Document:

Exhibit 4.1

 

 

 

K. HOVNANIAN
ENTERPRISES, INC.

 

Issuer

 

and

 

HOVNANIAN
ENTERPRISES, INC.

 

Guarantor

 

and

 

SUBSIDIARY
GUARANTORS OF HOVNANIAN THAT BECOME PARTIES HERETO

FROM TIME TO TIME

 

Guarantors

 

and

 

 

WACHOVIA BANK,
NATIONAL ASSOCIATION

as Trustee

 

 

INDENTURE

 

 

Dated as of
November 3, 2003

 

SENIOR
INDENTURE

 

 

 

 

CROSS
REFERENCE SHEET*

 

Provisions of
Trust Indenture Act of 1939 and Indenture to be dated as of November 3, 2003
among K. HOVNANIAN ENTERPRISES, INC., HOVNANIAN ENTERPRISES, INC., SUBSIDIARY
GUARANTORS OF HOVNANIAN that become parties hereto from time to time and
Wachovia Bank, National Association, as Trustee:

 

	
  Section of the Act

  	
   

  	
  Section of
  Indenture

  
	
   

  	
   

  	
   

  
	
  310(a)(1), (2)
  and (5)

  	
   

  	
  6.9

  
	
  310(a)(3) and
  (4)

  	
   

  	
  Inapplicable

  
	
  310(b)

  	
   

  	
  6.8 and 6.10(a),
  (b) and (d)

  
	
  310(c)

  	
   

  	
  Inapplicable

  
	
  311(a)

  	
   

  	
  6.13

  
	
  311(b)

  	
   

  	
  6.13

  
	
  311(c)

  	
   

  	
  Inapplicable

  
	
  312(a)

  	
   

  	
  4.1 and 4.2(a)

  
	
  312(b)

  	
   

  	
  4.2(a) and
  (b)(i) and (ii)

  
	
  312(c)

  	
   

  	
  4.2(c)

  
	
  313(a)

  	
   

  	
  4.4(a)(i), (ii),
  (iii), (iv), (v), (vi) and (vii)

  
	
  313(b)(1)

  	
   

  	
  Inapplicable

  
	
  313(b)(2)

  	
   

  	
  4.4(a) and (b)

  
	
  313(c)

  	
   

  	
  4.4(b)

  
	
  313(d)

  	
   

  	
  4.4(b)

  
	
  314(a)

  	
   

  	
  4.3

  
	
  314(b)

  	
   

  	
  Inapplicable

  
	
  314(c)(1) and
  (2)

  	
   

  	
  11.5

  
	
  314(c)(3)

  	
   

  	
  Inapplicable

  
	
  314(d)

  	
   

  	
  Inapplicable

  
	
  314(e)

  	
   

  	
  11.5

  
	
  314(f)

  	
   

  	
  Inapplicable

  
	
  315(a), (c) and
  (d)

  	
   

  	
  6.1

  
	
  315(b)

  	
   

  	
  5.8

  
	
  315(e)

  	
   

  	
  5.9

  
	
  316(a)(1)

  	
   

  	
  5.7

  
	
  316(a)(2)

  	
   

  	
  Not required

  
	
  316(a) (last
  sentence)

  	
   

  	
  7.4

  
	
  316(b)

  	
   

  	
  5.4

  
	
  317(a)

  	
   

  	
  5.2

  
	
  317(b)

  	
   

  	
  3.5(a)

  
	
  318(a)

  	
   

  	
  11.7

  

 

*This Cross
Reference Sheet is not part of the Indenture.

 

 

TABLE OF CONTENTS

 

	
  ARTICLE
  One DEFINITIONS

  
	
   

  
	
  SECTION
  1.1.   Definitions

  
	
   

  
	
  ARTICLE
  Two SECURITIES

  
	
   

  
	
  SECTION
  2.1.   Forms Generally

  
	
  SECTION
  2.2.   Form of Trustee’s Certificate of Authentication

  
	
  SECTION
  2.3.   Amount Unlimited, Issuable in Series

  
	
  SECTION
  2.4.   Authentication and Delivery of Securities

  
	
  SECTION
  2.5.   Execution of Securities

  
	
  SECTION
  2.6.   Certificate of Authentication

  
	
  SECTION
  2.7.   Denomination and Date of Securities; Payments of Interest

  
	
  SECTION
  2.8.   Registration, Transfer and Exchange

  
	
  SECTION
  2.9.   Mutilated, Defaced, Destroyed, Lost and Stolen Securities

  
	
  SECTION
  2.10.   Cancellation of Securities; Disposition Thereof

  
	
  SECTION
  2.11.   Temporary Securities

  
	
  SECTION
  2.12.   CUSIP Numbers

  
	
   

  
	
  ARTICLE
  Three COVENANTS

  
	
   

  
	
  SECTION
  3.1.   Payment of Principal and Interest

  
	
  SECTION
  3.2.   Offices for Notices and Payments, etc.

  
	
  SECTION
  3.3.   No Interest Extension

  
	
  SECTION
  3.4.   Appointments to Fill Vacancies in Trustee’s Office

  
	
  SECTION
  3.5.   Provision as to Paying Agent

  
	
  SECTION
  3.6.   Limitation on Liens

  
	
   

  
	
  ARTICLE
  Four SECURITYHOLDERS LISTS AND REPORTS BY THE ISSUER, Hovnanian AND THE
  TRUSTEE

  
	
   

  
	
  SECTION
  4.1.   Issuer and Hovnanian to Furnish Trustee Information as to
  Names and Addresses of Securityholders

  
	
  SECTION
  4.2.   Preservation and Disclosure of Securityholders Lists

  
	
  SECTION
  4.3.   Reports by the Issuer and Hovnanian

  
	
  SECTION
  4.4.   Reports by the Trustee

  
	
   

  
	
  ARTICLE
  Five REMEDIES OF THE TRUSTEE AND SECURITY HOLDERS ON EVENT OF DEFAULT

  
	
   

  
	
  SECTION
  5.1.   Events of Default

  
	
  SECTION
  5.2.   Payment of Securities on Default; Suit Therefor

  
	
  SECTION
  5.3.   Application of Moneys Collected by Trustee

  
	
  SECTION
  5.4.   Proceedings by Securityholders

  
	
  SECTION
  5.5.   Proceedings by Trustee

  
	
  SECTION
  5.6.   Remedies Cumulative and Continuing

  

 

 

	
  SECTION
  5.7.   Direction of Proceedings; Waiver of Defaults by Majority of
  Securityholders

  
	
  SECTION
  5.8.   Notice of Defaults

  
	
  SECTION
  5.9.   Undertaking to Pay Costs

  
	
   

  
	
  ARTICLE
  Six CONCERNING THE TRUSTEE

  
	
   

  
	
  SECTION
  6.1.   Duties and Responsibilities of the Trustee; During Default;
  Prior to Default

  
	
  SECTION
  6.2.   Certain Rights of the Trustee.

  
	
  SECTION
  6.3.   Trustee Not Responsible for Recitals, Disposition of
  Securities or Application of Proceeds Thereof

  
	
  SECTION
  6.4.   Trustee and Agents May Hold Securities; Collections, etc.

  
	
  SECTION
  6.5.   Moneys Held by Trustee

  
	
  SECTION
  6.6.   Compensation and Indemnification of Trustee and Its Prior
  Claim

  
	
  SECTION
  6.7.   Right of Trustee to Rely on Officers’ Certificate, etc.

  
	
  SECTION
  6.8.   Qualification of Trustee; Conflicting Interests

  
	
  SECTION
  6.9.   Persons Eligible for Appointment as Trustee; Different
  Trustees for Different Series

  
	
  SECTION
  6.10.   Resignation and Removal; Appointment of Successor Trustee

  
	
  SECTION
  6.11.   Acceptance of Appointment by Successor Trustee

  
	
  SECTION
  6.12.   Merger, Conversion, Consolidation or Succession to Business
  of Trustee

  
	
  SECTION
  6.13.   Preferential Collection of Claims Against the Issuer

  
	
  SECTION
  6.14.   Appointment of Authenticating Agent

  
	
   

  
	
  ARTICLE
  Seven CONCERNING THE SECURITYHOLDERS

  
	
   

  
	
  SECTION
  7.1.   Evidence of Action Taken by Securityholders

  
	
  SECTION
  7.2.   Proof of Execution of Instruments and of Holding of
  Securities

  
	
  SECTION
  7.3.   Holders to be Treated as Owners

  
	
  SECTION
  7.4.   Securities Owned by Issuer Deemed Not Outstanding

  
	
  SECTION
  7.5.   Right of Revocation of Action Taken

  
	
  SECTION
  7.6.   Record Date for Consents and Waivers

  
	
   

  
	
  ARTICLE
  Eight SUPPLEMENTAL INDENTURES

  
	
   

  
	
  SECTION
  8.1.   Supplemental Indentures Without Consent of Securityholders

  
	
  SECTION
  8.2.   Supplemental Indentures with Consent of Securityholders

  
	
  SECTION
  8.3.   Effect of Supplemental Indenture

  
	
  SECTION
  8.4.   Documents to Be Given to Trustee

  
	
  SECTION
  8.5.   Notation on Securities in Respect of Supplemental Indentures

  
	
   

  
	
  ARTICLE
  Nine CONSOLIDATION, MERGER, SALE, LEASE, EXCHANGE OR OTHER DISPOSITION

  
	
   

  
	
  SECTION
  9.1.   Consolidate Permitted, etc., on Certain Terms

  

 

ii

 

	
  SECTION
  9.2.   Successor Corporation to be Substituted

  
	
  SECTION
  9.3.   Opinion of Counsel to be Given Trustee

  
	
   

  
	
  ARTICLE
  Ten LEGAL DEFEASANCE AND COVENANT DEFEASANCE

  
	
   

  
	
  SECTION
  10.1.   Applicability of Article

  
	
  SECTION
  10.2.   Legal Defeasance And Discharge

  
	
  SECTION
  10.3.   Covenant Defeasance

  
	
  SECTION
  10.4.   Conditions To Legal Or Covenant Defeasance

  
	
  SECTION
  10.5.   Deposited Money And Government Securities To Be Held In
  Trust; Other Miscellaneous Provisions

  
	
  SECTION
  10.6.   Repayment To Issuer

  
	
  SECTION
  10.7.   Reinstatement

  
	
  SECTION
  10.8.   Survival

  
	
  SECTION
  10.9.   Satisfaction and Discharge of Indenture

  
	
   

  
	
  ARTICLE
  Eleven MISCELLANEOUS PROVISIONS

  
	
   

  
	
  SECTION
  11.1.   Partners, Incorporators, Stockholders, Officers and
  Directors of Issuer Exempt from Individual Liability

  
	
  SECTION
  11.2.   Provisions of Indenture for the Sole Benefit of Parties and
  Holders of Securities

  
	
  SECTION
  11.3.   Successors and Assigns of Issuer Bound by Indenture

  
	
  SECTION
  11.4.   Notices and Demands on Issuer, Trustee and Holders of
  Securities

  
	
  SECTION
  11.5.   Officers’ Certificates and Opinions of Counsel; Statements
  to Be Contained Therein

  
	
  SECTION
  11.6.   Payments Due on Saturdays, Sundays and Holidays

  
	
  SECTION
  11.7.   Conflict of Any Provision of Indenture with Trust Indenture
  Act of 1939

  
	
  SECTION
  11.8.   GOVERNING LAW

  
	
  SECTION
  11.9.   Counterparts

  
	
  SECTION
  11.10.   Effect of Headings

  
	
  SECTION
  11.11.   No Adverse Interpretation of Other Agreements.

  
	
   

  
	
  ARTICLE
  Twelve REDEMPTION OF SECURITIES AND SINKING FUNDS

  
	
   

  
	
  SECTION
  12.1.   Applicability of Article

  
	
  SECTION
  12.2.   Notice of Redemption; Partial Redemptions

  
	
  SECTION
  12.3.   Payment of Securities Called for Redemption

  
	
  SECTION
  12.4.   Exclusion of Certain Securities from Eligibility for
  Selection for Redemption

  
	
  SECTION
  12.5.   Mandatory and Optional Sinking Funds

  
	
   

  
	
  ARTICLE
  Thirteen GUARANTEES

  
	
   

  
	
  SECTION
  13.1.   Applicability of Article

  
	
  SECTION
  13.2.   Guarantee

  

 

iii

 

	
  SECTION
  13.3.   Obligations of the Guarantor Unconditional

  
	
  SECTION
  13.4.   Article 13 Not To Prevent Events of Default

  
	
  SECTION
  13.5.   Execution and Delivery of Guarantee

  
	
  SECTION
  13.6.   Limitation on Guarantor Liability.

  
	
   

  
	
  ARTICLE
  Fourteen

  
	
   

  
	
  SECTION
  14.1.   Release of the Issuer.

  

 

iv

 

SENIOR
INDENTURE

 

SENIOR
INDENTURE, dated as of November 3, 2003 among K. Hovnanian Enterprises, Inc., a
California corporation (the “Issuer”), Hovnanian Enterprises, Inc., a Delaware
Corporation (“Hovnanian”), Subsidiary Guarantors of Hovnanian that become
parties hereto from time to time and Wachovia Bank, National Association, as
trustee (the “Trustee”).

 

RECITALS OF
THE ISSUER:

 

WHEREAS, the
Issuer has duly authorized the issuance from time to time of its unsecured and
unsubordinated debentures, notes or other evidences of indebtedness to be
issued in one or more series (the “Securities”) up to such principal amount or
amounts as may from time to time be authorized in accordance with the terms of
this Indenture; and

 

WHEREAS, the
Issuer has duly authorized the execution and delivery of this Indenture to
provide, among other things, for the authentication, delivery and
administration of the Securities; and

 

WHEREAS, all
things necessary to make this Indenture a valid indenture and agreement
according to its terms have been undertaken and completed.

 

RECITALS OF GUARANTORS:

 

WHEREAS, each
Guarantor desires to make the Guarantees provided for herein; and

 

WHEREAS, all
things necessary to make this Indenture a valid agreement of each of the Guarantors,
in accordance with its terms, have been done and the Guarantor will do all
things necessary to make the Guarantees, when executed by each of the
Guarantors and endorsed on the Securities authenticated and delivered
hereunder, the valid obligations of each Guarantor as hereinafter provided.

 

NOW,
THEREFORE, THIS INDENTURE WITNESSETH:

 

For and in
consideration of the premises and the purchase of the Securities by the Holders
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities or of series thereof, as follows:

 

ARTICLE ONE

DEFINITIONS

 

SECTION 1.1.  Definitions.  For all purposes of this Indenture and of
any indenture supplemental hereto the following terms shall have the respective
meanings specified in this Section 1.1 (except as otherwise expressly provided
herein or in any indenture supplemental hereto or unless the context otherwise
clearly requires).  All other terms used
in this Indenture that are defined in the Trust Indenture Act of 1939,
including terms defined therein by reference to the Securities Act of 1933, as
amended (the “Securities Act”), shall have the meanings assigned to such terms
in said Trust Indenture Act of 1939 and in the Securities Act as in force at
the date of this Indenture (except as herein otherwise expressly provided
herein or in any indenture supplemental hereto or unless the context otherwise
clearly requires).

 

 

All accounting
terms used herein and not expressly defined shall have the meanings assigned to
such terms in accordance with generally accepted accounting principles, and the
term “generally accepted accounting
principles” means such accounting principles as are generally
accepted on the date of this Indenture.

 

The words “herein”, “hereof”
and “hereunder” and other words
of similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision. 
The expressions “date of this
Indenture”, “date hereof”,
“date as of which this Indenture is dated”
and “date of execution and delivery of this
Indenture” and other expressions of similar import refer to the
effective date of the original execution and delivery of this Indenture, viz. as of November 3, 2003.

 

The terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular.

 

“Affiliate” of any specified Person means
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person.  For the purposes of this definition,
“control” when used with respect to any specified 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.

 

“Authenticating Agent” shall have the
meaning set forth in Section 6.14.

 

“Bankruptcy Code” means the United States
Bankruptcy Code, 11 United States Code §§ 101 et seq., or any successor statute
thereto.

 

“Board of Directors” means when used with
reference to the Issuer or Hovnanian, as the case may be, the board of
directors or any duly authorized committee of that board or any director or
directors and/or officer or officers to whom that board or committee shall have
duly delegated its authority.

 

“Board Resolution” means (1) one or more
resolutions, certified by the secretary or an assistant secretary of the Issuer
or Hovnanian, as applicable, to have been duly adopted or consented to by the
Board of Directors of the Issuer or Hovnanian, as applicable, and to be in full
force and effect, or (2) a certificate signed by the director or directors
and/or officer or officers to whom the Board of Directors or any duly
authorized committee of that Board shall have duly delegated its authority, in
each case delivered to the Trustee for the Securities of any series.

 

“Business Day” means, with respect to any
Security, unless otherwise specified in a Board Resolution and an Officers’
Certificate with respect to a particular series of Securities, a day that (a)
in the Place of Payment (or in any of the Places of Payment, if more than one)
in which amounts are payable, as specified in the form of such Security, and
(b) in the city in which the Corporate Trust Office is located, is not a day on
which banking institutions are authorized or required by law or regulation to
close.

 

“Commission” means the Securities and
Exchange Commission, as from time to time constituted, created under the
Securities Exchange Act of 1934, as amended, or, if at any time

 

2

 

after the
execution and delivery of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act of 1939,
then the body performing such duties on such date.

 

“Consolidated Net Tangible Assets” means
the aggregate amount of assets included on the most recent consolidated balance
sheet of the Issuer and its Restricted Subsidiaries, less applicable reserves
and other properly deductible items and after deducting therefrom (a) all
current liabilities and (b) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all in
accordance with generally accepted accounting principles consistently applied.

 

“Corporate Trust Office” means the office
of the Trustee of a series of Securities at which the trust created by this
Indenture shall, at any particular time, be principally administered, which
office is, at the date as of which this Indenture is dated, located at 21 South
Street, Morristown, New Jersey 07960.

 

“Covenant Defeasance” has the meaning set
forth in Section 10.3.

 

“Depositary” means, with respect to the
Securities of any series issuable or issued in the form of one or more Global
Securities, the Person designated as Depositary by the Issuer pursuant to
Section 2.3 until a successor Depositary shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter “Depositary” shall mean
or include each Person who is then a Depositary hereunder, and, if at any time
there is more than one such Person, “Depositary” as used with respect to the
Securities of any such series shall mean the Depositary with respect to the
Global Securities of such series.

 

“Dollars” and the sign “$” means the coin and currency of the
United States of America as at the time of payment is legal tender for the
payment of public and private debts.

 

“Eligible Guarantors” means Hovnanian, each
of Hovnanian’s subsidiaries listed on Exhibit B hereto and each other
subsidiary of Hovnanian that Guarantees a series of Securities established
under this Indenture.

 

“Event of Default” means any event or
condition specified as such in Section 5.1.

 

“Exchange Act” means the Securities
Exchange Act of 1934, as amended.

 

“Global Security” means a Security
evidencing all or a part of a series of Securities issued to the Depositary for
such series in accordance with Section 2.3 and bearing the legend prescribed in
Section 2.4.

 

“Guarantee” has the meaning specified in
Section 13.2.

 

“Guarantor” has the meaning specified in
Section 2.3.

 

“Holder”, “Holder
of Securities”, “Securityholder”
or other similar terms mean, in the case of any Security, the Person in whose
name such Security is registered in the security register kept by the Issuer
for that purpose in accordance with the terms hereof.

 

3

 

“Hovnanian” means Hovnanian Enterprises,
Inc., a Delaware corporation.

 

“Indebtedness” with respect to any Person
means, without duplication:

 

(a)   (i)  the principal of and premium, if any, and
interest, if any, on indebtedness for money borrowed of such Person,
indebtedness of such Person evidenced by bonds, notes, debentures or similar
obligations, and any guaranty by such Person of any indebtedness for money
borrowed or indebtedness evidenced by bonds, notes, debentures or similar
obligations of any other Person, whether any such indebtedness or guaranty is
outstanding on the date of this Indenture or is thereafter created, assumed or
incurred, (ii) obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker’s acceptance or similar credit transaction;
(iii) the principal of and premium, if any, and interest, if any, on
indebtedness incurred, assumed or guaranteed by such Person in connection with
the acquisition by it or any of its subsidiaries of any other businesses,
properties or other assets; (iv) lease obligations which such Person
capitalizes in accordance with Statement of Financial Accounting Standards No.
13 promulgated by the Financial Accounting Standards Board or such other
generally accepted accounting principles as may be from time to time in effect;
(v) any indebtedness of such Person representing the balance deferred and
unpaid of the purchase price of any property or interest therein (except any
such balance that constitutes an accrued expense or trade payable) and any
guaranty, endorsement or other contingent obligation of such Person in respect
of any indebtedness of another that is outstanding on the date of this
Indenture or is thereafter created, assumed or incurred by such Person; and
(vi) obligations of such Person under interest rate, commodity or currency
swaps, caps, collars, options and similar arrangements; and

 

(b)   any
amendments, modifications, refundings, renewals or extensions of any
indebtedness or obligation described as Indebtedness in clause (a) above.

 

“Indenture” means this instrument as
originally executed and delivered or, if amended or supplemented as herein
provided, as so amended or supplemented or both, including, for all purposes of
this instrument and any such supplement, the provisions of the Trust Indenture Act
of 1939 that are deemed to be a part of and govern this instrument and any such
supplement, respectively, and shall include the forms and terms of particular
series of Securities established as contemplated hereunder.

 

“interest” means, when used with respect to
non-interest bearing Securities (including, without limitation, any Original
Issue Discount Security that by its terms bears interest only after maturity or
upon default in any other payment due on such Security), interest payable after
maturity (whether at stated maturity, upon acceleration or redemption or
otherwise) or after the date, if any, on which the Issuer becomes obligated to
acquire a Security, whether upon conversion, by purchase or otherwise.

 

“Issuer” means K. Hovnanian Enterprises,
Inc., a California corporation, and, subject to Article Nine, its successors
and assigns.

 

4

 

“Issuer Order” means a written statement,
request or order of the Issuer, which is signed in its name by the chairman of
the Board of Directors, the chief financial officer, the president or chief
executive officer, any vice president or the treasurer of the Issuer, and
delivered to the Trustee.

 

“Legal Defeasance” has the meaning
specified in Section 10.2.

 

“Officers’ Certificate”, when used with
respect to the Issuer or Hovnanian, means a certificate signed by the chairman
of the Board of Directors, the president or chief executive officer, or any
vice president and by the chief financial officer, the treasurer, any assistant
treasurer, the controller, any assistant controller, the secretary or any
assistant secretary of the Issuer or Hovnanian, as the case may be.  Each such certificate shall include the
statements provided for in Section 11.5 if and to the extent required by the
provisions of such Section 11.5. One of the officers signing an Officers’
Certificate given pursuant to Section 4.3 shall be the principal executive,
financial or accounting officer of the Issuer or Hovnanian, as the case may be.

 

“Opinion of Counsel” means an opinion in
writing signed by the chief counsel of the Issuer or Hovnanian or by such other
legal counsel who may be an employee of or counsel to the Issuer or Hovnanian
and who shall be reasonably satisfactory to the Trustee.  Each such opinion shall include the
statements provided for in Section 11.5, if and to the extent required by the
provisions of such Section 11.5.

 

“original issue date” of any Security (or
portion thereof) means the earlier of (a) the date of such Security or (b) the
date of any Security (or portion thereof) for which such Security was issued
(directly or indirectly) on registration of transfer, exchange or substitution.

 

“original issue discount” of any debt
security, including any Original Issue Discount Security, means the difference
between the principal amount of such debt security and the initial issue price
of such debt security (as set forth in the case of an Original Issue Discount
Security on the face of such Security).

 

“Original Issue Discount Security” means
any Security that provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration of the maturity
thereof pursuant to Article Five.

 

“Outstanding” when used with reference to
Securities, shall, subject to the provisions of Section 7.4, mean, as of any
particular time, all Securities authenticated and delivered by the Trustee
under this Indenture, except:

 

(a)   Securities
theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;

 

(b)   Securities
(other than Securities of any series as to which the provisions of Article Ten
hereof shall not be applicable), or portions thereof, for the payment or
redemption of which moneys or U.S. Government Obligations (as provided for in
Section 10.1) in the necessary amount shall have been deposited in trust with
the Trustee or with any paying agent (other than the Issuer) or shall have been
set aside, segregated and held

 

5

 

in trust by
the Issuer for the Holders of such Securities (if the Issuer shall act as its
own paying agent), provided that, if such Securities, or portions thereof, are
to be redeemed prior to the maturity thereof, notice of such redemption shall
have been given as herein provided, or provision satisfactory to the Trustee
shall have been made for giving such notice; and

 

(c)   Securities
which shall have been paid or in substitution for which other Securities shall
have been authenticated and delivered pursuant to the terms of Section 2.9
(except with respect to any such Security as to which proof satisfactory to the
Trustee is presented that such Security is held by a Person in whose hands such
Security is a legal, valid and binding obligation of the Issuer).

 

In determining
whether the Holders of the requisite aggregate principal amount of Outstanding
Securities of any or all series have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, the principal amount of an
Original Issue Discount Security that shall be deemed to be Outstanding for
such purposes shall be the portion of the principal amount thereof that would
be due and payable as of the date of such determination (as certified by the
Issuer to the Trustee) upon a declaration of acceleration of the maturity
thereof pursuant to Article Five.

 

“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 Securities.

 

“Periodic Offering” means an offering of
Securities of a series from time to time, the specific terms of which
Securities, including, without limitation, the rate or rates of interest, if
any, thereon, the stated maturity or maturities thereof and the redemption
provisions, if any, with respect thereto, are to be determined by the Issuer or
its agents upon the issuance of such Securities.

 

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

 

“Place of Payment”, when used with respect
to the Securities of any series, means the place or places where the principal
of and interest, if any, on the Securities of such series are payable as
determined in accordance with Section 2.3.

 

“principal” of a debt security, including
any Security, means the amount (including, without limitation, if and to the
extent applicable, any premium and, in the case of an Original Issue Discount
Security, any accrued original issue discount, but excluding interest) that is
payable with respect to such debt security as of any date and for any purpose
(including, without limitation, in connection with any sinking fund, if any,
upon any redemption at the option of the Issuer, upon any purchase or exchange
at the option of the Issuer or the holder of such debt security and upon any
acceleration of the maturity of such debt security).

 

“principal amount” of a debt security,
including any Security, means the principal amount as set forth on the face of
such debt security.

 

6

 

“record date” shall have the meaning set
forth in Section 2.7.

 

“Responsible Officer”, when used with
respect to the Trustee of a series of Securities, means any officer of the
Trustee with direct responsibility for the administration of the trust created
by this Indenture.

 

“Restricted Subsidiary” means (a) any
Subsidiary of the Issuer other than an Unrestricted Subsidiary, and (b) any
Subsidiary of the Issuer which was an Unrestricted Subsidiary but which,
subsequent to the date hereof, is designated by the Issuer (by Board
Resolution) to be a Restricted Subsidiary; provided,
however, that the Issuer may not designate any such Subsidiary to be
a Restricted Subsidiary if the Issuer would thereby breach any covenant or
agreement herein contained (on the assumptions that any outstanding
Indebtedness of such Subsidiary was incurred at the time of such designation).

 

“Securities Act” shall have the meaning set
forth in Section 1.1.

 

“Security” or “Securities” has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture; provided, however that if at any time there is
more than one Person acting as Trustee under this Instrument, “Securities” with
respect to the Indenture as to which such Person is Trustee shall have the
meaning stated in the first recital of this instrument and shall more particularly
mean Securities authenticated and delivered under this instrument, exclusive,
however, of Securities of any series as to which such Person is not Trustee.

 

“Significant Subsidiary” means any
Subsidiary which is a “significant subsidiary” of the Issuer within the meaning
of Rule 1.02(w) of Regulation S-K promulgated by the Commission as in effect on
the date of this Indenture.

 

“Subsidiary” of any specified Person means
any corporation of which such Person, or such Person and one or more Subsidiaries
of such Person, or any one or more Subsidiaries of such Person, directly or
indirectly own voting securities entitling any one or more of such Persons and
its Subsidiaries to elect a majority of the directors, either at all times or,
so long as there is no default or contingency which permits the holders of any
other class or classes of securities to vote for the election of one or more
directors.

 

“Trust Indenture Act of 1939” (except as
otherwise provided in Sections 8.1 and 8.2) means the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, as in force at the
date as of which this Indenture is originally executed.

 

“Trustee” means the Person identified as
“Trustee” in the first paragraph hereof and, subject to the provisions of
Article Six, shall also include any successor trustee.  “Trustee” shall also mean or include each
Person who is then a trustee hereunder and, if at any time there is more than
one such Person, “Trustee” as used with respect to the Securities of any series
shall mean the trustee with respect to the Securities of such series.

 

“Unrestricted Subsidiary” means (a) any
Subsidiary of the Issuer acquired or organized after the date hereof, provided, however, that such Subsidiary
shall not be a successor, directly or indirectly, to any Restricted Subsidiary,
and (b) any Subsidiary of the Issuer substantially all the

 

7

 

assets of
which consist of stock or other securities of a Subsidiary or Subsidiaries of
the character described in clause (a) of this paragraph, unless and until such
Subsidiary shall have been designated to be a Restricted Subsidiary pursuant to
clause (b) of the definition of “Restricted
Subsidiary”.

 

“U.S. Government Obligations” means non-callable,
non-payable bonds, notes, bills or other similar obligations issued or
guaranteed by the United States government or any agency thereof the full and
timely payment of which are backed by the full faith and credit of the United
States.

 

“vice president,” when used with respect to
the Issuer or the Trustee, means any vice president, regardless of whether
designated by a number or a word or words added before or after the title “vice
president.”

 

“Yield to Maturity” means the yield to
maturity on a series of Securities, calculated at the time of issuance of such
series, or, if applicable, at the most recent redetermination of interest on
such series, and calculated in accordance with generally accepted financial
practice or as otherwise provided in the terms of such series of Securities.

