10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6830

ORLEANS HOMEBUILDERS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
59-0874323
(I.R.S. Employer
Identification No.) 3333 Street Road
Bensalem, PA 19020
(Address of Principal Executive Office)

(215) 245-7500

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on which Registered
Common Stock, $.10 Par Value Per Share (also formerly registered under Section 12(g) of the Act)	American Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o  No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o  No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer,""accelerated filer" and "smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o  No ý

The aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant as of December 31, 2007 was $12,189,551.

Number of shares of the registrant's outstanding Common Stock as of September 10, 2008 was 18,839,141 shares (excluding 98,990 shares held in Treasury).

Documents incorporated by reference:

Part III is incorporated by reference to the proxy statement for the annual meeting of Stockholders scheduled to be held in December 2008.

TABLE OF CONTENTS
PART I

		PAGE
ITEM 1.	Business	1
ITEM 1A.	Risk Factors	12
ITEM 1B.	Unresolved Staff Comments	23
ITEM 2.	Properties	23
ITEM 3.	Legal Proceedings	23
ITEM 4.	Submission of Matters to a Vote of Security Holders	23
PART II
ITEM 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities	24
ITEM 6.	Selected Financial Data	27
ITEM 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	65
ITEM 8.	Financial Statements and Supplementary Data	66
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	115
ITEM 9A.	Controls and Procedures	115
ITEM 9B.	Other Information	115
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	117
ITEM 11.	Executive Compensation	117
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	117
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	117
ITEM 14.	Principal Accounting Fees and Services	117
PART IV
ITEM 15.	Exhibits, Financial Statement Schedules	118

PART I

Item 1. Business.

General

        Orleans Homebuilders, Inc., a Delaware corporation, and its subsidiaries (collectively, the "Company", "OHB", "Orleans", "we", "us" or "our") market, develop and build high-quality, single-family homes, townhomes and condominiums to serve various types of homebuyers, including move-up, luxury, empty nester, active adult, first-time move-up and first-time homebuyers. The Company believes this broad range of home designs gives it flexibility to address economic and demographic trends within its markets. The Company has been in operation since 1918 and is currently engaged in residential real estate development in eight states in the following 11 markets: Southeastern Pennsylvania; Central New Jersey; Southern New Jersey; Orange County, New York; Charlotte, Raleigh and Greensboro, North Carolina; Richmond and Tidewater, Virginia; Chicago, Illinois; and Orlando, Florida. The Company's Charlotte, North Carolina market also includes operations in adjacent counties in South Carolina. The Company has operated in Pennsylvania and New Jersey for approximately 90 years. In fiscal year 2001, the Company began operations in North Carolina and Virginia through the acquisition of Parker & Lancaster Corporation ("PLC"), a privately-held residential homebuilder. The Company entered the Orlando, Florida market on July 28, 2003 through its acquisition of Masterpiece Homes, Inc. ("Masterpiece Homes"), a privately-held residential homebuilder. On July 28, 2004, the Company entered the Chicago, Illinois market through the acquisition of Realen Homes, L.P. ("Realen Homes"), an established privately-held homebuilder with operations in Chicago, Illinois and southeastern Pennsylvania. On December 23, 2004, pursuant to an Asset Purchase Agreement of the same date, the Company acquired, through a wholly-owned subsidiary, certain real estate assets from Peachtree Residential Properties, LLC, a North Carolina limited liability company and Peachtree Townhome Communities, LLC, a North Carolina limited liability company which, at the time the Company acquired the assets, were wholly-owned subsidiaries of Peachtree Residential Properties, Inc., a Georgia corporation (collectively, "Peachtree Residential Properties"). In December 2005, the Company entered the Phoenix, Arizona market as a start-up operation via the purchase of an undeveloped parcel of land. On December 31, 2007, the Company committed to exiting the Phoenix market and, in connection with that decision, on that date disposed of its entire land position and its related work-in-process homes in Phoenix, which constituted substantially all of its assets in the western region. The Consolidated Financial Statements have been reclassified for all prior periods presented to reflect this business as a discontinued operation (see Note 2—"Discontinued Operations").

        References to a given fiscal year in this Annual Report on Form 10-K are to the fiscal year ended June 30th of that fiscal year. For example, the phrases "fiscal year 2008" or "year ended June 30, 2008" refer to the fiscal year ended June 30, 2008. When used in this report, the "northern region" segment refers to the Company's markets in Pennsylvania, New Jersey and New York; the "southern region" segment refers to the Company's markets in North Carolina and Virginia, as well as the adjacent counties in South Carolina; the "midwestern region" segment refers to the Company's market in Illinois; and the "Florida region" segment refers to the Company's market in Orlando, Florida. All dollar amounts are in thousands, except per share data or as otherwise noted.

        During fiscal year 2008, the Company delivered 1,262 homes, as compared to 1,487 homes delivered during fiscal year 2007, a decrease of 15.1%. Earned revenues from residential property activities decreased by 13.2% during fiscal year 2008 to $562,183 as compared to $647,316 in fiscal year 2007. The Company's backlog at June 30, 2008 decreased 25.0% to $238,309, representing 486 homes, as compared to $317,913, representing 609 homes, at June 30, 2007. At June 30, 2008, the Company was selling in 91 communities and owned or controlled 7,229 building lots, as compared to 100 communities and 10,503 owned or controlled building lots at June 30, 2007, a decrease in lots of 31.2%.

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        Jeffrey P. Orleans, Chairman of the Board and Chief Executive Officer of the Company, beneficially owns (as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) approximately 60% of the Company's issued and outstanding shares of common stock, par value $0.10 per share ("Common Stock").

        In November 2007, the Company announced that Mr. Michael T. Vesey, its President and Chief Operating Officer, had taken a leave of absence related to an existing medical condition. Mr. Vesey's responsibilities were carried out effectively by existing management during his absence. Though his medical condition persists, Mr. Vesey resumed his responsibilities as President and Chief Operating Officer of the Company in February 2008.

        The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). The Company makes available free of charge through the Company's website (www.orleanshomes.com) its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. You can read and copy any materials the Company files with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You can obtain information about the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company makes its filings with the SEC electronically and the SEC maintains a website that contains this information, which can be accessed at http://www.sec.gov.

Homebuilding

        The Company's activities in developing residential communities include the sale of residential properties and, on a limited basis, the sale of land and developed homesites to other builders. The Company occasionally participates in joint ventures in certain of these activities. In all of the Company's regions, the Company conducts business under the Orleans Homebuilders brand name.

