Document:

Exhibit
10.53(b)

 

 

Executive
Deferred Compensation Agreement

 

The Executive Deferred Compensation and
Consulting Agreement, better known as EDCA, is a non-qualified, unfunded,
supplemental pension plan for key executives.

 

Each year benefits are accrued at one and
one-half percent of that year’s base salary plus bonus payment and added to the
prior year accrual balance. That accumulated benefit is then given a present
value based on group annuity mortality tables and the current PBGC immediate
interest rate. At retirement the monthly accrued present value benefit is
payable as a 10-year certain and life annuity. The Plan also provides for the
continuation of life, medical and dental benefits at retirement based on
certain criteria as outlined in the Agreement.

EXECUTIVE
DEFERRED COMPENSATION

AND
CONSULTING AGREEMENT

 

THIS AGREEMENT is entered into as of Apri1
22, 1996 (“Effective Date”), at Pleasanton, California, between HEXCEL CORPORATION, a Delaware corporation (“Hexcel”), and Joseph
H. Shaulson (“Employee”), on the basis of the following facts and
understandings:

 

RECITALS

                                A.            Employee is a key executive of
Hexcel and has made substantial contributions to its success.

 

                                B.            Hexcel wishes to provide certain
retirement, death and similar benefits for Employee in the expectation that
such benefits will serve as an incentive to Employee to continue in the employ
of Hexcel until his retirement or death and as an incentive to protect Hexcel’s
trade secrets and other confidential and proprietary information. Hexcel also
wishes to receive the benefits of Employee’s advice and consultation following
retirement, which will be compensated for by the payments to be made hereunder.

 

                                C.            Hexcel’s Board of Directors has
authorized it to enter into this Executive Deferred Compensation Agreement with
Employee.

 

AGREEMENT

NOW,
THEREFORE, in consideration of the services rendered in the
past and to be rendered in the future by Employee, the parties hereto agree as
follows:

 

1

1.             RETIREMENT
AND CONSULTING INCOME

 

                                1.1.          Normal Retirement.  If Employee retires or otherwise ceases to be
employed by Hexcel on or after his 65th birthday, Employee shall
receive a monthly amount of consulting and retirement income payment, without any
specification as to the amount allocated to either. Such payments shall
commence the calendar month following Employee’s retirement or other
termination of employment and shall continue for one hundred twenty (120) such
payments or until payment for the month in which Employee dies, whichever is
the last to occur.

 

                                                Retirement
Before Age 65.  If Employee retires
or otherwise ceases to be employed by Hexcel after his 40th birthday
but prior to his 65th birthday, his consulting and retirement income
payments, without any specification as to the amount allocated to either,
computed pursuant to Section 1.2, shall commence the calendar month following
his 65th birthday and shall continue for one hundred twenty (120)
such payments or until payment for the month in which Employee dies, whichever
is the last to occur. Should the Employee request that such payments commence
at an earlier date and Hexcel, in its sole and absolute discretion, consents
thereto in writing, the monthly amounts payable shall be the amount actuarially
reduced to reflect the appropriate benefit according to the employee’s age.

 

                                Employee
shall not be entitled to any benefits under this Agreement if Employee ceases
to be employed by Hexcel prior to attaining his 40th birthday.

 

                                1.2.          The monthly consulting and retirement
income payments shall be equal to one-twelfth (1/12th) of the following: One
and one-half percent (1 1/2%) of the aggregate base salary and incentive cash
bonuses paid to Employee by Hexcel subsequent to the Effective Date, multiplied
by a fraction, the numerator of which shall be the total number of 

 

2

 

whole calendar months of Employee’s
employment by Hexcel subsequent to the Effective Date and the denominator of
which will be 67.  In no event shall such
fraction exceed 1 (67/67).

 

                1.3.          Benefits.  In
lieu of the payments described in Sections 1.1 and 1.2, and provided that
Hexcel, in its sole and absolute discretion, consents thereto in writing,
Employee may elect any other form of retirement benefit actuarially equivalent
thereto. Employee’s election of benefits under this Section 1.3 shall not
relieve Employee of his obligation under Paragraph 3.

 

2.             DEATH
BENEFITS.  If Employee dies after his
40th birthday but prior to his 65th birthday and prior to
commencement of payments to him pursuant to Sections 1.1 or 1.2, benefit will
be payable to his designated beneficiary in lieu of any amount specified in
Paragraph 1, a monthly pension for the balance of such beneficiary’s lifetime
which is actuarially equivalent to the lump sum death benefit. In lieu of said
monthly pension, on the condition that Hexcel, in its sole discretion, consents
thereto in writing, such beneficiary may elect any other form of pension
benefit actuarially equivalent thereto, based on the actuarial assumptions,
such election to be made by written notice to Hexcel, in form satisfactory to
Hexcel, within sixty (60) days following the Employee’s death.

 

                                If
Employee dies after commencement of payments to him pursuant to Sections 1.1 or
1.2, but prior to the receipt of 120 such payments or after his 65th
birthday, but prior to receiving the first payment under Section 1.1, his
designated beneficiaries shall receive such payments until the aggregate number
of payments to Employee and his beneficiary totals 120.