 

ARTICLE TWO

SECURITIES

 

SECTION 2.1 
Forms Generally.  The Securities of each series shall be
substantially in such form (not inconsistent with this Indenture) as shall be
established by or pursuant to one or more Board Resolutions (as set forth in a
Board Resolution or, to the extent established pursuant to rather than set
forth in a Board Resolution, an Officers’ Certificate detailing such
establishment) or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have imprinted or
otherwise reproduced thereon such legend or legends or endorsements, not
inconsistent with the provisions of this Indenture, as may be required to
comply with any law or with any rules or regulations pursuant thereto, or with
any rules of any securities exchange or to conform to general usage, all as may
be determined by the officers executing such Securities, as evidenced by their
execution of such Securities.

 

The definitive
Securities shall be printed, lithographed or engraved on steel engraved borders
or may be produced in any other manner, all as determined by the officers
executing such Securities as evidenced by their execution of such Securities.

 

SECTION 2.2  Form of Trustee’s Certificate of Authentication.  The Trustee’s certificate of authentication
on all Securities shall be substantially as follows:

 

This is one of
the Securities of the series designated herein referred to in the within
mentioned Indenture.

 

                                 ,
as Trustee

 

8

 

	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
    Authorized Signatory

  

 

If at any time
there shall be an Authenticating Agent appointed with respect to any series of
Securities, then the Securities of such series shall bear, in addition to the
Trustee’s certificate of authentication, an alternate Certificate of
Authentication which shall be substantially as follows:

 

This is one of
the Securities of the series designated herein referred to in the within
mentioned Indenture.

 

                                 ,
as Trustee

 

 

	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
    as Authenticating Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
    Authorized Signatory

  

 

SECTION 2.3. 
Amount Unlimited, Issuable in Series.  The aggregate principal amount of Securities
which may be authenticated and delivered under this Indenture is unlimited.

 

The Securities
may be issued in one or more series and the Securities of each such series
shall rank equally and pari passu
with the Securities of each other series and with all other unsecured and
unsubordinated debt of the Issuer. 
There shall be established in or pursuant to one or more Board
Resolutions (and, to the extent established pursuant to rather than set forth
in a Board Resolution, in an Officers’ Certificate detailing such
establishment) or established in one or more indentures supplemental hereto,
prior to the initial issuance of Securities of any series:

 

(1)   the
designation of the Securities of the series, which shall distinguish the
Securities of such series from the Securities of all other series;

 

(2)   any
limit upon the aggregate principal amount of the Securities of the series that
may be authenticated and delivered under this Indenture (except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities of the series pursuant to Section 2.8,
2.9, 2.11, 8.5 or 12.3);

 

(3)   the
date or dates on which the principal of the Securities of the series is
payable;

 

(4)   the
rate or rates at which the Securities of the series shall bear interest, if
any, the date or dates from which any such interest shall accrue, on which any
such interest

 

9

 

shall be payable and on which a record shall be taken for the
determination of Holders to whom any such interest is payable or the method by
which such rate or rates or date or dates shall be determined or both;

 

(5)   the
place or places where and the manner in which the principal of, premium, if
any, and interest, if any, on Securities of the series shall be payable (if
other than as provided in Section 3.2) and the office or agency for the
Securities of the series maintained by the Issuer pursuant to Section 3.2;

 

(6)   the
right, if any, of the Issuer to redeem, purchase or repay Securities of the
series, in whole or in part, at its option and the period or periods within
which, the price or prices (or the method by which such price or prices shall
be determined or both) at which, the form or method of payment therefor if
other than in cash and any terms and conditions upon which and the manner in
which (if different from the provisions of Article Twelve) Securities of the
series may be so redeemed, purchased or repaid, in whole or in part, pursuant
to any sinking fund or otherwise;

 

(7)   the
obligation, if any, of the Issuer to redeem, purchase or repay Securities of
the series in whole or in part pursuant to any mandatory redemption, sinking
fund or analogous provisions or at the option of a Holder thereof and the
period or periods within which the price or prices (or the method by which such
price or prices shall be determined or both) at which, the form or method of
payment therefor if other than in cash and any terms and conditions upon which
and the manner in which (if different from the provisions of Article Twelve)
Securities of the series shall be redeemed, purchased or repaid, in whole or in
part, pursuant to such obligation;

 

(8)   if
other than denominations of $1,000 and any integral multiple thereof, the
denominations in which Securities of the series shall be issuable;

 

(9)   if
other than the principal amount thereof, the portion of the principal amount of
Securities of the series which shall be payable upon acceleration of the
maturity thereof;

 

(10)         whether Securities of
the series will be issuable as Global Securities;

 

(11)         if the Securities of
such series are to be issuable in definitive form (whether upon original issue
or upon exchange of a temporary Security of such series) only upon receipt of
certain certificates or other documents or satisfaction of other conditions,
the form and terms of such certificates, documents or conditions;

 

(12)         any trustees,
depositaries, authenticating or paying agents, transfer agents or registrars or
any other agents with respect to the Securities of such series;

 

(13)         any deleted, modified
or additional events of default or remedies or any deleted, modified or
additional covenants with respect to the Securities of such series;

 

(14)         whether the
provisions of Article Ten will not be applicable to Securities of such series;

 

10

 

(15)         any provision
relating to the issuance of Securities of such series at an original issue discount
(including, without limitation, the issue price thereof, the rate or rates at
which such original issue discount shall accrete, if any, and the date or dates
from or to which or period or periods during which such original issue discount
shall accrete at such rate or rates);

 

(16)         if other than
Dollars, the foreign currency in which payment of the principal of, premium, if
any, and interest, if any, on the Securities of such series shall be payable;

 

(17)         if other than
Wachovia Bank, National Association is to act as Trustee for the Securities of
such series, the name and Corporate Trust Office of such Trustee;

 

(18)         if the amounts of
payments of principal of, premium, if any, and interest, if any, on the
Securities of such series are to be determined with reference to an index, the
manner in which such amounts shall be determined;

 

(19)         the terms for
conversion or exchange, if any, with respect to the Securities of such series;

 

(20)         which, if any, of the
Eligible Guarantors, in addition to Hovnanian, shall guarantee the Securities
on the terms set forth in Article Thirteen (Hovnanian, together with each of
the other Eligible Guarantors that guarantee the Securities on the terms set
forth in Article Thirteen, if any, a “Guarantor”); and

 

(21)         any other terms of
the series (which terms shall not be inconsistent with the provisions of this
Indenture).

 

All Securities
of any one series shall be substantially identical, except as to denomination
and except as may otherwise be provided by or pursuant to the Board Resolution
or Officers’ Certificate referred to above or as set forth in any such
indenture supplemental hereto.  All
Securities of any one series need not be issued at the same time and may be
issued from time to time, consistent with the terms of this Indenture, if so
provided by or pursuant to such Board Resolution, such Officers’ Certificate or
in any such indenture supplemental hereto.

 

Any such Board
Resolution or Officers’ Certificate referred to above with respect to
Securities of any series filed with the Trustee on or before the initial
issuance of the Securities of such series shall be incorporated herein by
reference with respect to Securities of such series and shall thereafter be
deemed to be a part of the Indenture for all purposes relating to Securities of
such series as fully as if such Board Resolution or Officers’ Certificate were
set forth herein in full.

 

SECTION 2.4. 
Authentication and Delivery of
Securities.  The Issuer may
deliver Securities of any series executed by the Issuer to the Trustee for
authentication together with the applicable documents referred to below in this
Section 2.4, and the Trustee shall thereupon authenticate and deliver such
Securities to, or upon the order of, the Issuer (contained in the Issuer Order
referred to below in this Section 2.4) or pursuant to such procedures
acceptable to the Trustee and to such recipients as may be specified from time
to time by an Issuer Order.  If

 

11

 

provided for
in such procedures and agreed to by the Trustee, such Issuer Order may
authorize authentication and delivery pursuant to oral instructions from the
Issuer or its duly authorized agent, which instructions shall be promptly
confirmed in writing.  In authenticating
the Securities of such series and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive (in the case of subparagraphs (2), (3) and (4) below only
at or before the time of the first request of the Issuer to the Trustee to
authenticate Securities of such series) and (subject to Section 6.1) shall be
fully protected in relying upon, unless and until such documents have been
superseded or revoked:

 

(1)   an
Issuer Order requesting such authentication and setting forth delivery
instructions provided that, with respect to Securities of a series subject to a
Periodic Offering, (a) such Issuer Order may be delivered by the Issuer to the
Trustee prior to the delivery to the Trustee of such Securities for
authentication and delivery, (b) the Trustee shall authenticate and deliver
Securities of such series for original issue from time to time, in an aggregate
principal amount not exceeding the aggregate principal amount established for
such series, pursuant to an Issuer Order or pursuant to procedures acceptable
to the Trustee as may be specified from time to time by an Issuer Order, (c)
the maturity date or dates, original issue date or dates, interest rate or
rates, if any, and any other terms of Securities of such series shall be
determined by an Issuer Order or pursuant to such procedures, (d) if provided
for in such procedures, such Issuer Order may authorize authentication and
delivery pursuant to oral or electronic instructions from the Issuer or its
duly authorized agent or agents, which oral instructions shall be promptly
confirmed in writing and (e) after the original issuance of the first Security
of such series to be issued, any separate request by the Issuer that the
Trustee authenticate Securities of such series for original issuance will be
deemed to be a certification by the Issuer that it is in compliance with all
conditions precedent provided for in this Indenture relating to the
authentication and delivery of such Securities;

 

(2)   the
Board Resolution, Officers’ Certificate or executed supplemental indenture
referred to in Sections 2.1 and 2.3 by or pursuant to which the forms and terms
of the Securities of such series were established;

 

(3)   an
Officers’ Certificate stating that the form or forms and terms of the
Securities have been established pursuant to Sections 2.1 and 2.3 and comply
with this Indenture and covering such other matters as the Trustee may
reasonably request; and

 

(4)   at
the option of the Issuer, either an Opinion of Counsel, or a letter from legal
counsel addressed to the Trustee permitting it to rely on an Opinion of
Counsel, substantially to the effect that:

 

(a)   in the case of an underwritten offering, the Securities of such
series have been duly authorized, executed and delivered and, in the case of an
offering that is not underwritten, certain terms of the Securities of such
series have been established pursuant to a Board Resolution, an Officers’
Certificate or a supplemental indenture in accordance with this Indenture, and
when such other terms as are to be established pursuant to procedures set forth
in an Issuer Order shall have been established, all such terms will have been
duly authorized by the

 

12

 

Issuer and will have been established in conformity with the provisions
of this Indenture;

 

(b)   when the Securities of such series have been duly authorized,
executed and delivered by the Issuer and authenticated by the Trustee in
accordance with the provisions of this Indenture and delivered to and duly paid
for by the purchasers thereof, they will constitute valid and legally binding
obligations of the Issuer, enforceable in accordance with their respective
terms, and will be entitled to the benefits of this Indenture; and

 

(c)   the execution and delivery by the Issuer of, and the performance
by the Issuer of its obligations under, the Securities of such series will not
conflict with any provision of applicable law or the articles of incorporation
or bylaws of the Issuer or any agreement or other instrument to which the
Issuer or any of the Guarantors is a party and that is material to the Issuer,
Hovnanian and its Subsidiaries, considered as one enterprise, or, to such
counsel’s knowledge after the inquiry indicated therein, any judgment, order or
decree of any governmental agency or any court having jurisdiction over the
Issuer, Hovnanian and any of its Subsidiaries, and no consent, approval or
authorization of any governmental body or agency is required for the performance
by the Issuer of its obligations under the Securities, except such as are
specified and have been obtained and such as may be required by the securities
or blue sky laws of the various states in connection with the offer and sale of
the Securities.

 

In rendering
such opinions, such counsel may qualify any opinions as to enforceability by
stating that such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, liquidation, moratorium and other
similar laws relating to or affecting the rights and remedies of creditors and
is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.  Such counsel may also state that, insofar as such opinion
involves factual matters, such counsel has relied, to the extent such counsel
deems proper, upon certificates of officers of the Issuer, Hovnanian and its
subsidiaries, as applicable, and certificates of public officials.

 

The Trustee
shall have the right to decline to authenticate and deliver any Securities of
any series under this Section 2.4 if the Trustee, being advised by counsel,
determines that such action may not lawfully be taken by the Issuer or if the
Trustee in good faith by its board of directors or board of trustees, executive
committee or a trust committee of directors or trustees or Responsible Officers
shall determine that such action would expose the Trustee to personal liability
to existing Holders or would adversely affect the Trustee’s own rights, duties
or immunities under the Securities, this Indenture or otherwise.

 

If the Issuer shall establish pursuant to
Section 2.3 that the Securities of a series are to be issued in the form of one
or more Global Securities, then the Issuer shall execute and the Trustee shall,
in accordance with this Section 2.4 and the Issuer Order with respect to such
series, authenticate and deliver one or more Global Securities that (i) shall
represent and shall be denominated in an amount equal to the aggregate
principal amount of all of the Securities of such

 

13

 

series to be
issued in the form of Global Securities and not yet cancelled, (ii) shall be
registered in the name of the Depositary for such Global Security or Securities
or the nominee of such Depositary, (iii) shall be delivered by the Trustee to
such Depositary or pursuant to such Depositary’s instructions, and (iv) shall
bear a legend substantially to the following effect:

 

“THIS SECURITY IS A
GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A
SUCCESSOR DEPOSITARY.  UNLESS AND UNTIL
IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN CERTIFICATED FORM, THIS
SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION (THE “DEPOSITARY”) TO THE NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.

 

UNLESS THIS SECURITY
IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.  OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE &
CO.  OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), 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 AN
INTEREST HEREIN”.

 

Each
Depositary designated pursuant to Section 2.3 must, at the time of its
designation and at all times while it serves as Depositary, be a clearing
agency registered under the Securities Exchange Act of 1934, as amended, and any
other applicable statute or regulation.

 

Reference is
made to Section 13.5 concerning execution and delivery of the Guarantees.

 

SECTION 2.5. 
Execution of Securities.  The Securities shall be signed on behalf of
the Issuer by the chairman of the Board of Directors, the president or chief
executive officer, any vice president, the chief financial officer or the
treasurer of the Issuer.  Such
signatures may be the manual or facsimile signatures of the present or any
future such officers.  Typographical and
other minor errors or defects in any such reproduction of such signature shall
not affect the validity or enforceability of any Security that has been duly
authenticated and delivered by the Trustee.

 

In case any
officer of the Issuer who shall have signed any of the Securities shall cease
to be such officer before the Security so signed shall be authenticated and
delivered by the Trustee or disposed of by the Issuer, such Security
nevertheless may be authenticated and delivered or disposed of as though the
person who signed such Security had not ceased to be such officer of the
Issuer; and any Security may be signed on behalf of the Issuer by such persons
as, at the

 

14

 

actual date of
the execution of such Security, shall be the proper officers of the Issuer,
although at the date of the execution and delivery of this Indenture any such
person was not such an officer.

 

Reference is made
to Section 13.5 concerning execution and delivery of the Guarantees.

 

SECTION 2.6. 
Certificate of Authentication.  Only such Securities as shall bear thereon a
certificate of authentication substantially in the form hereinbefore recited,
executed by the Trustee by the manual signature of one of its authorized
signatories, or its Authenticating Agent, shall be entitled to the benefits of
this Indenture or be valid or obligatory for any purpose.  The execution of such certificate by the
Trustee or its Authenticating Agent upon any Security executed by the Issuer
shall be conclusive evidence that the Security so authenticated has been duly
authenticated and delivered hereunder and that the Holder is entitled to the
benefits of this Indenture.  Each
reference in this Indenture to authentication by the Trustee includes
authentication by an agent appointed pursuant to Section 6.14.

 

SECTION 2.7. 
Denomination and Date of Securities;
Payments of Interest.  The
Securities of each series shall be issuable in registered form in denominations
established as contemplated by Section 2.3 or, with respect to the Securities
of any series, if not so established, in denominations of $1,000 and any
integral multiple thereof.  The
Securities of each series shall be numbered, lettered or otherwise
distinguished in such manner or in accordance with such plan as the officers of
the Issuer executing the same may determine with the approval of the Trustee,
as evidenced by the execution and authentication thereof.

 

Each Security
shall be dated the date of its authentication. 
The Securities of each series shall bear interest, if any, from the
date, and such interest, if any, shall be payable on the dates, established as
contemplated by Section 2.3.

 

The Person in
whose name any Security of any series is registered at the close of business on
any record date applicable to a particular series with respect to any interest
payment date for such series shall be entitled to receive the interest, if any,
payable on such interest payment date notwithstanding any transfer or exchange
of such Security subsequent to the record date and prior to such interest
payment date, except if and to the extent the Issuer shall default in the
payment of the interest due on such interest payment date for such series, in
which case such defaulted interest shall be paid to the Persons in whose names
Outstanding Securities for such series are registered (a) at the close of
business on a subsequent record date (which shall be not less than five
Business Days prior to the date of payment of such defaulted interest)
established by notice given by mail by or on behalf of the Issuer to the
Holders of Securities not less than 15 days preceding such subsequent record
date or (b) as determined by such other procedure as is mutually acceptable to
the Issuer and the Trustee.  The term
“record date” as used with respect to any interest payment date (except a date
for payment of defaulted interest) for the Securities of any series shall mean
the date specified as such in the terms of the Securities of such series
established as contemplated by Section 2.3, or, if no such date is so
established, if such interest payment date is the first day of a calendar
month, the fifteenth day of the next preceding calendar month or, if such
interest payment date is the fifteenth day of a calendar month, the first day
of such calendar month, whether or not such record date is a Business Day.

 

15

 

SECTION 2.8. 
Registration, Transfer and Exchange.  The Issuer will keep at each office or
agency to be maintained for the purpose as provided in Section 3.2 for each
series of Securities a register or registers in which, subject to such
reasonable regulations as it may prescribe, it will provide for the
registration of Securities of each series and the registration of transfer of
Securities of such series.  Each such
register shall be in written form in the English language or in any other form
capable of being converted into such form within a reasonable time.  At all reasonable times such register or
registers shall be open for inspection and available for copying by the
Trustee.

 

Upon due
presentation for registration of transfer of any Security of any series at any
such office or agency to be maintained for the purpose as provided in Section
3.2, the Issuer shall execute and the Trustee shall authenticate and deliver in
the name of the transferee or transferees a new Security or Securities of the
same series, maturity date, interest rate, if any, and original issue date in
authorized denominations for a like aggregate principal amount.

 

All Securities
presented for registration of transfer shall (if so required by the Issuer or
the Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer and the Trustee duly
executed by, the Holder or his attorney duly authorized in writing.

 

At the option
of the Holder thereof, Securities of any series (other than a Global Security,
except as set forth below) may be exchanged for a Security or Securities of
such series having authorized denominations and an equal aggregate principal
amount, upon surrender of such Securities to be exchanged at the agency of the
Issuer that shall be maintained for such purpose in accordance with Section
3.2.

 

The Issuer may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer of
Securities.  No service charge shall be
made for any such transaction or for any exchange of Securities of any series
as contemplated by the immediately preceding paragraph.

 

The Issuer
shall not be required to exchange or register a transfer of (a) any Securities
of any series for a period of 15 days next preceding the first mailing or
publication of notice of redemption of Securities of such series to be
redeemed, (b) any Securities selected, called or being called for redemption,
in whole or in part, except, in the case of any Security to be redeemed in
part, the portion thereof not so to be redeemed or (c) any Security if the
Holder thereof has exercised his right, if any, to require the Issuer to
repurchase such Security in whole or in part, except the portion of such
Security not required to be repurchased.

 

Notwithstanding
any other provision of this Section 2.8, unless and until it is exchanged in
whole or in part for Securities in definitive registered form, a Global
Security representing all or a part of the Securities of a series may not be
transferred except as a whole by the Depositary for such series to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or
another nominee of such Depositary or by such Depositary or any such nominee to
a successor Depositary for such series or a nominee of such successor
Depositary.

 

16

 

If at any time
the Depositary for any Securities of a series represented by one or more Global
Securities notifies the Issuer that it is unwilling or unable to continue as
Depositary for such Securities or if at any time the Depositary for such
Securities shall no longer be eligible under Section 2.4, the Issuer shall
appoint a successor Depositary with respect to such Securities.  If a successor Depositary for such
Securities is not appointed by the Issuer within 90 days after the Issuer
receives such notice or becomes aware of such ineligibility, the Issuer’s
election pursuant to Section 2.3 that such Securities be represented by one or
more Global Securities shall no longer be effective and the Issuer shall execute,
and the Trustee, upon receipt of an Issuer Order for the authentication and
delivery of definitive Securities of such series, will authenticate and deliver
Securities of such series in definitive registered form, in any authorized
denominations, in an aggregate principal amount equal to the principal amount
of the Global Security or Securities representing such Securities in exchange
for such Global Security or Securities.

 

The Issuer may
at any time and in its sole discretion determine that the Securities of any
series issued in the form of one or more Global Securities shall no longer be
represented by a Global Security or Securities.  In such event, the Issuer shall execute, and the Trustee, upon
receipt of an Issuer Order for the authentication and delivery of definitive
Securities of such series, shall authenticate and deliver, Securities of such
series in definitive registered form, in any authorized denominations, in an
aggregate principal amount equal to the principal amount of the Global Security
or Securities representing such Securities, in exchange for such Global
Security or Securities.

 

If specified
by the Issuer pursuant to Section 2.3 with respect to Securities represented by
a Global Security, the Depositary for such Global Security may surrender such
Global Security in exchange in whole or in part for Securities of the same
series in definitive registered form on such terms as are acceptable to the
Issuer and such Depositary.  Thereupon,
the Issuer shall execute, and the Trustee shall authenticate and deliver,
without service charge,

 

(i)            to the Person
specified by such Depositary, a new Security or Securities of the same series,
of any authorized denominations as requested by such Person, in an aggregate
principal amount equal to and in exchange for such Person’s beneficial interest
in the Global Security; and

 

(ii)           to such Depositary
a new Global Security in a denomination equal to the difference, if any,
between the principal amount of the surrendered Global Security and the
aggregate principal amount of Securities authenticated and delivered pursuant
to clause (i) above.

 

Upon the
exchange of a Global Security for Securities in definitive registered form in
authorized denominations, such Global Security shall be cancelled by the
Trustee or an agent of the Trustee. 
Securities in definitive registered form issued in exchange for a Global
Security pursuant to this Section 2.8 shall be registered in such names and in
such authorized denominations as the Depositary for such Global Security, pursuant
to instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee or an agent of the Trustee or the Issuer or an agent of
the Issuer.  The Trustee or such agent
shall deliver at its office such Securities to or as directed by the Persons in
whose names such Securities are so registered.

 

17

 

All Securities
issued upon any registration of transfer or exchange of Securities shall be
valid and legally binding obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.

 

SECTION 2.9. 
Mutilated, Defaced, Destroyed, Lost
and Stolen Securities.  In
case any temporary or definitive Security shall become mutilated or defaced or
be destroyed, lost or stolen, the Issuer in its discretion may execute, and
upon the written request of the Issuer, the Trustee shall authenticate and
deliver a new Security of the same series, maturity date, interest rate, if
any, and original issue date, bearing a number or other distinguishing symbol
not contemporaneously outstanding, in exchange and substitution for the
mutilated or defaced Security, or in lieu of and in substitution for the
Security so destroyed, lost or stolen. 
In every case the applicant for a substitute Security shall furnish to
the Issuer and to the Trustee and any agent of the Issuer or the Trustee such
security or indemnity as may be required by the Trustee or the Issuer or any
such agent to indemnify and defend and to save each of the Trustee and the
Issuer and any such agent harmless and, in every case of destruction, loss or
theft, evidence to their satisfaction of the destruction, loss or theft of such
Security and of the ownership thereof and in the case of mutilation or
defacement, shall surrender the Security to the Trustee or such agent.

 

Upon the
issuance of any substitute Security, the Issuer may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee or its agent) connected therewith.  In case any Security which has matured or is
about to mature or has been called for redemption in full shall become
mutilated or defaced or be destroyed, lost or stolen, the Issuer may instead of
issuing a substitute Security, pay or authorize the payment of the same
(without surrender thereof except in the case of a mutilated or defaced
Security), if the applicant for such payment shall furnish to the Issuer and to
the Trustee and any agent of the Issuer or the Trustee such security or
indemnity as any of them may require to hold each of them harmless, and, in
every case of destruction, loss or theft, the applicant shall also furnish to
the Issuer and the Trustee and any agent of the Issuer or the Trustee evidence
to the Trustee’s satisfaction of the destruction, loss or theft of such
Security and of the ownership thereof.

 

Every substitute
Security of any series issued pursuant to the provisions of this Section by
virtue of the fact that any such Security is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Issuer, whether or not
the destroyed, lost or stolen Security shall be at any time enforceable by
anyone and shall be entitled to all the benefits of (but shall be subject to
all the limitations of rights set forth in) this Indenture equally and
proportionately with any and all other Securities of such series duly
authenticated and delivered hereunder. 
All Securities shall be held and owned upon the express condition that,
to the extent permitted by law, the foregoing provisions are exclusive with
respect to the replacement or payment of mutilated, defaced, destroyed, lost or
stolen Securities and shall preclude any and all other rights or remedies
notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement or payment of negotiable instruments or
other securities without their surrender.

 

18

 

SECTION 2.10. 
Cancellation of Securities;
Disposition Thereof.  All
Securities surrendered for payment, redemption, registration of transfer or
exchange, or for credit against any payment in respect of a sinking or
analogous fund, if surrendered to the Issuer or any agent of the Issuer or the
Trustee or any agent of the Trustee, shall be delivered to the Trustee or its
agent for cancellation or, if surrendered to the Trustee, shall be cancelled by
it; and no Securities shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Indenture.  The Trustee shall dispose of all cancelled Securities in
accordance with its standard procedures and shall deliver a certificate of such
disposition to the Issuer.  If the
Issuer or its agent shall acquire any of the Securities, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented by
such Securities unless and until the same are delivered to the Trustee or its
agent for cancellation.

 

SECTION 2.11. 
Temporary Securities.  Pending the preparation of definitive
Securities for any series, the Issuer may execute and the Trustee shall
authenticate and deliver temporary Securities for such series (printed,
lithographed, typewritten or otherwise reproduced, in each case in form
satisfactory to the Trustee).  Temporary
Securities of any series shall be issuable in any authorized denomination, and
substantially in the form of the definitive Securities of such series but with
such omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Issuer with the concurrence of the
Trustee as evidenced by the execution and authentication thereof.  Temporary Securities may contain such
references to any provisions of this Indenture as may be appropriate.  Every temporary Security shall be executed
by the Issuer and be authenticated by the Trustee upon the same conditions and
in substantially the same manner, and with like effect, as the definitive
Securities.  Without unreasonable delay
the Issuer shall execute and shall furnish definitive Securities of such series
and thereupon temporary Securities of such series may be surrendered in
exchange therefor without charge at each office or agency to be maintained by
the Issuer for that purpose pursuant to Section 3.2 and the Trustee shall
authenticate and deliver in exchange for such temporary Securities of such
series an equal aggregate principal amount of definitive Securities of the same
series having authorized denominations. 
Until so exchanged, the temporary Securities of any series shall be
entitled to the same benefits under this Indenture as definitive Securities of
such series, unless otherwise established pursuant to Section 2.3.

 

SECTION 2.12. 
CUSIP Numbers.  The Issuer in issuing the Securities may use
“CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use
“CUSIP” numbers in notices of redemption as a convenience to Holders; provided
that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers.

 

 

ARTICLE THREE

COVENANTS

 

SECTION 3.1. 
Payment of Principal and Interest.  The Issuer covenants and agrees that it will
duly and punctually pay or cause to be paid the principal of, premium, if any,
and interest,

 

19

 

if any, on
each of the Securities at the place, at the respective times and in the manner
provided in the Securities.

 

SECTION 3.2. 
Offices for Notices and Payments, etc.  So long as any of the Securities are
Outstanding, the Issuer and Hovnanian will maintain in each Place of Payment,
an office or agency where the Securities may be presented for payment, an
office or agency where the Securities may be presented for registration of
transfer and for exchange as provided in this Indenture, and an office or
agency where notices and demands to or upon the Issuer and Hovnanian in respect
of the Securities or of this Indenture may be served.  In case the Issuer shall at any time fail to maintain any such
office or agency, or shall fail to give notice to the Trustee of any change in
the location thereof, presentation may be made and notice and demand may be
served in respect of the Securities or of this Indenture to the Trustee.  The Issuer hereby initially designates the
Corporate Trust Office of the Trustee for each such purpose and appoints the Trustee
as registrar and paying agent and as the agent upon whom notices and demands
may be served with respect to the Securities.

 

SECTION 3.3. 
No Interest Extension.  In order to prevent any accumulation of
claims for interest after maturity thereof, the Issuer will not directly or
indirectly extend or consent to the extension of the time for the payment of
any claim for interest on any of the Securities and will not directly or
indirectly be a party to or approve any such arrangement by the purchase or
funding of said claims or in any other manner; provided, however, that this
Section 3.3 shall not apply in any case where an extension shall be made
pursuant to a plan proposed by the Issuer to the Holders of all Securities of
any series then Outstanding.

 

SECTION 3.4. 
Appointments to Fill Vacancies in
Trustee’s Office.  The
Issuer, whenever necessary to avoid or fill a vacancy in the office of the
Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so
that there shall at all times be a Trustee hereunder.