         Northern Region.    The Company's northern region has operations in the Southeastern Pennsylvania, Central New Jersey, Southern New Jersey and Orange County, New York markets. In the northern region, the Company currently builds homes primarily targeted toward move-up, luxury, empty nester and active adult homebuyers with a regional average home sales price of $523 in backlog at June 30, 2008, a decrease of 7.8% compared to backlog at June 30, 2007. During fiscal year 2008, the Company delivered 486 homes in its northern region, generating $231,034, or 41.1%, of its residential revenue. During fiscal year 2007, the Company delivered 429 homes in the northern region, generating $207,240, or 32.0%, of its residential revenue. The backlog in the northern region at June 30, 2008 represented 46.1% of the Company's total backlog.

         Southern Region.    The Company's southern region has operations in the Richmond and Tidewater, Virginia and Charlotte, Raleigh and Greensboro, North Carolina markets. The Charlotte, North Carolina market also includes operations in adjacent counties in South Carolina. In the southern region, the Company currently builds homes primarily targeted toward the move-up and luxury homebuyer with a regional average home sales price of $480 in backlog as of June 30, 2008, a decrease of 10.6% compared to backlog at June 30, 2007. During fiscal year 2008, the Company delivered 514 homes in its southern region, generating $243,714, or 43.3% of its residential revenue. During fiscal year 2007, the Company delivered 579 homes in the southern region, generating $281,356, or 43.5%, of its residential revenue. The backlog in the southern region at June 30, 2008 represented 43.5% of the Company's total backlog.

         Midwestern Region.    In its midwestern region, the Company has operations in the Chicago, Illinois area. In the midwestern region, the Company currently builds homes primarily targeted toward the

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move-up homebuyer with a regional average home sales price of $439 in backlog as of June 30, 2008, a decrease of 13.5% compared to backlog at June 30, 2007. For fiscal year 2008, in the midwestern region the Company delivered 142 homes, generating $59,005, or 10.5% of its residential revenue. During fiscal year 2007, the Company delivered 208 homes in the midwestern region, generating $91,809, or 14.2%, of its residential revenue. The backlog in the midwestern region at June 30, 2008 represented 8.9% of the Company's total backlog.

         Florida Region.    In its Florida region, the Company has operations in the Orlando, Florida market. During fiscal year 2007 and part of fiscal year 2008, the Company also had operations in the Palm Coast and Palm Bay markets. The Company substantially exited the Palm Bay market during the first quarter of fiscal year 2008 and the Palm Coast market during the second quarter of fiscal year 2008. The Company has also scaled back its operations in the Orlando, Florida market through the disposition of certain communities in the second quarter of fiscal year 2008. In the Florida region, the Company currently builds homes primarily targeted toward the first-time move-up and entry level homebuyers with a regional average home sales price of $304 in backlog as of June 30, 2008, an increase of 14.9% compared to backlog at June 30, 2007. During fiscal year 2008, the Company delivered 120 homes in its Florida region, generating $28,430, or 5.1% of its residential revenue. During fiscal year 2007, the Company delivered 271 homes in the Florida region, generating $66,911, or 10.3%, of its residential revenue. The backlog in the Florida region at June 30, 2008 represented 1.5% of the Company's total backlog.

        The following tables set forth certain information with respect to our residential communities and residential revenues by region and type of home. For additional financial information, including information relating to the Company's profits, see Item 7 and Item 8 in this annual report.

Residential Communities as of June 30, 2008

Region	Number of Communities		Home Price Range(1)		Backlog		% of Total Backlog			Number of Homes in Backlog		Average Sales Price in Backlog
Northern		31	$	190 – $1,499	$	109,818		46.1	%		210	$	523
Southern		49		152 –   1,175		103,759		43.5	%		216		480
Midwestern		8		293 –      645		21,084		8.9	%		48		439
Florida		3		171 –      357		3,648		1.5	%		12		304
Total		91	$	152 – $1,499		238,309		100	%		486	$	490

(1)

Home price range calculated based on average fiscal year 2008 closing price for each community within the region.

Residential Revenue by Type of Home for the Fiscal Year Ended June 30,

	2008					2007					2006
Type of Home	Residential Revenue		Percent of Revenue			Residential Revenue		Percent of Revenue			Residential Revenue		Percent of Revenue
Single family	$	484,908		86	%	$	571,043		88	%	$	823,769		85	%
Townhouses		68,057		12	%		66,107		10	%		110,300		11	%
Condominiums		9,218		2	%		10,166		2	%		41,414		4	%
Total	$	562,183		100	%	$	647,316		100	%	$	975,483		100	%

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Residential Revenue by Region for the Fiscal Year Ended June 30,

	2008					2007					2006
Type of Home	Residential Revenue		Percent of Revenue			Residential Revenue		Percent of Revenue			Residential Revenue		Percent of Revenue
Northern	$	231,034		41	%	$	207,240		32	%	$	392,727		40	%
Southern		243,714		43	%		281,356		44	%		371,981		38	%
Midwestern		59,005		11	%		91,809		14	%		118,830		12	%
Florida		28,430		5	%		66,911		10	%		91,945		10	%
Total	$	562,183		100	%	$	647,316		100	%	$	975,483		100	%

        The following table sets forth certain details as to residential sales activity and net (loss) income from continuing operations before taxes. The information provided is for the fiscal years ended June 30, 2008, 2007 and 2006 in the case of revenues earned, new orders and net (loss) income from continuing operations before taxes and as of June 30, 2008, 2007 and 2006 in the case of backlog. The Company classifies a sales contract or potential sale as a new order for backlog purposes at the time a homebuyer executes a contract to purchase a home from the Company.

