Document:

Exhibit 10.38

AMENDMENT

This AMENDMENT #2 (this “Amendment 2”), dated as of March 31, 2006, but  effective as of August 25, 2005 (“Amendment
Effective Date”), is entered into by and between IWT TESORO CORPORATION, a
Nevada corporation (the “Company”),
INTERNATIONAL WHOLESALE TILE INC., a Florida corporation (“Tile” and, together with the Company, the “Credit Parties” and, each a “Credit Party”) and LAURUS MASTER FUND, LTD., a Cayman Islands company (“Laurus”), for the purpose of amending the
terms of (i) the Security Agreement, dated as of August 25, 2005, by
and between the Credit Parties and Laurus (as amended, modified or supplemented
from time to time, the “Security Agreement”)
and (ii) the Convertible Minimum Borrowing Note by and between the Company
and Credit Parties, dated as of August 25, 2005 (as amended, modified or
supplemented from time to time, the ”Minimum Note” and, together with the
Security Agreement and the other Ancillary Documents referred to in the
Security Agreement, the ”Loan Documents”).
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement.

A.            The
Credit Parties and Laurus agree to amend the Minimum Note in order to
accurately reflect the intent of the parties.

NOW,
THEREFORE, in consideration of the above, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

1.             Sections 3.6 (c) Share
Issuances and 3.6(d) Computation of Consideration of the
Minimum Note shall be deleted in their entirety and shall have no further forth
or effect.

2.             The Company understands that the
Company has an affirmative obligation to make prompt public disclosure of
material agreements and material amendments to such agreements. The Company
hereby agrees that Laurus shall not be in violation of any duty to the Company
or its shareholders, nor shall Laurus be deemed to be misappropriating any
information of the Company, if Laurus sells shares of common stock of the
Company, or otherwise engages in transactions with respect to securities of the
Company, while in possession of the information contained in this Amendment.

3.             Each Credit Party hereby represents
and warrants to Laurus that (i) no Event of Default exists on the date
hereof, (ii) on the date hereof, all representations, warranties and
covenants made by the Company in connection with the Loan Documents are true,
correct and complete and (iii) on the date hereof, all of the Company’s
and its Subsidiaries’ covenant requirements have been met.

4.             From and after the Amendment
Effective Date, all references in the Loan Documents and in the other Related
Agreements to the Minimum Note shall be deemed to reference to the Minimum
Note, as the case may be, as modified hereby.

5.             This Amendment shall be binding
upon the parties hereto and their respective successors and permitted assigns
and shall inure to the benefit of and be enforceable by each of the parties
hereto and their respective successors and permitted assigns. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. This Amendment
may be executed in any number of counterparts, each of which shall be an
original, but all of which shall constitute one instrument.

 

IN WITNESS WHEREOF, each Credit Party and
Laurus have caused this Amendment to the Loan Documents to be signed in its
name as of this      day of             ,
2006, but shall be effective as of the Amendment Effective Date..

IWT
TESORO CORPORATION

By:________________________________

     Henry J.
Boucher, Jr., President and CEO

INTERNATIONAL
WHOLESALE TILE, INC.

By:________________________________

     Paul F.
Boucher, President

LAURUS MASTER FUND, LTD.

By:______________________________

Name:

Title:Exhibit 4.1

 

 

K. HOVNANIAN
ENTERPRISES, INC.

HOVNANIAN ENTERPRISES, INC.

AND THE OTHER GUARANTORS PARTY HERETO

85¤8% Senior Notes due 2017

Seventh Supplemental Indenture

Dated as of June 12, 2006

U.S. BANK NATIONAL ASSOCIATION,

as Trustee

 

TABLE OF CONTENTS

	
  

  	
   

  	
  Page

  
	
  Article 1

  	
   

  	
   

  
	
  SCOPE OF SUPPLEMENTAL INDENTURE; GENERAL

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.01.  Scope of Supplemental Indenture; General

  	
   

  	
  3

  
	
   

  	
   

  	
   

  
	
  Article 2

  	
   

  	
   

  
	
  CERTAIN DEFINITIONS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.01.  Certain Definitions

  	
   

  	
  5

  
	
  Section 2.02.  Rules of Construction

  	
   

  	
  50

  
	
   

  	
   

  	
   

  
	
  Article 3

  	
   

  	
   

  
	
  COVENANTS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.01.  Existence

  	
   

  	
  50

  
	
  Section 3.02.  Payment of Taxes and Other Claims

  	
   

  	
  51

  
	
  Section 3.03.  Maintenance of Properties and Insurance

  	
   

  	
  51

  
	
  Section 3.04.  Repurchase of Notes Upon Change of Control.

  	
   

  	
  52

  
	
  Section 3.05.  Limitations on Indebtedness.

  	
   

  	
  54

  
	
  Section 3.06.  Limitations on Restricted Payments.

  	
   

  	
  56

  
	
  Section 3.07.  Limitations on Transactions with Affiliates.

  	
   

  	
  61

  
	
  Section 3.08.  Limitations on Dispositions of Assets

  	
   

  	
  64

  
	
  Section 3.09.  Offer to Purchase

  	
   

  	
  66

  
	
  Section 3.10.  Limitations on Liens

  	
   

  	
  71

  
	
  Section 3.11.  Limitations on Restrictions Affecting Restricted Subsidiaries

  	
   

  	
  71

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

  	
   

  	
  76

  
	
  Section 3.13.  Reports to Holders of Notes

  	
   

  	
  77

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

  	
   

  	
  78

  
	
  Section 3.15.  Applicability of Covenants Contained in the Base Indenture

  	
   

  	
  79

  
	
   

  	
   

  	
   

  
	
  Article 4

  	
   

  	
   

  
	
  REMEDIES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.01. Events of Default

  	
   

  	
  79

  
	
  Section 4.02.  Additional Provisions Related to Events of Default

  	
   

  	
  84

  

 

 i
 

 

 

	
  Article 5

  	
   

  	
   

  
	
  GUARANTEES; RELEASE OF GUARANTOR

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.01.  Unconditional Guarantees

  	
   

  	
  84

  
	
  Section 5.02.  Release of a Guarantor

  	
   

  	
  85

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

  	
   