 

SECTION 3.5. 
Provision as to Paying Agent.  (a) 
If the Issuer shall appoint a paying agent other than the Trustee, it
will cause such paying agent to execute and deliver to the Trustee an
instrument in which such paying agent shall agree with the Trustee, subject to
the provisions of this Section 3.5,

 

(1)   that
it will hold all sums held by it as such paying agent for the payment of the
principal of or interest, if any, on the Securities (whether such sums have
been paid to it by the Issuer or by any other obligor on the Securities) in
trust for the benefit of the Holders of the Securities and the Trustee; and

 

(2)   that
it will give the Trustee notice of any failure by the Issuer (or by any other
obligor on the Securities) to make any payment of the principal of, premium, if
any, or interest, if any, on the Securities when the same shall be due and
payable; and

 

(3)   that
it will, at any time during the continuance of any such failure, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such paying agent.

 

20

 

(b)   If the Issuer shall act as its own paying
agent, it will, on or before each due date of the principal of or interest, if
any, on the Securities, set aside, segregate and hold in trust for the benefit
of the Holders of the Securities a sum sufficient to pay such principal,
premium, if any, or interest, if any, so becoming due and will notify the
Trustee of any failure to take such action and of any failure by the Issuer (or
by any other obligor under the Securities) to make any payment of the principal
of, premium, if any, or interest, if any, on the Securities when the same shall
become due and payable.

 

(c)   Anything in this Section 3.5 to the contrary
notwithstanding, the Issuer may, at any time, for the purpose of obtaining a
satisfaction and discharge of this Indenture, or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by it, or any paying
agent hereunder, as required by this Section 3.5, such sums to be held by the
Trustee upon the trusts herein contained.

 

(d)   Anything in this Section 3.5 to the contrary
notwithstanding, any agreement of the Trustee or any paying agent to hold sums
in trust as provided in this Section 3.5 is subject to Sections 10.3 and 10.4.

 

(e)   Whenever the Issuer shall have one or more
paying agents, it will, on or before each due date of the principal of or
interest, if any, on any Securities, deposit with a paying agent a sum
sufficient to pay the principal, premium, if any, or interest, if any, so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium, if any, or interest, if any, and (unless
such paying agent is the Trustee) the Issuer will promptly notify the Trustee
of its action or failure so to act.

 

SECTION 3.6. 
Limitation on Liens.  So long as any of the Securities are
Outstanding, the Issuer will not, and will not permit any Restricted Subsidiary
to, pledge, mortgage, hypothecate or grant a security interest in, or permit
any mortgage, pledge, security interest or other lien upon, any property or
assets owned by the Issuer or any Restricted Subsidiary to secure any
Indebtedness, without making effective provision whereby the Securities then
Outstanding shall (so long as such other Indebtedness shall be so secured) be
equally and ratably secured with any and all such other Indebtedness and any
other indebtedness similarly entitled to be equally and ratably secured;
provided, however, that this restriction shall not apply to nor prevent the
creation or existence of:

 

(a)   any
mortgage, pledge, security interest, lien or encumbrance upon any property or
assets created at the time of the acquisition of such property or assets by the
Issuer or any Restricted Subsidiary or within one year after such time to
secure all or a portion of the purchase price for such property or assets;

 

(b)   any
mortgage, pledge, security interest, lien or encumbrance upon any property or
assets existing thereon at the time of the acquisition thereof by the Issuer or
any Restricted Subsidiary (whether or not the obligations secured thereby are
assumed by the Issuer or any Subsidiary of the Issuer);

 

(c)   any
mortgage, pledge, security interest, lien or encumbrance upon any property or
assets, whenever acquired, of any corporation or other entity that becomes a

 

21

 

Restricted
Subsidiary after the date hereof, provided that (i) the instrument creating
such mortgage, pledge, security interest, lien or encumbrance shall be in
effect prior to the time such corporation or other entity becomes a Restricted
Subsidiary and (ii) such mortgage, pledge, security interest, lien or
encumbrance shall only apply to properties or assets owned by such corporation
or other entity at the time it becomes a Restricted Subsidiary or thereafter
acquired by it from sources other than the Issuer or another Restricted
Subsidiary;

 

(d)   any
mortgage, pledge, security interest, lien or encumbrance in favor of the Issuer
or any wholly-owned Subsidiary of the Issuer;

 

(e)   any
mortgage, pledge, security interest, lien or encumbrance created or assumed by
the Issuer or a Restricted Subsidiary in connection with the issuance of debt
securities to interest on which is excludable from gross income of the holder
of such security pursuant to the Internal Revenue Code of 1986, as amended, for
the purpose of financing, in whole or in part, the acquisition or construction
of property or assets to be used by the Issuer or a Subsidiary;

 

(f)    any
extension, renewal or refunding of any mortgage, pledge, security interest,
lien or encumbrance permitted by the foregoing subparagraphs (a) through (e)
above on substantially the same property or assets theretofore subject thereto;

 

(g)   any
mortgage, pledge, security interest, lien or encumbrance securing any
Indebtedness in an amount which, together with all other Indebtedness secured
by a mortgage, pledge, security interest, lien or encumbrance that is not
otherwise permitted by the provisions of this Section 3.6, does not at the time
of the incurrence of the Indebtedness so secured exceed 20% of Consolidated Net
Tangible Assets;

 

(h)   deposits
or pledges to secure the payment of workmen’s compensation, unemployment
insurance or other social security benefits or obligations, or to secure the
performance of trade contracts, leases, public or statutory obligations, surety
or appeal bonds or other obligations of a like general nature incurred in the
ordinary course of business;

 

(i)    mechanics’,
materialmen’s, warehousemen’s, carriers’ or other like liens arising in the
ordinary course of business securing obligations which are not overdue for a
period longer than 30 days or which are being contested in good faith by
appropriate proceedings;

 

(j)    liens
for taxes, assessments or other governmental charges not yet payable or being
contested in good faith and as to which adequate reserves shall have been
established in accordance with generally accepted accounting principles;

 

(k)   non-recourse
mortgages on Income Producing Properties securing Indebtedness;

 

(l)    liens
on assets of a Mortgage Subsidiary to secure only a Warehouse Line of Credit
provided to such Subsidiary;

 

22

 

(m)  easements,
rights-of-way, restrictions and other similar encumbrances incurred in the
ordinary course of business; or

 

(n)   liens
in connection with capital leases or sale leaseback transactions not securing
any other indebtedness.

 

In case the
Issuer or any Restricted Subsidiary shall propose to pledge, mortgage,
hypothecate or grant a security interest in any property or assets owned by the
Issuer or any Restricted Subsidiary to secure any Indebtedness, other than as
permitted by subdivisions (a) to (n), inclusive, of this Section 3.6, the
Issuer will prior thereto give written notice thereof to the Trustee, and the
Issuer will, or will cause such Restricted Subsidiary to, prior to or
simultaneously with such pledge, mortgage, hypothecation or grant of security
interest, by supplemental indenture executed to the Trustee (or to the extent
legally necessary to another trustee or additional or separate trustee), in
form satisfactory to the Trustee, effectively secure (for so long as such other
Indebtedness shall be so secured) all the Securities equally and ratably with
such Indebtedness and with any other indebtedness similarly entitled to be
equally and ratably secured. Such supplemental indenture shall contain the
provisions concerning the possession, control, release and substitution of
mortgaged and pledged property and securities and other appropriate matters
which are required by the Trust Indenture Act of 1939 (as in effect at the date
of execution of such supplemental indenture) to be included in a secured
indenture qualified under the Trust Indenture Act of 1939, and may also contain
such additional and amendatory provisions permitted by the Trust Indenture Act
of 1939 as the Issuer and the Trustee shall deem advisable or appropriate or as
the Trustee shall deem necessary in connection with such pledge, mortgage,
hypothecation or grant of security interest.

 

For purpose of
this Section 3.6, “security interest” shall include the interest of the lessor
under a lease with a term of three years or more that should be, in accordance
with generally accepted accounting principles, recorded as a capital lease, and
any such lease of property or assets not acquired from the Issuer or any
Restricted Subsidiary in contemplation of such lease shall be treated as though
the lessee had purchased such property or assets from the lessor.

 

ARTICLE FOUR

SECURITYHOLDERS LISTS AND REPORTS BY THE

ISSUER, HOVNANIAN AND THE TRUSTEE

 

SECTION 4.1. 
Issuer and Hovnanian to Furnish Trustee Information as to Names and
Addresses of Securityholders. 
The Issuer and Hovnanian and any other obligor on the Securities
covenant and agree that they will furnish or cause to be furnished to the
Trustee a list in such form as the Trustee may reasonably require of the names
and addresses of the Holders of the Securities of each series:

 

(a)   semiannually
and not more than 15 days after each January 1 and July 1, and

 

(b)   at
such other times as the Trustee may request in writing, within 15 days after
receipt by the Issuer of any such request,

 

provided that if and so long as the Trustee
shall be the registrar for such series, such list shall not be required to be
furnished.

 

23

 

SECTION 4.2. 
Preservation and Disclosure of
Securityholders Lists. 
(a)  The Trustee shall preserve,
in as current a form as is reasonably practicable, all information as to the
names and addresses of the Holders of each series of Securities (i) contained
in the most recent list furnished to it as provided in Section 4.1, and (ii)
received by it in the capacity of registrar or paying agent for such series, if
so acting.  The Trustee may destroy any
list furnished to it as provided in Section 4.1 upon receipt of a new list so
furnished.

 

(b)   In case three or more Holders of Securities
(hereinafter referred to as “applicants”) apply in writing to the Trustee and
furnish to the Trustee reasonable proof that each such applicant has owned a
Security for a period of at least six months preceding the date of such
application, and such application states that the applicants desire to
communicate with other Holders of Securities of a particular series (in which
case the applicants must all hold Securities of such series) or with Holders of
all Securities with respect to their rights under this Indenture or under such Securities
and such application is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee
shall, within five Business Days after the receipt of such application, at its
election, either

 

(i)            afford to such
applicants access to the information preserved at the time by the Trustee in
accordance with the provisions of subsection (a) of this Section 4.2, or

 

(ii)           inform such
applicants as to the approximate number of Holders of Securities of such series
or of all Securities, as the case may be, whose names and addresses appear in
the information preserved at the time by the Trustee, in accordance with the
provisions of subsection (a) of this Section 4.2, and as to the approximate
cost of mailing to such Securityholders the form of proxy or other
communication, if any, specified in such application.

 

If the Trustee
shall elect not to afford to such applicants access to such information, the
Trustee shall, upon the written request of such applicants, mail to each
Securityholder of such series or all Holders of Securities, as the case may be,
whose name and address appears in the information preserved at the time by the
Trustee in accordance with the provisions of subsection (a) of this Section 4.2
a copy of the form of proxy or other communication which is specified in such
request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after such tender, the
Trustee shall mail to such applicants and file with the Commission, together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the best
interests of the Holders of Securities of such series or of all Securities, as
the case may be, or would be in violation of applicable law.  Such written statement shall specify the
basis of such opinion.  If the
Commission, after opportunity for a hearing upon the objections specified in
the written statement so filed, shall enter an order refusing to sustain any of
such objections or if, after the entry of an order sustaining one or more of
such objections, the Commission shall find, after notice and opportunity for
hearing, that all the objections so sustained have been met, and shall enter an
order so declaring, the Trustee shall mail copies of such material to all such
Securityholders with reasonable promptness after the entry of such order and
the renewal of such tender; otherwise the Trustee shall be relieved of any
obligation or duty to such applicants respecting their application.

 

24

 

(c)   Each and every Holder of Securities, by
receiving and holding the same, agrees with the Issuer, Hovnanian and the
Trustee that neither the Issuer nor Hovnanian nor the Trustee nor any agent of
the Issuer or Hovnanian or the Trustee shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders of Securities in accordance with the provisions of subsection (b) of
this Section 4.2, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under such subsection (b).

 

SECTION 4.3. 
Reports by the Issuer and Hovnanian.  The Issuer and Hovnanian covenant:

 

(a)   to file with the Trustee, within 15 days
after the Issuer or Hovnanian is required, as the case may be, to file the same
with the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may from time to time by rules and regulations prescribe)
which the Issuer or Hovnanian, as the case may be, may be required to file with
the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or,
if the Issuer or Hovnanian, as the case may be, is not required to file
information, documents or reports pursuant to either of such Exchange Act
Sections, then to file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such of
the supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act, in respect of a debt
security listed and registered on a national securities exchange as may be
prescribed from time to time in such rules and regulations;

 

(b)   to file with the Trustee and the Commission,
in accordance with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with respect to
compliance by the Issuer or Hovnanian, as the case may be, with the conditions
and covenants provided for in this Indenture as may be required from time to
time by such rules and regulations;

 

(c)   to transmit by mail to the Holders of
Securities within 30 days after the filing thereof with the Trustee, in the
manner and to the extent provided in Section 4.4(a), such summaries of any
information, documents and reports required to be filed by the Issuer or
Hovnanian, as the case may be, pursuant to subsections (a) and (b) of this
Section 4.3 as may be required to be transmitted to such Holders by rules and
regulations prescribed from time to time by the Commission; and

 

(d)   to furnish to the Trustee, not less than
annually, a brief certificate from the principal executive officer, principal
financial officer or principal accounting officer as to his knowledge of the
Issuer’s or Hovnanian’s, as the case may be, compliance with all conditions and
covenants under this Indenture.  For
purposes of this subsection (d), such compliance shall be determined without
regard to any period of grace or requirement of notice provided under this
Indenture.

 

SECTION 4.4. 
Reports by the Trustee.  (a) 
The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act of 1939 at the times and in the manner provided pursuant
thereto.  To the extent that any such
report is required by the Trust Indenture Act of 1939 with respect to any

 

25

 

12 month
period, such report shall cover the 12 month period ending May 15 and shall be
transmitted by the next succeeding July 15.

 

(b)   A copy of each such report shall, at the time
of such transmission to Securityholders, be furnished to the Issuer and
Hovnanian and be filed by the Trustee with each stock exchange upon which the
Securities of any applicable series are listed and also with the
Commission.  The Issuer and Hovnanian
agree to promptly notify the Trustee with respect to any series when and as the
Securities of such series become admitted to trading on any national securities
exchange.

 

ARTICLE FIVE

REMEDIES OF THE TRUSTEE AND SECURITY HOLDERS

ON EVENT OF DEFAULT

 

SECTION 5.1. 
Events of Default.  “Event of Default”, wherever used herein
with respect to Securities of any series, means any one or more of the
following events (whatever the reason for such Event of Default), unless it is
either inapplicable to a particular series or it is specifically deleted or
modified in or pursuant to the Board Resolution or supplemental indenture
establishing such series of Securities or in the form of Security, for such
series:

 

(a)   default
in the payment of the principal of or premium, if any, of the Securities of
such series as and when the same shall become due and payable either at
maturity, upon redemption, by declaration or otherwise; or

 

(b)   default
in the payment of any installment of interest on any of the Securities of such
series as and when the same shall become due and payable, and continuance of
such default for a period of 30 days; or

 

(c)   default
in the payment or satisfaction of any sinking fund or other purchase obligation
with respect to Securities of such series, as and when such obligation shall
become due and payable; or

 

(d)   failure
on the part of the Issuer or a Guarantor duly to observe or perform any other
of the covenants or agreements on the part of the Issuer in, or a Guarantor of,
the Securities of such series or in this Indenture continued for a period of 90
days after the date on which written notice of such failure, requiring the
Issuer or a Guarantor to remedy the same, shall have been given by certified or
registered mail to the Issuer or a Guarantor by the Trustee, or to the Issuer
or a Guarantor and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Securities of such series then Outstanding; or

 

(e)   without
the consent of the Issuer or Hovnanian, a court having jurisdiction shall enter
an order for relief with respect to the Issuer or Hovnanian or any of its
Significant Subsidiaries under any applicable bankruptcy, insolvency or other
similar law of the United States of America, any state thereof or the District
of Columbia, or without the consent of the Issuer or Hovnanian, a court having
jurisdiction shall enter a judgment, order or decree adjudging the Issuer or
Hovnanian or any of its Significant Subsidiaries bankrupt or insolvent, or
enter an order for relief for reorganization, arrangement, adjustment or
composition of or in respect of the Issuer or Hovnanian or any of its

 

26

 

Significant
Subsidiaries under any applicable bankruptcy, insolvency or other similar law
of the United States of America, any state thereof or the District of Columbia,
and the continuance of any such judgment, order or decree is unstayed and in
effect for a period of 60 consecutive days; or

 

(f)    the
Issuer or Hovnanian or any of its Significant Subsidiaries shall institute
proceedings for entry of an order for relief with respect to the Issuer or
Hovnanian or any of its Significant Subsidiaries under any applicable
bankruptcy, insolvency or other similar law of the United States of America,
any state thereof or the District of Columbia, or for an adjudication of
insolvency, or shall consent to the institution of bankruptcy or insolvency
proceedings against it, or shall file a petition seeking, or seek or consent to
reorganization, arrangement, composition or relief under any applicable
bankruptcy, insolvency or other similar law of the United States of America,
any state thereof or the District of Columbia, or shall consent to the filing
of such petition or to the appointment of a receiver, custodian, liquidator,
assignee, trustee, sequestrator or similar official of the Issuer or Hovnanian
or of substantially all of its property, or the Issuer or Hovnanian or any of
its Significant Subsidiaries shall make a general assignment for the benefit of
creditors as recognized under any applicable bankruptcy, insolvency or other
similar law of the United States of America, any state thereof or the District
of Columbia; or

 

(g)   a
Guarantee ceases to be in full force and effect (other than in accordance with
the terms of any Guarantee) or a Guarantor denies or disaffirms its obligations
under the Guarantee; or

 

(h)   any
other Event of Default provided with respect to the Securities of such series.

 

If an Event of
Default with respect to Securities of any series then Outstanding occurs and is
continuing, then and in each and every such case, unless the principal of all
of the Securities of such series shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Securities of such series then Outstanding, by notice in writing
to the Issuer (and to the Trustee if given by Securityholders), may declare the
principal (or, if the Securities of such series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the terms
of such series) of all the Securities of such series and the interest, if any,
accrued thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
notwithstanding anything to the contrary contained in this Indenture or in the
Securities of such series.  This
provision, however, is subject to the condition that, if at any time after the
unpaid principal amount (or such specified amount) of the Securities of such
series shall have been so declared due and payable and before any judgment or
decree for the payment of the moneys due shall have been obtained or entered as
hereinafter provided, the Issuer
shall pay or shall deposit with the Trustee a sum sufficient to pay all matured
installments of interest, if any, upon all of the Securities of such series and
the principal of any and all Securities of such series which shall have become
due otherwise than by acceleration (with interest on overdue installments of
interest, if any, to the extent that payment of such interest is enforceable
under applicable law and on such principal at the rate borne by the Securities
of such series to the date of such payment or deposit) and the reasonable
compensation, disbursements, expenses and

 

27

 

advances of
the Trustee and all other amounts due the Trustee under Section 6.6, and any
and all defaults under this Indenture, other than the nonpayment of such
portion of the principal amount of and accrued interest, if any, on Securities
of such series which shall have become due by acceleration, shall have been
cured or shall have been waived in accordance with Section 5.7 or provision
deemed by the Trustee to be adequate shall have been made therefor, then and in
every such case the Holders of a majority in aggregate principal amount of the
Securities of such series then Outstanding, by written notice to the Issuer and
to the Trustee, may rescind and annul such declaration and its consequences;
but no such rescission and annulment shall extend to or shall affect any
subsequent default, or shall impair any right consequent thereon.  Notwithstanding the previous sentence, no
waiver shall be effective against any Holder for any Event of Default or event
which with notice or lapse of time or both would be an Event of Default with
respect to any covenant or provision which cannot be modified or amended
without the consent of the Holder of each outstanding Security affected
thereby, unless all such affected Holders agree, in writing, to waive such
Event of Default or other event.

 

If any Event
of Default specified in Section 5.1(e) or 5.1(f) occurs with respect to the
Issuer, all unpaid principal amount (or, if the Securities of any series then
Outstanding are Original Issue Discount Securities, such portion of the
principal amount as may be specified in the terms of each such series) and
accrued interest on all Securities of each series then Outstanding shall ipso facto become and be immediately due
and payable without any declaration or other act by the Trustee or any
Securityholder.

 

If the Trustee
shall have proceeded to enforce any right under this Indenture and such
proceedings shall have been discontinued or abandoned because of such
rescission or annulment or for any other reason or shall have been determined
adversely to the Trustee, then and in every such case the Issuer, the Trustee
and the Securityholders shall be restored respectively to their several
positions and rights hereunder, and all rights, remedies and powers of the
Issuer, the Trustee and the Securityholders shall continue as though no such
proceeding had been taken.

 

Except with
respect to an Event of Default pursuant to Section 5.1 (a), (b) or (c), the
Trustee shall not be charged with knowledge of any Event of Default unless
written notice thereof shall have been given to a Responsible Officer by the
Issuer, a paying agent or any Securityholder.

 

SECTION 5.2. 
Payment of Securities on Default;
Suit Therefor.  The Issuer
covenants that (a) if default shall be made in the payment of any installment
of interest upon any of the Securities of any series then Outstanding as and
when the same shall become due and payable, and such default shall have
continued for a period of 30 days, or (b) if default shall be made in the
payment of the principal of any of the Securities of such series as and when
the same shall have become due and payable, whether at maturity of the
Securities of such series or upon redemption or by declaration or otherwise,
then, upon demand of the Trustee, the Issuer will pay to the Trustee, for the
benefit of the Holders of the Securities, the whole amount that then shall have
become due and payable on all such Securities of such series for principal or
interest, if any, or both, as the case may be, with interest upon the overdue
principal and (to the extent that payment of such interest is enforceable under
applicable law) upon the overdue installments of interest, if any, at the rate
borne by the Securities of such series; and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including a

 

28

 

reasonable
compensation to the Trustee, its agents, attorneys and counsel, and any
expenses or liabilities incurred by the Trustee hereunder other than through
its negligence or bad faith.

 

If the Issuer
shall fail forthwith to pay such amounts upon such demand, the Trustee, in its
own name and as trustee of an express trust, shall be entitled and empowered to
institute any actions or proceedings at law or in equity for the collection of
the sums so due and unpaid, and may prosecute any such action or proceeding to
judgment or final decree, and may enforce any such judgment or final decree
against the Issuer or any other obligor on the Securities of such series and
collect in the manner provided by law out of the property of the Issuer or any
other obligor on the Securities of such series, wherever situated, the moneys
adjudged or decreed to be payable.

 

If there shall
be pending proceedings for the bankruptcy or for the reorganization of the
Issuer or any other obligor on the Securities of any series then Outstanding
under any bankruptcy, insolvency or other similar law now or hereafter in
effect, or if a receiver or trustee or similar official shall have been
appointed for the property of the Issuer or such other obligor, or in the case
of any other similar judicial proceedings relative to the Issuer or other
obligor upon the Securities of such series, or to the creditors or property of
the Issuer or such other obligor, the Trustee, irrespective of whether the
principal of the Securities of such series shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether
the Trustee shall have made any demand pursuant to the provisions of this
Section 5.2, shall be entitled and empowered by intervention in such
proceedings or otherwise to file and prove a claim or claims for the whole
amount of principal and interest, if any, owing and unpaid in respect of the
Securities of such series, and, in case of any judicial proceedings, to file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and of the Securityholders
allowed in such judicial proceedings relative to the Issuer or any other
obligor on the Securities of such series, its or their creditors, or its or
their property, and to collect and receive any moneys or other property payable
or deliverable on any such claims, and to distribute the same after the
deduction of its charges and expenses, and any receiver, assignee or trustee or
similar official in bankruptcy or reorganization is hereby authorized by each
of the Securityholders to make such payments to the Trustee, and, if the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due it for compensation and
expenses or otherwise pursuant to Section 6.6, including counsel fees and
expenses incurred by it up to the date of such distribution.  To the extent that such payment of
reasonable compensation, expenses and counsel fees and expenses out of the
estate in any such proceedings shall be denied for any reason, payment of the
same shall be secured by a lien on, and shall be paid out of, any and all
distributions, dividends, moneys, securities and other property which the
Holders of the Securities of such series may be entitled to receive in such
proceedings, whether in liquidation or under any plan of reorganization or
arrangement or otherwise.

 

All rights of
action and of asserting claims under this Indenture, or under any of the
Securities, may be enforced by the Trustee without the possession of any of the
Securities, or the production thereof at any trial or other proceeding relative
thereto, and any such suit or proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment shall be for the ratable benefit of the Holders of the Securities of
the series in respect of which such judgment has been recovered.

 

29

 

SECTION 5.3. 
Application of Moneys Collected by
Trustee.  Any moneys
collected by the Trustee pursuant to Section 5.2 with respect to Securities of
any series then Outstanding 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 several Securities of such series, 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 of all other expenses and liabilities incurred, and all
advances made, by the Trustee pursuant to Section 6.6 except as a result of its
negligence or bad faith;

 

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

 

THIRD:  If the principal of the Outstanding
Securities of such series shall have become due, by declaration or otherwise,
to the payment of the whole amount then owing and unpaid upon the Securities of
such series for principal and 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, if any, at the rate borne by
the Securities of such series; and in case such moneys shall be insufficient to
pay in full the whole amounts so due and unpaid upon the Securities of such
series, then to the payment of such principal and interest, if any, without
preference or priority of principal over interest or of interest over
principal, or of any installment of interest over any other installment of
interest, or of any Security over any other Security, ratably to the aggregate
of such principal and accrued and unpaid interest; 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 Securities 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 Securities of any series then Outstanding),
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
Securities of any series then Outstanding and of all claims for interest not so
transferred, pledged, kept alive, extended, purchased or funded.

 

SECTION 5.4. 
Proceedings by Securityholders.  No Holder of any Securities of any series
then Outstanding 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 or 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

 

30

 

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
Securities of such series then Outstanding 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 Security of
such series with every other Holder and the Trustee, that no one or more
Holders of Securities of such series shall have any right in any manner
whatever by virtue of or by availing of any provision of this Indenture or of
the Securities to affect, disturb or prejudice the rights of any other Holder
of such Securities of such series, 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 Securities, except in the manner herein provided and for the
equal, ratable and common benefit of all Holders of Securities of such series.

 

Notwithstanding
any other provisions in this Indenture, however, the right of any Holder of any
Security to receive payment of the principal of, premium, if any, and interest,
if any, on such Security, on or after the respective due dates expressed in
such Security, 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 5.5. 
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 5.6. 
Remedies Cumulative and Continuing.  All powers and remedies given by this
Article Five to the Trustee or to the Securityholders 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 Securityholders,
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 Securityholder 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
5.4, every power and remedy given by this Article Five or by law to the Trustee
or to the Securityholders may be exercised from time to time, and as often as
shall be deemed expedient, by the Trustee or by the Securityholders.

 

SECTION 5.7. 
Direction of Proceedings; Waiver of
Defaults by Majority of Securityholders.  The Holders of a majority in aggregate principal amount of the
Securities of any series then Outstanding shall have the right to direct the
time, method, and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or

 

31

 

power
conferred on the Trustee with respect to Securities of such series; provided,
however, that (subject to the provisions of Section 6.1) the Trustee shall have
the right to decline to follow any such direction if the Trustee shall
determine upon advice of counsel that the action or proceeding so directed may
not lawfully be taken or if the Trustee in good faith by its board of
directors, its executive committee, or a trust committee of directors or
Responsible Officers or both shall determine that the action or proceeding so
directed would involve the Trustee in personal liability.  The Holders of a majority in aggregate
principal amount of the Securities of any series then Outstanding may on behalf
of the Holders of all of the Securities of such series waive any past default
or Event of Default hereunder and its consequences except a default in the
payment of interest, if any, on, or the principal of, the Securities of such
series.  Upon any such waiver the
Issuer, the Trustee and the Holders of the Securities of such series shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other default or Event of Default
or impair any right consequent thereon. 
Whenever any default or Event of Default hereunder shall have been
waived as permitted by this Section 5.7, said default or Event of Default shall
for all purposes of the Securities and this Indenture be deemed to have been
cured and to be not continuing.

 

SECTION 5.8. 
Notice of Defaults.  The Trustee shall, within 90 days after the
occurrence of a default, with respect to Securities of any series then
Outstanding, mail to all Holders of Securities of such series, as the names and
the addresses of such Holders appear upon the Securities register, notice of
all defaults known to the Trustee with respect to such series, unless such
defaults shall have been cured before the giving of such notice (the term “defaults”
for the purpose of this Section 5.8 being hereby defined to be the events
specified in clauses (a), (b), (c), (d), (e), (f), (g) and (h) of Section 5.1,
not including periods of grace, if any, provided for therein and irrespective
of the giving of the written notice specified in said clause (d) but in the
case of any default of the character specified in said clause (d) no such
notice to Securityholders shall be given until at least 60 days after the
giving of written notice thereof to the Issuer pursuant to said clause (d));
provided, however, that, except in the case of default in the payment of the
principal of or interest, if any, on any of the Securities, or in the payment
or satisfaction of any sinking fund or other purchase obligation, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee, or a trust committee of directors or
Responsible Officers or both of the Trustee in good faith determines that the
withholding of such notice is in the best interests of the Securityholders.

 

SECTION 5.9. 
Undertaking to Pay Costs.  All parties to this Indenture agree, and
each Holder of any Security by his acceptance thereof shall be deemed to have
agreed, that any court may in its discretion require, 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 an undertaking to pay the cost of such suit, and
that such 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 5.9 shall not
apply to any suit instituted by the Trustee, to any suit instituted by any
Securityholder, or group of Securityholders, holding in the aggregate more than
10% in principal amount of the Securities of any series then Outstanding, or to
any suit instituted by any Securityholders for the enforcement of the payment
of the principal of or interest, if any, on any Security against the Issuer on
or after the due date expressed in such Security.

 

32

 

ARTICLE SIX

CONCERNING THE TRUSTEE

 

SECTION 6.1. 
Duties and Responsibilities of the
Trustee; During Default; Prior to Default.  In case an Event of Default with respect to the Securities of a
series has occurred (which has not been cured or waived) the Trustee shall
exercise with respect to such series of Securities such of the rights and
powers vested in it by this 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.