		As of and for the Year Ended June 30,
		2008			2007			2006
Northern Region
Residential revenue		$	231,034		$	207,240		$	392,727
	Homes		486			429			796
	Average Price	$	475		$	483		$	493
New Orders		$	196,217		$	251,352		$	242,729
	Homes		441			490			455
	Average Price	$	445		$	513		$	533
Backlog		$	109,818		$	144,635		$	100,523
	Homes		210			255			194
	Average Price	$	523		$	567		$	518
(Loss) income from continuing operations before taxes		$	(36,436	)	$	(35,598	)	$	63,516
Southern Region
Residential revenue		$	243,714		$	281,356		$	371,981
	Homes		514			579			862
	Average Price	$	474		$	486		$	432
New Orders		$	216,945		$	258,240		$	367,334
	Homes		487			520			791
	Average Price	$	445		$	497		$	464
Backlog		$	103,759		$	130,528		$	153,644
	Homes		216			243			302
	Average Price	$	480		$	537		$	509
(Loss) income from continuing operations before taxes		$	(16,769	)	$	8,246		$	34,919

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Midwestern Region
Residential revenue		$	59,005		$	91,809		$	118,830
	Homes		142			208			279
	Average Price	$	416		$	441		$	426
New Orders		$	52,157		$	82,403		$	97,945
	Homes		135			182			221
	Average Price	$	386		$	453		$	443
Backlog		$	21,084		$	27,932		$	37,338
	Homes		48			55			81
	Average Price	$	439		$	508		$	461
(Loss) income from continuing operations before taxes		$	(51,281	)	$	(22,545	)	$	11,460
Florida Region
Residential revenue		$	28,430		$	66,911		$	91,945
	Homes		120			271			366
	Average Price	$	237		$	247		$	251
New Orders		$	17,260		$	38,558		$	48,914
	Homes		76			189			145
	Average Price	$	227		$	204		$	337
Backlog		$	3,648		$	14,818		$	43,171
	Homes		12			56			138
	Average Price	$	304		$	265		$	313
(Loss) income from continuing operations before taxes		$	(21,349	)	$	(32,431	)	$	5,671
Corporate and Unallocated
Income (loss) from continuing operations before taxes		$	3,187		$	(12,547	)	$	(11,657	)
Combined Regions
Residential revenue		$	562,183		$	647,316		$	975,483
	Homes		1,262			1,487			2,303
	Average Price	$	445		$	435		$	424
New Orders		$	482,579		$	630,553		$	756,922
	Homes		1,139			1,381			1,612
	Average Price	$	424		$	457		$	470
Backlog		$	238,309		$	317,913		$	334,676
	Homes		486			609			715
	Average Price	$	490		$	522		$	468
(Loss) income from continuing operations before taxes		$	(122,648	)	$	(94,875	)	$	103,909

        For information regarding the Company's (loss) income from continuing operations before taxes and assets in each segment, see Note 14 to the Consolidated Financial Statements contained in this report.

Construction

        The Company historically has designed its own homes with the assistance of unaffiliated architectural firms as well as supervised the development and building of its communities. When the Company constructs homes, it acts as a general contractor and employs subcontractors at specified prices for the installation of site improvements and construction of its residential homes. The Company's agreements with subcontractors typically provide for a fixed price for work performed or materials supplied.

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        The Company does not manufacture any of the materials or other items used in the development of its communities, nor does it maintain substantial inventories of materials. The Company has not experienced significant delays in obtaining materials needed to date and has long-standing relationships with many of its major suppliers and contractors. None of the Company's suppliers or contractors accounted for more than 10% of the Company's total purchases in fiscal year 2008.

        A majority of the Company's single-family detached homes are constructed after the home sale contract has been signed and mortgage approval has been obtained. When the Company builds condominium buildings, they are typically two story, wood frame construction buildings with between four and eight units, similar to its townhome product offerings. Depending on the market conditions and the specific community, the Company may also build homes without first obtaining a signed home sale contract or customer commitment. In the past, most of these speculative homes have been sold while under construction. The Company, however, experienced an increase in speculative inventory during the fiscal year ended June 30, 2006, primarily as a result of higher cancellation rates. Through the use of sales incentives, the Company believes that it substantially eliminated its excess completed home and speculative inventory as of June 30, 2007, and continued to reduce its speculative inventory to appropriate levels given the market conditions during fiscal year 2008. The Company monitors its completed home and speculative inventory continuously to help achieve an adequate return on investment.

Purchasing and Budgeting

        The Company has established relationships with a number of vendors and suppliers in each of its markets and believes these relationships reduce its exposure to any market shortages of labor or materials. The Company has negotiated price arrangements that it believes are favorable with regional suppliers to purchase items such as lumber, appliances, plumbing fixtures, floor coverings and other high-quality equipment and materials. The Company has established budgets for all of its home designs and offered options. These budgets are modified and adjusted by local division management to reflect the specifications needed to meet market demands and local cost variances.

Sales and Marketing

        The Company markets its homes to various types of homebuyers according to the specific needs of each market. The Company advertises using the internet, newspapers, industry publications, direct mail, radio, billboards and brochures. The Company has developed and maintains its website, www.orleanshomes.com, to provide prospective homebuyers with information regarding its communities, available home designs and price ranges, as well as a multimedia gallery offering panoramic video tours and streaming video presentations of some of its homes.

        The Company typically utilizes furnished model homes, staged by professional decorators, located in its communities, to help sell its homes. The Company prefers to staff these models with its own sales professionals to assist prospective homebuyers with home selection and financing decisions. The Company's sales professionals are compensated on a commission basis and are trained extensively in selling techniques, construction and home financing programs. When market conditions warrant, the Company utilizes designated real estate sales brokers who are typically paid on a commission basis. A significant portion of the Company's sales are generated in cooperation with outside brokers. Accordingly, the Company sponsors a variety of programs and events to increase awareness and provide incentives to the brokerage community to promote and sell the Company's homes. The Company also offers a preferred buyer program, which provides its homebuyers in certain of its markets with a discount to be used toward the future purchase of one of its homes.

        In addition to a wide range of home designs, the Company provides its buyers with the ability to personalize their homes through an extensive home customization program. In most markets, the

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Company facilitates this process with the use of design centers, which provide a centralized and professionally merchandised presentation of the various options and features available in its homes. Some of the Company's most popular options include kitchen and flooring upgrades and bonus rooms. Homebuyers have the opportunity to work individually with a design consultant to assist them in making their option and upgrade selections. The design consultants are paid a combination of salary and commission. The Company believes the use of design centers increases homebuyer satisfaction, streamlines the option selection process, and ultimately leads to greater profitability.

        Sales of the Company's homes are made pursuant to a standard home sale contract, which is modified to comply with jurisdictional requirements. A deposit of ten percent of the purchase price is typically required for each contract; however, in certain markets the required deposits may be as low as two percent. In addition, the home sale contract typically contains a financing contingency. The financing contingency provides homebuyers with the right to cancel in the event they are unable to obtain financing at a prevailing interest rate within a specified time period from the execution of the home sale contract. Typically, the Company will not commence construction until mortgage approval has been obtained. The contract may also contain other contingencies, such as the sale of the homebuyer's existing home. The Company closely monitors all such contingencies.

