Document:

Exhibit
4.02

	
  CUSIP NO. 52517P4K4

  	
   

  	
   

  
	
  ISIN NO. US52517P4K43

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  REGISTERED

  	
   

  	
  PRINCIPAL AMOUNT:
  $10,540,000

  
	
  No. R-1

  	
   

  	
   

  

 

LEHMAN BROTHERS HOLDINGS INC.

MEDIUM-TERM NOTE, SERIES I

TWO-YEAR NOTES LINKED TO THE DOW JONES-AIG
COMMODITY INDEX EXCESS

RETURN

DUE AUGUST 13, 2009

THIS NOTE IS A GLOBAL SECURITY
WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED
IN THE NAME OF THE DEPOSITORY OR A NOMINEE OF THE DEPOSITORY.  UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE
& CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.

UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM (A “CERTIFICATED
NOTE”), THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY.

 

 

LEHMAN BROTHERS HOLDINGS
INC., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the “Company,” which term includes any successor
corporation under the Indenture referred to on the reverse hereof), for value
received, hereby promises to pay to CEDE & Co., or registered assigns, on
the Maturity Date, an amount equal to the Redemption Amount at Maturity.

The “Maturity Date” is
August 13, 2009, or if such day is not a Business Day, on the next following
Business Day; provided that, if as a result of
a Market Disruption Event the Valuation Date for one or more Index Contracts is
postponed so that it falls less than three Business Days prior to the scheduled
Maturity Date, the Maturity Date will be the third Business Day following the
latest occurring postponed Valuation Date.

The “Valuation Date” is
August 6, 2009, or if such day is not an Index Business Day, the immediately
preceding Index Business Day; provided that if a Market Disruption Event is in
effect for one or more Index Contracts on the scheduled Valuation Date, the
Valuation Date may be postponed as described below.

The “Redemption Amount at
Maturity” for each $1,000 note will be a single U.S. dollar payment on the
Maturity Date equal to $1,000 multiplied by the Adjusted Performance.

The “Adjusted
Performance” is:

(A) 150%, if the Final
Index Value is greater than the Upper Threshold;

(B) the sum of 100% plus
the product of the Participation Rate times the difference of the Index Return
minus 1, if the Final Index Value is greater than the Initial Index Value but
less than or equal to the Upper Threshold;

(C) 100%, if the Final
Index Value is less than the Initial Index Value but greater than or equal to
the Buffer Level; or

(D) the sum of 10% plus
the Index Return, if the Final Index Value is less than the Buffer Level.

The “Initial Index Value”
is 167.516, which is the closing level of the Index on the Trade Date, as
determined and published by the Index Sponsors, rounded to three decimal
places.

The “Index Return” is a
quotient, the numerator of which is the Final Index Value and the denominator
of which is the Initial Index Value.

The “Trade Date” is the
August 6, 2007.

The “Issue Date” is the
August 13, 2007.

The “Final Index Value”
will be the closing value of the Index on the Valuation Date, as determined and
published by the Index Sponsors (subject to the occurrence of a Market
Disruption Event or an Index Unavailability Event), rounded to three decimal
places.

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The “Participation Rate”
is 245.0%.

The “Upper Threshold” is
201.7027, which is equal to the product of the Initial Index Value times
120.408%.

The “Buffer Level” is
150.7644, which is equal to the product of the Initial Index Value times 90%.

An “Index Business Day”
is a day, as determined in good faith by the Calculation Agent, on which
trading is generally conducted on the Relevant Exchange for each Index Contract
then comprising the Index or any Successor Index.

A “Business Day”,
notwithstanding any provision in the Indenture, is any day that is not is not a
Saturday or Sunday and that is not a day on which banking institutions in New
York City generally are authorized or obligated by law or executive order to be
closed.

The “Index” is the Dow
Jones-AIG Commodity IndexSM Excess Return
published and calculated by the Index Sponsors, subject to adjustment as
described below.

The “Index Sponsors” are
Dow Jones & Company Inc., AIG International, Inc. and AIG Financial
Products Corp.

The “Index Contracts”
means the commodities contracts underlying the Index or any Successor Index.

The “Relevant Exchange”
means any organized exchange or market of trading for any futures contract (or
any combination thereof) included in the Index or any Successor Index.

If a Market Disruption
Event relating to one or more Index Contracts is in effect on the scheduled
Valuation Date, the Calculation Agent will calculate the Final Index Value in
good faith in accordance with the formula for and method of calculating the
Index last in effect prior to commencement of the Market Disruption Event,
using:

·                                          for
each Index Contract that did not suffer a Market Disruption Event on the
scheduled Valuation Date, the settlement price on the applicable Relevant
Exchange of such Index Contract on the scheduled Valuation Date, and

·                                          for
each Index Contract that did suffer a Market Disruption Event on the scheduled
Valuation Date, the settlement price of such Index Contract on the applicable
Relevant Exchange on the immediately succeeding trading day on which no Market
Disruption Event occurs or is continuing 
with respect to such Index Contract;

provided
however that if a Market Disruption Event has occurred or is continuing with
respect to such Index Contract on each of the eight scheduled trading days
following the scheduled Valuation Date, then (a) the eighth scheduled trading
day shall be deemed the Valuation Date for such Index Contract and (b) the
Calculation Agent will determine the price for such Index Contract on such
eighth scheduled trading day in its sole and absolute discretion taking into 

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account the latest available
quotation for the price for such Index Contract and any other information that
in good faith it deems relevant.

A “Market Disruption
Event” means any of the following events as determined in good faith by the
Calculation Agent:

(A)                              the
termination or suspension of, or material limitation or disruption in the
trading on a Relevant Exchange of any Index Contract;

(B)                                the
settlement price on a Relevant Exchange of any Index Contract has increased or
decreased by an amount equal to the maximum permitted price change from the
previous day’s settlement price; or

(C)                                the
settlement price of any Index Contract is not published by the Relevant
Exchange.

Notwithstanding the
foregoing, the following events will not constitute Market Disruption Events:

(1)                                  a
limitation on the hours in a trading day and/or number of days of trading, if
it results from an announced change in the regular business hours of the
Relevant Exchange; or

(2)                                  a
decision to permanently discontinue trading in the Index Contract or options or
futures contracts relating to the Index or the Index Contract.

If an Index
Unavailability Event is in effect on the scheduled Valuation Date (and no
Market Disruption Event is then in effect), the Calculation Agent will
determine the Final Index Value on the Valuation Date in good faith in
accordance with the formula for and method of calculating the Index last in
effect prior to commencement of the Index Unavailability Event using the
closing price on the Relevant Exchanges of each Index Contract.