 

3

 

3.             AGREEMENTS
OF EMPLOYEE.  As a material part of
the consideration for this Agreement and as a condition precedent to Hexcel’s
obligation to make each payment to Employee or Employee’s successors hereunder,
Employee agrees as follows:

 

                                3.1.          Consultation Services.  For a period of ten years following the
effective date of retirement or other termination of employment, Employee shall
render consultation services to Hexcel from time to time upon request of
Hexcel, in all areas of Hexcel’s business; provided, however, that Hexcel shall
only make such requests at reasonable times and locations in light of Employee’s
other commitments, and upon reasonable prior notice; and provided further that
the extent of said consultation services shall be limited to not more than ten
(10) working days (on the basis of eight-hour work days) per year unless agreed
to by Employee. The parties acknowledge that Employee, while providing
consultation services hereunder, will be acting in the capacity of an
independent contractor and not an employee, and Hexcel shall not have the power
to direct or control the manner in which Employee performs his duties as
consultant. Hexcel shall reimburse Employee for any expenses incurred by
Employee in carrying out his obligations, provided such expenses were approved
in advance by Hexcel in writing.

 

                                3.2.          Competitive Activity.   Employee
acknowledges that the pursuit of Competitive Activity, as defined below, would
necessarily involve the use or disclosure of Confidential Information. To
forestall such disclosure, use, and breach, to protect Hexcel’s benefits under
Section 3.1, and in consideration of the benefits provided Employee under Sections
l, Employee agrees that for a period of ten (10) years after termination of his
employment, or so long as he is receiving benefits under this Agreement,
whichever is the shorter period, he shall not, directly or indirectly, (i)
divert or attempt to divert from Hexcel or 

 

4

 

its successors, assigns, or affiliated companies (“Hexcel Companies”)
any business of any kind in which it or they are engaged at the time of
Employee’s termination or any business acquired by one of the Hexcel Companies
within six months after such termination if said acquisition was in the process
of negotiation at the time of such termination (hereinafter collectively
designated “Hexcel’s Business”), including, without limitation, the
solicitation of or interference with any of its or their customers; (ii)
solicit for employment any person employed by any of the Hexcel Companies; or
(iii) engage (as a partner, substantial owner, employee, associate, consultant,
agent or otherwise) in any business activity that is or may be competitive with
Hexcel’s Business in any county of any state or in any territory or foreign
country where any of the Hexcel Companies conducts any portion of Hexcel’s
Business (“Competitive Activity”), unless Employee can prove that any action
taken in contravention of this subsection 3.2(iii) was done without the use in
any way of Confidential Information.

 

4.             CONDITIONS
TO PAYMENT OF COMPENSATION.

 

                4.1.          No Vested Benefit.  The parties acknowledge that the sums payable
to Employee hereunder increase pursuant to the formula set forth in Section 1.2
based upon the length of Employee’s employment with Hexcel - i.e., Employee
receives credit in such formulas over the period of his employment. Hexcel may,
at any time upon thirty (30) days’ prior written notice to Employee, terminate
Employee’s right to receive such credit for future employment with Hexcel,
which shall not, however, affect such credit accrued up to the effective date
of such termination. Notwithstanding such employment credit, the amounts
computed in accordance with such formulas are payable to Employee only on the
terms and subject to the conditions contained in this Agreement, including,
without limitation, the conditions specified in Sections 4.2 and 4.3.

 

5

 

                4.2.          Termination of Employment.  Causes. 
Hexcel’s obligation to make payments to Employee hereunder is subject to
the condition precedent that Hexcel has not terminated Employee’s employment by
reason of Employee’s theft, fraud, embezzlement or felony, provided that the
foregoing is directly connected with his employment and Hexcel determines, in
its sole and absolute discretion, that such act is inimical to its best
interests, or by reason of violation of Section 3.2 hereof, or for wrongfully
disclosing any secret process or imparting any confidential information, or
intentionally doing any other act materially inimical to the best interests of
Hexcel. In case of any such termination of Employee’s employment by Hexcel, all
of Employee’s rights and benefits hereunder shall terminate.

 

                4.3.          Breaches of Agreement.  Hexcel’s obligation to make payments to
Employee hereunder is subject to the further conditions precedent (a) that
Employee has not breached or violated any term, convenant or provision of this
Agreement, including, without limitation, those set forth in Section 3.2, and
(b) Employee has not engaged in any of the acts mentioned in Section 4.2 while
an employee of Hexcel, which acts are discovered subsequent to Employee’s
retirement or other termination of employment. In case of any such breach or
violation under clause (a) or if Employee has engaged in the acts referred to
in clause (b) all of Employee’s rights and benefits hereunder shall terminate.

 

                4.4.          Preservation of Remedies.  In addition to the conditions precedent to
Hexcel’s obligations hereunder for any payments or benefits, Hexcel shall also
be entitled to all of its legal and equitable remedies resulting from any
breach or violation of this Agreement by Employee, including, without
limitation, recovery from Employee of all damages resulting from such breach or
violation.

 

6

 

5.             CHANGE
IN CONTROL.  If there is a change of
control of Hexcel, Employee’s right to receive payments the effective date of
such change in control shall vest. Employee shall have the option to receive a
lump sum payment equal to the present value of such payments within thirty (30)
days of such change in control, or to receive payments pursuant to the terms of
Section 1.