Land Policy

        The Company acquires land in order to provide an adequate and well-located supply for its residential building operations. The Company's strategy for land acquisition and development is dictated by specific market conditions where it conducts its operations. In general, the Company seeks to minimize the overall risk associated with acquiring undeveloped land by structuring purchase agreements that allow it to control the process of obtaining environmental and other regulatory approvals, but defer the acquisition of the land until the approval process has been substantially completed. In its southern and Florida regions, the Company also acquires improved lots from land developers on a lot takedown basis. Under a typical agreement with a land developer, a minimal number of lots are purchased initially, and the remaining lot takedowns are subject to the terms of an option agreement. In evaluating possible opportunities to acquire land, the Company considers a variety of factors including projected sales price and profitability, feasibility of development, proximity to developed areas, population growth patterns, customer preferences, estimated cost of development and availability and cost of financing.

        The Company engages in many phases of development activity, including land and site planning, obtaining environmental and other regulatory approvals, and the construction of roads, sewer, water and drainage facilities, recreation facilities and other amenities. The Company believes that its experience entitling and developing lots in the highly regulated Pennsylvania and New Jersey markets for over forty years has given it expertise in all aspects of the site selection, land planning, entitlement and land development processes which can be leveraged across all markets in which the Company operates.

        As of June 30, 2008, the Company owned building lots that would yield approximately 5,382 homes. As of June 30, 2008, the Company also had under option land and improved lots for an aggregate purchase price of approximately $124,186 that would yield approximately 1,847 homes for a total owned or controlled lot position of approximately 7,229 lots. Generally, the Company structures its land acquisitions so that it has the right to cancel the agreements to purchase undeveloped land and improved lots by forfeiture of its deposit under the agreement. Furthermore, these agreements are generally contingent upon obtaining all governmental approvals and satisfaction of certain requirements by the Company and the sellers. As of June 30, 2008, the Company had incurred costs associated with the acquisition and development of these parcels aggregating approximately $10,380, including approximately $4,846 of cash deposits. The cash deposits do not include variable interest entities consolidated under Financial Accounting Standards Board ("FASB") Interpretation ("FIN") 46R—

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"Consolidation of Variable Interest Entities—an interpretation of ARB No. 51." Contingent upon the Company obtaining all required regulatory approvals, it anticipates completing a majority of these acquisitions during the next several years. The Company presently believes that the contracts and terms on these parcels will result in a positive return for the Company, despite the current market conditions. During fiscal year 2008, the Company wrote-off $8,760 in land deposits and pre-acquisition costs related to contracts to purchase both improved lots and undeveloped land where the Company has either cancelled the option or where the acquisition of the property was not probable due to insufficient economic returns.

        The following table sets forth the Company's land positions as of June 30, 2008.

Region	Lots owned		Percent of lots owned			Lots under options of agreement of sale		Percent of lots controlled			Total lots owned or controlled		Percent of total
Northern		2,795		51.9	%		1,022		55.3	%		3,817		52.8	%
Southern		1,971		36.6	%		543		29.4	%		2,514		34.8	%
Midwestern		360		6.7	%		246		13.3	%		606		8.4	%
Florida		256		4.8	%		36		2.0	%		292		4.0	%
Total		5,382		100.0	%		1,847		100.0	%		7,229		100.0	%

Customer Service and Quality Control

        The Company believes its customer service begins when the home sale contract is executed. The Company's homebuyers are provided with a detailed New Homebuyer Manual, which outlines the home construction and delivery process. Homebuyers are provided with up to four orientation sessions conducted at the home. These orientation sessions provide the homebuyer with the opportunity to become familiar with the construction and operation of the home as well as provide the Company with valuable feedback. Immediately prior to delivery of the home, the final orientation is conducted, from which a list of items to address is generated.

        After delivery of the home, the Company processes all requests for warranty service through its customer service department. In the event service is required, the Company believes that a timely response is critical. The Company typically schedules its contractors to minimize the inconvenience to the homebuyer and attempts to complete the necessary repairs within 14 days of receipt of a request for warranty service. The Company utilizes a two-step customer survey process to obtain valuable feedback from its customers and to help monitor the level of customer satisfaction at the time of and after delivery of the home.

Warranty Program and Construction Defect Claims

        The Company provides all of its homebuyers with a one to two year limited warranty on workmanship and materials and a ten-year limited warranty covering structural items. The extent of the warranties may vary depending on the state in which the community is located. The Company's contracts with its subcontractors and suppliers generally require them to indemnify the Company for any claims for defective materials or workmanship arising for up to one year from the date of completion of the item, thereby reducing the Company's warranty exposure.

Cost Sharing Arrangements and Joint Ventures

        From time to time, the Company has developed and owned communities through joint ventures with other parties. Determinations by the Company to enter into these agreements have been based upon a number of factors, including the opportunity to limit its financial exposure involved in the acquisition of larger parcels of land and the ability to pool resources with other homebuilders and

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developers with respect to completion of the regulatory approval process for a particular parcel. Additionally, in the northern region, the Company has partnered with other homebuilders and developers to acquire land and/or to develop or improve common off-site facilities, such as sewer treatment plants. Most of these agreements are established as cost sharing arrangements whereby the homebuilders and developers share in the cost of acquiring the parcel or developing or improving the off-site facility. In some communities in the southern region, as an alternative to land acquisition financing, the Company has partnered with developers to construct and sell homes on the developers' lots. At the time of settlement, the developers receive a fixed amount for the cost of the lot and a portion of the profits from the sale of the home. The Company will continue to evaluate all opportunities related to cost sharing agreements and joint ventures; however, as of June 30, 2008, and historically, these arrangements have not been material to the Company's operations.

Financial Services

        As part of the Company's objective to make the home buying process more convenient and increase the efficiency of its building cycle, the Company offers mortgage brokerage services to its customers. Through the Company's mortgage brokerage subsidiary, it assists its homebuyers in obtaining financing directly from unaffiliated lenders. The Company does not fund or service the mortgage loans. The Company's mortgage operation derives most of its revenue from buyers of its homes, although it also offers its services to existing homeowners refinancing their mortgages, as well as to customers purchasing pre-existing homes or new homes from one of the Company's competitors.

        During fiscal year 2008, approximately 72% of the Company's homebuyers utilized the services of its mortgage business compared to 56% during fiscal year 2007. In general, the Company derives less than 1% of its total earned revenues from the mortgage business.

        Due to the Company's market position, and through the involvement of the mortgage broker subsidiary, the Company believes that it has limited exposure to the sub-prime mortgage market, as the average price of our homes is higher than the industry average. We define sub-prime mortgages as conventional loans with a credit score below 620.