  	
  87

  
	
   

  	
   

  	
   

  
	
  Article 6

  	
   

  	
   

  
	
  THE TRUSTEE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.01.  Compensation and Indemnification of Trustee and Its Prior Claim

  	
   

  	
  87

  
	
  Section 6.02.  Appointment of Trustee

  	
   

  	
  87

  
	
   

  	
   

  	
   

  
	
  Article 7

  	
   

  	
   

  
	
  DEFEASANCE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.01.  Defeasance

  	
   

  	
  87

  
	
  Section 7.02.  Additional Provisions to Survive Legal Defeasance and Discharge

  	
   

  	
  87

  
	
  Section 7.03.  Additional Covenant Defeasance

  	
   

  	
  87

  
	
  Section 7.04.  Section 10.4

  	
   

  	
  87

  
	
  Section 7.05.  Satisfaction and Discharge of the Indenture

  	
   

  	
  87

  
	
   

  	
   

  	
   

  
	
  Article 8

  	
   

  	
   

  
	
  THE NOTES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 8.01.  Form of Notes

  	
   

  	
  87

  
	
  Section 8.02.  Depositary

  	
   

  	
  87

  
	
  Section 8.03.  Certificated Notes

  	
   

  	
  87

  
	
  Article 9

  	
   

  	
   

  
	
  REDEMPTION

  	
   

  	
   

  
	
  Section 9.01.  Optional Redemption

  	
   

  	
  87

  
	
  Section 9.02.  Sinking Fund; Mandatory Redemption

  	
   

  	
  87

  
	
  Section 9.03.  Applicability of Sections of the Base Indenture

  	
   

  	
  87

  
	
   

  	
   

  	
   

  
	
  Article 10

  	
   

  	
   

  
	
  AMENDMENTS, SUPPLEMENTS AND WAIVERS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 10.01.  Amendments, Supplements and Waivers

  	
   

  	
  87

  
	
  Section 10.02.  Payments for Consents

  	
   

  	
  87

  

 

 ii
 

 

 

	
  Article 11

  	
   

  	
   

  
	
  RELEASE OF ISSUER

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.01.  Release of Issuer

  	
   

  	
  87

  
	
   

  	
   

  	
   

  
	
  Article 12

  	
   

  	
   

  
	
  MISCELLANEOUS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 12.01.  GOVERNING LAW

  	
   

  	
  87

  
	
  Section 12.02.  No Adverse Interpretation of Other Agreements

  	
   

  	
  87

  
	
  Section 12.03.  Successors and Assigns

  	
   

  	
  87

  
	
  Section 12.04.  Counterparts

  	
   

  	
  87

  
	
  Section 12.05.  Severability

  	
   

  	
  87

  
	
  Section 12.06.  Effect of Headings

  	
   

  	
  87

  
	
  Section 12.07.  Conflict of Any Provision of Indenture with Trust Indenture Act of
  1939

  	
   

  	
  87

  
	
   

  	
   

  	
   

  
	
  SCHEDULE:

  	
   

  	
   

  
	
  1.     Guarantors

  	
   

  	
   

  
	
  2.     Unrestricted
  Subsidiaries

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT:

  	
   

  	
   

  
	
  A.     Form of Note

  	
   

  	
   

  
	
  B.     Form of
  Supplemental Indenture

  	
   

  	
   

  

 

 iii

SEVENTH
SUPPLEMENTAL INDENTURE dated as of June 12, 2006 (“Supplemental
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 U.S. BANK NATIONAL ASSOCIATION,
as trustee (the “Trustee”), supplementing the
Indenture dated as of November 3, 2003 by and among the Issuer, Hovnanian
and Wachovia Bank, National Association (the “Base
Indenture” and as supplemented by a First Supplemental Indenture
thereto, dated as of November 3, 2003, a Second Supplemental Indenture
thereto, dated as of March 18, 2004, a Third Supplemental Indenture
thereto, dated as of July 15, 2004, a Fourth Supplemental Indenture
thereto, dated as of April 19, 2005, a Fifth Supplemental Indenture
thereto, dated as of September 6, 2005, a Sixth Supplemental Indenture
thereto, dated as of February 27, 2006, and this Supplemental Indenture,
the “Indenture”).

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 85/8% Senior Notes due 2017 (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
$250,000,000;

WHEREAS,
Section 6.9 of the Base Indenture provides that a different trustee may be
appointed by the Issuer for each series of Securities prior to the issuance of
such Securities, and the Issuer wishes to appoint U.S. Bank National
Association as the Trustee for the Notes;

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 $250,000,000) and shall not apply to any other Securities that have or 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 “85/8% Senior Notes due 2017.”  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

 2
 

 

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.

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. Indebte dness 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.

 3
 

 

 

“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.

“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

 4
 

 

(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.

“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

 5
 

 

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.

“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

 6
 

 

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 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

 7
 

 

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 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.

 8
 

 

“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 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,

 9
 

 

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;

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 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 Issue Date 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

 10
 

 

successor facilities or lines of credit and includes
any facility or line of credit with one or more lenders refinancing or
replacing all or any portion of the Indebtedness under such facility or line of
credit or any successor facility or line of credit.

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

“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 8.02
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 8.01
hereof.

“Global Note Holder” has the meaning ascribed to such term in
Section 8.02 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.zo.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 respective 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 June 12, 2006.

“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 9.01 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 basis, such principal and interest
at the Treasury Rate (determined on the business

 15
 

 

 

day preceding the date of such redemption) plus 0.50%,
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 property was acquired with the proceeds of such
Indebtedness or such Indebtedness was incurred within 90 days after the
acquisition of such property

 16
 

 

 

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 $1.5 billion 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 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) 

 17
 

 

 

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 The McGraw Hill Companies, 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.

 24
 

 

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

“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 Subsidiaries of
Hovnanian named in Schedule 2 hereto.

Subject
to the foregoing, the Board of Directors of Hovnanian or a duly authorized
committee thereof may designate any Subsidiary in addition to those

 25
 

 

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 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)

 26
 

 

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 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,

 27
 

 

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 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 14e-1
thereunder, if applicable, if the Issuer is required to give a notice of a
right of repurchase as a result of a Change of Control.