 

                                5.1           The term “Change in Control” shall mean any of the
following events:

 

                                                (a)
(i)       any Person is or becomes the
Beneficial Owner of 20% or more of either (x) the then outstanding common stock
of the Company (the “Outstanding Common Stock”) or (y) the combined voting
power of the then outstanding securities entitled to vote generally in the
election of directors of the Company (the “Total Voting Power”), excluding,
however, the following: (1) any acquisition by the Company or any of its
affiliates or (2) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its affiliates; and
(ii) Ciba Beneficially Owns, in the aggregate, a lesser percentage of the Total
Voting Power than such Person Beneficially Owns; or

 

                                                (b)
          a change in the composition of
the Board such that the individuals who, as of the date of the adoption of the
Plan by the Board, constitute the Board (such individuals shall be hereinafter
referred to as the “Incumbent Directors”) cease for any reason to constitute at
least a majority of the Board; provided, however, for purposes of this
definition, that any individual who becomes a director subsequent to such date,
whose election, or nomination for election by the Company’s stockholders, was
made or ­approved pursuant to the Governance Agreement or by a vote of at least
a majority of the Incumbent Directors (or directors whose election or
nomination for election was previously so approved) shall be considered a
member of the Incumbent Board; but, provided, further, that any such 

 

7

 

individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by or on
behalf of a person or legal entity other than the Board shall not be considered
a member of the Incumbent Board; or

 

                                                (c)           the approval by the stockholders of
the Company of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (“Corporate
Transaction”); excluding, however, such a Corporate Transaction (i) pursuant to
which all or substantially all of the individuals and entities who are the
Beneficial Owners, respectively, of the Outstanding Common Stock and Total
Voting Power immediately prior to such Corporate Transaction will Beneficially
Own, directly or indirectly, more than 50%, respectively, of the outstanding
common stock and the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of the company
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Corporate Transaction of the Outstanding Common Stock
and Total Voting Power, as the case may be, or (ii) after which no Person
Beneficially Owns a greater percentage of the combined voting power of the then
outstanding securities entitled to vote generally in the election of directors
of such corporation than does Ciba; or

 

                                                (d)           Ciba shall become the Beneficial
Owner of more than 57.5% of the Total Voting Power; or

 

8

 

                                                (e)           the approval by the stockholders of
the Company of a complete liquidation or dissolution of the Company:

 

6.             RIGHTS
OF PARTIES.

 

                6.1.          Change
of Beneficiary.  Employee shall have
the right at any time to change the person or persons designated as beneficiary
or contingent beneficiary on the Beneficiary Designation form attached hereto
or by written notice to Hexcel in form satisfactory to Hexcel. Such change of
beneficiary shall become effective upon receipt and approval by Hexcel. If
Employee is married, such change of beneficiary shall be subject to the written
consent of Employee’s spouse.

 

                                6.2.          No Employment Agreement.  Nothing contained in this Agreement shall be
construed as giving to Employee the right to continued employment with Hexcel.

 

                                6.3.          Other Retirement Plans.  Nothing in this Agreement shall affect any
right the Employee may otherwise have to participate in or under any retirement
plan of Hexcel or other entity.

 

7.             NOTICES.
 Any notice required or permitted to be
given under this Agreement shall be sufficient if in writing and sent by
prepaid certified or registered mail to his last known residence in the case of
Employee, or its principal office in the case of Hexcel.

 

9

 

8.             TRANSFER
OF INTEREST.  Except as otherwise
expressly provided herein, Employee agrees, on behalf of his heirs, legatees,
personal representatives and designated beneficiaries, that this Agreement and
the rights, interests and benefits hereunder shall not be sold, assigned,
conveyed, hypothecated, or otherwise transferred, and no such interest shall be
subject to any liabilities or obligations of any bankruptcy proceedings, claims
or creditors, attachment, garnishment, execution, levy or other legal process
against any such person or his property, provided, however, that if Employee is
indebted to Hexcel for any reason whatsoever at the time of any distribution or
distributions, Hexcel shall have the right to apply so much of such
distribution as may be necessary to satisfy Employee’s indebtedness to Hexcel.

 

9.             ARBITRATION.

 

                                9.1.          Arbitrable Claims.  All disputes between Employee (and his
attorneys, successors, and assigns) and Hexcel (and its affiliates,
shareholders, directors, officers, employees, agents, successors, attorneys,
and assigns) of any kind whatsoever, including without limitation, all disputes
relating in any manner to the employment or termination of Employee, and all
disputes arising under this Agreement (“Arbitrable Claims”) shall be resolved
by arbitration. All persons and entities specified in the preceding sentence
(other than Hexcel and Employee) shall be considered third-party beneficiaries
of the rights and obligations created by this Section on Arbitration.
Arbitrable Claims shall include, but are not limited to, contract (express or
implied) and tort claims of all kinds, as well as all claims based on any
federal, state, or local law, statute, or regulation, excepting only claims
under applicable workers’ compensation law and unemployment insurance claims.
Arbitration shall be final and binding upon the parties and shall be the
exclusive remedy for all Arbitrable 

 

10

 

Claims, except that Hexcel may, at its
option, seek injunctive relief and damages in court for any breach of Section
3.2 of this Agreement. Subject to the foregoing sentence, THE PARTIES HEREBY
WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.

 

                                9.2.          Procedure.  Arbitration of Arbitrable Claims shall be in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association (“AAA Employment Rules”), except as provided otherwise
in this Agreement. Arbitration shall be initiated by providing written notice
to the other party with a statement of the claim(s) asserted, the facts upon
which the claim(s) are based, and the remedy sought. In any arbitration, the
burden of proof shall be allocated as provided by applicable law. Either party
may bring an action in court to compel arbitration under this agreement and to
enforce an arbitration award. Otherwise, neither party shall initiate or
prosecute any lawsuit or administrative action in any way related to any
Arbitrable Claim. The Federal Arbitration Act shall govern the interpretation
and enforcement of this Section.