An “Index Unavailability
Event” means that the Index is not calculated by the Index Sponsors or any
Successor Index is not calculated and published by the sponsors thereof.

If the Index Sponsors
discontinue publication of the Index and the Index Sponsors or another entity
publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to the discontinued Index
(such index, a “Successor Index”), then the Final Index Value will be
determined by reference to the level of such Successor Index at the close of
trading on the Relevant Exchange or market of the Successor Index last to close
on the Valuation Date; provided, however, that the Calculation Agent, in its
sole discretion, may make such adjustments as it deems necessary to the level
of the Successor Index so that the level of the Successor Index reflects the
same level as that of the Index before it was discontinued.  Upon any selection by the Calculation Agent
of a Successor Index, the Calculation Agent will cause written notice thereof
to be promptly furnished to the trustee, to the Company and to the Holders of
the notes.

If the Index Sponsors
discontinue publication of the Index prior to, and such discontinuation is
continuing on, the Valuation Date, and the Calculation Agent determines, in its

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sole discretion, that no
Successor Index is available at such time, then the Calculation Agent will
determine the Final Index Value on the Valuation Date.  The Final Index Value will be computed by the
Calculation Agent in accordance with the formula for and method of calculating
the Index last in effect prior to such discontinuation, using the settlement
prices on the Relevant Exchanges (or, if trading in an Index Contract has been
materially suspended or materially limited, its good faith estimate of the
settlement price that would have prevailed but for such suspension or
limitation) at the close of trading on the Valuation Date.

If at any time the method
of calculating the Index or a Successor Index, or the level thereof, is, in the
good faith judgment of the Calculation Agent, changed or modified in a material
respect, the Calculation Agent may (but is not obligated to) make such
adjustments to the Index or Successor Index or their respective methods of
calculation as, in the good faith judgment of the Calculation Agent, may be
necessary in order to arrive at a level of a commodity index comparable to the
Index or such Successor Index, as the case may be, as if such changes or
modifications had not been made, and the Calculation Agent will calculate the
Final Index Value with reference to the Index or such Successor Index as
adjusted.  Accordingly, if the method of
calculating the Index or a Successor Index is modified or rebased so that the
level of the Index or Successor Index is a fraction or multiple of what it
would have been if it had not been modified or rebased, then the Calculation
Agent will adjust the level of the Index or Successor Index in order to arrive
at a level of the Index or Successor Index as if it has not been modified or
rebased.

The “Calculation Agent”
means Lehman Brothers Commodity Services Inc., the determinations and
calculations of which will be binding in absence of manifest error.

Except as provided below,
any Redemption Amount at Maturity may, at the option of the Company, be made by
check mailed to the person entitled thereto at such person’s address as it
appears on the registry books of the Company.

Payment of any Redemption
Amount at Maturity will be made in immediately available funds in accordance
with the normal procedures of the Trustee (or any duly appointed Paying Agent).

The Company will pay any
administrative costs imposed by banks in making payments in immediately
available funds, but any tax, assessment or governmental charge imposed upon
payments hereunder, including, without limitation, any withholding tax, will be
borne by the Holder hereof.

References herein to
“U.S. dollars” or “U.S.$” or “$” or “USD” are to the coin or currency of the
United States as at the time of payment is legal tender for the payment of
public and private debts.

REFERENCE IS HEREBY MADE
TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH ON THE REVERSE HEREOF.  SUCH FURTHER PROVISIONS SHALL FOR ALL
PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.

This Note shall not be
valid or become obligatory for any purpose until the certificate of
authentication hereon shall have been signed by the Trustee under the
Indenture.

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IN WITNESS WHEREOF,
Lehman Brothers Holdings Inc. has caused this instrument to be signed by its
Chairman of the Board, its President, its Vice Chairman, its Chief Financial
Officer, one of its Vice Presidents or its Treasurer, by manual or facsimile
signature under its corporate seal, attested by its Secretary or one of its Assistant
Secretaries by manual or facsimile signature.

	
  Dated: August 13, 2007

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  [SEAL]

  	
   

  	
  LEHMAN BROTHERS HOLDINGS INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Andrew M.W. Yeung

  
	
   

  	
   

  	
   

  	
  Title:   Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attest:

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Cindy Buckholz

  
	
   

  	
   

  	
   

  	
  Title:   Assistant
  Secretary

  

 

 

 

 

	
  TRUSTEE’S CERTIFICATE OF
  AUTHENTICATION

  
	
   

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

  
	
   

  
	
  CITIBANK, N.A.

  
	
   

  	
  as Trustee

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Officer

  
	
   

  
	
   

  
				

 

 6

 

[REVERSE
OF NOTE]

LEHMAN BROTHERS
HOLDINGS INC.

MEDIUM-TERM NOTES,
SERIES I

TWO-YEAR NOTES LINKED TO THE DOW JONES-AIG
COMMODITY INDEX EXCESS RETURN  
 DUE 
AUGUST 13, 2009

Section 1.  General.  This Note is one of a duly authorized series
of Notes of the Company designated as the Medium-Term Notes, Series I, Two-Year Notes Linked to the Dow Jones-AIG
Commodity Index Excess Return (herein called the “Notes”).  The
Notes are one of an indefinite number of series of debt securities of the
Company (collectively, the “Securities”) issued or issuable under and pursuant
to an indenture dated as of September 1, 1987, as amended and supplemented (the
“Indenture”), duly executed and delivered by the Company and Citibank, N.A., as
Trustee (herein called the “Trustee”), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders of the Securities.  The separate series of Securities may be
issued in various aggregate principal amounts, may mature at different times,
may bear interest (if any) at different rates, may be subject to different
redemption provisions or repurchase rights (if any), may be subject to
different sinking, purchase or analogous funds (if any), may be subject to
different covenants and Events of Default and may otherwise vary as in the
Indenture provided.

Section 2.  Principal
Amount for Indenture Purposes.  For
the purpose of determining whether Holders of the requisite amount of Notes of
this series outstanding under the Indenture have made a demand, given a notice
or waiver or taken any other action, the principal amount of this Note will be
deemed to be the principal amount of this Note then outstanding.