Section 3.05. Limitations on Indebtedness.

 28
 

 

(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,

(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,

 29
 

 

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 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

 30
 

 

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 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

 31
 

 

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
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

 32
 

 

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.

(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

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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 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

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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.

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;

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(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;

(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;

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

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

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

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

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

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

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

 37
 

 

 

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

(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,

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(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,

(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,

 39
 

 

(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 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.

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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.

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

 41
 

 

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(a) (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;

(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 

 42
 

 

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

(D)  makes a general assignment for the benefit of
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).

 43
 

 

 

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), 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 Seventh
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.

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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 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

 45
 

 

 

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.

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

THE TRUSTEE

Section 6.01. Compensation and Indemnification of Trustee and Its Prior Claim. Solely
with respect to the Notes to which this Seventh Supplemental Indenture relates,
Section 6.6 of the Base Indenture is amended by replacing each occurrence
of the word “Issuer” in such Section 6.6 with the word “Hovnanian.”

Section 6.02. Appointment of Trustee. The Issuer hereby appoints U.S.
Bank National Association as Trustee for the Notes, and U.S. Bank National
Association accepts such appointment, subject to the terms and conditions of
this Indenture.

 46
 

 

 

ARTICLE 7

DEFEASANCE

Section 7.01. Defeasance. Except as stated below, 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 7.02.
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 7.03. 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(a) hereof will no longer constitute Events
of Default.

Section 7.04. Section 10.4. Section 10.4(b) of the Base
Indenture is hereby amended by replacing the words “the date of this Indenture”
with “June 12, 2006”.

Section 7.05. Satisfaction and Discharge of the Indenture. Section 10.9
of the Base Indenture is hereby deleted in its entirety and replaced with the
following text: “SECTION 10.9. Satisfaction and Discharge
of Indenture. If at any time (a) (i) the Issuer shall have
paid or caused to be paid the principal of, premium, if any, and interest 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 become due and payable, or (ii) 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), or (b) (i) the
Securities mature within one year, or all of them are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
giving the notice of redemption, (ii) the Issuer 

 47
 

 

irrevocably deposits in trust with the Trustee, as
trust funds solely for the benefit of the Holders, money or U.S. Government
Obligations or a combination thereof sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certificate delivered to the Trustee, without consideration of any
reinvestment, to pay principal of and premium and interest on the Securities to
maturity or redemption, as the case may be, and to pay all other sums payable
by it hereunder, (iii) no Default has occurred and is continuing on the
date of the deposit, (iv) the deposit will not result in a breach or
violation of, or constitute a default under, the Indenture or any other
agreement or instrument to which the Issuer is a party or by which it is bound,
and (v) the Issuer delivers to the Trustee an Officers’ Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent provided
for herein relating to the satisfaction and discharge of the Indenture have
been complied with; 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, (x) after
satisfying the conditions in clause (a), only the Issuer’s or Hovnanian’s
obligations under Sections 6.6 and 10.5, as applicable, will survive or (y) after
satisfying the conditions in clause (b), only the Issuer’s or Hovnanian’s, as
applicable, obligations in Article 2 and Sections 3.1, 3.2, 6.6, 6.10,
10.5, 10.6 and 10.7 will survive, and, in either case, 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 of 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 8

THE NOTES

Section 8.01. 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 Notes are herein incorporated by reference and are part of
this Supplemental Indenture.

Section 8.02. 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”).

 48
 

 

 

Section 8.03. 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 9

REDEMPTION

Section 9.01. 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, if any; plus

(b)   the Make-Whole Amount.

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

Section 9.02. Sinking Fund; Mandatory Redemption. There is no sinking
fund for, or mandatory redemption of, the Notes.

Section 9.03. 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.

ARTICLE 10

AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 10.01. 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 9
hereof or Section 3.04 or 3.08 hereof; or (ii) release any 

 49
 

 

 

Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the Indenture.

Section 10.02. 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 11

RELEASE OF ISSUER

Section 11.01. 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 12

MISCELLANEOUS

Section 12.01. 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 12.02. No Adverse Interpretation of Other Agreements. This
Supplemental Indenture may not be used to interpret another indenture or loan
or 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 12.03. 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.

 50
 

 

 

Section 12.04. 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 12.05. 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 12.06.
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 12.07.
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.

 51
 

 

 

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

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HOVNANIAN ENTERPRISES, INC., as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter S.
  Reinhart

  	
   

  
	
   

  	
   

  	
  Name: Peter
  S. Reinhart

  	
   

  
	
   

  	
   

  	
  Title: Senior
  Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  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

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  U.S. BANK
  NATIONAL ASSOCIATION, as Trustee

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Stephanie
  Roche

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Stephanie Roche

  	
   

  	
   

  
	
   

  	
  Title:

  	
  As Authorized
  Agent for U.S. Bank 

  	
   

  	
   

  
	
   

  	
  National
  Association

  	
   

  	
   

  
							

 

 

 52

 

 

SCHEDULE 1

Guarantors

HOVNANIAN ENTERPRISES,
INC.

ARROW PROPERTIES, 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 BERNARDS
IV, INC.

K. HOVNANIAN AT
BRANCHBURG III, INC.

K. HOVNANIAN AT
BRIDGEPORT, INC.

K. HOVNANIAN AT
BRIDGEWATER VI, INC.

K. HOVNANIAN AT
BURLINGTON III, INC.

K. HOVNANIAN AT
BURLINGTON, INC.

K. HOVNANIAN AT CALABRIA,
INC.

K. HOVNANIAN AT CARMEL
DEL MAR, INC.

K. HOVNANIAN AT CASTILE,
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 EAST
WHITELAND I, INC.

K. HOVNANIAN AT FREEHOLD
TOWNSHIP I, INC.

K. HOVNANIAN AT
HACKETTSTOWN, INC.

K. HOVNANIAN AT HERSHEY’S
MILL, INC.

K. HOVNANIAN AT HIGHLAND
VINEYARDS, INC.

K. HOVNANIAN AT HOPEWELL
IV, INC.

K. HOVNANIAN AT HOPEWELL
VI, INC.

K. HOVNANIAN AT HOWELL
TOWNSHIP, INC.

K. HOVNANIAN AT KINGS
GRANT I, INC.

K. HOVNANIAN AT KLOCKNER
FARMS, INC.

K. HOVNANIAN AT LA
TERRAZA, INC.

K. HOVNANIAN AT LAKEWOOD,
INC.

K. HOVNANIAN AT LOWER
SAUCON, INC.

K. HOVNANIAN AT MAHWAH
II, INC.

K. HOVNANIAN AT MAHWAH V,
INC.

K. HOVNANIAN AT MAHWAH
VI, INC.

K. HOVNANIAN AT MAHWAH
VII, INC.

K. HOVNANIAN AT
MANALAPAN, INC.

K. HOVNANIAN AT MARLBORO
II, INC.

K. HOVNANIAN AT MARLBORO
TOWNSHIP III, INC.

K. HOVNANIAN AT MARLBORO
TOWNSHIP IV, INC.

 