 

                                9.3           Arbitrator Selection and
Authority.  All disputes involving
Arbitrable Claims shall be decided by a single arbitrator. The arbitrator shall
be selected by mutual agreement of the parties within thirty (30) days of the
mailing or hand delivery, as applicable, of the notice initiating the
arbitration. If the parties cannot agree on an arbitrator, then the complaining
party shall notify the AAA and request selection of an arbitrator in accordance
with the AAA Employment Rules. The arbitrator shall have the same authority as
a court to award equitable relief, damages, costs, and fees as provided by law
for the particular claim(s) asserted. The fees of the arbitrator shall be paid
by the losing party, as identified by the arbitrator. The arbitrator shall have
exclusive authority to resolve all Arbitrable Claims, 

 

11

 

including, but not limited to, any claim that
all or any part of this Agreement is void or unenforceable.

 

                                9.4.          Confidentiality.  All proceedings and documents prepared in
connection with any Arbitrable Claim shall be confidential and, unless
otherwise required by law, the subject matter thereof shall not be disclosed to
any person other than the parties to the proceeding, their counsel, witnesses
and experts, the arbitrator, and, if involved, the court and court staff. All
documents filed with the arbitrator or with a court shall be filed under seal.
The parties shall stipulate to all arbitration and court orders necessary to
effectuate fully the provisions of this subsection concerning confidentiality.

 

                                9.5.          Continuing Obligations.  The rights and obligations of Employee and
Hexcel set forth in this Section 9 shall survive the termination of Employee’s
employment and the expiration of this Agreement.

 

10.           INSURANCE
BENEFITS

 

                                10.1.        Life Insurance.  Subject to Sections 10.3 and 10.4, Hexcel
shall keep in force and pay for life insurance for Employee should Employee
retire or otherwise cease to be employed by Hexcel (“termination”) in the
following amounts so long as Employee has not received all of the payments to
which Employee is entitled under this Agreement.

 

                                                (a)           For the period prior to the time
Employee has received any payments under this Agreement and prior to the
Employee’s 65th birthday, an amount equal to two (2) times the
present value of Employee’s potential payments hereunder (in accordance with
Section 1.2 at the time of termination, provided such insurance shall not exceed
the amount of life insurance on Employee in effect at the time of retirement or
other termination.

 

12

 

 

	
   

  	
  Example:

  
	
   

  	
  Salary $80,000

  
	
   

  	
  Employee Insurance $240,000

  
	
   

  	
  Present Value of Potential Payments $200,000

  
	
   

  	
  Then lesser of

  
	
   

  	
  2 X $200,000 = $400,000

  
	
   

  	
  Insurance at term = $240,000

  
	
   

  	
  Therefore, $240,000 life insurance.

  

 

After Employee’s 65th birthday,
but only while Employee is receiving payments under this Agreement, an amount
equal to one (1) times the present value of Employee’s potential payments
hereunder (in accordance with Section 1.2 at the time of retirement or other
termination, provided such insurance shall not exceed the amount of life
insurance on Employee in effect at the time of termination.

 

	
   

  	
  Example:

  
	
   

  	
  Salary $80,000

  
	
   

  	
  Employee Insurance
  $240,000

  
	
   

  	
  Present Value of Potential
  Payments $200,000

  
	
   

  	
  Then lesser of

  
	
   

  	
  1 X $200,000 = $200,000

  
	
   

  	
  Employee Insurance =
  $240,000

  
	
   

  	
  Therefore, $200,000 life
  insurance.

  
	
   

  	
   

  

 

 

13

 

                                10.2.        Medical and Dental Insurance.  Hexcel, at its expense, shall continue to
cover Employee in its group medical and dental insurance plan during those
periods life insurance is maintained for Employee pursuant to Section 10.1.

 

                                10.3.        Termination of Benefits.  Notwithstanding anything set forth herein,
Employee shall not be entitled to any benefits under Sections 10.1 and 10.2
should Employee receive a lump sum benefit hereunder or after Employee’s 75th
birthday.

 

                                10.4.        Eligibility.  Notwithstanding anything set forth herein,
Hexcel shall have no obligations under sections 10.1 or 10.2 unless all of the
following conditions precedent are satisfied:

 

                                                (a)           At the time of Employee’s retirement
or other termination, he was employed by Hexcel for not less than five (5)
years; and

 

                                                (b)           Employee was not terminated for any
reason set forth in Section

 

4.2; and

 

                                                (c)           Employee is in full compliance with
his obligations under this Agreement, including without limitation his
obligations under Section 3.2.

 

11.           MISCELLANEOUS.  All payments received pursuant to this
Agreement shall be subject to applicable payroll taxes and taxes withholding.
This Agreement shall inure to the benefit of and be binding upon the successors
and assigns of Hexcel and the heirs, legatees, personal representatives and
designated beneficiaries of Employee.

 

                                The
parties understand and agree that the preceding Sections recite the sole
consideration for this Agreement and that no representation or promise has been
made by Employee or Hexcel in regard to the subject matter of this Agreement,
except as expressly set forth in this Agreement. This Agreement shall supersede
all prior or contemporaneous 

 

14

 

agreements and understandings between the
parties whether written or oral, express or implied, with respect to executive
deferred compensation, except to the extent that the provisions of any such
agreement have been expressly referred to in this Agreement as having continued
effect.

 

                                This
Agreement may not be modified, amended, or terminated except by an instrument
in writing, signed by each of the parties.