Employees

        During fiscal year 2008, due to the continued difficult market conditions, the Company made the difficult decision to reduce its headcount by over 20%. These reductions, which primarily occurred in July 2007 and January 2008, impacted all of the Company's regions. The reductions were primarily targeted at reducing office personnel and construction supervisor personnel and laborers.

        During fiscal year 2007, the Company reduced its headcount by over 25%. This headcount reduction was made as a result of the general downturn in the homebuilding industry. The reductions occurred in several stages throughout the fiscal year and across all of the Company's regions. The reductions were primarily targeted at reducing construction supervisory personnel and laborers, but also impacted sales and office personnel.

        The headcount reductions since June 2006 are reflected in the table below:

	As of June 30,
	2008		2007		2006
Executive, administrative and clerical		224		273		359
Sales personnel		177		173		273
Construction supervisory personnel and laborers		143		262		356
Total employees		544		708		988

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        Subsequent to June 30, 2008, the Company's headcount has decreased by more than 10%, primarily due to additional lay-offs, which were necessary due to the continued difficult market conditions. From June 30, 2006 to August 31, 2008, the Company's headcount had decreased by over 50%.

        The Company considers its relations with its employees to be good.

Government Regulations

        The Company and its subcontractors are subject to continuing compliance requirements of various federal, state and local statutes, ordinances, rules and regulations regarding zoning, building, construction and similar matters. The intensity of development in recent years in areas in which the Company is actively developing real estate has resulted in increasingly restrictive regulation and moratoriums by governments due to density, sewer and water, ecological and similar factors. Further expansion and development may require prior approval of federal, state and local authorities and may result in delay or curtailment of development activities and costly compliance programs.

        In January 1983, the New Jersey Supreme Court rendered a decision known as the "Mount Laurel II" decision, which has the effect of requiring certain municipalities in New Jersey to provide housing for persons of low and moderate income. In order to comply with such requirements, municipalities in New Jersey may require developers, including the Company, in connection with the development of residential communities, to construct low or moderate income houses in its communities or to contribute funds or otherwise assist in the achievement of the municipalities fair share of low or moderate income housing through Regional Contribution Agreements or assessments. To satisfy these requirements, these municipalities generally require the Company to contribute funding based upon the delivery of homes in those communities. The Company contributed $175, $1,750 and $50 to municipalities in fiscal years 2008, 2007 and 2006, respectively, in order to satisfy low and moderate income housing requirements for municipalities in which the Company builds. The affordable housing contributions are expensed through cost of sales when houses are delivered. In July, 2008, legislation was passed in New Jersey that effectively ends the Regional Contribution Agreement as a means to address affordable housing requirements under the Fair Housing Act ("FHA"), the effect of which may be to construct price restricted housing on site or to contribute payments for low or moderate income housing. The Company is currently assessing what impact this new legislation will have on its New Jersey operations.

        Regulation by federal and state authorities relating to the sale and advertising of condominium interests and residential real estate has become more restrictive and extensive. In order to advertise and sell condominiums and residential real estate in many jurisdictions, including Pennsylvania, New Jersey and New York, the Company has been required to prepare a registration statement or other disclosure document and, in some cases, to file such materials with a designated regulatory agency.

        Despite the Company's past ability to obtain necessary permits and authorizations for the communities the Company builds, more stringent requirements may be imposed on developers and homebuilders in the future. Although the Company cannot determine the effect of such requirements, they could result in time-consuming and expensive compliance programs and substantial expenditures for environmental controls, which could have a material adverse effect on the Company's results of operations. In addition, the continued effectiveness of permits already granted is subject to many factors beyond the Company's control, including changes in policies, rules and regulations and their interpretation and application.

        On July 30, 2008, The Housing and Economic Recovery Act of 2008 (the "Act") was enacted into law. Among other things, the Act provides for a temporary first-time home buyer tax credit of up to $7.5 for purchases made through July 1, 2009, which is repayable over 15 years; reforms of Fannie Mae and Freddie Mac, including adjustments to the conforming loan limits; modernization and expansion of

10

the Federal Housing Administration ("FHA"), including an increase to 3.5% in the minimum down payment required for FHA loans; and the elimination of down payment assistance programs for FHA loans approved after September 30, 2008. The Act is intended to help stabilize and add consumer confidence to the housing industry. The Company is evaluating the impact the Act will have on its business and future results of operations. In the short time since the Act was signed into law, the industry has not seen a noticeable increase in traffic at new-home builder communities.

Environmental Regulation and Litigation

        Development and sale of real property creates a potential for environmental liability on the part of the developer, owner or any mortgage lender for its own acts or omissions as well as those of prior owners of the subject property or adjacent parcels. While the Company does not currently have any material environmental liabilities of which it is aware, in the future, if hazardous substances are discovered on or emanating from any of its properties, the Company, as well as any prior owners or operators, may be held liable for costs and liabilities relating to these hazardous substances. Environmental studies are generally undertaken in connection with property acquisitions by the Company and it endeavors to obtain Phase I environmental site assessments on all properties acquired. Further governmental regulation with respect to environmental matters affecting residential development could impose substantial additional expense on the Company, which could adversely affect the results of operations or the value of properties owned, or under contract of purchase by the Company.

Competition

        The homebuilding industry is highly competitive. The Company competes on the basis of its reputation, location, design, price, financing programs, quality of product and related amenities. The Company competes with local, regional and national homebuilders, some of which have greater sales, financial resources and geographical diversity than the Company. In addition to competition for homebuyers, we also compete with other homebuilders for desirable properties, raw materials and reliable, skilled labor. We also compete with individual resales of existing homes (including the growing number of foreclosed homes offered at substantially reduced prices), as well as the rental housing market. In recent months, short sales (a transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan) and foreclosures have become a sizable portion of the existing home market.

Economic Conditions

        The Company's business is affected by general economic conditions in the United States and its related regions and particularly by the level of interest rates. The Company cannot determine whether interest rates will continue to be at levels attractive to prospective home buyers or whether mortgage and construction financing will continue to be available.