 Schedule 1-1
 

 

 

K. HOVNANIAN AT METRO DC
SOUTH, INC.

K. HOVNANIAN AT MONROE
II, INC.

K. HOVNANIAN AT MONTCLAIR
NJ, INC.

K. HOVNANIAN AT MONTGOMERY
I, INC.

K. HOVNANIAN AT NORTHERN
WESTCHESTER, INC.

K. HOVNANIAN AT
NORTHLAKE, INC.

K. HOVNANIAN AT OCEAN
TOWNSHIP, INC.

K. HOVNANIAN AT OCEAN
WALK, 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 SAN
SEVAINE, INC.

K. HOVNANIAN AT SARATOGA,
INC.

K. HOVNANIAN AT SAWMILL,
INC.

K. HOVNANIAN AT SCOTCH
PLAINS II, 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 STONY
POINT, 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
THORNBURY, INC.

K. HOVNANIAN AT
TIERRASANTA, INC.

K. HOVNANIAN AT TROVATA,
INC.

K. HOVNANIAN AT TUXEDO,
INC.

K. HOVNANIAN AT UNION
TOWNSHIP I, INC.

K. HOVNANIAN AT UPPER
FREEHOLD TOWNSHIP I, INC.

K. HOVNANIAN AT UPPER
MAKEFIELD I, INC.

K. HOVNANIAN AT VAIL
RANCH, INC.

K. HOVNANIAN AT WALL
TOWNSHIP VI, INC.

K. HOVNANIAN AT WALL
TOWNSHIP VIII, INC.

K. HOVNANIAN AT
WASHINGTONVILLE, INC.

K. HOVNANIAN AT WAYNE
III, INC.

K. HOVNANIAN AT WAYNE V,
INC.

K. HOVNANIAN AT WILDROSE,
INC.

K. HOVNANIAN COMPANIES
NORTHEAST, INC.

K. HOVNANIAN COMPANIES OF
CALIFORNIA, INC.

K. HOVNANIAN COMPANIES OF
MARYLAND, INC.

K. HOVNANIAN COMPANIES OF
METRO WASHINGTON, INC.

 

 Schedule 1-2
 

 

 

K. HOVNANIAN COMPANIES OF
NEW YORK, INC.

K. HOVNANIAN COMPANIES OF
PENNSYLVANIA, INC.

K. HOVNANIAN COMPANIES OF
SOUTHERN CALIFORNIA, INC.

K. HOVNANIAN CONSTRUCTION
II, INC.

K. HOVNANIAN CONSTRUCTION
III, INC.

K. HOVNANIAN CONSTRUCTION
MANAGEMENT, INC.

K. HOVNANIAN DEVELOPMENTS
OF ARIZONA, INC.

K. HOVNANIAN DEVELOPMENTS
OF CALIFORNIA, INC.

K. HOVNANIAN DEVELOPMENTS
OF CONNECTICUT, INC.

K. HOVNANIAN DEVELOPMENTS
OF D.C., INC.

K. HOVNANIAN DEVELOPMENTS
OF DELAWARE, INC.

K. HOVNANIAN DEVELOPMENTS
OF GEORGIA, INC.

K. HOVNANIAN DEVELOPMENTS
OF ILLINOIS, INC.

K. HOVNANIAN DEVELOPMENTS
OF INDIANA, INC.

K. HOVNANIAN DEVELOPMENTS
OF MARYLAND, INC.

K. HOVNANIAN DEVELOPMENTS
OF MICHIGAN, INC.

K. HOVNANIAN DEVELOPMENTS
OF MINNESOTA, 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 NORTH CAROLINA, 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 VIRGINIA, INC.

K. HOVNANIAN DEVELOPMENTS
OF WEST VIRGINIA, INC.

K. HOVNANIAN ENTERPRISES,
INC.

K. HOVNANIAN EQUITIES,
INC.

K. HOVNANIAN FORECAST
HOMES NORTHERN, INC.

K. HOVNANIAN FORECAST HOMES
SOUTHERN, INC.

K. HOVNANIAN FORECAST
HOMES, INC.

K. HOVNANIAN HOMES OF
NORTH CAROLINA, INC.

K. HOVNANIAN HOMES OF
VIRGINIA, INC.

K. HOVNANIAN INVESTMENT
PROPERTIES OF NEW JERSEY, INC.

HOVNANIAN LAND INVESTMENT
GROUP OF PENNSYLVANIA, L.L.C.

K. HOVNANIAN PA REAL
ESTATE, INC.

K. HOVNANIAN PORT
IMPERIAL URBAN RENEWAL, INC.

K. HOVNANIAN PROPERTIES
OF NEWARK URBAN RENEWAL CORPORATION, INC.

K. HOVNANIAN PROPERTIES
OF NORTH BRUNSWICK V, INC.

K. HOVNANIAN PROPERTIES
OF WALL, INC.

KHC ACQUISITION, INC.

LANDARAMA, INC.

M&M AT LONG BRANCH,
INC.

 

 Schedule 1-3
 

 

 

MATZEL & MUMFORD
OF DELAWARE, INC.

MCNJ, INC.

PINE BROOK COMPANY, INC.

REFLECTIONS OF YOU
INTERIORS, INC.

SEABROOK ACCUMULATION
CORPORATION

STONEBROOK HOMES, INC.