 

                                Notwithstanding
anything to the contrary contained in this Agreement, if any provisions hereof,
or the application thereof to any circumstance, is held invalid for any reason
whatsoever, such invalid provision shall be severable and shall not affect any other
provision hereof or the application thereof to any other circumstances which
can be given effect without such invalid provisions or application. This
Agreement is entered into in contemplation of and shall be interpreted and
enforced in accordance with Delaware law. For convenience, references to the
Employee herein are masculine, but shall be deemed to include the feminine
gender if Employee is female. Paragraph and Section headings have been inserted
for convenience only, and in no way shall be used to interpret or otherwise
affect the terms of this Agreement.

 

                                TO
EVIDENCE THEIR AGREEMENT to the foregoing, the parties have executed this
Agreement the day and year first above written.

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  HEXCEL CORPORATION

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  /s/ Joseph H. Shaulson

  	
   

  	
   

  	
   

  	
   

  	
  By

  	
  /s/ David M. Wong

  
	
  Joseph H. Shaulson

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  David M. Wong

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Vice President, Corporate
  Affairs

  

 

 

15Exhibit 4.1

 

K. HOVNANIAN
ENTERPRISES, INC.

HOVNANIAN ENTERPRISES, INC.

AND THE OTHER GUARANTORS PARTY HERETO

 

71/2%
Senior Notes due 2016

 

Sixth Supplemental
Indenture

 

Dated as of February 27,
2006

 

WACHOVIA BANK,
NATIONAL ASSOCIATION,

 

as Trustee

 

 

TABLE OF
CONTENTS

 

	
   

  	
  PAGE

  
	
   

  	
   

  
	
  ARTICLE 1

  	
   

  
	
  SCOPE OF SUPPLEMENTAL INDENTURE; GENERAL

  	
   

  
	
   

  	
   

  
	
  Section 1.01. Scope of
  Supplemental Indenture; General

  	
  2

  
	
   

  	
   

  
	
  ARTICLE 2

  	
   

  
	
  CERTAIN DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  Section 2.01. Certain
  Definitions

  	
  2

  
	
  Section 2.02.
  Rules of Construction

  	
  26

  
	
   

  	
   

  
	
  ARTICLE 3

  	
   

  
	
  COVENANTS

  	
   

  
	
   

  	
   

  
	
  Section 3.01. Existence

  	
  26

  
	
  Section 3.02. Payment of
  Taxes and Other Claims

  	
  27

  
	
  Section 3.03. Maintenance
  of Properties and Insurance

  	
  27

  
	
  Section 3.04. Repurchase
  of Notes Upon Change of Control

  	
  28

  
	
  Section 3.05. Limitations
  on Indebtedness

  	
  28

  
	
  Section 3.06. Limitations
  on Restricted Payments

  	
  29

  
	
  Section 3.07. Limitations
  on Transactions with Affiliates

  	
  32

  
	
  Section 3.08. Limitations
  on Dispositions of Assets

  	
  34

  
	
  Section 3.09. Offer to
  Purchase

  	
  35

  
	
  Section 3.10. Limitations on
  Liens

  	
  37

  
	
  Section 3.11. Limitations
  on Restrictions Affecting Restricted Subsidiaries

  	
  37

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

  	
  40

  
	
  Section 3.13. Reports to
  Holders of Notes

  	
  40

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

  	
  41

  
	
  Section 3.15.
  Applicability of Covenants Contained in the Base Indenture

  	
  41

  
	
   

  	
   

  
	
  ARTICLE 4

  	
   

  
	
  REMEDIES

  	
   

  
	
   

  	
   

  
	
  Section 4.01. Events of
  Default

  	
  41

  
	
  Section 4.02. Additional
  Provisions Related to Events of Default

  	
  44

  

 

i

 

	
  ARTICLE 5

  	
   

  
	
  GUARANTEES; RELEASE OF GUARANTOR

  	
   

  
	
   

  	
   

  
	
  Section 5.01.
  Unconditional Guarantees

  	
  44

  
	
  Section 5.02. Release of a
  Guarantor

  	
  45

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

  	
  46

  
	
   

  	
   

  
	
  ARTICLE 6

  	
   

  
	
  THE TRUSTEE

  	
   

  
	
   

  	
   

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

  	
  46

  
	
   

  	
   

  
	
  ARTICLE 7

  	
   

  
	
  DEFEASANCE

  	
   

  
	
   

  	
   

  
	
  Section 7.01. Defeasance

  	
  46

  
	
  Section 7.02.
  Additional Provisions to Survive Legal Defeasance and Discharge

  	
  46

  
	
  Section 7.03. Additional
  Covenant Defeasance

  	
  46

  
	
  Section 7.04.
  Section 10.4

  	
  47

  
	
  Section 7.05. Satisfaction
  and Discharge of the Indenture

  	
  47

  
	
   

  	
   

  
	
  ARTICLE 8

  	
   

  
	
  THE NOTES

  	
   

  
	
   

  	
   

  
	
  Section 8.01. Form of
  Notes

  	
  48

  
	
  Section 8.02. Depositary

  	
  48

  
	
  Section 8.03. Certificated
  Notes

  	
  48

  
	
   

  	
   

  
	
  ARTICLE 9

  	
   

  
	
  REDEMPTION

  	
   

  
	
   

  	
   

  
	
  Section 9.01. Optional
  Redemption

  	
  48

  
	
  Section 9.02. Sinking
  Fund; Mandatory Redemption

  	
  49

  
	
  Section 9.03.
  Applicability of Sections of the Base Indenture

  	
  49

  
	
   

  	
   

  
	
  ARTICLE 10

  	
   

  
	
  AMENDMENTS, SUPPLEMENTS AND WAIVERS

  	
   

  
	
   

  	
   

  
	