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        The unfavorable market conditions in the housing industry have continued to negatively impact the Company's closings, new order activity, absorption, pricing and cancellations. Excess new and resale home inventory remains in numerous markets, which has contributed to the continued difficulties buyers face in selling their existing homes. Demand remains slow due to decreased consumer confidence in the housing market and increased economic uncertainty; increased uncertainty in the overall mortgage and mortgage insurance markets; tightened underwriting standards in the mortgage industry; increased foreclosures; and stress in the financial markets and in general consumer credit. The Company continues to observe nationwide discounting, particularly by some of the largest companies in our industry. While the actions by the Federal Reserve Bank to decrease the target Federal Funds Rate and increases in liquidity to the capital markets were both positive for the macro market, we believe that these challenges will remain in the homebuilding industry at least in the near term. Further, economic conditions will likely be weak in the near term. The Company believes that unfavorable market conditions may continue to have a negative impact on new orders, new order pricing and cancellations, thereby further reducing revenues, gross margins and net income. The Company is responding to these unfavorable market conditions by attempting to maintain absorption levels through the use of sales incentives; reevaluating its individual land holdings; reducing its land expenditures; continuing to operate with reduced housing inventory levels and emphasizing cost reductions to adjust for lower levels of production. Further decreases in demand for our homes may require the Company to further increase the use of sales incentives. The Company also continues to evaluate its owned and controlled lot positions and other assets.

Seasonality

        The sale and construction of homes may be adversely affected by harsh weather conditions in some of the regions in which the Company operates, including hurricanes in the Florida region and snow and ice in other regions. Residential revenue is typically lowest in the first fiscal quarter and highest in the fourth fiscal quarter.

Item 1A. Risk Factors.

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995.

        In addition to historical information, this report contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to the Safe Harbor provisions created by statute. Generally words such as "may", "will", "should", "could", "would", "anticipate", "expect", "intend", "estimate", "plan", "continue" and "believe" or the negative of or other variation on these and other similar expressions identify forward-looking statements. These forward-looking statements including, without limitation, statements with respect to potential liabilities relating to litigation currently pending against us, our ability to meet covenants in our loan documents, changes in market conditions, anticipated delivery of homes in backlog, expected warranty costs, future land acquisitions and the availability of sufficient capital for us to meet our operating needs, are made only as of the date of this report. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

        Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results could differ significantly from those expressed or implied by our forward-looking statements.

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        Many factors, including those listed below, could cause our actual consolidated results to differ materially from those expressed in any of our forward-looking statements:

The homebuilding industry is experiencing a severe and extended downturn that may continue for an indefinite period and may continue to adversely affect our business, results of operations and stockholders' equity.

        The homebuilding industry has experienced a significant and sustained downturn characterized by decreased demand for new homes, an oversupply of both new and resale home inventories, including foreclosed homes; aggressive price competition among homebuilders, including increased incentives for home sales and; a more restrictive mortgage lending environment. Economic conditions in the United States have also weakened recently, which puts continued pressure on consumer confidence for residential real estate. These industry and economic trends have resulted in downward pressure on our home prices, fewer home sales and increased cancellation rates. As a result, we have experienced a significant reduction in revenues and margins. These challenging market conditions are expected to continue for the foreseeable future and, in the near term, these conditions may further deteriorate. We expect that continued weakness in the homebuilding industry could further adversely affect our business, results of operations and stockholders' equity.

Deterioration in economic conditions in general could further reduce the demand for homes and, as a result, could reduce our earnings and adversely affect our financial condition.

        Changes in national and local economic conditions could have a negative impact on our business. Adverse changes in employment levels, job growth, consumer confidence and income, interest rates and population growth may further reduce demand, depress prices for our homes and cause homebuyers to cancel their agreements to purchase our homes, thereby possibly reducing earnings and adversely affecting our business and results of operations. Recent changes in these economic variables have had an adverse affect on consumer demand for, and the pricing of, our homes, causing our revenues to decline and future deterioration in economic conditions could have further adverse effects.

Recent turmoil in the credit markets and the financial services industry may reduce the demand for our homes and the availability of home mortgage financing, among other things.

        Recently, the credit markets and the financial services industry have been experiencing a period of unprecedented turmoil and upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United States federal government. While the ultimate outcome of these events cannot be predicted, it may have a material adverse effect on the Company, its ability to borrow money to finance its operations from its existing lenders under its Second Amended and Restated Credit Agreement or otherwise, and could also adversely impact the availability of financing to our customers.

Home prices and sales activities in our Pennsylvania, New Jersey, North Carolina, and Virginia markets have a significant impact on our sales and earnings because we conduct a significant portion of our business in these markets.

        We presently conduct a significant portion of our business in our Pennsylvania, New Jersey, North Carolina, and Virginia markets. Demand for new homes and home prices have recently been declining in these markets. There can be no assurance that our earnings and financial position will not be further impacted if the challenging conditions in these markets continue or worsen.

Continued high cancellation rates may negatively impact our business.

        Our backlog reflects the number and value of sold but undelivered homes. Our sales contracts typically require purchasers to make a cash deposit. Generally, under our contracts, we have the right

13

to compel the customer to complete the purchase; however, our only effective remedy may be the retention of the deposit. In some cases, a customer may receive full or partial return of the deposit. If the current industry downturn continues, economic conditions continue to deteriorate or if mortgage financing becomes less accessible, more homebuyers may find it advantageous to cancel their contracts with us and risk forfeiting their deposit, either in full or in part, rather than complete the purchase. Significant cancellations have had, and could have in the future, a negative impact on our business and results of operations.

We currently have a significant amount of debt. To service our indebtedness and continue our operations, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

        We currently have a significant amount of debt. As of June 30, 2008, our total consolidated indebtedness was $501,851, which includes mortgage and other note obligations, subordinated notes and other notes payable. In addition, subject to the restrictions in our revolving credit facility and our trust preferred securities, we may incur significant additional indebtedness. The amount of additional debt that we can incur under these restrictions varies over time based on a number of factors, including borrowing base availability under the senior secured revolving credit facility at such time. We may also need additional funding for our operations. There is no guarantee that additional borrowings will be available to us. In the event that we are able to make additional borrowings and such borrowings materially alter our debt to capitalization ratio, it may be more difficult and expensive for us to obtain additional capital, specifically debt.

        Our ability to make payments on and refinance our indebtedness and to acquire land will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, capital markets, competitive, legislative, financial services industry conditions, regulatory and other factors that are beyond our control. We can make no assurances that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Furthermore, challenging conditions in the capital markets and financial services industry has resulted in difficulty in obtaining debt financing. We may need to refinance all or a portion of our indebtedness on or before the maturity thereof or incur additional debt. Our senior secured credit facility matures on December 20, 2009. We can make no assurances that we will be able to refinance any of our indebtedness, including, but not limited to, our senior secured revolving credit facility, on commercially reasonable terms or at all.