Section 3.  Modification
and Waivers.  The Indenture contains
provisions permitting the Company and the Trustee, with the consent of the
Holders of not less than 66-2/3% in aggregate principal amount of each series
of the Securities at the time Outstanding to be affected, evidenced as in the
Indenture provided, to execute supplemental indentures adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any supplemental indenture or modifying in any manner the rights of the
holders of the Securities of all such series; provided, however, that no such
supplemental indenture shall, among other things, (i) change the fixed maturity
of any Security, or reduce the Redemption Amount at Maturity or the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon or reduce any premium or other amount payable on redemption, or make
the Redemption Amount at Maturity or the principal amount thereof, premium or other
amount payable, if any, or interest thereon payable in any coin or currency
other than that herein above provided, without the consent of the Holder of
each Security so affected, or (ii) change the place of payment on any Security,
or impair the right to institute suit for payment on any Security, or reduce
the aforesaid percentage of Securities, the holders of which are required to
consent to any such supplemental indenture, without the consent of the holders
of each Security so affected.  It is also
provided in the Indenture that, prior to any declaration accelerating the
maturity of any series of Securities, the holders of a majority in aggregate
principal amount of 

 

the
Securities of such series Outstanding may on behalf of the holders of all the
Securities of such series waive any past default or Event of Default under the
Indenture with respect to such series and its consequences, except a default in
the payment of interest, if any, on the Redemption Amount or the principal
amount, or premium, if any, on any of the Securities of such series, or in the
payment of any sinking fund installment or analogous obligation with respect to
Securities of such series.  Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future holders and owners of this Note and any
Notes of this series which may be issued in exchange or substitution herefor,
irrespective of whether or not any notation thereof is made upon this Note or
such other Notes of this series.

Section 4.  Obligations
Unconditional.  No reference herein
to the Indenture and no provisions of this Note or of the Indenture shall alter
or impair the obligation of the Company, which is absolute and unconditional,
to pay any Redemption Amount on this Note at the place, at the respective
times, at the rate, and in the coin or currency herein prescribed.

Section 5.  Defeasance.  The Indenture contains provisions for the
discharge of the Indenture and defeasance at any time of the indebtedness on
this Note upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Note.

Section 6.  Authorized
Form and Denominations.  The Notes of
this series are issuable in registered form, without coupons.  Each Note will be issued initially as either
a Global Security or a Certificated Note, at the option of the Company, in
denominations of $1,000 or whole multiples of $1,000, either at the office or
agency to be designated and maintained by the Company for such purpose in the
Borough of Manhattan, New York City, pursuant to the provisions of the
Indenture or at any of such other offices or agencies as may be designated and
maintained by the Company for such purpose pursuant to the provisions of the
Indenture, and in the manner and subject to the limitations provided in the
Indenture, but without the payment of any service charge, except for any tax or
other governmental charges imposed in connection therewith.  Notes of this series are exchangeable for a
like aggregate principal amount of Notes of this series of a different
authorized denomination, except that Global Securities will not be exchangeable
for Certificated Notes of this series.

Section 7.  Registration
of Transfer.  As provided in the
Indenture and subject to certain limitations as therein set forth, the transfer
of this Note is registrable in the Security Register, upon surrender of this
Note for registration of transfer, at the Corporate Trust Office or agency in a
Place of Payment for this Note, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar requiring such written instrument of transfer duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.

If at any time the Depository notifies the Company
that it is unwilling or unable to continue as Depository or if at any time the
Depository shall no longer be eligible under the Indenture, the Company shall
appoint a successor Depository.  If a
successor Depository for the Notes of this series is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such ineligibility, the Company will issue, and the Trustee will 

 

authenticate
and deliver, Notes of this series in definitive form in an aggregate principal
amount equal to the principal amount of this Note.

No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.

Prior to due presentment of this Note for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the person in whose name this Note is registered as the owner
hereof for all purposes, and neither the Company nor the Trustee nor any agent
of the Company or of the Trustee shall be affected by any notice to the
contrary.

Section 8.  Events
of Default.  If an Event of Default
with respect to Notes of this series shall occur and be continuing, the amount
that may be declared due and payable upon any acceleration of the notes will be
determined by the Calculation Agent for the period from and including the Issue
Date to but excluding the date of early repayment and will equal, for each
note, the Redemption Amount, calculated as the date of early repayment were the
Maturity Date. If a bankruptcy proceeding is commenced in respect of the
Company, the claim of the beneficial owner of a note for the period from and
including the Issue Date to but excluding the date of early repayment will be
capped at the Redemption Amount, calculated as though the date of the
commencement of the proceeding were the Maturity Date.

Section 9.  No
Recourse Against Certain Persons.  No
recourse for the payment of the Redemption Amount or for any claim based hereon
or otherwise in respect hereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Indenture or any Indenture
supplemental thereto or in any Note, or because of the creation of any
indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any constitution, statute or
rule of law or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.

Section 10.  Defined
Terms.  All terms used but not
defined in this Note are used herein as defined in the Indenture.

Section 11.  GOVERNING LAW.  THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.Exhibit 10.1

SUPPLEMENTAL INDENTURE NO. 1,
dated as of August 13, 2007 (this “Supplement”), to the Junior
Subordinated Indenture, dated as of November 23, 2005 (as amended,
supplemented, amended and restated or otherwise modified from time to time, the
“Indenture”), among OHI Financing, Inc., a Delaware corporation, (the “Company”)
and The Bank of New York Trust Company, National Association, a national
banking association (as successor to JPMorgan Chase Bank, National Association,
a national banking association), as trustee (in such capacity, the “Trustee”).  Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to them in the Indenture (as
amended hereby).

WHEREAS, the Company desires to
amend certain provisions of the Indenture as set forth herein; and

WHEREAS, Section 9.2(a) of the
Indenture provides that the Company may, with the consent of the Holders of not
less than a majority in aggregate principal amount of the Outstanding
Securities, and when authorized by a Board Resolution, enter into an indenture
supplement;

WHEREAS, Section 6.9(b)(iv) of
the Amended and Restated Trust Agreement, among the Company, the Trustee, Chase
Bank USA, National Association (the “Delaware Trustee”) and the
Administrative Trustees named therein, dated as of November 23, 2005 (the “Trust
Agreement”), provides that the Trustee may, with the consent of the holders
of not less than a majority in aggregate Liquidation Amount of the Outstanding
Preferred Securities, enter into an indenture supplement;

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

Section
1.              Amendments.  The Indenture is hereby modified effective as
of the date hereof as follows:

(a)           Section
1.1 of the Indenture is hereby modified by deleting the definition of “Adjusted
EBITDA” contained therein in its entirety and replacing it with the following:

““Adjusted EBITDA” means, with respect to a
Relevant Accounting Period, (i) Consolidated Net Income, plus (to the extent
deducted to determine Consolidated Net Income) (ii) state and federal income
taxes, plus (iii) depreciation and amortization, plus (iv) interest expensed in
the cost of goods sold, plus (v) interest expensed from operations.”