 

No provision
of this Indenture shall be construed to relieve the Trustee from liability for
its own negligent action, its own negligent failure to act or its own willful
misconduct, except that:

 

(a)   prior
to the occurrence of an Event of Default with respect to the Securities of any
series and after the curing or waiving of all such Events of Default with
respect to such series which may have occurred:

 

(i)            the duties and
obligations of the Trustee with respect to the Securities of any series shall
be determined solely by the express provisions of this Indenture, and the
Trustee shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and

 

(ii)           in the absence of
bad faith on the part of the Trustee, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed
therein, upon any statements, certificates or opinions furnished to the Trustee
and conforming to the requirements of this Indenture; but in the case of any
such statements, certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform to
the requirements of this Indenture;

 

(b)   the
Trustee shall not be liable for any error of judgment made in good faith by a
Responsible Officer or Responsible Officers of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the pertinent facts; and

 

(c)   the
Trustee shall not be liable with respect to any action taken or omitted to be
taken by it in good faith in accordance with the direction of the Holders
pursuant to Section 5.7 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 this Indenture.

 

None of the
provisions contained in this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of any of its duties or in the exercise of any of its rights or
powers, if there shall be reasonable ground for

 

33

 

believing that
the repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.

 

SECTION 6.2.   Certain Rights of the Trustee.

 

Subject
to Section 6.1:

 

(a)   the Trustee may rely and shall be protected
in acting or refraining from acting upon any resolution, Officers’ Certificate
or any other certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, note, coupon, security or other paper
or document believed by it to be genuine and to have been signed or presented
by the proper party or parties;

 

(b)   any request, direction, order or demand of
the Issuer mentioned herein shall be sufficiently evidenced by an Officers’
Certificate or Issuer Order (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors may be
evidenced to the Trustee by a Board Resolution;

 

(c)   the Trustee may consult with counsel of its
selection and any advice of such counsel promptly confirmed in writing shall be
full and complete authorization and protection in respect of any action taken,
suffered or omitted to be taken by it hereunder in good faith and in reliance
thereon in accordance with such advice or Opinion of Counsel;

 

(d)   the Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this Indenture at the request,
order or direction of any of the Securityholders pursuant to the provisions of
this Indenture (including, without limitation, pursuant to Section 5.7), unless
such Securityholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred
therein or thereby;

 

(e)   the Trustee shall not be liable for any
action taken or omitted by it in good faith and believed by it to be authorized
or within the discretion, rights or powers conferred upon it by this Indenture;

 

(f)    prior to the occurrence of an Event of
Default hereunder and after the curing or waiving of all Events of Default, the
Trustee shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, appraisal, bond, debenture, note,
coupon, security, or other paper or document unless requested in writing so to
do by the Holders of not less than a majority in aggregate principal amount of
the Securities of all series affected then Outstanding; provided that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded to it
by the terms of this Indenture, the Trustee may require reasonable indemnity
against such expenses or liabilities as a condition to proceeding; the
reasonable expenses of every such investigation shall be paid by the Issuer or,
if paid by the Trustee or any predecessor Trustee, shall be repaid by the
Issuer upon demand;

 

34

 

(g)   the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys not regularly in its employ and the Trustee shall
not be responsible for any misconduct or negligence on the part of any such
agent or attorney appointed with due care by it hereunder;

 

(h)   the Trustee shall not be charged with
knowledge of any default or Event of Default with respect to a series of
Securities unless either (i) a Responsible Officer of the Trustee assigned to
the Corporate Trust Office of the Trustee (or any successor division or
department of the Trustee) shall have actual knowledge of such default or Event
of Default or (ii) written notice of such default or Event of Default shall
have been given to the Trustee by the Issuer or any other obligor on such
series of Securities or by any Holder of Securities of such series; and

 

(i)    the Trustee shall not be liable for any
action taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture.

 

SECTION 6.3. 
Trustee Not Responsible for Recitals,
Disposition of Securities or Application of Proceeds Thereof.  The recitals contained herein and in the
Securities, except the Trustee’s certificates of authentication, shall be taken
as the statements of the Issuer, and the Trustee assumes no responsibility for
the correctness of the same.  The
Trustee makes no representation as to the validity or sufficiency of this
Indenture, of the Securities or of any prospectus used to sell the
Securities.  The Trustee shall not be
accountable for the use or application by the Issuer of any of the Securities
or of the proceeds thereof.

 

SECTION 6.4. 
Trustee and Agents May Hold
Securities; Collections, etc. 
The Trustee or any agent of the Issuer or the Trustee, in its individual
or any other capacity, may become the owner or pledgee of Securities with the
same rights it would have if it were not the Trustee or such agent and, subject
to Sections 6.8 and 6.13, may otherwise deal with the Issuer and receive,
collect, hold and retain collections from the Issuer with the same rights it
would have if it were not the Trustee or such agent.

 

SECTION 6.5. 
Moneys Held by Trustee.  Subject to the provisions of Section 10.4
hereof, all moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. 
Neither the Trustee nor any agent of the Issuer or the Trustee shall be
under any liability for interest on any moneys received by it hereunder.

 

SECTION 6.6. 
Compensation and Indemnification of
Trustee and Its Prior Claim. 
The Issuer covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, such compensation as shall be agreed to
in writing between the Issuer and the Trustee (which shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust) and the Issuer covenants and agrees to pay or reimburse the Trustee and
each predecessor Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by or on behalf of it in accordance
with any of the provisions of this Indenture (including the reasonable
compensation and the expenses and disbursements of its counsel and of all
agents and other persons not regularly in its employ) except any such expense,
disbursement

 

35

 

or advance as
may arise from its negligence or bad faith. 
The Issuer also covenants to indemnify the Trustee and each predecessor
Trustee for, and to hold it harmless against, any and all loss, liability,
damage, claim or expense, including taxes (other than taxes based on the income
of the Trustee), incurred without negligence or bad faith on its part, arising
out of or in connection with the acceptance or administration of this Indenture
or the trusts hereunder and its duties hereunder, including the costs and
expenses of defending itself against or investigating any claim or liability in
the premises.  The obligations of the
Issuer under this Section 6.6 to compensate and indemnify the Trustee and each
predecessor Trustee and to pay or reimburse the Trustee and each predecessor
Trustee for expenses, disbursements and advances shall constitute additional
indebtedness hereunder and shall survive the satisfaction and discharge of this
Indenture or the resignation or removal of the Trustee.  Such additional indebtedness shall be a
senior claim to that of the Securities upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the benefit of
the Holders of particular Securities. 
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 5.1 or in connection with Article Five
hereof, the expenses (including the reasonable fees and expenses of its
counsel) and the compensation for the service in connection therewith are
intended to constitute expenses of administration under any bankruptcy
law.  The provisions of this Section 6.6
shall survive the resignation or removal of the Trustee and the termination of
this Indenture.

 

SECTION 6.7.  Right of
Trustee to Rely on Officers’ Certificate, etc.  Subject to Sections 6.1 and 6.2, whenever in
the administration of the trusts of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking
or suffering or omitting any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may, in the
absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively
proved and established by an Officers’ Certificate delivered to the Trustee,
and such certificate, in the absence of negligence or bad faith on the part of
the Trustee, shall be full warrant to the Trustee for any action taken,
suffered or omitted by it under the provisions of this Indenture upon the faith
thereof.

 

SECTION 6.8. 
Qualification of Trustee; Conflicting
Interests.  This Indenture
shall always have a Trustee who satisfies the requirements of Section 310(a)(1)
of the Trust Indenture Act of 1939.  The
Trustee shall have a combined capital and surplus of at least $25,000,000 as
set forth in its most recent published annual report of condition.  The Trustee shall comply with Section 310(b)
of the Trust Indenture Act of 1939 regarding disqualification of a trustee upon
acquiring a conflicting interest.

 

SECTION 6.9. 
Persons Eligible for Appointment as
Trustee; Different Trustees for Different Series.  The Trustee for each series of Securities
hereunder shall at all times be a corporation organized and doing business
under the laws of the United States of America or of any state or the District
of Columbia having a combined capital and surplus of at least $25,000,000, and
which is authorized under such laws to exercise corporate trust powers and is
subject to supervision or examination by federal, state or District of Columbia
authority, or a corporation or other Person permitted to act as trustee by the
Commission.  If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as

 

36

 

set forth in
its most recent report of condition so published.  No obligor upon the Securities or any Affiliate of such obligor
shall serve as trustee upon the Securities. 
In case at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section 6.9, the Trustee shall resign immediately
in the manner and with the effect specified in Section 6.10.

 

A different
Trustee may be appointed by the Issuer for each series of Securities prior to the
issuance of such Securities.  If the
initial Trustee for any series of Securities is to be a trustee other than
Wachovia Bank, National Association, the Issuer and such Trustee shall, prior
to the issuance of such Securities, execute and deliver an indenture
supplemental hereto, which shall provide for the appointment of such Trustee as
Trustee for the Securities of such series and shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee.

 

SECTION 6.10. 
Resignation and Removal; Appointment
of Successor Trustee. 
(a)  The Trustee, or any trustee
or trustees hereafter appointed, may at any time resign with respect to one or
more or all series of Securities by giving written notice of resignation to the
Issuer.  Upon receiving such notice of
resignation, the Issuer shall promptly appoint a successor trustee or trustees
with respect to the applicable series by written instrument in duplicate,
executed by authority of the Board of Directors, one copy of which instrument
shall be delivered to the resigning trustee and one copy to the successor
trustee or trustees.  If no successor
trustee shall have been so appointed with respect to any series and have
accepted appointment within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any Securityholder
who has been a bona fide Holder of a Security or Securities of the applicable
series for at least six months may, subject to the provisions of Section 5.9,
on behalf of himself and all others similarly situated, petition any such court
for the appointment of a successor trustee. 
Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.

 

(b)   In case at any time any of the following
shall occur:

 

(i)            the Trustee shall fail
to comply with the provisions of Section 6.8 with respect to any series of
Securities after written request therefor by the Issuer or by any
Securityholder who has been a bona fide Holder
of a Security or Securities of such series for at least six months; or

 

(ii)           the Trustee shall
cease to be eligible in accordance with the provisions of Section 6.9 and shall
fail to resign after written request therefor by the Issuer or by any such
Securityholder; or

 

(iii)          the Trustee shall
become incapable of acting with respect to any series of Securities, or shall
be adjudged a bankrupt or insolvent, or a receiver or liquidator of the Trustee
or of its property shall be appointed, or any public officer shall take charge
or

 

37

 

control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation;

 

then, in any
such case, the Issuer may remove the Trustee with respect to the applicable
series of Securities and appoint a successor trustee for such series by written
instrument, in duplicate, executed by order of the Board of Directors one copy
of which instrument shall be delivered to the Trustee so removed and one copy
to the successor trustee, or, subject to the provisions of Article Five, any
Securityholder who has been a bona fide
Holder of a Security or Securities of such series for at least six months may
on behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor trustee with respect to such series. 
Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, remove the Trustee and appoint a successor trustee.

 

(c)   The Holders of a majority in aggregate
principal amount of the Securities of each series then Outstanding may at any
time remove the Trustee with respect to Securities of such series and appoint a
successor trustee with respect to the Securities of such series by delivering to
the Trustee so removed, to the successor trustee so appointed and to the Issuer
the evidence provided for in Section 7.1 of the action in that regard taken by
the Securityholders.  If no successor
trustee shall have been so appointed with respect to any series and have
accepted appointment within 30 days after the delivery of such evidence of
removal, the Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Securityholder who has been a bona fide Holder of a Security or
Securities of the applicable series for at least six months may, subject to the
provisions of Section 5.9, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor trustee.  Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, appoint a successor trustee.

 

(d)   Any resignation or removal of the Trustee
with respect to any series and any appointment of a successor trustee with
respect to such series pursuant to any of the provisions of this Section 6.10
shall become effective upon acceptance of appointment by the successor trustee
as provided in Section 6.11.

 

SECTION 6.11. 
Acceptance of Appointment by
Successor Trustee.  Any
successor trustee appointed as provided in Section 6.10 shall execute and
deliver to the Issuer and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee with respect to all or any applicable series shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all rights, powers, duties and obligations
with respect to such series of its predecessor hereunder, with like effect as
if originally named as trustee for such series hereunder; but, nevertheless, on
the written request of the Issuer or of the successor trustee, upon payment of
its charges then unpaid, the trustee ceasing to act shall, subject to Section
10.4, pay over to the successor trustee all moneys at the time held by it
hereunder and shall execute and deliver an instrument transferring to such
successor trustee all such rights, powers, duties and obligations.  Upon request of any such successor trustee,
the Issuer shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor trustee all such rights
and powers.  Any trustee ceasing to act
shall, nevertheless, retain a prior

 

38

 

claim upon all
property or funds held or collected by such trustee to secure any amounts then
due it pursuant to the provisions of Section 6.6.

 

If a successor
trustee is appointed with respect to the Securities of one or more (but not all)
series, the Issuer, the predecessor Trustee and each successor trustee with
respect to the Securities of any applicable series shall execute and deliver an
indenture supplemental hereto which shall contain such provisions as shall be
deemed necessary or desirable to confirm that all the rights, powers, trusts
and duties of the predecessor Trustee with respect to the Securities of any
series as to which the predecessor Trustee is not retiring shall continue to be
vested in the predecessor Trustee, and shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such trustees co-trustees of the same trust and that each such
trustee shall be trustee of a trust or trusts under separate indentures.

 

No successor
trustee with respect to any series of Securities shall accept appointment as
provided in this Section 6.11 unless at the time of such acceptance such
successor trustee shall be qualified under the provisions of Section 6.8 and
eligible under the provisions of Section 6.9.

 

Upon
acceptance of appointment by any successor trustee as provided in this Section
6.11, the Issuer shall give notice thereof to the Holders of Securities of each
series affected, by mailing such notice to such Holders at their addresses as
they shall appear on the registry books. 
If the Issuer fails to give such notice within ten days after acceptance
of appointment by the successor trustee, the successor trustee shall cause such
notice to be given at the expense of the Issuer.

 

SECTION 6.12. 
Merger, Conversion, Consolidation or
Succession to Business of Trustee. 
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee (including the trust created by this Indenture), shall
be the successor of the Trustee hereunder, provided that such corporation shall
be qualified under the provisions of Section 6.8 and eligible under the
provisions of Section 6.9, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.

 

In case at the
time such successor to the Trustee shall succeed to the trusts created by this
Indenture and any of the Securities of any series shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the certificate
of authentication of any predecessor Trustee and deliver such Securities so
authenticated; and, in case at that time any of the Securities of any series
shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor Trustee; and in all such cases such certificate of
authentication shall have the full force as if such successor Trustee had
itself authenticated such Securities; provided,
that the right to adopt the certificate of authentication of any predecessor Trustee
or to authenticate Securities of any series in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion
or consolidation.

 

39

 

SECTION 6.13. 
Preferential Collection of Claims
Against the Issuer.  The
Trustee shall comply with Section 311(a) of the Trust Indenture Act of 1939,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act of 1939.  A Trustee who
has resigned or been removed shall be subject to Section 311(a) of the Trust
Indenture Act of 1939 to the extent indicated therein.

 

SECTION 6.14. 
Appointment of Authenticating Agent.  As long as any Securities of a series remain
Outstanding, the Trustee may, by an instrument in writing, appoint with the
approval of the Issuer an authenticating agent (the “Authenticating Agent”)
which shall be authorized to act on behalf of the Trustee to authenticate
Securities, including Securities issued upon exchange, registration of transfer,
partial redemption or pursuant to Section 2.9. Securities of each such series
authenticated by such Authenticating Agent shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee.  Whenever
reference is made in this Indenture to the authentication and delivery of
Securities of any series by the Trustee or to the Trustee’s Certificate of
Authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent for such series
and a Certificate of Authentication executed on behalf of the Trustee by such
Authenticating Agent.  Such
Authenticating Agent shall at all times be a corporation organized and doing
business under the laws of the United States of America or of any state or the
District of Columbia, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $25,000,000
(determined as provided in Section 6.9 with respect to the Trustee) and subject
to supervision or examination by federal or state authority.

 

Any
corporation into which any Authenticating Agent may be merged or converted, or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which any Authenticating Agent shall be
a party, or any corporation succeeding to the corporate agency business
(including the authenticating agency contemplated by this Indenture) of any
Authenticating Agent, shall continue to be the Authenticating Agent with
respect to all series of Securities for which it served as Authenticating Agent
without the execution or filing of any paper or any further act on the part of
the Trustee or such Authenticating Agent. 
Any Authenticating Agent may at any time, and if it shall cease to be
eligible shall, resign by giving written notice of resignation to the Trustee
and to the Issuer.  The Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and to the Issuer.

 

Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.14 with respect to one or more series of
Securities, the Trustee may appoint a successor Authenticating Agent which
shall be acceptable to the Issuer and the Issuer shall provide notice of such
appointment to all Holders of Securities of such series in the manner and to
the extent provided in Section 11.4. 
Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all rights, powers, duties and
responsibilities of its predecessor hereunder, with like effect as if
originally named as Authenticating Agent. 
The Issuer agrees to pay to the Authenticating Agent for such series
from time to time reasonable compensation. 
The Authenticating Agent for the Securities of any series shall have no
responsibility or liability for any action taken by it as such at the direction
of the Trustee.

 

40

 

Sections 6.2,
6.3, 6.4 and 7.3 shall be applicable to any Authenticating Agent.

 

ARTICLE SEVEN

CONCERNING THE SECURITYHOLDERS

 

SECTION 7.1. 
Evidence of Action Taken by
Securityholders.  Any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by a specified
percentage in principal amount of the Securityholders of any or all series may
be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such specified percentage of Securityholders in person
or by agent duly appointed in writing; and, except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee. 
Proof of execution of any instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Sections 6.1 and 6.2) conclusive in favor of the Trustee and the Issuer, if
made in the manner provided in this Article Seven.

 

SECTION 7.2. 
Proof of Execution of Instruments and
of Holding of Securities. 
Subject to Sections 6.1 and 6.2, the execution of any instrument by a
Securityholder or his agent or proxy may be proved in the following manner:

 

(a)   The
fact and date of the execution by any Holder of any instrument may be proved by
the certificate of any notary public or other officer of any jurisdiction
authorized to take acknowledgments of deeds or administer oaths that the person
executing such instruments acknowledged to him the execution thereof, or by an
affidavit of a witness to such execution sworn to before any such notary or
other such officer.  Where such
execution is by or on behalf of any legal entity other than an individual, such
certificate or affidavit shall also constitute sufficient proof of the
authority of the person executing the same.

 

(b)   The
ownership of Securities shall be proved by the Security register or by a
certificate of the Security registrar.

 

SECTION 7.3. 
Holders to be Treated as Owners.  The Issuer, the Trustee and any agent of the
Issuer or the Trustee may deem and treat the Person in whose name any Security
shall be registered upon the Security register for such series as the absolute
owner of such Security (whether or not such Security shall be overdue and
notwithstanding any notation of ownership or other writing thereon) for the
purpose of receiving payment of or on account of the principal of and, subject
to the provisions of this Indenture, interest, if any, on such Security and for
all other purposes; and neither the Issuer nor the Trustee nor any agent of the
Issuer or the Trustee shall be affected by any notice to the contrary.

 

SECTION 7.4. 
Securities Owned by Issuer Deemed Not
Outstanding.  In determining
whether the Holders of the requisite aggregate principal amount of Outstanding
Securities of any or all series have concurred in any direction, consent or
waiver under this Indenture, Securities which are owned by the Issuer or any
other obligor on the Securities with respect to which such determination is
being made or by any Affiliate of the Issuer or any other obligor on the Securities
with respect to which such determination is being made shall be disregarded and

 

41

 

deemed not to
be Outstanding for the purpose of any such determination, except that for the
purpose of determining whether the Trustee shall be protected in relying on any
such direction, consent or waiver only Securities which a Responsible Officer
of the Trustee knows are so owned shall be so disregarded.  Securities 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
Securities and that the pledgee is not the Issuer or any other obligor upon the
Securities or any Affiliate of the Issuer or any other obligor on the
Securities.  In case of a dispute as to
such right, the advice of counsel shall be full protection in respect of any
decision made by the Trustee in accordance with such advice.  Upon request of the Trustee, the Issuer
shall furnish to the Trustee promptly an Officers’ Certificate listing and
identifying all Securities, if any, known by the Issuer to be owned or held by
or for the account of any of the above-described Persons; and, subject to
Sections 6.1 and 6.2, the Trustee shall be entitled to accept such Officers’
Certificate as conclusive evidence of the facts therein set forth and of the
fact that all Securities not listed therein are Outstanding for the purpose of
any such determination.

 

SECTION 7.5. 
Right of Revocation of Action Taken.  At any time prior to (but not after) the
evidencing to the Trustee, as provided in Section 7.1, of the taking of any
action by the Holders of the percentage in aggregate principal amount of the
Securities of any or all series, as the case may be, specified in this
Indenture in connection with such action, any Holder of a Security the serial
number of which is shown by the evidence to be included among the serial
numbers of the Securities the Holders of which have consented to such action
may, by filing written notice at the Corporate Trust Office and upon proof of
holding as provided in this Article Seven, revoke such action so far as
concerns such Security provided that such revocation shall not become effective
until three Business Days after such filing. 
Except as aforesaid, any such action taken by the Holder of any Security
shall be conclusive and binding upon such Holder and upon all future Holders
and owners of such Security and of any Securities issued in exchange or
substitution therefor or on registration of transfer thereof, irrespective of
whether or not any notation in regard thereto is made upon any such
Security.  Any action taken by the
Holders of the percentage in aggregate principal amount of the Securities of
any or all series, as the case may be, specified in this Indenture in
connection with such action shall be conclusively binding upon the Issuer, the
Trustee and the Holders of all the Securities affected by such action.

 

SECTION 7.6. 
Record Date for Consents and Waivers.  The Issuer may, but shall not be obligated
to, establish a record date for the purpose of determining the Persons entitled
to (i) waive any past default with respect to the Securities of such series in
accordance with Section 5.7 of the Indenture, (ii) consent to any supplemental
indenture in accordance with Section 8.2 of the Indenture or (iii) waive
compliance with any term, condition or provision of any covenant
hereunder.  If a record date is fixed,
the Holders on such record date, or their duly designated proxies, and any such
Persons, shall be entitled to waive any such past default, consent to any such
supplemental indenture or waive compliance with any such term, condition or
provision, whether or not such Holder remains a Holder after such record date;
provided, however, that unless such waiver or consent is obtained from the
Holders, or duly designated proxies, of the requisite principal amount of
Outstanding Securities of such series prior to the date which is the 120th day
after such record date, any such waiver or consent previously given shall
automatically and, without further action by any Holder be cancelled and of no
further effect.

 

42

 

ARTICLE EIGHT

SUPPLEMENTAL INDENTURES

 

SECTION 8.1. 
Supplemental Indentures Without
Consent of Securityholders. 
The Issuer, when authorized by a Board Resolution (which resolution may
provide general terms or parameters for such action and may provide that the
specific terms of such action may be determined in accordance with or pursuant
to an Issuer Order), and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act of 1939 as in force at the date of
the execution thereof) for one or more of the following purposes:

 

(a)   to
convey, transfer, assign, mortgage or pledge to the Trustee as security for the
Securities of one or more series any property or assets;

 

(b)   to
evidence the succession of another Person to the Issuer or Hovnanian or
successive successions, and the assumption by the successor Person of the
covenants, agreements and obligations of the Issuer or Hovnanian herein and in
the Securities or the Guarantees or to otherwise evidence compliance with
Article Nine hereof;

 

(c)   to
add to the covenants of the Issuer or Hovnanian such further covenants,
restrictions, conditions or provisions for the protection of the Holders of all
or any series of Securities (and if such covenants, restrictions, conditions or
provisions are to be for the protection of less than all series of Securities,
stating that the same are expressly being included solely for the protection of
such series), or to surrender any right or power herein conferred upon the
Issuer or Hovnanian, and to make the occurrence, or the occurrence and
continuance, of a default in any such additional covenants, restrictions,
conditions or provisions an Event of Default permitting the enforcement of all
or any of the several remedies provided in this Indenture as herein set forth; provided, however,
that in respect of any such additional covenant, restriction,
condition or provision such supplemental indenture may provide for a particular
period of grace after default (which period may be shorter or longer than that
allowed in the case of other defaults) or may provide for an immediate
enforcement upon such an Event of Default or may limit the remedies available
to the Trustee upon such an Event of Default or may limit the right of the
Holders of a majority in aggregate principal amount of the Securities of such
series to waive such an Event of Default;

 

(d)   to
cure any ambiguity or to correct or supplement any provision contained herein
or in any supplemental indenture which may be defective or inconsistent with
any other provision contained herein or in any supplemental indenture;

 

(e)   to
establish the form or terms of Securities or the Guarantees to be endorsed
thereon of any series as permitted by Sections 2.1 and 2.3, to provide for any
Guarantees of the Securities of any series and to confirm and evidence the
termination or discharge of any Guarantee of or Lien securing the Securities of
a series when such release, termination or discharge is permitted by the
Indenture;

 

43

 

(f)    to
provide for the issuance of uncertificated Securities of any series (including
Securities registrable as to principal only) in addition to or in place of
certificated Securities and to provide for exchangeability of such Securities
for the Securities issued hereunder in fully registered form and to make all
appropriate changes for such purpose;

 

(g)   to
modify, eliminate or add to the provisions of this Indenture to such extent as
shall be necessary to effect the qualification of this Indenture under the
Trust Indenture Act of 1939, or under any similar federal statute hereafter
enacted, and to add to this Indenture such other provisions as may be expressly
permitted by the Trust Indenture Act of 1939, excluding,
however, the provisions referred to in Section 316(a)(2) of the
Trust Indenture Act of 1939 as in effect at the date as of which this
instrument was executed or any corresponding provision provided for in any
similar federal statute hereafter enacted;

 

(h)   to
evidence and provide for the acceptance of appointment hereunder of a Trustee
other than Wachovia Bank, National Association as Trustee for a series of
Securities and to add to or change any of the provisions of this Indenture as
shall be necessary to provide for or facilitate the administration of the
trusts hereunder by more than one Trustee, pursuant to the requirements of
Section 6.9 hereof;

 

(i)    subject
to Section 8.2 hereof, to add to or modify the provisions hereof as may be
necessary or desirable to provide for the denomination of Securities in foreign
currencies which shall not adversely affect the interests of the Holders of the
Securities in any material respect;

 

(j)    to
modify the covenants or Events of Default of the Issuer solely in respect of,
or add new covenants or Events of Default of the Issuer that apply solely to,
Securities not Outstanding on the date of such supplemental indenture;

 

(k)   to
evidence and provide for the acceptance of appointment hereunder by a successor
trustee with respect to the Securities of one or more series and to add to or
change any of the provisions of this Indenture as shall be necessary to provide
for or facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Section 6.11; and

 

(l)    to
make any other change that does not adversely affect the legal rights of any
Holder of Securities of the series affected by such change.

 

The Trustee is
hereby authorized to join with the Issuer in the execution of any such
supplemental indenture, to make any further appropriate agreements and
stipulations which may be therein contained and to accept the conveyance,
transfer, assignment, mortgage or pledge of any property thereunder, but the
Trustee shall not be obligated to enter into any such supplemental indenture
which affects the Trustee’s own rights, duties or immunities under this
Indenture or otherwise.

 

Any
supplemental indenture authorized by the provisions of this Section may be
executed without the consent of the Holders of any of the Securities then
Outstanding, notwithstanding any of the provisions of Section 8.2.

 

44

 

SECTION 8.2. 
Supplemental Indentures with Consent
of Securityholders.  With the
consent (evidenced as provided in Article Seven and including written consents
obtained in connection with a tender offer or exchange offer) of the Holders of
not less than a majority in aggregate principal amount of the Securities then
Outstanding of any series affected thereby, the Issuer, when authorized by a
Board Resolution (which resolution may provide general terms or parameters for
such action and may provide that the specific terms of such action may be
determined in accordance with or pursuant to an Issuer Order), and the Trustee
may, from time to time and at any time, enter into an indenture or indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act of 1939 as in force at the date of execution thereof) for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Securities of such
series or waiving future compliance with any provision of the Indenture or the
Securities (other than a continuing default or Event of Default in the payment
of principal of or interest on Securities, which shall require the consent of
the Holders of each Security so affected); provided, that no such supplemental
indenture or waiver shall (a) change the stated final maturity of the principal
of any Security, or reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest (including default interest), if any,
thereon (or, in the case of an Original Issue Discount Security, reduce the
rate of accretion of original issue discount thereon), or reduce or alter the
method of computation of any amount payable on redemption, repayment or
purchase by the Issuer thereof (or the time at which any such redemption,
repayment or purchase may be made), or make the principal thereof (including
any amount in respect of original issue discount), or interest, if any, thereon
payable in any coin or currency other than that provided in the Securities or
in accordance with the terms of the Securities, or reduce the amount of the
principal of an Original Issue Discount Security that would be due and payable
upon an acceleration of the maturity thereof pursuant to Section 5.1 or the
amount thereof provable in bankruptcy pursuant to Section 5.2, make any change
to Sections 5.4 or 5.7, or impair or affect the right of any Securityholder to
institute suit for the payment thereof or, if the Securities provide therefor,
any right of repayment or purchase at the option of the Securityholder, in each
case without the consent of the Holder of each Security so affected or modify
the ranking or priority of the Securities or the Guarantees issued hereunder,
or (b) reduce the aforesaid percentage of Securities of any series, the consent
of the Holders of which is required for any such supplemental indenture,
without the consent of the Holders of each Security so affected.  No consent of any Holder of any Security
shall be necessary under this Section 8.2 to permit the Trustee and the Issuer
to execute supplemental indentures pursuant to Sections 8.1 and 9.2.

 

A supplemental
indenture which changes or eliminates any covenant, Event of Default or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of Holders of Securities of such series, with respect to such covenant
or provision, shall be deemed not to affect the rights under this Indenture of
the Holders of Securities of any other series.

