compulsion to complete the transaction, as such price is determined
in good faith by the Board of Directors of the Company or a duly authorized committee
thereof, as evidenced by a resolution of such Board or committee.

 

“GAAP” means generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States, as in effect on May
4, 1999.

 

“Global Note” means a Note in registered
global form without interest coupons.

 

“Global Note Legend” means the legend set
forth in Exhibit I.

 

“Guarantee” means the guarantee of the Notes
by each Guarantor under the Indenture.

 

“Guarantee Initial Period” has the meaning
set forth in Section 11.02.

 

“Guarantee Payment Blockage Period” has the
meaning set forth in Section 11.02.

 

12

 

“Guarantors” means (a) initially, the
Company and each of the Company’s Restricted Subsidiaries in existence on the
Issue Date, except the Issuer, KHL, Inc. and K. Hovnanian Poland, sp. z.o.o.
(the names of which are specified on Schedule A hereto) and (b) each of the
Company’s Subsidiaries that executes a supplemental indenture in the form of
Exhibit B to the Indenture providing for the guaranty of the payment of the
Notes, or any successor obligor under its Note Guaranty pursuant to Section
4.14, in each case unless and until such Guarantor is released from its Note
Guaranty pursuant to the Indenture.

 

“Holder” means the Person in whose name a
Note is registered in the books of the Registrar for the Notes.

 

“Indebtedness” of any Person means, without
duplication,

 

(a)                                  any
liability of such Person (i) for borrowed money or under any reimbursement
obligation relating to a letter of credit or other similar instruments (other
than standby letters of credit or similar instrument issued for the benefit of
or surety, performance, completion or payment bonds, earnest money notes or similar
purpose undertakings or indemnifications issued by, such Person in the ordinary
course of business), (ii) evidenced by a bond, note, debenture or similar
instrument (including a purchase money obligation) given in connection with the
acquisition of any businesses, properties or assets of any kind or with
services incurred in connection with capital expenditures (other than any
obligation to pay a contingent purchase price which, as of the date of
incurrence thereof is not required to be recorded as a liability in accordance
with GAAP), or (iii) in respect of Capitalized Lease Obligations (to the extent
of the Attributable Debt in respect thereof),

 

(b)                                 any
Indebtedness of others that such Person has guaranteed to the extent of the
guarantee; provided  however, that Indebtedness of the Company
and its Restricted Subsidiaries will not include the obligations of the Company
or a Restricted Subsidiary under warehouse lines of credit of Mortgage
Subsidiaries to repurchase mortgages at prices no greater than 98% of the
principal amount thereof, and upon any such purchase the excess, if any, of the
purchase price thereof over the Fair Market Value of the mortgages acquired,
will constitute Restricted Payments subject to Section 4.07 hereof,

 

(c)                                  to
the extent not otherwise included, the obligations of such Person under
Currency Agreements or Interest Protection Agreements to the extent recorded as
liabilities not constituting Interest Incurred, net of amounts recorded as
assets in respect of such agreements, in accordance with GAAP, and

 

(d)                                 all
Indebtedness of others secured by a Lien on any asset of such Person, whether
or not such Indebtedness is assumed by such Person;

 

13

 

provided, that Indebtedness shall not include
accounts payable, liabilities to trade creditors of such Person or other
accrued expenses arising in the ordinary course of business. The amount of
Indebtedness of any Person at any date shall be (i) the outstanding balance at
such date of all unconditional obligations as described above, net of any
unamortized discount to be accounted for as Interest Expense, in accordance
with GAAP, (ii) the maximum liability of such Person for any contingent
obligations under clause (a) above at such date, net of an unamortized discount
to be accounted for as Interest Expense in accordance with GAAP, and (iii) in
the case of clause (d) above, the lesser of (x) the fair market value of any
asset subject to a Lien securing the Indebtedness of others on the date that the
Lien attaches and (y) the amount of the Indebtedness secured.

 

“Indenture” means this indenture, as amended
or supplemented from time to time.

 

“Initial Additional Notes” means Additional
Notes issued in an offering not registered under the Securities Act and any
Notes issued in replacement thereof, but not including any Exchange Notes
issued in exchange therefor.

 

“Initial Notes” means the Notes issued on
the Issue Date and any Notes issued in replacement thereof, but not including
any Exchange Notes issued in exchange therefor.

 

“Initial Period” has the meaning set forth
in Section 10.02.

 

“Initial Purchasers” means the initial
purchasers party to a purchase agreement with the Issuer relating to the sale
of the Initial Notes by the Issuer.

 

“Institutional Accredited Investor Certificate”
means a certificate substantially in the form of Exhibit G hereto.

 

“Intangible Assets” of the Company means all
unamortized debt discount and expense, unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, copyrights, write-ups of
assets over their prior carrying value (other than write-ups which occurred
prior to the Issue Date and other than, in connection with the acquisition of
an asset, the write-up of the value of such asset (within one year of its
acquisition) to its fair market value in accordance with GAAP) and all other
items which would be treated as intangible on the consolidated balance sheet of
the Company, the Issuer and the Restricted Subsidiaries prepared in accordance with
GAAP.

 

“Interest Expense” of any Person for any
period means, without duplication, the aggregate amount of (a) interest which,
in conformity with

 

14

 

GAAP, would be
set opposite the caption “interest expense” or any like caption on an income
statement for such Person (including, without limitation, imputed interest
included in Capitalized Lease Obligations, all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers’ acceptance
financing, the net costs (but reduced by net gains) associated with Currency
Agreements and Interest Protection Agreements, amortization of other financing
fees and expenses, the interest portion of any deferred payment obligation,
amortization of discount or premium, if any, and all other noncash interest
expense (other than interest and other charges amortized to cost of sales), and
(b) all interest actually paid by the Company or a Restricted Subsidiary under
any guarantee of Indebtedness (including, without limitation, a guarantee of
principal, interest or any combination thereof) of any Person other than the
Company, the Issuer or any Restricted Subsidiary during such period; provided that Interest Expense shall
exclude any expense associated with the complete writeoff of financing fees and
expenses in connection with the repayment of any Indebtedness.

 

“Interest Incurred” of any Person for any
period means, without duplication, the aggregate amount of (a) Interest Expense
and (b) all capitalized interest and amortized debt issuance costs.

 

“Interest Payment Date” means each May 15
and November 15 of each year, commencing November 15, 2003.

 

“Interest Protection Agreement” of any
Person means any interest rate swap agreement, interest rate collar agreement,
option or futures contract or other similar agreement or arrangement designed
to protect such Person or any of its Subsidiaries against fluctuations in
interest rates with respect to Debt permitted to be incurred under the
Indenture.

 

“Investments” of any Person means (a) all
investments by such Person in any other Person in the form of loans, advances
or capital contributions, (b) all guarantees of Indebtedness or other
obligations of any other Person by such Person, (c) all purchases (or other
acquisitions for consideration) by such Person of Indebtedness, Capital Stock
or other securities of any other Person and (d) all other items that would be
classified as investments in any other Person (including, without limitation,
purchases of assets outside the ordinary course of business) on a balance sheet
of such Person prepared in accordance with GAAP.

 

“Issue Date” means May 9, 2003, the date on
which the Initial Notes are originally issued under the Indenture.

 

“Lien” means, with respect to any Property,
any mortgage, lien, pledge, charge, security interest or encumbrance of any
kind in respect of such Property.

 

15

 

For purposes
of this definition, a Person shall be deemed to own, subject to a Lien, any
Property which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such Property.

 

“Marketable Securities” means (a) equity
securities that are listed on the New York Stock Exchange, the American Stock
Exchange or The Nasdaq National Market and (b) debt securities that are rated
by a nationally recognized rating agency, listed on the New York Stock Exchange
or the American Stock Exchange or covered by at least two reputable market
makers.

 

“Moody’s” means Moody’s Investors Service,
Inc. or any successor to its debt rating business.

 

“Mortgage Subsidiary” means any Subsidiary
of the Company substantially all of whose operations consist of the mortgage
lending business.

 

“Net Cash Proceeds” means with respect to an
Asset Disposition, cash payments received (including any cash payments received
by way of deferred payment of principal pursuant to a note or installment
receivable or otherwise (including any cash received upon sale or disposition
of such note or receivable), but only as and when received), excluding any
other consideration received in the form of assumption by the acquiring Person
of Indebtedness or other obligations relating to the Property disposed of in
such Asset Disposition or received in any other noncash form unless and until
such non-cash consideration is converted into cash therefrom, in each case, net
of all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all federal, state and local taxes required to be
accrued as a liability under GAAP as a consequence of such Asset Disposition,
and in each case net of a reasonable reserve for the after-tax cost of any
indemnification or other payments (fixed and contingent) attributable to the
seller’s indemnities or other obligations to the purchaser undertaken by the
Company, the Issuer or any of its Restricted Subsidiaries in connection with
such Asset Disposition, and net of all payments made on any Indebtedness which
is secured by or relates to such Property, in accordance with the terms of any
Lien or agreement upon or with respect to such Property or which must by its
terms or by applicable law be repaid out of the proceeds from such Asset
Disposition, and net of all contractually required distributions and payments
made to minority interest holders in Restricted Subsidiaries or joint ventures
as a result of such Asset Disposition.

 

“Non-Payment Default” means any event (other
than a Payment Default), the occurrence of which entitles one or more Persons
to accelerate the maturity of any Senior Debt of the Issuer or any Senior Debt
of a Guarantor.

 

16

 

“Non-Recourse Indebtedness” with respect to
any Person means Indebtedness of such Person for which (a) the sole legal
recourse for collection of principal and interest on such Indebtedness is
against the specific property identified in the instruments evidencing or
securing such Indebtedness and such property was acquired with the proceeds of
such Indebtedness or such Indebtedness was incurred within 90 days after the
acquisition of such property and (b) no other assets of such Person may be
realized upon in collection of principal or interest on such Indebtedness.
Indebtedness which is otherwise Non-Recourse Indebtedness will not lose its
character as Non-Recourse Indebtedness because there is recourse to the
borrower, any guarantor or any other Person for (i) environmental warranties
and indemnities, or (ii) indemnities for and liabilities arising from fraud,
misrepresentation, misapplication or non-payment of rents, profits, insurance
and condemnation proceeds and other sums actually received by the borrower from
secured assets to be paid to the lender, including waste and mechanics’ liens.

 

“Non-U.S. Person” means a Person that is not
a U.S. person, as defined in Regulation S.

 

“Notes” has the meaning assigned to such
term in the Recitals.

 

“Offer to Purchase” has the meaning assigned
to such term in Section 3.03.

 

“Officer” means the chairman of the Board of
Directors, the president or chief executive officer, any vice president, the
chief financial officer, the treasurer or any assistant treasurer, or the
secretary or any assistant secretary, of the Company.

 

“Officers’ Certificate” means a certificate
signed in the name of the Company (i) by the chairman of the Board of
Directors, the president or chief executive officer or a vice president and
(ii) by the chief financial officer, the treasurer or any assistant treasurer
or the secretary or any assistant secretary.

 

“Opinion of Counsel” means a written opinion
signed by legal counsel, who may be an employee of or counsel to the Issuer,
satisfactory to the Trustee.

 

“Original Notes” means the Initial Notes and
any Exchange Notes issued in exchange therefor.

 

“Paying Agent” refers to a Person engaged to
perform the obligations of the Trustee in respect of payments made or funds
held hereunder in respect of the Notes.

 

17

 

“Payment Blockage Period” has the meaning
set forth in Section 10.02.

 

“Payment Default” means any default in the
payment of principal of or interest on any Senior Debt of the Issuer or any
Senior Debt of a Guarantor beyond any applicable grace period with respect
thereto.

 

“Permanent Regulation S Global Note” means a
Regulation S  Global Note that does not
bear the Regulation S Temporary Global Note Legend.

 

“Permitted Hovnanian Holders” means,
collectively, Kevork S. Hovnanian, Ara K. Hovnanian, the members of their
immediate families, the respective estates, spouses, heirs, ancestors, lineal
descendants, legatees and legal representatives of any of the foregoing and the
trustee of any bona  fide trust of which one or more of the
foregoing are the sole beneficiaries or the grantors thereof, or any entity of
which any of the foregoing, individually or collectively, beneficially own more
than 50% of the Common Equity.

 

“Permitted Indebtedness” means

 

(a)                                  Indebtedness
under Credit Facilities which does not exceed $590 million principal amount
outstanding at any one time;

 

(b)                                 Indebtedness
in respect of obligations of the Company and its Subsidiaries to the trustees
under indentures for debt securities;

 

(c)                                  intercompany
debt obligations of (i) the Company to the Issuer, (ii) the Issuer to the
Company, (iii) the Company or the Issuer to any Restricted Subsidiary and (iv)
any Restricted Subsidiary to the Company or the Issuer or any other Restricted
Subsidiary; provided  however, that any Indebtedness of any
Restricted Subsidiary or the Issuer or the Company owed to any Restricted
Subsidiary or the Issuer that ceases to be a Restricted Subsidiary shall be
deemed to be incurred and shall be treated as an incurrence for purposes of Section
4.06(a) hereof at the time the Restricted Subsidiary in question ceases to be a
Restricted Subsidiary;

 

(d)                                 Indebtedness
of the Company or the Issuer or any Restricted Subsidiary under any Currency
Agreements or Interest Protection Agreements in a notional amount no greater
than the payments due (at the time the related Currency Agreement or Interest
Protection Agreement is entered into) with respect to the Indebtedness or
currency being hedged;

 

(e)                                  Purchase
Money Indebtedness;

 

(f)                                    Capitalized
Lease Obligations;

 

18

 

(g)                                 obligations
for, pledge of assets in respect of, and guaranties of, bond financings of
political subdivisions or enterprises thereof in the ordinary course of
business;

 

(h)                                 Indebtedness
secured only by office buildings owned or occupied by the Company or any
Restricted Subsidiary, which Indebtedness does not exceed $10 million aggregate
principal amount outstanding at any one time;

 

(i)                                     Indebtedness
under warehouse lines of credit, repurchase agreements and Indebtedness,
secured by mortgage loans and related assets of mortgage lending Subsidiaries
in the ordinary course of a mortgage lending business; and

 

(j)                                     Indebtedness
of the Company or any Restricted Subsidiary which, together with all other
Indebtedness under this clause (j), does not exceed $50 million aggregate
principal amount outstanding at any one time.

 

“Permitted Investment” means

 

(a)                                  Cash
Equivalents;

 

(b)                                 any
Investment in the Company, the Issuer or any Restricted Subsidiary or any
Person that becomes a Restricted Subsidiary as a result of such Investment or
that is consolidated or merged with or into, or transfers all or substantially
all of the assets of it or an operating unit or line of business to, the
Company or a Restricted Subsidiary;

 

(c)                                  any
receivables, loans or other consideration taken by the Company, the Issuer or
any Restricted Subsidiary in connection with any asset sale otherwise permitted
by the Indenture;

 

(d)                                 Investments
received in connection with any bankruptcy or reorganization proceeding, or as
a result of foreclosure, perfection or enforcement of any Lien or any judgment
or settlement of any Person in exchange for or satisfaction of Indebtedness or
other obligations or other property received from such Person, or for other
liabilities or obligations of such Person created, in accordance with the terms
of the Indenture;

 

(e)                                  Investments
in Currency Agreements or Interest Protection Agreements described in the
definition of Permitted Indebtedness;

 

(f)                                    any
loan or advance to an executive officer, director or employee of the Company or
any Restricted Subsidiary made in the ordinary course of business or in
accordance with past practice; provided,
however, that any such

 

19

 

loan or
advance exceeding $1 million shall have been approved by the Board of Directors
of the Company or a committee thereof consisting of disinterested members;

 

(g)                                 Investments
in joint ventures in a Real Estate Business with unaffiliated third parties in
an aggregate amount at any time outstanding not to exceed 10% of Consolidated
Tangible Assets at such time;

 

(h)                                 Investments
in interests in issuances of collateralized mortgage obligations, mortgages,
mortgage loan servicing, or other mortgage related assets;

 

(i)                                     obligations
of the Company or a Restricted Subsidiary under warehouse lines of credit of
Mortgage Subsidiaries to repurchase mortgages; and

 

(j)                                     Investments
in an aggregate amount outstanding not to exceed $10 million.

 

“Permitted Liens” means

 

(a)                                  Liens
for taxes, assessments or governmental or quasi-government charges or claims
that (i) are not yet delinquent, (ii) are being contested in good faith by
appropriate proceedings and as to which appropriate reserves have been established
or other provisions have been made in accordance with GAAP, if required, or
(iii) encumber solely property abandoned or in the process of being abandoned,

 

(b)                                 statutory
Liens of landlords and carriers’, warehousemen’s, mechanics’, suppliers’, materialmen’s,
repairmen’s or other Liens imposed by law and arising in the ordinary course of
business and with respect to amounts that, to the extent applicable, either (i)
are not yet delinquent or (ii) are being contested in good faith by appropriate
proceedings and as to which appropriate reserves have been established or other
provisions have been made in accordance with GAAP, if required,

 

(c)                                  Liens
(other than any Lien imposed by the Employer Retirement Income Security Act of
1974, as amended) incurred or deposits made in the ordinary course of business
in connection with workers’ compensation. unemployment insurance and other
types of social security,

 

(d)                                 Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, development obligations,
progress payments, government contacts, utility services, developer’s or other
obligations to make on-site or off-site improvements and other obligations of
like nature (exclusive of obligations for the payment of borrowed

 

20

 

money but
including the items referred to in the parenthetical in clause (a)(i) of the
definition of “Indebtedness”), in each case incurred in the ordinary course of
business of the Company, the Issuer and the Restricted Subsidiaries,

 

(e)                                  attachment
or judgment Liens not giving rise to a Default or an Event of Default,

 

(f)                                    easements,
dedications, assessment district or similar Liens in connection with municipal
or special district financing, rights-of-way, restrictions, reservations and
other similar charges, burdens, and other similar charges or encumbrances not
materially interfering with the ordinary course of business of the Company, the
Issuer and the Restricted Subsidiaries,

 

(g)                                 zoning
restrictions, licenses, restrictions on the use of real property or minor
irregularities in title thereto, which do not materially impair the use of such
real property in the ordinary course of business of the Company, the Issuer and
the Restricted Subsidiaries,

 

(h)                                 Liens
securing Indebtedness incurred pursuant to clause (h) or (i) of the definition
of Permitted Indebtedness,

 

(i)                                     Liens
securing Indebtedness of the Company, the Issuer or any Restricted Subsidiary
permitted to be incurred under the Indenture; provided
that the aggregate amount of all consolidated Indebtedness of the Company, the
Issuer and the Restricted Subsidiaries (including, with respect to Capitalized
Lease Obligations, the Attributable Debt in respect thereof) secured by Liens
(other than Non-Recourse Indebtedness and Indebtedness incurred pursuant to
clause (i) of the definition of Permitted Indebtedness) shall not exceed 40% of
Consolidated Adjusted Tangible Assets at any one time outstanding (after giving
effect to the incurrence of such Indebtedness and the use of the proceeds
thereof),

 

(j)                                     Liens
securing Non-Recourse Indebtedness of the Company, the Issuer or any Restricted
Subsidiary; provided, that such
Liens apply only to the property financed out of the net proceeds of such
Non-Recourse Indebtedness within 90 days after the incurrence of such
Non-Recourse Indebtedness,

 

(k)                                  Liens
securing Purchase Money Indebtedness; provided
that such Liens apply only to the property acquired, constructed or improved
with the proceeds of such Purchase Money Indebtedness within 90 days after the
incurrence of such Purchase Money Indebtedness,

 

(l)                                     Liens
on property or assets of the Company, the Issuer or any Restricted Subsidiary
securing Indebtedness of the Company, the Issuer or any

 

21

 

Restricted
Subsidiary owing to the Company, the Issuer or one or more Restricted
Subsidiaries,

 

(m)                               leases
or subleases granted to others not materially interfering with the ordinary
course of business of the Company and the Restricted Subsidiaries,

 

(n)                                 purchase
money security interests (including, without limitation, Capitalized Lease
Obligations); provided that such
Liens apply only to the Property acquired and the related Indebtedness is incurred
within 90 days after the acquisition of such Property,

 

(o)                                 any
right of first refusal, right of first offer, option, contract or other
agreement to sell an asset; provided
that such sale is not otherwise prohibited under the Indenture,

 

(p)                                 any
right of a lender or lenders to which the Company, the Issuer or a Restricted
Subsidiary may be indebted to offset against, or appropriate and apply to the
payment of such, Indebtedness any and all balances, credits, deposits, accounts
or money of the Company, the Issuer or a Restricted Subsidiary with or held by
such lender or lenders or its Affiliates,

 

(q)                                 any
pledge or deposit of cash or property in conjunction with obtaining surety,
performance, completion or payment bonds and letters of credit or other similar
instruments or providing earnest money obligations, escrows or similar purpose
undertakings or indemnifications in the ordinary course of business of the
Company, the Issuer and the Restricted Subsidiaries,

 

(r)                                    Liens
for homeowner and property owner association developments and assessments,

 

(s)                                  Liens
securing Refinancing Indebtedness; provided,
that such Liens extend only to the assets securing the Indebtedness being
refinanced,

 

(t)                                    Liens
incurred in the ordinary course of business as security for the obligations of
the Company, the Issuer and the Restricted Subsidiaries with respect to
indemnification in respect of title insurance providers,

 

(u)                                 Liens
on property of a Person existing at the time such Person is merged with or into
or consolidated with the Company or any Subsidiary of the Company or becomes a
Subsidiary of the Company; provided
that such Liens were in existence prior to the contemplation of such merger or
consolidation or acquisition and do not extend to any assets other than those
of the Person merged into or consolidated with the Company or the Subsidiary or
acquired by the Company or its Subsidiaries,

 

22

 

(v)                                 Liens
on property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition,

 

(w)                               Liens
existing on the Issue Date and any extensions, renewals or replacements
thereof, and

 

(x)                                   Liens
on specific items of inventory or other goods and proceeds of any Person
securing such Person’s obligations in respect of bankers’ acceptances issued or
created for the account of such Person to facilitate the purchase, shipment or
storage of such inventory or other goods.

 

“Person” means any individual, corporation,
partnership, limited liability company, joint venture, incorporated or
unincorporated association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

 

“Preferred Stock” of any Person means all
Capital Stock of such Person which has a preference in liquidation or with
respect to the payment of dividends.

 

“Property” of any Person means all types of
real, personal, tangible, intangible or mixed property owned by such Person,
whether or not included in the most recent consolidated balance sheet of such
Person and its Subsidiaries under GAAP.

 

“Purchase Money Indebtedness” means
Indebtedness of the Company, the Issuer or any Restricted Subsidiary incurred for
the purpose of financing all or any part of the purchase price, or the cost of
construction or improvement, of any property to be used in the ordinary course
of business by the Company, the Issuer and the Restricted Subsidiaries; provided, however,
that (a) the aggregate principal amount of such Indebtedness shall not exceed
such purchase price or cost and (b) such Indebtedness shall be incurred no
later than 90 days after the acquisition of such property or completion of such
construction or improvement.

 

“Qualified Stock” means Capital Stock of the
Company other than Disqualified Stock.

 

“Real Estate Business” means homebuilding,
housing construction, real estate development or construction and related real
estate activities, including the provision of mortgage financing or title
insurance.

 

“Refinancing Indebtedness” means
Indebtedness (to the extent not Permitted Indebtedness) that refunds,
refinances or extends any Indebtedness of the Company, the Issuer or any
Restricted Subsidiary (to the extent not Permitted

 

23

 

Indebtedness)
outstanding on the Issue Date or other Indebtedness (to the extent not
Permitted Indebtedness) permitted to be incurred by the Company, the Issuer or
any Restricted Subsidiary pursuant to the terms of the Indenture, but only to
the extent that

 

(a)                                  the
Refinancing Indebtedness is subordinated, if at all, to the Notes or the
Guarantee, as the case may be, to the same extent as the Indebtedness being
refunded, refinanced or extended,

 

(b)                                 the
Refinancing Indebtedness is scheduled to mature either (i) no earlier than the
Indebtedness being refunded, refinanced or extended or (ii) after the maturity
date of the Notes,

 

(c)                                  the
portion, if any, of the Refinancing Indebtedness that is scheduled to mature on
or prior to the maturity date of the Notes has a Weighted Average Life to
Maturity at the time such Refinancing Indebtedness is incurred that is equal to
or greater than the Weighted Average Life to Maturity of the portion of the Indebtedness
being refunded, refinanced or extended that is scheduled to mature on or prior
to the maturity date of the Notes, and

 

(d)                                 such
Refinancing Indebtedness is in an aggregate principal amount that is equal to
or less than the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended.

 

“Register” has the meaning assigned to such
term in Section 2.09.

 

“Registrar” means a Person engaged to
maintain the Register.

 

“Registration Rights Agreement” means (i) the
Registration Rights Agreement dated the Issue Date between the Company and the
Initial Purchasers party thereto with respect to the Initial Notes, and (ii)
with respect to any Additional Notes, any registration rights agreements
between the Company and the initial purchasers party thereto relating to rights
given by the Company to the purchasers of Additional Notes to register such
Additional Notes or exchange them for Notes registered under the Securities
Act.

 

“Regular Record Date” for the interest payable
on any Interest Payment Date means the May 1 or November 1 (whether or not a
Business Day) next preceding such Interest Payment Date.

 

“Regulation S” means Regulation S under the
Securities Act.

 

24

 

“Regulation S Certificate” means a
certificate substantially in the form of Exhibit E hereto.

 

“Regulation S 
Global Note” means a Global Note representing Notes issued
and sold pursuant to Regulation S.

 

“Regulation S Temporary Global Note” means
an Regulation S Global Note that bears the Regulation S Temporary Global Note
Legend.

 

“Regulation S Temporary Global Note Legend”
means the legend set forth in Exhibit I.

 

“Restricted Legend” means the legend set
forth in Exhibit C.

 

“Restricted Payment” means any of the
following:

 

(a)                                  the
declaration or payment of any dividend or any other distribution on Capital
Stock of the Company, the Issuer or any Restricted Subsidiary or any payment
made to the direct or indirect holders (in their capacities as such) of Capital
Stock of the Company, the Issuer or any Restricted Subsidiary (other than (i)
dividends or distributions payable solely in Qualified Stock and (ii) in the
case of the Issuer or Restricted Subsidiaries, dividends or distributions
payable to the Company, the Issuer or a Restricted Subsidiary);

 

(b)                                 the
purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company, the Issuer or any Restricted Subsidiary (other
than a payment made to the Company, the Issuer or any Restricted Subsidiary);
and

 

(c)                                  any
Investment (other than any Permitted Investment), including any Investment in
an Unrestricted Subsidiary (including by the designation of a Subsidiary of the
Company as an Unrestricted Subsidiary) and any amounts paid in accordance with
clause (b) of the definition of Indebtedness.

 

“Restricted Period” means the relevant
40-day distribution compliance period as defined in Regulation S, which, for
each relevant Note, commences on the date such Note is Issued.

 

“Restricted Subsidiary” means any Subsidiary
of the Company which is not an Unrestricted Subsidiary.

 

“Rule 144A” means Rule 144A under the
Securities Act.

 

25

 

“Rule 144A Certificate” means (i) a
certificate substantially in the form of Exhibit F hereto or (ii) a written
certification addressed to the Issuer and the Trustee to the effect that the
Person making such certification (x) is acquiring such Note (or beneficial
interest) for its own account or one or more accounts with respect to which it
exercises sole investment discretion and that it and each such account is a
qualified institutional buyer within the meaning of Rule 144A, (y) is aware
that the transfer to it or exchange, as applicable, is being made in reliance
upon the exemption from the provisions of Section 5 of the Securities Act
provided by Rule 144A, and (z) acknowledges that it has received such
information regarding the Issuer as it has requested pursuant to Rule
144A(d)(4) or has determined not to request such information.

 

“Rule 144A Global Note” means a Global Note
that bears the Restricted Legend representing Notes issued and sold pursuant to
Rule 144A.

 

“S&P” means Standard & Poor’s
Ratings Group, a division of McGraw Hill, Inc. and its successors.

 

“Securities Act” means the Securities Act of
1933.

 

“Senior Debt of a Guarantor” has the meaning
set forth in Section 11.01.

 

“Senior Debt of the Issuer” has the meaning
set forth in Section 10.01.

 

“Shelf Registration Statement” means the
Shelf Registration Statement as defined in a Registration Rights Agreement.

 

“Significant Subsidiary” means any
Subsidiary of the Company that would constitute a “significant subsidiary” as
defined in Article 1, Rule 1-02 (w)(1) or (2) of Regulation S-X promulgated
under the Securities Act, as such regulation is in effect on the date of the
Indenture.

 

“Subsidiary” of any Person means any
corporation or other entity of which a majority of the Capital Stock having
ordinary voting power to elect a majority of the Board of Directors or other
persons performing similar functions is at the time directly or indirectly
owned or controlled by such Person.

 

“Trustee” means the party named as such in
the first paragraph of the Indenture or any successor trustee under the
Indenture pursuant to Article 7.

 

“Trust Indenture Act” means the Trust
Indenture Act of 1939.

 

26

 

“U.S. Government Obligations” means
obligations issued or directly and fully guaranteed or insured by the United
States of America or by any agent or instrumentality thereof, provided that the
full faith and credit of the United States of America is pledged in support
thereof.

 

“Unrestricted Subsidiary” means any
Subsidiary of the Company so designated by a resolution adopted by the Board of
Directors of the Company or a duly authorized committee thereof as provided
below; provided that (a) the
holders of Indebtedness thereof do not have direct or indirect recourse against
the Company, the Issuer or any Restricted Subsidiary, and neither the Company,
the Issuer nor any Restricted Subsidiary otherwise has liability for, any
payment obligations in respect of such Indebtedness (including any undertaking,
agreement or instrument evidencing such Indebtedness), except, in each case, to
the extent that the amount thereof constitutes a Restricted Payment permitted
by the Indenture, in the case of Non-Recourse Indebtedness, to the extent such
recourse or liability is for the matters discussed in the last sentence of the
definition of “Non-Recourse Indebtedness,” or to the extent such Indebtedness
is a guarantee by such Subsidiary of Indebtedness of the Company, the Issuer or
a Restricted Subsidiary and (b) no holder of any Indebtedness of such
Subsidiary shall have a right to declare a default on such Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity as a result of a default on any Indebtedness of the Company, the
Issuer or any Restricted Subsidiary. As of the Issue Date, the Unrestricted
Subsidiaries will be the following:

 

Eastern Title
Agency, Inc., Founders Title Agency, Inc., Governor’s Abstract Co., Inc. Hexter
Fair Land Title Company I, Inc., Homebuyer’s Mortgage, Inc., Hovnanian
Financial Services I, Inc., Hovnanian Financial Services II, Inc., Hovnanian
Financial Services IV. Inc., K. Hovnanian Investment Properties, Inc., K.
Hovnanian Mortgage, Inc., Preston Grande Homes, Inc., Heritage Pines, L.L.C.,
Kings Crossing at Montgomery, L.L.C., McKinley Court, L.L.C., Monticello Woods,
L.L.C., New Homebuyers Title Co. (Virginia) L.L.C., New Homebuyers Title
Company, L.L.C., Shadow Creek, L.L.C., Section 13 of the Hills, L.L.C., Title
Group II, L.L.C., Town Homes at Montgomery, L.L.C., Westwood Hills, L.L.C.,
Athena Portfolio Investors, L.P., Beacon Manor Associates, L.P., Galleria
Mortgage, L.P., Goodman Mortgage Investors, L.P., Parkway Development,
Sovereign Group, L.P., and K. Hovnanian Venture I, L.L.C.

 

Subject to the
foregoing, the Board of Directors of the Company or a duly authorized committee
thereof may designate any Subsidiary in addition to those named above to be an
Unrestricted Subsidiary; provided
however, that (a) the net amount
(the “Designation Amount”) then
outstanding of all previous Investments by the Company and the Restricted
Subsidiaries in such Subsidiary will be deemed to be a Restricted Payment at
the time of such designation and

 

27

 

will reduce
the amount available for Restricted Payments under Section 4.07 hereof to the
extent provided therein, (b) the Company must be permitted under Section 4.07
hereof to make the Restricted Payment deemed to have been made pursuant to
clause (a), and (c) after giving effect to such designation, no Default or
Event of Default shall have occurred or be continuing. In accordance with the
foregoing, and not in limitation thereof, Investments made by any Person in any
Subsidiary of such Person prior to such Person’s merger with the Company or any
Restricted Subsidiary (but not in contemplation or anticipation of such merger)
shall not be counted as an Investment by the Company or such Restricted
Subsidiary if such Subsidiary of such Person is designated as an Unrestricted
Subsidiary.

 

The Board of
Directors of the Company or a duly authorized committee thereof may also
redesignate an Unrestricted Subsidiary to be a Restricted Subsidiary provided,  however,
that (a) the Indebtedness of such Unrestricted Subsidiary as of the date of
such redesignation could then be incurred under Section 4.06 hereof and (b)
immediately after giving effect to such redesignation and the incurrence of any
such additional Indebtedness, the Company and the Restricted Subsidiaries could
incur $1.00 of additional Indebtedness under Section 4.06(a) hereof. Any such
designation or redesignation by the Board of Directors of the Company or a
committee thereof will be evidenced to the Trustee by the filing with the
Trustee of a certified copy of the resolution of the Board of Directors of the
Company or a committee thereof giving effect to such designation or
redesignation and an Officers’ Certificate certifying that such designation or
redesignation complied with the foregoing conditions and setting forth the
underlying calculations of such Officers’ Certificate. The designation of any
Person as an Unrestricted Subsidiary shall be deemed to include a designation
of all Subsidiaries of such Person as Unrestricted Subsidiaries; provided, however,
that the ownership of the general partnership interest (or a similar member’s
interest in a limited liability company) by an Unrestricted Subsidiary shall
not cause a Subsidiary of the Company of which more than 95% of the equity
interest is held by the Company or one or more Restricted Subsidiaries to be
deemed an Unrestricted Subsidiary.

 

“Weighted Average Life to Maturity” means,
when applied to any Indebtedness or portion thereof at any date, the number of
years obtained by dividing (a) the sum of the products obtained by multiplying
(i) the amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including, without limitation,
payment at final maturity, in respect thereof, by (ii) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment by (b) the sum of all such payments described in
clause (a)(i) above.