(b)           Section
1.1 of the Indenture is hereby modified by adding the definition of “Consolidated
Net Income” as follows:

““Consolidated Net Income” means, with respect
to any Relevant Accounting Period, the aggregate of the net income of the
Guarantor and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP; provided, however, that, without duplication,

(1)           any
after-tax effect of (a) extraordinary, non-recurring or unusual
gains or losses (less all fees and expenses relating thereto) (b)
extraordinary, non-recurring or unusual expenses, (c) severance, (d) relocation
costs and (e) curtailments or modifications to pension and post-retirement
employee benefit plans, in each case shall be excluded,

(2)           the
net income for such Relevant Accounting Period shall not include the cumulative
effect of a change in accounting principles during such period,

(3)           any
after-tax effect of income (loss) from disposed of or discontinued operations
and any net after-tax gains or losses on disposal of disposed, abandoned
or discontinued operations shall be excluded,

(4)           any
after-tax effect of gains or losses (less all fees and expenses relating
thereto) attributable to asset dispositions other than in the ordinary course
of business (as determined in good faith by either the Company’s Board of
Directors or senior management and, for purposes of this clause (4), shall
include land and other similar sales) shall be excluded,

(5)           the
net income for such period of any Person that is not a Subsidiary, or that is
accounted for by the equity method of accounting, shall be excluded; provided that Consolidated Net Income
of the Company shall be increased by the amount of dividends or distributions
or other payments that are actually paid in cash (or to the extent converted
into cash) to the referent Person thereof in respect of such period,

(6)           effects
of adjustments (including the effects of such adjustments pushed down to the
referent Person) in the property and equipment, intangible assets, deferred
revenue and debt line items in such Person’s consolidated financial statements
pursuant to GAAP resulting from the application of purchase accounting in
relation to any consummated acquisition or the amortization or write-off of any
amounts thereof, net of taxes, shall be excluded,

(7)           any
after-tax effect of income (loss) from (a) the early extinguishment of
Debt or (b) Hedging Obligations or other derivative instruments (including the
application of Statement of Financial Accounting Standards No. 133) shall be
excluded,

(8)           any
impairment charge, asset write-off, abandonment charge, deposit forfeiture
or write-off of other pre-acquisition costs, or other similar amounts, in each
case, pursuant to GAAP and the amortization of intangibles arising pursuant to
GAAP shall be excluded,

(9)           any
non-cash compensation expense recorded from grants of stock appreciation
or similar rights, stock options, restricted stock or other rights shall be
excluded, and

(10)         any
fees, expenses and charges incurred during such period, or any amortization
thereof for such period, in connection with any acquisition, disposition, recapitalization,
investment, asset sale, issuance or repayment of Debt, issuance of Equity Interests,
refinancing transaction or amendment or modification of any debt instrument (in

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each case, including any
such transaction consummated prior to the date hereof and any such transaction
undertaken but not completed) and any non-recurring costs incurred during such
period as a result of any such transaction shall be excluded.”

(c)           Section
1.1 of the Indenture is hereby modified by deleting the definition of “Corporate
Trust Office” contained therein and replacing it in its entirety with the
following:

““Corporate Trust Office” means the principal
office of the Trustee at which at any particular time its corporate trust
business shall be administered, which office at the date of this Indenture is
located at 601 Travis, 16th Floor, Houston,
Texas  77002, Attn:  Global Corporate Trust - Orleans Homebuilders
Trust II.  All notices and correspondence
to the Trustee hereunder shall be addressed to Mudassir Mohamed, telephone
number (713) 483-6029.”

(d)           Section
1.1 of the Indenture is hereby modified by deleting the definition of “Debt
Service” contained therein and replacing it in its entirety with the following:

““Debt Service” means, with respect to a
Relevant Accounting Period, without duplication, (i)  interest paid (whether expensed or
capitalized) as reported on the Guarantor’s Financial Statements (specifically
including interest paid with respect to the Preferred Securities except for (a)
any additional interest paid as a result of an increase to the Regular Interest
Rate pursuant to Section 3.1(a)(ii) hereof and (b) any interest paid with
respect to any non-refundable, cash fee paid in connection with obtaining the
consent referred to in Section 2(i)(b) of this Supplement), plus (ii)
required principal payments on any Debt (excluding (a) with respect to any
purchase money mortgage debt, release prices paid upon the conveyance of any
Unit, (b) principal payments with respect to any Credit Facilities or other
similar debt instruments entered into by the Company and (c) principal payments
made to refinance any Debt), plus (iii) mandatory preferred stock dividends (to
the extent paid in cash).”

(e)           Section
3.1(a)(ii) of the Indenture is hereby deleted and replaced in its entirety as
follows:

“If, as of the last day of any Fiscal Quarter (the “Measuring Quarter”) (for purposes of this Section 3.1(a)(ii)
only, in no event shall this day be earlier than June 30, 2008), as reported by
the Company pursuant to Section 7.3(b) hereof,

(A)          the
ratio of the Guarantor’s Adjusted EBITDA to Debt Service for the Relevant
Accounting Period (ended as of the last day of the Fiscal Quarter for which the
determination is being made) (the “Interest Coverage Ratio”)
as of the last day of at least each of three of the four consecutive Fiscal
Quarters ending with the last day of such Measuring Quarter is less than 1.75
to 1 (an “Interest Coverage Ratio Trigger Event”),
or

(B)           the
Guarantor’s Consolidated Tangible Net Worth as of the last day of at least each
of three of the four consecutive Fiscal Quarters ending with the last day of
such Measuring Quarter, is less than the Minimum Consolidated Net Worth Amount
(a “Minimum Consolidated Net Worth Trigger Event”),

 3
 

then the interest rate as set forth in Section 3.1(a)(i) (the “Regular
Interest Rate”) shall be increased by 300 basis points (as adjusted, the “Adjusted
Interest Rate”) effective as of the first day of the Interest Period
immediately following the last day of such Measuring Quarter; provided, that
the Adjusted Interest Rate shall cease to apply, and the Regular Interest Rate
shall apply (aa) in the case of an Interest Coverage Ratio Trigger Event, effective
as of the first day of the Interest Period immediately following the last day
of the first Fiscal Quarter thereafter for which the Interest Coverage Ratio is
equal to or greater than 1.75 to 1, and (bb) in the case of a Minimum
Consolidated Net Worth Trigger Event, effective as of the first day of the
Interest Period immediately following the last day of the first Fiscal Quarter
thereafter for which the Guarantor’s Consolidated Net Worth is equal to or
greater than the Minimum Consolidated Net Worth Amount.  By way of illustration, if an Interest
Coverage Ratio Trigger Event occurred with respect to the Fiscal Quarter ending
June 30, 2008, but the Guarantor’s Interest Coverage Ratio was equal to or
greater than 1.75 to 1 with respect to the Fiscal Quarter ending September 30,
2008, then the Regular Interest Rate would apply for the Interest Period that
ends on the July 30, 2008 Interest Payment Date, the Adjusted Interest Rate
would apply for the Interest Period that ends on the October 30, 2008 Interest
Payment Date, and the Regular Interest Rate would again apply for the Interest
Period that ends on the January 30, 2009 Interest Payment Date.”