 

Upon the
request of the Issuer, accompanied by a copy of a resolution of the Board of
Directors (which resolution may provide general terms or parameters for such
action and may provide that the specific terms of such action may be determined
in accordance with or pursuant to an Issuer Order) certified by the secretary
or an assistant secretary of the Issuer authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee of evidence

 

45

 

of the consent
of the Holders of the Securities as aforesaid and other documents, if any,
required by Section 7.1, the Trustee shall join with the Issuer in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee’s own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may at its discretion, but shall not be
obligated to, enter into such supplemental indenture.

 

It shall not
be necessary for the consent of the Securityholders under this Section 8.2 to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such consent shall approve the substance thereof.

 

Promptly after
the execution by the Issuer and the Trustee of any supplemental indenture
pursuant to the provisions of this Section 8.2, the Issuer (or the Trustee at
the request and expense of the Issuer) shall give notice thereof to the Holders
of then Outstanding Securities of each series affected thereby, as provided in
Section 11.4. Any failure of the Issuer to give such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.

 

SECTION 8.3. 
Effect of Supplemental Indenture.  Upon the execution of any supplemental
indenture pursuant to the provisions hereof, this Indenture shall be and shall
be deemed to be modified and amended in accordance therewith and the respective
rights, limitations of rights, obligations, duties and immunities under this
Indenture of the Trustee, the Issuer, Hovnanian, the Guarantors and the Holders
of Securities of each series affected thereby shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and shall be deemed to be part of the terms and conditions
of this Indenture for any and all purposes.

 

SECTION 8.4. 
Documents to Be Given to Trustee.  The Trustee, subject to the provisions of
Sections 6.1 and 6.2, shall be entitled to receive an Officers’ Certificate and
an Opinion of Counsel as provided in Section 11.5 as conclusive evidence that
any supplemental indenture executed pursuant to this Article Eight complies
with the applicable provisions of this Indenture and that all conditions
precedent to the execution and delivery of such supplemental indenture have
been satisfied.  An Opinion of Counsel
pursuant to this Section 8.4 shall also include (a) an opinion that any such
supplemental indenture has been duly authorized, executed and delivered and
constitutes the valid and legally binding obligation of the Issuer and the
Guarantors party thereto, if any, enforceable in accordance with its terms and
(b) in the case of 8.1(l) an opinion that such supplemental indenture does not
adversely affect the legal rights of any Holder of Securities of the series
affected by such change.  In rendering
such opinion, such counsel may qualify any opinions as to enforceability by
stating that such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, liquidation, moratorium and other
similar laws relating to or affecting the rights and remedies of creditors and
is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.

 

SECTION 8.5. 
Notation on Securities in Respect of
Supplemental Indentures. 
Securities of any series authenticated and delivered after the execution
of any supplemental indenture

 

46

 

pursuant to
the provisions of this Article Eight may bear a notation in form approved by
the Trustee for such series as to any matter provided for by such supplemental
indenture or as to any action taken by Securityholders.  If the Issuer or the Trustee shall so
determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Issuer, to any modification of this Indenture
contained in any such supplemental indenture may be prepared and executed by
the Issuer, and such Securities may be authenticated by the Trustee and
delivered in exchange for the Securities of such series then Outstanding.

 

ARTICLE NINE

CONSOLIDATION, MERGER, SALE, LEASE, EXCHANGE OR OTHER

DISPOSITION

 

SECTION 9.1. 
Consolidate Permitted, etc., on
Certain Terms.  Subject to
the provisions of Section 9.2, nothing contained in this Indenture or in any of
the Securities shall prevent any consolidation or merger of the Issuer or
Hovnanian with or into any other Person or Persons (whether or not affiliated
with the Issuer), or successive consolidations or mergers in which the Issuer
or Hovnanian or their successor or successors shall be a party or parties, or
shall prevent any sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Issuer or Hovnanian to any
other Person (whether or not affiliated with the Issuer or Hovnanian)
authorized to acquire and operate the same; provided, however, and the Issuer
and Hovnanian hereby covenant and agree, that any such consolidation, merger,
sale, lease, exchange or other disposition shall be upon the conditions that
(a) immediately after giving effect to such consolidation, merger, sale, lease,
exchange or other disposition of the Person (whether the Issuer or Hovnanian or
such other Person) formed by or surviving any such consolidation or merger, or
to which such sale, lease, exchange or other disposition shall have been made,
no Event of Default, and no event which after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be continuing; (b)
the Person (if other than the Issuer or Hovnanian) formed by or surviving any
such consolidation or merger, or to which such sale, lease, exchange or other
disposition shall have been made, shall be a corporation or partnership
organized under the laws of the United States of America, any state thereof or
the District of Columbia; and (c) the due and punctual payment of the principal
of and interest, if any, on all the Securities, according to their tenor, and
the due and punctual performance and observance of all of the covenants and
conditions of this Indenture to be performed by the Issuer or Hovnanian, shall
be expressly assumed, by supplemental indenture satisfactory in form to the
Trustee executed and delivered to the Trustee, by the Person (if other than the
Issuer or Hovnanian) formed by such consolidation, or into which the Issuer or
Hovnanian shall have been merged, or by the Person which shall have acquired or
leased such property.

 

SECTION 9.2. 
Successor Corporation to be
Substituted.  In case of any
such consolidation or merger or any sale, conveyance or lease of all or
substantially all of the property of the Issuer or Hovnanian and upon the
assumption by the successor Person, by supplemental indenture executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the due
and punctual payment of the principal of, premium, if any, and interest, if
any, on all of the Securities and the due and punctual performance of all of
the covenants and conditions of this Indenture to be performed by the Issuer or
Hovnanian, such successor Person shall succeed to and be substituted for the
Issuer or Hovnanian, with the same effect as if it had been named herein as the
party of the first part, and the Issuer or Hovnanian (including any intervening

 

47

 

successor to
the Issuer or Hovnanian which shall have become the obligor hereunder) shall be
relieved of any further obligation under this Indenture and the Securities;
provided, however, that in the case of a sale, lease, exchange or other
disposition of the property and assets of the Issuer or Hovnanian (including
any such intervening successor), the Issuer or Hovnanian (including any such
intervening successor) shall continue to be liable on its obligations under
this Indenture and the Securities to the extent, but only to the extent, of
liability to pay the principal of, premium, if any, and interest, if any, on
the Securities at the time, places and rate prescribed in this Indenture and
the Securities.  Such successor Person
thereupon may cause to be signed, and may issue either in its own name or in
the name of the Issuer or Hovnanian, any or all of the Securities issuable
hereunder which theretofore shall not have been signed by the Issuer or
Hovnanian and delivered to the Trustee; and, upon the order of such successor
Person instead of the Issuer or Hovnanian and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Securities which previously shall have been
signed and delivered by the officers of the Issuer or Hovnanian to the Trustee
for authentication, and any Securities which such successor Person thereafter
shall cause to be signed and delivered to the Trustee for that purpose.  All the Securities so issued shall in all
respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance with the terms of
this Indenture as though all of such Securities had been issued at the date of
the execution hereof.

 

In case of any
such consolidation or merger or any sale, lease, exchange or other disposition
of all or substantially all of the property and assets of the Issuer or
Hovnanian, such changes in phraseology and form (but not in substance) may be
made in the Securities, thereafter to be issued, as may be appropriate.

 

SECTION 9.3. 
Opinion of Counsel to be Given
Trustee.  The Trustee,
subject to Sections 6.1 and 6.2, shall receive an Officers’ Certificate and Opinion
of Counsel as conclusive evidence that any such consolidation, merger, sale,
lease, exchange or other disposition and any such assumption complies with the
provisions of this Article Nine.

 

ARTICLE TEN

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

 

SECTION 10.1. 
Applicability of Article.  Unless specified otherwise pursuant to
Section 2.3 for Securities of a series, this Article shall apply to each series
of Securities issued under this Indenture.

 

SECTION 10.2.  Legal Defeasance And Discharge.  The Issuer shall, subject to the
satisfaction of the conditions set forth in Section 10.4 hereof, be deemed to
have been discharged from its obligations with respect to all Outstanding
Securities on the date the conditions set forth below are satisfied (hereinafter,
“Legal Defeasance”).  For this purpose,
Legal Defeasance means that the Issuer shall be deemed to have paid and
discharged the entire Indebtedness represented by the Outstanding Securities,
which shall thereafter be deemed to be Outstanding only for the purposes of
Section 10.5 hereof and the other Sections of this Indenture referred to in
clauses (a) and (b) below, and to have satisfied all of its obligations under
such Securities and this Indenture (and the Trustee, on demand of and at the
expense of the Issuer, shall execute proper instruments

 

48

 

delivered
to it by the Issuer acknowledging the same), except of the following provisions
which shall survive until otherwise terminated or discharged hereunder; (a) the
rights of Holder of Outstanding Securities to receive payments in respect of
the principal of, premium, if any, and interest on such Securities when such
payments are due from the trust referred to below; (b) the Issuer’s obligations
with respect to the Securities concerning mutilated, destroyed, lost or stolen
Securities and the maintenance of an office or agency for payment and money for
security payments held in trust; (c) the rights, powers, trusts, duties and
immunities of the Trustee, and the Issuer’s obligations in connection
therewith; and (d) the Legal Defeasance provisions of this Indenture.

 

SECTION 10.3. 
Covenant Defeasance.  The Issuer shall, subject to the
satisfaction of the conditions set forth in Section 10.4 hereof, be released from
its obligations under the covenants contained in Section 3.6 and Article Nine
and to the extent described in the applicable supplemental indenture, with
respect to any series of Securities, with respect to the Outstanding Securities
on and after the date of the conditions set forth in Section 10.4 are satisfied
(hereinafter, “Covenant Defeasance”), and the Securities shall thereafter be
deemed not Outstanding for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed Outstanding for
all other purposes hereunder (it being understood that such Securities shall
not be deemed outstanding for accounting purposes).  For this purpose, Covenant Defeasance means that, with respect to
the Outstanding Securities, the Issuer may omit to comply with and shall have
no liability in respect of any term, condition or limitation set forth in any
such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a default or an Event of Default under Section
5.1 hereof, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby. 
Subject to the satisfaction of the conditions set forth in Section 10.4
hereof, Sections 5.1(d), 5.1(e), 5.1(f) and 5.1(g) hereof shall not constitute
Events of Default or defaults hereunder.

 

SECTION 10.4. 
Conditions To Legal Or Covenant
Defeasance.  The following
shall be the conditions to the application of either Section 10.2 or 10.3
hereof to the Outstanding Securities:

 

In order to
exercise either Legal Defeasance or Covenant Defeasance:

 

(a)   the Issuer must irrevocably deposit, or cause
to be deposited, with the Trustee, in trust, for the benefit of the Holders of
the Securities, cash in U.S. dollars, U.S. Government Obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay, without
reinvestment, the principal of, premium, if any, and interest on the Outstanding
Securities on the stated maturity thereof or on the applicable redemption date,
as the case may be, and the Issuer must specify whether the Securities are
being defeased to maturity or to a particular redemption date;

 

(b)   in the case of Legal Defeasance, the Issuer
must deliver to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that the Issuer has received from, or there has been
published by, the Internal Revenue Service a ruling, or there has been a change
in

 

49

 

the applicable United States federal income
tax law after the date of this Indenture, in either case to the effect that,
and based thereon such Opinion of Counsel shall confirm that, the Holders of
the Outstanding Securities will not recognize income, gain or loss for United
States federal income tax purposes as a result of such Legal Defeasance, and
will be subject to United States federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;

 

(c)   in the case of Covenant Defeasance, the
Issuer must deliver to the Trustee an Opinion of Counsel reasonably acceptable
to the Trustee confirming that the Holders of the Outstanding Securities will
not recognize income, gain or loss for United States federal income tax
purposes as a result of such Covenant Defeasance, and such Holders will be
subject to United States federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;

 

(d)   no default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit;

 

(e)   such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than the Indenture) to which the Issuer
or any of its Restricted Subsidiaries is a party or by which the issuer or any
of its Restricted Subsidiaries is bound;

 

(f)    the Issuer must deliver to the Trustee an
Officers’ Certificate stating that the deposit was not made by the Issuer with
the intent of preferring the Holders of the Securities over other creditors of
the Issuer, or with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuer or others;

 

(g)   the Issuer must deliver to the Trustee an
Officers’ Certificate and an opinion of Counsel in the United States reasonably
acceptable to the Trustee, each stating that the conditions precedent provided
for or relating to Legal Defeasance or Covenant Defeasance, as applicable, in
the case of the Officer’s Certificate, in clauses (a) through (f) and, in the
case of the opinion of Counsel, in clauses (b) and (c) of this paragraph, have
been complied with.

 

SECTION 10.5. 
Deposited
Money And Government Securities To Be Held In Trust; Other Miscellaneous
Provisions.  Subject to
Section 10.6 hereof, all money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively, and solely for purposes of this Section 10.5, the “Trustee”)
pursuant to Section 10.4 hereof in respect of the Outstanding Securities shall
be held in trust and applied by the Trustee, in accordance with the provisions
of such Securities and this Indenture, to the payment, either directly or
through any paying agent (including the Issuer acting as paying agent) as the
Trustee may determine, to the Holders of such Securities of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent
required by law.

 

50

 

The Issuer
shall pay and indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against the cash or non-callable U.S. Government
Obligations deposited pursuant to Section 10.4 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Outstanding
Securities.

 

Anything in
this Article Ten to the contrary notwithstanding, the Trustee shall deliver or
pay to the Issuer from time to time upon the request of the Issuer any money or
non-callable U.S. Government Obligations held by it as provided in Section 10.4
hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 10.4(a) hereof), are
in excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.

 

SECTION 10.6. 
Repayment
To Issuer.  Any money
deposited with the Trustee or any paying agent, or then held by the Issuer, in
trust for the payment of the principal of, premium or interest on any Security
and remaining unclaimed for two years after such principal, and premium, if
any, or interest has become due and payable shall be paid to the Issuer on its
request or (if then held by the Issuer) shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured creditor,
look only to the Issuer for payment thereof, and all liability of the Trustee
or such paying agent with respect to such trust money, and all liability of the
Issuer as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such paying agent,
before being required to make any such repayment, may at the expense of the
Issuer cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will be repaid to the Issuer.

 

SECTION 10.7. 
Reinstatement.  If the Trustee or paying agent is unable to
apply any money or non-callable U.S. Government Obligations in accordance with
Section 10.2 or 10.3 hereof, as the case may be, by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Issuer’s obligations under
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 10.2 or 10.3 hereof until such time as
the Trustee or paying agent is permitted to apply all such money in accordance
with Section 10.2 or 10.3 hereof, as the case may be; provided, however, that, if the Issuer
makes any payment of principal of, premium, if any, or interest on any Security
following the reinstatement of its obligations, the Issuer shall be subrogated
to the rights of the Holders of such Securities to receive such payment from
the money held by the Trustee or paying agent.

 

SECTION 10.8. 
Survival.  The Trustee’s rights under this Article Ten
shall survive termination of this Indenture.

 

SECTION 10.9. 
Satisfaction
and Discharge of Indenture. 
If at any time (a) the Issuer shall have paid or caused to be paid the
principal of, premium, if any, and interest, if any, on all the Securities
Outstanding (other than Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 2.9) as and when
the same shall have

 

51

 

become due and
payable, or (b) the Issuer shall have delivered to the Trustee for cancellation
all Securities theretofore authenticated (other than Securities which have been
destroyed, lost or stolen and which have been replaced or paid as provided in
Section 2.9); and if, in any such case, the Issuer shall also pay or cause to
be paid all other sums payable hereunder by the Issuer (including all amounts,
payable to the Trustee pursuant to Section 6.6), then this Indenture shall
cease to be of further effect, and the Trustee, on demand of the Issuer
accompanied by an Officers’ Certificate and an Opinion of Counsel, each stating
that all conditions precedent relating to the satisfaction and discharge
contemplated by this provision have been complied with, and at the cost and
expense of the Issuer, shall execute proper instruments acknowledging such satisfaction
and discharging this Indenture.  The
Issuer agrees to reimburse the Trustee for any costs or expenses thereafter
reasonably and properly incurred, and to compensate the Trustee for any
services thereafter reasonably and properly rendered, by the Trustee in
connection with this Indenture or the Securities.

 

ARTICLE ELEVEN

MISCELLANEOUS PROVISIONS

 

SECTION 11.1. 
Partners, Incorporators,
Stockholders, Officers and Directors of Issuer Exempt from Individual Liability.  No recourse under or upon any obligation,
covenant or agreement contained in this Indenture, or in any Security, or
because of any indebtedness evidenced thereby, shall be had against any
incorporator, as such or against any past, present or future stockholder,
officer, director or employee, as such, of the Issuer, Hovnanian or the
Guarantors or any partner of the Issuer, Hovnanian or the Guarantors or of any
successor, either directly or through the Issuer, Hovnanian or the Guarantors
or any successor, under any rule of law, statute or constitutional provision or
by the enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Securities by the Holders thereof and as part of the consideration
for the issue of the Securities.

 

SECTION 11.2. 
Provisions of Indenture for the Sole
Benefit of Parties and Holders of Securities.  Nothing in this Indenture or in the
Securities, expressed or implied, shall give or be construed to give to any
Person, other than the parties hereto and their successors and the Holders of
the Securities, any legal or equitable right, remedy or claim under this
Indenture or under any covenant or provision herein contained, all such
covenants and provisions being for the sole benefit of the parties hereto and
their successors and of the Holders of the Securities.

 

SECTION 11.3. 
Successors and Assigns of Issuer
Bound by Indenture.  All the
covenants, stipulations, promises and agreements in this Indenture contained by
or on behalf of the Issuer shall bind its successors and assigns, whether so
expressed or not.

 

SECTION 11.4. 
Notices and Demands on Issuer,
Trustee and Holders of Securities. 
Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the Holders of
Securities to or on the Issuer, or as required pursuant to the Trust Indenture
Act of 1939, may be given or served by being deposited postage prepaid,
first-class mail (except as otherwise specifically provided herein) addressed
(until another address of the Issuer is filed by the Issuer with the Trustee)
to K. Hovnanian Enterprises, Inc., 10 Highway 35, P.O. Box 500, Red Bank, New
Jersey 07701.  Any notice, direction,

 

52

 

request or
demand by the Issuer or any Holder of Securities to or upon the Trustee shall
be deemed to have been sufficiently given or served by being deposited postage
prepaid, first-class mail (except as otherwise specifically provided herein)
addressed (until another address of the Trustee is filed by the Trustee with
the Issuer) to Wachovia Bank, National Association 21 South Street, Morristown,
New Jersey 07960, attention:  Corporate
Trust Administration (K. Hovnanian Enterprises, Inc. [specify series of
Securities]).

 

Where this
Indenture provides for notice to Holders of Securities, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Holder entitled thereto, at
his last address as it appears in the Security register.  Where this Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice.  Waivers
of notice by Holders shall be filed with the Trustee, but such filing shall not
be a condition precedent to the validity of any action taken in reliance upon
such waiver.

 

In case, by
reason of the suspension of or irregularities in regular mail service, it shall
be impracticable to mail notice to the Issuer when such notice is required to
be given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be reasonably satisfactory to the Trustee shall be deemed
to be sufficient notice.

 

SECTION 11.5. 
Officers’ Certificates and Opinions
of Counsel; Statements to Be Contained Therein.  Upon any application or demand by the Issuer
to the Trustee to take any action under any of the provisions of this
Indenture, or as required pursuant to the Trust Indenture Act of 1939, the
Issuer or Hovnanian, as applicable, shall furnish to the Trustee an Officers’
Certificate stating that all conditions precedent provided for in this
Indenture relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent have been complied with, except that in the case of any
such application or demand as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or demand, no additional certificate or opinion need be
furnished.

 

Each
certificate or opinion provided for in this Indenture (other than a certificate
provided pursuant to Section 4.3(d)) and delivered to the Trustee with respect
to compliance with a condition or covenant provided for in this Indenture shall
include (a) a statement that the person making such certificate or opinion has
read such covenant or condition, (b) a brief statement as to the nature and
scope of the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based, (c) a statement that, in
the opinion of such person, he has made such examination or investigation as is
necessary to enable him to express an 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 such person, such condition or covenant has been
complied with.

 

Any
certificate, statement or opinion of an officer of the Issuer or Hovnanian, as
applicable, may be based, insofar as it relates to legal matters, upon a
certificate or opinion of or representations by counsel, unless such officer
knows that the certificate or opinion or representations with respect to the
matters upon which his certificate, statement or opinion may

 

53

 

be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous.  Any
certificate, statement or opinion of counsel may be based, insofar as it
relates to factual matters, information with respect to which is in the
possession of the Issuer, or Hovnanian, as applicable, upon the certificate,
statement or opinion of or representations by an officer or officers of the
Issuer, or Hovnanian, as applicable, unless such counsel knows that the
certificate, statement or opinion or representations with respect to the
matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous.

 

Any
certificate, statement or opinion of an officer of the Issuer or Hovnanian, as
applicable, or of counsel may be based, insofar as it relates to accounting
matters, upon a certificate or opinion of or representations by an accountant
or firm of accountants in the employ of the Issuer or Hovnanian, as applicable,
unless such officer or counsel, as the case may be, knows that the certificate
or opinion or representations with respect to the accounting matters upon which
his certificate, statement or opinion may be based as aforesaid are erroneous,
or in the exercise of reasonable care should know that the same are erroneous.

 

Any
certificate or opinion of any independent firm of public accountants filed with
and directed to the Trustee shall contain a statement that such firm is independent.

 

SECTION 11.6. 
Payments Due on Saturdays, Sundays
and Holidays.  If the date of
maturity of principal of or interest, if any, on the Securities of any series
or the date fixed for redemption, purchase or repayment of any such Security
shall not be a Business Day, then payment of interest, if any, premium, if any,
or principal need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date
of maturity or the date fixed for redemption, purchase or repayment, and, in
the case of payment, no interest shall accrue for the period after such date.

 

SECTION 11.7. 
Conflict of Any Provision of
Indenture with Trust Indenture Act of 1939.  If and to the extent that any provision of
this Indenture limits, qualifies or conflicts with another provision included
in this Indenture which is required to be included herein by any of Sections
310 to 317 of the Trust Indenture Act of 1939, inclusive, or is deemed
applicable to this Indenture by virtue of the provisions of the Trust Indenture
Act of 1939, such required provision shall control.

 

SECTION 11.8. 
GOVERNING LAW.  THIS INDENTURE, EACH SECURITY AND EACH
GUARANTEE SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW
YORK AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE.

 

SECTION 11.9. 
Counterparts.  This Indenture may be executed in any number
of counterparts, each of which shall be an original; but such counterparts
shall together constitute but one and the same instrument.

 

SECTION 11.10.  Effect of Headings.  The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the
construction hereof.

 

54

 

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

 

ARTICLE TWELVE

REDEMPTION OF SECURITIES AND SINKING FUNDS

 

SECTION 12.1. 
Applicability of Article.  The provisions of this Article shall be
applicable to the Securities of any series which are redeemable before their
maturity or to any sinking fund for the retirement of Securities of a series
except as otherwise specified, as contemplated by Section 2.3 for Securities of
such series.

 

SECTION 12.2. 
Notice of Redemption; Partial
Redemptions.  Notice of
redemption to the Holders of Securities of any series to be redeemed as a whole
or in part at the option of the Issuer shall be given by mailing notice of such
redemption by first class mail, postage prepaid, at least 30 days and not more
than 60 days prior to the date fixed for redemption to such Holders of
Securities of such series at their last addresses as they shall appear in the
Security register.  Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the Holder receives the notice.  Failure to give notice by mail, or any
defect in the notice to the Holder of any Security of a series designated for
redemption as a whole or in part shall not affect the validity of the proceedings
for the redemption of any other Security of such series.

 

The notice of
redemption to each such Holder shall specify (i) the principal amount of each
Security of such series held by such Holder to be redeemed, (ii) the date fixed
for redemption, (iii) the redemption price, (iv) the place or places of
payment, (v) the CUSIP number relating to such Securities, (vi) that payment
will be made upon presentation and surrender of such Securities, (vii) whether
such redemption is pursuant to the mandatory or optional sinking fund, or both,
if such be the case, (viii) whether interest, if any, (or, in the case of
Original Issue Discount Securities, original issue discount) accrued to the
date fixed for redemption will be paid as specified in such notice and (ix)
whether on and after said date interest, if any, (or, in the case of Original
Issue Discount Securities, original issue discount) thereon or on the portions
thereof to be redeemed will cease to accrue. 
In case any Security of a series is to be redeemed in part only, the
notice of redemption shall state the portion of the principal amount thereof to
be redeemed and shall state that on and after the date fixed for redemption,
upon surrender of such Security, a new Security or Securities of such series in
principal amount equal to the unredeemed portion thereof will be issued.

 

The notice of
redemption of Securities of any series to be redeemed at the option of the
Issuer shall be given by the Issuer or, at the Issuer’s request, by the Trustee
in the name and at the expense of the Issuer. 
Notices of redemption may not be conditional.

 

On or before
the redemption date specified in the notice of redemption given as provided in
this Section 12.2, the Issuer will deposit with the Trustee or with one or more
paying agents (or, if the Issuer is acting as its own paying agent, set aside,
segregate and hold in trust as provided in Section 3.5) an amount of money
sufficient to redeem on the redemption date all the

 

55

 

Securities of
such series so called for redemption at the appropriate redemption price,
together with accrued interest, if any, to the date fixed for redemption.  The Issuer will deliver to the Trustee at
least 45 days prior to the date fixed for redemption (unless a shorter notice
period shall be satisfactory to the Trustee) an Officers’ Certificate stating
the aggregate principal amount of Securities to be redeemed.  In case of a redemption at the election of
the Issuer prior to the expiration of any restriction on such redemption, the
Issuer shall deliver to the Trustee, prior to the giving of any notice of
redemption to Holders pursuant to this Section, an Officers’ Certificate
stating that such restriction has been complied with.

 

If less than
all the Securities of a series are to be redeemed, the Trustee, within 10
Business Days after the Issuer gives written notice to the Trustee that such
redemption is to occur, shall select on a pro rata basis, by lot or in such
manner as it shall deem, in its sole discretion, appropriate and fair,
Securities of such series to be redeemed. 
Notice of the redemption shall be given only after such selection has
been made.  Securities may be redeemed
in part in multiples of $1,000 in original principal amount of Securities,
unless another minimum authorized denomination is specified for Securities of
such series, or any multiple thereof. 
The Trustee shall promptly notify the Issuer in writing of the
Securities of such series selected for redemption and, in the case of any
Securities of such series selected for partial redemption, the principal amount
thereof to be redeemed.  For all
purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities of any series shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security which has been or is to be
redeemed.

 

SECTION 12.3. 
Payment of Securities Called for
Redemption.  If notice of
redemption has been given as provided by this Article Twelve, the Securities or
portions of Securities specified in such notice shall become due and payable on
the date and at the place or places stated in such notice at the applicable
redemption price, together with interest, if any accrued to the date fixed for
redemption, and on and after said date (unless the Issuer shall default in the
payment of such Securities at the redemption price, together with interest, if
any, accrued to said date) interest, if any (or, in the case of Original Issue
Discount Securities, original issue discount), on the Securities or portions of
Securities so called for redemption shall cease to accrue, and such Securities
shall cease from and after the date fixed for redemption (unless an earlier
date shall be specified in a Board Resolution, Officers’ Certificate or
executed supplemental indenture referred to in Sections 2.1 and 2.3 by or
pursuant to which the form and terms of the Securities of such series were
established) except as provided in Sections 6.5 and 10.4, to be entitled to any
benefit or security under this Indenture, and the Holders thereof shall have no
right in respect of such Securities except the right to receive the redemption
price thereof and unpaid interest, if any, to the date fixed for
redemption.  On presentation and
surrender of such Securities at a place of payment specified in said notice,
said Securities or the specified portions thereof shall be paid and redeemed by
the Issuer at the applicable redemption price, together with interest, if any,
accrued thereon to the date fixed for redemption; provided that payment of
interest, if any, becoming due on or prior to the date fixed for redemption
shall be payable to the Holders of Securities registered as such on the
relevant record date subject to the terms and provisions of Sections 2.3 and
2.7 hereof.

 

If any
Security called for redemption shall not be so paid upon surrender thereof for
redemption, the redemption price shall, until paid or duly provided for, bear interest
from the

 

56

 

date fixed for
redemption at the rate of interest or Yield to Maturity (in the case of an
Original Issue Discount Security) borne by such Security.

 

Upon
presentation of any Security redeemed in part only, the Issuer shall execute
and the Trustee shall authenticate and deliver to or on the order of the Holder
thereof, at the expense of the Issuer, a new Security or Securities of such
series, and of like tenor, of authorized denominations, in principal amount
equal to the unredeemed portion of the Security so presented.

 

SECTION 12.4. 
Exclusion of Certain Securities from
Eligibility for Selection for Redemption.  Securities shall be excluded from eligibility for selection for
redemption if they are identified by registration and certificate number in an
Officers’ Certificate delivered to the Trustee at least 45 days prior to the
last date on which notice of redemption may be given as being owned of record
and beneficially by, and not pledged or hypothecated by either (a) the Issuer,
or (b) a Person specifically identified in such written statement as an
Affiliate of the Issuer.

 

SECTION 12.5. 
Mandatory and Optional Sinking Funds.  The minimum amount of any sinking fund
payment provided for by the terms of the Securities of any series is herein
referred to as a “mandatory sinking fund payment,” and any payment in excess of
such minimum amount provided for by the terms of the Securities of any series
is herein referred to as an “optional sinking fund payment.”  The date on which a sinking fund payment is
to be made is herein referred to as the “sinking fund payment date.”