 

28

 

SECTION 1.02.  Rules of
Construction.  Unless the
context otherwise requires or except as otherwise expressly provided,

 

(a)          an accounting term not
otherwise defined has the meaning assigned to it in accordance with GAAP;

 

(b)         “herein,” “hereof” and
other words of similar import refer to the Indenture as a whole and not to any
particular Section, Article or other subdivision;

 

(c)          all references to
Sections or Articles or Exhibits refer to Sections or Articles or Exhibits of
or to the Indenture unless otherwise indicated;

 

(d)         references to agreements
or instruments, or to statutes or regulations, are to such agreements or
instruments, or statutes or regulations, as amended from time to time (or to
successor statutes and regulations); and

 

(e)          in the event that a
transaction meets the criteria of more than one category of permitted
transactions or listed exceptions the Issuer may classify such transaction as
it, in its sole discretion, determines.

 

 

ARTICLE 2

THE NOTES

 

SECTION 2.01.  Form,
Dating and Denominations; Legends.  (a)
The Notes and the Trustee’s certificate of authentication will be substantially
in the form attached as Exhibit A.  The
terms and provisions contained in the form of the Notes annexed as Exhibit A
constitute, and are hereby expressly made, a part of the Indenture.  The Notes may have notations, legends or
endorsements required by law, rules of or agreements with national securities
exchanges to which the Issuer is subject, or usage.  Each Note will be dated the date of its authentication. The Notes
will be issuable in denominations of $1,000 in principal amount and any
multiple of $1,000 in excess thereof.

 

(b)                                 (i)
Except as otherwise provided in paragraph (c), Section 2.10(b)(iii),
(b)(v), or (c) or Section 2.09(b)(iv), each Initial Note or Initial
Additional Note (other than a Permanent Regulation S  Note) will bear the Restricted Legend.

 

(ii)                                  Each
Global Note, whether or not an Initial Note or Additional Note, will bear the
DTC Legend.

 

29

 

(iii)                               Each
Regulation S Temporary Global Note will bear the Regulation S Temporary Global
Note Legend.

 

(iv)                              Initial
Notes and Initial Additional Notes offered and sold in reliance on Regulation S
will be issued as provided in Section 2.11(a).

 

(v)                                 Initial
Notes and Initial Additional Notes offered and sold in reliance on any
exception under the Securities Act other than Regulation S and Rule 144A will
be issued, and upon the request of the Issuer to the Trustee, Initial Notes
offered and sold in reliance on Rule 144A may be issued, in the form of
Certificated Notes.

 

(vi)                              Exchange
Notes will be issued, subject to Section 2.09(b), in the form of one or more
Global Notes.

 

(c)                                  (i)
If the Issuer determines (upon the advice of counsel and such other
certifications and evidence as the Issuer may reasonably require) that a Note
is eligible for resale pursuant to Rule 144(k) under the Securities Act (or a
successor provision) and that the Restricted Legend is no longer necessary or
appropriate in order to ensure that subsequent transfers of the Note (or a
beneficial interest therein) are effected in compliance with the Securities
Act, or

 

(ii)                                  after
an Initial Note or any Initial Additional Note is

 

(A)                    sold pursuant
to an effective registration statement under the Securities Act, pursuant to
the Registration Rights Agreement or otherwise, or

 

(B)                      is validly
tendered for exchange into an Exchange Note pursuant to an Exchange Offer

 

the Issuer may
instruct the Trustee to cancel the Note and issue to the Holder thereof (or to
its transferee) a new Note of like tenor and amount, registered in the name of
the Holder thereof (or its transferee), that does not bear the Restricted
Legend, and the Trustee will comply with such instruction.

 

(d)                                 By
its acceptance of any Note bearing the Restricted Legend (or any beneficial
interest in such a Note), each Holder thereof and each owner of a beneficial
interest therein acknowledges the restrictions on transfer of such Note (and
any such beneficial interest) set forth in this Indenture and in the Restricted
Legend and agrees that it will transfer such Note (and any such beneficial
interest) only in accordance with the Indenture and such legend.

 

30

 

SECTION 2.02.  Execution
and Authentication; Exchange Notes; Additional Notes.  (a) An Officer shall execute the Notes for the Issuer
by facsimile or manual signature in the name and on behalf of the Issuer.  If an Officer whose signature is on a Note
no longer holds that office at the time the Note is authenticated, the Note
will still be valid.

 

(b)                                 A
Note will not be valid until the Trustee manually signs the certificate of
authentication on the Note, with the signature conclusive evidence that the
Note has been authenticated under the Indenture.

 

(c)                                  At
any time and from time to time after the execution and delivery of the Indenture,
the Issuer may deliver Notes executed by the Issuer to the Trustee for
authentication.  The Trustee will
authenticate and deliver

 

(i)                  Initial
Notes for original issue in the aggregate principal amount not to exceed
$150,000,000,

 

(ii)               Initial
Additional Notes from time to time for original issue in aggregate principal
amounts specified by the Issuer (provided
that the aggregate principal amount of Notes outstanding hereunder may not
exceed $300,000,000 at any time), and

 

(iii)            Exchange
Notes from time to time for issue in exchange for a like principal amount of
Initial Notes or Initial Additional Notes

 

after the
following conditions have been met:

 

(A)           Receipt
by the Trustee of a certificate, executed by an Officer specifying

 

(1)                    the amount of Notes to be
authenticated and the date on which the Notes are to be authenticated,

 

(2)                    whether the Notes are to be Initial
Notes or, Additional Notes or Exchange Notes,

 

(3)                    in the case of  Initial Additional Notes, that the issuance
of such Notes does not contravene clause (c)(ii) above or any provision of
Article 4,

 

(4)                    whether the Notes are to be issued
as one or more Global Notes or Certificated Notes, and

 

31

 

(5)                    other information the Issuer may
determine to include or the Trustee may reasonably request.

 

(B)             In
the case of Initial Additional Notes, receipt by the Trustee of an Opinion of
Counsel confirming that the Holders of the outstanding Notes will be subject to
federal income tax in the same amounts, in the same manner and at the same
times as would have been the case if such Additional Notes were not issued.

 

(C)             In
the case of Exchange Notes, effectiveness of an Exchange Offer Registration
Statement and Consummation (as defined in the Registration Rights Agreement) of
the exchange offer thereunder (and receipt by the Trustee of an Officers’
Certificate to that effect).  Initial
Notes or Initial Additional Notes exchanged for Exchange Notes will be
cancelled by the Trustee.

 

SECTION 2.03.  Registrar,
Paying Agent and Authenticating Agent; Paying Agent to Hold Money in
Trust.  (a) The Issuer may
appoint one or more Registrars and one or more Paying Agents, and the Trustee
may appoint an Authenticating Agent, in which case each reference in the
Indenture to the Trustee in respect of the obligations of the Trustee to be
performed by that Agent will be deemed to be references to the Agent.  The Issuer may act as Registrar or (except
for purposes of Article 8) Paying Agent. 
In each case the Issuer and the Trustee will enter into an appropriate
agreement with the Agent implementing the provisions of the Indenture relating
to the obligations of the Trustee to be performed by the Agent and the related
rights.

 

(b)                                 The
Issuer will require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent will hold in trust for the benefit of the Holders
or the Trustee all money held by the Paying Agent for the payment of principal
of and interest on the Notes and will promptly notify the Trustee of any
default by the Issuer in making any such payment.  The Issuer at any time may require a Paying Agent to pay all
money held by it to the Trustee and account for any funds disbursed, and the
Trustee may at any time during the continuance of any payment default, upon
written request to a Paying Agent, require the Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed.  Upon doing so, the Paying Agent will have no
further liability for the money so paid over to the Trustee.

 

SECTION 2.04.  Replacement
Notes.  If a mutilated Note
is surrendered to the Trustee or if a Holder claims that its Note has been
lost, destroyed or wrongfully taken, the Issuer will issue and the Trustee will
authenticate a replacement Note of like tenor and principal amount and bearing
a number not contemporaneously outstanding. 
Every replacement Note is an additional

 

32

 

obligation of
the Issuer and entitled to the benefits of the Indenture.  If required by the Trustee or the Issuer, an
indemnity must be furnished that is sufficient in the judgment of both the
Trustee and the Issuer to protect the Issuer and the Trustee from any loss they
may suffer if a Note is replaced.  The
Issuer may charge the Holder for the expenses of the Issuer and the Trustee in
replacing a Note.  In case the
mutilated, lost, destroyed or wrongfully taken Note has become or is about to
become due and payable, the Issuer in its discretion may pay the Note instead
of issuing a replacement Note.

 

SECTION 2.05.  Outstanding
Notes.  (a)  Notes outstanding at any time are all Notes
that have been authenticated by the Trustee except for

 

(i)                                     Notes cancelled by
the Trustee or delivered to it for cancellation;

 

(ii)                                  any Note which has
been replaced pursuant to Section 2.04 unless and until the Trustee and the
Issuer receive proof satisfactory to them that the replaced Note is held by a bona  fide
purchaser; and

 

(iii)                               on or after the maturity
date or any redemption date or date for purchase of the Notes pursuant to an
Offer to Purchase, those Notes payable or to be redeemed or purchased on that
date for which the Trustee (or Paying Agent, other than the Issuer or an
Affiliate of the Issuer) holds money sufficient to pay all amounts then due.

 

(b)                                 A
Note does not cease to be outstanding because the Issuer or one of its
Affiliates holds the Note, provided
that in determining whether the Holders of the requisite principal amount of
the outstanding Notes have given or taken any request, demand,  authorization, direction, notice, consent,
waiver or other action hereunder, Notes owned by the Issuer or any Affiliate of
the Issuer will be disregarded and deemed not to be outstanding, (it being
understood that in determining whether the Trustee is protected in relying upon
any such request, demand, authorization, direction, notice, consent, waiver or
other action, only Notes which the Trustee knows to be so owned will be so
disregarded).  Notes so owned which have
been pledged in good faith may be regarded as outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee’s right so to act
with respect to such Notes and that the pledgee is not the Issuer or any
Affiliate of the Issuer.

 

SECTION 2.06.  Temporary
Notes.  Until definitive
Notes are ready for delivery, the Issuer may prepare and the Trustee will
authenticate temporary Notes.  Temporary
Notes will be substantially in the form of definitive Notes but may have
insertions, substitutions, omissions and other variations determined to be
appropriate by the Officer executing the temporary Notes, as evidenced by the

 

33

 

execution of
the temporary Notes.  If temporary Notes
are issued, the Issuer will cause definitive Notes to be prepared without
unreasonable delay.  After the
preparation of definitive Notes, the temporary Notes will be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Issuer designated for the purpose pursuant to Section 4.02, without
charge to the Holder.  Upon surrender
for cancellation of any temporary Notes the Issuer will execute and the Trustee
will authenticate and deliver in exchange therefor a like principal amount of
definitive Notes of authorized denominations. 
Until so exchanged, the temporary Notes will be entitled to the same
benefits under the Indenture as definitive Notes.

 

SECTION 2.07.  Cancellation.  The Issuer at any time may
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered  hereunder which the Issuer
may have acquired in any manner whatsoever, and may deliver to the Trustee for
cancellation any Notes previously authenticated hereunder which the Issuer has
not issued and sold.  Any Registrar or
the Paying Agent will forward to the Trustee any Notes surrendered to it for
transfer, exchange or payment.  The
Trustee will cancel all Notes surrendered for transfer, exchange, payment or
cancellation and dispose of them in accordance with its normal procedures
or  the written instructions of the
Issuer.  The Issuer may not issue new
Notes to replace Notes it has paid in full or delivered to the Trustee for
cancellation.

 

SECTION 2.08.  CUSIP and
ISIN Numbers.  The Issuer in
issuing the Notes may use “CUSIP” and “ISIN” numbers, and the Trustee will use
CUSIP numbers or ISIN numbers in notices of redemption or exchange or in Offers
to Purchase as a convenience to Holders, the notice to state that no
representation is made as to the correctness of such  numbers either as printed on the Notes or as contained  in any notice of redemption or exchange or
Offer to Purchase.  The Issuer will
promptly notify the Trustee of any change in the CUSIP or ISIN numbers.

 

SECTION 2.09.  Registration,
Transfer and Exchange.  (a)  The Notes will be issued in registered form
only, without coupons, and the Issuer shall cause the Trustee to maintain a
register (the “Register”) of the
Notes, for registering the record ownership of the Notes by the Holders and
transfers and exchanges of the Notes.

 

(b)                                 (i)
Each Global Note will be registered in the name of the Depositary or its
nominee and, so long as DTC is serving as the Depositary thereof, will bear the
DTC Legend.

 

(ii)                                  Each
Global Note will be delivered to the Trustee as custodian for the
Depositary.  Transfers of a Global Note
(but not a beneficial interest therein) will be limited to transfers thereof in
whole, but

 

34

 

not in part,
to the Depositary, its successors or their respective nominees, except (A) as
set forth in Section 2.09(b)(iv) and (B) transfers of portions thereof in the
form of Certificated Notes may be made upon request of an Agent Member (for
itself or on behalf of a beneficial owner) by 20 days’ prior written notice
given to the Trustee by or on behalf of the Depositary in accordance with
customary procedures of the Depositary and in compliance with this Section and
Section 2.10.

 

(iii)                               Agent
Members will have no rights under the Indenture with respect to any Global Note
held on their behalf by the Depositary, and the Depositary may be treated by
the Issuer, the Trustee and any agent of the Issuer or the Trustee as the
absolute owner and Holder of such Global Note for all purposes whatsoever.  Notwithstanding the foregoing, the
Depositary or its nominee may grant proxies and otherwise authorize any Person
(including any Agent Member and any Person that holds a beneficial interest in
a Global Note through an Agent Member) to take any action which a Holder is
entitled to take under the Indenture or the Notes, and nothing herein will
impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a holder of any
security.

 

(iv)                              If
(x) the Depositary notifies the Issuer that it is unwilling or unable to
continue as Depositary for a Global Note and a successor depositary is not
appointed by the Issuer within 90 days of the notice, (y) the Issuer, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Certificated Notes or (z) an Event of Default has occurred and is continuing
and the Trustee has received a request from the Depositary, the Trustee will
promptly exchange each beneficial interest in the Global Note for one or more
Certificated Notes in authorized denominations having an equal aggregate
principal amount registered in the name of the owner of such beneficial
interest, as identified to the Trustee by the Depositary, and thereupon the
Global Note will be deemed canceled.  If
such Note does not bear the Restricted Legend, then the Certificated Notes
issued in exchange therefor will not bear the Restricted Legend.  If such Note bears the Restricted Legend,
then the Certificated Notes issued in exchange therefor will bear the
Restricted Legend, provided that
any Holder of any such Certificated Note issued in exchange for a beneficial
interest in a Regulation S Temporary Global Note will have the right upon
presentation to the Trustee of a duly completed Certificate of Beneficial
Ownership after the Restricted Period to exchange such Certificated Note for a
Certificated Note of like tenor and amount that does not bear the Restricted
Legend, registered in the name of such Holder.

 

35

 

(c)                                  Each
Certificated Note will be registered in the name of the holder thereof or its
nominee.

 

(d)                                 A
Holder may transfer a Note (or a beneficial interest therein) to another Person
or exchange a Note (or a beneficial interest therein) for another Note or Notes
of any authorized denomination by presenting to the Trustee a written request
therefor stating the name of the proposed transferee or requesting such an
exchange, accompanied by any certification, opinion or other document required
by Section 2.10.  The Trustee will
promptly register any transfer or exchange that meets the requirements of this
Section by noting the same in the register maintained by the Trustee for the
purpose; provided that

 

(i)                  no
transfer or exchange will be effective until it is registered in such register
and

 

(ii)               the
Trustee will not be required (x) to issue, register the transfer of or exchange
any Note for a period of 15 days before a selection of Notes to be redeemed or
purchased pursuant to an Offer to Purchase, (y) to register the transfer of or
exchange any Note so selected for redemption or purchase in whole or in part,
except, in the case of a partial redemption or purchase, that portion of any
Note not being redeemed or purchased, or (z) if a redemption or a purchase
pursuant to an Offer to Purchase is to occur after a Regular Record Date but on
or before the corresponding Interest Payment Date, to register the transfer of
or exchange any Note on or after the Regular Record Date and before the date of
redemption or purchase.  Prior to the
registration of any transfer, the Issuer, the Trustee and their agents will
treat the Person in whose name the Note is registered as the owner and Holder
thereof for all purposes (whether or not the Note is overdue), and will not be
affected by notice to the contrary.

 

From time to
time the Issuer will execute and the Trustee will authenticate additional Notes
as necessary in order to permit the registration of a transfer or exchange in
accordance with this Section.

 

No service charge
will be imposed in connection with any transfer or exchange of any Note, but
the Issuer may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than a
transfer tax or other similar governmental charge payable upon exchange
pursuant to subsection (b)(iv)).

 

(e)                                  (i)
Global Note to Global Note.  If a beneficial interest in a Global Note is
transferred or exchanged for a beneficial interest in another Global Note, the
Trustee will (x) record a decrease in the principal amount of the Global Note
being transferred or exchanged equal to the principal

 

36

 

amount of such
transfer or exchange and (y) record a like increase in the principal amount of
the other Global Note.  Any beneficial
interest in one Global Note that is transferred to a Person who takes delivery
in the form of an interest in another Global Note, or exchanged for an interest
in another Global Note, will, upon transfer or exchange, cease to be an
interest in such Global Note and become an interest in the other Global Note
and, accordingly, will thereafter be subject to all transfer and exchange
restrictions, if any, and other procedures applicable to beneficial interests
in such other Global Note for as long as it remains such an interest.

 

(ii)                                  Global Note to Certificated Note.  If a beneficial interest in a Global Note is
transferred or exchanged for a Certificated Note, the Trustee will (x) record a
decrease in the principal amount of such Global Note equal to the principal
amount of such transfer or exchange and (y) deliver one or more new
Certificated Notes in authorized denominations having an equal aggregate
principal amount to the transferee (in the case of a transfer) or the owner of
such beneficial interest (in the case of an exchange), registered in the name
of such transferee or owner, as applicable.

 

(iii)                               Certificated Note to Global Note.  If a Certificated Note is transferred or
exchanged for a beneficial interest in a Global Note, the Trustee will (x)
cancel such Certificated Note, (y) record an increase in the principal amount
of such Global Note equal to the principal amount of such transfer or exchange
and (z) in the event that such transfer or exchange involves less than the
entire principal amount of the canceled Certificated Note, deliver to the
Holder thereof one or more new Certificated Notes in authorized denominations
having an aggregate principal amount equal to the untransferred or unexchanged portion
of the canceled Certificated Note, registered in the name of the Holder
thereof.

 

(iv)                              Certificated Note to Certificated Note.  If a Certificated Note is transferred or
exchanged for another Certificated Note, the Trustee will (x) cancel the
Certificated Note being transferred or exchanged, (y) deliver one or more new
Certificated Notes in authorized denominations having an aggregate principal
amount equal to the principal amount of such transfer or exchange to the
transferee (in the case of a transfer) or the Holder of the canceled
Certificated Note (in the case of an exchange), registered in the name of such
transferee or Holder, as applicable, and (z) if such transfer or exchange
involves less than the entire principal amount of the canceled Certificated
Note, deliver to the Holder thereof one or more Certificated Notes in
authorized denominations having an aggregate

 

37

 

principal
amount equal to the untransferred or unexchanged portion of the canceled
Certificated Note, registered in the name of the Holder thereof.

 

SECTION 2.10.  Restrictions
on Transfer and Exchange.  (a)
The transfer or exchange of any Note (or a beneficial interest therein) may
only be made in accordance with this Section and Section 2.09 and, in the case
of a Global Note (or a beneficial interest therein), the applicable rules and
procedures of the Depositary.  The
Trustee shall refuse to register any requested transfer or exchange that does
not comply with the preceding sentence.

 

(b)                                 Subject
to paragraph (c), the transfer or exchange of any Note (or a beneficial
interest therein) of the type set forth in column A below for a Note (or a
beneficial interest therein) of the type set forth opposite in column B below
may only be made in compliance with the certification requirements (if any)
described in the clause of this paragraph set forth opposite in column C below.

 

	
  A

  	
   

  	
  B

  	
   

  	
  C

  
	
  Rule 144A
  Global Note

  	
   

  	
  Rule 144A
  Global Note

  	
   

  	
  (i)

  
	
  Rule 144A
  Global Note

  	
   

  	
  Regulation
  S  Global Note

  	
   

  	
  (ii)

  
	
  Rule 144A
  Global Note

  	
   

  	
  Certificated
  Note

  	
   

  	
  (iii)

  
	
  Regulation
  S  Global Note

  	
   

  	
  Rule 144A
  Global Note

  	
   

  	
  (iv)

  
	
  Regulation
  S  Global Note

  	
   

  	
  Regulation
  S  Global Note

  	
   

  	
  (i)

  
	
  Regulation
  S  Global Note

  	
   

  	
  Certificated
  Note

  	
   

  	
  (v)

  
	
  Certificated
  Note

  	
   

  	
  Rule 144A
  Global Note

  	
   

  	
  (iv)

  
	
  Certificated
  Note

  	
   

  	
  Regulation
  S  Global Note

  	
   

  	
  (ii)

  
	
  Certificated
  Note

  	
   

  	
  Certificated
  Note

  	
   

  	
  (iii)

  

 

(i)                           No
certification is required.

 

(ii)                        The
Person requesting the transfer or exchange must deliver or cause to be
delivered to the Trustee a duly completed Regulation S Certificate; provided that if the requested transfer or
exchange is made by the Holder of a Certificated Note that does not bear the
Restricted Legend, then no certification is required.

 

(iii)                     The
Person requesting the transfer or exchange must deliver or cause to be
delivered to the Trustee (x) a duly completed Rule 144A Certificate, (y) a duly
completed Regulation S Certificate or (z) a duly completed  Institutional Accredited Investor Certificate,
and/or an opinion of counsel and such other certifications and evidence as the
Issuer may reasonably require in order to determine that the proposed transfer
or exchange is being made in compliance with the Securities Act and any
applicable securities laws of any state of the United States; provided that if

 

38

 

the requested
transfer or exchange is made by the Holder of a Certificated Note that does not
bear the Restricted Legend, then no certification is required.  In the event that (A) the requested transfer
or exchange takes place after the Restricted Period and a duly completed
Regulation S Certificate is delivered to the Trustee or (B) a Certificated Note
that does not bear the Restricted Legend is surrendered for transfer or
exchange, upon transfer or exchange the Trustee will deliver a Certificated
Note that does not bear the Restricted Legend.

 

(iv)                    The
Person requesting the transfer or exchange must deliver or cause to be
delivered to the Trustee a duly completed Rule 144A Certificate.

 

(v)                       Notwithstanding
anything to the contrary contained herein, no such exchange is permitted if the
requested exchange involves a beneficial interest in a Regulation S Temporary
Global Note.  If the requested transfer
or exchange involves a beneficial interest in a Permanent Regulation S  Global Note, no certification is required
and the Trustee will deliver a Certificated Note that does not bear the
Restricted Legend.

 

(c)                                  No
certification is required in connection with any transfer or exchange of any
Note (or a beneficial interest therein)

 

(i)                           after
such Note is eligible for resale pursuant to Rule 144(k) under the Securities
Act (or a successor provision); provided
that the Issuer has provided the Trustee with a certificate to that effect, and
the Issuer may require from any Person requesting a transfer or exchange in
reliance upon this clause (i) an opinion of counsel and any other reasonable
certifications and evidence in order to support such certificate; or

 

(ii)                        (A)
sold pursuant to an effective registration statement, pursuant to the
Registration Rights Agreement or otherwise or (B) which is validly tendered for
exchange into an Exchange Note pursuant to an Exchange Offer.

 

Any
Certificated Note delivered in reliance upon this paragraph will not bear the
Restricted Legend.

 

(d)                                 The
Trustee will retain copies of all certificates, opinions and other documents
received in connection with the transfer or exchange of a Note (or a beneficial
interest therein), and the Issuer will have the right to inspect and make
copies thereof at any reasonable time upon written notice to the Trustee.

 

39

 

SECTION 2.11.  Regulation
S Temporary Global Notes.  (a)
Each Note originally sold by the Initial Purchasers in reliance upon Regulation
S will be evidenced by one or more Regulation S  Global Notes that bear the Regulation S Temporary Global Note
Legend.

 

(b)                                 An
owner of a beneficial interest in a Regulation S Temporary Global Note (or a
Person acting on behalf of such an owner) may provide to the Trustee (and the
Trustee will accept) a duly completed Certificate of Beneficial Ownership at
any time after the Restricted Period (it being understood that the Trustee will
not accept any such certificate during the Restricted Period). Promptly after
acceptance of a Certificate of Beneficial Ownership with respect to such a
beneficial interest, the Trustee will cause such beneficial interest to be
exchanged for an equivalent beneficial interest in a Permanent Regulation S
Global Note, and will (x) permanently reduce the principal amount of such
Regulation S Temporary Global Note by the amount of such beneficial interest
and (y) increase the principal amount of such Permanent Regulation S  Global Note by the amount of such beneficial
interest.

 

(c)                                  Notwithstanding
anything to the contrary contained herein, beneficial interests in a Regulation
S Temporary Global Note may be held through the Depositary only through
Euroclear and Clearstream and their respective direct and indirect participants.

 

(d)                                 Notwithstanding
paragraph (b), if after the Restricted Period any Initial Purchaser owns a
beneficial interest in a Regulation S Temporary Global Note, such Initial
Purchaser may, upon written request to the Trustee accompanied by a certification
as to its status as an Initial Purchaser, exchange such beneficial interest for
an equivalent beneficial interest in a Permanent Regulation S  Global Note, and the Trustee will comply
with such request and will (x) permanently reduce the principal amount of such
Regulation S Temporary Global Note by the amount of such beneficial interest
and (y) increase the principal amount of such Permanent Regulation S  Global Note by the amount of such beneficial
interest.

 

 

ARTICLE 3

REDEMPTION; OFFER TO PURCHASE

 

SECTION 3.01.  Optional
Redemption.  At any time and
from time to time on or after May 15, 2008, the Issuer may redeem the Notes, in
whole or in part, at a redemption price equal to the percentage of principal
amount set forth below

 

40

 

plus accrued
and unpaid interest, and Additional Interest, if any, thereon to the redemption
date.

 

	
  12-month period

  commencing

  May 15

  in Year

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2008

  	
   

  	
  103.875

  	
  %

  
	
  2009

  	
   

  	
  102.583

  	
  %

  
	
  2010

  	
   

  	
  101.292

  	
  %

  
	
  2011 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

SECTION 3.02.  Method
and Effect of Redemption.  (a)
If the Issuer elects to redeem Notes, it must notify the Trustee of the
redemption date and the principal amount of Notes to be redeemed by delivering
an Officers’ Certificate at least 60 days before the redemption date (unless a
shorter period is satisfactory to the Trustee).  If fewer than all of the Notes are being redeemed, the Officers’
Certificate must also specify a record date not less than 15 days after the
date of the notice of redemption is given to the Trustee, and the Trustee will
select the Notes to be redeemed pro rata, or as nearly a pro rata basis as is
practicable (subject to the procedures of DTC), unless such method is otherwise
prohibited, in which case, by lot or by any other method the Trustee in its
sole discretion deems fair and appropriate, in denominations of $1,000
principal amount and multiples thereof. 
The Trustee will notify the Issuer promptly of the Notes or portions of
Notes to be called for redemption. 
Notice of redemption must be sent by the Issuer or at the Issuer’s
request, by the Trustee in the name and at the expense of the Issuer, to
Holders whose Notes are to be redeemed at least 30 days but not more than 60
days before the redemption date.

 

(b)                                 The
notice of redemption will identify the Notes to be redeemed and will include or
state the following:

 

(i)                           the
redemption date;

 

(ii)                        the
redemption price, including the portion thereof representing any accrued
interest or Additional Interest;

 

(iii)                     the
place or places where Notes are to be surrendered for redemption;

 

(iv)                    Notes
called for redemption must be so surrendered in order to collect the redemption
price;

 

41

 

(v)                       on
the redemption date the redemption price will become due and payable on Notes
called for redemption, and interest on Notes called for redemption will cease
to accrue on and after the redemption date;

 

(vi)                    if
any Note is redeemed in part, on and after the redemption date, upon surrender
of such Note, new Notes equal in principal amount to the unredeemed portion
will be issued; and

 

(vii)                 if
any Note contains a CUSIP or ISIN number, no representation is being made as to
the correctness of the CUSIP or ISIN number either as printed on the Notes or
as contained in the notice of redemption and that the Holder should rely only
on the other identification numbers printed on the Notes.

 

(c)                                  Once
notice of redemption is sent to the Holders, Notes called for redemption become
due and payable at the redemption price on the redemption date, and upon
surrender of the Notes called for redemption, the Issuer shall redeem such
Notes at the redemption price. Commencing on the redemption date, Notes
redeemed will cease to accrue interest. 
Upon surrender of any Note redeemed in part, the Holder will receive a
new Note equal in principal amount to the unredeemed portion of the surrendered
Note.

 

SECTION 3.03.  Offer to
Purchase.  (a) An “Offer to Purchase” means an offer by the
Issuer to purchase Notes as required by the Indenture.  An Offer to Purchase must be made by written
offer (the “offer”) sent to the
Holders.  The Issuer will notify the
Trustee at least 15 days (or such shorter period as is acceptable to the
Trustee) prior to sending the offer to Holders of its obligation to make an
Offer to Purchase, and the offer will be sent by the Issuer or, at the Issuer’s
request, by the Trustee in the name and at the expense of the Issuer.

 

(b)                                 The
offer must include or state the following as to the terms of the Offer to
Purchase:

 

(i)                                     the
provision of the Indenture pursuant to which the Offer to Purchase is being
made;

 

(ii)                                  the
aggregate principal amount of the outstanding Notes offered to be purchased by
the Issuer pursuant to the Offer to Purchase (including, if less than 100%, the
manner by which such amount has been determined pursuant to the Indenture) (the
“purchase amount”);

 

(iii)                               the
purchase price, including the portion thereof representing accrued interest and
Additional Interest, if any;

 

42

 

(iv)                              an
expiration date (the “expiration date”)
not less than 30 days or more than 60 days after the date of the offer, and a
settlement date for purchase (the “purchase
date”) not more than five Business Days after the expiration date;

 

(v)                                 information
concerning the business of the Issuer and its Subsidiaries which the Issuer in
good faith believes will enable the Holders to make an informed decision with
respect to the Offer to Purchase, at a minimum to include

 

(A)                              the
most recent annual and quarterly financial statements and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for
the Company,

 

(B)                                a
description of material developments in the Company’s business subsequent to
the date of the latest of the financial statements (including a description of
the events requiring the Issuer to make the Offer to Purchase), and

 

(C)                                if
applicable, appropriate pro forma financial information concerning the Offer to
Purchase and the events requiring the Issuer to make the Offer to Purchase;

 

(vi)                              a
Holder may tender all or any portion of its Notes, subject to the requirement
that any portion of a Note tendered must be in a multiple of $1,000 principal
amount;

 

(vii)                           the
place or places where Notes are to be surrendered for tender pursuant to the
Offer to Purchase;

 

(viii)                        each
Holder electing to tender a Note pursuant to the offer will be required to
surrender such Note at the place or places specified in the offer prior to the
close of business on the expiration date (such Note being, if the Issuer or the
Trustee so requires, duly endorsed or accompanied by a duly executed written
instrument of transfer);

 

(ix)                                interest
on any Note not tendered, or tendered but not purchased by the Issuer pursuant
to the Offer to Purchase, will continue to accrue;

 

(x)                                   on
the purchase date the purchase price will become due and payable on each Note
accepted for purchase, and interest on Notes purchased will cease to accrue on
and after the purchase date;

 

43

 

(xi)                                Holders
are entitled to withdraw Notes tendered by giving notice, which must be
received by the Issuer or the Trustee not later than the close of business on
the expiration date, setting forth the name of the Holder, the principal amount
of the tendered Notes, the certificate number of the tendered Notes and a
statement that the Holder is withdrawing all or a portion of the tender;

 

(xii)                             (A)
if Notes in an aggregate principal amount less than or equal to the purchase
amount are duly tendered and not withdrawn pursuant to the Offer to Purchase,
the Issuer will purchase all such Notes, and (B) if the Offer to Purchase is
for less than all of the outstanding Notes and Notes in an aggregate principal
amount in excess of the purchase amount are tendered and not withdrawn pursuant
to the offer, the Issuer will purchase Notes having an aggregate principal
amount equal to the purchase amount on a pro rata basis, with adjustments so
that only Notes in multiples of $1,000 principal amount will be purchased;

 

(xiii)                          if
any Note is purchased in part, new Notes equal in principal amount to the
unpurchased portion of the Note will be issued; and

 

(xiv)                         if
any Note contains a CUSIP or ISIN number, no representation is being made as to
the correctness of the CUSIP or ISIN number either as printed on the Notes or
as contained in the offer and that the Holder should rely only on the other
identification numbers printed on the Notes.

 

(c)                                  Prior
to the purchase date, the Issuer will accept tendered Notes for purchase as
required by the Offer to Purchase and deliver to the Trustee all Notes so
accepted together with an Officers’ Certificate specifying which Notes have
been accepted for purchase.  On the
purchase date the purchase price will become due and payable on each Note
accepted for purchase, and interest on Notes purchased will cease to accrue on
and after the purchase date.  The
Trustee will promptly return to Holders any Notes not accepted for purchase and
send to Holders new Notes equal in principal amount to any unpurchased portion
of any Notes accepted for purchase in part.

 

(d)                                 The
Issuer will comply with Rule 14e-1 under the Exchange Act and all other
applicable laws in making any Offer to Purchase, and the above procedures will
be deemed modified as necessary to permit such compliance.