(f)            Clause
(g) of Section 5.1 of the Indenture is hereby deleted and replaced in its
entirety as follows:

“(g)         the
Adjusted Interest Rate is in effect for eight (8) consecutive Interest Periods,
other than the consecutive Interest Periods ending October 30, 2008, January
30, 2009, April 30, 2009, July 30, 2009, October 30, 2009, January 30, 2010,
April 30, 2010 and July 30, 2010;”

(g)           A
new clause (h) is hereby added to Section 5.1 of the Indenture in its entirety
as follows:

“(h)         the
Interest Coverage Ratio as of the last day of the Relevant Accounting Period
ending March 31, 2010 or June 30, 2010, as applicable, is less than 1.25 to 1; provided
that the Adjusted Interest Rate has been in effect for the six (6) prior
consecutive Interest Periods; or”

(h)           A
new clause (i) is hereby added to Section 5.1 of the Indenture in its entirety
as follows:

(i)            “the
Interest Coverage Ratio as of the last day of the Relevant Accounting Period
ending September 30, 2010 is less than 1.75 to 1; provided that the
Adjusted Interest Rate has been in effect for the eight (8) prior consecutive
Interest Periods.”

(i)            The
Company shall immediately notify the Trustee and the fund manager of the
holders of a majority in aggregate Liquidation Amount of the Outstanding
Preferred Securities (the “Fund Manager”) of the occurrence of any of
items (g), (h) and (i) hereunder.

 4

(j)            Article
X of the Indenture is amended by adding the following Sections 10.9,
10.10,10.11, 10.12 and 10.13:

“SECTION 10.9.    Reserve Fund.

(a)           Subject
to Section 10.11(a), on or prior to September 30, 2007 the Company shall
deposit or cause to be deposited with the Trustee (for the benefit of the Holders
of the Preferred Securities) the amount of $5,000,000.00 for the purpose of
establishing a reserve fund to secure the payment obligations of Orleans
Homebuilders Trust II (“OHT II”) of the Preferred Securities (and not to
secure any repayment obligations of the Company with respect to the
Securities).  Subject to Section
10.11(a), in the event the Company has paid the Adjusted Interest Rate for the
four (4) consecutive Interest Periods ending July 30, 2009, the Company shall,
on July 30, 2009, deposit with the Trustee the additional amount of
$2,500,000.00 to secure OHT II’s repayment obligations of the Preferred
Securities.  The foregoing amounts shall
be deposited in a securities account established with the Trustee in the name
of the Trustee (the “Reserve Account”). 
Amounts held in the Reserve Account shall be invested in a money market
fund to be agreed upon by the Company and the Trustee.  The Trustee shall have no liability for
losses on any investments made hereunder. 
Any amounts earned on funds on deposit in the Reserve Account shall be
added to amounts on deposit in the Reserve Account.  Amounts deposited in the Reserve Account
pursuant to this Section 10.9(a) or pursuant to Section 10.11(c)
are referred to herein as the “Reserve Fund” and shall be disbursed by the
Trustee upon the occurrence of (i) a Note Event of Default (as defined in the
Trust Agreement), other than a Note Event of Default specified in Section
5.1(c) or (f) of this Indenture unless such Note Event of Default results in a
declaration of acceleration pursuant to Section 5.2(a) of this Indenture, or
(ii) an Event of Default set forth in clause (b) or (c) of the definition of “Event
of Default” in the Trust Agreement, at such times and in such amounts as
designated by the holders of a majority in aggregate Liquidation Amount of the
Outstanding Preferred Securities in their sole discretion in respect of OHT II’s
repayment obligations of the Preferred Securities, provided that any disbursements
made by the Trustee pursuant to a Note Event of Default caused by an Event of
Default under Section 5.1(a) of the Indenture shall be in an amount not to
exceed the aggregate amount of all distributions then in default.

(b)           The
Company agrees and acknowledges that neither the insufficiency or sufficiency
of the amount of, nor the unavailability or availability of, the Reserve Fund
is intended to, and shall therefore not, constitute a limitation on the
obligation of the Company to pay when due all amounts due under the
Securities.  Upon  the earlier of (x) compliance with the
Interest Coverage Ratio, (y) the satisfaction of the conditions set forth in Section
4.1 of this Indenture and (z) the satisfaction of the conditions set forth
in Section 13.2 of this Indenture, as certified to the Trustee pursuant
to a certificate delivered to the Trustee by the Company and the holders of a
majority in aggregate Liquidation Amount of the Outstanding Preferred
Securities, the balance of the Reserve Fund then in the Trustee’s possession
shall be paid over to the Company.  The
Trustee shall have no liability for any action taken in reliance on such
certificate.  In the event the balance of
the Reserve Fund is paid over to the Company in accordance with this Section 10.9(b),
the parties hereto agree to immediately (but no later than 10 days) execute any

 5
 

supplemental indenture
and other documents which may be reasonably necessary upon the occurrence of an
Interest Coverage Ratio Trigger Event to restore and reinstitute the Reserve
Fund previously paid over to the Company and related provisions including Sections
1.01 and 1.02 hereof all as set forth herein.

SECTION 10.10     Security Interest in Interest Reserve Fund.

(a)           The
Company hereby pledges, assigns and grants a security interest to the Trustee,
as security for repayment of the Preferred Securities, in all of the Company’s
right, title and interest in and to the Reserve Fund under Section 10.9(a).  The Reserve Fund shall be under the sole
dominion and control of the Trustee.

(b)           The
Company shall not, without the prior written consent of the Holders of a
majority in aggregate principal amount of the Outstanding Preferred Securities
in aggregate Liquidation Amount of the Outstanding Preferred Securities,
further pledge, assign or grant any security interest in the Reserve Fund or
permit any lien or encumbrance to attach thereto, or any levy to be made
thereon, or any UCC-1 financing statements, except those naming the
Trustee as the secured party, to be filed with respect thereto.

SECTION 10.11.    Provisions Regarding Letters of Credit.

(a)           Delivery
of Letters of Credit.