 

In lieu of
making all or any part of any mandatory sinking fund payment with respect to
any series of Securities in cash, the Issuer may at its option (a) deliver to
the Trustee Securities of such series theretofore purchased or otherwise
acquired (except upon redemption pursuant to the mandatory sinking fund) by the
Issuer or receive credit for Securities of such series (not previously so
credited) theretofore purchased or otherwise acquired (except as aforesaid) by
the Issuer and delivered to the Trustee for cancellation pursuant to Section
2.10, (b) receive credit for optional sinking fund payments (not previously so
credited) made pursuant to this Section 12.5, or (c) receive credit for
Securities of such series (not previously so credited) redeemed by the Issuer
through any optional redemption provision contained in the terms of such
series.  Securities so delivered or credited
shall be received or credited by the Trustee at the sinking fund redemption
price specified in such Securities.

 

On or before
the 60th day next preceding each sinking fund payment date for any series, the
Issuer will deliver to the Trustee an Officers’ Certificate (a) specifying the
portion of the mandatory sinking fund payment to be satisfied by payment of
cash and the portion to be satisfied by credit of Securities of such series and
the basis for such credit, (b) stating that none of the Securities of such
series to be so credited has theretofore been so credited, (c) stating that no
defaults in the payment of interest or Events of Default with respect to such
series have occurred (which have not been waived or cured or otherwise ceased
to exist) and are continuing, and (d) stating whether or not the Issuer intends
to exercise its right to make an optional sinking fund payment with respect to
such series and, if so, specifying the amount of such optional sinking fund
payment which the Issuer intends to pay on or before the next succeeding
sinking fund payment date.  Any
Securities of such series to be credited and required to be delivered to

 

57

 

the Trustee in
order for the Issuer to be entitled to credit therefor as aforesaid which have
not theretofore been delivered to the Trustee shall be delivered for
cancellation pursuant to Section 2.10 to the Trustee with such Officers’
Certificate (or reasonably promptly thereafter if acceptable to the Trustee).  Such Officers’ Certificate shall be
irrevocable and upon its receipt by the Trustee the Issuer shall become
unconditionally obligated to make all the cash payments or payments therein
referred to, if any, on or before the next succeeding sinking fund payment
date.  Failure of the Issuer, on or
before any such 60th day, to deliver such Officers’ Certificate and Securities
(subject to the parenthetical clause in the second preceding sentence)
specified in this paragraph, if any, shall not constitute a default but shall
constitute, on and as of such date, the irrevocable election of the Issuer (i)
that the mandatory sinking fund payment for such series due on the next
succeeding sinking fund payment date shall be paid entirely in cash without the
option to deliver or credit Securities of such series in respect thereof, and
(ii) that the Issuer will make no optional sinking fund payment with respect to
such series as provided in this Section 12.5.

 

If the sinking
fund payment or payments (mandatory or optional or both) to be made in cash on
the next succeeding sinking fund payment date plus any unused balance of any
preceding sinking fund payments made in cash shall exceed $50,000, or a lesser
sum if the Issuer shall so request with respect to the Securities of any
particular series, such cash shall be applied on the next succeeding sinking
fund payment date to the redemption of Securities of such series at the sinking
fund redemption price together with accrued interest, if any, to the date fixed
for redemption.  If such amount shall be
$50,000 or less and the Issuer makes no such request, then it shall be carried
over until a sum in excess of $50,000 is available.  The Trustee shall select, in the manner provided in Section 12.2,
for redemption on such sinking fund payment date a sufficient principal amount
of Securities of such series to absorb said cash, as nearly as may be, and
shall (if requested in writing by the Issuer) inform the Issuer of the serial
numbers of the Securities of such series (or portions thereof) so
selected.  The Issuer, or the Trustee,
in the name and at the expense of the Issuer (if the Issuer shall so request
the Trustee in writing) shall cause notice of redemption of the Securities of
such series to be given in substantially the manner provided in Section 12.2
(and with the effect provided in Section 12.3) for the redemption of Securities
of such series in part at the option of the Issuer.  The amount of any sinking fund payments not so applied or
allocated to the redemption of Securities of such series shall be added to the
next cash sinking fund payment for such series and, together with such payment,
shall be applied in accordance with the provisions of this Section 12.5. Any
and all sinking fund moneys held on the stated maturity date of the Securities
of any particular series (or earlier, if such maturity is accelerated), which
are not held for the payment or redemption of particular Securities of such
series shall be applied, together with other moneys, if necessary, sufficient
for the purpose, to the payment of the principal of, and interest, if any, on,
the Securities of such series at maturity.

 

On or before
each sinking fund payment date, the Issuer shall pay to the Trustee in cash or
shall otherwise provide for the payment of all interest, if any, accrued to the
date fixed for redemption on Securities to be redeemed on such sinking fund
payment date.

 

The Trustee
shall not redeem or cause to be redeemed any Securities of a series with
sinking fund moneys or give any notice of redemption of Securities for such
series by operation of the sinking fund during the continuance of a default in
payment of interest on such Securities

 

58

 

or of any
Event of Default with respect to such series except that, where the giving of
notice of redemption of any Securities shall theretofore have been made, the
Trustee shall redeem or cause to be redeemed such Securities, provided that it
shall have received from the Issuer a sum sufficient for such redemption.  Except as aforesaid, any moneys in the
sinking fund for such series at the time when any such default or Event of
Default known to a Responsible Officer of the Trustee shall occur, and any
moneys thereafter paid into the sinking fund, shall, during the continuance of
such default or Event of Default, be deemed to have been collected under
Article Five and held for the payment of all such Securities.  In case such Event of Default shall have
been waived as provided in Section 5.7 or the default cured on or before the
60th day preceding the sinking fund payment date in any year, such moneys shall
thereafter be applied on the next succeeding sinking fund payment date in
accordance with this Section to the redemption of such Securities.

 

ARTICLE THIRTEEN

GUARANTEES

 

SECTION 13.1. 
Applicability of Article.  The provisions of this Article shall be
applicable to Hovnanian and to each of the Guarantors specified pursuant to
Section 2.3 for the Guarantee of Securities of a series.

 

 

SECTION 13.2. 
Guarantee.  Each Guarantor of a particular series of
Securities hereby unconditionally guarantees (each such guarantee to be
referred to herein as a “Guarantee”),
jointly and severally with each other Guarantor of the Securities of that
series, if any, to each Holder of such Securities authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns, irrespective
of the validity and enforceability of this Indenture, such Securities or the
obligations of the Issuer hereunder or thereunder, (i) the due and punctual
payment of the principal of and any premium or interest on such Securities,
whether at maturity or on an interest payment date, by acceleration, pursuant
to an offer to purchase such Securities or otherwise, and interest on the overdue
principal of and interest, if any, on such Securities, if lawful, and all other
obligations of the Issuer to the Holders of such Securities or the Trustee
hereunder or thereunder shall be promptly paid in full, all in accordance with
the terms hereof and thereof including all amounts payable to the Trustee under
Section 6.6 hereof, and (ii) in case of any extension of time of payment or
renewal of any such Securities 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, the Guarantor of the Securities of that series shall be obligated,
jointly and severally with each other Guarantor, if any, 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 Securities, this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities 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

 

59

 

Guarantor.  Each Guarantor hereby waives diligence,
presentment, demand of payment, demand of performance, filing of claims with a
court in the event of insolvency or 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 its Guarantee
shall not be discharged except by complete performance of the obligations
contained in the Securities guaranteed by such Guarantee, in this Indenture and
in this Article 13. If any Holder of Securities of a series guaranteed hereby
or the Trustee is required by any court or otherwise to return to the Issuer or
any Guarantor of such Securities, or any custodian, trustee, liquidator or
other similar official acting in relation to the Issuer or any Guarantor, any
amount paid by the Issuer or any Guarantor of such Securities to the Trustee or
such Holder, this Article 13, to the extent theretofore discharged with respect
to any Guarantee of such Securities, shall be reinstated in full force and
effect.  Each Guarantor agrees that it
shall not be entitled to any right of subrogation in relation to the Holders of
Securities of a series guaranteed hereby by such Guarantor in respect of any
obligations guaranteed hereby by such Guarantee until payment in full of all
such obligations.  Each Guarantor
further agrees that, as between such Guarantor, on the one hand, and the
Holders of Securities of a series guaranteed hereby by such Guarantor and the
Trustee on the other hand, (i) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article 5 hereof for the purposes of
such Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations guaranteed hereby
and (ii) in the event of any acceleration of such obligations as provided in
Article 5 hereof such obligations (whether or not due and payable) shall
forthwith become due and payable by such Guarantor, jointly and severally with any
other Guarantor of such Securities, for the purpose of this Article 13.  In addition, without limiting the foregoing,
upon the effectiveness of an acceleration under Article 5, the Trustee may make
a demand for payment on the Securities under any Guarantee provided hereunder
and not discharged.

 

With respect
to each Guarantee by a Guarantor, such Guarantor shall be subrogated to all
rights of the Holder of any Securities guaranteed hereby by such Guarantee
against the Issuer in respect of any amounts paid to such Holder by such
Guarantor pursuant to the provisions of such Guarantee; provided that the Guarantor shall not be
entitled to enforce, or to receive any payments arising out of or based upon,
such right of subrogation until the principal of and interest on all such
Securities shall have been paid in full.

 

The Guarantee
set forth in this Section 13.2 shall not be valid or become obligatory for any
purpose with respect to a Security until the certificate of authentication on
such Security shall have been signed by the Trustee or any duly appointed
agent.

 

SECTION 13.3. 
Obligations of the Guarantor
Unconditional.  Nothing
contained in this Article 13 or elsewhere in this Indenture or in any Security
is intended to or shall impair, as between a Guarantor and the Holders of the
Securities guaranteed by such Guarantor’s Guarantee, the obligations of such
Guarantor, which are absolute and unconditional, to pay to such Holders the
principal of and interest on the Securities as and when the same shall become
due and payable in accordance with the provisions of this Guarantee or is
intended to or shall affect the relative rights of such Holders and creditors
of such Guarantor, nor shall anything herein or therein prevent the Trustee or
such Holder from exercising all remedies otherwise permitted by applicable law
upon Default under this Indenture in respect of cash, property or securities of
such Guarantor received upon the exercise of any such remedy.

 

60

 

Upon any
distribution of assets of a Guarantor referred to in this Article 13, the
Trustee, subject to the provisions of Sections 6.1 and 6.2, and the Holders of
the Securities guaranteed hereby by such Guarantor 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 such 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 13.

 

SECTION 13.4. 
Article 13 Not To Prevent Events of
Default.  The failure to make
a payment on account of principal or interest on the Securities of any series
by reason of any provision in this Article 13 shall not be construed as
preventing the occurrence of an Event of Default under Section 5.1.

 

SECTION 13.5. 
Execution and Delivery of Guarantee.  To evidence a Guarantee set forth in this
Article 13, the Guarantor hereby agrees that the Guarantee Notation,
substantially in the form of Exhibit A hereto, shall be endorsed on each
Security authenticated and delivered by the Trustee that is guaranteed by such
Guarantee and that this Indenture or indenture supplemental hereto shall be
executed on behalf of such Guarantor by its Chairman of the Board, its
president or chief executive officer, any vice president, the chief financial
officer or the treasurer.  Such
signatures may be the manual or facsimile signatures of the present or any
future such officers.

 

Each Guarantor
hereby agrees that its Guarantee shall remain in full force and effect
notwithstanding any failure to endorse the Guarantee Notation on each such
Security.

 

If an officer
whose signature is on this Indenture or indenture supplemental hereto or on the
Securities guaranteed hereby no longer holds that office at the time the
Trustee authenticates the Security on which a notation of the Guarantee is
endorsed, such Guarantee shall be valid nevertheless.

 

The delivery
of any Security by the Trustee, after the authentication thereof hereunder,
shall constitute due delivery of each Guarantee thereof.

 

SECTION 13.6.  Limitation
on Guarantor Liability.Notwithstanding anything to the contrary in
this Article, each Guarantor, and by its acceptance of a Security, each Holder,
hereby confirms that it is the intention of all such parties that the Guarantee
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 Guarantee
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.

 

61

 

ARTICLE FOURTEEN

 

SECTION 14.1.  Release
of the Issuer.  The Issuer shall be released from its obligations under this Indenture
and the Securities, without the consent of the Holders, if: (1) Hovnanian or
any successor to Hovnanian has assumed the obligations of the Issuer under this
Indenture and the Securities, by supplemental indenture executed and delivered
to the Trustee and satisfactory in form to the Trustee, (2) Hovnanian delivers
an Opinion of Counsel to the Trustee to the effect that Holders will not
recognize income, gain or loss for United States federal income tax purposes as
a result of such release, and such Holders will be subject to United States
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such release had not occurred and (3) the
Issuer shall (w) become a Guarantor subject to the provisions of Article
Thirteen hereof, (x) execute a Guarantee Notation, substantially in the form of
Exhibit A hereto, (y) execute a supplemental indenture evidencing its Guarantee
and (z) deliver an Opinion of Counsel to the Trustee to the effect that the
supplemental indenture has been duly authorized, executed and delivered by the
Issuer and constitutes a valid and binding obligation of the Issuer,
enforceable against the Issuer in accordance with its terms (subject to
customary exceptions).

 

62

 

SIGNATURES

 

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

 

	
   

  	
  K. Hovnanian Enterprises, Inc.,

  As Issuer  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
        /s/
  Peter S. Reinhart 

  	
   

  
	
   

  	
   

  	
   Name:

  	
  Peter S.
  Reinhart 

  
	
   

  	
   

  	
   Title:

  	
  Senior
  Vice-President and

  General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Hovnanian Enterprises, Inc.,

  As Guarantor  

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
        /s/
  Peter S. Reinhart 

  	
   

  
	
   

  	
   

  	
   Name:

  	
  Peter S.
  Reinhart 

  
	
   

  	
   

  	
   Title:

  	
  Senior
  Vice-President and

  General Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
  Wachovia Bank, National

  Association, As Trustee

  	
   

  
	
   

  	
   

  
	
  By:

  	
        /s/
  Stephanie Roche

  	
   

  	
   

  
	
   

  	
   Name:

  	
  Stephanie
  Roche

  	
   

  
	
   

  	
   Title:

  	
  Vice
  President

  	
   

  
									

 

63

 

EXHIBIT A

 

 

[FORM OF
NOTATION OF SECURITY

 

RELATING TO
GUARANTEE]

 

GUARANTEE

 

[Name of
Guarantor] (hereinafter referred to as the “Guarantor”, which term includes any
successor person under the Indenture (the “Indenture”) referred to in the
Security upon which this notation is endorsed) (the “Endorsed Security”), has
unconditionally guaranteed, jointly and severally with each other Guarantor (i)
the due and punctual payment of the principal of, premium, if any, and interest
on the Endorsed Security and all other Securities of the same series as the
Endorsed Security (the “Guaranteed Securities”), whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal of, premium, if any, and interest, if any, on the Guaranteed
Securities, to the extent lawful, and the due and punctual performance of all
other obligations of the Issuer to the Holders of Guaranteed Securities or the
Trustee all in accordance with the terms set forth in Article 13 of the
Indenture and (ii) in case of any extension of time of payment or renewal of
any Guaranteed Securities 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.  Capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the
Indenture.

 

The
obligations of the Guarantor to the Holders of Guaranteed Securities and to the
Trustee pursuant to the Guarantee evidenced hereby and the Indenture are
expressly set forth in Article 13 of the Indenture and reference is hereby made
to such Indenture for the terms of such Guarantee.

 

No
stockholder, officer, director, employee or incorporator, as such, past,
present or future, of the Guarantor shall have any personal liability under the
Guarantee evidenced hereby by reason of his or its status as such stockholder,
officer, director, employee or incorporator. 
Each Holder of a Guaranteed Security by accepting a Guaranteed Security
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 Guaranteed Security by accepting a Guaranteed Security 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
evidenced hereby shall not be valid or obligatory for any purpose until the
certificate of authentication of the Guaranteed Securities shall have been
executed by the Trustee under the Indenture by the manual signature of one of
its authorized officers.

 

Guarantor

 

64

 

	
   

  	
  [NAME OF
  GUARANTOR]

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
  Title:

  

 

65

 

EXHIBIT B

 

SUBSIDIARY
GUARANTORS THAT ARE ELIGIBLE 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,
INC.

K. HOVNANIAN
ACQUISITIONS, INC.

K. HOVNANIAN
AT ASHBURN VILLAGE, INC.

K. HOVNANIAN
AT BALLANTRAE ESTATES, 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 HILLS, 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.

 

66

 

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.

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.

K. HOVNANIAN
AT MAHWAH V, INC.

K. HOVNANIAN
AT MAHWAH VI, INC.

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
OF 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 PRINCETON, INC.

K. HOVNANIAN
AT RANCHO CHRISTIANITOS, INC.

K. HOVNANIAN
AT RESERVOIR RIDGE, INC.

K. HOVNANIAN
AT RIVER OAKS, INC.

 

67

 

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 III, INC.

K. HOVNANIAN
AT SOUTH BRUNSWICK V, INC.

K. HOVNANIAN
AT STONE CANYON, INC.

K. HOVNANIAN
AT STONEGATE, INC.

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 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 UPPER MERION, 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 ARIZONA, INC.

K. HOVNANIAN
DEVELOPMENTS OF CALIFORNIA, INC.

K. HOVNANIAN
DEVELOPMENTS OF MARYLAND, INC.

K. HOVNANIAN
DEVELOPMENTS OF METRO WASHINGTON, INC.

K. HOVNANIAN
DEVELOPMENTS OF MICHIGAN, INC.

 

68

 

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
DEVELOPMENTS OF WEST VIRGINIA, 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.

M&M AT
LONG BRANCH, 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.

WESTMINSTER
HOMES, INC.

WH LAND I, INC

WH LAND II,
INC.

WH PROPERTIES,
INC.

 

69

 

ARBOR WEST,
L.L.C.

DULLES
COPPERMINE, L.L.C.

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

K. HOVNANIAN
AT ARBOR HEIGHTS, LLC

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 BRIDGEWATER I, 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 CORTEZ HILL, 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 EASTLAKE, L.L.C.

K. HOVNANIAN
AT EDGEWATER, L.L.C.

K. HOVNANIAN
AT EGG HARBOR TOWNSHIP, 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 JERSEY CITY V URBAN RENEWAL CO., 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 LA COSTA, L.L.C.

K. HOVNANIAN
AT LA HABRA KNOLLS, 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.

 

70

 

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 NORTHAMPTON, 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 SKYE ISLE, L.L.C.

K. HOVNANIAN
AT SMITHVILLE III, L.L.C.

K. HOVNANIAN
AT SOMERS POINT, L.L.C.

 

71

 

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 UPPER UWCHLAN II, 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 AT GOLD HILL, L.L.C.

K. HOVNANIAN
FOUR SEASONS AT HISTORIC VIRGINIA, L.L.C.

K. HOVNANIAN
GREAT WESTERN BUILDING COMPANY, L.L.C.

K. HOVNANIAN
GREAT WESTERN HOMES, 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
SUMMIT HOMES OF MICHIGAN, L.L.C.

K. HOVNANIAN
SUMMIT HOMES OF WEST VIRGINIA, L.L.C.

K. HOVNANIAN’S
FOUR SEASONS AT BEAUMONT, L.L.C.

K. HOVNANIAN’S
FOUR SEASONS AT HEMET, L.L.C.

K. HOVNANIAN’S
FOUR SEASONS AT PALM SPRINGS, L.L.C.

 

72

 

K. HOVNANIAN’S
FOUR SEASONS AT VINT HILL, 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.

M&M AT
EAST MILL, L.L.C.

M&M AT
HERITAGE WOODS, L.L.C.

M&M AT
KENSINGTON 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.

RIDGEMORE
UTILITY, L.L.C.

THE LANDINGS
AT SPINNAKER POINTE, L.L.C.

WASHINGTON
HOMES AT COLUMBIA TOWN CENTER, 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.

 

73Exhibit 4.2

 

 

K. HOVNANIAN ENTERPRISES, INC.

HOVNANIAN ENTERPRISES, INC.

AND THE OTHER GUARANTORS PARTY HERETO

 

61⁄2% Senior Notes due 2014

 

First Supplemental Indenture

 

Dated as of November 3, 2003

 

WACHOVIA BANK, NATIONAL ASSOCIATION,

 

as Trustee

 

 

 

TABLE
OF CONTENTS

 

 

	
  ARTICLE 1

  
	
  SCOPE OF SUPPLEMENTAL INDENTURE; GENERAL

  
	
   

  
	
  Section 1.01. 
  Scope of Supplemental Indenture; General

  
	
   

  
	
  ARTICLE 2

  
	
  CERTAIN DEFINITIONS

  
	
   

  
	
  Section 2.01. 
  Certain Definitions

  
	
  Section 2.02. 
  Rules of Construction

  
	
   

  
	
  ARTICLE 3

  
	
  COVENANTS

  
	
   

  
	
  Section 3.01.  Existence

  
	
  Section 3.02. 
  Payment of Taxes and Other Claims

  
	
  Section 3.03. 
  Maintenance of Properties and Insurance

  
	
  Section 3.04. 
  Repurchase of Notes Upon Change of Control.

  
	
  Section 3.05. 
  Limitations on Indebtedness.

  
	
  Section 3.06. 
  Limitations on Restricted Payments.

  
	
  Section 3.07. 
  Limitations on Transactions with Affiliates.

  
	
  Section 3.08. 
  Limitations on Dispositions of Assets

  
	
  Section 3.09. 
  Offer to Purchase

  
	
  Section 3.10. 
  Limitations on Liens

  
	
  Section 3.11. 
  Limitations on Restrictions Affecting Restricted Subsidiaries

  
	
  Section 3.12. 
  Limitations on Mergers, Consolidations and Sales of Assets

  
	
  Section 3.13. 
  Reports to Holders of Notes

  
	
  Section 3.14. 
  Limitation of Applicability of Certain Covenants if Notes Rated
  Investment Grade.

  
	
  Section 3.15. 
  Applicability of Covenants Contained in the Base Indenture

  
	
   

  
	
  ARTICLE 4

  
	
  REMEDIES

  
	
   

  
	
  Section 4.01. 
  Events of Default.

  
	
  Section 4.02. 
  Additional Provisions Related to Events of Default

  

 

i

 

	
  ARTICLE 5

  
	
  GUARANTEES; RELEASE OF GUARANTOR

  
	
   

  
	
  Section 5.01. 
  Unconditional Guarantees

  
	
  Section 5.02. 
  Release of a Guarantor

  
	
  Section 5.03. 
  Guarantors as “Obligors” for Provisions Included in the Indenture
  Pursuant to the Trust Indenture Act of 1939

  
	
   

  
	
  ARTICLE 6

  
	
  DEFEASANCE

  
	
   

  
	
  Section 6.01.  Defeasance

  
	
  Section 6.02. 
  Additional Provisions to Survive Legal Defeasance and Discharge

  
	
  Section 6.03. 
  Additional Covenant Defeasance

  
	
   

  
	
  ARTICLE 7

  
	
  THE NOTES

  
	
   

  
	
  Section 7.01.  Form of Notes

  
	
  Section 7.02.  Depositary

  
	
  Section 7.03. 
  Certificated Notes

  
	
   

  
	
  ARTICLE 8

  
	
  REDEMPTION

  
	
   

  
	
  Section 8.01. 
  Optional Redemption

  
	
  Section 8.02. 
  Sinking Fund; Mandatory Redemption

  
	
  Section 8.03. 
  Applicability of Sections of the Base Indenture

  
	
   

  
	
  ARTICLE 9

  
	
  AMENDMENTS, SUPPLEMENTS AND WAIVERS

  
	
   

  
	
  Section 9.01. 
  Amendments, Supplements and Waivers

  
	
  Section 9.02. 
  Payments for Consents

  
	
   

  
	
  ARTICLE 10

  
	
  RELEASE OF ISSUER

  
	
   

  
	
  Section 10.01. 
  Release of Issuer

  
	
   

  
	
  ARTICLE 11

  
	
  MISCELLANEOUS

  
	
   

  
	
  Section 11.01.  GOVERNING LAW

  

 

ii

 

	
  Section 11.02. 
  No Adverse Interpretation of Other Agreements

  
	
  Section 11.03. 
  Successors and Assigns

  
	
  Section 11.04.  Counterparts

  
	
  Section 11.05.  Severability

  
	
  Section 11.06. 
  Effect of Headings

  
	
  Section 11.07. 
  Conflict of Any Provision of Indenture with Trust Indenture Act of
  1939

  
	
   

  
	
  SCHEDULE:

  
	
  1.

  	
  Guarantors

  
	
   

  	
   

  
	
  EXHIBIT:

  
	
  A.

  	
  Form
  of Note

  
	
  B.

  	
  Form
  of Supplemental Indenture

  

 

iii

 

FIRST
SUPPLEMENTAL INDENTURE dated as of November 3, 2003 (“Supplemental Indenture”) to
the Indenture dated as of November 3, 2003 (the “Base Indenture” and as
supplemented by this Supplemental Indenture, the “Indenture”), by and among K.
HOVNANIAN ENTERPRISES, INC., a California corporation (the “Issuer”),
HOVNANIAN ENTERPRISES, INC., a Delaware Corporation (“Hovnanian”), each of the
Guarantors (as defined herein) and WACHOVIA BANK, NATIONAL ASSOCIATION, as
trustee (the “Trustee”).

 

Each party
agrees as follows for the benefit of the other party and for the equal and
ratable benefit of the holders of Notes (as defined herein):

 

WHEREAS,
Hovnanian and the Issuer have duly authorized the execution and delivery of the
Base Indenture to provide for the issuance from time to time of the Issuer’s
unsecured senior debt securities (the “Securities”) and the Guarantees thereof to
be issued in one or more series as in the Indenture provided;

 

WHEREAS,
Hovnanian, the Issuer and the Guarantors desire and have requested the Trustee
to join them in the execution and delivery of this Supplemental Indenture in
order to establish and provide for the issuance by the Issuer of a series of
Securities designated as its 61⁄2% Senior Notes due 2014 (the “Notes”),
substantially in the form attached hereto as Exhibit A and guaranteed by
Hovnanian and the Guarantors (as defined herein), on the terms set forth
herein;

 

WHEREAS, the
Issuer now wishes to issue Notes in an aggregate principal amount of
$215,000,000;

 

WHEREAS,
Section 8.1 of the Base Indenture provides that a supplemental indenture
may be entered into without the consent of the holders of any Securities by
Hovnanian, the Issuer, the Guarantors and the Trustee for such purpose provided
certain conditions are met;

 

WHEREAS, the
conditions set forth in the Indenture for the execution and delivery of this
Supplemental Indenture have been complied with; and

 

WHEREAS, all
things necessary to make this Supplemental Indenture a valid agreement of
Hovnanian, the Issuer, the Guarantors and the Trustee, in accordance with its
terms, and a valid amendment of, and supplement to, the Base Indenture have
been done;

 

NOW,
THEREFORE:

 

 

In
consideration of the premises and the purchase and acceptance of the Notes by
the holders thereof Hovnanian, the Issuer and the Guarantors mutually covenant
and agree with the Trustee, for the equal and ratable benefit of the holders of
the Notes, that the Base Indenture is supplemented and amended, to the extent
expressed herein, as follows:

 

 

ARTICLE 1

SCOPE OF SUPPLEMENTAL INDENTURE; GENERAL

 

Section 1.01.  Scope of Supplemental Indenture;
General.  This Supplemental
Indenture supplements, and to the extent inconsistent therewith, replaces the
provisions of the Indenture, to which provisions reference is hereby made.

 

The changes,
modifications and supplements to the Indenture effected by this Supplemental
Indenture shall be applicable only with respect to, and govern the terms of,
the Notes (which shall be initially in the aggregate principal amount of
$215,000,000) and shall not apply to any other Securities that may be issued
under the Indenture unless a supplemental indenture with respect to such other
Securities specifically incorporates such changes, modifications and
supplements.  Pursuant to this
Supplemental Indenture, there is hereby created and designated a series of
Securities under the Indenture entitled “61⁄2% Senior Notes due 2014.”  The Notes shall be in the form of Exhibit A
hereto, the terms of which are incorporated herein by reference.  The Notes shall be guaranteed by Hovnanian
and the Guarantors as provided in such form and the Indenture.

 

Subject to
Section 3.05 hereof, the Issuer may issue additional notes subsequent to
the Issue Date (such notes, the “Additional Notes”) of the same series as
the Notes.  In the event that the Issuer
shall issue and the Trustee shall authenticate any Additional Notes issued
under this Supplemental Indenture subsequent to the Issue Date, the Issuer
shall use its best efforts to obtain the same “CUSIP” number for such Notes as
is printed on the Notes outstanding at such time; provided, however, that if
any series of Notes issued under this Supplemental Indenture subsequent to the
Issue Date is determined, pursuant to an Opinion of Counsel in a form
reasonably satisfactory to the Trustee, to be a different class of security
than the Notes outstanding at such time for federal income tax purposes, the
Issuer may obtain a “CUSIP” number for such Notes that is different than the
“CUSIP” number printed on the Notes then outstanding. Notwithstanding the
foregoing, all Notes issued under this Supplemental Indenture shall vote and
consent together on all matters as one class, including without limitation,
waivers, amendments, redemption and Offers to Purchase, and no Notes will have
the right to vote or consent as a separate class from other Notes on any
matter.

 

2

 

ARTICLE 2

CERTAIN DEFINITIONS

 

Section 2.01.  Certain Definitions.  Section 1.1 of the Base
Indenture is hereby amended by adding the following definitions in their proper
alphabetical order which, in the event of a conflict with the definition of
terms in the Indenture, shall govern. 
Capitalized terms used but not defined herein have the meanings ascribed
to such terms in the Base Indenture.

 

“Acquired
Indebtedness” means (a) with respect to any Person that becomes a
Restricted Subsidiary (or is merged into Hovnanian, 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 Hovnanian, 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 Hovnanian,
the Issuer or any Restricted Subsidiary) and (b) with respect to Hovnanian, the
Issuer or any Restricted Subsidiary, any Indebtedness expressly assumed by
Hovnanian, the Issuer or any Restricted Subsidiary in connection with the
acquisition of any assets from another Person (other than Hovnanian, 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 Hovnanian or a
Restricted Subsidiary, as the case may be, at the time such Person becomes a
Restricted Subsidiary (or is merged into Hovnanian, 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
Notes” has the meaning ascribed to it in Article 1 hereof.