 

44

 

ARTICLE 4

COVENANTS

 

SECTION 4.01.  Payment
of Notes.  (a)  The Issuer agrees to pay the principal of
and interest and Additional Interest, if any, on the Notes on the dates and in
the manner provided in the Notes and the Indenture.  The Issuer shall pay Additional Interest in the amounts set forth
in the Registration Rights Agreement. Not later than 9:00 A.M. (New York City time)
on the due date of any principal of or interest on any Notes, or any redemption
or purchase price of the Notes, the Issuer will deposit with the Trustee (or
Paying Agent) money in immediately available funds sufficient to pay such
amounts, provided that if the
Issuer or any Affiliate of the Issuer is acting as Paying Agent, it will, on or
before each due date, segregate and hold in a separate trust fund for the
benefit of the Holders a sum of money sufficient to pay such amounts until paid
to such Holders or otherwise disposed of as provided in the Indenture.  In each case the Issuer will promptly notify
the Trustee of its compliance with this paragraph.

 

(b)                                 An
installment of principal or interest will be considered paid on the date due if
the Trustee (or Paying Agent, other than the Issuer or any Affiliate of the
Issuer) holds on that date money designated for and sufficient to pay the
installment.  If the Issuer or any
Affiliate of the Issuer acts as Paying Agent, an installment of principal or
interest will be considered paid on the due date only if paid to the Holders.

 

(c)                                  The
Issuer agrees to pay interest on overdue principal, and , to the extent lawful,
overdue installments of interest and Additional Interest at the rate per annum
specified in the Notes.

 

(d)                                 Payments
in respect of the Notes represented by the Global Notes are to be made by wire
transfer of immediately available funds to the accounts specified by the
Holders of the Global Notes. With respect to Certificated Notes, the Issuer
will make all payments by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each Holder’s registered address.

 

SECTION 4.02.  Maintenance
of Office or Agency.  The
Issuer will maintain an office or agency where Notes may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Issuer in respect of the Notes and the
Indenture may be served.  The Issuer
hereby initially designates the Corporate Trust Office of the Trustee as such
office of the Issuer.  The Issuer will
give prompt written notice to the Trustee of the location, and any change in
the location, of such office or agency. 
If at any time the Issuer fails to maintain any such required office or
agency or fails to

 

45

 

furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served to the Trustee.

 

The Issuer may
also from time to time designate one or more other offices or agencies where
the Notes may be surrendered or presented for any of such purposes and may from
time to time rescind such designations. 
The Issuer will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.

 

SECTION 4.03.  Existence.  The Company and the Issuer will
each do or cause to be done all things necessary to preserve and keep in full
force and effect its existence and the existence of each of its Restricted
Subsidiaries in accordance with their respective organizational documents, and
the material rights, licenses and franchises of the Company, the Issuer and each
Restricted Subsidiary, provided
that the Company and the Issuer are not required to preserve any such right,
license or franchise, or the existence of any Restricted Subsidiary, if the
maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole;
and provided  further that this Section does not
prohibit any transaction otherwise permitted by Section 4.10 or Section 4.14.

 

SECTION 4.04.  Payment
of Taxes and Other Claims.  The
Company will pay or discharge, and cause each of its Subsidiaries to pay or
discharge before the same become delinquent (a) all material taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary
or its income or profits or property, and (b) all material lawful claims for
labor, materials and supplies that, if unpaid, might by law become a Lien upon
the property of the Company or any Subsidiary, other than any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and for which adequate
reserves have been established.

 

SECTION 4.05.  Maintenance
of Properties and Insurance.  (a)
The Company will cause all properties used or useful in the conduct of its
business or the business of any of its Restricted Subsidiaries to be maintained
and kept in good condition, repair and working order as in the judgment of the
Company may be necessary so that the business of the Company and its Restricted
Subsidiaries may be properly and advantageously conducted at all times; provided that nothing in this Section
prevents the Company or any Restricted Subsidiary from discontinuing the use,
operation or maintenance of any of such properties or disposing of any of them,
if such discontinuance or disposal is, in the judgment of the Company,
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries taken as a whole.

 

46

 

(b)                                 The
Company will provide or cause to be provided, for itself and its Restricted
Subsidiaries, insurance (including appropriate self-insurance) against loss or
damage of the kinds customarily insured against by corporations similarly
situated and owning like properties, including, but not limited to, products
liability insurance and public liability insurance, with reputable insurers, in
such amounts, with such deductibles and by such methods as are customary for
corporations similarly situated in the industry in which the Company and its
Restricted Subsidiaries are then conducting business.

 

SECTION 4.06.  Limitations
on Indebtedness.  (a) The
Company and the Issuer will not, and will not cause or permit any Restricted
Subsidiary, directly or indirectly, to create, incur, assume, become liable for
or guarantee the payment of (collectively, an “incurrence”) any Indebtedness (including Acquired
Indebtedness) unless, after giving effect thereto and the application of the
proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio on the date
thereof would be at least 2.0 to 1.0.

 

(b)                                 Notwithstanding
the foregoing, the provisions of the Indenture will not prevent the incurrence
of:

 

(i)                  Permitted
Indebtedness,

 

(ii)               Refinancing
Indebtedness,

 

(iii)            Non-Recourse
Indebtedness,

 

(iv)           any Guarantee of
Indebtedness represented by the Notes, and

 

(v)              any guarantee of
Indebtedness incurred under Credit Facilities in compliance with the Indenture.

 

(c)                                  For
purposes of determining compliance with this covenant, in the event that an
item of Indebtedness may be incurred through the first paragraph of this
covenant or by meeting the criteria of one or more of the types of Indebtedness
described in the second paragraph of this covenant (or the definitions of the terms
used therein), the Company, in its sole discretion,

 

(i)                           may
classify such item of Indebtedness under and comply with either of such
paragraphs (or any of such definitions), as applicable,

 

(ii)                        may
classify and divide such item of Indebtedness into more than one of such
paragraphs (or definitions), as applicable, and

 

47

 

(iii)                     may
elect to comply with such paragraphs (or definitions), as applicable, in any
order.

 

SECTION 4.07.  Limitation
on Restricted Payments.  (a)
The Company and the Issuer will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, make any Restricted Payment
unless:

 

(i)                           no
Default or Event of Default shall have occurred and be continuing at the time
of or immediately after giving effect to such Restricted Payment;

 

(ii)                        immediately
after giving effect to such Restricted Payment, the Company could incur at
least $1.00 of Indebtedness pursuant to Section 4.06(a) hereof; and

 

(iii)                     immediately
after giving effect to such Restricted Payment, the aggregate amount of all
Restricted Payments (including the Fair Market Value of any non-cash Restricted
Payment) declared or made after May 4, 1999 does not exceed the sum of:

 

(A)                    50%
of the Consolidated Net Income of the Company on a cumulative basis during the
period (taken as one accounting period) from and including February 1, 1999 and
ending on the last day of the Company’s fiscal quarter immediately preceding
the date of such Restricted Payment (or in the event such Consolidated Net
Income shall be a deficit, minus 100% of such deficit), plus

 

(B)                      100%
of the aggregate net cash proceeds of and the Fair Market Value of Property
received by the Company from (1) any capital contribution to the Company after
February 1, 1999 or any issue or sale after February 1, 1999 of Qualified Stock
(other than to any Subsidiary of the Company) and (2) the issue or sale after
February 1, 1999 of any Indebtedness or other securities of the Company
convertible into or exercisable for Qualified Stock of the Company that have
been so converted or exercised, as the case may be, plus

 

(C)                      in
the case of the disposition or repayment of any Investment constituting a
Restricted Payment made after May 4, 1999, an amount (to the extent not
included in the calculation of Consolidated Net Income referred to in (A))
equal to the lesser of (x) the return of capital with respect to such
Investment (including by dividend, distribution or sale of Capital Stock) and
(y) the amount of such Investment that was treated as a Restricted

 

48

 

Payment, in
either case, less the cost of the disposition or repayment of such Investment
(to the extent not included in the calculation of Consolidated Net Income
referred to in (A)), plus

 

(D)                               with
respect to any Unrestricted Subsidiary that is redesignated as a Restricted
Subsidiary after May 4, 1999, in accordance with the definition of Unrestricted
Subsidiary (so long as the designation of such Subsidiary as an Unrestricted
Subsidiary was treated as a Restricted Payment made after May 4, 1999, and only
to the extent not included in the calculation of Consolidated Net Income
referred to in (A)), an amount equal to the lesser of (x) the proportionate
interest of the Company or a Restricted Subsidiary in an amount equal to the
excess of (I) the total assets of such Subsidiary, valued on an aggregate basis
at the lesser of book value and Fair Market Value thereof, over (II) the total
liabilities of such Subsidiary, determined in accordance with GAAP, and (y) the
Designation Amount at the time of such Subsidiary’s designation as an
Unrestricted Subsidiary, plus

 

(E)                                 $17
million, minus

 

(F)                                 the
aggregate amount of all Restricted Payments (other than Restricted Payments referred
to in clause (iii) of paragraph (b) below) made after February 1, 1999 through
May 4, 1999.

 

(b)                                 Clauses
(ii) and (iii) of paragraph (a) will not prohibit:

 

(i)                           the
payment of any dividend within 60 days of its declaration if such dividend
could have been made on the date of its declaration without violation of the
provisions of the Indenture;

 

(ii)                        the
repurchase, redemption or retirement of any shares of Capital Stock of the
Company in exchange for, or out of the net proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, other shares of
Qualified Stock; and

 

(iii)                     the
purchase, redemption or other acquisition, cancellation or retirement for value
of Capital Stock, or options, warrants, equity appreciation rights or other
rights to purchase or acquire Capital Stock, of the Company or any Subsidiary
held by officers or employees or former officers or employees of the Company or
any Subsidiary (or their estates or beneficiaries under their estates) not to
exceed $10 million in the aggregate since May 4, 1999;

 

49

 

provided, however
that each Restricted Payment described in clauses (i) and (ii) of this sentence
shall be taken into account for purposes of computing the aggregate amount of
all Restricted Payments pursuant to clause (iii) of the immediately preceding
paragraph.

 

(c)                                  For
purposes of determining the aggregate and permitted amounts of Restricted
Payments made, the amount of any guarantee of any Investment in any Person that
was initially treated as a Restricted Payment and which was subsequently
terminated or expired, net of any amounts paid by the Company or any Restricted
Subsidiary in respect of such guarantee, shall be deducted.

 

(d)                                 In
determining the “Fair Market Value of Property” for purposes of clause (iii) of
paragraph (a), Property other than cash, Cash Equivalents and Marketable
Securities shall be deemed to be equal in value to the “equity value” of the
Capital Stock or other securities issued in exchange therefor. The equity value
of such Capital Stock or other securities shall be equal to (i) the number of
shares of Common Equity issued in the transaction (or issuable upon conversion
or exercise of the Capital Stock or other securities issued in the transaction)
multiplied by the closing sale price of the Common Equity on its principal
market on the date of the transaction (less, in the case of Capital Stock or
other securities which require the payment of consideration at the time of
conversion or exercise, the aggregate consideration payable thereupon) or (ii)
if the Common Equity is not then traded on the New York Stock Exchange,
American Stock Exchange or Nasdaq National Market, or if the Capital Stock or
other securities issued in the transaction do not consist of Common Equity (or
Capital Stock or other securities convertible into or exercisable for Common
Equity), the value (if more than $10 million) of such Capital Stock or other
securities as determined by a nationally recognized investment banking firm
retained by the Board of Directors of the Company.

 

SECTION 4.08.  Limitation
on Liens.  The Company and
the Issuer will not, and will not cause or permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Liens which secure Indebtedness
other than Senior Debt of the Issuer or Senior Debt of a Guarantor, as the case
may be, other than Permitted Liens, on any of its Property, or on any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary, unless contemporaneously
therewith or prior thereto all payments due under the Indenture and the Notes
are secured on an equal and ratable basis with the obligation or liability so
secured until such time as such obligation or liability is no longer secured by
a Lien.

 

SECTION 4.09.  Limitations
on Restrictions Affecting Restricted Subsidiaries.  The Company and the Issuer will not, and will not
cause or permit any Restricted Subsidiary to, create, assume or otherwise cause
or suffer to exist

 

50

 

or become
effective any consensual encumbrance or restriction (other than encumbrances or
restrictions imposed by law or by judicial or regulatory action or by
provisions of agreements that restrict the assignability thereof) on the
ability of any Restricted Subsidiary to:

 

(a)          pay dividends or make
any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits, owned by the Company or any
other Restricted Subsidiary, or pay interest on or principal of any
Indebtedness owed to the Company or any other Restricted Subsidiary,

 

(b)         make loans or advances to
the Company or any other Restricted Subsidiary, or

 

(c)          transfer any of its
property or assets to the Company or any other Restricted Subsidiary,

 

except for

 

(i)                       encumbrances or restrictions
existing under or by reason of applicable law,

 

(ii)                    contractual encumbrances or
restrictions in effect on the Issue Date and any amendments, modifications,
restatements, renewals, supplements, refundings, replacements or refinancings
thereof, provided that such
amendments, modifications, restatements, renewals, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
such contractual encumbrances or restrictions, as in effect on the Issue Date,

 

(iii)                 any restrictions or encumbrances
arising under Acquired Indebtedness; provided
that such encumbrance or restriction applies only to either the assets that
were subject to the restriction or encumbrance at the time of the acquisition
or the obligor on such Indebtedness and its Subsidiaries prior to such
acquisition,

 

(iv)                any restrictions or encumbrances
arising in connection with Refinancing Indebtedness; provided, however,
that any restrictions and encumbrances of the type described in this clause
(iv) that arise under such Refinancing Indebtedness shall not be materially
more restrictive or apply to additional assets than those under the agreement
creating or evidencing the Indebtedness being refunded, refinanced, replaced or
extended,

 

51

 

(v)                   any Permitted Lien, or any other
agreement restricting the sale or other disposition of property, securing
Indebtedness permitted by the Indenture if such Permitted Lien or agreement
does not expressly restrict the ability of a Subsidiary of the Company to pay
dividends or make or repay loans or advances prior to default thereunder,

 

(vi)                reasonable and customary borrowing base
covenants set forth in agreements evidencing Indebtedness otherwise permitted
by the Indenture,

 

(vii)             customary non-assignment provisions in
leases, licenses, encumbrances, contracts or similar assets entered into or
acquired in the ordinary course of business,

 

(viii)          any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition,

 

(ix)                  encumbrances or restrictions existing
under or by reason of the Indenture or the Notes,

 

(x)                     purchase money obligations that
impose restrictions on the property so acquired of the nature described in
clause (c) of the preceding paragraph,

 

(xi)                  Liens permitted under the Indenture
securing Indebtedness that limit the right of the debtor to dispose of the
assets subject to such Lien,

 

(xii)               provisions with respect to the
disposition or distribution of assets or property in joint venture agreements,
assets sale agreements, stock sale agreements and other similar agreements,

 

(xiii)            customary provisions of any franchise,
distribution or similar agreements,

 

(xiv)           restrictions on cash or other deposits or
net worth imposed by contracts entered into in the ordinary course of business,
and

 

(xv)              any encumbrance or restrictions of the
type referred to in clauses  (a), (b) or
(c) of the first paragraph of this section imposed by any amendments, modifications,
restatements, renewals, supplements, refinancings, replacements or refinancings
of the contracts, instruments or

 

52

 

obligations
referred to in clauses (i) through (xiv) of this paragraph, provided that such amendments,
modifications, restatements, renewals, supplements, refundings, replacements or
refinancings are, in the good faith judgment of the Company’s Board of
Directors, no more restrictive with respect to such dividend and other payment
restrictions than those contained in the dividend or other payment restrictions
prior to such amendment, modification, restatement, renewal, supplement,
refunding, replacement or refinancing.

 

SECTION 4.10.  Limitations
on Dispositions of Assets.  The
Company and the Issuer will not, and will not cause or permit any Restricted
Subsidiary to, make any Asset Disposition unless (x) the Company (or such
Restricted Subsidiary, as the case may be) receives consideration at the time
of such Asset Disposition at least equal to the Fair Market Value thereof, and
(y) not less than 70% of the consideration received by the Company (or such
Restricted Subsidiary, as the case may be) is in the form of cash, Cash
Equivalents and Marketable Securities. The amount of (i) any Indebtedness
(other than any Indebtedness subordinated to the Notes) of the Company or any
Restricted Subsidiary that is actually assumed by the transferee in such Asset
Disposition and (ii) the fair market value (as determined in good faith by the
Board of Directors of the Company) of any property or assets received that are
used or useful in a Real Estate Business, shall be deemed to be consideration
required by clause (y) above for purposes of determining the percentage of such
consideration received by the Company or the Restricted Subsidiaries. The Net
Cash Proceeds of an Asset Disposition shall, within one year, at the Company’s
election, (a) be used by the Company or a Restricted Subsidiary in the business
of the construction and sale of homes conducted by the Company and the
Restricted Subsidiaries or any other business of the Company or a Restricted
Subsidiary existing at the time of such Asset Disposition, (b) be used to repay
Senior Debt of the Issuer or Senior Debt of a Guarantor or (c) to the extent
not so used, be applied to make an Offer to Purchase Notes and, if the Company
or a Restricted Subsidiary elects or is required to do so repay, purchase or
redeem any other pari passu Indebtedness (on a pro
rata basis if the amount
available for such repayment, purchase or redemption is less than the aggregate
amount of (i) the principal amount of the Notes tendered in such Offer to
Purchase and (ii) the lesser of the principal amount, or accreted value, of
such other pari passu Indebtedness, plus, in each case accrued interest to the
date of repayment, purchase or redemption) at 100% of the principal amount or
accreted value thereof, as the case may be, plus accrued interest and
Additional Interest, if any, to the date of repurchase or repayment. Notwithstanding
the foregoing, (A) the Company will not be required to apply such Net Cash
Proceeds to the repurchase of Notes in accordance with clause (c) of the
preceding sentence except to the extent that such Net Cash Proceeds, together
with the aggregate Net Cash Proceeds of prior Asset Dispositions (other than
those so used) which have not been applied in accordance with this provision
and as to which no prior Offer

 

53

 

to Purchase
shall have been made, exceed 5% of Consolidated Tangible Assets and (B) in
connection with an Asset Disposition, the Company and the Restricted
Subsidiaries will not be required to comply with the requirements of clause (y)
of the first sentence of the first paragraph of this covenant to the extent
that the non-cash consideration received in connection with such Asset
Disposition together with the sum of all non-cash consideration received in
connection with all prior Asset Disposition that has not yet been converted
into cash, does not exceed 5% of Consolidated Tangible Assets; provided  however,
that when any non-cash consideration is converted into cash, such cash shall
constitute Net Cash Proceeds and be subject to the preceding sentence.

 

SECTION 4.11.  Guarantees
by Restricted Subsidiaries. 
Each existing Restricted Subsidiary (other than the Issuer, KHL, Inc.
and K. Hovnanian Poland, sp. z.o.o.) will provide a Note Guaranty. The Company
will be permitted to cause any Unrestricted Subsidiary to provide a Note
Guaranty.  If the Issuer, the Company or
any of its Restricted Subsidiaries acquires or creates a Restricted Subsidiary
after the date of the Indenture, the new Restricted Subsidiary must provide a
Note Guaranty.

 

A Restricted
Subsidiary required to provide a Note Guaranty shall execute a supplemental
indenture in the form of Exhibit B, and deliver an Opinion of Counsel to the
Trustee to the effect that the supplemental indenture has been duly authorized,
executed and delivered by the Restricted Subsidiary and constitutes a valid and
binding obligation of the Restricted Subsidiary, enforceable against the
Restricted Subsidiary in accordance with its terms (subject to customary
exceptions).

 

SECTION 4.12.  Repurchase
of Notes upon a Change of Control.  (a)
In the event that there shall occur a Change of Control, each Holder of Notes
shall have the right, at such Holder’s option, to require the Issuer to
purchase all or any part of such Holder’s Notes on a date (the “Repurchase Date”) that is no later than 90
days after notice of the Change of Control, at 101% of the principal amount
thereof plus accrued and unpaid interest and Additional Interest, if any, to
the Repurchase Date.

 

(b)                                 On
or before the thirtieth day after any Change of Control, the Issuer is
obligated to mail or cause to be mailed, to all Holders of record of Notes a
notice regarding the Change of Control and the repurchase right. The notice
shall state the Repurchase Date, the date by which the repurchase right must be
exercised, the price for the Notes and the procedure which the Holder must
follow to exercise such right. Substantially simultaneously with mailing of the
notice, the Issuer shall cause a copy of such notice to be published in a
newspaper of general circulation in the Borough of Manhattan, The City of New
York. To exercise such right, the Holder of such Note must deliver at least ten
days prior to the

 

54

 

Repurchase
Date written notice to the Issuer (or an agent designated by the Issuer for
such purpose) of the Holder’s exercise of such right, together with the Note
with respect to which the right is being exercised, duly endorsed for transfer;
provided, however, that if mandated by applicable
law, a Holder may be permitted to deliver such written notice nearer to the
Repurchase Date than may be specified by the Issuer.

 

(c)                                  The
Issuer will comply with applicable law, including Section 14(e) of Exchange Act
and Rule 14e-1 thereunder, if applicable, if the Issuer is required to give a
notice of a right of repurchase as a result of a Change of Control.

 

SECTION 4.13.  Limitation
on Transactions with Affiliates.  (a)
The Company and the Issuer will not, and will not cause or permit any
Restricted Subsidiary to, make any loan, advance, guarantee or capital contribution
to, or for the benefit of, or sell, lease, transfer or otherwise dispose of any
property or assets to or for the benefit of, or purchase or lease any property
or assets from, or enter into or amend any contract, agreement or understanding
with, or for the benefit of, any Affiliate of the Company or any Affiliate of
any of the Company’s Subsidiaries or any holder of 10% or more of the Common
Equity of the Company (including any Affiliates of such holders), in a single
transaction or series of related transactions (each, an “Affiliate Transaction”), except for any
Affiliate Transaction the terms of which are at least as favorable as the terms
which could be obtained by the Company, the Issuer or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an arm’s
length basis with Persons who are not such a holder, an Affiliate of such a
holder or an Affiliate of the Company or any of the Company’s Subsidiaries.

 

(b)                                 In
addition, the Company and the Issuer will not, and will not cause or permit any
Restricted Subsidiary to, enter into an Affiliate Transaction unless:

 

(i)                           with
respect to any such Affiliate Transaction involving or having a value of more
than $1 million, the Company shall have (x) obtained the approval of a majority
of the Board of Directors of the Company and (y) either obtained the approval
of a majority of the Company’s disinterested directors or obtained an opinion
of a qualified independent financial advisor to the effect that such Affiliate
Transaction is fair to the Company, the Issuer or such Restricted Subsidiary,
as the case may be, from a financial point of view, and

 

(ii)                        with
respect to any such Affiliate Transaction involving or having a value of more
than $10 million, the Company shall have (x) obtained the approval of a
majority of the Board of Directors of the Company and (y) delivered to the
Trustee an opinion of a qualified independent financial advisor to the effect
that such Affiliate Transaction

 

55

 

is fair to the
Company, the Issuer or such Restricted Subsidiary, as the case may be, from a
financial point of view.

 

(c)                                  Notwithstanding
the foregoing, an Affiliate Transaction will not include:

 

(i)                           any
contract, agreement or understanding with, or for the benefit of, or plan for
the benefit of, employees of the Company or its Subsidiaries generally (in
their capacities as such) that has been approved by the Board of Directors of
the Company,

 

(ii)                        Capital
Stock issuances to directors, officers and employees of the Company or its
Subsidiaries pursuant to plans approved by the stockholders of the Company,

 

(iii)                     any
Restricted Payment otherwise permitted under Section 4.07 hereof,

 

(iv)                    any
transaction between or among the Company and one or more Restricted
Subsidiaries or between or among Restricted Subsidiaries (provided, however,
no such transaction shall involve any other Affiliate of the Company (other
than an Unrestricted Subsidiary to the extent the applicable amount constitutes
a Restricted Payment permitted by the Indenture)),

 

(v)                       any
transaction between one or more Restricted Subsidiaries and one or more
Unrestricted Subsidiaries where all of the payments to, or other benefits
conferred upon, such Unrestricted Subsidiaries are substantially
contemporaneously dividended, or otherwise distributed or transferred without
charge, to the Company or a Restricted Subsidiary,

 

(vi)                    issuances,
sales or other transfers or dispositions of mortgages and collateralized
mortgage obligations in the ordinary course of business between Restricted
Subsidiaries and Unrestricted Subsidiaries of the Company, and

 

(vii)                 the payment of
reasonable and customary fees to, and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company, the Issuer or any
Restricted Subsidiary.

 

SECTION 4.14.  Limitations
on Mergers, Consolidations and Sales of Assets.  Neither the Company nor the Issuer nor any Guarantor
will consolidate or merge with or into, or sell, lease, convey or otherwise
dispose of all or substantially all of its assets (including, without
limitation, by way of liquidation

 

56

 

or
dissolution), or assign any of its obligations under the Notes, the Guarantee
or the Indenture (as an entirety or substantially as an entirety in one
transaction or in a series of related transactions), to any Person (in each
case other than in a transaction in which the Company, the Issuer or a
Restricted Subsidiary is the survivor of a consolidation or merger, or the
transferee in a sale, lease, conveyance or other disposition) unless:

 

(i)                           the
Person formed by or surviving such consolidation or merger (if other than the
Company, the Issuer or the Guarantor, as the case may be), or to which such
sale, lease, conveyance or other disposition or assignment will be made
(collectively, the “Successor”),
is a corporation or other legal entity organized and existing under the laws of
the United States or any state thereof or the District of Columbia, and the
Successor assumes by supplemental indenture in a form reasonably satisfactory
to the Trustee all of the obligations of the Company, the Issuer or the
Guarantor, as the case may be, under the Notes or a Guarantee, as the case may
be, and the Indenture,

 

(ii)                        immediately
after giving effect to such transaction, no Default or Event of Default has
occurred and is continuing, and

 

(iii)                     immediately
after giving effect to such transaction, the Company (or its Successor) could
incur at least $1.00 of Indebtedness pursuant to Section 4.06(a) hereof.

 

The foregoing
provisions shall not apply to (i) a transaction involving the sale or
disposition of Capital Stock of a Guarantor, or the consolidation or merger of
a Guarantor, or the sale, lease, conveyance or other disposition of all or
substantially all of the assets of a Guarantor, that in any such case results
in such Guarantor being released from its Guarantee pursuant to the Indenture,
or (ii) a transaction the purpose of which is to change the state of
incorporation of the Company, the Issuer or any Guarantor.

 

SECTION 4.15.  Reports
to Holders of Notes.  (a)  The Company shall file with the Commission
the annual reports and the information, documents and other reports required to
be filed pursuant to Section 13 or 15(d) of the Exchange Act. The Company shall
file with the Trustee and mail to each Holder of record of Notes such reports,
information and documents within 15 days after it files them with the
Commission. In the event that the Company is no longer subject to these
periodic requirements of the Exchange Act, it will nonetheless continue to file
reports with the Commission and the Trustee and mail such reports to each
Holder of Notes as if it were subject to such reporting requirements.
Regardless of whether the Company is required to furnish such reports to its
stockholders pursuant to the Exchange Act, the Company will cause its
consolidated financial

 

57

 

statements and
a “Management’s Discussion and Analysis of Results of Operations and Financial
Condition” written report, similar to those that would have been required to
appear in annual or quarterly reports, to be delivered to Holders of Notes.

 

(b)                                 For
so long as any of the Notes remain outstanding and constitute “restricted
securities” under Rule 144, the Company will furnish to the Holders of the
Notes and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

 

(c)                                  All
obligors on the Notes will comply with Section 314(a) of the Trust Indenture
Act.

 

(d)                                 Delivery
of these reports and information to the Trustee is for informational purposes
only and the Trustee’s receipt of them will not constitute constructive notice
of any information contained therein or determinable from information contained
therein, including the Company’s compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers’
Certificates).

 

SECTION 4.16.  Reports
to Trustee.  (a)  The Company will deliver to the Trustee
within 120 days after the end of each fiscal year a written statement by the
Company’s independent public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, and (ii) whether, in connection with
their audit examination, any Default has come to their attention and, if a
Default has come to their attention, specifying the nature and period of the
existence thereof

 

(b)                                 The
Company shall deliver to the Trustee, on or prior to each Interest Payment
Date, an Officer’s Certificate setting forth the amount of Additional Interest,
if any, the Issuer is required to pay on that Interest Payment Date.  If no Additional Interest are required to be
paid on a given Interest Payment Date, no such Officer’s Certificate is
required to be delivered to the Trustee for that Interest Payment Date.

 

(c)                                  The
Company will notify the Trustee when any Notes are listed on any national
securities exchange and of any delisting.

 

SECTION 4.17.  Notice of
Other Defaults.  In the event
that any Indebtedness of the Issuer or any Guarantor is declared due and
payable before its maturity because of the occurrence of any default under such
Indebtedness, the Issuer or the relevant Guarantor, as the case may be, shall
promptly deliver to the Trustee and Officers’ Certificate stating such
declaration; provided that the
term

 

58

 

“Indebtedness”
as used in this Section 4.17 shall not include Non-Recourse Indebtedness.

 

SECTION 4.18.  Limitation
on Senior Subordinated Indebtedness.  The Company and the Issuer will not, and will not cause or permit
any Guarantor to, incur any Indebtedness that is subordinate in right of
payment to any Senior Debt of the Issuer or Senior Debt of a Guarantor, as the
case may be, unless such Indebtedness is pari passu with, or subordinated in
right of payment to, the Notes or any Note Guarantee; provided that the foregoing limitation
shall not apply to distinctions between categories of Senior Debt of the Issuer
or Senior Debt of a Guarantor that exist by reason of any Liens or guarantees
arising or created in respect of some but not all such Senior Debt of the Issuer
or Senior Debt of a Guarantor or priorities of paydown, from proceeds of
collateral or otherwise, among classes or tranches of any issue of Senior Debt
of the Issuer or Senior Debt of a Guarantor.

 

 

ARTICLE 5

REMEDIES

 

SECTION 5.01.  Events of
Default.  (a) “Event of Default” means any one or more of
the following events:

 

(i)                                     the
failure by the Company, the Issuer and the Guarantors to pay interest on, or
Additional Interest with respect to, any Note when the same becomes due and
payable and the continuance of any such failure for a period of 30 days;

 

(ii)                                  the
failure by the Company, the Issuer and the Guarantors to pay the principal or
premium of any Note when the same becomes due and payable at maturity, upon
acceleration or otherwise;

 

(iii)                               the
failure by the Company, the Issuer or any Restricted Subsidiary to comply with
any of its agreements or covenants in, or provisions of, the Notes, the
Guarantee or the Indenture and such failure continues for the period and after
the notice specified below (except in the case of a default under Sections 4.12
and 4.14 hereof, which will constitute Events of Default with notice but
without passage of time);

 

(iv)                              the
acceleration of any Indebtedness (other than Non-Recourse Indebtedness) of the
Company, the Issuer or any Restricted Subsidiary that has an outstanding
principal amount of $10 million or more, individually or in the aggregate, and
such acceleration does not

 

59

 

cease to
exist, or such Indebtedness is not satisfied, in either case within 30 days
after such acceleration;

 

(v)                                 the
failure by the Company, the Issuer or any Restricted Subsidiary to make any
principal or interest payment in an amount of $10 million or more, individually
or in the aggregate, in respect of Indebtedness (other than Non-Recourse
Indebtedness) of the Company or any Restricted Subsidiary within 30 days of
such principal or interest becoming due and payable (after giving effect to any
applicable grace period set forth in the documents governing such
Indebtedness);

 

(vi)                              a
final judgment or judgments that exceed $10 million or more, individually or in
the aggregate, for the payment of money having been entered by a court or
courts of competent jurisdiction against the Company, the Issuer or any of its
Restricted Subsidiaries and such judgment or judgments is not satisfied,
stayed, annulled or rescinded within 60 days of being entered;

 

(vii)                           the
Company or any Restricted Subsidiary that is a Significant Subsidiary pursuant
to or within the meaning of any Bankruptcy Law:

 

(A)                    commences
a voluntary case,

 

(B)                      consents
to the entry of an order for relief against it in an involuntary case,

 

(C)                      consents
to the appointment of a Custodian of it or for all or substantially all of its
property, or

 

(D)                     makes
a general assignment for the benefit of its creditors;

 

(viii)                        a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that:

 

(A)                    is
for relief against the Company or any Restricted Subsidiary that is a Significant
Subsidiary as debtor in an involuntary case,

 

(B)                      appoints
a Custodian of the Company or any Restricted Subsidiary that is a Significant
Subsidiary or a Custodian for all or substantially all of the property of the

 

60

 

Company or any
Restricted Subsidiary that is a Significant Subsidiary, or

 

(C)                      orders
the liquidation of the Company or any Restricted Subsidiary that is a
Significant Subsidiary,

 

and the order
or decree remains unstayed and in effect for 60 days, or

 

(ix)                                any
Guarantee of a Guarantor which is a Significant Subsidiary ceases to be in full
force and effect (other than in accordance with the terms of such Guarantee and
the Indenture) or is declared null and void and unenforceable or found to be
invalid or any Guarantor denies its liability under its Guarantee (other than
by reason of release of a Guarantor from its Guarantee in accordance with the
terms of the Indenture and the Guarantee).

 

A Default as
described in subclause (iii) above will not be deemed an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25 percent in
principal amount of the then outstanding Notes notify the Company and the
Trustee, of the Default and (except in the case of a default with respect to
Sections 4.12 and 4.14 hereof) the Company does not cure the Default within 60
days after receipt of the notice. The notice must specify the Default, demand
that it be remedied and state that the notice is a “Notice of Default.” If such
a Default is cured within such time period, it ceases.

 

If an Event of
Default (other than an Event of Default with respect to the Company resulting
from subclauses (vii) or (viii) above), shall have occurred and be continuing
under the Indenture, the Trustee by notice to the Company, or the Holders of at
least 25 percent in principal amount of the Notes then outstanding by notice to
the Company and the Trustee, may declare all Notes to be due and payable
immediately. Upon such declaration of acceleration, the amounts due and payable
on the Notes will be due and payable immediately. If an Event of Default with
respect to the Company specified in subclauses (vii) or (viii) above occurs,
such an amount will ipso facto become and be immediately due and payable without
any declaration, notice or other act on the part of the Trustee and the Company
or any Holder.

 

Except with
respect to an Event of Default pursuant to clauses (i) or (ii) of this Section
5.01, the Trustee shall not be charged with knowledge of any Event of Default
unless written notice thereof shall have been given to the Trustee by the
Issuer or any Holder.