  Section 10.01. Amendments,
  Supplements and Waivers

  	
  49

  
	
  Section 10.02. Payments for
  Consents

  	
  49

  

 

ii

 

	
  ARTICLE 11

  	
   

  
	
  RELEASE OF ISSUER

  	
   

  
	
   

  	
   

  
	
  Section 11.01. Release of
  Issuer

  	
  49

  
	
   

  	
   

  
	
  ARTICLE 12

  	
   

  
	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  
	
  Section 12.01. GOVERNING
  LAW

  	
  50

  
	
  Section 12.02. No Adverse
  Interpretation of Other Agreements

  	
  50

  
	
  Section 12.03. Successors
  and Assigns

  	
  50

  
	
  Section 12.04. Counterparts

  	
  50

  
	
  Section 12.05. Severability

  	
  50

  
	
  Section 12.06. Effect of
  Headings

  	
  50

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

  	
  50

  

 

	
  SCHEDULE:

  	
   

  
	
  1.

  	
  Guarantors

  	
   

  
	
  2.

  	
  Unrestricted Subsidiaries

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT:

  	
   

  
	
  A.

  	
  Form of Note

  	
   

  
	
  B.

  	
  Form of Supplemental Indenture

  	
   

  

 

iii

 

SIXTH SUPPLEMENTAL
INDENTURE dated as of February 27, 2006 (“Supplemental
Indenture”) to the Indenture dated as of November 3, 2003 (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, and this Supplemental
Indenture, the “Indenture”), by and among K.
HOVNANIAN ENTERPRISES, INC., a California corporation (the “Issuer”), HOVNANIAN ENTERPRISES, INC., a Delaware
Corporation (“Hovnanian”), each of the
Guarantors (as defined herein) and WACHOVIA BANK, NATIONAL ASSOCIATION, as
trustee (the “Trustee”).

 

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

 

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

 

WHEREAS, Hovnanian,
the Issuer and the Guarantors desire and have requested the Trustee to join
them in the execution and delivery of this Supplemental Indenture in order to
establish and provide for the issuance by the Issuer of a series of Securities
designated as its 71/2% Senior Notes due 2016 (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 $300,000,000;

 

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

 

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

 

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

 

 

NOW,
THEREFORE:

 

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

 

ARTICLE 1

SCOPE OF SUPPLEMENTAL INDENTURE; GENERAL

 

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

 

The changes,
modifications and supplements to the Indenture effected by this Supplemental
Indenture shall be applicable only with respect to, and govern the terms of,
the Notes (which shall be initially in the aggregate principal amount of $300,000,000)
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 “71/2% Senior Notes due 2016.”  The Notes shall be in the form of Exhibit A
hereto, the terms of which are incorporated herein by reference.  The Notes shall be guaranteed by Hovnanian and
the Guarantors as provided in such form and the Indenture.

 

Subject to Section 3.05
hereof, the Issuer may issue additional notes subsequent to the Issue Date (such
notes, the “Additional Notes”) of the same
series as the Notes.  In the event that
the Issuer shall issue and the Trustee shall authenticate any Additional Notes
issued under this Supplemental Indenture subsequent to the Issue Date, the
Issuer shall use its best efforts to obtain the same “CUSIP” number for such
Notes as is printed on the Notes outstanding at such time; provided,
however, that if any series of Notes issued under this Supplemental
Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of
Counsel in a form reasonably satisfactory to the Trustee, to be a different
class of security than the Notes outstanding at such time for federal income
tax purposes, the Issuer may obtain a “CUSIP” number for such Notes that is
different than the “CUSIP” number printed on the Notes then outstanding.
Notwithstanding the foregoing, all Notes issued under this Supplemental
Indenture shall vote and consent together on all matters as one class,
including without limitation, waivers, amendments, redemption and Offers to
Purchase, and 

 

2

 

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.  Indebtedness incurred in
connection with or in contemplation of any transaction described in clause (a) or
(b) of the preceding sentence shall be deemed to have been incurred by Hovnanian
or a Restricted Subsidiary, as the case may be, at the time such Person becomes
a Restricted Subsidiary (or is merged into Hovnanian, the Issuer or any
Restricted Subsidiary) in the case of clause (a) or at the time of the
acquisition of such assets in the case of clause (b), but shall not be deemed
Acquired Indebtedness.

 

“Additional Notes” has the meaning ascribed to it in Article 1
hereof.

 

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

 

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

 

3

 

“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 (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.

 

4

 

“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 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).

 

5

 

“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 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.

 

6

 

“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 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

 

7

 

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.

 

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

 

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

 

“Consolidated Net Income” for any period means the aggregate
net income (or loss) of Hovnanian and its Subsidiaries for such period,
determined on

 

8

 

a consolidated basis in
accordance with GAAP; provided that
there will be excluded from such net income (loss) (to the extent otherwise
included therein), without duplication:

 

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

 

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

 

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

 

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

 

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

 

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

 

9

 

provided, further,
that for purposes of calculating Consolidated Net Income solely as it relates
to clause (iii) of Section 3.06(a) hereof, clause (d)(ii) above
shall not be applicable.

 

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

 

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

 

10

 

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

 

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

 

“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.

 

“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 

 

11

 

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 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.

 

12

 

“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;

 

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

 

13

 

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.

 

“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.

 

14

 

“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 February 27, 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 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.

 

15

 

“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
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.

 

16

 

“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 $1.0 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) 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;

 

17

 

(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;

 

(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 

 

18

 

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 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 

 

19

 

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),

 

(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,

 

20

 

(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,

 

(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,

 

21

 

(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 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.