THE MATZEL &
MUMFORD ORGANIZATION, INC.

WASHINGTON HOMES, INC.

WESTMINSTER HOMES OF
TENNESSEE, INC.

WESTMINSTER HOMES, INC.

WH LAND I, INC

WH PROPERTIES, INC.

ALFORD, L.L.C.

DULLES COPPERMINE, L.L.C.

HLIG INVESTMENT I, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP OF CALIFORNIA, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP OF FLORIDA, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP OF GEORGIA, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP OF MARYLAND, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP OF NEW JERSEY, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP OF NORTH CAROLINA, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP OF PENNSYLVANIA, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP OF TEXAS, L.L.C.

HOVNANIAN LAND INVESTMENT
GROUP OF VIRGINIA, L.L.C.

K. HOVNANIAN AT 3
CHAPMAN, L.L.C.

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

K. HOVNANIAN AT ABERDEEN
URBAN RENEWAL, L.L.C.

K. HOVNANIAN AT ACQUA
VISTA, L.L.C.

K. HOVNANIAN AT ALISO,
L.L.C.

K. HOVNANIAN AT
ALLENTOWN, L.L.C.

K. HOVNANIAN AT ARBOR
HEIGHTS, L.L.C.

K. HOVNANIAN AT AVENUE
ONE, L.L.C.

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

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

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

K. HOVNANIAN AT BELLA
LAGO, L.L.C.

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

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

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

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

K. HOVNANIAN AT BRIDLEWOOD,
L.L.C.

K. HOVNANIAN AT BROAD AND
WALNUT, L.L.C.

K. HOVNANIAN AT CABRILLO
KNOLLS, L.L.C.

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

 

 Schedule 1-4
 

 

 

K. HOVNANIAN AT CAMP
HILL, L.L.C.

K. HOVNANIAN AT
CAPISTRANO, L.L.C.

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

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

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

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

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

K. HOVNANIAN AT
CHESTERFIELD, L.L.C.

K. HOVNANIAN AT CIELO,
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 DEPTFORD
TOWNSHIP, L.L.C.

K. HOVNANIAN AT DOVER,
L.L.C.

K. HOVNANIAN AT EASTLAKE,
L.L.C.

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

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

K. HOVNANIAN AT EGG
HARBOR TOWNSHIP, L.L.C.

K. HOVNANIAN AT EGG
HARBOR TOWNSHIP II, L.L.C.

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

K. HOVNANIAN AT
EVERGREEN, L.L.C.

K. HOVNANIAN AT FIFTH
AVENUE, L.L.C.

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

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

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

K. HOVNANIAN AT FORKS
TWP. I, L.L.C.

K. HOVNANIAN AT FRANKLIN,
L.L.C.

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

K. HOVNANIAN AT GASLAMP
SQUARE, L.L.C.

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

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

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

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

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

K. HOVNANIAN AT
HAWTHORNE, L.L.C.

K. HOVNANIAN AT HAZLET,
L.L.C.

K. HOVNANIAN AT HIGHLAND
SHORES, L.L.C

K. HOVNANIAN AT
HIGHWATER, 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.

 

 Schedule 1-5
 

 

 

K. HOVNANIAN AT KEYPORT,
L.L.C.

K. HOVNANIAN AT KING
FARM, L.L.C.

K. HOVNANIAN AT LA COSTA
GREENS, 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
HILLS, 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 TOWNSHIP II, L.L.C

K. HOVNANIAN AT LITTLE
EGG HARBOR CONTRACTORS, L.L.C.

K. HOVNANIAN AT LITTLE
EGG HARBOR, L.L.C.

K. HOVNANIAN AT LITTLE
TOKYO, 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 LOWER
MORELAND III, L.L.C.

K. HOVNANIAN AT MACUNGIE,
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 MAPLE
AVENUE, L.L.C.

K. HOVNANIAN AT MAPLE
AVENUE I, L.L.C.

K. HOVNANIAN AT MARLBORO
TOWNSHIP IX, 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 MENDHAM
TOWNSHIP, L.L.C.

K. HOVNANIAN AT MENIFEE,
L.L.C.

K. HOVNANIAN AT MENIFEE
VALLEY CONDUMINIUMS, L.L.C.

K. HOVNANIAN AT MIDDLE
TOWNSHIP II, 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 MILLVILLE
I, L.L.C.

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

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

K. HOVNANIAN AT
MOCKINGBIRD CANYON L.L.C.

 

 Schedule 1-6
 

 

 