        If we are unable to obtain sufficient financing to fund our operations or expansion, it could adversely affect our results of operations and future growth. Our significant level of debt and challenging industry conditions for financial institutions could make it more difficult for us to obtain additional debt financing in the future. We may be unable to obtain additional financing on satisfactory terms or at all. If the market continues to deteriorate, we may default under the financial covenants in our senior secured revolving credit facility and, if we default on such financial covenants, we may be unable to obtain amendments to, or waivers under, our senior secured revolving credit facility. If we raise additional funds by incurring additional debt, we will incur increased debt service costs and may become subject to more restrictive financial and other covenants which could limit our ability to operate our business as we desire. In addition, increases in interest rates can make it more difficult and expensive for us to obtain the funds we need to operate our business.

The financing agreements governing our debt contain various covenants that limit our discretion in the operation of our business and could lead to acceleration of debt.

        Our senior secured revolving credit facility contains financial and other restrictive covenants and requirements that limit our ability to engage in certain activities. For example, under our senior secured

14

revolving credit facility we are subject to covenants requiring us to maintain a minimum consolidated tangible net worth; minimum liquidity; minimum cash flow from operations ratios; minimum unrestricted cash held for more than five business days; and limitations on certain land acquisition and joint venture investment; and a prohibition on dividends. In addition, there are various financial covenants with respect to the value of land in certain stages of development that we may own. The agreements and instruments governing our other debt, such as our trust preferred securities, also contain other covenants and requirements. Failure to comply with any of the covenants or requirements in our existing or future financing agreements or instruments could result in an event of default under those agreements or instruments. Our senior secured revolving credit facility also contains a cross-default provision so that a default under the agreements or instruments governing our other debt could cause a default under our senior secured revolving credit facility. Further, a default under our senior secured revolving credit facility could prevent us from making payments required by our trust preferred securities. If not cured, a payment default or other event of default could result in the acceleration of all or most of our debt and permit lenders to foreclose upon any collateral securing that debt. In addition, lenders may be able to terminate any commitments they made to supply us with further funds. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. The limitations imposed by our financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing.

        Our second amended and restated secured revolving credit facility also generally requires that all real property sales by Borrowers and Guarantor be conducted through a title company with the proceeds of sale going directly to the agent under the credit facility to immediately reduce advances under the facility. As this process will generally preclude us from having direct access to revenues generated from our operations, we will be required to make frequent draws under our credit facility. If there is any interruption in our ability to make draws under our credit facility, even if temporary or only partial and notwithstanding our intention to hold significant cash working capital reserves to the extent our credit facility permits such amounts and subject to borrowing base availability, our ability to operate our business could be materially and adversely impacted.

        In the past two fiscal years, we have amended our senior secured revolving credit facility several times and have also received a waiver and an extension of such waiver prior to the completion of the most recent amendment. Were it not for these amendments and the waiver, we would not have been able to comply with the covenants contained in the senior secured revolving credit facility. We can make no assurances that we will be able to comply with our covenants in the future or will be able to obtain future amendments or waivers of the covenants in our financing agreements and instruments, if necessary, upon acceptable terms or at all. Furthermore, future amendments or waivers are likely to place future restrictions on our ability to engage in certain activities, as well as increase the cost of our financing.

The anticipated reappraisal of a material amount of assets in our borrowing base could decrease our liquidity and materially and adversely impact our operations.

        Under our second amended and restated credit agreement, we agreed to allow the lenders to conduct future appraisals on a fair market value basis on all projects with a GAAP cost of at least $4,000 to be phased in generally over the next three fiscal quarters, but excluding the projects already recently appraised. In the event that the reappraisals result in a determination that a material amount of the assets in our borrowing base have a value lower than the cost and the existing appraised values, the net availability under the credit facility could be materially reduced from existing or anticipated levels. Such a reduction in net availability could require us to repay a portion of the amounts outstanding under our credit facility or otherwise have a material adverse effect on our ability to fund our continuing operations, which could have a material adverse affect on the Company's financial position, results of operations and cash flows.

15

Increases in interest rates, tightening of lending standards and decreases, limitations or restrictions in the availability of mortgage financing and other economic factors outside our control, such as consumer confidence and declines in employment levels could lead to fewer home sales, which could adversely affect our total earned revenues and earnings.

        The large majority of our customers finance their purchases through mortgage financing obtained through us or other sources and our business and earnings, therefore, depend on the ability of our customers to obtain mortgages for their home purchases. The United States residential mortgage market is experiencing significant disruption. Mortgage interest rates have recently experienced significant volatility and contributed to the challenging market conditions faced by us and the housing industry. In addition, as a result of increased default rates and other factors, the willingness of many lenders to make home mortgage loans has decreased and lenders have tightened their lending standards. Deterioration in credit quality among subprime and other nonconforming loans has caused lenders to eliminate such loans. The volatility in interest rates, the decrease in the willingness of lenders to make home mortgage loans, the tightening of lending standards and the availability of fewer loan products have made it more difficult for some potential buyers to finance the purchase of our homes. Potential buyers may not be able to obtain acceptable financing to purchase our homes, leading to further declines in the market for our homes. In particular, because the availability of mortgage financing is an important factor in marketing many of our homes, any limitations or restrictions on the availability of mortgage financing or increases in mortgage interest rates could reduce our home sales, the lending volume at our mortgage brokerage subsidiary and our total earned revenues, earnings and future backlog. Even if our potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to sell their existing homes to potential buyers who need financing. Any limitations or restrictions on the availability of mortgage financing, further interest rate increases or limits on the deductibility of home mortgages could adversely affect our sales, which would reduce our revenues.

        The Housing and Economic Recovery Act of 2008 includes a provision that eliminates, effective October 1, 2008, seller-financed down payment assistance programs for Federal Housing Administration loans. Although not material to the Company on a direct basis, seller-financed down payment assistance programs were important to some of our competitors in certain markets. The elimination of such seller financed down payment assistance programs could lead to increased cancellations and lower orders for our competitors. Such actions could result in further national discounting by our competitors, which could result in lower demand for our homes and put competitive pressure on us to further reduce our home prices thereby affecting our revenues and margins.

        We also believe that the availability of mortgage financing provided by Fannie Mae, Freddie Mac, the Federal Housing Administration or the Veteran's Administration is an important factor in marketing many of our homes. Any limitations or restrictions on the availability of those types of financing could reduce our sales.

We are subject to substantial risks with respect to the land and home inventories we maintain and fluctuations in market conditions may affect our ability to sell our land and home inventories at expected prices, if at all, which could reduce our total earned revenues and earnings.