 

22

 

“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.

 

“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 

 

23

 

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.

 

“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 

 

24

 

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 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

 

25

 

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) 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

 

26

 

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, 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.

 

27

 

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.

 

(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,

 

28

 

(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, 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;

 

29

 

(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
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 

 

30

 

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 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.

 

31

 

(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 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 

 

32

 

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 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

 

33

 

(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 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 

 

34

 

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;

 

(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,

 

35

 

(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;

 

(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 

 

36

 

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 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:

 

37

 

(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,

 

(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,

 

38

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

39

 

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.

 

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

 

40

 

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 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 

 

41

 

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 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,

 

42

 

(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).

 

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

 

43

 

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 Sixth Supplemental Indenture, not including periods
of grace, if any, provided for therein” and (z) all references contained in Section 5.8
of the Base Indenture to clause (d) shall be replaced with the following: “clause
(iii)”.  In addition, Hovnanian is
required to deliver to the Trustee prompt written notice of the occurrence of
any Default or Event of Default.

 

ARTICLE 5

GUARANTEES; RELEASE OF GUARANTOR

 

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

 

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

 

44

 

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 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.

 

45

 

(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 Sixth
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”.

 

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

 

46

 

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 “February 27, 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
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 

 

47

 

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”).

 

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.

 

48

 

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 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.”.

 

49

 

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.

 

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.

 

50

 

SIGNATURES

 

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

 

	
   

  	
  K. HOVNANIAN
  ENTERPRISES, INC., as 

  the Issuer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter S. Reinhart

  	
   

  
	
   

  	
   

  	
  Name: Peter S. Reinhart

  
	
   

  	
   

  	
  Title: Senior Vice President

  

 

 

	
   

  	
  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

  

 

 

	
  WACHOVIA
  BANK, NATIONAL 

  ASSOCIATION, as Trustee

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Stephanie Roche

  	
   

  
	
   

  	
  Name: Stephanie Roche

  
	
   

  	
  Title: Vice President

  

 

51

 

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 LA TROVATA, 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.

 

1

 

K. HOVNANIAN AT MARLBORO TOWNSHIP IV, INC.

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 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.

 

2

 

K. HOVNANIAN COMPANIES OF NEW YORK, INC.

K. HOVNANIAN COMPANIES OF NORTH CAROLINA, INC.

K. HOVNANIAN COMPANIES OF PENNSYLVANIA, INC.

K. HOVNANIAN COMPANIES OF SOUTHERN CALIFORNIA, INC.

K. HOVNANIAN CONSTRUCTION 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 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 METRO WASHINGTON, 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 OHIO, INC.

K. HOVNANIAN DEVELOPMENTS OF PENNSYLVANIA, INC.

K. HOVNANIAN DEVELOPMENTS OF SOUTH CAROLINA, INC.

K. HOVNANIAN DEVELOPMENTS OF TEXAS, INC.

K. HOVNANIAN DEVELOPMENTS OF WEST VIRGINIA, INC.

K. HOVNANIAN EQUITIES, INC.

K. HOVNANIAN FORECAST HOMES, INC.

K. HOVNANIAN HOMES OF NORTH CAROLINA, INC.

K. HOVNANIAN HOMES OF VIRGINIA, INC.

K. HOVNANIAN INVESTMENT PROPERTIES OF NEW JERSEY, INC.

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.

MATZEL & MUMFORD OF DELAWARE, INC.

MCNJ, INC.

PINE BROOK COMPANY, INC.

REFLECTIONS OF YOU INTERIORS, INC.

SEABROOK ACCUMULATION CORPORATION

 

3

 

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.

WH PROPERTIES, INC.

ALFORD, L.L.C.

DULLES COPPERMINE, L.L.C.

EDISON CONTRACT SERVICES, 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 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 II, L.L.C.

K. HOVNANIAN AT 4S, 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 ARVIN, 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 CAMDEN I, L.L.C.

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.

 

4

 

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 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 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 HIGHLAND SHORES, L.L.C

K. HOVNANIAN AT HIGHWATER, L.L.C.

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

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

K. HOVNANIAN AT JACKSON, L.L.C.

K. HOVNANIAN AT JERSEY CITY IV, L.L.C.

K. HOVNANIAN AT JERSEY CITY V URBAN RENEWAL CO., L.L.C.

K. HOVNANIAN AT 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 LA TROVATA, INC.

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

 

5

 

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 MANALAPAN III, L.L.C.

K. HOVNANIAN AT MANSFIELD I, LLC

K. HOVNANIAN AT MANSFIELD II, LLC

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

K. HOVNANIAN AT MARLBORO TOWNSHIP 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.

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.

 

6

 

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 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 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 SHELF COMPANY, L.L.C.

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

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

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

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

K. HOVNANIAN AT SOUTH 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.

 

7

 

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

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

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

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

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

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

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

K. HOVNANIAN 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.

K. HOVNANIAN COMPANIES OF METRO D.C. NORTH, L.L.C.

K. HOVNANIAN COMPANIES, L.L.C.

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

K. HOVNANIAN 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.

 

8

 

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 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.

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 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 T&C INVESTMENT, L.L.C.

K. HOVNANIAN VENTURE I, L.LC.

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

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.

 

9

 

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, LLC

KINGS COURT AT MONTGOMERY, L.L.C.

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

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

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

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

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

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

M&M AT MORRISTOWN, L.L.C.

M&M AT 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.

 

10

 

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.

K. HOVNANIAN HOMES AT MAXWELL PLACE, 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.

 

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.