 

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

 

“Affiliate
Transaction” has the meaning ascribed to it in Section 3.07(a)
hereof.

 

“Applicable Debt”
means all Indebtedness of Hovnanian or any of its Restricted Subsidiaries (a)
under Credit Facilities or (b) that is publicly traded (including in the Rule
144A market), including without limitation the Issuer’s senior notes and senior
subordinated notes outstanding on the Issue Date.

 

3

 

“Asset
Acquisition” means (a) an Investment by Hovnanian, 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 Hovnanian, the Issuer or any Restricted Subsidiary or
(b) the acquisition by Hovnanian, 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 Hovnanian, 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
Hovnanian, 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 (i) homes, improved land and unimproved land
and (ii) 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 Hovnanian, the Issuer or any Restricted Subsidiary for assets that
(x) are to be used by Hovnanian, 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 3.12 hereof, or

 

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

 

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

 

4

 

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

 

“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’ 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) above 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).

 

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

 

5

 

“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 Hovnanian 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 Hovnanian 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)
Hovnanian or (y) the Permitted Hovnanian Holders) becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act) of Common
Equity of Hovnanian representing more than 50% of the voting power of the
Common Equity of Hovnanian;

 

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

 

(d)           the stockholders of
Hovnanian approve any plan or proposal for the liquidation or dissolution of
Hovnanian; provided,
however, that a liquidation or dissolution of Hovnanian 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 Hovnanian or the Issuer which requires Hovnanian or the Issuer to
repay or repurchase such debt securities.

 

“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.

 

“Consolidated
Adjusted Tangible Assets” of Hovnanian as of any date means the
Consolidated Tangible Assets of Hovnanian, 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

 

6

 

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

 

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 Hovnanian, 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 Hovnanian, the
Issuer or any Restricted Subsidiary (including any Person that becomes a
Restricted Subsidiary as a result of any such Asset

 

7

 

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

 

(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 Hovnanian for any period means the Interest
Expense of Hovnanian, 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
Hovnanian, 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 Hovnanian and its Subsidiaries for such period, determined on

 

8

 

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 Hovnanian, 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 Hovnanian, 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 Hovnanian’s,
the Issuer’s or such Restricted Subsidiary’s (as 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 Hovnanian, 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 Hovnanian 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
Hovnanian, the Issuer or any Restricted Subsidiary resulting from (i) the
acquisition of securities, or extinguishment of Indebtedness, of Hovnanian or
any Restricted Subsidiary or (ii) any Asset Disposition by Hovnanian or any
Restricted Subsidiary,

 

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

 

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

 

9

 

provided, further,
that for purposes of calculating Consolidated Net Income solely as it relates
to clause (iii) of Section 3.06(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.

 

“Consolidated
Tangible Assets” of Hovnanian as of any date means the total amount
of assets of Hovnanian, 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 Hovnanian on the date of the Indenture or who became a director of
Hovnanian subsequent to such date and whose election or nomination for election
by Hovnanian’s stockholders, was duly approved by a majority of the Continuing
Directors on the Board of Directors of Hovnanian at the time of such approval,
either by a specific vote or by approval of the proxy statement issued by
Hovnanian on behalf of the entire Board of Directors of Hovnanian 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.

 

“Credit
Facilities” means, collectively, each of the credit facilities and
lines of credit of Hovnanian 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 Hovnanian or one or more Restricted Subsidiaries and
one or more lenders pursuant to which Hovnanian 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

 

10

 

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.

 

“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.

 

“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 Hovnanian 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 the provisions of Section 3.04
hereof and such Capital Stock specifically provides that Hovnanian will not
repurchase or redeem any such Capital Stock pursuant to such provisions prior
to Hovnanian’s repurchase of the Notes as are required pursuant to
Section 3.04 hereof.

 

“DTC”
has the meaning ascribed to such term in Section 7.02 hereof.

 

“Event of
Default” means any event specified as such in Section 4.01
hereof.

 

“expiration
date” has the meaning ascribed to it in Section 3.09(b) hereof.

 

11

 

“Extinguished
Covenants” has the meaning ascribed to such term in
Section 3.14 hereof.

 

“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 Hovnanian or a duly authorized committee thereof, as evidenced by
a resolution of such Board or committee.

 

“GAAP”
or “generally accepted accounting principles” 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”
has the meaning ascribed to such term in Section 7.01 hereof.

 

“Global Note
Holder” has the meaning ascribed to such term in Section 7.02
hereof.

 

“guarantee”
means any obligation, contingent or otherwise, of any Person directly or
indirectly guaranteeing any Indebtedness of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person: (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness of such other
Person (whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee against
loss in respect thereof, in whole or in part; provided that the term
“guarantee” does not include endorsements for collection or deposit in the
ordinary course of business.  The term
“guarantee” used as a verb has a corresponding meaning.

 

“Guarantors”
means (i) initially, Hovnanian and each of the other Guarantors signatory
hereto as set forth on Schedule 1 hereto, which includes each of
Hovnanian’s Restricted Subsidiaries in existence on the Issue Date, other than
the Issuer, KHL, Inc. and K. Hovnanian Poland, sp.z.o.o. and (ii) each of
Hovnanian’s Subsidiaries which becomes a Guarantor of the Notes pursuant to

 

12

 

the provisions of this Indenture, and their successors, in each case
until released from its Guarantee pursuant to this Indenture.

 

“Holder”,
“Holder
of Securities”, “securityholder” and similar terms mean in
the case of a Note, the Person in whose name such Note is registered in the
books of the security register for the Notes.

 

“Hovnanian”
has the meaning ascribed to it in the preamble hereof and shall also refer to
any successor under the Indenture.

 

“incurrence”
has the meaning ascribed to it in Section 3.05(a) hereof.

 

“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 Hovnanian and its Restricted
Subsidiaries will not include the obligations of Hovnanian 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 3.06 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”
has the meaning ascribed to it in the preamble hereof.

 

“Intangible
Assets” of Hovnanian 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 Hovnanian, 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 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 non-cash interest expense (other
than interest and other charges amortized to cost of sales), and (b) all
interest actually paid by Hovnanian 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
Hovnanian, the Issuer or any Restricted Subsidiary during such period; provided,
that Interest Expense shall exclude any expense associated with the complete
write-off of financing fees and expenses in connection with the repayment of
any Indebtedness.

 

14

 

“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
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.

 

“Investment Grade” means, with respect to a debt rating of the
Notes, a rating of Baa3 or higher by Moody’s together with a rating of BBB- or
higher by S&P or, in the event S&P or Moody’s or both shall cease
rating the Notes (for reasons outside the control of Hovnanian or the Issuer)
and Hovnanian shall select any other Rating Agency, the equivalent of such
ratings by such other Rating Agency.

 

“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 November 3, 2003.

 

“Issuer”
has the meaning ascribed to it in the preamble hereof and shall also refer to
any successor obligor 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. 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.

 

“Make-Whole
Amount” means, in connection with any optional redemption of any
Note pursuant to Section 8.01 hereof, the excess, if any, of: (a) the
aggregate present value as of the date of such redemption of each dollar of
principal being redeemed and the amount of interest (exclusive of interest
accrued to the redemption date) that would have been payable in respect of such
dollar if such prepayment had not been made, determined by discounting, on a semiannual

 

15

 

basis, such principal and interest at the Treasury Rate (determined on
the business day preceding the date of such redemption) plus 0.5%, from the
respective dates on which such principal and interest would have been payable
if such payment had not been made; over (b) the principal amount of the Note
being redeemed.

 

“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 Hovnanian 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 non-cash 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 Hovnanian, 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-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

 

16

 

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, waste and mechanics’ liens.

 

“Notes”
has the meaning ascribed to it in the preamble hereof.

 

“Offer”
has the meaning ascribed to it in Section 3.09(a) hereof.

 

“Offer to
Purchase” has the meaning ascribed to it in Section 3.09(a)
hereof.

 

“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.

 

“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 Hovnanian and its Subsidiaries to the trustees under
indentures for debt securities;

 

(c)           intercompany debt
obligations of (i) Hovnanian to the Issuer, (ii) the Issuer to Hovnanian,
(iii) Hovnanian or the Issuer to any Restricted Subsidiary and (iv) any
Restricted Subsidiary to Hovnanian or the Issuer or any other Restricted
Subsidiary; provided,
however, that any Indebtedness of any Restricted Subsidiary or the
Issuer or Hovnanian owed to any Restricted

 

17

 

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 3.05(a) hereof at the time the Restricted Subsidiary
in question ceases to be a Restricted Subsidiary;

 

(d)           Indebtedness of
Hovnanian 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;

 

(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 Hovnanian 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
Hovnanian 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
Hovnanian, 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, Hovnanian or a Restricted
Subsidiary;

 

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

 

18

 

(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 Hovnanian or any Restricted
Subsidiary made in the ordinary course of business or in accordance with past
practice; provided,
however, that any such loan or advance exceeding $1 million shall
have been approved by the Board of Directors of Hovnanian 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
Hovnanian 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

 

19

 

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 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 Hovnanian, 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 Hovnanian, 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 Hovnanian, 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 Hovnanian, the Issuer or any Restricted Subsidiary permitted to
be incurred under the Indenture; provided, that the aggregate amount of all
consolidated Indebtedness of Hovnanian, 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),

 

20

 

(j)            Liens securing
Non-Recourse Indebtedness of Hovnanian, 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 Hovnanian, the Issuer or any Restricted Subsidiary securing
Indebtedness of Hovnanian, the Issuer or any Restricted Subsidiary owing to
Hovnanian, 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 Hovnanian 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 Hovnanian, 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
Hovnanian, 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 Hovnanian, 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,

 

21

 

(t)            Liens incurred in the
ordinary course of business as security for the obligations of Hovnanian, 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 Hovnanian or any Subsidiary of Hovnanian or becomes a Subsidiary of
Hovnanian; 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 Hovnanian or the Subsidiary or
acquired by Hovnanian or its Subsidiaries,

 

(v)           Liens on property
existing at the time of acquisition thereof by Hovnanian or any Subsidiary of
Hovnanian, 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 amount”
has the meaning ascribed to it in Section 3.09(b) hereof.

 

“purchase
date” has the meaning ascribed to it in Section 3.09(b) hereof.

 

“Purchase
Money Indebtedness” means Indebtedness of Hovnanian, 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

 

22

 

property to be used in the ordinary course of business by Hovnanian,
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 Hovnanian other than Disqualified
Stock.

 

“Rating Agency” means
a statistical rating agency or agencies, as the case may be, nationally
recognized in the United States and selected by Hovnanian (as certified by a
resolution of the Board of Directors of Hovnanian) which shall be substituted
for S&P or Moody’s, or both, as the case may be.

 

“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
Hovnanian, the Issuer or any Restricted Subsidiary (to the extent not Permitted
Indebtedness) outstanding on the Issue Date or other Indebtedness (to the
extent not Permitted Indebtedness) permitted to be incurred by Hovnanian, 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 Guarantees, 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.

 

23

 

“Registrar”
means a Person engaged to maintain the security register for the Notes.

 

“Repurchase
Date” has the meaning ascribed to it in Section 3.04(a) hereof.

 

“Restricted
Payment” means any of the following:

 

(a)           the declaration or
payment of any dividend or any other distribution on Capital Stock of
Hovnanian, 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
Hovnanian, 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
Hovnanian, the Issuer or a Restricted Subsidiary);

 

(b)           the purchase,
redemption or other acquisition or retirement for value of any Capital Stock of
Hovnanian, the Issuer or any Restricted Subsidiary (other than a payment made
to Hovnanian, 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 Hovnanian as an
Unrestricted Subsidiary) and any amounts paid in accordance with clause (b) of
the definition of Indebtedness.

 

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

 

“S&P”
means Standard and Poor’s Ratings Service, a division of McGraw Hill, Inc., a
New York corporation or any successor to its debt rating business.

 

“Securities”
has the meaning ascribed to it in the preamble hereof.

 

“Significant
Subsidiary” means any Subsidiary of Hovnanian which would constitute
a “significant
subsidiary” as defined in Rule 1-02(w)(1) or (2) of Regulation S-X
under the Securities Act and the Exchange Act as in effect on the Issue Date.

 

“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.

 

“Successor”
has the meaning ascribed to it in Section 3.12(a) hereof.

 

24

 

“Supplemental
Indenture” has the meaning ascribed to it in the preamble hereof.

 

“Treasury
Rate” means, in connection with the calculation of any Make-Whole
Amount with respect to any Note, the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity, as
compiled by and published in the most recent Federal Reserve Statistical Release
H.15 (519) that has become publicly available at least two business days prior
to the redemption date (or, if such Statistical Release is no longer published,
any publicly available source or similar market data), equal to the then
remaining maturity of the Note being prepaid. 
If no maturity exactly corresponds to such maturity, yields for the
published maturities occurring prior to and after such maturity most closely
corresponding to such maturity shall be calculated pursuant to the immediately
preceding sentence and the Treasury Rate shall be interpolated or extrapolated
from such yields on a straight-line basis, rounding in each of such relevant
periods to the nearest month.

 

“Trustee”
means the party named in the preamble hereof until a successor replaces such
party in accordance with the applicable provisions of the Indenture and
thereafter means the successor serving hereunder.

 

“Unrestricted
Subsidiary” means any Subsidiary of Hovnanian so designated by a
resolution adopted by the Board of Directors of Hovnanian 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 Hovnanian,
the Issuer or any Restricted Subsidiary, and neither Hovnanian, 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 Hovnanian, 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 Hovnanian, the Issuer or any
Restricted Subsidiary.  As of the Issue
Date, the Unrestricted Subsidiaries will be the following:

 

Athena
Portfolio Investors, L.P., Brightbeach Development, Ltd., Brighton Homes At
Walden, Ltd., Brighton Homes At Walden Management, L.L.C., Corner Of The Zone,
L.L.C., Eastern Title Agency, Inc., Founders Title Agency, Inc., Gosling Road
Development Co., Inc., Governor’s Abstract Co., Inc.,

 

25

 

Heritage Pines, L.L.C., 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 At Port Imperial Urban Renewal II, L.L.C., K. Hovnanian At Port
Imperial Urban Renewal III, L.L.C., K. Hovnanian Investment Properties, Inc.,
K. Hovnanian Mortgage, Inc., K. Hovnanian Summit Homes of Pennsylvania,
L.L.C., K. Hovnanian Venture I, L.L.C., K. Hovnanian Winward Homes, L.L.C.,
Kings Crossing at Montgomery, L.L.C., Laurel Highlands, L.L.C., McKinley Court,
L.L.C., M&M At Monroe Woods, L.L.C., MM-Beachfront North I, L.L.C., New
Homebuyers Title Company, L.L.C., New Homebuyers Title Co. (Virginia) L.L.C.,
New Homebuyer’s Title, L.L.C., Paddocks, L.L.C., Parkway Development, Sovereign
Group, L.P., Pinnacle Mortgage Group, Inc., Preston Grande Homes, Inc., RR
Houston Developers, L.L.C., RR Houston Development, L.P., RR Houston
Investment, L.P., RR Houston Investors, L.L.C., Section 13 of the Hills,
L.L.C., Title Group II, L.L.C., Town Homes at Montgomery, L.L.C., 12th Street
Residential, Ltd., Washington Homes at Renaissance Plaza, L.L.C., WHI-Republic,
L.L.C., and Wright Farm, L.L.C.

 

Subject to the
foregoing, the Board of Directors of Hovnanian 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 Hovnanian
and the Restricted Subsidiaries in such Subsidiary will be deemed to be a
Restricted Payment at the time of such designation and will reduce the amount
available for Restricted Payments under Section 3.06 hereof to the extent
provided therein, (b) Hovnanian must be permitted under Section 3.06
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 Hovnanian or any
Restricted Subsidiary (but not in contemplation or anticipation of such merger)
shall not be counted as an Investment by Hovnanian or such Restricted
Subsidiary if such Subsidiary of such Person is designated as an Unrestricted
Subsidiary.

 

The Board of
Directors of Hovnanian 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 3.05 hereof and (b) immediately after giving effect to such
redesignation and the incurrence of any such additional Indebtedness, Hovnanian
and the Restricted Subsidiaries could incur $1.00 of additional Indebtedness
under Section 3.05(a) hereof.  Any
such designation or redesignation by the Board of Directors of Hovnanian or a
committee thereof will be evidenced to the Trustee

 

26

 

by the filing with the Trustee of a certified copy of the resolution of
the Board of Directors of Hovnanian 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 Hovnanian of which more than 95% of the equity interest is held
by Hovnanian 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.

 

Section 2.02.  Rules of Construction.  Unless the context otherwise
requires or except as otherwise expressly provided, an accounting term not
otherwise defined has the meaning assigned to it in accordance with GAAP.

 

 

ARTICLE 3

COVENANTS

 

Section 3.01.  Existence.  Hovnanian 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 Hovnanian, the Issuer and each
Restricted Subsidiary, provided that Hovnanian 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 Hovnanian and its Restricted
Subsidiaries taken as a whole; and provided further that this
Section does not prohibit any transaction otherwise permitted by Sections
3.08 and 3.12 hereof.

 

Section 3.02.  Payment of Taxes and Other
Claims.  Hovnanian will pay
or discharge, and cause each of its Subsidiaries to pay or discharge before the
same

 

27

 

become delinquent (a) all material taxes, assessments and governmental
charges levied or imposed upon Hovnanian 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 Hovnanian
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 3.03.  Maintenance of Properties and
Insurance.  (a)  Hovnanian
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 Hovnanian may be
necessary so that the business of Hovnanian and its Restricted Subsidiaries may
be properly and advantageously conducted at all times; provided that nothing in
this Section prevents Hovnanian 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 Hovnanian, desirable in the conduct of the business of Hovnanian
and its Restricted Subsidiaries taken as a whole.

 

(b)           Hovnanian 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 Hovnanian and its Restricted Subsidiaries are
then conducting business.

 

Section 3.04.  Repurchase of Notes Upon 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, 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 and to the Trustee 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

 

28

 

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 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 the Exchange Act and Rule
l4e-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 3.05.  Limitations on Indebtedness.

 

(a)           Hovnanian 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), Hovnanian, in its sole discretion,

 

29

 

(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

 

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

 

(d)      Hovnanian
and the Issuer will not, and will not cause or permit any Guarantor to,
directly or indirectly, in any event incur any Indebtedness that purports to be
by its terms (or by the terms of any agreement governing such Indebtedness)
subordinated to any other Indebtedness of Hovnanian or of such Guarantor, as
the case may be, unless such Indebtedness is also by its terms (or by the terms
of any agreement governing such Indebtedness) made expressly subordinated to
the Notes or the Guarantee of such Guarantor, as the case may be, to the same
extent and in the same manner as such Indebtedness is subordinated to such
other Indebtedness of Hovnanian or such Guarantor, as the case may be.

 

Section 3.06.  Limitations on Restricted Payments.

 

(a)           Hovnanian 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, Hovnanian could incur at least $1.00 of Indebtedness
pursuant to Section 3.05(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 Hovnanian 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 Hovnanian’s fiscal quarter immediately
preceding the date of such Restricted Payment (or in the event

 

30

 

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 Hovnanian from (1) any capital contribution to Hovnanian after
February 1, 1999 or any issue or sale after February 1, 1999 of
Qualified Stock (other than to any Subsidiary of Hovnanian) and (2) the issue
or sale after February 1, 1999 of any Indebtedness or other securities of
Hovnanian convertible into or exercisable for Qualified Stock of Hovnanian 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 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 the
Issue Date, 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 Hovnanian 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

 

31

 

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 Hovnanian in
exchange for, or out of the net proceeds of the substantially concurrent sale
(other than to a Subsidiary of Hovnanian) 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 Hovnanian or any Subsidiary held by officers or
employees or former officers or employees of Hovnanian or any Subsidiary (or
their estates or beneficiaries under their estates) not to exceed $10 million
in the aggregate since May 4, 1999;

 

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 Hovnanian 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

 

32

 

not then
traded on the New York Stock Exchange, American Stock Exchange or The 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 Hovnanian.

 

Section 3.07.  Limitations on Transactions with
Affiliates.

 

(a)       Hovnanian
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 Hovnanian or any Affiliate of any of
Hovnanian’s Subsidiaries or any holder of 10% or more of the Common Equity of
Hovnanian (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 Hovnanian, 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 Hovnanian or any of Hovnanian’s Subsidiaries.

 

(b)      In
addition, Hovnanian 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,
Hovnanian shall have (x) obtained the approval of a majority of the Board of
Directors of Hovnanian and (y) either obtained the approval of a majority of
Hovnanian’s disinterested directors or obtained an opinion of a qualified
independent financial advisor to the effect that such Affiliate Transaction is
fair to Hovnanian, 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,
Hovnanian shall have (x) obtained the approval of a majority of the Board of
Directors of Hovnanian and (y) delivered to the Trustee an opinion of a
qualified independent financial advisor to the effect that such Affiliate
Transaction is fair to Hovnanian, the Issuer or such Restricted Subsidiary, as
the case may be, from a financial point of view.

 

33

 

(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 Hovnanian or its Subsidiaries generally (in their capacities as
such) that has been approved by the Board of Directors of Hovnanian,

 

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

 

(iii)         any Restricted Payment
otherwise permitted under Section 3.06 hereof,

 

(iv)        any transaction between or
among Hovnanian and one or more Restricted Subsidiaries or between or among
Restricted Subsidiaries (provided, however, no such transaction
shall involve any other Affiliate of Hovnanian (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 Hovnanian 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 Hovnanian, and

 

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

 

Section 3.08.  Limitations on Dispositions of
Assets.  (a) Hovnanian and
the Issuer will not, and will not cause or permit any Restricted Subsidiary to,
make any Asset Disposition unless (x) Hovnanian (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

 

34

 

consideration received by Hovnanian (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
Hovnanian 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 Hovnanian) 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 Hovnanian or the
Restricted Subsidiaries.

 

(b)           The Net Cash Proceeds
of an Asset Disposition shall, within one year, at Hovnanian’s election, (1) be
used by Hovnanian or a Restricted Subsidiary in the business of the
construction and sale of homes conducted by Hovnanian and the Restricted
Subsidiaries or any other business of Hovnanian or a Restricted Subsidiary
existing at the time of such Asset Disposition or (2) to the extent not so
used, be applied to make an Offer to Purchase Notes and, if Hovnanian or a
Restricted Subsidiary elects or is required to do so repay, purchase or redeem
any other unsubordinated 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
unsubordinated 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 and unpaid interest, if any, to
the date of repurchase or repayment.

 

(c)           Notwithstanding the
foregoing, (A) Hovnanian will not be required to apply such Net Cash Proceeds
to the repurchase of Notes in accordance with clause (2) 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 to Purchase shall have been made, exceed 5% of
Consolidated Tangible Assets and (B) in connection with an Asset Disposition,
Hovnanian 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 Dispositions 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.

 

35

 

Section 3.09.  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;

 

(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 Hovnanian 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
Hovnanian,

 

(B)        a
description of material developments in Hovnanian’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;

 

36

 

(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;

 

(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

 

37

 

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.

 

Section 3.10.  Limitations on Liens.  Hovnanian and the Issuer will
not, and will not cause or permit any Restricted Subsidiary to, create, incur,
assume or suffer to exist any Liens, 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
indebtedness is no longer secured by a Lien.

 

Section 3.11.  Limitations on Restrictions Affecting
Restricted Subsidiaries.  Hovnanian
and the Issuer will not, and will not cause or permit any Restricted Subsidiary
to, create, assume or otherwise cause or suffer to exist 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 Hovnanian or any other
Restricted Subsidiary, or pay interest on or principal of any Indebtedness owed
to Hovnanian or any other Restricted Subsidiary,

 

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

 

38

 

(c)           transfer any of its
property or assets to Hovnanian 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,

 

(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 Hovnanian
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,

 

39

 

(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 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 Hovnanian’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 3.12.  Limitations on Mergers, Consolidations
and Sales of Assets.  This
Section 3.12 shall replace the provisions contained in Sections 9.1 and
9.2 of the Base Indenture in its entirety and the references to
Article Nine in Section 9.3 of the Base Indenture shall refer to this
Section 3.12.  Neither the Issuer
nor any Guarantor will consolidate or merge with or into, or sell, lease,
convey or

 

40

 

otherwise
dispose of all or substantially all of its assets (including, without
limitation, by way of liquidation or dissolution), or assign any of its
obligations under the Notes, the Guarantees 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
Hovnanian, 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:

 

(a)           the Person formed by or
surviving such consolidation or merger (if other than Hovnanian, 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 Hovnanian, the Issuer or the Guarantor,
as the case may be, under the Notes or a Guarantee, as the case may be, and the
Indenture,

 

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

 

(c)           immediately after
giving effect to such transaction, Hovnanian (or its Successor) could incur at
least $1.00 of Indebtedness pursuant to Section 3.05(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
Section 5.02 hereof, or (ii) a transaction the purpose of which is to
change the state of incorporation of Hovnanian, the Issuer or any Guarantor.

 

Section 3.13.  Reports to Holders of Notes.  In addition to the provisions set
forth in Sections 4.3 and 4.4 of the Base Indenture, in the event that
Hovnanian is no longer subject to the periodic reporting 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 Hovnanian is required to furnish such reports to
its stockholders pursuant to the Exchange Act, Hovnanian will cause its
consolidated financial 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.

 

41

 

Section 3.14.  Limitation of Applicability of
Certain Covenants if Notes Rated Investment Grade.

 

(a)       The
Issuer, Hovnanian and its Restricted Subsidiaries’ obligations to comply with
the provisions of the Indenture under this Article 3 (except for Sections
3.01, 3.02, 3.03, 3.04, 3.10, 3.12 (other than clause (c) of the first
paragraph thereof), 3.13 and 3.15 hereof) will terminate (such terminated
covenants, the “Extinguished Covenants”) and cease to have any further effect
from and after the first date when the Notes issued under the Indenture are
rated Investment Grade; provided  that
if the Notes subsequently cease to be rated Investment Grade, then, from and
after the time the Notes cease to be rated Investment Grade, the Issuer’s,
Hovnanian’s and its Restricted Subsidiaries’ obligation to comply with the
Extinguished Covenants shall be reinstated.

 

(b)      In
the event of any such reinstatement of the obligation to comply with the
Extinguished Covenants, no action taken or omitted to be taken by the Issuer,
Hovnanian or any of its Subsidiaries prior to such reinstatement shall give
rise to a Default or Event of Default under the Indenture upon reinstatement; provided  that with respect to
Restricted Payments made after any such reinstatement, the amount of Restricted
Payments made after May 4, 1999 will be calculated as though
Section 3.06 hereof had been in effect during the entire period after such
date.

 

Section 3.15.  Applicability of Covenants Contained
in the Base Indenture.  Except
for Section 3.6 of the Base Indenture (which is deleted in its entirety
and replaced with Section 3.10 hereof), each of the agreements and
covenants of the Issuer and/or Hovnanian, as applicable, contained in
Article Three of the Base Indenture shall apply to the Notes.

 

 

ARTICLE 4

REMEDIES

 

Section 4.01.  Events of Default.  (a) “Event of Default” means any
one or more of the following events and this Section 4.01 (i) through (ix)
replaces Sections 5.1 (a), (b), (c), (d), (e), (f), (g) and (h) of the Base
Indenture in their entirety:

 

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

 

42

 

(ii)          the failure by
Hovnanian, 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 Hovnanian,
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 3.04 and 3.12 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 Hovnanian, 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 cease to exist, or such Indebtedness is not satisfied, in either case
within 30 days after such acceleration;

 

(v)         the failure by Hovnanian,
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 Hovnanian
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 Hovnanian, 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)       Hovnanian, the Issuer 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

 

43

 

(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 Hovnanian, the Issuer or any Restricted Subsidiary that is a
Significant Subsidiary as debtor in an involuntary case,

 

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

 

(C)        orders
the liquidation of Hovnanian, the Issuer 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 Hovnanian, or the Holders of at least 25 percent in
principal amount of the then outstanding Notes notify Hovnanian and the
Trustee, of the Default and (except in the case of a default with respect to
Sections 3.04 and 3.12 hereof) Hovnanian 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.

 

(b)           The first sentence of
the second paragraph in Section 5.1 of the Base Indenture is replaced,
with respect to the Notes, in its entirety with the following and the third
paragraph in Section 5.1 of the Base Indenture is deleted in its entirety:

 

If an Event of
Default (other than an Event of Default with respect to Hovnanian or the Issuer
resulting from subclauses (vii) or (viii) above),

 

44

 

shall have occurred and be continuing under
the Indenture, the Trustee by notice to Hovnanian, or the Holders of at least
25 percent in principal amount of the Notes then outstanding by notice to
Hovnanian 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 Hovnanian or the Issuer 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 Hovnanian or any Holder.

 

Section 4.02.  Additional Provisions Related to
Events of Default.  The
provisions of Sections 5.1 (except as specified above), 5.2, 5.3, 5.4, 5.5,
5.6, 5.7, 5.8 and 5.9 of the Base Indenture shall apply to the Notes; provided
that (x) the reference in the last paragraph of Section 5.1 of the Base
Indenture shall be to clauses (i) and (ii) of Section 4.01(a) hereof, (y)
the first clause of the parenthetical contained in Section 5.8 of the Base
Indenture shall be replaced with the following: “(the term ‘defaults’ for the
purposes of this Section 5.8 being hereby defined to be any Event of
Default as defined in the First Supplemental Indenture, not including periods
of grace, if any, provided for therein” and (z) all references contained in
Section 5.8 of the Base Indenture to clause (d) shall be replaced with the
following: “clause (iii)”.  In addition,
Hovnanian is required to deliver to the Trustee prompt written notice of the
occurrence of any Default or Event of Default.