 

SECTION 5.02.  Other
Remedies.  If an Event of
Default occurs and is continuing, the Trustee may pursue, in its own name or as
trustee of an express

 

61

 

trust, any
available remedy by proceeding at law or in equity to collect the payment of
principal of and interest or Additional Interest, if any, on the Notes or to
enforce the performance of any provision 
of the Notes or the Indenture. 
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding.

 

SECTION 5.03.  Waiver of
Defaults by Majority of Holders.  The
Holders of a majority in principal amount of the Notes then outstanding by
written notice to the Trustee and the Company may waive any Default or Event of
Default (other than any Default or Event of Default in payment of principal or
interest or Additional Interest) on the Notes under the Indenture. Holders of a
majority in principal amount of the then outstanding Notes may rescind an
acceleration and its consequence (except an acceleration due to nonpayment of
principal or interest or Additional Interest, if any, on the Notes) if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (other than the non-payment of accelerated principal) have
been cured or waived.

 

SECTION 5.04.  Direction
of Proceedings.  The Holders
of a majority in aggregate principal amount of the outstanding Notes may direct
the Trustee in its exercise of any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that conflicts with law
or the Indenture, that may involve the Trustee in personal liability, or that
the Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Notes not joining in the giving of such direction, and may take any
other action it deems proper that is not inconsistent with any such direction
received from Holders of Notes.

 

SECTION 5.05.  Application
of Moneys Collected by Trustee. 
Any moneys collected by the Trustee pursuant to this Article with
respect to Notes shall be applied in the order following, at the date or dates
fixed by the Trustee for the distribution of such moneys, upon presentation of
the Notes and stamping thereon the payment, if only partially paid, and upon
surrender thereof, if fully paid:

 

FIRST: To the
payment of costs and expenses of collection and reasonable compensation to the
Trustee, its agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Trustee pursuant to Section
7.07;

 

SECOND: If the
principal of the Notes shall not have become due and be unpaid, to the payment
of interest or Additional Interest, if any, on the Notes with interest (to the
extent that such interest has been collected by the Trustee) upon the overdue
installments of interest and Additional Interest, if any, at the rate borne by
the Notes, such payment to be made ratably to the Persons entitled thereto;

 

62

 

THIRD: If the
principal of the Notes shall have become due, by declaration or otherwise, to
the payment of the whole amount then owing and unpaid upon the Notes for
principal, interest and Additional Interest, if any, with interest on the
overdue principal and (to the extent that such interest has been collected by
the Trustee) upon overdue installments of interest and Additional Interest, if
any, at the rate borne by the Notes, and in case such moneys shall be
insufficient to pay in full the whole amounts so due and unpaid upon the Notes,
then to the payment of such principal and interest and Additional Interest, if
any, without preference or priority of principal over interest or Additional
Interest or of interest or Additional Interest over principal, or of interest
over Additional Interest, or of  any
installment of interest or Additional Interest over any other installment of
interest or Additional Interest, ratably to the aggregate of such principal and
accrued and unpaid interest and Additional Interest, if any; and

 

FOURTH: To the
payment of any surplus then remaining to the Issuer, its successors or assigns,
or to whomsoever may be lawfully entitled to receive the same.

 

No claim for
interest which in any manner at or after maturity shall have been transferred
or pledged separate or apart from the Notes to which it relates, or which in
any manner shall have been kept alive after maturity by an extension (otherwise
than pursuant to an extension made pursuant to a plan proposed by the Issuer to
the Holders of all Notes), purchase, funding or otherwise by or on behalf or
with the consent or approval of the Issuer shall be entitled, in case of a
default hereunder, to any benefit of this Indenture, except after prior payment
in full of the principal of all Notes and of all claims for interest not so
transferred, pledged, kept alive, extended, purchased or funded.

 

SECTION 5.06.  Proceedings
by Holders.  No holder of any
Notes shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture for the appointment of a receiver or
trustee or similar official, or for any other remedy hereunder, unless such
Holder previously shall have given to the Trustee written notice of default and
of the continuance thereof, as hereinbefore provided, and unless the Holders of
not less than 25% in aggregate principal amount of the Notes shall have made
written request to the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding, it being
understood and intended, and being expressly covenanted by the Holder of every
Note with every other Holder and the Trustee,

 

63

 

that no one or
more Holders of Notes shall have any right in any manner whatever by virtue of
or by availing of any provision of this Indenture or of the Notes to affect,
disturb or prejudice the rights of any other Holder of Notes, or to obtain or
seek to obtain priority over or preference as to any other such Holder, or to
enforce any right under this Indenture or the Notes, except in the manner
herein provided and for the equal, ratable and common benefit of all Holders of
Notes.

 

Notwithstanding
any other provisions in this Indenture, however, the right of any Holder of any
Note to receive payment of the principal of, premium, if any, and interest and
Additional Interest, if any, on such Note, on or after the maturity thereof, or
to institute suit for the enforcement of any such payment on or after such
respective dates shall not be impaired or affected without the consent of such
Holder.

 

SECTION 5.07.  Proceedings
by Trustee.  In case of an
Event of Default hereunder, the Trustee may in its discretion proceed to
protect and enforce the rights vested in it by this Indenture by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either by suit in equity or by action
at law or by proceedings in bankruptcy or otherwise, whether for the specific
enforcement of any covenant or agreement contained in this Indenture or in aid
of the exercise of any power granted in this Indenture, or to enforce any other
legal or equitable right vested in the Trustee by this Indenture or by law.

 

SECTION 5.08.  Remedies
Cumulative and Continuing. 
All powers and remedies given by this Article Five to the Trustee or to
the Holders shall,  to the extent
permitted by law, be deemed cumulative and not exclusive of any thereof or of
any other powers and remedies available to the Trustee or the Holders, by
judicial proceedings or otherwise, to enforce the performance or observance of
the covenants and agreements contained in this Indenture, and no delay or
omission of the Trustee or of any Holder to exercise any right or power
accruing upon any default occurring and continuing as aforesaid shall impair
any such right or power, or shall be construed to be a waiver of any such
default or an acquiescence therein; and, subject to the provisions of Section
5.06, every power and remedy given by this Article 5 or by law to the Trustee
or to the Holders may be exercised from time to time,  and as often as shall be deemed expedient, by the Trustee or by
the Holders.

 

SECTION 5.09.  Undertaking
to Pay Costs.  All parties to
this Indenture agree and each Holder of any Note by his acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require,
or in any suit for the enforcement of any right or remedy under this Indenture,
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, the filing by any party litigant in such suit of any undertaking to
pay the cost of such suit, and that such

 

64

 

court may in
its discretion assess reasonable costs, including reasonable attorneys’ fees
and expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 5.09 shall not apply to any suit instituted
by the Trustee, to any suit instituted by any Holder, or group of Holders,
holding in the aggregate more than 10% in principal amount of the Notes, or to
any suit instituted by any Holders for the enforcement of the payment of the
principal of or interest or Additional Interest, if any, on any Note against
the Issuer on or after the due date of such Note.

 

SECTION 5.10.  Notice of
Defaults.  The Company is
required to deliver to the Trustee an annual statement regarding compliance
with the Indenture, and include in such statement, if any officer of the
Company is aware of any Default or Event of Default, a statement specifying
such Default or Event of Default and what action the Company is taking or
proposes to take with respect thereto. In addition, the Company is required to
deliver to the Trustee prompt written notice of the occurrence of any Default
or Event of Default.

 

SECTION 5.11.  Waiver of
Stay, Extension or Usury Laws.  The
Company, the Issuer and each Guarantor covenants, to the extent that it may
lawfully do so, that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company, the Issuer or the Guarantor from paying all or any portion of the
principal of, or interest or Additional Interest, if any, on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or that may affect the covenants or the performance of the Indenture.  The Company, the Issuer and each Guarantor
hereby expressly waives, to the extent that it may lawfully do so, all benefit
or advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.

 

SECTION 5.12.  Trustee
May File Proof of Claim.  The
Trustee may file proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee (including
any claim for the compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee
hereunder) and the Holders allowed in any judicial proceedings relating to the
Company or any Guarantor or their respective creditors or property, and is
entitled and empowered to collect, receive and distribute any money, securities
or other property payable or deliverable upon conversion or exchange of the
Notes or upon any such claims. Any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to

 

65

 

make such
payments to the Trustee and, if the Trustee consents to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it
for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee
hereunder. Nothing in the Indenture will be deemed to empower the Trustee to
authorize or consent to, or accept or adopt on behalf of any Holder, any plan
of reorganization, arrangement, adjustment or composition affecting the Notes
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

 

 

ARTICLE 6

GUARANTEE

 

SECTION 6.01.  Guarantee.  Each of the Guarantors hereby
unconditionally guarantees, jointly and severally, to each Holder and to the
Trustee and its successors and assigns, irrespective of the validity and
enforceability of this Indenture, the Notes or the obligations of the Issuer
hereunder or thereunder, that: (i) the due and punctual payment of the
principal of and any premium, interest or Additional Interest on the Notes,
whether at maturity or on an interest payment date, by acceleration, pursuant
to an Offer to Purchase or otherwise, and interest on the overdue principal of
and interest and Additional Interest, if any, on the Notes, if lawful, and all
other obligations of the Issuer to the Holders or the Trustee hereunder or
thereunder shall be promptly paid in full when due or performed in accordance
with the terms hereof and thereof; including all amounts payable to the Trustee
under Section 7.07 hereof, and (ii) in case of any extension of time of payment
or renewal of any Notes or any of such other obligations, the same shall be
promptly paid in full when due or to be performed in accordance with the terms
of the extension or renewal, whether at stated maturity, by acceleration or
otherwise.

 

If the Issuer
fails to make any payment when due of any amount so guaranteed for whatever
reason, each Guarantor shall be obligated to pay the same immediately.  Each Guarantor hereby agrees that its
obligations hereunder shall be continuing, absolute and unconditional,
irrespective of, and shall be unaffected by, the validity regularity or
enforceability of the Notes, this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder or the Trustee with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Issuer, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of
such Guarantor.  If any Holder is
required by any court or otherwise to return to the Issuer or any Guarantor, or
any custodian, trustee, liquidator or other similar official acting in relation
to the Issuer or such Guarantor, any amount paid

 

66

 

by the Issuer
or any Guarantor to the Trustee or such Holder, this Article 6, to the extent
theretofore discharged, shall be reinstated in full force and effect.  Each Guarantor agrees that is shall not be
entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby.

 

The Guarantee
set forth in this Section 6.01 shall not be valid or become obligatory for any
purpose with respect to a Note until the certificate of authentication on such
Note shall have been signed by the Trustee or any duly appointed agent.

 

SECTION 6.02.  Obligations
of each Guarantor Unconditional. 
Nothing contained in this Article 6 or elsewhere in this Indenture or in
any Note is intended to or shall impair, as between each Guarantor and the
Holders, which are absolute and unconditional, to pay to the Holders the
principal of and interest and Additional Interest, if any, on the Notes as and
when the same shall become due and payable in accordance with the provisions of
the Guarantee or is intended to or shall affect the relative rights of the
Holders and creditors of the Issuer, nor shall anything herein or therein
prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon any Default under this Indenture in respect of
cash, property or securities of such Guarantor received upon the exercise of
any such remedy.

 

Upon any
distribution of assets of a Guarantor referred to in this Article 6, the
Trustee, subject to the provisions of Article 7, and the Holders shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the Trustee or to
the Holders, for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of other indebtedness of such
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 6.

 

SECTION 6.03.  Release
of a Guarantor.  If all or
substantially all of the assets of any Guarantor other than the Company or all
of the Capital Stock of any Guarantor other than the Company is sold (including
by consolidation, merger, issuance or otherwise) or disposed of (including by
liquidation, dissolution or otherwise) by the Company or any of its
Subsidiaries, or, unless the Company elects otherwise, if any Guarantor other
than the Company is designated an Unrestricted Subsidiary in accordance with
the terms of the Indenture, then such Guarantor (in the event of a sale or
other disposition of all of the Capital Stock of such Guarantor or a
designation as an Unrestricted Subsidiary) or the Person acquiring such assets
(in the event of a sale or other disposition of all or

 

67

 

substantially
all of the assets of such Guarantor) shall be deemed automatically and unconditionally
released and discharged from any of its obligations under the Indenture without
any further action on the part of the Trustee or any Holder of the Notes.

 

An
Unrestricted Subsidiary that is a Guarantor shall be deemed automatically and
unconditionally released and discharged from all obligations under its
Guarantee upon notice from the Company to the Trustee to such effect, without
any further action required on the part of the Trustee or any Holder.

 

SECTION 6.04.  Execution
and Delivery of Guaranty.  The
execution by each Guarantor of the Indenture (or a supplemental indenture in
the form of Exhibit B) evidences the Note Guaranty of such Guarantor, whether
or not the person signing as an officer of the Guarantor still holds that
office at the time of authentication of any Note.  The delivery of any Note by the Trustee after authentication
constitutes due delivery of the Note Guaranty set forth in the Indenture on
behalf of each Guarantor.

 

SECTION 6.05.  Limitation
on Guarantor Liability.  Notwithstanding
anything to the contrary in this Article, each Guarantor, and by its acceptance
of Notes, each Holder, hereby confirms that it is the intention of all such
parties that the Note Guaranty of such Guarantor not constitute a fraudulent
conveyance under applicable fraudulent conveyance provisions of the United
States Bankruptcy Code or any comparable provision of state law.  To effectuate that intention, the Trustee,
the Holders and the Guarantors hereby irrevocably agree that the obligations of
each Guarantor under its Note Guaranty are limited to the maximum amount that
would not render the Guarantor’s obligations subject to avoidance under
applicable fraudulent conveyance provisions of the United States Bankruptcy
Code or any comparable provision of state law.

 

SECTION 6.06.  Article 6
Not to Prevent Events of Default. 
The failure to make a payment on account of principal or interest or
Additional Interest, if any, on the Notes by reason of any provision in this
Article 6 shall not be construed as preventing the occurrence of any Event of
Default under Section 5.01.

 

SECTION 6.07.  Waiver by
the Guarantors.  Each
Guarantor hereby irrevocably waives diligence, presentment, demand of payment,
demand of performance, filing of claims with a court in the event of insolvency
of bankruptcy of the Issuer, any right to require a proceeding first against
the Issuer, the benefit of discussion, protest, notice and all demand
whatsoever and covenants that this Guarantee shall not be discharged except by
complete performance of the obligations contained in the Notes, in this
Indenture and in this Article 6.

 

68

 

SECTION 6.08.  Subrogation
and Contribution.  Upon
making any payment with respect to any obligation of the Issuer under this
Article, the Guarantor making such payment will be subrogated to the rights of
the payee against the Issuer with respect to such obligation, provided that the Guarantor may not
enforce either any right of subrogation, or any right to receive payment in the
nature of contribution, or otherwise, from any other Guarantor, with respect to
such payment so long as any amount payable by the Issuer hereunder or under the
Notes remains unpaid.

 

SECTION 6.09.  Stay of
Acceleration.  If acceleration
of the time for payment of any amount payable by the Issuer under the Indenture
or the Notes is stayed upon the insolvency, bankruptcy or reorganization of the
Issuer, all such amounts otherwise subject to acceleration under the terms of
the Indenture are nonetheless payable by the Guarantors hereunder forthwith on
demand by the Trustee or the Holders.

 

 

ARTICLE 7

THE TRUSTEE

 

SECTION 7.01.  General.  (a) The duties and
responsibilities of the Trustee are as provided by the Trust Indenture Act and
as set forth herein.  Whether or not
expressly so provided, every provision of the Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee is subject
to this Article.

 

(b)                                 Except
during the continuance of an Event of Default, the Trustee need perform only
those duties that are specifically set forth in the Indenture and no others,
and no implied covenants or obligations will be read into the Indenture against
the Trustee.  In case an Event of
Default has occurred and is continuing, the Trustee shall exercise those rights
and powers vested in it by the Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.

 

SECTION 7.02.  Certain
Rights of Trustee.  Subject
to Trust Indenture Act Sections 315(a) through (d):

 

(a)                                  The
Trustee may rely, and will be protected in acting or refraining from acting,
upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper Person.  The Trustee need not investigate any fact

 

69

 

or matter
stated in the document, but the Trustee, in its discretion, may make further
inquiry or investigation into such facts or matters as it sees fit.

 

(b)                                 Before
the Trustee acts or refrains from acting, it may require an Officers’
Certificate or an Opinion of Counsel conforming to Section 12.05 and the
Trustee will not be liable for any action it takes or omits to take in good
faith in reliance on the certificate or opinion.  Unless otherwise specifically provided in the Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.

 

(c)                                  The
Trustee may act through its attorneys and agents and will not be responsible
for the misconduct or negligence of any agent appointed with due care.

 

(d)                                 The
Trustee will be under no obligation to exercise any of the rights or powers
vested in it by the Indenture at the request or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities that might be incurred by
it in compliance with such request or direction.

 

(e)                                  The
Trustee will not be liable for any action it takes or omits to take in good
faith that it believes to be authorized or within its rights or powers or for
any action it takes or omits to take in accordance with the direction of the
Holders in accordance with Section 5.04 relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under the Indenture.

 

(f)                                    The
Trustee may consult with counsel, and the written advice of such counsel or any
Opinion of Counsel will be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.

 

(g)                                 No
provision of the Indenture will require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the performance of its
duties hereunder, or in the exercise of its rights or powers, unless it
receives indemnity satisfactory to it against any loss, liability or expense.

 

SECTION 7.03.  Individual
Rights of Trustee.  The Trustee,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company or its Affiliates with the same
rights it would

 

70

 

have if it
were not the Trustee.  Any Agent may do
the same with like rights. However, the Trustee is subject to Trust Indenture
Act Sections 310(b) and 311. For purposes of Trust Indenture Act Section
311(b)(4) and (6):

 

(a)                                  “cash transaction” means any transaction in
which full payment for goods or securities sold is made within seven days after
delivery of the goods or securities in currency or in checks or other orders
drawn upon banks or bankers and payable upon demand; and

 

(b)                                 “self-liquidating paper” means any draft,
bill of exchange, acceptance or obligation which is made, drawn, negotiated or
incurred for the purpose of financing the purchase, processing, manufacturing,
shipment, storage or sale of goods, wares or merchandise and which is secured
by documents evidencing title to, possession of, or a lien upon, the goods,
wares or merchandise or the receivables or proceeds arising from the sale of
the goods, wares or merchandise previously constituting the security, provided
the security is received by the Trustee simultaneously with the creation of the
creditor relationship arising from the making, drawing, negotiating or
incurring of the draft, bill of exchange, acceptance or obligation.

 

SECTION 7.04.  Trustee’s
Disclaimer.  The Trustee (a)
makes no representation as to the validity or adequacy of the Indenture or the
Notes, (b) is not accountable for the Company’s use or application of the
proceeds from the Notes and (c) is not responsible for any statement in the
Notes other than its certificate of authentication.

 

SECTION 7.05.  Notice of
Default.  If any Default
occurs and is continuing and is known to the Trustee, the Trustee will send
notice of the Default to each Holder within 90 days after it occurs, unless the
Default has been cured; provided that,
except in the case of a default in the payment of the principal of or interest
or Additional Interest, if any, on any Note or a Default that resulted from the
failure to comply with Section 4.12 hereof, the Trustee may withhold the notice
if and so long as the board of directors, the executive committee or a trust
committee of directors of the Trustee in good faith determines that withholding
the notice is in the interest of the Holders. 
Notice to Holders under this Section will be given in the manner and to
the extent provided in Trust Indenture Act Section 313(c).

 

SECTION 7.06.  Reports
by Trustee to Holders.  Within
60 days after each May 1, beginning with May 1, 2004, the Trustee will mail to
each Holder, as provided in Trust Indenture Act Section 313(c), a brief report dated
as of such May 1, if required by Trust Indenture Act Section 313(a).

 

71

 

SECTION 7.07.  Compensation
and Indemnity.  (a) The
Company will pay the Trustee compensation as agreed upon in writing for its
services.  The compensation of the
Trustee is not limited by any law on compensation of a Trustee of an express
trust.  The Company will reimburse the
Trustee upon request for all reasonable out-of-pocket expenses, disbursements
and advances incurred or made by the Trustee, including the reasonable
compensation and expenses of the Trustee’s agents and counsel.

 

(b)                                 The
Company will indemnify the Trustee for, and hold it harmless against, any loss
or liability or expense incurred by it without negligence or bad faith on its
part arising out of or in connection with the acceptance or administration of
the Indenture and its duties under the Indenture and the Notes, including the
costs and expenses of defending itself against any claim or liability and of
complying with any process served upon it or any of its officers in connection
with the exercise or performance of any of its powers or duties under the
Indenture and the Notes.

 

(c)                                  To
secure the Company’s payment obligations in this Section, the Trustee will have
a lien prior to the Notes on all money or property held or collected by the
Trustee, in its capacity as Trustee, except money or property held in trust to
pay principal of, and interest or Additional Interest, if any, on particular
Notes.

 

SECTION 7.08.  Replacement
of Trustee.  (a) (i) The
Trustee may resign at any time by written notice to the Company.

 

(ii)                                  The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by written notice to the Trustee.

 

(iii)                               If
the Trustee is no longer eligible under Section 7.10 or in the circumstances
described in Trust Indenture Act Section 310(b), any Holder that satisfies the
requirements of Trust Indenture Act Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.

 

(iv)                              The
Company may remove the Trustee if: (A) the Trustee is no longer eligible under
Section 7.10; (B) the Trustee is adjudged a bankrupt or an insolvent; (C) a
receiver or other public officer takes charge of the Trustee or its property;
or (D) the Trustee becomes incapable of acting.

 

72

 

A resignation
or removal of the Trustee and appointment of a successor Trustee will become
effective only upon the successor Trustee’s acceptance of appointment as
provided in this Section.

 

(b)                                 If
the Trustee has been removed by the Holders, Holders of a majority in principal
amount of the Notes may appoint a successor Trustee with the consent of the Company.  Otherwise, if the Trustee resigns or is
removed, or if a vacancy exists in the office of Trustee for any reason, the
Company will promptly appoint a successor Trustee.  If the successor Trustee does not deliver its written acceptance
within 30 days after the retiring Trustee resigns or is removed, the retiring
Trustee, the Company or the Holders of a majority in principal amount of the
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

 

(c)                                  Upon
delivery by the successor Trustee of a written acceptance of its appointment to
the retiring Trustee and to the Company, (i) the retiring Trustee will transfer
all property held by it as Trustee to the successor Trustee, subject to the
lien provided for in Section 7.07, (ii) the resignation or removal of the
retiring Trustee will become effective, and (iii) the successor Trustee will
have all the rights, powers and duties of the Trustee under the Indenture.  Upon request of any successor Trustee, the
Company will execute any and all instruments for fully and vesting in and
confirming to the successor Trustee all such rights, powers and trusts.  The Company will give notice of any
resignation and any removal of the Trustee and each appointment of a successor
Trustee to all Holders, and include in the notice the name of the successor
Trustee and the address of its Corporate Trust Office.

 

(d)                                 Notwithstanding
replacement of the Trustee pursuant to this Section, the Company’s obligations
under Section 7.07 will continue for the benefit of the retiring Trustee.

 

(e)                                  The
Trustee agrees to give the notices provided for in, and otherwise comply with,
Trust Indenture Act Section 310(b).

 

SECTION 7.09.  Successor
Trustee by Merger.  If the
Trustee consolidates with, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation or
national banking association, the resulting, surviving or transferee
corporation or national banking association without any further act will be the
successor Trustee with the same effect as if the successor Trustee had been
named as the Trustee in the Indenture.

 

SECTION 7.10.  Eligibility.  The Indenture must always have a
Trustee that satisfies the requirements of Trust Indenture Act Section 310(a)
and has a

 

73

 

combined
capital and surplus of at least $25,000,000 as set forth in its most recent
published annual report of condition.

 

SECTION 7.11.  Money
Held in Trust.  The Trustee
will not be liable for interest on any money received by it except as it may
agree with the Company. Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law and except for
money held in trust under Article 8.

 

 

ARTICLE 8

DEFEASANCE AND DISCHARGE

 

SECTION 8.01.  Discharge
of Issuer’s Obligations.  (a)
Subject to paragraph (b), the Issuer’s obligations under the Notes and the
Indenture, and each Guarantor’s obligations under its Note Guaranty, will terminate
if:

 

(1)                                  all
Notes previously authenticated and delivered (other than (a) destroyed, lost or
stolen Notes that have been replaced or (b) Notes that are paid pursuant to
Section 4.01 or (c) Notes for whose payment money or U.S. Government
Obligations have been held in trust and then repaid to the Issuer pursuant to
Section 8.05) have been delivered to the Trustee for cancellation and the
Issuer has paid all sums payable by it hereunder; or

 

(2)                                  (A)  the Notes mature within one year, or all of
them are to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption,

 

(B)  the Issuer irrevocably deposits in trust
with the Trustee, as trust funds solely for the benefit of the Holders, money
or U.S. Government Obligations or a combination thereof sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certificate delivered to the Trustee, without
consideration of any reinvestment, to pay principal of and premium, interest
and Additional Interest, if any, on the Notes to maturity or redemption, as the
case may be, and to pay all other sums payable by it hereunder,

 

(C)  no Default has occurred and is continuing on
the date of the deposit,

 

(D)  the deposit will not result in a breach or
violation of, or constitute a default under, the Indenture or any other
agreement or instrument to which the Issuer is a party or by which it is bound,
and

 

74

 

(E)  the Issuer delivers to the Trustee an
Officers’ Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the satisfaction and
discharge of the Indenture have been complied with.

 

(b)                                 After
satisfying the conditions in clause (a)(1), only the Issuer’s obligations under
Section 7.07 will survive.  After
satisfying the conditions in clause (a)(2), only the Issuer’s obligations in
Article 2 and Sections 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 will survive.  In either case, the Trustee, upon the
request and at the cost and expense of the Issuer, will acknowledge in writing
the discharge of the Issuer’s obligations under the Notes and the Indenture
other than the surviving obligations.

 

SECTION 8.02.  Legal
Defeasance.  On the 91st
day following the deposit referred to in clause (1), the Issuer will be deemed
to have paid and will be discharged from its obligations in respect of the
Notes and the Indenture, other than its obligations in Article 2 and Sections
4.01, 4.02, 7.07, 7.08, 8.05 and 8.06, and each Guarantor’s obligations under
its Note Guaranty will terminate, provided the
following conditions have been satisfied:

 

(1)                                  The
Issuer has irrevocably deposited in trust with the Trustee, as trust funds
solely for the benefit of the Holders, money or U.S. Government Obligations or
a combination thereof sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certificate
thereof delivered to the Trustee, without consideration of any reinvestment, to
pay principal of and premium, interest and Additional Interest, if any, on the
Notes to maturity or redemption, as the case may be, provided that any redemption before maturity has been
irrevocably provided for under arrangements satisfactory to the Trustee.

 

(2)                                  The
deposit will not result in a breach or violation of, or constitute a default
under, the Indenture or any other agreement or instrument to which the Issuer
is a party or by which it is bound.

 

(3)                                  The
Issuer has delivered to the Trustee either (x) a ruling received from the
Internal Revenue Service to the effect that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
defeasance and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would otherwise have been the case or
(y) an Opinion of Counsel, based on a change in law after the date of the
Indenture, to the same effect as the ruling described in clause (x).

 

75

 

(4)                                  The
Issuer has delivered to the Trustee an Officers’ Certificate and an Opinion of
Counsel, in each case stating that all conditions precedent provided for herein
relating to the defeasance have been complied with.

 

Prior to the
end of the 91-day period, none of the Issuer’s obligations under the Indenture
will be discharged.  Thereafter, the
Trustee, upon the request and at the cost and expense of the Issuer, will
acknowledge in writing the discharge of the Issuer’s obligations under the
Notes and the Indenture except for the surviving obligations specified above.

 

SECTION 8.03.  Covenant
Defeasance.  After the 91st
day following the deposit referred to in clause (1), the Issuer’s obligations
set forth in Sections 4.06 through 4.13, inclusive and clause (iii) of Section
4.14, and each Guarantor’s obligations under its Note Guaranty, will terminate,
and clauses  (iii), (iv), (v), (vi) and
(ix) of Section 5.01 will no longer constitute Events of Default, provided the following conditions have
been satisfied:

 

(1)                                  The
Issuer has complied with clauses (1), (2) and (4) of Section 8.02; and

 

(2)                                  the
Issuer has delivered to the Trustee an Opinion of Counsel to the effect that
the Holders will not recognize income, gain or loss for federal income tax
purposes as a result of the defeasance and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
otherwise have been the case.

 

Except as
specifically stated above, none of the Issuer’s obligations under the Indenture
will be discharged.

 

SECTION 8.04.  Application
of Trust Money.  Subject to
Section 8.05, the Trustee will hold in trust the money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, and apply
the deposited money and the proceeds from deposited U.S. Government Obligations
to the payment of principal of and premium, interest and Additional Interest,
if any, on the Notes in accordance with the Notes and the Indenture.  Such money and U.S. Government Obligations
need not be segregated from other funds except to the extent required by law.

 

SECTION 8.05.  Repayment
to Issuer.  Subject to
Sections 7.07, 8.01, 8.02 and 8.03, the Trustee will promptly pay to the Issuer
upon request any excess money held by the Trustee at any time and thereupon be
relieved from all liability with respect to such money.  The Trustee will pay to the Issuer upon
written

 

76

 

request any
money deposited with or paid to the Trustee for the payment of the principal
of, premium, interest or Additional Interest, if any, with respect to the Notes
and not applied but remaining unclaimed for two years after the date upon which
such After payment to the Company, Holders entitled to such principal, premium,
interest or Additional Interest, shall have become due and payable, shall, upon
the written request of the Issuer and unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed property law, be
repaid to the Issuer by the Trustee. 
Thereafter, the Holder of the Notes must look solely to the Issuer for
any payment such Holder may be entitled to collect, unless otherwise required
by mandatory provisions of applicable escheat or abandoned or unclaimed
property laws, and all liability of the Trustee with respect to such money
shall thereupon cease.

 

SECTION 8.06.  Reinstatement.  If and for so long as the Trustee
is unable to apply any money or U.S. Government Obligations held in trust
pursuant to Section 8.01, 8.02 or 8.03 by reason of any legal proceeding or by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Issuer’s
obligations under the Indenture and the Notes will be reinstated as though no
such deposit in trust had been made.  If
the Issuer makes any payment of principal of or interest or Additional Interest,
if any, on any Notes because of the reinstatement of its obligations, it will
be subrogated to the rights of the Holders of such Notes to receive such
payment from the money or U.S. Government Obligations held in trust.

 

SECTION 8.07.  Indemnity
for U.S. Government Obligations. 
The Issuer shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Sections 8.01, 8.02 or 8.03.

 

 

ARTICLE 9

AMENDMENTS, SUPPLEMENTS
AND WAIVERS

 

SECTION 9.01.  Amendments
Without Consent of Holders. The Company, the Issuer, the Guarantors
and the Trustee may amend or supplement the Indenture or the Notes without
notice to or the consent of any Holder

 

(a)                                  to
cure any ambiguity, defect or inconsistency in the Indenture or the Notes;

 

(b)                                 to
comply with Section 4.14;

 

77

 

(c)                                  to
comply with any requirements of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act;

 

(d)                                 to
evidence and provide for the acceptance of appointment hereunder by a successor
Trustee;

 

(e)                                  to
provide for uncertificated Notes in addition to or in place of certificated
Notes;

 

(f)                                    to
provide for any Guarantee of the Notes, to secure the Notes or to confirm and
evidence the release, termination or discharge of any Guarantee of or Lien
securing the Notes when such release, termination or discharge is permitted by
the Indenture;

 

(g)                                 to
provide for or confirm the issuance of Additional Notes; or

 

(h)                                 to
make any other change that does not adversely affect the legal rights of any
Holder.

 

SECTION 9.02.  Amendments
With Consent of Holders.  (a)
Except as otherwise provided in Sections 5.01, 5.03 and 5.06 or paragraph (b),
the Company, the Issuer, the Guarantors and the Trustee may amend or supplement
the Indenture and the Notes with the written consent of the Holders of a
majority in principal amount of the outstanding Notes (which may include
consents obtained in connection with a tender offer or exchange offer), and the
Holders of a majority in principal amount of the outstanding Notes by written
notice to the Trustee may waive future compliance by the Company, the Issuer
and the Guarantors with any provision of the Indenture or the Notes (which may
include waivers obtained in connection with a tender offer or exchange offer).

 

(b)                                 Notwithstanding
the provisions of paragraph (a), without the consent of each Holder affected,
an amendment or waiver may not

 

(i)                                     reduce
the amount of Notes whose Holders must consent to an amendment, supplement or
waiver,

 

(ii)                                  reduce
the rate of or change the time for payment of any interest, including default
interest, on any Note,

 

(iii)                               reduce
principal of or change the fixed maturity of any Note or alter the provisions
(including related definitions) with respect to redemptions described under
Section 3.01 or with respect to mandatory offers to repurchase Notes described
under Section 4.10 and 4.12,

 

78

 

(iv)                              make
any Note payable in money other than that stated in the Note,

 

(v)                                 modify
the ranking or priority of the Notes or any Guarantee,

 

(vi)                              make
any change in Section 5.03 or 5.06,

 

(vii)                           release
any Guarantor from any of its obligations under its Guarantee or the Indenture
otherwise than in accordance with the Indenture, or

 

(viii)                        waive a
continuing Default or Event of Default in the payment of principal of or
interest or Additional Interest on the Notes.

 

(c)                                  It
is not necessary for Holders to approve the particular form of any proposed
amendment, supplement or waiver, but is sufficient if their consent approves
the substance thereof.

 

(d)                                 An
amendment, supplement or waiver under this Section will become effective on
receipt by the Trustee of written consents from the Holders of the requisite
percentage in principal amount of the outstanding Notes.  After an amendment, supplement or waiver
under this Section becomes effective, the Issuer will send to the Holders
affected thereby a notice briefly describing the amendment, supplement or
waiver.  The Issuer will send
supplemental indentures to Holders upon request.  Any failure of the Issuer to send such notice, or any defect
therein, will not, however, in any way impair or affect the validity of any
such supplemental indenture or waiver.