(i)            The Company may, in its sole
discretion, deliver to the Trustee (for the benefit of the Holders of the
Preferred Securities) a Letter of Credit in lieu of all or any portion of the
Reserve Fund.  For purposes of this
Indenture, the term “Letter of Credit”
shall mean an irrevocable, unconditional, transferable, clean sight draft
letter of credit acceptable to the holders of a majority in aggregate Liquidation
Amount of the Outstanding Preferred Securities in favor of the Trustee and
entitling the Trustee to draw thereon as provided in this Section 10.11
in Houston, Texas or such other city as agreed to by the Trustee and the
Company (with a copy of the documents necessary for a draw sent via facsimile
to the extent required by the issuing bank), issued in U.S. Dollars by a
domestic Eligible Institution or the U.S. agency or branch of a foreign
Eligible Institution.  For purposes of
this Section 10.11, the term “Eligible Institution”
shall mean a federal or state chartered depository institution or trust company
insured by the Federal Deposit Insurance Corporation the short term unsecured
debt obligations or commercial paper of which are rated at least A-1 by
S&P, P-1 by Moody’s and F-1+ by Fitch in the case of accounts in which
funds are held for thirty (30) days or less or, in the case of Letters of
Credit or accounts in which funds are held for more than thirty (30) days, the
long term unsecured debt obligations of which are rated at least “AA” by Fitch
and S&P and “Aa2” by Moody’s.

(ii)           The Company shall give the Trustee no
less than fifteen (15) days written notice of the Company’s election to deliver
a Letter of Credit and the Company shall pay to the Trustee all of the Trustee’s
reasonable out-of-pocket costs and expenses in connection therewith.  The Company shall not be entitled to draw
from any such Letter of Credit.  Upon
fifteen (15) days written notice to the Trustee and the Fund Manager, the 

 6
 

Company may replace any
Letter of Credit delivered pursuant to this Section 10.11 with a cash
deposit in an amount equal to the notional amount of such Letter of Credit.

(iii)          Under no circumstances shall the
Trustee as beneficiary under the Letter of Credit be required to transfer the
Letter of Credit to a second beneficiary. 
In the event that any of the Company, the Fund Manager or the Trustee
determines that (i) the Letter of Credit should be transferred to a second
beneficiary or (ii) the Trustee should no longer hold the Letter of Credit, any
of the Company, the Fund Manager or the Trustee may require that the existing
Letter of Credit be cancelled and that a new Letter of Credit be issued to the
second beneficiary by giving to each of the other parties no less than fifteen
(15) days written notice of such requirement, at which time the parties shall,
if necessary and requested by any party, endeavor to enter into a supplemental
indenture (and other documents which may be reasonably necessary) to address any
circumstances arising as a result of such transfer.

(b)           Each
Letter of Credit delivered under this Indenture shall be additional security
for all payments of the Preferred Securities (and not to secure any repayment
obligations of the Company with respect to the Securities).  Upon the occurrence of (i) a Note Event of
Default (as defined in the Trust Agreement), other than a Note Event of Default
specified in Section 5.1(c) or (f) of this Indenture unless such Note Event of
Default results in a declaration of acceleration pursuant to Section 5.2(a) of
this Indenture, or (ii) an Event of Default set forth in clause (b) or (c) of
the definition of “Event of Default” in the Trust Agreement, the Trustee, upon
actual receipt of notice concerning such occurrence, shall draw on any Letter
of Credit in full or in part, as directed by the holders of a majority in
aggregate Liquidation Amount of the Outstanding Preferred Securities, and apply
all or any part thereof to any payments required with respect to the Preferred
Securities under the same circumstance that it would be entitled to use the Reserve
Fund.

(c)           The
Trustee shall, as directed by the holders of a majority in aggregate
Liquidation Amount of the Outstanding Preferred Securities, draw in full any
Letter of Credit:  (i) if the Trustee has
received a written notice from the issuing bank or the Company that the Letter
of Credit will not be renewed and a substitute Letter of Credit is not provided
at least fifteen (15) days prior to the date on which the outstanding Letter of
Credit is scheduled to expire; (ii) upon receipt of written notice from the
issuing bank or the Company that the Letter of Credit will be terminated
(except if the termination of such Letter of Credit is permitted pursuant to
the terms and conditions of this Indenture or a substitute Letter of Credit is
provided no later than (10) Business Days prior to such termination); or (iii)
if the Trustee has received written notice from either the Company, the holders
of a majority in aggregate Liquidation Amount of the Outstanding Preferred
Securities, or the issuing bank that the bank issuing the Letter of Credit
shall cease to be an Eligible Institution and the Company has not replaced the
outstanding Letter of Credit with a substitute Letter of Credit from an
Eligible Institution within ten (10) Business Days of notice to the Company by
the holders of a majority in aggregate Liquidation Amount of the Outstanding
Preferred Securities, it being understood that upon the receipt by the Trustee
of any notice under this Section 10.11(c), the Trustee shall promptly forward
such notice to the holders of a majority in aggregate Liquidation Amount of the
Outstanding Preferred Securities.  Upon
the occurrence of any of the circumstances contemplated

 7
 

in items (i), (ii) or
(iii) above, the Company shall provide prompt written notice to the Fund
Manager and the Trustee.  In the event
that the Trustee is entitled to draw on the Letter of Credit pursuant to this Section
10.11(c), so long as no Event of Default has occurred and is continuing,
the Trustee shall, as directed by the holders of a majority in aggregate
Liquidation Amount of the Outstanding Preferred Securities, deposit such Letter
of Credit proceeds into the Reserve Account as Reserve Funds pursuant to Section
10.9(a).  Notwithstanding anything to
the contrary contained in the above, the Trustee shall not be liable for any
losses sustained by any person due to the insolvency of the bank issuing the
Letter of Credit.  Upon the satisfaction
of the conditions set forth in Section 4.1 or Section 13.2 of
this Indenture as determined by a majority in aggregate Liquidation Amount of
the Outstanding Preferred Securities, the Trustee shall, as directed by the
holders of a majority in aggregate Liquidation Amount of the Outstanding
Preferred Securities, return any outstanding Letter of Credit to the Company
and the Company is hereby authorized, upon such return, to, or cause the
issuing bank to, terminate or otherwise cancel that Letter of Credit.

SECTION 10.12.    Delivery of Information. 
For so long as any of the Securities remain Outstanding and the holders
of a majority in aggregate Liquidation Amount of the Outstanding Preferred
Securities as of the date of execution of the Confidentiality Agreement
(defined below) continue to hold a majority in aggregate Liquidation Amount of
the Outstanding Preferred Securities, the Company shall deliver (through access
to a shared data base or such other method reasonably acceptable to the Fund
Manager as of the date of the execution of the Confidentiality Agreement) to
the Fund Manager as of the date of execution of the Confidentiality Agreement
dated as of April 25, 2007 by and among the Company and such fund manager (the “Confidentiality
Agreement”) all such financial data and information in the possession of
the Company as the Fund Manager of the holders of a majority in aggregate
Liquidation Amount of the Outstanding Preferred Securities as of the date of
execution of the Confidentiality Agreement may reasonably request from the
Company; provided, however, that
all information received by the Fund Manager as of the date of execution of the
Confidentiality Agreement pursuant to this Section 10.12 shall be subject to
the Confidentiality Agreement.”