 

 

ARTICLE 5

GUARANTEES; RELEASE OF GUARANTOR

 

Section 5.01.  Unconditional Guarantees.  (a) Hovnanian and each of the
other Guarantors hereby (and will so long, in the case of a Restricted
Subsidiary, as it remains a Restricted Subsidiary) Guarantee the Notes in
accordance with the provisions of Article Thirteen of the Base Indenture.

 

(b)           Each Guarantor, by
execution hereof, agrees to be bound by the Base Indenture, as supplemented by
this Supplemental Indenture, with respect to the Notes as if such Guarantor was
a party to both the Base Indenture and this Supplemental Indenture.

 

Each existing
Restricted Subsidiary (other than KHL, Inc., the Issuer (for so long as it
remains the Issuer) and K. Hovnanian Poland, sp.z.o.o.) will be a
Guarantor.  Hovnanian is permitted to
cause any Unrestricted Subsidiary to be a Guarantor.  If the Issuer, Hovnanian or any of its Restricted Subsidiaries
acquires or creates a Restricted Subsidiary after the Issue Date, the new
Restricted

 

45

 

Subsidiary must (subject to Section 5.02(b) hereof) provide a
Guarantee Notation, substantially in the form of Exhibit A to the Base
Indenture and shall also execute a supplemental indenture in the form of
Exhibit B hereto, and deliver an Opinion of Counsel to the Trustee in
accordance with Section 8.4 of the Base Indenture.

 

Section 5.02.  Release of a Guarantor.  (a) If all or substantially all
of the assets of any Guarantor other than Hovnanian or all of the Capital Stock
of any Guarantor other than Hovnanian is sold (including by consolidation,
merger, issuance or otherwise) or disposed of (including by liquidation,
dissolution or otherwise) by Hovnanian or any of its Subsidiaries, or, unless
Hovnanian elects otherwise, if any Guarantor other than Hovnanian 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 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.

 

(b)           Upon the release of the
guarantee by a Guarantor (including, for the avoidance of doubt, the Issuer
after it ceases to be the Issuer pursuant to Article Fourteen of the Base
Indenture) other than Hovnanian under all then outstanding Applicable Debt, at
any time after the suspension of the Extinguished Covenants pursuant to
Section 3.14 hereof, the Guarantee of such Guarantor under the Indenture
will be released and discharged in respect of the Notes at such time and no
Restricted Subsidiary thereafter acquired or created will be required to be a
Guarantor in respect of the Notes; provided  that
the foregoing shall not apply to any release of any Guarantor done in
contemplation of, or in connection with, any cessation of the Notes being rated
Investment Grade. In the event that (i) any such released Guarantor thereafter
guarantees any Applicable Debt (or if any released guarantee under any
Applicable Debt is reinstated or renewed) or (ii) the Extinguished Covenants
cease to be suspended pursuant to Section 3.14 hereof then any such
released Guarantor and any other Restricted Subsidiary of Hovnanian then existing
(other than the Restricted Subsidiaries named in Section 5.01(b) hereof)
will Guarantee the Notes on the terms and conditions set forth in the
Indenture.  For purposes of this clause
(b), Applicable Debt secured by a Lien on such Restricted Subsidiary’s Property
or issued by such Restricted Subsidiary shall be deemed guaranteed by such
Restricted Subsidiary.

 

(c)           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 Hovnanian to the Trustee to such effect, without any
further action required on the part of the Trustee or any Holder.

 

46

 

Section 5.03.  Guarantors as “obligors” for
Provisions Included in the Indenture Pursuant to the Trust Indenture Act of
1939.  Each provision
included in the Indenture which is required to be included by any of Sections
310 to 317 of the Trust Indenture Act of 1939, inclusive, or is deemed applicable
to the Indenture by virtue of the provisions of the Trust Indenture Act of
1939, and which applies to an “obligor,” as that term is defined under the
Trust Indenture Act of 1939, shall apply to each of the Guarantors.

 

 

ARTICLE 6

DEFEASANCE

 

Section 6.01.  Defeasance.  The provisions of
Article Ten of the Base Indenture shall apply to the Notes in their
entirety; provided,
that the “obligations” referred to in each of Section 10.2 and
Section 10.3 of the Base Indenture will also apply to the “obligations” of
Hovnanian and the Guarantors with respect to their Guarantees in the case of
Section 10.2 of the Base Indenture and with respect to the covenants and
events of default specified herein in the case of Section 10.3 of the Base
Indenture.

 

Section 6.02.  Additional Provisions to Survive
Legal Defeasance and Discharge.  Section 10.2
of the Base Indenture is hereby amended to (x) delete the “and” following
clause (c) and before clause (d) of such section and to replace it with
“;” and (y) add the following clauses (e) and (f) to the end of such section,
“(e) the rights of registration of transfer and exchange of the Notes; and (f)
the rights of Holders of Notes that are beneficiaries with respect to property
so deposited with the Trustee payable to all or any of them”.

 

Section 6.03.  Additional Covenant Defeasance.  In addition to the “obligations”
referred to in Section 10.3 of the Base Indenture, “Covenant Defeasance”,
as defined in such Section, will also apply to the release of obligations of
the Issuer, Hovnanian and the Guarantors set forth in Section 3.04 through
3.11 hereof, inclusive and clause (c) of Section 3.12 hereof,
Section 5.01 hereof and each Guarantor’s obligations under its Guarantee
Notation and clauses (iii) (with respect to the covenants so defeased), (iv),
(v), (vi) and (ix) of Section 4.01 hereof will no longer constitute Events
of Default.

 

 

ARTICLE 7

THE NOTES

 

Section 7.01.  Form of Notes.  The Notes will be issued as
Global Securities in the form of Exhibit A hereto (the “Global Note”).  The terms of such

 

47

 

Notes are herein incorporated by reference and are part of this
Supplemental Indenture.

 

Section 7.02.  Depositary.  The Depositary for the Global
Note will initially be The Depositary Trust Company (“DTC”) and the Global Note
will be deposited on or about the Issue Date with, or on behalf of, DTC and
registered in the name of Cede & Co., as nominee of DTC (such nominee being
referred to herein as the “Global Note Holder”).

 

Section 7.03.  Certificated Notes.  In addition to the provisions set
forth in Section 2.8 of the Base Indenture, any Person having a beneficial
interest in the Global Note may, upon request to the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Notes.  Upon any such issuance, the Trustee is
required to register such Certificated Notes in the name of, and cause the same
to be delivered to, such Person or Persons (or the nominee of any thereof).

 

 

ARTICLE 8

REDEMPTION

 

Section 8.01.  Optional Redemption.  The Notes will be redeemable, in
whole, at any time, or in part, from time to time, at the option of the Issuer
upon not less than 30 nor more than 60 days’ notice at a redemption price equal
to the sum of:

 

(a)           100% of the principal
amount thereof, plus accrued and unpaid interest thereon to the redemption
date; plus

 

(b)           the Make-Whole Amount.

 

The Trustee
shall have no responsibility in connection with the calculation of such
redemption price.

 

Section 8.02.  Sinking Fund; Mandatory Redemption.  There is no sinking fund for, or
mandatory redemption of, the Notes.

 

Section 8.03.  Applicability of Sections of the Base
Indenture.  The provisions of
Sections 12.2, 12.3 and 12.4 of the Base Indenture in respect of the Notes
shall apply to any optional redemption of the Notes.  Section 12.5 of the Base Indenture shall not so apply.

 

48

 

ARTICLE 9

AMENDMENTS, SUPPLEMENTS AND WAIVERS

 

Section 9.01.  Amendments, Supplements and
Waivers.  The Issuer,
Hovnanian, the Guarantors and the Trustee may amend, supplement or waive the
Indenture, the Guarantees or the Notes as provided in Article Eight of the
Base Indenture; provided that, in addition to the provisions of
Section 8.2 of the Base Indenture, no amendment, supplement or waiver
shall, without the consent of each Holder affected: (i) alter the provisions
(including related definitions) set forth in Article 8 hereof or
Section 3.04 or 3.08 hereof; or (ii) release any Guarantor from any of its
obligations under its Guarantee or the Indenture otherwise than in accordance
with the Indenture.

 

Section 9.02.  Payments for Consents.  Neither the Issuer, Hovnanian 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

RELEASE OF ISSUER

 

Section 10.01.  Release of Issuer.  The Issuer may be released from
its obligations under the Indenture and the Notes in accordance with the
provisions of Article Fourteen of the Base Indenture and the following is
added at the end of clause (3) of Article Fourteen thereof: “until such
time, if any, as such Guarantee may be released pursuant to Section 5.02
hereof.”.

 

 

ARTICLE 11

MISCELLANEOUS

 

Section 11.01.  GOVERNING LAW.  THIS SUPPLEMENTAL INDENTURE, THE
NOTES AND EACH GUARANTEE SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE
STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE.

 

Section 11.02.  No Adverse Interpretation of Other
Agreements.  This
Supplemental Indenture may not be used to interpret another indenture or loan
or

 

49

 

debt agreement of Hovnanian, the Issuer or any subsidiary of
Hovnanian.  Any such indenture or loan
or debt agreement may not be used to interpret this Supplemental Indenture.

 

Section 11.03.  Successors and Assigns.  All covenants and agreements of
the Issuer, Hovnanian and the Guarantors in this Supplemental Indenture and the
Notes shall bind their respective successors and assigns and inure to the
benefit of their respective successors and assigns.  All agreements of the Trustee in this Supplemental Indenture
shall bind its successors and assigns and inure to the benefit of their
respective successors and assigns.

 

Section 11.04.  Counterparts.  The parties may sign any number
of counterparts of this Supplemental Indenture.  Each signed counterpart shall be an original, but all of them
together represent the same agreement.

 

Section 11.05.  Severability.  To the extent permitted by
applicable law, in case any one or more of the provisions contained in this
Supplemental Indenture or in the Notes shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Supplemental
Indenture or of the Notes.

 

Section 11.06.  Effect of Headings.  The Article and
Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.

 

Section 11.07.  Conflict of Any Provision of
Indenture with Trust Indenture Act of 1939. 
If and to the extent that any provision of this Supplemental
Indenture limits, qualifies or conflicts with another provision included in
this Supplemental Indenture or in the Indenture which is required to be
included herein by any of Sections 310 to 317 of the Trust Indenture Act of
1939, inclusive, or is deemed applicable to this Indenture by virtue of the
provisions of the Trust Indenture Act of 1939, such required provision shall
control.

 

50

 

SIGNATURES

 

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

 

	
   

  	
  K. HOVNANIAN ENTERPRISES, INC., as

  the Issuer

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ 

  	
  PETER S. REINHART

  
	
   

  	
   

  	
  Name:

  	
   Peter S. Reinhart

  
	
   

  	
   

  	
  Title:

  	
   Senior Vice-President and

  General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HOVNANIAN ENTERPRISES, INC., as

  Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ 

  	
  PETER S. REINHART

  
	
   

  	
   

  	
  Name:

  	
   Peter S. Reinhart

  
	
   

  	
   

  	
  Title:

  	
   Senior Vice-President and

  General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
  On behalf of each entity named in
  Schedule 1

  hereto, as Guarantors

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ 

  	
  PETER S. REINHART

  
	
   

  	
   

  	
  Name:

  	
   Peter S. Reinhart

  
	
   

  	
   

  	
  Title:

  	
   Senior Vice-President and

  General Counsel

  

 

	
  WACHOVIA BANK, NATIONAL ASSOCIATION,

  as Trustee

  
	
   

  	
   

  
	
  By:

  	
  /s/ 

  	
  STEPHANIE ROCHE

  	
   

  
	
   

  	
  Name:

  	
   Stephanie Roche

  
	
   

  	
  Title:

  	
   Vice President

  

 

51

 

SCHEDULE 1

 

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.

GOODMAN FAMILY OF BUILDERS, L.P.

HOUSING-HOME SALES, INC.

HOVNANIAN DEVELOPMENTS OF FLORIDA, INC.

K. HOV INTERNATIONAL, INC.

K. HOV IP, II, INC.

K. HOV IP, INC.

K. HOVNANIAN ACQUISITIONS, INC.

K. HOVNANIAN AT ASHBURN VILLAGE, INC.

K. HOVNANIAN AT BALLANTRAE ESTATES, 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 HILLS, INC.

K. HOVNANIAN AT DOMINION RIDGE, INC.

K. HOVNANIAN AT EAST BRUNSWICK VI, INC.

 

1

 

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.

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.

K. HOVNANIAN AT MAHWAH V, INC.

K. HOVNANIAN AT MAHWAH VI, INC.

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 OF 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 PRINCETON, INC.

 

2

 

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 III, INC.

K. HOVNANIAN AT SOUTH BRUNSWICK V, INC.

K. HOVNANIAN AT STONE CANYON, INC.

K. HOVNANIAN AT STONEGATE, INC.

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 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 UPPER MERION, 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 ARIZONA, INC.

 

3

 

K. HOVNANIAN DEVELOPMENTS OF CALIFORNIA, INC.

K. HOVNANIAN DEVELOPMENTS OF MARYLAND, INC.

K. HOVNANIAN DEVELOPMENTS OF METRO WASHINGTON, INC.

K. HOVNANIAN DEVELOPMENTS OF MICHIGAN, 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 DEVELOPMENTS OF WEST VIRGINIA, 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.

M&M AT LONG BRANCH, 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

 

4

 

WESTMINSTER HOMES (CHARLOTTE), INC.

WESTMINSTER HOMES OF TENNESSEE, INC.

WESTMINSTER HOMES, INC.

WH LAND I, INC

WH LAND II, INC.

WH PROPERTIES, INC.

ARBOR WEST, L.L.C.

DULLES COPPERMINE, L.L.C.

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

K. HOVNANIAN AT ARBOR HEIGHTS, LLC

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 BRIDGEWATER I, 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 CORTEZ HILL, 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 EASTLAKE, L.L.C.

K. HOVNANIAN AT EDGEWATER, L.L.C.

K. HOVNANIAN AT EGG HARBOR TOWNSHIP, 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 JERSEY CITY V URBAN RENEWAL CO., 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.

 

5

 

K. HOVNANIAN AT LA COSTA, L.L.C.

K. HOVNANIAN AT LA HABRA KNOLLS, 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.

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 NORTHAMPTON, 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.

 

6

 

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 SKYE ISLE, 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 UPPER UWCHLAN II, 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 AT GOLD HILL, L.L.C.

K. HOVNANIAN FOUR SEASONS AT HISTORIC VIRGINIA, L.L.C.

K. HOVNANIAN GREAT WESTERN BUILDING COMPANY, L.L.C.

K. HOVNANIAN GREAT WESTERN HOMES, 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 OF HOUSTON II, L.P.

K. HOVNANIAN OF HOUSTON, L.P.

K. HOVNANIAN OHIO REALTY, L.L.C.

 

7

 

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 SUMMIT HOMES OF MICHIGAN, L.L.C.

K. HOVNANIAN SUMMIT HOMES OF WEST VIRGINIA, L.L.C.

K. HOVNANIAN’S FOUR SEASONS AT BEAUMONT, 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 AT VINT HILL, 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.

M&M AT EAST MILL, L.L.C.

M&M AT HERITAGE WOODS, L.L.C.

M&M AT KENSINGTON 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.

M & M INVESTMENTS, L.P.

MMIP, L.L.C.

RIDGEMORE UTILITY, L.L.C.

THE LANDINGS AT SPINNAKER POINTE, L.L.C.

WASHABAMA, L.P.

WASHINGTON HOMES AT COLUMBIA TOWN CENTER, L.L.C.

WASHINGTON HOMES OF MARYLAND I, L.L.C.

 

8

 

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

 

9

 

Exhibit A

 

[THIS NOTE IS A GLOBAL NOTE WITHIN THE
MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY.  UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR
IN PART FOR NOTES IN CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE
“DEPOSITARY”),
TO THE NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE
DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.

 

UNLESS THIS
NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.  OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE
& CO.  OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), 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 AN INTEREST
HEREIN.](1)

 

(1)  This should be included only if the Note is
issued in global form.

 

A-1

 

[FACE OF NOTE]

 

K. HOVNANIAN ENTERPRISES, INC.

 

	
  REGISTERED – No.

  	
  CUSIP No.:

  	
   

  
	
   

  	
   

  	
    $

  

 

61⁄2% Senior
Notes due 2014

 

K. Hovnanian
Enterprises, Inc., a California corporation (the “Issuer”, which term includes
any successor under the Indenture hereinafter referred to), for value received
hereby promises to pay to
                       
, or registered assigns, the principal sum of 
                                
($                    )
Dollars on January 15, 2014.

 

Interest
Payment Dates:  January 15 and
July 15, commencing January 15, 2004

 

Interest
Record Dates:  January 1 and
July 1

 

Reference is
hereby made 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.

 

	
   

  	
  K. HOVNANIAN ENTERPRISES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dated:

  

 

 

CERTIFICATE OF AUTHENTICATION

 

	
  Wachovia Bank, National Association, as

  Trustee, certifies that this is one of the

  Securities of the series designated herein

  referred to in the within mentioned

  Indenture.

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  
	
   

  	
   

  
	
  WACHOVIA BANK, NATIONAL

  ASSOCIATION, as Trustee

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  	
   

  

 

A-2

 

[REVERSE SIDE
OF NOTE]

 

K. HOVNANIAN
ENTERPRISES, INC.

 

61⁄2% Senior
Notes due 2014

 

1.             Interest and
Principal.

 

K. HOVNANIAN
ENTERPRISES, INC. (the “Issuer”, which term includes any successor
under the Indenture hereinafter referred to), a California corporation,
promises to pay interest on the principal amount of this Note at the rate per
annum shown above.  The Issuer will pay
interest semiannually on January 15 and July 15 of each year,
commencing January 15, 2004, until the principal is paid or made available
for payment.  Interest on the Notes will
accrue from the most recent date to which interest has been paid or duly
provided for or, if no interest has been paid, from November 3, 2003, provided
that, if there is no existing default in the payment of interest, and if this
Note is authenticated between a record date referred to on the face hereof and
the next succeeding interest payment date, interest shall accrue from such
succeeding interest payment date. 
Interest will be computed on the basis of a 360-day year of twelve
30-day months.

 

The Issuer
promises to pay the principal of this Note on January 15, 2014.

 

2.             Method of Payment.

 

The Issuer
will pay interest on the Notes (except defaulted interest, if any, which will
be paid on such special payment date to Holders of record on such special
record date as may be fixed by the Issuer) to the persons who are registered
Holders of Notes at the close of business on the January 1 and July 1
immediately preceding the interest payment date. Holders must surrender Notes
to a Paying Agent to collect principal payments. The Issuer will pay principal
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts.  Payment of principal of, premium, if any, and interest on the
Global Notes registered in the name of, or held by the Depositary or its
nominee will be made in immediately available funds to the Depositary or its
nominee, as the case may be, as the registered Holder of such Global
Notes.  If any of the Notes are no
longer represented by Global Notes, payment of interest on the definitive Notes
may, at the Issuer’s option, be made by check mailed directly to Holders at their
registered address.

 

3.             Paying Agent and
Registrar.

 

Initially,
Wachovia Bank, National Association (the “Trustee”) will act as Paying Agent and
Registrar.  The Issuer may change or
appoint any Paying Agent,

 

A-3

 

Registrar or co-Registrar without notice to any Holder.  The Issuer or any of its Subsidiaries may
act as Paying Agent, Registrar or co-Registrar.

 

4.             Indenture.

 

The Issuer
issued the Notes under an Indenture (the “Base Indenture”) dated November 3,
2003, among the Issuer, Hovnanian and the Trustee, the terms of which have been
established in the First Supplemental Indenture (the “First Supplemental Indenture”)
dated as of November 3, 2003, among the Issuer, Hovnanian, the Guarantors
and the Trustee (the Base Indenture, as supplemented by the First Supplemental
Indenture, the “Indenture”), pursuant to Section 2.3 of the Base
Indenture.  This Note is one of the
Securities of the series designated as the “61⁄2% Senior Notes due 2014” of the
Issuer.  The Issuer may issue additional
Notes of this series after this Note has been issued.  This Note and any additional notes of this series subsequently
issued under the Indenture shall be treated as a single series for all purposes
under the Indenture and shall vote and consent together on all matters as one
class, including, without limitation, waivers, amendments, redemption and
offers to purchase.  The terms of the
Notes and the Guarantees include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (“TIA”)
as in effect on the date of the Indenture. 
The Notes and the Guarantees are subject to all such terms, and Holders
are referred to the Indenture and the TIA for a statement of them.  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.

 

Capitalized
terms not defined herein have the meanings given to those terms in the Indenture.

 

The Issuer
will furnish to any Holder upon written request and without charge a copy of
the Indenture and the First Supplemental Indenture.  Requests may be made to: K. Hovnanian Enterprises, Inc., 10
Highway 35, P.O. Box 500, Red Bank, New Jersey 07701, Attention: Chief
Financial Officer.

 

5.             Optional
Redemption.

 

The Notes will
be redeemable, in whole, at any time, or in part, from time to time, at the
option of the Issuer upon not less than 30 nor more than 60 days’ notice at a
redemption price equal to the sum of:

 

(a)       100%
of the principal amount thereof, plus accrued and unpaid interest thereon to
the redemption date; plus

 

(b)      the
Make-Whole Amount.

 

A-4

 

The Trustee
shall have no responsibility in connection with the calculation of such
redemption price.

 

“Make-Whole
Amount” means, in connection with any optional redemption of any
Note, the excess, if any, of: (a) the aggregate present value as of the date of
such redemption of each dollar of principal being redeemed and the amount of
interest (exclusive of interest accrued to the redemption date) that would have
been payable in respect of such dollar if such prepayment had not been made,
determined by discounting, on a semiannual basis, such principal and interest
at the Treasury Rate (determined on the business day preceding the date of such
redemption) plus 0.5%, from the respective dates on which such principal and
interest would have been payable if such payment had not been made; over (b)
the principal amount of the Note being redeemed.

 

“Treasury
Rate” means, in connection with the calculation of any Make-Whole
Amount with respect to any Note, the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity, as
compiled by and published in the most recent Federal Reserve Statistical
Release H.15 (519) that has become publicly available at least two business
days prior to the redemption date (or, if such Statistical Release is no longer
published, any publicly available source or similar market data), equal to the
then remaining maturity of the Note being prepaid.  If no maturity exactly corresponds to such maturity, yields for
the published maturities occurring prior to and after such maturity most
closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month.

 

If less than
all of the Notes are to be redeemed at any time, the Trustee will select Notes
for redemption on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem appropriate and fair.

 

No Notes of
$1,000 in original principal amount or less shall be redeemed in part. Notices
of redemption may not be conditional.

 

If any Note is
to be redeemed in part only, the notice of redemption that relates to that Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount equal to the unredeemed portion of the original Note
will be issued in the name of the Holder thereof upon cancellation of the
original Note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
Notes or portions thereof called for redemption.

 

6.             Mandatory
Redemption.

 

There is no
sinking fund for, or mandatory redemption of, the Notes.

 

A-5

 

7.             Denominations,
Transfer, Exchange.

 

The Notes are
in registered form only without coupons in denominations of $1,000 of principal
amount and integral multiples of $1,000. 
A Holder may transfer or exchange Notes in accordance with the
Indenture.  The Registrar may require a
Holder, among other things, 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 the Registrar is not required to
transfer or exchange any Note or certain portions of a Note.

 

8.             Persons Deemed
Owners.

 

The registered
Holder of this Note shall be treated as the owner of it for all purposes.

 

9.             Unclaimed Money.

 

Any money
deposited with the Trustee or any Paying Agent, or then held by the Issuer, in
trust for the payment of the principal of, premium or interest on any Note and
remaining unclaimed for two years after such principal, and premium, if any, or
interest has become due and payable shall be paid to the Issuer on its request
or (if then held by the Issuer) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as an unsecured creditor, look only to
the Issuer for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Issuer as
trustee thereof, shall thereupon cease; provided,
however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Issuer cause to be published once, in the
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Issuer.

 

10.           Discharge and
Defeasance.

 

Subject to
certain conditions set forth in the Indenture, the Issuer, Hovnanian and the
Guarantors at any time may terminate some or all of their obligations under the
Notes and the Indenture if the Issuer deposits with the Trustee money and/or
U.S. Government Obligations for the payment of principal, premium, if any, and
interest on the Notes to maturity or redemption, as the case may be.

 

A-6

 

11.           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 or Hovnanian 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 an 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.

 

12.           Amendment,
Supplement, Waiver.

 

Subject to
certain exceptions, the Indenture, the Notes or the Guarantees may be amended
or supplemented, 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, Hovnanian, the Guarantors and the Trustee may amend or
supplement the Indenture, the Notes or the Guarantees to, among other things
set forth in the Indenture, cure any ambiguity, defect or inconsistency if such
amendment or supplement does not adversely affect the interests of the Holders
in any material respect.

 

13.           Trustee Dealings
With Issuer.

 

The Trustee,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Issuer or its affiliates, with the same
rights as if it were not Trustee; however, if it acquires any conflicting
interest (as defined in the TIA), it must eliminate such conflict, apply to the
Commission for permission to continue or resign.

 

14.           No Recourse Against
Others.

 

An
incorporator, and any past, present or future director, officer, employee or
stockholder, as such, of the Issuer, Hovnanian or the Guarantors shall not have
any liability for any obligations of the Issuer, Hovnanian or the Guarantors
under the Notes, the Indenture or the Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability.  The waiver and release are part of the
consideration for the issue of the Notes.

 

15.           Guarantees.

 

The Notes will
be entitled to the benefits of certain Guarantees made for the benefit of the
Holders.  Reference is hereby made to
the Indenture for a statement of the respective rights, limitation of rights,
duties and obligations thereunder of the Guarantors, the Trustee and the Holders.

 

A-7

 

16.           Governing Law.

 

THIS NOTE
SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK AND
FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SUCH STATE.

 

17.           CUSIP NUMBERS.

 

Pursuant to a
recommendation promulgated by the Committee on Uniform Note Identification
Procedures, the Issuer has caused CUSIP numbers to be printed on the Notes, and
the Trustee may use CUSIP numbers in notices as a convenience to Holders.  No representation is made as to the accuracy
of such numbers either as printed on the Notes or as contained in any notice
and reliance may be placed only on the other identification numbers placed
thereon.

 

18.           Authentication.

 

This Note
shall not be valid until an authorized signatory of the Trustee (or an
authenticating agent) manually signs the certificate of authentication on the
other side of this Note.

 

19.           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).

 

A-8

 

ASSIGNMENT
FORM

 

If you the
Holder want to assign this Note, fill in the form below:

 

I or we assign
and transfer this Note to

 

 

(Insert assignee’s social security or tax ID
number)

 

 

(Print or type assignee’s name, address, and
zip code)

 

and
irrevocably appoint
                                                            
agent to transfer this Note on the books of the Issuer.  The agent may substitute another to act for
him.

 

	
  Date:

  	
   

  	
   

  	
  Your
  signature: 

  	
   

  
	
   

  	
   

  	
  (Sign
  exactly as your name appears on the

  other side of this Note)

  
	
   

  	
   

  	
   

  
	
  Signature
  Guarantee:

  	
   

  
	
   

  	
   

  	
  Signature
  must be guaranteed by participant

  in a recognized Signature Guarantee

  Medallion Program (or other signature

  guarantor program reasonably acceptable to

  the Trustee)

  
						

 

A-9

 

OPTION OF HOLDER TO ELECT PURCHASE

 

If you wish to
have all of this Note purchased by the Issuer pursuant to Section 3.04 or
3.08 of the First Supplemental Indenture, check the box: o

 

If you wish to
have a portion of this Note purchased by the Issuer pursuant to
Section 3.04 or 3.08 of the First Supplemental 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:

  	
   

  
	
   

  	
   

  	
  Signature
  must be guaranteed by participant

  in a recognized Signature Guarantee

  Medallion Program (or other signature

  guarantor program reasonably acceptable to

  the Trustee)

  
						

 

A-10

 

SCHEDULE OF INCREASES OR DECREASES

IN THE GLOBAL NOTE*

 

The following increases or decreases in this 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

  signatory of

  Trustee or

  Custodian

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

*      This should be included only if the Note is issued in global
form.

 

A-11

 

EXHIBIT B

 

 

SUPPLEMENTAL
INDENTURE

 

dated as of
                 ,
       

 

among

 

K. HOVNANIAN ENTERPRISES, INC.

 

HOVNANIAN ENTERPRISES, INC.

 

The Other Guarantors Party Hereto

 

and

 

WACHOVIA BANK, NATIONAL ASSOCIATION,

 

as Trustee

 

 

61⁄2% Senior Notes due 2014

 

 

B-1

 

THIS
[             ]
SUPPLEMENTAL INDENTURE (this “[             ] Supplemental
Indenture”), entered into as of
              ,
         , among K. Hovnanian
Enterprises, Inc., a California corporation (the “Issuer”), Hovnanian
Enterprises, Inc. (“Hovnanian”), [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, Hovnanian, the other Guarantors party thereto and the Trustee entered
into the Indenture dated as of November 3, 2003 (as supplemented, the “Indenture”)
as supplemented by the First Supplemental Indenture dated as of
November 3, 2003 (the “First Supplemental Indenture”), relating to
the Issuer’s 61⁄2% Senior Notes due 2014 (the “Notes”);

 

WHEREAS, as a
condition to the purchase of the Notes by the Holders, Hovnanian agreed
pursuant to the Indenture to cause any newly acquired or created Restricted
Subsidiaries to provide Guarantees of the Notes, subject to certain
limitations.

 

AGREEMENT

 

NOW,
THEREFORE, in consideration of the premises and mutual covenants herein
contained and intending to be legally bound, the parties hereto 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 Thirteen of the Base Indenture and Article 5
of the First Supplemental Indenture. 
Each Undersigned will also execute a Guarantee Notation in respect of
the Notes.

 

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-2

 

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-3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00057-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00057-of-00352.parquet"}]]