 

SECTION 9.03.  Effect of
Consent.  (a) After an
amendment, supplement or waiver becomes effective, it will bind every Holder
unless it is of the type requiring the consent of each Holder affected.  If the amendment, supplement or waiver is of
the type requiring the consent of each Holder affected, the amendment,
supplement or waiver will bind each Holder that has consented to it and every
subsequent Holder of a Note that evidences the same debt as the Note of the
consenting Holder.

 

(b)                                 If
an amendment, supplement or waiver changes the terms of a Note, the Trustee may
require the Holder to deliver it to the Trustee so that the Trustee may place
an appropriate notation of the changed terms on the Note and return it to the
Holder, or exchange it for a new Note that reflects the changed terms.  The Trustee may also place an appropriate
notation on any Note thereafter authenticated. 
However, the effectiveness of the amendment, supplement or waiver is not
affected by any failure to annotate or exchange Notes in this fashion.

 

79

 

SECTION 9.04.  Trustee’s
Rights and Obligations.  The
Trustee is entitled to receive, and will be fully protected in relying upon, an
Opinion of Counsel stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article is authorized or permitted by the
Indenture.  If the Trustee has received
such an Opinion of Counsel, it shall sign the amendment, supplement or waiver
so long as the same does not adversely affect the rights of the Trustee. The
Trustee may, but is not obligated to, execute any amendment, supplement or
waiver that affects the Trustee’s own rights, duties or immunities under the
Indenture.

 

SECTION 9.05.  Conformity
with Trust Indenture Act.  Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act.

 

SECTION 9.06.  Payments
for Consents.  Neither the
Issuer, the Company nor any of its Subsidiaries or Affiliates may, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture
or the Notes unless such consideration is offered to be paid or agreed to be
paid to all Holders of the Notes that consent, waive or agree to amend such
term or provision within the time period set forth in the solicitation
documents relating to the consent, waiver or amendment.

 

 

ARTICLE 10

SUBORDINATION
OF NOTES

 

SECTION 10.01.  Notes
Subordinated to Senior Debt of the Issuer.  The Issuer covenants and agrees, and each Holder of the Notes by
his acceptance thereof likewise covenants and agrees, that the payment of the
principal and interest on the Notes is subordinated, to the extent and in the
manner provided in this Article 10, to the prior payment in full of all Senior
Debt of the Issuer.  The obligations of
the Issuer and the Guarantors in respect of the Notes and the Guarantees shall
rank on a parity with the obligations of the Issuer and the Guarantors under
the Issuer’s 87/8% Senior Subordinated Notes due 2012 and
the guarantees thereof, as applicable.

 

“Senior Debt of the Issuer” means the
principal of and interest on:

 

(1)                                  all
Indebtedness of the Issuer;

 

(2)                                  lease
obligations of the Issuer;

 

80

 

(3)                                  all
Indebtedness, secured or unsecured, in connection with the acquisition or
improvement of any property or asset or the acquisition of any business by the
Issuer;

 

(4)                                  all
Indebtedness secured by any mortgage, lien, pledge, charge or encumbrance upon
property owned by the Issuer and all Indebtedness secured in the manner
specified in this clause (4) even if the Issuer has not assumed or become
liable for the payment thereof;

 

(5)                                  all
customer deposits held in escrow accounts by the Issuer pending closing of the
related sales;

 

(6)                                  all
Indebtedness of the Issuer created or arising under any conditional sale or
other title retention agreement with respect to property acquired by the Issuer
or otherwise representing the deferred and unpaid balance of the purchase price
of any such property, including all indebtedness created or arising in the
manner specified in this clause (6) even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property;

 

(7)                                  guarantees
by the Issuer, direct or indirect, of any indebtedness of another Person of the
types referred to in clauses (1), (2), (3), (4), (5) or (6); and

 

(8)                                  contingent
obligations of the Issuer in respect of, or to purchase or otherwise acquire or
be responsible or liable for through the purchase of products or services
irrespective of whether such products are delivered or such services are
rendered, any such indebtedness referred to in clauses (1), (2), (3), (4), (5)
or (6),

 

which
indebtedness, lease obligation, deposit, guarantee or contingent obligation the
Issuer has directly or indirectly created, incurred, assumed, guaranteed, or
otherwise become liable or responsible for, whether currently outstanding or
hereafter created.  Any reference in
this definition to any indebtedness shall be deemed to include any renewals,
extensions, refundings, amendments and modifications of any such indebtedness
issued in exchange for such indebtedness; provided,
however, that Senior Debt of the Issuer shall not include, without
limitation, (i) the Notes issued under this Indenture, (ii) the Issuer’s 87/8%
Senior Subordinated Notes due 2012, (iii) accounts payable or any other
indebtedness to trade creditors created or assumed by the Issuer in the
ordinary course of business in connection with the obtaining of materials or
services, (iv) any liability for federal, state or local taxes owed or owing by
the Issuer, (v) any obligation of the

 

81

 

Issuer to the
Company or any Subsidiary and (vi) any Indebtedness as to which, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such indebtedness is on a parity with or
otherwise not superior in right of payment to the Notes.

 

This Article
10 shall constitute a continuing offer to all persons who, in reliance upon
such provisions, become holders of, or continue to hold, Senior Debt of the
Issuer, and such provisions are made for the benefit of the holders of Senior
Debt of the Issuer, and such holders are made obligees hereunder and any one or
more of them may enforce such provisions.

 

SECTION 10.02.  Issuer
Not to Make Payments with Respect to Notes in Certain Circumstances.

 

(a)                                  Upon
the maturity of the principal of any Senior Debt of the Issuer (other than
payment of sinking fund installments) by lapse of time, acceleration or
otherwise, all principal thereof and interest thereon shall first be paid in
full, or such payment duly provided for in cash or in a manner satisfactory to
the holders of such Senior Debt of the Issuer, before any deposit is made
pursuant to Article 8 hereof or any payment is made on account of the principal
of or interest on the Notes or to acquire any of the Notes or on account of the
mandatory redemption provisions in the Notes (except mandatory redemption
payments made in respect of Notes acquired by the Issuer before the maturity of
such Senior Debt of the Issuer), including any payment pursuant to Section 4.10
or 4.12.

 

(b)                                 Unless
Section 10.03 shall be applicable, upon (1) the occurrence of a Payment Default
with respect to any Senior Debt of the Issuer and receipt by the Trustee and
the Issuer of written notice of such occurrence or (2) upon acceleration of
such Senior Debt of the Issuer, then no deposit pursuant to Article 8 hereof
and no payment or distribution of any assets of the Issuer of any kind or
character shall be made by the Issuer or the Trustee on account of principal of
or interest on the Notes or on account of the purchase or redemption or other
acquisition of Notes, including any payment pursuant to Section 4.10 or 4.12,
unless and until such Payment Default shall have been cured or waived in
writing or shall have ceased to exist or such Senior Debt of the Issuer shall
have been discharged, after which the Issuer shall resume making any and all
required payments in respect of the Notes, including any missed payments.

 

(c)                                  Unless
Section 10.03 shall be applicable, upon (1) the occurrence of a Non-Payment
Default and (2) receipt by the Trustee of written notice of such occurrence,
then no deposit pursuant to Article 8 hereof and no payment or distribution of
any assets of the Issuer of any kind or character shall be made by the Issuer
or the Trustee on account of any principal of or interest on the Notes or on
account of the purchase or redemption or other acquisition of Notes, including

 

82

 

any payment
pursuant to Section 4.10 or 4.12, for a period (“Payment Blockage Period”) commencing on the earlier of the
date of receipt by the Trustee of such written notice from the holders of
Senior Debt of the Issuer or of a Guarantor or any representative of a holder
of Senior Debt of the Issuer or of  a
Guarantor unless and until (subject to any blockage of payment that may then be
in effect under subsection (a) or (b) of this Section 10.02) the earlier of (x)
more than 120 days shall have elapsed since receipt of such written notice by
the Trustee, (y) such Non-Payment Default shall have been cured or waived in
writing or shall have ceased to exist or such Senior Debt of the Issuer or of a
Guarantor shall have been discharged or (z) such Payment Blockage Period shall
have been terminated by written notice to the Issuer or the relevant Guarantor,
as the case may be, or to the Trustee from the holders of the Senior Debt of
the Issuer or any representative of the holders of the Senior Debt of the
Issuer or of a Guarantor initiating such Payment Blockage Period, after which,
in the case of clause (x), (y) or (z), the Issuer shall promptly resume making
any and all required payments in respect of the Notes, including any missed
payments.  In no event shall a Payment
Blockage Period extend beyond 120 days from the date of the receipt by the
Trustee of the notice referred to in clause (2) hereof (the “Initial Period”).  Any number of additional Payment Blockage Periods may be
commenced during the Initial Period; provided,
however, that no such additional period shall extend beyond the
Initial Period.  After the expiration of
the Initial Period, no Payment Blockage Period may be commenced on the basis of
a Non-Payment Default on the Senior Debt of the Issuer or Senior Debt of a
Guarantor which was the basis of a Payment Blockage Period commenced during the
Initial Period until at least 270 consecutive days have elapsed from the last
day of the Initial Period.  No
Non-Payment Default with respect to Senior Debt of the Issuer or Senior Debt of
a Guarantor which existed or was continuing on the date of the commencement of
any Payment Blockage Period and of which the applicable holder(s) of Senior
Debt of the Issuer or Senior Debt of a Guarantor are aware shall be, or can be
made, the basis for the commencement of a second Payment Blockage Period
whether or not within a period of 270 consecutive days unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days.

 

(d)                                 In
the event that notwithstanding the provisions of this Section 10.02 the Issuer
shall make any deposit pursuant to Article 8 hereof or any payment or
distribution of any character to the Trustee on account of the principal of or
interest on the Notes, or on account of the mandatory redemption provisions
contained in this Indenture, including any payment pursuant to Section 4.10 or
4.12, after the happening of an event of default with respect to any Senior
Debt of the Issuer based on a default in the payment of the principal of or
interest on Senior Debt of the Issuer, or after receipt by the Trustee of
written notice as provided in this Section 10.02 of an event of default with
respect to any Senior Debt of the Issuer, or after the acceleration of the
Notes pursuant to Section 5.01,

 

83

then, but only
if the Trustee is in receipt of the notice specified in Section 10.06, unless
and until such default or event of default shall have been cured or waived or
shall have ceased to exist, or such acceleration shall have been rescinded,
such payment or deposit (subject to the provisions of Sections 10.05 and 10.06)
shall be held by the Trustee in trust for the benefit of, and, if the Senior
Debt of the Issuer shall have been declared immediately due and payable, shall
be paid forthwith over and delivered to, the holders of Senior Debt of the
Issuer (pro rata as to each of such holders on the basis of the respective
amounts of Senior Debt of the Issuer held by them) or their representative or
the trustee under the indenture or other agreement (if any) pursuant to which
Senior Debt of the Issuer may have been issued, as their respective interests
may appear, such payments to be made in accordance with an Officers’
Certificate as provided in Section 10.13 (on which the Trustee may conclusively
rely) identifying all holders of Senior Debt of the Issuer and the principal
amount of Senior Debt of the Issuer then outstanding held by each and stating
the reasons why such Officers’ Certificate is being delivered to the Trustee,
for application to the payment of all Senior Debt of the Issuer remaining
unpaid to the extent necessary to pay all Senior Debt of the Issuer in full in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt of the Issuer.  In the event of the failure of any Holder of
a Note to endorse or assign any such payment or distribution, each holder of
Senior Debt of the Issuer is hereby irrevocably authorized to endorse or assign
the same.  The Issuer shall give prompt
written notice to the Trustee of any default under any Senior Debt of the Issuer
or under any agreement pursuant to which Senior Debt of the Issuer may have
been issued, as required by Section 4.17.

 

SECTION 10.03.  Notes
Subordinated to Prior Payment of All Senior Debt of the Issuer on Dissolution,
Winding Up, Liquidation or Reorganization of Issuer.

 

In the event
of (i) any insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other similar proceeding relating to the Issuer,
its creditors or its property, (ii) any case or proceeding for the liquidation,
dissolution or other winding-up of the Issuer, voluntary or involuntary,
whether or not involving insolvency or bankruptcy proceedings, (iii) any
assignment by the Issuer for the benefit of creditors, or (iv) any other
marshalling of the assets of the Issuer:

 

(a)                                  the
holders of all Senior Debt of the Issuer shall first be entitled to receive
payment in full (or to have such payment duly provided for) of the principal
and interest due thereon (including any interest thereon accruing after
commencement of any such proceeding) before the Holders of the Notes are
entitled to receive any payment or any distribution, whether in cash,
securities or other property, on account of the principal of or interest on the
Notes;

 

84

 

(b)                                 any
payment or distribution of assets of the Issuer of any kind or character,
whether in cash, property or securities (other than securities of the Issuer as
reorganized or readjusted or securities of the Issuer or any other Issuer,
trust or corporation provided for by a plan of reorganization or readjustment,
junior, or the payment of which is otherwise subordinate, at least to the
extent provided in this Article 10, to the payment of all Senior Debt of the
Issuer at the time outstanding and to the payment of all securities issued in
exchange therefor to the holders of the Senior Debt of the Issuer at the time
outstanding), to which the Holders of the Notes or the Trustee on behalf of the
Holders of the Notes would be entitled except for the provisions of this Article
10, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other indebtedness of the Issuer
being subordinated to the payment of the Notes, shall be paid by the
liquidating trustee or agent or other person making such payment or
distribution directly to the holders of Senior Debt of the Issuer or their
representative(s), or to the trustee under any indenture under which Senior
Debt of the Issuer may have been issued (pro rata as to each such holder,
representative or trustee on the basis of the respective amounts of unpaid
Senior Debt of the Issuer held or represented by each), to the extent necessary
to make payment in full of all Senior Debt of the Issuer remaining unpaid after
giving effect to any concurrent payment or distribution or provision therefor
to the holders of such Senior Debt of the Issuer; and

 

(c)                                  in
the event that notwithstanding the foregoing provisions of this Section 10.03,
any payment or distribution of assets of the Issuer of any kind or character,
whether in cash, property or securities shall be received by the Trustee or the
Holders of the Notes on account of principal or interest on the Notes before
all Senior Debt of the Issuer is paid in full, or effective provisions made for
its payment, such payment or distribution (subject to the provisions of
Sections 10.05 and 10.06) shall be received and held in trust for and shall be
paid over or delivered forthwith to the liquidating trustee, agent or other
person making such payment or distribution or to the holders of the Senior Debt
of the Issuer or their representative, or to the trustee under any indenture
under which Senior Debt of the Issuer may have been issued (pro rata as
provided in subsection (b) above), for application to the payment of such
Senior Debt of the Issuer until all such Senior Debt of the Issuer shall have
been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Debt of the
Issuer.

 

If the Issuer
effects a transaction permitted by Section 4.14, such transaction shall not be
deemed to be a dissolution, winding up, liquidation or reorganization of the
Issuer for purposes of this Section 10.03.

 

85

 

The Issuer
shall give prompt written notice to the Trustee of any dissolution, winding up,
liquidation or reorganization of the Issuer, assignment for the benefit of
creditors by the Issuer or any other marshalling of assets of the Issuer.

 

SECTION 10.04.  Holders
to Be Subrogated to Rights of Holders of Senior Debt of the Issuer.

 

Subject to the
payment in full of all Senior Debt of the Issuer, the Holders of the Notes
shall be subrogated to the rights of the holders of Senior Debt of the Issuer
to receive payments or distributions of assets of the Issuer applicable to the
Senior Debt of the Issuer until all amounts owing on the Notes shall be paid in
full, and for the purpose of such subrogation no payments or distributions to
the holders of Senior Debt of the Issuer by virtue of this Article 10 which
otherwise would have been made to the Holders of the Notes shall, as among the
Issuer, its creditors other than the holders of Senior Debt of the Issuer and
the Holders of the Notes, be deemed to be payment by the Issuer to or on
account of the Senior Debt of the Issuer, it being understood that the
provisions of this Article 10 are intended solely for the purpose of defining
the relative rights of the Holders of the Notes, on the one hand, and the holders
of the Senior Debt of the Issuer, on the other hand.

 

If any payment
or distribution to which the Holders would otherwise have been entitled but for
the provisions of this Article 10 shall have been applied, pursuant to the
provisions of this Article 10, to the payment of all amounts payable under the
Senior Debt of the Issuer, then and in such case, the Holders shall be entitled
to receive from the holders of such Senior Debt of the Issuer at the time
outstanding any payments or distributions received by such holders of Senior
Debt of the Issuer in excess of the amount sufficient to pay all amounts
payable under or in respect of the Senior Debt of the Issuer in full.

 

SECTION
10.05.  Obligations of the Issuer Unconditional.

 

Nothing
contained in this Article 10 or elsewhere in this Indenture or in any Note is
intended to or shall impair, as among the Issuer, its creditors other than
holders of Senior Debt of the Issuer and the Holders of the Notes, the
obligation of the Issuer, which is absolute and unconditional, to pay to the
Holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the Holders of the Notes and
creditors of the Issuer other than the holders of the Senior Debt of the
Issuer, nor shall anything herein or therein prevent the Trustee or the Holder
of any Note from exercising all remedies otherwise permitted by applicable law
upon the occurrence of a Default under this Indenture, subject to the rights,
if any, under this Article 10 of the holders of

 

86

 

Senior Debt of
the Issuer in respect of cash, property or securities of the Issuer received
upon the exercise of any such remedy.

 

Upon any
distribution of assets of the Issuer referred to in this Article 10, the
Trustee, subject to the provisions of Article 7, and the Holders of the
Notes shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the Trustee or to
the Holders of the Notes, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Issuer, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 10.

 

SECTION 10.06.  Trustee
Entitled to Assume Payments Not Prohibited in Absence of Notice.

 

The Trustee
shall not at any time be charged with knowledge of the existence of any facts
which would prohibit the making of any payment to or by the Trustee, and the
Trustee shall not be required to withhold payment to the Holders of Notes as
provided in Section 10.02(d), unless and until the Trustee shall have received
written notice thereof at its Corporate Trust Office from the Issuer or from
one or more holders of Senior Debt of the Issuer or from any representative
thereof or trustee therefor identifying the specific sections of this Indenture
involved and describing in detail the facts that would obligate the Trustee to
withhold payments to Holders of Notes, as well as any other facts required by
the next succeeding paragraph of this Section 10.06; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Article 7, shall be entitled to assume conclusively that no such facts exist.

 

The Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Debt of the Issuer (or a trustee
on behalf of such holder) to establish that such notice has been given by a
holder of Senior Debt of the Issuer or a trustee on behalf of any such
holder.  In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Debt of the Issuer to participate in
any payment or distribution pursuant to this Article 10, the Trustee may
request such person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Senior Debt held by such Person, the extent to
which such person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such person under this Article
10, and if such evidence is not furnished the Trustee may defer any payment to
such person pending judicial determination as to the right of such person to
receive such payment.

 

87

 

SECTION
10.07.  Application by Trustee of Monies Deposited with it.

 

Except as provided
in Section 8.04, any deposit of monies by the Issuer with the Trustee or any
Paying Agent (whether or not in trust) for the payment of the principal of or
interest on any Notes shall be subject to the provisions of Sections 10.01,
10.02, 10.03 and 10.04, except that, if prior to the opening of business on the
date on which by the terms of this Indenture any such monies may become payable
for any purpose (including, without limitation, the payment of either the
principal or the interest on any Note), the Trustee shall not have received
with respect to such monies the notice provided for in Section 10.06, then the
Trustee shall have full power and authority to receive such monies and to apply
the same to the purpose for which they were received and shall not be affected
by any notice to the contrary which may be received by it on or after such
date, without, however, limiting any rights that holders of Senior Debt of the
Issuer may have to recover any such payments from the Holders in accordance
with the provisions of this Article 10.

 

SECTION 10.08.  Subordination
Rights Not Impaired by Acts or Omissions of Issuer or Holders of Senior Debt of
the Issuer.

 

No right of
any present or future holders of any Senior Debt of the Issuer to enforce
subordination as provided herein shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Issuer or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance
by the Issuer with the terms of this Indenture, regardless of any knowledge
thereof which any such holder may have or be otherwise charged with. The
holders of Senior Debt of the Issuer may extend, renew, modify or amend the
terms of the Senior Debt of the Issuer or any security therefor and release,
sell or exchange such security and otherwise deal freely with the Issuer, all
without affecting the liabilities and obligations of the parties to this
Indenture or the Holders.

 

SECTION 10.09.  Holders
Authorize Trustee to Effectuate Subordination of Notes.

 

Each Holder of
the Notes by his acceptance thereof authorizes and expressly directs the
Trustee (subject to Sections 7.02(d) and (g) hereof) on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
provided in this Article 10 and appoints the Trustee his attorney-in-fact for
such purpose, including, in the event of any dissolution, winding up,
liquidation or reorganization of the Issuer (whether in bankruptcy, insolvency
or receivership proceedings, voluntary liquidation or upon assignment for the
benefit of creditors or otherwise) tending towards liquidation of the business
and assets of the Issuer, the timely filing of a claim for the unpaid

 

88

 

balance of its
or his Notes in the form required in said proceedings and cause said claim to
be approved.  If the Trustee does not
file a proper claim or proof of debt in the form required in such proceeding on
or prior to 30 days before the expiration of the time to file such claim or
claims, then the holders of Senior Debt of the Issuer have the right to file
and are hereby authorized to file an appropriate claim for and on behalf of the
Holders of said Notes.

 

SECTION
10.10.  Right of Trustee to Hold Senior Debt of the Issuer.

 

The Trustee,
in its individual capacity, shall be entitled to all of the rights set forth in
this Article 10 in respect of any Senior Debt of the Issuer at any time held by
it to the same extent as any other holder of Senior Debt of the Issuer, and
nothing in this Indenture shall be construed to deprive the Trustee of any of
its rights as such holder.

 

SECTION 10.11.  Trustee
Not Fiduciary for Holders of Senior Debt of the Issuer.

 

With respect
to the holders of Senior Debt of the Issuer, the Trustee undertakes to perform
or to observe only such of its covenants and obligations as are specifically
set forth in this Article 10, and no implied covenants or obligations with
respect to the holders of Senior Debt of the Issuer shall be read into this
Indenture against the Trustee.  The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt of the Issuer and the Trustee shall not be liable to any holder of Senior
Debt of the Issuer if it shall pay over or deliver to Holders of Notes, the
Issuer or any other person monies or assets to which any holder of Senior Debt
of the Issuer shall be entitled by virtue of this Article 10 or otherwise.

 

SECTION
10.12.  Article 10 Not to Prevent Events of Default.

 

The failure to
make a payment on account of principal or interest on the Notes by reason of
any provision in this Article 10 shall not be construed as preventing the
occurrence of an Event of Default under Section 5.01.

 

SECTION
10.13.  Officers’ Certificate.

 

If there occurs
an event referred to in the first sentence of Section 10.02(d) or the first
sentence of Section 10.03, the Issuer shall promptly give to the Trustee an
Officers’ Certificate (on which the Trustee may conclusively rely) identifying
all holders of Senior Debt of the Issuer and the principal amount of Senior
Debt of the Issuer then outstanding held by each such holder and stating the
reasons why such Officers’ Certificate is being delivered to the Trustee.

 

89

 

ARTICLE 11

SUBORDINATION OF GUARANTEES

 

SECTION 11.01.  Guarantees
Subordination to Senior Debt of a Guarantor.

 

Each Guarantor
covenants and agrees, and each Holder of the Notes by his acceptance thereof
likewise covenants and agrees, that the payments pursuant to the Guarantee by
such Guarantor shall be subordinated in accordance with the following
provisions of this Article 11 to the prior payment in full of all Senior Debt
of a Guarantor for such Guarantor.

 

“Senior Debt of a Guarantor” means the Principal
of and interest on:

 

(1)  all Indebtedness of a Guarantor;

 

(2)  lease obligations of a Guarantor;

 

(3)  all Indebtedness, secured or unsecured, in
connection with the acquisition or improvement of any property or asset or the
acquisition of any business by a Guarantor;

 

(4)  all Indebtedness secured by any mortgage,
lien, pledge, charge or encumbrance upon property owned by a Guarantor and all
Indebtedness secured in the manner specified in this clause (4) even if such
Guarantor has not assumed or become liable for the payment thereof;

 

(5)  all customer deposits held by a Guarantor in
escrow accounts pending closing of the related sales;

 

(6)  all Indebtedness of a Guarantor created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by a Guarantor or otherwise representing the
deferred and unpaid balance of the purchase price of any such property,
including all Indebtedness created or arising in the manner specified in this
clause (6) even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property;

 

(7)  guarantees by a Guarantor, direct or
indirect, of any indebtedness of another Person of the types referred to in
clauses (1), (2), (3), (4), (5) or (6); and

 

90

 

(8)  contingent obligations of a Guarantor in
respect of, or to purchase or otherwise acquire or be responsible or liable for
through the purchase of products or services, irrespective of whether such
products are delivered or such services are rendered, any such indebtedness
referred to in clauses (1), (2), (3), (4), (5) or (6),

 

which
indebtedness, lease obligation, deposit, guarantee or contingent obligation a
Guarantor has directly or indirectly created, incurred, assumed, guaranteed or
otherwise become liable or responsible for, whether currently outstanding or
hereafter created.  All references to
indebtedness include any renewals, extensions, refundings, amendments and
modifications of any such Indebtedness issued in exchange for such
indebtedness; provided, however,
that Senior Debt of a Guarantor shall not include, without limitation (i) a
Guarantee, (ii) the guarantee by a Guarantor of the Issuer’s 87/8%
Senior Subordinated Notes due 2012, (iii) accounts payable or any other
indebtedness to trade creditors created or assumed by a Guarantor in the
ordinary course of business in connection with the obtaining of materials or
services, (iv) any liability for federal, state or local taxes owed or owing by
a Guarantor,  (v) any obligation of a
Guarantor to the Company or any Subsidiary and (vi) any Indebtedness as to
which, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such indebtedness is on a parity
with or otherwise not superior in right of payment to a Guarantee.

 

This Article
11 shall constitute a continuing offer to all persons who, in reliance upon
such provisions, become holders of, or continue to hold, Senior Debt of a
Guarantor, and such provisions are made for the benefit of the holders of
Senior Debt of a Guarantor, and such holders are made obligees hereunder and
any one or more of them may enforce such provisions.

 

SECTION 11.02.  Guarantor
Not to Make Payments with Respect to Notes in Certain Circumstances.

 

(a)                                  Upon
the maturity of the principal of any Senior Debt of a Guarantor (other than
payment of sinking fund installments) by lapse of time, acceleration or otherwise,
all principal thereof and interest thereon shall first be paid in full, or such
payment duly provided for in cash or in a manner satisfactory to the holders of
such Senior Debt of a Guarantor, before any payment, pursuant to the Guarantee,
is made on account of the principal of or interest on the Notes or to acquire
any of the Notes or on account of the mandatory redemption provisions in the
Notes (except mandatory redemption payments made in respect of Notes acquired
by such Guarantor before the maturity of such Senior Debt of a Guarantor),
including any payment pursuant to Section 4.10 or 4.12.

 

91

 

(b)                                 Unless
Section 11.03 shall be applicable, upon (1) the occurrence of a Payment Default
with respect to any Senior Debt of a Guarantor and receipt by the relevant
Guarantor and the Trustee of written notice of such occurrence or (2) upon the
acceleration of such Senior Debt of a Guarantor, then no payment or
distribution of any assets of such Guarantor of any kind or character shall be
made by such Guarantor or the Trustee on account of principal of or interest on
the Notes or on account of the purchase or redemption or other acquisition of
Notes, including any payment pursuant to Section 4.10 or 4.12, unless and until
such Payment Default shall have been cured or waived in writing or shall have
ceased to exist or such Senior Debt of a Guarantor shall have been discharged,
after which the relevant Guarantor shall resume making any and all required
payments in respect of the Notes, including any missed payments.

 

(c)                                  Unless
Section 11.03 shall be applicable, upon (1) the occurrence of a Non-Payment
Default and (2) receipt by the Trustee of written notice of such occurrence,
then no payment or distribution of any assets of the relevant Guarantor of any
kind or character shall be made by such Guarantor or the Trustee on account of
any principal of or interest on the Notes or on account of the purchase or
redemption or other acquisition of Notes, including, any payment pursuant to
Section 4.10 or 4.12, for a period (“Guarantee
Payment Blockage Period”) commencing on the earlier of the date of
receipt by the Trustee of such written notice from the holders of Senior Debt
of a Guarantor or of the Issuer, or any representative of a holder of Senior
Debt of a Guarantor or of the Issuer unless and until (subject to any blockage
of payment that may then be in effect under subsection (a) or (b) of this
Section 11.02) the earlier of (x) more than 120 days shall have elapsed since
receipt of such written notice by the Trustee, (y) such Non-Payment Default
shall have been cured or waived in writing or shall have ceased to exist or
such Senior Debt of a Guarantor or of the Issuer shall have been discharged or
(z) such Guarantee Payment Blockage Period shall have been terminated by
written notice to the relevant Guarantor or to the Issuer, as the case may be,
or to the Trustee from the holders of the Senior Debt of a Guarantor or of the
Issuer or any representative of the holders of the Senior Debt of a Guarantor
or of the Issuer initiating such Guarantee Payment Blockage Period, after
which, in the case of clause (x), (y) or (z), the relevant Guarantor shall
promptly resume making any and all required payments in respect of the Notes,
including any missed payments.  In no
event shall a Guarantee Payment Blockage Period extend beyond 120 days from the
date of the receipt by the Trustee of the notice referred to in clause (2)
hereof (the “Guarantee Initial Period”).  Any number of additional Guarantee Payment
Blockage Periods may be commenced during the Guarantee Initial Period; provided, however, that no such additional
period shall extend beyond the Initial Period. 
After the expiration of the Guarantee Initial Period, no Guarantee Payment
Blockage Period may be commenced on the basis of a Non-Payment Default on the
Senior Debt of the Issuer or Senior Debt of a Guarantor which was the basis of
a Guarantee Payment Blockage Period

 

92

 

commenced
during the Guarantee Initial Period until at least 270 consecutive days have
elapsed from the last day of the Guarantee Initial Period.  No Non-Payment Default with respect to
Senior Debt of the Issuer or Senior Debt of a Guarantor which existed or was
continuing on the date of the commencement of any Guarantee Payment Blockage
Period and of which the applicable holder(s) of Senior Debt of the Issuer or
Senior Debt of a Guarantor are aware shall be, or can be made, the basis for
the commencement of a second Guarantee Payment Blockage Period whether or not
within a period of 270 consecutive days unless such event of default shall have
been cured or waived for a period of not less than 90 consecutive days.

 

(d)                                 In
the event that notwithstanding the provisions of this Section 11.02 a Guarantor
shall make, pursuant to its Guarantee, any payment or distribution of any
character to the Trustee on account of the principal of or interest on the
Notes, or on account of the mandatory redemption provisions contained in this
Indenture, including any payment pursuant to Section 4.10 or 4.12, after the
happening of an event of default with respect to any Senior Debt of a Guarantor
based on a default in the payment of the principal of or interest on Senior
Debt of a Guarantor, or after receipt by the Trustee of written notice as
provided in this Section 11.02 of an event of default with respect to any
Senior Debt of a Guarantor, or after the acceleration of the Notes pursuant to
Section 5.01, then, but only if the Trustee is in receipt of the notice
specified in Section 11.06, unless and until such default or event of default
shall have been cured or waived or shall have ceased to exist, or such
acceleration shall have been rescinded, such payment (subject to the provisions
of Sections 11.05 and 11.06) shall be held by the Trustee in trust for the
benefit of, and, if the Senior Debt of a Guarantor shall have been declared
immediately due and payable, shall be paid forthwith over and delivered to, the
holders of Senior Debt of a Guarantor (pro rata as to each of such holders on
the basis of the respective amounts of Senior Debt of a Guarantor held by them)
or their representative or the trustee under the indenture or other agreement
(if any) pursuant to which Senior Debt of a Guarantor may have been issued, as
their respective interests may appear, such payments to be made in accordance
with an Officers’ Certificate as provided in Section 11.13 (on which the
Trustee may conclusively rely) identifying all holders of Senior Debt of a
Guarantor and the principal amount of Senior Debt of a Guarantor then
outstanding held by each and stating the reasons why such Officers’ Certificate
is being delivered to the Trustee, for application to the payment of all Senior
Debt of a Guarantor remaining unpaid to the extent necessary to pay all Senior
Debt of a Guarantor in full in accordance with its terms, after giving effect
to any concurrent payment or distribution to or for the holders of Senior Debt
of a Guarantor.  In the event of the
failure of any Holder of a Note to endorse or assign any such payment or
distribution, each holder of Senior Debt of a Guarantor is hereby irrevocably
authorized to endorse or assign the same. 
The relevant Guarantor shall give prompt written notice to the Trustee
of any default under any Senior Debt of a

 

93

 

Guarantor or
under any agreement pursuant to which Senior Debt of a Guarantor may have been
issued, as required by Section 4.17.

 

SECTION 11.03.  Guarantee
Subordinated to Prior Payment of All Senior Debt of a Guarantor on Dissolution,
Winding Up, Liquidation or Reorganization of a Guarantor.