SECTION 10.13.    Inspection of Books and Records.  The Company shall permit the Fund Manager as
of the date of execution of the Confidentiality Agreement to examine the books
and records of account of the Company and its Subsidiaries (and to make copies
thereof and extracts therefrom) and to discuss the affairs, finances and accounts
of such Persons with, and to be advised as to the same by its officers, all at
such reasonable times and intervals during normal business hours as the Fund
Manager as of the date of execution of the Confidentiality Agreement may
reasonably request, at the expense of 
the Fund Manager as of the date of execution of the Confidentiality
Agreement; provided, that should the Company be in default under this
Indenture, all expenses incurred in exercising the rights granted to the Fund
Manager as of the date of execution of the Confidentiality Agreement under this
Section 10.13 shall be borne by the Company; provided further
that the holders of a majority in aggregate Liquidation Amount of the
Outstanding Preferred Securities as of the date of execution of the Confidentiality
Agreement continue to hold a majority in aggregate Liquidation Amount of the Outstanding
Preferred Securities in order for such fund manager to have access to any such 

 8
 

information under this Section
10.13.  The Fund Manager as of the
date of execution of the Confidentiality Agreement shall use good faith efforts
to coordinate such inspections so as to minimize the interference with and
disruption to the Company’s normal business operations.”

(k)           Section
11.1 of the Indenture is hereby deleted and replaced in its entirety as follows:

“Section 11.1         Optional
Redemption.

The Company may, at its option, on or after January
30, 2011, redeem the Securities in whole at any time or in part from time to
time, at a Redemption Price equal to one hundred percent (100%) of the
principal amount thereof (or of the redeemed portion thereof, as applicable),
together, in the case of any such redemption, with accrued and unpaid interest,
including any Additional Interest, through but excluding the date fixed as the
Redemption Date (the “Optional Redemption Price”).”

(l)            Section
11.3 of the Indenture is hereby deleted and replaced in its entirety as
follows:

“Section 11.3         Election
to Redeem; Notice to Trustee.

The election of the Company to redeem any Securities,
in whole or in part, shall be evidenced by or pursuant to a Board Resolution.
In case of any redemption at the election of the Company, the Company shall,
not less than thirty (30) days and not more than sixty (60) days prior to the
Redemption Date (unless a shorter notice shall be satisfactory to the Trustee),
notify the Trustee and the Property Trustee under the Trust Agreement in
writing of such date and of the principal amount of the Securities to be redeemed
and provide the additional information required to be included in the notice or
notices contemplated by Section 11.5. In the case of any redemption of
Securities, in whole or in part, (a) prior to the expiration of any restriction
on such redemption provided in this Indenture or the Securities or (b) pursuant
to an election of the Company which is subject to a condition specified in this
Indenture or the Securities, the Company shall furnish the Trustee with an
Officers’ Certificate and an Opinion of Counsel evidencing compliance with such
restriction or condition.”

(m)          A
new Article XIII entitled “Legal Defeasance and Covenant Defeasance” is hereby
added in its entirety as follows:

“ARTICLE XIII     LEGAL
DEFEASANCE AND COVENANT DEFEASANCE

Section 13.1           Option
to Effect Legal Defeasance or Covenant Defeasance.  The Company may, at the option of its Board
of Directors evidenced by a resolution set forth in an Officers’ Certificate
delivered to the Trustee, the Fund Manager as of the date of execution of the
Confidentiality Agreement, and the Property Trustee, at any time, elect to have
either Section 13.2 or 13.3 hereof applied to all Outstanding
Securities upon compliance with the conditions set forth below in this Article
XIII; provided; however,

 9
 

upon the Company’s
exercise pursuant to this Section 13.1, the interest rate at which the
Securities shall bear interest shall be a fixed rate equal to 8.61% per annum.

Section 13.2           Legal
Defeasance and Discharge.

Upon the Company’s exercise under Section 13.1
hereof of the option applicable to this Section 13.2, the Company and
the Guarantor shall, subject to the satisfaction of the conditions set forth in
Section 13.4 hereof, be deemed to have been discharged from their
obligations with respect to all Outstanding Securities and Guarantees on the
date the conditions set forth below are satisfied (“Legal Defeasance”).  For this purpose, Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire obligation
represented by the Outstanding Securities, which shall thereafter be deemed to
be Outstanding only for the purposes of Section 13.5 hereof and the
other Sections of this Indenture referred to in (i), (ii) and (iii) below, and
to have satisfied all its other obligations under such Outstanding Securities
and this Indenture including that of the Guarantor (and the Trustee, on demand
of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall
survive until otherwise terminated or discharged hereunder:

(i)            the
rights of Holders of Securities to receive payments in respect of the principal
of, premium, if any, and interest on the Securities when such payments are due
solely out of the trust created pursuant to this Indenture referred to in Section
13.4 hereof;

(ii)           the
Company’s obligations with respect to Securities under Article II and III and
the maintenance of an office or agency for payment and money for security payments
held in trust;

(iii)          the
rights, powers, trusts, duties and immunities of the Trustee, and the Company’s
and Guarantor’s obligations in connection therewith, including pursuant to Section
6.6 hereof; and

(iv)          this
Section 13.2.

Subject to compliance with this Article XIII,
the Company may exercise its option under this Section 13.2
notwithstanding the prior exercise of their option under Section 13.3
hereof.

Section 13.3           Covenant
Defeasance.

Upon the Company’s exercise under Section 13.1
hereof of the option applicable to this Section 13.3, the Company shall,
subject to the satisfaction of the conditions set forth in Section 13.4
hereof, be released from their obligations under the covenants contained in Sections
10.3, 10.4, 10.5 and 10.6 hereof with respect to the Outstanding
Securities on and after the date the conditions set forth in Section 13.4
hereof are satisfied (“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 

 10
 

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 Company 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.  In addition, upon the Company’s
exercise under Section 13.1 hereof of the option applicable to this Section
13.3 hereof, subject to the satisfaction of the conditions set forth in Section
13.4 hereof, Section 5.1(c) hereof shall not constitute an Event of
Default.