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

K. HOVNANIAN AT MONROE
IV, L.L.C.

K. HOVNANIAN AT MONROE
NJ, L.L.C.

K. HOVNANIAN AT MONTVALE,
L.L.C.

K. HOVNANIAN AT MOSAIC,
L.L.C.

K. HOVNANIAN AT MT. OLIVE
TOWNSHIP, L.L.C.

K. HOVNANIAN AT NEW
BRUNSWICK URBAN RENEWAL, L.L.C.

K. HOVNANIAN AT NEW
WINDSOR, L.L.C.

K. HOVNANIAN AT NORTH
BERGEN, L.L.C.

K. HOVNANIAN AT NORTH
BRUNSWICK VI, L.L.C.

K. HOVNANIAN AT NORTH
CALDWELL II, L.L.C.

K. HOVNANIAN AT NORTH
CALDWELL, 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 PACIFIC
BLUFFS, L.L.C.

K. HOVNANIAN AT PACIFICA
SAN JUAN, L.L.C.

K. HOVNANIAN AT PARAMUS,
L.L.C.

K. HOVNANIAN AT PARK
LANE, L.L.C.

K. HOVNANIAN AT
PARSIPPANY-TROY HILLS, L.L.C.

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

K. HOVNANIAN AT
PHILADELPHIA IV, L.L.C.

K. HOVNANIAN AT PIAZZA D’ORO,
L.L.C.

K. HOVNANIAN AT
PITTSGROVE, L.L.C.

K. HOVNANIAN AT PRADO, L.L.C.

K. HOVNANIAN AT PRINCETON
NJ, L.L.C.

K. HOVNANIAN AT PRINCETON
LANDING NJ, L.L.C.

K. HOVNANIAN AT RANCHO
SANTA MARGARITA, L.L.C.

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

K. HOVNANIAN AT RAPHO,
L.L.C.

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

K. HOVNANIAN AT RED BANK,
L.L.C.

K. HOVNANIAN AT
RIDGEMONT, L.L.C.

K. HOVNANIAN AT
RIDGESTONE, L.L.C.

K. HOVNANIAN AT
RIVERBEND, L.L.C.

K. HOVNANIAN AT RODERUCK.
L.L.C.

K. HOVNANIAN AT ROSEMARY
LANTANA, L.L.C.

K. HOVNANIAN AT ROWLAND
HEIGHTS, L.L.C.

K. HOVNANIAN AT SAGE, L.L.C.

K. HOVNANIAN AT
SAYREVILLE, L.L.C.

K. HOVNANIAN AT SCOTCH
PLAINS, L.L.C.

K. HOVNANIAN AT SILVER
SPRING, L.L.C.

K. HOVNANIAN AT SKYE
ISLE, L.L.C.

 

 Schedule 1-7
 

 

 

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

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

K. HOVNANIAN AT SOUTH
BRUNSWICK, L.L.C.

K. HOVNANIAN AT SPARTA,
L.L.C.

K. HOVNANIAN AT SPRINGCO,
L.L.C.

K. HOVNANIAN AT
SPRINGFIELD, L.L.C.

K. HOVNANIAN AT SUNSETS,
L.L.C.

K. HOVNANIAN AT TEANECK,
L.L.C.

K. HOVNANIAN AT THE
CROSBY, L.L.C.

K. HOVNANIAN AT THE
GABLES, L.L.C.

K. HOVNANIAN AT THE
MONARCH, L.L.C.

K. HOVNANIAN AT THE
PRESERVE, L.L.C.

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

K. HOVNANIAN AT TOWNGATE,
L.L.C.

K. HOVNANIAN AT TRAIL
RIDGE, L.L.C.

K. HOVNANIAN AT TRENTON,
L.L.C.

K. HOVNANIAN AT TRENTON
URBAN RENEWAL, L.L.C.

K. HOVNANIAN AT UNION
TOWNSHIP II, 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 VERONA
URBAN RENEWAL, L.L.C.

K. HOVNANIAN AT VINELAND,
L.L.C.

K. HOVNANIAN AT WANAQUE,
L.L.C.

K. HOVNANIAN AT WARREN
TOWNSHIP, 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
BRADFORD, L.L.C.

K. HOVNANIAN AT WEST
FRONT STREET, L.L.C.

K. HOVNANIAN AT WEST
MILFORD, L.L.C.

K. HOVNANIAN AT WEST
WINDSOR, L.L.C.

K. HOVNANIAN AT WILDWOOD
BAYSIDE, L.L.C.

K. HOVNANIAN AT WILLOW
BROOK, L.L.C.

K. HOVNANIAN AT
WINCHESTER, L.L.C.

K. HOVNANIAN AT WOODHILL
ESTATES, L.L.C.

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

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

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

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

K. HOVNANIAN CAMBRIDGE
HOMES, L.L.C.

K. HOVNANIAN CENTRAL
ACQUISITIONS, L.L.C.

K. HOVNANIAN CLASSICS CIP,
L.L.C.

K. HOVNANIAN CLASSICS,
L.L.C.

 

 Schedule 1-8
 

 

 

K. HOVNANIAN COMPANIES OF
VIRGINIA, INC.

K. HOVNANIAN COMPANIES,
L.L.C.

K. HOVNANIAN CONNECTICUT
ACQUISITIONS, L.L.C.

K. HOVNANIAN CRAFTBUILT
HOMES OF GEORGIA, L.L.C.

K. HOVNANIAN CRAFTBUILT
HOMES OF SOUTH CAROLINA, L.L.C.

K. HOVNANIAN DELAWARE
ACQUISITIONS, L.L.C.

K. HOVNANIAN EASTERN
PENNSYLVANIA, L.L.C.

K. HOVNANIAN FCS, L.L.C.

K. HOVNANIAN FIRST HOMES,
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 FRANCISCUS
HOMES, 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 HOMES AT
BANYON COVE, L.L.C.

K. HOVNANIAN HOMES AT
BAYVIEW, L.L.C.

K. HOVNANIAN HOMES AT
CAMERON STATION, L.L.C.

K. HOVNANIAN HOMES AT
CAMP SPRINGS, L.L.C.

K. HOVNANIAN HOMES AT
FAIRWOOD, L.L.C.

K. HOVNANIAN HOMES AT
FOREST RUN, L.L.C.

K. HOVNANIAN HOMES AT
GREENWAY FARM, L.L.C.

K. HOVNANIAN HOMES AT
GREENWAY FARM, PARK TOWNS, L.L.C.

K. HOVNANIAN HOMES AT
JONES STATION 1, L.L.C.

K. HOVNANIAN HOMES AT
JONES STATION 2, L.L.C.

K. HOVNANIAN HOMES AT
LAUREL HIGHLANDS, L.L.C.

K. HOVNANIAN HOMES AT
MAXWELL PLACE, L.L.C.

K. HOVNANIAN HOMES AT
PAYNE STREET, L.L.C.

K. HOVNANIAN HOMES AT
PRIMERA, L.L.C.

K. HOVNANIAN HOMES AT
RENAISSANCE PLAZA, L.L.C.

K. HOVNANIAN HOMES AT
RUSSET, L.L.C.

K. HOVNANIAN HOMES AT THE
EASTON, L.L.C.

K. HOVNANIAN HOMES OF
D.C., L.L.C.

K. HOVNANIAN HOMES OF
DELAWARE, L.LC.

K. HOVNANIAN HOMES OF
INDIANA, L.L.C.

K. HOVNANIAN HOMES OF
MARYLAND, L.L.C.

K. HOVNANIAN HOMES OF
MINNESOTA, L.L.C.

K. HOVNANIAN HOMES OF
PENNSYLVANIA, L.L.C.

K. HOVNANIAN HOMES OF
SOUTH CAROLINA, L.L.C.

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

K. HOVNANIAN
INTERNATIONAL, L.L.C.

K. HOVNANIAN INVESTMENTS,
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.

 

 Schedule 1-9
 

 

 

K. HOVNANIAN OF OLDE
ORCHARD, L.L.C.

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

K. HOVNANIAN OSTER HOMES,
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 STANDING
ENTITY, 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 HOMES OF
PENNSYLVANIA, L.L.C.