 

In the event
of (i) any insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other similar proceeding relating to a Guarantor,
its creditors or its property, (ii) any case or proceeding for the liquidation,
dissolution or other winding-up of a Guarantor, voluntary or involuntary,
whether or not involving insolvency or bankruptcy proceedings, (iii) any
assignment by a Guarantor for the benefit of creditors, or (iv) any other
marshalling of the assets of a Guarantor:

 

(a)                                  the
holders of all Senior Debt of a Guarantor shall first be entitled to receive
payment in full (or to have such payment duly provided for) of the principal
and interest due thereon (including any interest thereon accruing after
commencement of any such proceeding) before the Holders of the Notes are
entitled to receive, pursuant to this Guarantee any payment or any
distribution, whether in cash, securities or other property, on account of the
principal of or interest on the Notes;

 

(b)                                 any
payment or distribution of assets of the Issuer of any kind or character,
whether in cash, property or securities (other than securities of a Guarantor
as reorganized or readjusted or securities of a Guarantor or any other Issuer,
trust or corporation provided for by a plan of reorganization or readjustment,
junior, or the payment of which is otherwise subordinate, at least to the
extent provided in this Article 11, to the payment of all Senior Debt of a
Guarantor at the time outstanding and to the payment of all securities issued
in exchange therefor to the holders of the Senior Debt of a Guarantor at the
time outstanding), to which the Holders of the Notes or the Trustee on behalf
of the Holders of the Notes would be entitled, pursuant to this Guarantee
except for the provisions of this Article 11, including any such payment or
distribution which may be payable or deliverable by reason of the payment of
any other indebtedness of a Guarantor being subordinated to the payment of the
Notes, shall be paid by the liquidating trustee or agent or other person making
such payment or distribution directly to the holders of Senior Debt of a
Guarantor or their representative(s), or to the trustee under any indenture
under which Senior Debt of a Guarantor may have been issued (pro rata as to
each such holder, representative or trustee on the basis of the respective
amounts of unpaid Senior Debt of a Guarantor held or represented by each), to
the extent necessary to make payment in full of all Senior Debt of a Guarantor
remaining unpaid after giving effect to

 

94

 

any concurrent
payment or distribution or provision therefor to the holders of such Senior
Debt of a Guarantor; and

 

(c)                                  in
the event that notwithstanding the foregoing provisions of this Section 11.03,
any payment or distribution of assets of a Guarantor of any kind or character, whether
in cash, property or securities shall be received, pursuant to the Guarantee,
by the Trustee or the Holders of the Notes on account of principal or interest
on the Notes before all Senior Debt of a Guarantor is paid in full, or
effective provisions made for its payment, such payment or distribution(subject
to the provisions of Sections 11.05 and 11.06) shall be received and held in
trust for and shall be paid over or delivered to the liquidating trustee, agent
or other person making such payment or distribution or to the holders of the
Senior Debt of a Guarantor remaining unpaid or unprovided for or their
representative, or to the trustee under any indenture under which Senior Debt
of a Guarantor may have been issued (pro rata as provided in subsection (b)
above), for application to the payment of such Senior Debt of a Guarantor until
all such Senior Debt of a Guarantor shall have been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Debt of a Guarantor.

 

If a Guarantor
effects a transaction permitted by Section 4.14, such transaction shall not be
deemed to be a dissolution, winding up, liquidation or reorganization of a
Guarantor for purposes of this Section 11.03.

 

A Guarantor
shall give prompt written notice to the Trustee of any dissolution, winding up,
liquidation or reorganization of such Guarantor, assignment for the benefit of
creditors by such Guarantor or any other marshalling of assets of such
Guarantor.

 

SECTION 11.04.  Holders
to Be Subrogated to Rights of Holders of Senior Debt of a Guarantor.

 

Subject to the
payment in full of all Senior Debt of a Guarantor, the Holders of the Notes
shall be subrogated to the rights of the holders of Senior Debt of a Guarantor
to receive payments or distributions of assets of a Guarantor applicable to the
Senior Debt of a Guarantor until all amounts owing under the Guarantee shall be
paid in full and for the purpose of such subrogation no payments or
distributions to the holders of Senior Debt of a Guarantor by virtue of this
Article 11 which otherwise would have been made to the Holders of the Notes,
shall, as between a Guarantor, its creditors other than holders of its Senior
Debt of a Guarantor and the Holders, be deemed to be a payment by such
Guarantor to or on account of the Senior Debt of a Guarantor, it being
understood that the provisions of this Article 11 are intended solely for the
purpose of

 

95

 

defining the
relative rights of the holders of Senior Debt of a Guarantor on the one hand
and the Holders on the other hand.

 

If any payment
or distribution to which the Holders would otherwise have been entitled but for
the provisions of this Article 11 shall have been applied, pursuant to the
provisions of this Article 11, to the payment of all amounts payable under the
Senior Debt of a Guarantor, then and in such case, the Holders shall be
entitled to receive from the holders of such Senior Debt of a Guarantor at the
time outstanding any payments or distributions received by such holders of such
Senior Debt of a Guarantor in excess of the amount sufficient to pay all
amounts payable under or in respect of such Senior Debt of a Guarantor in full.

 

SECTION
11.05.  Obligations of the Guarantors Unconditional.

 

Nothing
contained in this Article 11 or elsewhere in this Indenture or in any Note is
intended to or shall impair, as between the Guarantors and the Holders, the
obligations of each Guarantor, which are absolute and unconditional, to pay to
the Holders the principal of and interest on the Notes as and when the same
shall become due and payable in accordance with the provisions of the
Guarantees or is intended to or shall affect the relative rights of the Holders
and creditors of a Guarantor other than the holders of the Senior Debt of a
Guarantor, nor shall anything herein or therein prevent the Trustee or any
Holder from exercising all remedies otherwise permitted by applicable law upon
the occurrence of a Default under this Indenture, subject to the rights, if
any, under this Article 11 of the holders of Senior Debt of a Guarantor in
respect of cash, property or securities of a Guarantor received upon the
exercise of any such remedy.

 

Upon any
distribution of assets of a Guarantor referred to in this Article 11, the
Trustee, subject to the provisions of Article 7, and the Holders of the Notes
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the Trustee or to
the Holders of the Notes, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Debt and other
indebtedness of such Guarantor, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 11.

 

SECTION 11.06.  Trustee
Entitled to Assume Payments Not Prohibited in Absence of Notice.

 

The Trustee
shall not at any time be charged with knowledge of the existence of any facts
which would prohibit the making of any payment to or by the Trustee, and the
Trustee shall not be required to withhold payment to the

 

96

 

Holders of
Notes as provided in Section 11.02(d), unless and until the Trustee shall have
received written notice thereof at its Corporate Trust Office from a Guarantor
or from one or more holders of Senior Debt of a Guarantor or from any
representative thereof or trustee therefor identifying the specific sections of
this Indenture involved and describing in detail the facts that would obligate
the Trustee to withhold payments to Holders of Notes, as well as any other
facts required by the next succeeding paragraph of this Section 11.06; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Article 7, shall be entitled to assume conclusively that no such
facts exist.

 

The Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Debt of a Guarantor (or a trustee
on behalf of such holder) to establish that such notice has been given by a
holder of Senior Debt of a Guarantor or a trustee on behalf of any such holder.
In the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior Debt of
a Guarantor to participate in any payment or distribution pursuant to this
Article 11, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Debt of a
Guarantor held by such person, the extent to which such person is entitled to
participate in such payment or distribution and any other facts pertinent to
the rights of such person under this Article 11, and if such evidence is not
furnished the Trustee may defer any payment to such person pending judicial
determination as to the right of such person to receive such payment.

 

SECTION
11.07.  Application by Trustee of Monies Deposited with it.

 

Except as
provided in Sections 8.04, any deposit of monies by a Guarantor with the
Trustee or any Paying Agent (whether or not in trust) for the payment of the
principal of or interest on any Notes shall be subject to the provisions of
Sections 11.01, 11.02, 11.03 and 11.04, except that, if prior to the opening of
business on the date on which by the terms of this Indenture any such monies
may become payable for any purpose (including, without limitation, the payment,
pursuant to this Guarantee, of either the principal or the interest on any
Note), the Trustee shall not have received with respect to such monies the
notice provided for in Section 11.06, then the Trustee shall have full power
and authority to receive such monies and to apply the same to the purpose for
which they were received and shall not be affected by any notice to the
contrary which may be received by it on or after such date, without, however,
limiting any rights that holders of Senior Debt of a Guarantor may have to
recover any such payments from the Holders in accordance with the provisions of
this Article 11.

 

97

 

SECTION
11.08.  Subordination Rights Not Impaired by Acts or
Omissions of Any Guarantor or Holders of Senior Debt of a Guarantor.

 

No right of
any present or future holders of any Senior Debt of a Guarantor to enforce
subordination as provided herein shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of any Guarantor or by any
act or failure to act, in good faith, by any such holder, or by any noncompliance
by any Guarantor with the terms of this Indenture, regardless of any knowledge
thereof which any such holder may have or be otherwise charged with.  The holders of Senior Debt of a Guarantor
may extend, renew, modify or amend the terms of the Senior Debt of a Guarantor
or any security therefor and release, sell or exchange such security and
otherwise deal freely with any Guarantor, all without affecting the liabilities
and obligations of the parties to this Indenture or the Holders.

 

SECTION 11.09.  Holders
Authorize Trustee to Effectuate Subordination of Notes.

 

Each Holder of
the Notes by his acceptance thereof authorizes and expressly directs the
Trustee (subject to Sections 7.02(d) and (g) hereof) on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article 11 and appoints the Trustee his attorney-in-fact for
such purpose, including, in the event of any dissolution, winding up,
liquidation or reorganization of a Guarantor (whether in bankruptcy, insolvency
or receivership proceedings, voluntary liquidation or upon assignment for the
benefit of creditors or otherwise) tending towards liquidation of the business
and assets of such Guarantor, the timely filing of a claim for the unpaid
balance, pursuant to the relevant Guarantee, of its Notes in the form required
in said proceedings and cause said claim to be approved.  If the Trustee does not file a proper claim
or proof of debt in the form required in such proceeding on or prior to 30 days
before the expiration of the time to file such claim or claims, then the
holders of Senior Debt of a Guarantor have the right to file and are hereby
authorized to file an appropriate claim for and on behalf of the Holders of
said Notes.

 

SECTION
11.10.  Right of Trustee to Hold Senior Debt of a Guarantor.

 

The Trustee in
its individual capacity, shall be entitled to all of the rights set forth in
this Article 11 in respect of any Senior Debt of a Guarantor at any time held
by it to the same extent as any other holder of such Senior Debt of a
Guarantor, and nothing in this Indenture shall be construed to deprive the
Trustee of any of its rights as such holder.

 

98

 

SECTION 11.11.  Trustee
Not Fiduciary for Holders of Senior Debt of a Guarantor.

 

With respect
to the holders of Senior Debt of a Guarantor, the Trustee undertakes to perform
or to observe only such of its covenants and obligations as are specifically
set forth in this Article 11, and no implied covenants or obligations with
respect to the holders of Senior Debt of a Guarantor shall be read into this
Indenture against the Trustee.  The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt of a Guarantor and the Trustee shall not be liable to any holder of Senior
Debt of a Guarantor if it shall pay over or deliver to Holders of Notes, the
relevant Guarantor or any other person monies or assets to which any holder of
Senior Debt of a Guarantor shall be entitled by virtue of this Article 11 or
otherwise.

 

SECTION
11.12.  Article 11 Not to Prevent Events of Default.

 

The failure to
make a payment on account of principal or interest on the Notes by reason of
any provision in this Article 11 shall not be construed as preventing the
occurrence of an Event of Default under Section 5.01.

 

SECTION 11.13.  Subordination
of Indebtedness Owed by the Issuer to a Guarantor.

 

Any
indebtedness owed by the Issuer to a Guarantor shall be subordinate to all
obligations of the Issuer with respect to the Notes and this Indenture to the
same extent as the Notes are subordinated to Senior Debt of the Issuer.

 

SECTION
11.14.  Officers’ Certificate.

 

If there
occurs an event referred to in the first sentence of Section 11.02(c) or the
first sentence of Section 11.03, the relevant Guarantor shall promptly give to
the Trustee an Officers’ Certificate (on which the Trustee may conclusively
rely) identifying all holders of Senior Debt of a Guarantor and the principal
amount of Senior Debt of a Guarantor then outstanding held by each such holder
and stating the reasons why such Officers’ Certificate is being delivered to
the Trustee.

 

 

ARTICLE 12

MISCELLANEOUS

 

SECTION 12.01.  Trust
Indenture Act of 1939.  The
Indenture shall incorporate and be governed by the provisions of the Trust
Indenture Act that are required to be part of and to govern indentures
qualified under the Trust Indenture Act. 
To the extent permitted by applicable law, in the event of any inconsistency

 

99

 

between the
terms of the Notes and the terms of the Indenture, the terms of the Indenture
will control.

 

SECTION 12.02.  Holder
Communications; Holder Actions.  (a)
The rights of Holders to communicate with other Holders with respect to the
Indenture or the Notes are as provided by the Trust Indenture Act, and the
Company and the Trustee shall comply with the requirements of Trust Indenture
Act Section 312(a). Neither the Company, the Issuer nor the Trustee will be
held accountable by reason of any disclosure of information as to names and
addresses of Holders made pursuant to the Trust Indenture Act.

 

(b)                                 (i)
Any request, demand, authorization, direction, notice, consent to amendment,
supplement or waiver or other action provided by this Indenture to be given or
taken by a Holder (an “act”) may
be evidenced by an instrument signed by the Holder delivered to the
Trustee.  The fact and date of the
execution of the instrument, or the authority of the person executing it, may
be proved in any manner that the Trustee deems sufficient.

 

(ii)   The Trustee may make
reasonable rules for action by or at a meeting of Holders, which will be
binding on all the Holders.

 

(c)                                  Any
act by the Holder of any Note binds that Holder and every subsequent Holder of
a Note that evidences the same debt as the Note of the acting Holder, even if
no notation thereof appears on the Note. 
Subject to paragraph (d), a Holder may revoke an act as to its Notes,
but only if the Trustee receives the notice of revocation before the date the
amendment or waiver or other consequence of the act becomes effective.

 

(d)                                 The
Issuer may, but is not obligated to, fix a record date (which need not be
within the time limits otherwise prescribed by Trust Indenture Act Section
316(c)) for the purpose of determining the Holders entitled to act with respect
to any amendment or waiver or in any other regard, except that during the
continuance of an Event of Default, only the Trustee may set a record date as
to notices of default, any declaration or acceleration or any other remedies or
other consequences of the Event of Default. 
If a record date is fixed, those Persons that were Holders at such
record date and only those Persons will be entitled to act, or to revoke any
previous act, whether or not those Persons continue to be Holders after the
record date.  No act will be valid or
effective for more than 90 days after the record date.

 

SECTION 12.03.  Notices.  (a) Any notice or communication
to the Issuer or the Company will be deemed given if in writing (i) when
delivered in person or (ii) five days after mailing when mailed by first class
mail, or (iii) when sent by facsimile transmission, with transmission
confirmed.  Notices or communications

 

100

 

to a Guarantor
will be deemed given if given to the Issuer. 
Any notice to the Trustee will be effective only upon receipt.  In each case the notice or communication
should be addressed as follows:

 

if to the Issuer:

 

K. Hovnanian
Enterprises, Inc.

10 Highway 35

P.O. Box 500

Red Bank, NJ 007701

Facsimile: (732) 747-7159

 

if to the Trustee:

 

Wachovia Bank,
National Association

21 South Street

Morristown, NJ 07960

ATTN: Corporate Trust Administration

(K. Hovnanian
Enterprises, Inc. Senior Subordinated Notes due

2013)

Facsimile: (973) 682-4531

 

The Issuer or
the Trustee by notice to the other may designate additional or different
addresses for subsequent notices or communications.

 

(b)                                 Except
as otherwise expressly provided with respect to published notices, any notice
or communication to a Holder will be deemed given when mailed to the Holder at
its address as it appears on the Register by first class mail or, as to any
Global Note registered in the name of DTC or its nominee, as agreed by the Issuer,
the Trustee and DTC. Copies of any notice or communication to a Holder, if
given by the Issuer or the Company, will be mailed to the Trustee at the same
time.  Defect in mailing a notice or
communication to any particular Holder will not affect its sufficiency with
respect to other Holders.

 

(c)                                  Where
the Indenture provides for notice, the notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
the waiver will be the equivalent of the notice.  Waivers of notice by Holders must be filed with the Trustee, but
such filing is not a condition precedent to the validity of any action taken in
reliance upon such waivers.

 

SECTION
12.04.  Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Issuer or the Company to the Trustee to take
any action under the Indenture, the Issuer or the Company will furnish to the
Trustee:

 

101

 

(a)                                  an
Officers’ Certificate stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in the Indenture relating to the
proposed action have been complied with; and

 

(b)                                 an
Opinion of Counsel stating that all such conditions precedent relating to the
proposed action have been complied with.

 

SECTION 12.05.  Statements
Required in Certificate or Opinion.  Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in the Indenture must include:

 

(a)                                  a
statement that each person signing the certificate or opinion has read the
covenant or condition and the related definitions;

 

(b)                                 a
brief statement as to the nature and scope of the examination or investigation
upon which the statement or opinion contained in the certificate or opinion is
based;

 

(c)                                  a
statement that, in the opinion of each such person, that person has made such
examination or investigation as is necessary to enable the person to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and

 

(d)                                 a
statement as to whether or not, in the opinion of each such person, such
condition or covenant has been complied with, provided
that an Opinion of Counsel may rely on an Officers’ Certificate or certificates
of public officials with respect to matters of fact.

 

SECTION 12.06.  Payment
Date Other Than a Business Day.  If
any payment with respect to a payment of any principal of, premium, if any, or
interest or Additional Interest, if any, on any Note (including any payment to
be made on any date fixed for redemption or purchase of any Note) is due on a
day which is not a Business Day, then the payment need not be made on such
date, but may be made on the next Business Day with the same force and effect
as if made on such date, and no interest will accrue for the intervening
period.

 

SECTION 12.07.  Governing
Law.  The Indenture,
including any Note Guaranties, and the Notes shall be governed by, and
construed in accordance with, the laws of the State of New York.

 

SECTION 12.08.  No
Adverse Interpretation of Other Agreements. 
The Indenture may not be used to interpret another indenture
or loan or debt agreement of the Issuer, the Company or any Subsidiary of the
Company, and no such indenture or loan or debt agreement may be used to
interpret the Indenture.

 

102

 

SECTION 12.09.  Successors.  All agreements of the Issuer, the
Company or any Guarantor in the Indenture and the Notes will bind its
successors.  All agreements of the
Trustee in the Indenture will bind its successor.

 

SECTION 12.10.  Duplicate
Originals.  The parties may
sign any number of copies of the Indenture. 
Each signed copy shall be an original, but all of them together
represent the same agreement.

 

SECTION 12.11.  Separability.  In case any provision in the
Indenture or in the Notes is invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions will not in any way be
affected or impaired thereby.

 

SECTION 12.12.  Table of
Contents and Headings.  The
Table of Contents, Cross-Reference Table and headings of the Articles and
Sections of the Indenture have been inserted for convenience of reference only,
are not to be considered a part of the Indenture and in no way modify or
restrict any of the terms and provisions of the Indenture.

 

SECTION
12.13.  No Liability of Directors, Officers, Employees,
Incorporators and Stockholders.  No
director, officer, employee, incorporator, member or stockholder of the Issuer,
the Company or any Guarantor, as such, will have any liability for any
obligations of the Issuer, the Company or such Guarantor under the Notes, any
Note Guaranty or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations.  Each
Holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.

 

103

 

SIGNATURES

 

IN WITNESS
WHEREOF, the parties hereto have caused the Indenture to be duly executed as of
the date first written above.

 

	
   

  	
  K. HOVNANIAN
  ENTERPRISES, INC.

  as Issuer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HOVNANIAN
  ENTERPRISES, INC.

  as the Company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  	
  On behalf of each entity named

  in Schedule A hereto, as a Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  	
  Title:

  	
  Authorized
  Signatory

  
	
   

  	
   

  
	
  WACHOVIA
  BANK, NATIONAL ASSOCIATION,

  as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
							

 

104

 

SCHEDULE A

 

Guarantors

 

	
  ALL SEASONS,
  INC.

  
	
  ARROW
  PROPERTIES, INC.

  
	
  CONDOMINIUM
  COMMUNITY (BOWIE NEW TOWN), INC.

  
	
  CONDOMINIUM
  COMMUNITY (LARGO TOWN), INC.

  
	
  CONDOMINIUM
  COMMUNITY (PARK PLACE), INC.

  
	
  CONDOMINIUM
  COMMUNITY (QUAIL RUN), INC.

  
	
  CONDOMINIUM
  COMMUNITY (TRUMAN DRIVE), INC.

  
	
  CONSULTANTS
  CORPORATION

  
	
  DESIGNED
  CONTRACTS. INC.

  
	
  EXC, INC.

  
	
  FORTIS
  HOMES, INC.

  
	
  HOUSING-HOME
  SALES, INC.

  
	
  HOVNANIAN
  DEVELOPMENTS OF FLORIDA, INC.

  
	
  K. HOV
  INTERNATIONAL, INC.

  
	
  K. HOV IP,
  II, INC.

  
	
  K. HOV IP,
  III, INC.

  
	
  K. HOV IP,
  INC.

  
	
  K. HOV IP,
  IV, INC.

  
	
  K. HOVNANIAN
  ACQUISITIONS, INC.

  
	
  K. HOVNANIAN
  AT ASHBURN VILLAGE, INC.

  
	
  K. HOVNANIAN
  AT BALLANTRAE, INC.

  
	
  K. HOVNANIAN
  AT BARRINGTON, INC.

  
	
  K. HOVNANIAN
  AT BELMONT, INC.

  
	
  K. HOVNANIAN
  AT BERNARDS IV, INC.

  
	
  K. HOVNANIAN
  AT BRANCHBURG III, INC.

  
	
  K. HOVNANIAN
  AT BRIDGEPORT, INC.

  
	
  K. HOVNANIAN
  AT BRIDGEWATER VI, INC.

  
	
  K. HOVNANIAN
  AT BULL RUN, INC.

  
	
  K. HOVNANIAN
  AT BURLINGTON III, INC.

  
	
  K. HOVNANIAN
  AT BURLINGTON, INC.

  
	
  K. HOVNANIAN
  AT CALABRIA, INC.

  
	
  K. HOVNANIAN
  AT CAMERON CHASE, INC.

  
	
  K. HOVNANIAN
  AT CARMEL DEL MAR, INC.

  
	
  K. HOVNANIAN
  AT CASTILE, INC.

  
	
  K. HOVNANIAN
  AT CEDAR GROVE I, INC.

  
	
  K. HOVNANIAN
  AT CEDAR GROVE II, INC.

  
	
  K. HOVNANIAN
  AT CHAPARRAL, INC.

  
	
  K. HOVNANIAN
  AT CLARKSTOWN, INC.

  
	
  K. HOVNANIAN
  AT CRESTLINE, INC.

  

 

105

 

	
  K. HOVNANIAN
  AT DOMINGUEZ, INC.

  
	
  K. HOVNANIAN
  AT DOMINION RIDGE, INC.

  
	
  K. HOVNANIAN
  AT EAST BRUNSWICK VI, INC.

  
	
  K. HOVNANIAN
  AT EAST WHITELAND I, INC.

  
	
  K. HOVNANIAN
  AT EXETER HILLS, INC.

  
	
  K. HOVNANIAN
  AT FAIR LAKES GLEN, INC.

  
	
  K. HOVNANIAN
  AT FAIR LAKES, INC.

  
	
  K. HOVNANIAN
  AT FREEHOLD TOWNSHIP I, INC.

  
	
  K. HOVNANIAN
  AT HACKETTSTOWN, INC.

  
	
  K. HOVNANIAN
  AT HAMPTON OAKS, INC.

  
	
  K. HOVNANIAN
  AT HERSHEY’S MILL, INC. (a PA Corp)

  
	
  K. HOVNANIAN
  AT HIGHLAND VINEYARDS, INC.

  
	
  K. HOVNANIAN
  AT HOLLY CREST, INC.

  
	
  K. HOVNANIAN
  AT HOPEWELL IV, INC.

  
	
  K. HOVNANIAN
  AT HOPEWELL VI, INC.

  
	
  K. HOVNANIAN
  AT HOWELL TOWNSHIP, INC.

  
	
  K. HOVNANIAN
  AT HUNTER ESTATES, INC.

  
	
  K. HOVNANIAN
  AT KINGS GRANT I, INC.

  
	
  K. HOVNANIAN
  AT KLOCKNER FARMS, INC.

  
	
  K. HOVNANIAN
  AT LA TERRAZA, INC.

  
	
  K. HOVNANIAN
  AT LA TROVATA, INC.

  
	
  K. HOVNANIAN
  AT LAKEWOOD, INC.

  
	
  K. HOVNANIAN
  AT LOWER SAUCON II, INC.

  
	
  K. HOVNANIAN
  AT LOWER SAUCON, INC.

  
	
  K. HOVNANIAN
  AT MAHWAH II, INC.

  
	
  K. HOVNANIAN
  AT MAHWAH IV, INC. (Whalepond)

  
	
  K. HOVNANIAN
  AT MAHWAH V, INC.

  
	
  K. HOVNANIAN
  AT MAHWAH VI, INC. (Norfolk)

  
	
  K. HOVNANIAN
  AT MAHWAH VII, INC.

  
	
  K. HOVNANIAN
  AT MAHWAH VIII, INC.

  
	
  K. HOVNANIAN
  AT MANALAPAN, INC.

  
	
  K. HOVNANIAN
  AT MARLBORO II, INC.

  
	
  K. HOVNANIAN
  AT MARLBORO TOWNSHIP IV, INC.

  
	
  K. HOVNANIAN
  AT MARLBORO TOWNSHIP III, INC.

  
	
  K. HOVNANIAN
  AT METRO DC SOUTH, INC.

  
	
  K. HOVNANIAN
  AT MONTCLAIR NJ, INC.

  
	
  K. HOVNANIAN
  AT MONTCLAIR, INC.

  
	
  K. HOVNANIAN
  AT MONTGOMERY I, INC.

  
	
  K. HOVNANIAN
  AT NORTHERN WESTCHESTER, INC.

  
	
  K. HOVNANIAN
  AT NORTHLAKE, INC.

  
	
  K. HOVNANIAN
  AT OCEAN WALK, INC.

  
	
  K. HOVNANIAN
  AT P.C. PROPERTIES, INC.

  
	
  K. HOVNANIAN
  AT PARK RIDGE, INC.

  
	
  K. HOVNANIAN
  AT PEEKSKILL, INC.

  

 

106

 

	
  K. HOVNANIAN
  AT PERKIOMEN I, INC.

  
	
  K. HOVNANIAN
  AT PERKIOMEN II, INC.

  
	
  K. HOVNANIAN
  AT PLAINSBORO III, INC.

  
	
  K. HOVNANIAN
  AT PORT IMPERIAL NORTH, INC.

  
	
  K. HOVNANIAN
  AT PRINCETON, INC.

  
	
  K. HOVNANIAN
  AT RANCHO CHRISTIANITOS, INC.

  
	
  K. HOVNANIAN
  AT RESERVOIR RIDGE, INC.

  
	
  K. HOVNANIAN
  AT RIVER OAKS, INC.

  
	
  K. HOVNANIAN
  AT SAN SEVAINE, INC.

  
	
  K. HOVNANIAN
  AT SARATOGA, INC.

  
	
  K. HOVNANIAN
  AT SCOTCH PLAINS II, INC.

  
	
  K. HOVNANIAN
  AT SCOTCH PLAINS, INC.

  
	
  K. HOVNANIAN
  AT SMITHVILLE, INC.

  
	
  K. HOVNANIAN
  AT SOUTH BRUNSWICK II, INC.

  
	
  K. HOVNANIAN
  AT SOUTH BRUNSWICK III, INC.

  
	
  K. HOVNANIAN
  AT SOUTH BRUNSWICK IV, INC.

  
	
  K. HOVNANIAN
  AT SOUTH BRUNSWICK V, INC.

  
	
  K. HOVNANIAN
  AT STONE CANYON, INC.

  
	
  K. HOVNANIAN
  AT STONEGATE, INC. (a VA Corporation)

  
	
  K. HOVNANIAN
  AT STONY POINT, INC.

  
	
  K. HOVNANIAN
  AT STUART ROAD, INC.

  
	
  K. HOVNANIAN
  AT SULLY STATION, INC.

  
	
  K. HOVNANIAN
  AT SUMMERWOOD, INC.

  
	
  K. HOVNANIAN
  AT SYCAMORE, INC.

  
	
  K. HOVNANIAN
  AT TANNERY HILL, INC.

  
	
  K. HOVNANIAN
  AT THE BLUFF, INC.

  
	
  K. HOVNANIAN
  AT THE CEDARS, INC.

  
	
  K. HOVNANIAN
  AT THE GLEN, INC.

  
	
  K. HOVNANIAN
  AT THE RESERVE AT MEDFORD, INC.

  
	
  K. HOVNANIAN
  AT THORNBURY, INC.

  
	
  K. HOVNANIAN
  AT TIERRASANTA, INC.

  
	
  K. HOVNANIAN
  AT TUXEDO, INC.

  
	
  K. HOVNANIAN
  AT UNION TOWNSHIP I, INC.

  
	
  K. HOVNANIAN
  AT UPPER MAKEFIELD I, INC.

  
	
  K. HOVNANIAN
  AT VAIL RANCH, INC.

  
	
  K. HOVNANIAN
  AT WALL TOWNSHIP VI, INC.

  
	
  K. HOVNANIAN
  AT WALL TOWNSHIP VIII, INC.

  
	
  K. HOVNANIAN
  AT WASHINGTONVILLE, INC.

  
	
  K. HOVNANIAN
  AT WAYNE III, INC.

  
	
  K. HOVNANIAN
  AT WAYNE V, INC.

  
	
  K. HOVNANIAN
  AT WILDROSE, INC.

  
	
  K. HOVNANIAN
  AT WOODMONT, INC.

  
	
  K. HOVNANIAN
  COMPANIES NORTHEAST, INC.

  
	
  K. HOVNANIAN
  COMPANIES OF CALIFORNIA, INC.

  

 

107

 

	
  K. HOVNANIAN
  COMPANIES OF MARYLAND, INC.

  
	
  K. HOVNANIAN
  COMPANIES OF METRO WASHINGTON, INC.

  
	
  K. HOVNANIAN
  COMPANIES OF NEW YORK, INC.

  
	
  K. HOVNANIAN
  COMPANIES OF NORTH CAROLINA, INC.

  
	
  K. HOVNANIAN
  COMPANIES OF PENNSYLVANIA, INC.

  
	
  K. HOVNANIAN
  COMPANIES OF SOUTHERN CALIFORNIA, INC.

  
	
  K. HOVNANIAN
  CONSTRUCTION MANAGEMENT, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF CALIFORNIA, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF MARYLAND, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF METRO WASHINGTON, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF NEW JERSEY II, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF NEW JERSEY, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF NEW YORK, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF OHIO, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF PENNSYLVANIA, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF SOUTH CAROLINA, INC.

  
	
  K. HOVNANIAN
  DEVELOPMENTS OF TEXAS, INC.

  
	
  K. HOVNANIAN
  ENTERPRISES, INC.

  
	
  K. HOVNANIAN
  EQUITIES, INC.

  
	
  K. HOVNANIAN
  FORECAST HOMES, INC.

  
	
  K. HOVNANIAN
  INVESTMENT PROPERTIES OF NEW JERSEY, INC.

  
	
  K. HOVNANIAN
  MARINE, INC.

  
	
  K. HOVNANIAN
  PA REAL ESTATE, INC.

  
	
  K. HOVNANIAN
  PORT IMPERIAL URBAN RENEWAL, INC.

  
	
  K. HOVNANIAN
  PROPERTIES OF NB THEATRE, INC.

  
	
  K. HOVNANIAN
  PROPERTIES OF NEWARK URBAN RENEWAL

  
	
  CORPORATION,
  INC.

  
	
  K. HOVNANIAN
  PROPERTIES OF NORTH BRUNSWICK V, INC.

  
	
  K. HOVNANIAN
  PROPERTIES OF PISCATAWAY, INC.

  
	
  K. HOVNANIAN
  PROPERTIES OF RED BANK, INC.

  
	
  K. HOVNANIAN
  PROPERTIES OF WALL, INC.

  
	
  K. HOVNANIAN
  REAL ESTATE INVESTMENT, INC.

  
	
  KHC
  ACQUISITION, INC.

  
	
  KHIP III,
  INC.

  
	
  LANDARAMA,
  INC.

  
	
  MATZEL &
  MUMFORD OF DELAWARE, INC.

  
	
  MCNJ, INC.

  
	
  MMIP III,
  INC.

  
	
  PARTHENON
  GROUP, INC.

  
	
  PINE BROOK
  COMPANY, INC.

  
	
  QUE
  CORPORATION

  
	
  REFLECTIONS
  OF YOU INTERIORS, INC.

  
	
  SEABROOK
  ACCUMULATION CORPORATION

  
	
  STONEBROOK
  HOMES, INC.

  

 

108

 

	
  THE MATZEL
  & MUMFORD ORGANIZATION, INC.

  
	
  THE NEW
  FORTIS CORPORATION

  
	
  THE
  SOUTHAMPTON CORPORATION

  
	
  WASHINGTON
  HOMES OF WEST VIRGINIA, INC.

  
	
  WASHINGTON
  HOMES, INC.

  
	
  WASHINGTON
  HOMES, INC. OF VIRGINIA

  
	
  WESTMINSTER
  HOMES (CHARLOTTE), INC.

  
	
  WESTMINSTER
  HOMES OF TENNESSEE, INC.

  
	
  WESTMINSTER
  HOMES, INC.

  
	
  WH LAND I,
  INC

  
	
  WH LAND II,
  INC.

  
	
  WH
  PROPERTIES, INC.