CAMBRIDGE
MORTGAGE COMPANY, L.L.C.

COBBLESTONE
SQUARE DEVELOPMENTS, L.L.C.

CORNERSTONE
CONCRETE & MASONRY SERVICES, L.L.C.

EASTERN
TITLE AGENCY, INC.

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 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 PORT IMPERIAL URBAN RENEWAL II, L.L.C.

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 POLAND, SP .Z.O.O.

 

1

 

K.
HOVNANIAN PROPERTIES OF RED BANK, INC.

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 TITLE REINSURANCE, INC.

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

KINGS
CROSSING AT MONTGOMERY, L.L.C.

LAUREL
HIGHLANDS, LLC

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

MCKINLEY
COURT, 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)

NORTH
MANATEE, L.L.C.

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.

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

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.

TRINITY
LIMITED TITLE AGENCY, INC.

WHI-REPUBLIC,
LLC

WRIGHT
FARM, LLC

 

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.

 

1

 

[FACE OF NOTE]

 

K. HOVNANIAN ENTERPRISES, INC.

 

	
  REGISTERED – No.

  	
  CUSIP No.:                    

  
	
   

  	
  $

  	
   

  

 

71⁄2% Senior Notes due 2016

 

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 May 15, 2016.

 

Interest
Payment Dates:  May 15 and November 15,
commencing November 15, 2006

 

Interest
Record Dates:  May 1 and November 1

 

Reference is
hereby made to the further provisions of this Note set forth on the reverse
hereof, which will for all purposes have the same effect as if set forth at
this place.

 

	
   

  	
  K. HOVNANIAN
  ENTERPRISES, INC. 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dated:

  

 

CERTIFICATE OF AUTHENTICATION

 

	
  Wachovia Bank, National Association, as 

  Trustee, certifies that this is one of the 

  Securities of the series designated herein 

  referred to in the within mentioned 

  Indenture.

   

  Dated:

   

  WACHOVIA BANK, NATIONAL

  ASSOCIATION, as Trustee

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  

 

2

 

[REVERSE SIDE OF NOTE]

 

K. HOVNANIAN ENTERPRISES, INC.

 

71⁄2% Senior Notes due 2016

 

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 May 15 and November 15
of each year, commencing November 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 February 27,
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 May 15, 2016.

 

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 May 1 and November 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,
Wachovia Bank, National Association (the “Trustee”) will
act as Paying Agent and Registrar.  The
Issuer may change or appoint any Paying Agent, 

 

3

 

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

 

4.             Indenture.

 

The Issuer
issued the Notes under an Indenture (the “Base Indenture”)
dated November 3, 2003, among the Issuer, Hovnanian and the Trustee, the
terms of which have been established in the Sixth Supplemental Indenture (the “Sixth Supplemental Indenture”) dated as of February 27,
2006, among the Issuer, Hovnanian, the Guarantors and the Trustee (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, and the Sixth
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 “71⁄2% Senior Notes due 2016” 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., 10 Highway 35, P.O. Box 500, Red
Bank, New Jersey 07701, Attention: Chief Financial Officer.

 

5.             Optional Redemption.

 

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

 

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 

 

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 

 

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.

 

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).

 

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)

  
						

 

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 Sixth 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 Sixth 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)

  
						

 

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.

 

11

 

EXHIBIT B

 

SUPPLEMENTAL
INDENTURE

 

dated as of                             ,
           

 

among

 

K. HOVNANIAN ENTERPRISES, INC.

 

HOVNANIAN ENTERPRISES, INC.

 

The Other Guarantors Party
Hereto

 

and

 

WACHOVIA BANK, NATIONAL ASSOCIATION,

 

as Trustee

 

 

71/2% Senior Notes due 2016

 

1

 

THIS [             ]
SUPPLEMENTAL INDENTURE (this “[             ] Supplemental Indenture”), entered into as of                    ,
          , among K.
Hovnanian Enterprises, Inc., a California corporation (the “Issuer”), Hovnanian Enterprises, Inc. (“Hovnanian”), [list each new guarantor and its jurisdiction
of incorporation] (each an “Undersigned”)
and Wachovia Bank, National Association, as trustee (the “Trustee”).

 

RECITALS

 

WHEREAS, the
Issuer, Hovnanian, the other Guarantors party thereto and the Trustee entered
into the Indenture dated as of November 3, 2003 (as supplemented, the “Indenture”) as supplemented by (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, and
the Sixth Supplemental Indenture dated as of February 27, 2006 (the “Sixth Supplemental Indenture”), relating to the Issuer’s 71/2%
Senior Notes due 2016 (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 Sixth Supplemental Indenture.  Each
Undersigned will also execute a Guarantee Notation in respect of the Notes.

 

SECTION 3.  This [             ]
Supplemental Indenture shall be governed by and construed in accordance with
the laws of the State of New York.

 

SECTION 4.  This [             ]
Supplemental Indenture may be signed in various counterparts which together
will constitute one and the same instrument.

 

2

 

SECTION 5.  This [             ]
Supplemental Indenture is an amendment supplemental to the Indenture, and the
Indenture and this [             ]
Supplemental Indenture will henceforth be read together.

 

3

 

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

 

 

	
   

  	
  K. HOVNANIAN
  ENTERPRISES, INC.,

  as Issuer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

	
   

  	
  HOVNANIAN
  ENTERPRISES, INC.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  

 

 

	
   

  	
  [GUARANTOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

	
   

  	
  WACHOVIA
  BANK, NATIONAL 

  ASSOCIATION, 

  as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

4

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