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

K. HOVNANIAN SUMMIT
HOMES, L.L.C.

K. HOVNANIAN T&C
HOMES AT FLORIDA, L.L.C.

K. HOVNANIAN T&C HOMES
AT ILLINOIS, L.L.C.

K. HOVNANIAN T&C
HOMES AT MINNESOTA, L.L.C.

K. HOVNANIAN T&C
INVESTMENT, L.L.C.

K. HOVNANIAN T&C
MANAGEMENT CO., L.L.C.

K. HOVNANIAN VENTURE I,
L.LC.

K. HOVNANIAN WINDWARD
HOMES, L.LC.

K. HOVNANIAN’S FOUR
SEASONS AT ASHBURN VILLAGE, L.L.C.

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

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

K. HOVNANIAN’S FOUR
SEASONS AT DULLES DISCOVERY CONDOMINIUM, L.L.C.

K. HOVNANIAN’S FOUR
SEASONS AT DULLES DISCOVERY, L.L.C.

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

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

K. HOVNANIAN’S FOUR
SEASONS AT KENT ISLAND, L.L.C.

K. HOVNANIAN’S FOUR
SEASONS AT KENT ISLAND CONDOMINIUMS, L.L.C.

K. HOVNANIAN’S FOUR
SEASONS AT MENIFEE VALLE, L.L.C.

K. HOVNANIAN’S FOUR
SEASONS AT NEW KENT, L.L.C.

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

K. HOVNANIAN’S FOUR
SEASONS AT RUSH CREEK, L.L.C.

K. HOVNANIAN’S FOUR
SEASONS AT ST. MARGARETS LANDING, 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, L.L.C.

KINGS COURT AT
MONTGOMERY, L.L.C.

M&M AT APPLE RIDGE,
L.L.C.

M&M AT BROOKHILL,
L.L.C.

 

 Schedule 1-10
 

 

 

M&M AT CHESTERFIELD,
L.L.C.

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

M&M AT EAST
RUTHERFORD, 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 ROBERT MORRIS,
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 TAMARACK
HOLLOW, L.L.C.

M&M AT THE CHATEAU,
L.L.C.

M&M AT THE HIGHLANDS,
L.L.C.

M&M AT WEST ORANGE,
L.L.C.

M&M AT WESTPORT,
L.L.C.

M&M AT WHEATON URBAN
RENEWAL, L.L.C.

MATZEL & MUMFORD
AT CRANBURY KNOLL, L.L.C.

MATZEL & MUMFORD
AT EGG HARBOR, 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 BOUND BROOK URBAN RENEWAL, L.L.C.

MATZEL & MUMFORD
AT SOUTH BRUNSWICK, L.L.C.

MATZEL & MUMFORD
AT WOODLAND CREST, L.L.C.

MIDWEST BUILDING PRODUCTS &
CONTRACTOR SERVICES, L.L.C

MMIP, L.L.C.

PADDOCKS, L.L.C.

PINE AYR, L.L.C.

RIDGEMORE UTILITY
ASSOCIATES OF PENNSYLVANIA, L.L.C.

RIDGEMORE UTILITY, L.L.C.

TERRAPIN REALTY, L.L.C.

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

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

WESTMINSTER HOMES OF
ALABAMA, L.L.C.

WESTMINSTER HOMES OF
MISSISSIPPI, 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.

 

 Schedule 1-11

 

 

SCHEDULE 2

Unrestricted Subsidiaries

12TH* STREET RESIDENTIAL,
LTD.

77 HUDSON STREET JOINT
DEVELOPMENT, L.L.C.

BRIGHTBEACH DEVELOPMENT,
LTD.

BRIGHTCHASE, LTD.

BRIGHTON HOMES AT WALDEN
MANAGEMENT, L.L.C.

BRIGHTON HOMES AT WALDEN,
LTD.

COBBLESTONE SQUARE DEVELOPMENTS,
L.L.C.

EASTERN TITLE AGENCY,
INC.

F&W MECHANICAL
SERVICES, L.L.C.

FIRST FLORIDA TITLE
INSURANCE AGENCY, L.L.C.

FOUNDERS TITLE AGENCY OF
MARYLAND, L.L.C.

FOUNDERS TITLE AGENCY,
INC.

GOSLING ROAD DEVELOPMENT
CO., INC.

GOVERNOR’S ABSTRACT CO.,
INC.

GREENWAY FARMS UTILITY
ASSOCIATES, L.L.C.

HERITAGE PINES, L.L.C.

HEXTER-FAIR LAND TITLE
COMPANY I, INC.

HOVNANIAN FINANCIAL
SERVICES I, INC.

HOVNANIAN FINANCIAL
SERVICES II, INC.

HOVNANIAN FINANCIAL
SERVICES IV, INC.

HOVSTONE HOLDINGS, L.L.C.

HOVSTONE PROPERTIES
FLORIDA, L.L.C.

HOVSTONE PROPERTIES
ILLINOIS, L.L.C.

HOVSTONE PROPERTIES
MINNESOTA, L.L.C.

HUDSON POINTE JOINT
DEVELOPMENT, L.L.C.

HUNTER MILL VILLAGE,
L.L.C.

INGLEWOOD NORTH, L.L.C.

JAEGER ROAD 530, L.L.C.