  
	
  K. HOVNANIAN
  AT 4S RANCH, L.L.C.

  
	
  K. HOVNANIAN
  AT ASHBURN VILLAGE, L.L.C.

  
	
  K. HOVNANIAN
  AT BARNEGAT I, L.L.C.

  
	
  K. HOVNANIAN
  AT BERKELEY, L.L.C.

  
	
  K. HOVNANIAN
  AT BERNARDS V, L.L.C.

  
	
  K. HOVNANIAN
  AT BLOOMS CROSSING, L.L.C.

  
	
  K. HOVNANIAN
  AT BLUE HERON PINES, L.L.C.

  
	
  K. HOVNANIAN
  AT BRENBROOKE, L.L.C.

  
	
  K. HOVNANIAN
  AT CAMDEN I, L.L.C.

  
	
  K. HOVNANIAN
  AT CARMEL VILLAGE, L.L.C.

  
	
  K. HOVNANIAN
  AT CEDAR GROVE III, L.L.C.

  
	
  K. HOVNANIAN
  AT CHESTER I, L.L.C.

  
	
  K. HOVNANIAN
  AT CLIFTON, L.L.C.

  
	
  K. HOVNANIAN
  AT CLIFTON II, L.L.C.

  
	
  K. HOVNANIAN
  AT CRANBURY, L.L.C.

  
	
  K. HOVNANIAN
  AT CURRIES WOODS, L.L.C.

  
	
  K. HOVNANIAN
  AT DENVILLE, L.L.C.

  
	
  K. HOVNANIAN
  AT ENCINITAS RANCH, L.L.C.

  
	
  K. HOVNANIAN
  AT FOREST MEADOWS, L.L.C.

  
	
  K. HOVNANIAN
  AT FREEHOLD TOWNSHIP, L.L.C.

  
	
  K. HOVNANIAN
  AT GREAT NOTCH, L.L.C.

  
	
  K. HOVNANIAN
  AT GUTTENBERG, L.L.C.

  
	
  K. HOVNANIAN
  AT HAMBURG, L.L.C.

  
	
  K. HOVNANIAN
  AT HAMBURG CONTRACTORS, L.L.C.

  
	
  K. HOVNANIAN
  AT JACKSON I, L.L.C.

  
	
  K. HOVNANIAN
  AT JACKSON, L.L.C.

  
	
  K. HOVNANIAN
  AT JERSEY CITY IV, L.L.C.

  
	
  K. HOVNANIAN
  AT KENT ISLAND, L.L.C.

  
	
  K. HOVNANIAN
  AT KINCAID, L.L.C.

  
	
  K. HOVNANIAN
  AT KING FARM, L.L.C.

  
	
  K. HOVNANIAN
  AT LAFAYETTE ESTATES, L.L.C.

  
	
  K. HOVNANIAN
  AT LAKE RIDGE CROSSING, L.L.C.

  

 

109

 

	
  K. HOVNANIAN
  AT LAKE TERRAPIN, L.L.C.

  
	
  K. HOVNANIAN
  AT LAWRENCE V, L.L.C.

  
	
  K. HOVNANIAN
  AT LINWOOD, L.L.C.

  
	
  K. HOVNANIAN
  AT LITTLE EGG HARBOR, L.L.C.

  
	
  K. HOVNANIAN
  AT LITTLE EGG HARBOR CONTRACTORS, L.L.C.

  
	
  K. HOVNANIAN
  AT LONG BRANCH I, L.L.C.

  
	
  K. HOVNANIAN
  AT LOWER MACUNGIE TOWNSHIP I, L.L.C.

  
	
  K. HOVNANIAN
  AT LOWER MACUNGIE TOWNSHIP II, L.L.C.

  
	
  K. HOVNANIAN
  AT LOWER MAKEFIELD TOWNSHIP I, L.L.C.

  
	
  K. HOVNANIAN
  AT LOWER MORELAND I, L.L.C.

  
	
  K. HOVNANIAN
  AT LOWER MORELAND II, L.L.C.

  
	
  K. HOVNANIAN
  AT MANALAPAN II, L.L.C.

  
	
  K. HOVNANIAN
  AT MANALAPAN III, L.L.C.

  
	
  K. HOVNANIAN
  AT MANSFIELD I, LLC

  
	
  K. HOVNANIAN
  AT MANSFIELD II, LLC

  
	
  K. HOVNANIAN
  AT MANSFIELD III, L.L.C.

  
	
  K. HOVNANIAN
  AT MARLBORO TOWNSHIP V, L.L.C.

  
	
  K. HOVNANIAN
  AT MARLBORO TOWNSHIP VIII, L.L.C.

  
	
  K. HOVNANIAN
  AT MARLBORO VI, L.L.C.

  
	
  K. HOVNANIAN
  AT MARLBORO VII, L.L.C.

  
	
  K. HOVNANIAN
  AT MENIFEE, L.L.C.

  
	
  K. HOVNANIAN
  AT MIDDLE TOWNSHIP, L.L.C.

  
	
  K. HOVNANIAN
  AT MIDDLETOWN II, L.L.C.

  
	
  K. HOVNANIAN
  AT MIDDLETOWN, L.L.C.

  
	
  K. HOVNANIAN
  AT MONROE, L.L.C.

  
	
  K. HOVNANIAN
  AT MOSAIC, L.L.C.

  
	
  K. HOVNANIAN
  AT MT. OLIVE TOWNSHIP, L.L.C.

  
	
  K. HOVNANIAN
  AT NORTH BERGEN, L.L.C.

  
	
  K. HOVNANIAN
  AT NORTH BRUNSWICK VI, L.L.C.

  
	
  K. HOVNANIAN
  AT NORTH HALEDON, L.L.C.

  
	
  K. HOVNANIAN
  AT NORTH WILDWOOD, L.L.C.

  
	
  K. HOVNANIAN
  AT NORTHFIELD, L.L.C.

  
	
  K. HOVNANIAN
  AT OLD BRIDGE, L.L.C.

  
	
  K. HOVNANIAN
  AT OLDE ORCHARD, L.L.C.

  
	
  K. HOVNANIAN
  AT PACIFIC BLUFFS, L.L.C.

  
	
  K. HOVNANIAN
  AT PARAMUS, L.L.C.

  
	
  K. HOVNANIAN
  AT PARK LANE, L.L.C.

  
	
  K. HOVNANIAN
  AT RANCHO SANTA MARGARITA, L.L.C.

  
	
  K. HOVNANIAN
  AT RANDOLPH I, L.L.C.

  
	
  K. HOVNANIAN
  AT READINGTON II, L.L.C.

  
	
  K. HOVNANIAN
  AT RIVERBEND II, L.L.C.

  
	
  K. HOVNANIAN
  AT RIVERBEND, L.L.C.

  
	
  K. HOVNANIAN
  AT RODERUCK. L.L.C.

  
	
  K. HOVNANIAN
  AT ROWLAND HEIGHTS, L.L.C.

  

 

110

 

	
  K. HOVNANIAN
  AT SAYREVILLE, L.L.C.

  
	
  K. HOVNANIAN
  AT SMITHVILLE III, L.L.C.

  
	
  K. HOVNANIAN
  AT SOMERS POINT, L.L.C.

  
	
  K. HOVNANIAN
  AT SOUTH AMBOY, L.L.C.

  
	
  K. HOVNANIAN
  AT SOUTH BANK, L.L.C.

  
	
  K. HOVNANIAN
  AT SOUTH BRUNSWICK, L.L.C.

  
	
  K. HOVNANIAN
  AT SPRING HILL ROAD, L.L.C.

  
	
  K. HOVNANIAN
  AT ST. MARGARETS, L.L.C.

  
	
  K. HOVNANIAN
  AT SUNSETS, L.L.C.

  
	
  K. HOVNANIAN
  AT THE GABLES, L.L.C.

  
	
  K. HOVNANIAN
  AT TRAIL RIDGE, L.L.C.

  
	
  K. HOVNANIAN
  AT UPPER FREEHOLD TOWNSHIP II, L.L.C.

  
	
  K. HOVNANIAN
  AT UPPER FREEHOLD TOWNSHIP III, L.L.C.

  
	
  K. HOVNANIAN
  AT UPPER UWCHLAN, L.L.C.

  
	
  K. HOVNANIAN
  AT WANAQUE, L.L.C.

  
	
  K. HOVNANIAN
  AT WASHINGTON, L.L.C.

  
	
  K. HOVNANIAN
  AT WAYNE VIII, L.L.C.

  
	
  K. HOVNANIAN
  AT WAYNE IX, L.L.C.

  
	
  K. HOVNANIAN
  AT WEST MILFORD, L.L.C.

  
	
  K. HOVNANIAN
  AT WEST WINDSOR, L.L.C.

  
	
  K. HOVNANIAN
  AT WILLOW BROOK, L.L.C.

  
	
  K. HOVNANIAN
  AT WINCHESTER, L.L.C.

  
	
  K. HOVNANIAN
  AT WOODHILL ESTATES, L.L.C.

  
	
  K. HOVNANIAN
  AT WOOLWICH I, L.L.C.

  
	
  K. HOVNANIAN
  CENTRAL ACQUISITIONS, L.L.C.

  
	
  K. HOVNANIAN
  COMPANIES OF METRO D.C. NORTH, L.L.C.

  
	
  K. HOVNANIAN
  COMPANIES, LLC

  
	
  K. HOVNANIAN
  EASTERN PENNSYLVANIA, L.L.C.

  
	
  K. HOVNANIAN
  FOUR SEASONS @ HISTORIC VIRGINIA, L.L.C.

  
	
  K. HOVNANIAN
  HOLDINGS NJ, LLC

  
	
  K. HOVNANIAN
  NORTH CENTRAL ACQUISITIONS, L.L.C.

  
	
  K. HOVNANIAN
  NORTH JERSEY ACQUISITIONS, L.L.C.

  
	
  K. HOVNANIAN
  NORTHEAST SERVICES, L.L.C.

  
	
  K. HOVNANIAN
  OHIO REALTY, L.L.C.

  
	
  K. HOVNANIAN
  PENNSYLVANIA ACQUISITIONS, L.L.C.

  
	
  K. HOVNANIAN
  SHORE ACQUISITIONS, L.L.C.

  
	
  K. HOVNANIAN
  SOUTH JERSEY ACQUISITION, L.L.C.

  
	
  K. HOVNANIAN
  SOUTHERN NEW JERSEY, L.L.C.

  
	
  K. HOVNANIAN
  SUMMIT HOLDINGS, L.L.C.

  
	
  K. HOVNANIAN
  SUMMIT HOMES, L.L.C.

  
	
  K.
  HOVNANIAN’S FOUR SEASONS AT HEMET, L.L.C.

  
	
  K.
  HOVNANIAN’S FOUR SEASONS AT PALM SPRINGS, L.L.C.

  
	
  K.
  HOVNANIAN’S FOUR SEASONS, L.L.C.

  
	
  K.
  HOVNANIAN’S PRIVATE HOME PORTFOLIO, L.L.C.

  

 

111

 

	
  KHIP, LLC

  
	
  KINGS COURT
  AT MONTGOMERY, L.L.C.

  
	
  M&M AT
  APPLE RIDGE, L.L.C.

  
	
  M&M AT
  BROOKHILL, L.L.C.

  
	
  M&M AT
  CHESTERFIELD, LLC

  
	
  M&M AT
  EAST MILL, L.L.C.

  
	
  M&M AT
  HERITAGE WOODS, L.L.C.

  
	
  M&M AT
  MORRISTOWN, L.L.C.

  
	
  M&M AT
  SHERIDAN, L.L.C.

  
	
  M&M AT
  SPARTA, L.L.C.

  
	
  M&M AT
  SPINNAKER POINTE, L.L.C.

  
	
  M&M AT
  SPRUCE HOLLOW, L.L.C.

  
	
  M&M AT
  SPRUCE MEADOWS, L.L.C.

  
	
  M&M AT
  SPRUCE RUN, L.L.C.

  
	
  M&M AT
  THE HIGHLANDS, L.L.C.

  
	
  M&M AT
  WEST ORANGE, L.L.C.

  
	
  MATZEL &
  MUMFORD AT CRANBURY KNOLL, L.L.C.

  
	
  MATZEL &
  MUMFORD AT FREEHOLD, L.L.C.

  
	
  MATZEL &
  MUMFORD AT HERITAGE LANDING, L.L.C.

  
	
  MATZEL &
  MUMFORD AT MONTGOMERY, L.L.C.

  
	
  MATZEL &
  MUMFORD AT PHILLIPSBURG, L.L.C.

  
	
  MATZEL &
  MUMFORD AT SOUTH BRUNSWICK, L.L.C.

  
	
  MATZEL &
  MUMFORD AT WOODLAND CREST, L.L.C.

  
	
  MMIP, L.L.C.

  
	
  THE LANDINGS
  AT SPINNAKER POINTE, L.L.C.

  
	
  WASHINGTON
  HOMES OF MARYLAND I, L.L.C.

  
	
  WESTMINSTER
  HOMES OF ALABAMA, L.L.C.

  
	
  WESTMINSTER HOMES
  OF MISSISSIPPI, L.L.C.

  
	
  WESTMINSTER
  HOMES OF SOUTH CAROLINA, L.L.C.

  
	
  WOODLAND
  LAKES CONDOS AT BOWIE NEWTOWN, LLC

  
	
  GOODMAN
  FAMILY OF BUILDERS, L.P.

  
	
  K. HOVNANIAN
  OF HOUSTON II, L.P.

  
	
  K. HOVNANIAN
  OF HOUSTON, L.P.

  
	
  M & M
  INVESTMENTS, L.P.

  
	
  WASHABAMA, L.P.

  

 

112

 

EXHIBIT
A

 

 

[FACE OF NOTE]

 

K. HOVNANIAN ENTERPRISES, INC.

 

73⁄4% Senior
Subordinated Note Due 2013

 

[CUSIP] 
[ISIN]
                     

 

	
  No.

  	
   

  	
  $                     

  

 

 

K. Hovnanian
Enterprises, Inc., a California corporation (the “Issuer”, which term includes any successor under the Indenture
hereinafter referred to), for value received, promises to pay to
                     ,
or its registered assigns, the principal sum of
                     
DOLLARS
($             )
on May 15, 2013

 

Initial
Interest Rate: 73⁄4% per annum.

 

Interest
Payment Dates: May 15 and November 15, commencing November 15, 2003.

 

Regular Record
Dates: May 1 and November 1.

 

Reference is
hereby make to the further provisions of this Note set forth on the reverse
hereof, which will for all purposes have the same effect as if set forth at
this place.

 

A-1

 

IN WITNESS
WHEREOF, the Issuer has caused this Note to be signed manually or by facsimile
by its duly authorized officer.

 

	
  Date:

  	
  K. HOVNANIAN
  ENTERPRISES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A-2

 

(Form of Trustee’s Certificate of Authentication)

 

This is one of
the 73⁄4% Senior Subordinated Notes Due 2013 described in the Indenture referred
to in this Note.

 

	
   

  	
  WACHOVIA
  BANK, NATIONAL

  ASSOCIATION 

  
	
   

  	
  as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Authorized
  Signatory

  

 

A-3

 

 

[REVERSE SIDE OF NOTE]

 

K. HOVNANIAN ENTERPRISES, INC.

 

73⁄4% Senior Subordinated Note Due 2013

 

1.                                       Principal and Interest.

 

The Issuer
promises to pay the principal of this Note on May 15, 2013.

 

The Issuer
promises to pay interest on the principal amount of this Note on each interest
payment date, as set forth on the face of this Note, at the rate of 73⁄4% per
annum.

 

Interest will
be payable semiannually (to the holders of record of the Notes at the close of
business on the May 1 or November 1 immediately preceding the interest payment
date) on each interest payment date, commencing November 15, 2003.

 

The Holder of
this Note is entitled to the benefits of the Registration Rights Agreement,
dated May 9, 2003, between the Issuer, the Guarantors party thereto and the
Initial Purchasers named therein (the “Registration
Rights Agreement”). In the event that a Registration Default (as
defined in the Registration Rights Agreement), the Holder shall be entitled to
Additional Interest as specified in the Registration Rights Agreement until the
Registration Default is cured.

 

Interest on
this Note will accrue from the most recent date to which interest has been paid
on this Note or the Note surrendered in exchange for this Note (or, if there is
no existing default in the payment of interest and if this Note is
authenticated between a regular record date and the next interest payment date,
from such interest payment date) or, if no interest has been paid, from May 9,
2003.  Interest will be computed on the
basis of a 360-day year of twelve 30-day months.

 

The Issuer
will pay interest on overdue principal, premium, if any, and, to the extent
lawful, interest and Additional Interest, if any, at a rate per annum that is
1% in excess of 73⁄4%.  Interest and
Additional Interest not paid when due and any interest on principal, premium or
interest not paid when due will be paid to the Persons that are Holders on a
special record date, which will be the 15th day preceding the date fixed by the
Issuer for the payment of such interest, whether or not such day is a Business
Day.  At least 15 days before a special
record date, the Issuer will send to each Holder and to the Trustee a notice
that sets forth the special record date, the payment date and the amount of
interest to be paid.

 

A-4

 

2.                                       Indentures; Subordination; Note Guarantees.

 

This is one of
the Notes issued under an Indenture dated as of May 9, 2003 (as amended from
time to time, the “Indenture”),
among the Issuer, the Guarantors party thereto and Wachovia Bank, National
Association, as Trustee. Capitalized terms used herein are used as defined in
the Indenture unless otherwise indicated. 
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act.  The Notes are subject to all such terms, and
Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms.  To the extent
permitted by applicable law, in the event of any inconsistency between the
terms of this Note and the terms of the Indenture, the terms of the Indenture
will control.

 

The Notes are
general unsecured obligations of the Issuer. 
The Indenture limits the original aggregate principal amount of the
Notes to $150,000,000, but Additional Notes may be issued pursuant to the
Indenture (provided that the
aggregate principal amount of Notes outstanding under the Indenture may not
exceed $300,000,000), and the originally issued Notes and all such Additional
Notes vote together for all purposes as a single class.  This Note is subordinated as set forth in
the Indenture. This Note is guaranteed, on a subordinated basis, by the
Guarantors as set forth in the Indenture and the Guarantee endorsed hereon.

 

3.                                       Redemption and Repurchase; Discharge Prior to
Redemption or Maturity.

 

This Note is
subject to optional redemption, and may be the subject of an Offer to Purchase,
as further described in the Indenture. 
There is no sinking fund or mandatory redemption applicable to this
Note.

 

If the Issuer
deposits with the Trustee money or U.S. Government Obligations sufficient to
pay the then outstanding principal of, premium and Additional Interest, if any,
and accrued interest on the Notes to redemption or maturity, the Issuer may in
certain circumstances be discharged from the Indenture and the Notes or may be
discharged from certain of its obligations under certain provisions of the
Indenture.

 

4.                                       Registered Form; Denominations; Transfer; Exchange.

 

The Notes are
in registered form without coupons in denominations of $1,000 principal amount
and any multiple of $1,000 in excess thereof. 
A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Trustee may require a Holder to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. 
Pursuant to the Indenture, there are certain periods during which

 

A-5

 

the Trustee
will not be required to issue, register the transfer of or exchange any Note or
certain portions of a Note.

 

5.                                       Defaults and Remedies.

 

If an Event of
Default, as defined in the Indenture, occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the Notes may declare all
the Notes to be due and payable.  If a
bankruptcy or insolvency default with respect to the Issuer occurs and is
continuing, the Notes automatically become due and payable.  Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. 
The Trustee may require indemnity satisfactory to it before it enforces
the Indenture or the Notes.  Subject to
certain limitations, Holders of a majority in principal amount of the Notes
then outstanding may direct the Trustee in its exercise of remedies.

 

6.                                       Amendment and Waiver.

 

Subject to
certain exceptions, the Indenture and the Notes may be amended, or default may
be waived, with the consent of the Holders of a majority in principal amount of
the outstanding Notes.  Without notice
to or the consent of any Holder, the Issuer and the Trustee may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency.

 

7.                                       Authentication.

 

This Note is
not valid until the Trustee (or Authenticating Agent) signs the certificate of
authentication on the other side of this Note.

 

8.                                       Abbreviations.

 

Customary
abbreviations may be used in the name of a Holder or an assignee, such as:  TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian) and U/G/M/A/ (= Uniform Gifts
to Minors Act).

 

The Issuer
will furnish a copy of the Indenture to any Holder upon written request and
without charge.

 

A-6

 

[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]

 

GUARANTEE

 

The
undersigned (the “Guarantors”)
have unconditionally guaranteed, jointly and severally (such guarantee by each
Guarantor being referred to herein as the “Guarantee”)
(i) the due and punctual payment of the principal of and interest on the Notes,
whether at maturity, by acceleration or otherwise, the due and punctual payment
of interest on the overdue principal and interest, if any, on the Notes, to the
extent lawful, and the due and punctual performance of all other obligations of
the Issuer to the Holders or the Trustee all in accordance with the terms set
forth in Article 6 of the Indenture and (ii) in case of any extension of time of
payment or renewal of any Notes or any of such other obligations, that the same
will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise.

 

The obligations
of the Guarantors under this Guarantee are subordinated to all Senior Debt of a
Guarantor, as set forth in Article 11 of the Indenture.

 

No past,
present or future stockholder, officer, director, employee or incorporator, as
such, of any of the Guarantors shall have any liability under the Guarantee by
reason of such person’s status as stockholder, officer, director, employee or
incorporator. Each Holder of a Note by accepting a Note waives and releases all
such liability. This waiver and release are part of the consideration for the
issuance of the Guarantee.

 

Each Holder of
a Note by accepting a Note agrees that any Guarantor named below shall have no
further liability with respect to its Guarantee if such Guarantor otherwise
ceases to be liable in respect of its Guarantee in accordance with the terms of
the Indenture.

 

The Guarantee
shall not be valid or obligatory for any purpose until the certificate of
authentication on the Notes upon which the Guarantee is noted shall have been
executed by the Trustee under the Indenture by the manual signature of one of
its authorized officers.

 

	
   

  	
  HOVNANIAN ENTERPRISES,
  INC.

  
	
   

  	
  ALL SEASONS, INC.

  
	
   

  	
  ARROW PROPERTIES, INC.

  
	
   

  	
  CONDOMINIUM COMMUNITY
  (BOWIE NEW TOWN), INC.

  
	
   

  	
  CONDOMINIUM COMMUNITY
  (LARGO TOWN), INC.

  
	
   

  	
  CONDOMINIUM COMMUNITY
  (PARK PLACE), INC.

  

 

A-7

 

	
   

  	
  CONDOMINIUM COMMUNITY
  (QUAIL RUN), INC.

  
	
   

  	
  CONDOMINIUM COMMUNITY
  (TRUMAN DRIVE), INC.

  
	
   

  	
  CONSULTANTS CORPORATION

  
	
   

  	
  DESIGNED CONTRACTS. INC.

  
	
   

  	
  EXC, INC.

  
	
   

  	
  FORTIS HOMES, INC.

  
	
   

  	
  HOUSING-HOME SALES, INC.

  
	
   

  	
  HOVNANIAN DEVELOPMENTS OF
  FLORIDA, INC.

  
	
   

  	
  K. HOV INTERNATIONAL, INC.

  
	
   

  	
  K. HOV IP, II, INC.

  
	
   

  	
  K. HOV IP, III, INC.

  
	
   

  	
  K. HOV IP, INC.

  
	
   

  	
  K. HOV IP, IV, INC.

  
	
   

  	
  K. HOVNANIAN ACQUISITIONS,
  INC.

  
	
   

  	
  K. HOVNANIAN AT ASHBURN VILLAGE,
  INC.

  
	
   

  	
  K. HOVNANIAN AT
  BALLANTRAE, INC.

  
	
   

  	
  K. HOVNANIAN AT
  BARRINGTON, INC.

  
	
   

  	
  K. HOVNANIAN AT BELMONT,
  INC.

  
	
   

  	
  K. HOVNANIAN AT BERNARDS
  IV, INC.

  
	
   

  	
  K. HOVNANIAN AT BRANCHBURG
  III, INC.

  
	
   

  	
  K. HOVNANIAN AT
  BRIDGEPORT, INC.

  
	
   

  	
  K. HOVNANIAN AT
  BRIDGEWATER VI, INC.

  
	
   

  	
  K. HOVNANIAN AT BULL RUN,
  INC.

  
	
   

  	
  K. HOVNANIAN AT BURLINGTON
  III, INC.

  
	
   

  	
  K. HOVNANIAN AT
  BURLINGTON, INC.

  
	
   

  	
  K. HOVNANIAN AT CALABRIA,
  INC.

  
	
   

  	
  K. HOVNANIAN AT CAMERON
  CHASE, INC.

  
	
   

  	
  K. HOVNANIAN AT CARMEL DEL
  MAR, INC.

  
	
   

  	
  K. HOVNANIAN AT CASTILE,
  INC.

  
	
   

  	
  K. HOVNANIAN AT CEDAR
  GROVE I, INC.

  
	
   

  	
  K. HOVNANIAN AT CEDAR
  GROVE II, INC.

  
	
   

  	
  K. HOVNANIAN AT CHAPARRAL,
  INC.

  
	
   

  	
  K. HOVNANIAN AT
  CLARKSTOWN, INC.

  
	
   

  	
  K. HOVNANIAN AT CRESTLINE,
  INC.

  
	
   

  	
  K. HOVNANIAN AT DOMINGUEZ,
  INC.

  
	
   

  	
  K. HOVNANIAN AT DOMINION
  RIDGE, INC.

  
	
   

  	
  K. HOVNANIAN AT EAST
  BRUNSWICK VI, INC.

  
	
   

  	
  K. HOVNANIAN AT EAST
  WHITELAND I, INC.

  
	
   

  	
  K. HOVNANIAN AT EXETER
  HILLS, INC.

  
	
   

  	
  K. HOVNANIAN AT FAIR LAKES
  GLEN, INC.

  
	
   

  	
  K. HOVNANIAN AT FAIR
  LAKES, INC.

  
	
   

  	
  K. HOVNANIAN AT FREEHOLD
  TOWNSHIP I, INC.

  
	
   

  	
  K. HOVNANIAN AT HACKETTSTOWN,
  INC.

  
	
   

  	
  K. HOVNANIAN AT HAMPTON
  OAKS, INC.

  
	
   

  	
  K. HOVNANIAN AT HERSHEY’S
  MILL, INC. (a PA Corp)

  
	
   

  	
  K. HOVNANIAN AT HIGHLAND
  VINEYARDS, INC.

  
	
   

  	
  K. HOVNANIAN AT HOLLY
  CREST, INC.

  
	
   

  	
  K. HOVNANIAN AT HOPEWELL
  IV, INC.

  

 

A-8

 

	
   

  	
  K. HOVNANIAN AT HOPEWELL
  VI, INC.

  
	
   

  	
  K. HOVNANIAN AT HOWELL
  TOWNSHIP, INC.

  
	
   

  	
  K. HOVNANIAN AT HUNTER
  ESTATES, INC.

  
	
   

  	
  K. HOVNANIAN AT KINGS
  GRANT I, INC.

  
	
   

  	
  K. HOVNANIAN AT KLOCKNER
  FARMS, INC.

  
	
   

  	
  K. HOVNANIAN AT LA
  TERRAZA, INC.

  
	
   

  	
  K. HOVNANIAN AT LA
  TROVATA, INC.

  
	
   

  	
  K. HOVNANIAN AT LAKEWOOD,
  INC.

  
	
   

  	
  K. HOVNANIAN AT LOWER
  SAUCON II, INC.

  
	
   

  	
  K. HOVNANIAN AT LOWER
  SAUCON, INC.

  
	
   

  	
  K. HOVNANIAN AT MAHWAH II,
  INC.

  
	
   

  	
  K. HOVNANIAN AT MAHWAH IV,
  INC. (Whalepond)

  
	
   

  	
  K. HOVNANIAN AT MAHWAH V,
  INC.

  
	
   

  	
  K. HOVNANIAN AT MAHWAH VI,
  INC. (Norfolk)

  
	
   

  	
  K. HOVNANIAN AT MAHWAH
  VII, INC.

  
	
   

  	
  K. HOVNANIAN AT MAHWAH
  VIII, INC.

  
	
   

  	
  K. HOVNANIAN AT MANALAPAN,
  INC.

  
	
   

  	
  K. HOVNANIAN AT MARLBORO
  II, INC.

  
	
   

  	
  K. HOVNANIAN AT MARLBORO
  TOWNSHIP IV, INC.

  
	
   

  	
  K. HOVNANIAN AT MARLBORO
  TOWNSHIP III, INC.

  
	
   

  	
  K. HOVNANIAN AT METRO DC
  SOUTH, INC.

  
	
   

  	
  K. HOVNANIAN AT MONTCLAIR
  NJ, INC.

  
	
   

  	
  K. HOVNANIAN AT MONTCLAIR,
  INC.

  
	
   

  	
  K. HOVNANIAN AT MONTGOMERY
  I, INC.

  
	
   

  	
  K. HOVNANIAN AT NORTHERN
  WESTCHESTER, INC.

  
	
   

  	
  K. HOVNANIAN AT NORTHLAKE,
  INC.

  
	
   

  	
  K. HOVNANIAN AT OCEAN
  WALK, INC.

  
	
   

  	
  K. HOVNANIAN AT P.C.
  PROPERTIES, INC.

  
	
   

  	
  K. HOVNANIAN AT PARK
  RIDGE, INC.

  
	
   

  	
  K. HOVNANIAN AT PEEKSKILL,
  INC.

  
	
   

  	
  K. HOVNANIAN AT PERKIOMEN
  I, INC.

  
	
   

  	
  K. HOVNANIAN AT PERKIOMEN
  II, INC.

  
	
   

  	
  K. HOVNANIAN AT PLAINSBORO
  III, INC.

  
	
   

  	
  K. HOVNANIAN AT PORT
  IMPERIAL NORTH, INC.

  
	
   

  	
  K. HOVNANIAN AT PRINCETON,
  INC.

  
	
   

  	
  K. HOVNANIAN AT RANCHO
  CHRISTIANITOS, INC.

  
	
   

  	
  K. HOVNANIAN AT RESERVOIR
  RIDGE, INC.

  
	
   

  	
  K. HOVNANIAN AT RIVER
  OAKS, INC.

  
	
   

  	
  K. HOVNANIAN AT SAN
  SEVAINE, INC.

  
	
   

  	
  K. HOVNANIAN AT SARATOGA,
  INC.

  
	
   

  	
  K. HOVNANIAN AT SCOTCH
  PLAINS II, INC.

  
	
   

  	
  K. HOVNANIAN AT SCOTCH
  PLAINS, INC.

  
	
   

  	
  K. HOVNANIAN AT
  SMITHVILLE, INC.

  
	
   

  	
  K. HOVNANIAN AT SOUTH
  BRUNSWICK II, INC.

  
	
   

  	
  K. HOVNANIAN AT SOUTH
  BRUNSWICK III, INC.

  
	
   

  	
  K. HOVNANIAN AT SOUTH
  BRUNSWICK IV, INC.

  
	
   

  	
  K. HOVNANIAN AT SOUTH
  BRUNSWICK V, INC.

  
	
   

  	
  K. HOVNANIAN AT STONE
  CANYON, INC.

  

 

A-9

 

	
   

  	
  K. HOVNANIAN AT STONEGATE,
  INC. (a VA Corporation)

  
	
   

  	
  K. HOVNANIAN AT STONY
  POINT, INC.

  
	
   

  	
  K. HOVNANIAN AT STUART
  ROAD, INC.

  
	
   

  	
  K. HOVNANIAN AT SULLY
  STATION, INC.

  
	
   

  	
  K. HOVNANIAN AT
  SUMMERWOOD, INC.

  
	
   

  	
  K. HOVNANIAN AT SYCAMORE,
  INC.

  
	
   

  	
  K. HOVNANIAN AT TANNERY
  HILL, INC.

  
	
   

  	
  K. HOVNANIAN AT THE BLUFF,
  INC.

  
	
   

  	
  K. HOVNANIAN AT THE
  CEDARS, INC.

  
	
   

  	
  K. HOVNANIAN AT THE GLEN,
  INC.

  
	
   

  	
  K. HOVNANIAN AT THE RESERVE
  AT MEDFORD, INC.

  
	
   

  	
  K. HOVNANIAN AT THORNBURY,
  INC.

  
	
   

  	
  K. HOVNANIAN AT
  TIERRASANTA, INC.

  
	
   

  	
  K. HOVNANIAN AT TUXEDO,
  INC.

  
	
   

  	
  K. HOVNANIAN AT UNION
  TOWNSHIP I, INC.

  
	
   

  	
  K. HOVNANIAN AT UPPER
  MAKEFIELD I, INC.

  
	
   

  	
  K. HOVNANIAN AT VAIL
  RANCH, INC.

  
	
   

  	
  K. HOVNANIAN AT WALL
  TOWNSHIP VI, INC.

  
	
   

  	
  K. HOVNANIAN AT WALL
  TOWNSHIP VIII, INC.

  
	
   

  	
  K. HOVNANIAN AT
  WASHINGTONVILLE, INC.

  
	
   

  	
  K. HOVNANIAN AT WAYNE III,
  INC.

  
	
   

  	
  K. HOVNANIAN AT WAYNE V,
  INC.

  
	
   

  	
  K. HOVNANIAN AT WILDROSE,
  INC.

  
	
   

  	
  K. HOVNANIAN AT WOODMONT,
  INC.

  
	
   

  	
  K. HOVNANIAN COMPANIES
  NORTHEAST, INC.

  
	
   

  	
  K. HOVNANIAN COMPANIES OF
  CALIFORNIA, INC.

  
	
   

  	
  K. HOVNANIAN COMPANIES OF
  MARYLAND, INC.

  
	
   

  	
  K. HOVNANIAN COMPANIES OF
  METRO WASHINGTON, INC.

  
	
   

  	
  K. HOVNANIAN COMPANIES OF
  NEW YORK, INC.

  
	
   

  	
  K. HOVNANIAN COMPANIES OF
  NORTH CAROLINA, INC.

  
	
   

  	
  K. HOVNANIAN COMPANIES OF
  PENNSYLVANIA, INC.

  
	
   

  	
  K. HOVNANIAN COMPANIES OF
  SOUTHERN CALIFORNIA, INC.

  
	
   

  	
  K. HOVNANIAN CONSTRUCTION
  MANAGEMENT, INC.

  
	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF CALIFORNIA, INC.

  
	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF MARYLAND, INC.

  
	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF METRO WASHINGTON, INC.

  
	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF NEW JERSEY II, INC.

  

 

A-10

 

	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF NEW JERSEY, INC.

  
	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF NEW YORK, INC.

  
	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF OHIO, INC.

  
	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF PENNSYLVANIA, INC.

  
	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF SOUTH CAROLINA, INC.