Section 13.4           Conditions
to Legal or Covenant Defeasance.The following shall be the conditions to
the application of either Section 13.2 or 13.3 hereof to the Outstanding
Securities:

In order to exercise either Legal Defeasance or
Covenant Defeasance with respect to the Securities:

(i)            the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Securities, cash in U.S. dollars, Government Obligations, or
a combination thereof, in such amounts as will be sufficient, together with the
interest or increment to accrue thereon (but without further reinvestment) in
the opinion of a nationally recognized firm of independent public accountants,
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge, and which shall be applied by the Trustee to pay and discharge,
the principal of (premium, if any) and interest due on the Securities based
upon a rate of 8.61% per annum on the Stated Maturity or on the redemption
date, as the case may be, of such principal, premium, if any, or interest on
such Securities, and the Company must specify whether such Securities are being
defeased to maturity or to a particular redemption date;

(ii)           in
the case of Legal Defeasance, the Company shall have delivered to the Trustee
an Opinion of Counsel in the United States reasonably acceptable to the Trustee
confirming that,

(a)           the
Company has received from, or there has been published by, the United States
Internal Revenue Service a ruling, or

(b)           since
the issuance of the Securities, there has been a change in the applicable U.S.
federal income tax law,

in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of the Securities will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of such
Legal Defeasance and will 

 11
 

be subject to U.S. 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;

(iii)          in
the case of Covenant Defeasance, the Company shall have delivered to the
Trustee an Opinion of Counsel in the United States reasonably acceptable to the
Trustee confirming that, the Holders of the Securities will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of such
Covenant Defeasance and will be subject to such 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;

(iv)          no
Default or Event of Default (other than a Default or Event of Default resulting
from borrowing funds to be applied to that deposit) shall have occurred and be
continuing on the date of such deposit;

(v)           such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the Credit Facilities or any other
material agreement or instrument (other than this Indenture) to which, the
Company or the Guarantor is a party or by which the Company or the Guarantor is
bound;

(vi)          the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that, as of the date of such opinion and subject to customary assumptions and
exclusions following the deposit, the trust funds will not be subject to the
effect of Section 547 of Title 11 of the United States Code;

(vii)         the
Company shall have delivered to the Trustee an Officer’s Certificate stating
that the deposit was not made by the Company with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or the
Guarantor or others; and

(viii)        the
Company shall have delivered to the Trustee an Officer’s Certificate and an
Opinion of Counsel each stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance, as the case may
be, have been complied with.

Section 13.5           Deposited
Money and Government Obligations to Be Held in Trust; Other Miscellaneous
Provisions.

Subject to Section 13.6 hereof, all money and
Government Obligations (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
13.5, the “Trustee”) pursuant to Section 13.4 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 Company or a Guarantor 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 and Additional Interest,

 12
 

if any, and interest, but
such money need not be segregated from other funds except to the extent
required by law.

The Company shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the cash or
Government Obligations deposited pursuant to Section 13.4 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 XIII to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon the request of the Company any money or Government Obligations held
by it as provided in Section 13.4 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 13.4(i) 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 13.6           Repayment
to the Company.

Any money deposited with the Trustee or any Paying
Agent, or then held by the Company, in trust for the payment of the principal
of, premium and Additional Interest, if any, or interest on any Security and
remaining unclaimed for two years after such principal, and premium and
Additional Interest, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter look only to
the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
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 Company, 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 shall be repaid to the Company.

Section 13.7           Reinstatement.

If the Trustee or Paying Agent is unable to apply any
United States dollars or Government Obligations in accordance with Section
13.2 or 13.3 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 Company’s and Guarantor’s
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to Section 13.2 or
13.3 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 13.2 or 13.3
hereof, as the case may be; provided that, if the Company make any
payment of principal of, premium and Additional Interest, if any, or interest
on any Security following the reinstatement of their obligations, the Company
shall be subrogated to 

 13
 

the rights of the Holders
of such Securities to receive such payment from the money held by the Trustee
or Paying Agent.

Section
2.              Conditions to the
Effectiveness of this Supplement.  This Supplement will become effective as of
the date first written above upon:

(i)      receipt by the Trustee of the consents of
(a) Holders of not less than a majority in aggregate principal amount of the
Outstanding Securities and (b) holders of not less than a majority in aggregate
Liquidation Amount of the Outstanding Preferred Securities;

(ii)     execution of signature pages hereto from
the Company and the Trustee;

(iii)    receipt by the holders of the Outstanding
Preferred Securities, on a pro rata basis,
of a cash payment in the amount of $750,000 to be treated by such holders in
the manner specified by the Fund Manager;

(iv)    receipt by the Trustee, to hold for the
benefit of the holders of a majority in aggregate Liquidation Amount of the
Outstanding Preferred Securities, $5,000,000 in cash or a $5,000,000 letter of
credit, which shall be subject to the terms specified in Sections 10.9, 10.10
and 10.11;

(v)     receipt by the Trustee and the Fund Manager
of all costs and expenses incurred by each of them in connection with this
Supplement, including reasonable attorney fees;

(vi)    receipt of an Opinion of Counsel relating to
this Supplemental Indenture in accordance with Sections 1.2 and 9.3 of the
Indenture; and

(vii)   receipt of an Officers’ Certificate relating
to this Supplemental Indenture in accordance with Sections 1.2 and 9.3 of the
Indenture.

The modifications contemplated hereby shall apply only
from and after the date of effectiveness of this Supplement.

Section
3.              Counterparts.  This Supplement may be executed in any number
of counterparts and by different parties hereto on separate counterparts, each
of which when so executed and delivered shall be deemed to be an original, but
all of which when taken together shall constitute a single instrument.  Delivery of an executed counterpart of a
signature page of this Supplement by facsimile transmission shall be effective
as delivery of a manually executed counterpart hereof.

Section
4.              Applicable Law.  THIS SUPPLEMENT SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

Section
5.              Headings.  The headings of this Supplement are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.

 14
 

Section
6.              Effect of Supplement.  Except as expressly set forth herein, this
Supplement shall not by implication or otherwise limit, impair, constitute a
waiver of or otherwise affect the rights and remedies of the Holders under the
Indenture, and shall not alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the
Indenture or any other provision of the Indenture, all of which are ratified
and affirmed in all respects and shall continue in full force and effect.

Section
7.              Trustee’s Acceptance.  The Trustee accepts the trust in this Supplemental
Indenture declared and provided upon the terms and conditions set forth in the
Indenture.  The Trustee shall not be
responsible in any manner whatsoever for the validity or sufficiency of this
Supplemental Indenture or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein which have been made by
or on behalf of the Company.

[Remainder of Page
Intentionally Blank]

 

 15

IN WITNESS WHEREOF, the parties hereto have caused
this Supplement to be duly executed by their respective authorized officers as
of the day and year first above written.

	
  

  	
   

  	
  OHI FINANCING, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Garry Herdler

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Garry Herdler

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  Executive Vice President and Chief

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE BANK OF NEW YORK TRUST COMPANY, NATIONAL
  ASSOCIATION, a national banking association (as successor to JPMORGAN CHASE
  BANK, NATIONAL ASSOCIATION)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Maria D. Calzado

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Maria D. Calzado

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
								

 

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