K. HOVNANIAN 77 HUDSON
STREET INVESTMENTS, L.L.C.

K. HOVNANIAN AMERICAN
MORTGAGE, L.L.C.

K. HOVNANIAN AT 77 HUDSON
STREET URBAN RENEWAL COMPANY, L.L.C.

K. HOVNANIAN AT HILLTOP,
L.L.C.

K. HOVNANIAN AT HUDSON
POINTE, L.L.C.

K. HOVNANIAN AT LAKE
RANCHO VIEJO, L.L.C.

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

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

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

K. HOVNANIAN AT PORT
IMPERIAL URBAN RENEWAL II, L.L.C.

 

 Schedule 2-1
 

 

 

K. HOVNANIAN AT PORT
IMPERIAL URBAN RENEWAL III, L.L.C.

K. HOVNANIAN AT PORT
IMPERIAL URBAN RENEWAL IV, L.L.C.

K. HOVNANIAN AT PORT
IMPERIAL URBAN RENEWAL V, L.L.C.

K. HOVNANIAN AT PORT
IMPERIAL URBAN RENEWAL VI, L.L.C.

K. HOVNANIAN AT PORT
IMPERIAL URBAN RENEWAL VII, L.L.C.

K. HOVNANIAN AT PORT
IMPERIAL URBAN RENEWAL VIII, L.L.C.

K. HOVNANIAN CHESTERFIELD
INVESTMENT, L.L.C.

K. HOVNANIAN HUDSON
POINTE INVESTMENTS, L.L.C.

K. HOVNANIAN INVESTMENT
PROPERTIES, INC.

K. HOVNANIAN INVESTMENTS
II, L.L.C.

K. HOVNANIAN MANALAPAN
INVESTMENT, L.L.C.

K. HOVNANIAN MORTGAGE
FUNDING, L.L.C.

K. HOVNANIAN NETHERLANDS,
B.V.

K. HOVNANIAN POLAND, SP
..Z.O.O.

K. HOVNANIAN PROPERTIES
OF RED BANK, INC.

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

LAUREL HIGHLANDS, LLC

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

MILLENNIUM TITLE AGENCY,
LTD.

MM-BEACHFRONT NORTH I,
L.L.C.

MM-BEACHFRONT NORTH II,
L.L.C.

MSHOV HOLDING COMPANY,
L.L.C.

NATOMAS CENTRAL
NEIGHBORHOOD HOUSING, L.L.C.

NEW HOMEBUYERS TITLE CO.
(VIRGINIA) L.L.C.

NEW HOMEBUYERS TITLE
COMPANY, L.L.C.

NEW HOMEBUYERS
TITLE,  L.L.C. (WV)

NRD, L.L.C.

OLD CITY DELAWARE, L.L.C.

OLD CITY DEVELOPMENT, INC

OLD CITY JOINT
DEVELOPMENT, L.L.C.

PARK TITLE COMPANY, LLC

PARKWAY DEVELOPMENT
COMPANY

PI INVESTMENTS I, L.L.C.

PI INVESTMENTS II, L.L.C.

PRESTON PARKER, L. P.

RR HOUSTON DEVELOPERS,
LLC

RR HOUSTON DEVELOPMENT,
L.P.

RR HOUSTON INVESTMENT,
L.P.

RR HOUSTON INVESTORS, LLC

THOMPSON RANCH JOINT
DEVELOPMENT, L.L.C.

TOWN HOMES AT MONTGOMERY,
L.L.C.

WHI-REPUBLIC, LLC

WINDWARD HOME MORTGAGE,
L.L.C.

WRIGHT FARM, LLC

 

 Schedule 2-2

 

 

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
 

 

 

K. HOVNANIAN ENTERPRISES, INC.

	
  REGISTERED—No.                   

  	
   

  	
  CUSIP No.: 442488BA9

  
	
   

  	
   

  	
  $                  

  

 

85¤8%
Senior Notes due 2017

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, 2017.

Interest Payment Dates:  January 15 and July 15, commencing July 15,
2006

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

  
	
   

  
	
  U.S. 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:

  	
   

  
	
   

  	
   

  	
   

  
	
  U.S. BANK NATIONAL 

  	
   

  
	
  ASSOCIATION, as Trustee

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  	
   

  
				

 

 A-2
 

 

 

[REVERSE SIDE OF NOTE]

K. HOVNANIAN ENTERPRISES, INC.

85¤8%
Senior Notes due 2017

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 July 15,
2006, 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 June 12, 2006,
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, 2017.

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 July 1 and January 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 a Global Note 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 a Global Note. If any of the Notes are no longer represented by
a Global Note, 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,
U.S. 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 among
the Issuer, Hovnanian, the Guarantors and the Trustee, the terms of which have
been established in the Seventh Supplemental Indenture (the “Seventh Supplemental Indenture”) dated as of June 12,
2006, supplementing an Indenture dated November 3, 2003 (the “Base Indenture”, as supplemented by a First Supplemental
Indenture thereto, dated as of November 3, 2003, a Second Supplemental
Indenture thereto, dated as of March 18, 2004, a Third Supplemental
Indenture thereto, dated as of July 15, 2004, a Fourth Supplemental
Indenture thereto, dated as of April 19, 2005, a Fifth Supplemental
Indenture thereto, dated as of September 6, 2005, a Sixth Supplemental
Indenture thereto, dated as of February 27, 2006, and the Seventh
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 “85¤8% Senior Notes
due 2017” 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. Requests may be made to: K. Hovnanian Enterprises, Inc.,
110 West Front Street, 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-4
 

 

 

(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.

“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

 A-5
 

 

 

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.

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

 A-6
 

 

 

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.

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.

 A-7
 

 

 

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.

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 Seventh 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 Seventh 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

U.S. BANK NATIONAL
ASSOCIATION,

as Trustee

 

85/8% Senior Notes due 2017

 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 U.S. 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 (i) a
First Supplemental Indenture thereto, dated as of November 3, 2003, (ii) a
Second Supplemental Indenture thereto, dated as of March 18, 2004, (iii) a
Third Supplemental Indenture thereto, dated as of July 15, 2004, (iv) a
Fourth Supplemental Indenture thereto, dated as of April 19, 2005, (v) a
Fifth Supplemental Indenture thereto, dated as of September 6, 2005, (vi) a
Sixth Supplemental Indenture thereto, dated as of February 27, 2006, and (vii) the
Seventh Supplemental Indenture dated as of June 12, 2006 (the “Seventh Supplemental Indenture”), relating to the Issuer’s 85/8% Senior Notes due 2017 (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 Seventh 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.

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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.

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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., as Guarantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

	
  

  	
  On behalf of each entity named in Schedule 1 hereto,
  as Guarantors

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

	
  U.S. BANK
  NATIONAL ASSOCIATION,

  as Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

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