  
	
   

  	
  K. HOVNANIAN DEVELOPMENTS
  OF TEXAS, INC.

  
	
   

  	
  K. HOVNANIAN ENTERPRISES,
  INC.

  
	
   

  	
  K. HOVNANIAN EQUITIES,
  INC.

  
	
   

  	
  K. HOVNANIAN FORECAST
  HOMES, INC.

  
	
   

  	
  K. HOVNANIAN INVESTMENT
  PROPERTIES OF NEW JERSEY, INC.

  
	
   

  	
  K. HOVNANIAN MARINE, INC.

  
	
   

  	
  K. HOVNANIAN PA REAL
  ESTATE, INC.

  
	
   

  	
  K. HOVNANIAN PORT IMPERIAL
  URBAN RENEWAL, INC.

  
	
   

  	
  K. HOVNANIAN PROPERTIES OF
  NB THEATRE, INC.

  
	
   

  	
  K. HOVNANIAN PROPERTIES OF
  NEWARK URBAN RENEWAL CORPORATION, INC.

  
	
   

  	
  K. HOVNANIAN PROPERTIES OF
  NORTH BRUNSWICK V, INC.

  
	
   

  	
  K. HOVNANIAN PROPERTIES OF
  PISCATAWAY, INC.

  
	
   

  	
  K. HOVNANIAN PROPERTIES OF
  RED BANK, INC.

  
	
   

  	
  K. HOVNANIAN PROPERTIES OF
  WALL, INC.

  
	
   

  	
  K. HOVNANIAN REAL ESTATE
  INVESTMENT, INC.

  
	
   

  	
  KHC ACQUISITION, INC.

  
	
   

  	
  KHIP III, INC.

  
	
   

  	
  LANDARAMA, INC.

  
	
   

  	
  MATZEL & MUMFORD OF
  DELAWARE, INC.

  
	
   

  	
  MCNJ, INC.

  
	
   

  	
  MMIP III, INC.

  
	
   

  	
  PARTHENON GROUP, INC.

  
	
   

  	
  PINE BROOK COMPANY, INC.

  
	
   

  	
  QUE CORPORATION

  
	
   

  	
  REFLECTIONS OF YOU
  INTERIORS, INC.

  
	
   

  	
  SEABROOK ACCUMULATION
  CORPORATION

  
	
   

  	
  STONEBROOK HOMES, INC.

  
	
   

  	
  THE MATZEL & MUMFORD
  ORGANIZATION, INC.

  
	
   

  	
  THE NEW FORTIS CORPORATION

  
	
   

  	
  THE SOUTHAMPTON
  CORPORATION

  
	
   

  	
  WASHINGTON HOMES OF WEST
  VIRGINIA, INC.

  
	
   

  	
  WASHINGTON HOMES, INC.

  
	
   

  	
  WASHINGTON HOMES, INC. OF
  VIRGINIA

  
	
   

  	
  WESTMINSTER HOMES
  (CHARLOTTE), INC.

  
	
   

  	
  WESTMINSTER HOMES OF
  TENNESSEE, INC.

  

 

A-11

 

	
   

  	
  WESTMINSTER HOMES, INC.

  
	
   

  	
  WH LAND I, INC

  
	
   

  	
  WH LAND II, INC.

  
	
   

  	
  WH PROPERTIES, INC.

  
	
   

  	
  K. HOVNANIAN AT 4S RANCH,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT ASHBURN
  VILLAGE, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT BARNEGAT
  I, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT BERKELEY,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT BERNARDS
  V, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT BLOOMS
  CROSSING, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT BLUE HERON
  PINES, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT BRENBROOKE,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT CAMDEN I,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT CARMEL
  VILLAGE, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT CEDAR
  GROVE III, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT CHESTER I,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT CLIFTON,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT CLIFTON
  II, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT CRANBURY,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT CURRIES
  WOODS, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT DENVILLE,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT ENCINITAS
  RANCH, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT FOREST
  MEADOWS, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT FREEHOLD
  TOWNSHIP, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT GREAT
  NOTCH, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT
  GUTTENBERG, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT HAMBURG,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT HAMBURG
  CONTRACTORS, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT JACKSON I,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT JACKSON,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT JERSEY
  CITY IV, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT KENT
  ISLAND, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT KINCAID,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT KING FARM,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LAFAYETTE
  ESTATES, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LAKE RIDGE
  CROSSING, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LAKE
  TERRAPIN, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LAWRENCE
  V, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LINWOOD,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LITTLE EGG
  HARBOR, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LITTLE EGG
  HARBOR CONTRACTORS, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LONG
  BRANCH I, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LOWER
  MACUNGIE TOWNSHIP I, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LOWER
  MACUNGIE TOWNSHIP II, L.L.C.

  

 

A-12

 

	
   

  	
  K. HOVNANIAN AT LOWER
  MAKEFIELD TOWNSHIP I, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LOWER
  MORELAND I, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT LOWER
  MORELAND II, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MANALAPAN
  II, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MANALAPAN
  III, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MANSFIELD
  I, LLC

  
	
   

  	
  K. HOVNANIAN AT MANSFIELD
  II, LLC

  
	
   

  	
  K. HOVNANIAN AT MANSFIELD
  III, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MARLBORO
  TOWNSHIP V, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MARLBORO
  TOWNSHIP VIII, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MARLBORO
  VI, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MARLBORO
  VII, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MENIFEE,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MIDDLE
  TOWNSHIP, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MIDDLETOWN
  II, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT
  MIDDLETOWN, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MONROE,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MOSAIC,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT MT. OLIVE
  TOWNSHIP, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT NORTH
  BERGEN, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT NORTH
  BRUNSWICK VI, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT NORTH
  HALEDON, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT NORTH
  WILDWOOD, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT NORTHFIELD,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT OLD
  BRIDGE, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT OLDE
  ORCHARD, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT PACIFIC
  BLUFFS, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT PARAMUS,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT PARK LANE,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT RANCHO
  SANTA MARGARITA, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT RANDOLPH
  I, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT READINGTON
  II, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT RIVERBEND
  II, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT RIVERBEND,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT RODERUCK.
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT ROWLAND
  HEIGHTS, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT
  SAYREVILLE, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT SMITHVILLE
  III, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT SOMERS
  POINT, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT SOUTH
  AMBOY, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT SOUTH
  BANK, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT SOUTH
  BRUNSWICK, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT SPRING
  HILL ROAD, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT ST.
  MARGARETS, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT SUNSETS,
  L.L.C.

  

 

A-13

 

	
   

  	
  K. HOVNANIAN AT THE
  GABLES, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT TRAIL
  RIDGE, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT UPPER
  FREEHOLD TOWNSHIP II, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT UPPER
  FREEHOLD TOWNSHIP III, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT UPPER
  UWCHLAN, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT WANAQUE,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT
  WASHINGTON, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT WAYNE
  VIII, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT WAYNE IX,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN AT WEST
  MILFORD, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT WEST
  WINDSOR, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT WILLOW
  BROOK, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT
  WINCHESTER, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT WOODHILL
  ESTATES, L.L.C.

  
	
   

  	
  K. HOVNANIAN AT WOOLWICH,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN CENTRAL
  ACQUISITIONS, L.L.C.

  
	
   

  	
  K. HOVNANIAN COMPANIES OF
  METRO D.C. NORTH, L.L.C.

  
	
   

  	
  K. HOVNANIAN COMPANIES,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN EASTERN
  PENNSYLVANIA, L.L.C.

  
	
   

  	
  K. HOVNANIAN FOUR SEASONS
  @ HISTORIC VIRGINIA, L.L.C.

  
	
   

  	
  K. HOVNANIAN HOLDINGS NJ,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN NORTH CENTRAL
  ACQUISITIONS, L.L.C.

  
	
   

  	
  K. HOVNANIAN NORTH JERSEY
  ACQUISITIONS, L.L.C.

  
	
   

  	
  K. HOVNANIAN NORTHEAST
  SERVICES, L.L.C.

  
	
   

  	
  K. HOVNANIAN OHIO REALTY,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN PENNSYLVANIA
  ACQUISITIONS, L.L.C.

  
	
   

  	
  K. HOVNANIAN SHORE
  ACQUISITIONS, L.L.C.

  
	
   

  	
  K. HOVNANIAN SOUTH JERSEY
  ACQUISITION, L.L.C.

  
	
   

  	
  K. HOVNANIAN SOUTHERN NEW
  JERSEY, L.L.C.

  
	
   

  	
  K. HOVNANIAN SUMMIT
  HOLDINGS, L.L.C.

  
	
   

  	
  K. HOVNANIAN SUMMIT HOMES,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN’S FOUR
  SEASONS AT HEMET, L.L.C.

  
	
   

  	
  K. HOVNANIAN’S FOUR
  SEASONS AT PALM SPRINGS, L.L.C.

  
	
   

  	
  K. HOVNANIAN’S FOUR SEASONS,
  L.L.C.

  
	
   

  	
  K. HOVNANIAN’S PRIVATE
  HOME PORTFOLIO, L.L.C.

  
	
   

  	
  KHIP, LLC

  
	
   

  	
  KINGS COURT AT MONTGOMERY,
  L.L.C.

  
	
   

  	
  M&M AT APPLE RIDGE,
  L.L.C.

  
	
   

  	
  M&M AT BROOKHILL,
  L.L.C.

  
	
   

  	
  M&M AT CHESTERFIELD,
  L.L.C.

  

 

A-14

 

	
   

  	
  M&M AT EAST MILL,
  L.L.C.

  
	
   

  	
  M&M AT HERITAGE WOODS,
  L.L.C.

  
	
   

  	
  M&M AT MORRISTOWN,
  L.L.C.

  
	
   

  	
  M&M AT SHERIDAN,
  L.L.C.

  
	
   

  	
  M&M AT SPARTA, L.L.C.

  
	
   

  	
  M&M AT SPINNAKER
  POINTE, L.L.C.

  
	
   

  	
  M&M AT SPRUCE HOLLOW,
  L.L.C.

  
	
   

  	
  M&M AT SPRUCE MEADOWS,
  L.L.C.

  
	
   

  	
  M&M AT SPRUCE RUN,
  L.L.C.

  
	
   

  	
  M&M AT THE HIGHLANDS,
  L.L.C.

  
	
   

  	
  M&M AT WEST ORANGE,
  L.L.C.

  
	
   

  	
  MATZEL & MUMFORD AT
  CRANBURY KNOLL, L.L.C.

  
	
   

  	
  MATZEL & MUMFORD AT
  FREEHOLD, L.L.C.

  
	
   

  	
  MATZEL & MUMFORD AT
  HERITAGE LANDING, L.L.C.

  
	
   

  	
  MATZEL & MUMFORD AT
  MONTGOMERY, L.L.C.

  
	
   

  	
  MATZEL & MUMFORD AT
  PHILLIPSBURG, L.L.C.

  
	
   

  	
  MATZEL & MUMFORD AT
  SOUTH BRUNSWICK, L.L.C.

  
	
   

  	
  MATZEL & MUMFORD AT
  WOODLAND CREST, L.L.C.

  
	
   

  	
  MMIP, L.L.C.

  
	
   

  	
  THE LANDINGS AT SPINNAKER
  POINTE, L.L.C.

  
	
   

  	
  WASHINGTON HOMES OF
  MARYLAND I, L.L.C.

  
	
   

  	
  WESTMINSTER HOMES OF
  ALABAMA, L.L.C.

  
	
   

  	
  WESTMINSTER HOMES OF
  MISSISSIPPI, L.L.C.

  
	
   

  	
  WESTMINSTER HOMES OF SOUTH
  CAROLINA, L.L.C.

  
	
   

  	
  WOODLAND LAKES CONDOS AT
  BOWIE NEWTOWN, LLC

  
	
   

  	
  GOODMAN FAMILY OF
  BUILDERS, L.P.

  
	
   

  	
  K. HOVNANIAN OF HOUSTON
  II, L.P.

  
	
   

  	
  K. HOVNANIAN OF HOUSTON,
  L.P.

  
	
   

  	
  M & M INVESTMENTS, L.P.

  
	
   

  	
  WASHABAMA, L.P.

  

 

 

	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
  Title:
  Authorized Signatory

  

 

A-15

 

[FORM OF TRANSFER NOTICE]

 

FOR VALUE
RECEIVED the undersigned registered holder hereby sell(s), assign(s) and
transfer(s) unto

 

Insert Taxpayer
Identification No.

 

 

Please
print or typewrite name and address including zip code of assignee

 

 

the
within Note and all rights thereunder, hereby irrevocably constituting and
appointing

 

 

attorney to
transfer said Note on the books of the Issuer with full power of substitution
in the premises.

 

A-16

 

[THE FOLLOWING
PROVISION TO BE INCLUDED ON ALL CERTIFICATES BEARING A RESTRICTED LEGEND]

 

In connection
with any transfer of this Note occurring prior to                      ,
the undersigned confirms that such transfer is made without utilizing any
general solicitation or general advertising and further as follows:

 

Check One

 

o                                    (1)
This Note is being transferred to a “qualified institutional buyer” in compliance
with Rule 144A under the Securities Act of 1933, as amended and certification
in the form of Exhibit F to the Indenture is being furnished herewith.

 

o                                    (2)
This Note is being transferred to a Non-U.S. Person in compliance with the
exemption from registration under the Securities Act of 1933, as amended,
provided by Regulation S thereunder, and certification in the form of Exhibit E
to the Indenture is being furnished herewith.

 

or

 

o                                    (3)
This Note is being transferred other than in accordance with (1) or (2) above
and documents are being furnished which comply with the conditions of transfer
set forth in this Note and the Indenture.

 

If none of the
foregoing boxes is checked, the Trustee is not obligated to register this Note
in the name of any Person other than the Holder hereof unless and until the
conditions to any such transfer of registration set forth herein and in the
Indenture have been satisfied.

 

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Seller

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
						

 

	
   

  	
  NOTICE:  The signature to this assignment must
  correspond with the name as written upon the face of the within-mentioned
  instrument in every particular, without alteration or any change whatsoever.

  

 

A-17

 

	
  Signature
  Guarantee:(1)

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  To be
  executed by an executive officer

  
				

 

 

(1)Signatures must be
guaranteed by an “eligible guarantor
institution” meeting the requirements of the Registrar, which
requirements include membership or participation in the Note Transfer Agent
Medallion Program (“STAMP”) or
such other “signature guarantee program”
as may be determined by the Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

 

A-18

 

OPTION OF HOLDER TO ELECT PURCHASE

 

If you wish to
have all of this Note purchased by the Issuer pursuant to Section 4.10 or
Section 4.12 of the Indenture, check the box: o

 

If you wish to
have a portion of this Note purchased by the Issuer pursuant to Section 4.10 or
Section 4.12 of the Indenture, state the amount (in original principal amount)
below:

 

	
   

  	
  $

  	
   

  	
   

  
	
   

  
	
   

  
	
  Date:

  	
   

  	
   

  
	
   

  
	
  Your
  Signature:

  	
   

  	
   

  
	
   

  
	
  (Sign
  exactly as your name appears on the other side of this Note)

  
	
   

  
	
  Signature
  Guarantee:(1)

  	
   

  	
   

  
										

 

 

(1)Signatures must be
guaranteed by an “eligible guarantor
institution” meeting the requirements of the Trustee, which
requirements include membership or participation in the Note Transfer Agent
Medallion Program (“STAMP”) or
such other “signature guarantee program”
as may be determined by the Trustee in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

 

A-19

 

SCHEDULE OF EXCHANGES OF NOTES(1)

 

The following
exchanges of a part of this Global Note for Physical Notes or a part of another
Global Note have been made:

 

 

	
  Date
  of Exchange

  	
   

  	
  Amount of decrease

  in principal amount

  of this Global Note

  	
   

  	
  Amount of increase

  in principal amount

  of this Global Note

  	
   

  	
  Principal amount of

  this Global Note

  following such

  decrease (or

  increase)

  	
   

  	
  Signature of

  authorized officer of

  Trustee

  	
   

  

 

 

(1)For Global Notes

 

A-20

 

EXHIBIT B

 

 

SUPPLEMENTAL INDENTURE

 

dated as of
           ,     

 

among

 

K. HOVNANIAN ENTERPRISES, INC.

 

HOVNANIAN ENTERPRISES, INC.

 

The Guarantors Party Hereto

 

and

 

WACHOVIA BANK, NATIONAL ASSOCIATION

as Trustee

 

 

73⁄4% Senior Subordinated Notes due 2013

 

 

THIS
SUPPLEMENTAL INDENTURE (this “Supplemental
Indenture”), entered into as of
                    ,
          , among
K. Hovnanian Enterprises, Inc., a California corporation (the “Issuer”), Hovnanian Enterprises, Inc. (the
“Company”), [list each new
guarantor and its jurisdiction of incorporation] (each an “Undersigned”) and Wachovia Bank, National
Association, as trustee (the “Trustee”).

 

RECITALS

 

WHEREAS, the
Issuer, Company, the Guarantors party thereto and the Trustee entered into the
Indenture, dated as of May 9, 2003 (the “Indenture”),
relating to the Company’s 73⁄4% Senior Subordinated Notes due 2013 (the “Notes”);

 

WHEREAS, as a
condition to the Trustee entering into the Indenture and the purchase of the
Notes by the Holders, the Company agreed pursuant to the Indenture to cause any
newly acquired or created Restricted Subsidiaries to provide Guaranties.

 

AGREEMENT

 

NOW,
THEREFORE, in consideration of the premises and mutual covenants herein
contained and intending to be legally bound, the parties the Indenture hereby
agree as follows:

 

SECTION 1.                                Capitalized terms used
herein and not otherwise defined herein are used as defined in the Indenture.

 

SECTION 2.                                Each Undersigned, by
its execution of this Supplemental Indenture, agrees to be a Guarantor under
the Indenture and to be bound by the terms of the Indenture applicable to
Guarantors, including, but not limited to, Article 6 and Article 11 thereof.

 

SECTION 3.                                This Supplemental
Indenture shall be governed by and construed in accordance with the laws of the
State of New York.

 

SECTION 4.                                This Supplemental Indenture
may be signed in various counterparts which together will constitute one and
the same instrument.

 

SECTION 5.                                This Supplemental
Indenture is an amendment supplemental to the Indenture and the Indenture and
this Supplemental Indenture will henceforth be read together.

 

B-1

 

IN WITNESS
WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed as of the date first above written.

 

	
   

  	
  K. HOVNANIAN
  ENTERPRISES, INC.,

  as Issuer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  HOVNANIAN
  ENTERPRISES, INC.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  [GUARANTOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  WACHOVIA
  BANK, NATIONAL 

  
	
   

  	
  ASSOCIATION

  
	
   

  	
  as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

B-2

 

EXHIBIT C

 

RESTRICTED LEGEND

 

THIS NOTE (OR
ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT
SENTENCE.  BY ITS ACQUISITION HEREOF OR
OF A BENEFICIAL INTEREST HEREIN, THE HOLDER

 

(1) REPRESENTS
THAT (A) IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) (A “QIB”), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT
IS AN INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(a) (1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) (AN “IAI”),

 

(2) AGREES
THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE OR ANY BENEFICIAL
INTEREST HEREIN, EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR 904 OF REGULATION S OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS
IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $250,000, AN OPINION
OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE ISSUER) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY

 

C-1

 

STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND

 

(3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.

 

AS USED
HEREIN, THE TERMS “OFFSHORE TRANSACTIONS” AND “UNITED STATES” HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.  THE INDENTURE CONTAINS A PROVISION REQUIRING
THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.

 

C-2

 

EXHIBIT D

 

DTC LEGEND

 

UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION (“DTC”),
TO THE COMPANY OR ANY OF ITS SUBSIDIARIES OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS A
BENEFICIAL INTEREST HEREIN.

 

TRANSFERS OF
THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE TRANSFER PROVISIONS OF THE INDENTURE.

 

D-1

 

 

EXHIBIT E

 

	
  Regulation S Certificate

  
	
   

  
	
   

  	
                     ,
           

  

 

 

Wachovia Bank,
National Association

21 South
Street

Morristown, NJ
07960

Attention:
Corporate Trust Administration

 

Re:                               K.
Hovnanian Enterprises, Inc.

73⁄4% Senior
Subordinated Notes due 2013 (the “Notes”)

Issued under
the Indenture (the “Indenture”)
dated as

as of May 9,
2003 relating to the Notes

 

Dear Sirs:

 

Terms are used
in this Certificate as used in Regulation S (“Regulation S”) under the
Securities Act of 1933, as amended (the “Securities Act”), except as otherwise
stated herein.

 

[CHECK A OR B AS APPLICABLE.]

 

o               A.        This Certificate relates to our proposed
transfer of $          principal
amount of Notes issued under the Indenture. 
We hereby certify as follows:

 

1.              The offer and sale of the Notes was not
and will not be made to a person in the United States (unless such person is
excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(vi) or
the account held by it for which it is acting is excluded from the definition
of “U.S. person” pursuant to Rule 902(k)(2)(i) under the circumstances
described in Rule 902(g)(3)) and such offer and sale was not and will not be
specifically targeted at an identifiable group of U.S. citizens abroad.

 

2.              Unless the circumstances described in the
parenthetical in paragraph 1 above are applicable, either (a) at the time the
buy order was originated, the buyer was outside the United States or we and any
person acting on our behalf reasonably believed that the buyer was outside the
United States or (b)

 

E-1

 

the
transaction was executed in, on or through the facilities of a designated
offshore securities market, and neither we nor any person acting on our behalf
knows that the transaction was pre-arranged with a buyer in the United States.

 

3.              Neither
we, any of our affiliates, nor any person acting on our or their behalf has
made any directed selling efforts in the United States with respect to the
Notes.

 

4.              The
proposed transfer of Notes is not part of a plan or scheme to evade the registration
requirements of the Securities Act.

 

5.              If
we are a dealer or a person receiving a selling concession, fee or other
remuneration in respect of the Notes, and the proposed transfer takes place
during the Restricted Period (as defined in the Indenture), or we are an
officer or director of the Company or an Initial Purchaser (as defined in the
Indenture), we certify that the proposed transfer is being made in accordance
with the provisions of Rule 904(b) of Regulation S.

 

o              B.                This Certificate relates to our
proposed exchange of $        
principal amount of Notes issued under the Indenture for an equal principal
amount of Notes to be held by us.  We
hereby certify as follows:

 

1.              At
the time the offer and sale of the Notes was made to us, either (i) we were not
in the United States or (ii) we were excluded from the definition of “U.S.
person” pursuant to Rule 902(k)(2)(vi) or the account held by us for which we
were acting was excluded from the definition of “U.S. person” pursuant to Rule
902(k)(2)(i) under the circumstances described in Rule 902(g)(3); and we were
not a member of an identifiable group of U.S. citizens abroad.

 

2.              Unless
the circumstances described in paragraph 1(ii) above are applicable, either (a)
at the time our buy order was originated, we were outside the United States or
(b) the transaction was executed in, on or through the facilities of a
designated offshore securities market and we did not prearrange the transaction
in the United States.

 

3.              The
proposed exchange of Notes is not part of a plan or scheme to evade the
registration requirements of the Securities Act.

 

E-2

 

You and the
Company are entitled to rely upon this Certificate and are irrevocably
authorized to produce this Certificate or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect to
the matters covered hereby.

 

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  SELLER (FOR TRANSFERS)

        OR OWNER (FOR EXCHANGES)]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  
	
   

  
	
  Date:

  	
   

  	
   

  
						

 

E-3

 

EXHIBIT F

 

	
  Rule 144A Certificate

  
	
   

  
	
   

  	
                   ,            

  

 

	
  Wachovia
  Bank, National Association

  	
   

  	
   

  
	
  21 South
  Street

  	
   

  	
   

  
	
  Morristown,
  NJ 07960

  	
   

  	
   

  
	
  Attention:
  Corporate Trust Administration

  	
   

  	
   

  

 

	
  Re:

  	
   

  	
  K. Hovnanian
  Enterprises, Inc.

  
	
   

  	
   

  	
  73⁄4% Senior
  Subordinated Notes due 2013 (the “Notes”)

  
	
   

  	
   

  	
  Issued under
  the Indenture (the “Indenture”)
  dated as

  
	
   

  	
   

  	
  as of May 9,
  2003 relating to the Notes

  

 

Ladies and Gentlemen:

 

TO BE
COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED.

 

This Certificate relates to:

 

[CHECK A OR B AS APPLICABLE.]

 

o               A.              Our
proposed purchase of $
          principal amount of
Notes issued under the Indenture.

 

o               B.                Our proposed exchange of $
          principal amount of
Notes issued under the Indenture for an equal principal amount of Notes to be
held by us.

 

We and, if
applicable, each account for which we are acting, are a qualified institutional
buyer within the meaning of Rule 144A (“Rule 144A”) under the Securities Act of
1933, as amended (the “Securities Act”) If we are acting on behalf of an
account, we exercise sole investment discretion with respect to such account.
We are aware that the transfer of Notes to us, or such exchange, as applicable,
is being made in reliance upon the exemption from the provisions of Section 5
of the Securities Act provided by Rule 144A. Prior to the date of this
Certificate we have received such information regarding the Company as we have
requested pursuant to Rule 144A(d)(4) or have determined not to request such
information.

 

F-1

 

You and the
Company are entitled to rely upon this Certificate and are irrevocably
authorized to produce this Certificate or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect to
the matters covered hereby.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  PURCHASER (FOR

         TRANSFERS) OR OWNER (FOR

         EXCHANGES)]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  
	
   

  
	
  Date:

  	
   

  	
   

  
					

 

F-2

 

EXHIBIT G

 

Institutional Accredited Investor Certificate

 

	
  Wachovia
  Bank, National Association

  
	
  21 South
  Street

  
	
  Morristown,
  NJ 07960

  
	
  Attention:
  Corporate Trust Administration

  
	
   

  
	
   

  	
  Re:

  	
  K. Hovnanian
  Enterprises, Inc.

  
	
   

  	
  73⁄4% Senior
  Subordinated Notes due 2013 (the “Notes”)

  
	
   

  	
  Issued under
  the Indenture (the “Indenture”)
  dated as

  
	
   

  	
  as of May 9,
  2003 relating to the Notes

  

 

Ladies and Gentlemen:

 

This
Certificate relates to:

 

[CHECK A, B OR C AS APPLICABLE.]

 

o                    A.   Our proposed purchase of
$        principal amount of Notes
issued under the Indenture.

 

o                    B.     Our proposed purchase of $
         principal amount of a
beneficial interest in a Global Note

 

o                    C.     Our proposed exchange of $
         principal amount of Notes
issued under the Indenture for an equal principal amount of Notes to be held by
us.

 

We hereby
confirm that:

 

1.                          We are an institutional
“accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) under
the Securities Act of 1933, as amended (the “Securities Act”) (an
“Institutional Accredited Investor”).

 

2.                          Any acquisition of Notes by
us will be for our own account or for the account of one or more other
Institutional Accredited Investors as to which we exercise sole investment
discretion.

 

3.                             We
have such knowledge and experience in financial and business matters that we
are capable of evaluating the merits and risks of an

 

G-1

 

investment in
the Notes and we and any accounts for which we are acting are able to bear the
economic risks of and an entire loss of our or their investment in the Notes.

 

4.                             We are not acquiring the
Notes or beneficial interest therein with a view to any distribution thereof in
a transaction that would violate the Securities Act or the securities laws of
any State of the United States or any other applicable jurisdiction; provided that the disposition of our
property and the property of any accounts for which we are acting as fiduciary
will remain at all times within our and their control.

 

5.                             We
acknowledge that the Notes have not been registered under the Securities Act
and that the Notes may not be offered or sold within the United States or to or
for the benefit of U.S. persons except as set forth below.

 

6.                             The
principal amount of Notes to which this Certificate relates is at least equal
to $250,000.

 

We agree for
the benefit of the Company, on our own behalf and on behalf of each account for
which we are acting, that we will not resell or otherwise transfer this note or
any beneficial interest herein, except (A) to the company or any of its
subsidiaries, (B) to a person whom the we reasonably believes is a QIB
purchasing for its own account or for the account of a QIB in a transaction
meeting the requirements of Rule 144A, (C) in an offshore transaction meeting
the requirements of Rule 903 or 904 of Regulation S of the Securities Act, (D)
in a transaction meeting the requirements of Rule 144 under the Securities Act,
(E) to an IAI that, prior to such transfer, furnishes the Trustee a signed
letter containing certain representations and agreements relating to the
transfer of this Note (the form of which can be obtained from the Trustee) and,
if such transfer is in respect of an aggregate principal amount of less than
$250,000, an opinion of counsel acceptable to the company that such transfer is
in compliance with the Securities Act, (F) in accordance with another exemption
form the registration requirements of the Securities Act (and based upon an
opinion of counsel acceptable to the Company) or (G) pursuant to an effective
Registration Statement, and in each case, in accordance with the applicable
securities laws of any state of the United States or any other applicable jurisdiction.

 

Prior to the
registration of any transfer, we acknowledge that the Company reserves the
right to require the delivery of such legal opinions, certifications or other
evidence as may reasonably be required in order to determine that the proposed
transfer is being made in compliance with the Securities Act and applicable
state securities laws.  We acknowledge
that no representation is made

 

G-2

 

as to the
availability of any Rule 144 exemption from the registration requirements of
the Securities Act.

 

We understand
that the Trustee will not be required to accept for registration of transfer
any Notes acquired by us, except upon presentation of evidence satisfactory to
the Company and the Trustee that the foregoing restrictions on transfer have
been complied with.  We further agree to
provide to any person acquiring any of the Notes or any beneficial interest
therein from us a notice advising such person that resales of the Notes are
restricted as stated herein.

 

We agree to
notify you promptly in writing if any of our acknowledgments, representations
or agreements herein ceases to be accurate and complete.

 

We represent
to you that we have full power to make the foregoing acknowledgments,
representations and agreements on our own behalf and on behalf of any account
for which we are acting.

 

You and the
Company are entitled to rely upon this Certificate and are irrevocably
authorized to produce this Certificate or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect to
the matters covered hereby.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  PURCHASER (FOR

         TRANSFERS) OR OWNER (FOR

         EXCHANGES)]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
					

 

G-3

 

Upon transfer
of certificated Notes, the Notes would be registered in the name of the new
beneficial owner as follows:

 

	
  By:

  	
   

  	
   

  
	
   

  
	
  Date:

  	
   

  	
   

  
	
   

  
	
  Taxpayer ID
  number:

  	
   

  	
   

  
					

 

G-4

 

EXHIBIT H

 

[COMPLETE FORM I OR FORM II AS APPLICABLE.]

 

[FORM I]

 

Certificate of Beneficial Ownership

 

To:                              Wachovia
Bank, National Association

21 South
Street

Morristown, NJ
07960

Attention:
Corporate Trust Administration OR

 

[Euroclear
Bank S.A./N.V., as operator of the Euroclear System] OR

 

[Clearstream
Banking, société anonyme]

 

Re:                               K.
Hovnanian Enterprises, Inc.

73⁄4% Senior
Subordinated Notes due 2013 (the “Notes”)

Issued under
the Indenture (the “Indenture”)
dated as

as of May 9,
2003 relating to the Notes

 

Ladies and
Gentlemen:

 

We are the
beneficial owner of $         
principal amount of Notes issued under the Indenture and represented by a
Regulation S Temporary Global Note (as defined in the Indenture).

 

We hereby
certify as follows:

 

[CHECK A OR B AS APPLICABLE.]

 

	
  o

  	
   

  	
  A.

  	
   

  	
  We are a
  non-U.S. person (within the meaning of Regulation S under the Securities Act
  of 1933, as amended).

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  B.

  	
   

  	
  We are a
  U.S. person (within the meaning of Regulation S under the Securities Act of
  1933, as amended) that purchased the Notes in a transaction that did not
  require registration under the Securities Act of 1933, as amended.

  

 

You and the
Company are entitled to rely upon this Certificate and are irrevocably
authorized to produce this Certificate or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect to
the matters covered hereby.

 

H-1

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  BENEFICIAL OWNER]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  
	
  Date:

  	
   

  	
   

  
					

 

[FORM II]

 

Certificate of Beneficial Ownership

 

To:                             Wachovia
Bank, National Association

21 South Street

Morristown, NJ 07960

Attention: Corporate Trust Administration

 

Re:                              K.
Hovnanian Enterprises, Inc.

73⁄4% Senior Subordinated Notes due 2013 (the “Notes”)

Issued under the Indenture (the “Indenture”)
dated as

as of May 9, 2003 relating to the Notes

 

Ladies and
Gentlemen:

 

This is to certify that based solely on certifications we have received
in writing, by tested telex or by electronic transmission from member
organizations (“Member Organizations”) appearing in our records as persons
being entitled to a portion of the principal amount of Notes represented by a
Regulation S Temporary Global Note issued under the above-referenced Indenture,
that as of the date hereof, $       
principal amount of Notes represented by the Regulation S Temporary Global Note
being submitted herewith for exchange is beneficially owned by persons that are
either (i) non-U.S. persons (within the meaning of Regulation S under the
Securities Act of 1933, as amended) or (ii) U.S. persons that purchased the
Notes in a transaction that did not require registration under the Securities
Act of 1933, as amended.

 

We further certify that (i) we are not submitting herewith for exchange
any portion of such Regulation S Temporary Global Note excepted in such Member
Organization certifications and (ii) as of the date hereof we have not received
any

 

H-2

 

notification
from any Member Organization to the effect that the statements made by such
Member Organization with respect to any portion of such Regulation S Temporary
Global Note submitted herewith for exchange are no longer true and cannot be relied
upon as of the date hereof.

 

You and the
Company are entitled to rely upon this Certificate and are irrevocably
authorized to produce this Certificate or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect to
the matters covered hereby.

 

	
   

  	
  Yours
  faithfully,

  
	
   

  	
   

  
	
   

  	
  [EUROCLEAR
  BANK S.A./N.V., as

          operator of the Euroclear
  System]

  
	
   

  	
   

  
	
   

  	
  OR

  	
   

  
	
   

  	
   

  
	
   

  	
  [CLEARSTREAM
  BANKING, société

        anonyme]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  
	
  Date:

  	
   

  	
   

  
						

 

H-3

 

EXHIBIT
I

 

THIS NOTE IS A TEMPORARY GLOBAL NOTE.  PRIOR TO THE EXPIRATION OF THE RESTRICTED
PERIOD APPLICABLE HERETO, BENEFICIAL INTERESTS HEREIN MAY NOT BE HELD BY ANY
PERSON OTHER THAN (1) A NON-U.S. PERSON OR (2) A U.S. PERSON THAT PURCHASED
SUCH INTEREST IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”).  BENEFICIAL INTERESTS
HEREIN ARE NOT EXCHANGEABLE FOR PHYSICAL NOTES OTHER THAN A PERMANENT GLOBAL
NOTE IN ACCORDANCE WITH THE TERMS OF THE INDENTURE. TERMS IN THIS LEGEND ARE
USED AS USED IN REGULATION S UNDER THE SECURITIES ACT.

 

I-1

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