        As a homebuilder, we must constantly locate and acquire new tracts of land for development and developed homesites to support our homebuilding operations. There is a lag between the time we acquire land for development or developed homesites and the time that we can bring the communities built on the acquired land to market and deliver homes. As a result, we face the risk that demand for housing may decline during this period (as has occurred in the industry since 2006) and that we will not be able to dispose of developed properties or undeveloped land or homesites acquired for development at expected prices or within anticipated time frames or at all. The market value of home inventories, undeveloped land and developed homesites can fluctuate significantly because of changing market

16

conditions. In addition, inventory carrying costs (including interest on funds used to acquire land or build homes) can be significant and can adversely affect our performance. Because of these factors, we may be forced to sell homes, land or lots at a loss or for prices that generate lower profit than we anticipate. As we did during the fiscal years ended June 30, 2008 and June 30, 2007, we may also be required to make material write-downs of the book value of our real estate assets in accordance with generally accepted accounting principles.

Deterioration of market conditions in the homebuilding industry and customer demand could adversely affect our land inventory and property market values.

        During the year ended June 30, 2008, we decided not to pursue development of certain parcels of land on which we had option agreements and the acquisition of certain lots on which we had options resulting in write-offs of land deposits and pre-acquisition costs. In addition, we recorded significant impairments to residential properties completed or under construction and land held for development or sale and improvements. The impairments were primarily due to a slower than anticipated pace of new orders and increases in sales incentives required to generate new home orders, as well as certain land sales completed primarily in December 2007. These write-offs and impairments adversely affected our results of operations during the year ended June 30, 2008. If market conditions in the homebuilding industry or customer demand continue to deteriorate or do not improve in future periods, we may decide not to pursue development of additional parcels of land or the acquisition of additional lots on which we have option agreements, and the value of existing land holdings and residential properties may continue to decline. This would lead to further write-offs of deposits and pre-acquisition costs and impairments to residential properties and land held for development or sale and improvements.

        In addition, over the past year we have sold many land assets of the Company, resulting in the exit of the Company from Palm Bay and Palm Coast, Florida and Arizona markets and reduced positions in the Orlando, Florida and Chicago, Illinois markets. If the market conditions in the homebuilding industry continue to deteriorate or do not improve in future periods, we may need to sell additional land assets in these or other markets, depleting the number of home lots available to us, which could adversely affect an ability to build new homes, thus affecting our sales and reducing our future revenues from the sale of homes.

The market value of our inventory could drop significantly, which may require further write-downs to the carrying value of our real estate held for development and sale to its estimated fair value, which would negatively impact our results of operations and financial condition.

        The Company acquires land for replacement of land inventory and expansion within our current markets, as well as expansion into new markets. Prevailing market conditions may significantly influence the market value of our land held for development or sale and improvements and our residential properties completed or under construction. If the market conditions continue to deteriorate, we may be required to further write-down the carrying value of our real estate held for development and sale to its estimated fair value. Such write-downs would have a negative impact on our results of operations and financial condition.

The competitive conditions in the homebuilding industry could increase our costs, reduce our total earned revenues and earnings and otherwise adversely affect our results of operations or limit our growth.

        The homebuilding industry is highly competitive and fragmented. We compete in each of our markets with a number of national, regional and local builders for customers, undeveloped land and homesites, raw materials and labor. Some of our competitors have greater financial resources, more established market positions and better opportunities for land and homesite acquisitions than we do

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and have lower costs of capital, labor and material than we do. The competitive conditions in the homebuilding industry could, among other things:

•

cause us to increase incentives to potential homebuyers which could reduce our profit margins;



•

make it difficult for us to acquire suitable land or homesites at acceptable prices and terms which could adversely affect our ability to build homes;



•

require us to increase incentives and selling commissions which could reduce our profit margins;



•

result in delays in construction if we experience a delay in procuring materials or hiring trades people or laborers;



•

result in lower sales volume and total earned revenues; and



•

increase our costs and reduce our earnings.

        We also compete with resales of existing homes (including the growing number of foreclosed homes offered at substantially reduced prices), available rental housing and, to a lesser extent, condominium resales. An oversupply of competitively priced resale or rental homes in the markets in which we operate could adversely affect our ability to sell homes profitably.

        Due to our significant debt levels, challenging conditions in the capital markets and financial services industry, we may not have the capital resources in the near term to acquire land that opportunistically becomes available from financial institutions through foreclosures or from troubled homebuilders. Some of our competitors may be in better position to take advantage of such favorable acquisition opportunities that should likely become available in the future.

We may be unable to obtain suitable bonding for the development of our communities.

        We provide bonds to governmental authorities and others to ensure the completion of our projects. If we are unable to provide required surety bonds for our projects, our business operations and revenues could be adversely affected. As a result of the recent deterioration in market conditions, the availability of surety bonds has significantly decreased. In addition, surety bond providers could refuse to provide surety bonds in the future or they could require credit enhancements in order to maintain existing bonds or to issue new bonds. As a result, we may be unable to maintain existing surety bonds or obtain new surety bonds on acceptable terms or at all. If we are unable to obtain required bonds in the future, or are required to provide credit enhancements with respect to our current or future bonds, our liquidity could be negatively impacted.

We may not be able to acquire suitable land at reasonable prices, which could result in cost increases we are unable to recover and reduce our total earned revenues and earnings.

        Our ability to continue our homebuilding activities over the long-term depends upon our ability to locate and acquire suitable parcels of land or developed homesites to support our homebuilding operations. The cost of acquiring suitable land may rise and the availability of suitable parcels at acceptable prices may decline. In addition, due to our significant debt levels, other homebuilders with more readily available capital resources may be in a better position to take advantage of favorable acquisition opportunities that could arrive in the future. If we are unable to acquire suitable land or developed homesites at reasonable prices, it could limit our ability to develop new communities or result in increased land costs that we may not be able to pass through to our customers. Consequently, this competition could reduce the number of homes we sell or our profit margins and lead to a decrease in our total earned revenues and earnings.

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We are subject to construction defect, product liability and warranty claims arising in the ordinary course of business that could adversely affect our results of operations.

        As a homebuilder, we are subject in the ordinary course of our business to construction defect, product liability and home warranty claims. We generally provide our homebuyers with a one to two year limited warranty covering workmanship and materials and a ten year limited warranty covering major structural defects. Claims arising under these warranties and construction defect and general product liability claims are common in the homebuilding industry and can be costly. Although we maintain construction defect and product liability insurance, the coverage offered by, and availability of, this insurance is currently limited and, where coverage is available, it may be costly. As a result of increasing insurance costs and an analysis of our claims history, we self-insure the first $2,000 of each construction defect and product liability claim. Our product liability insurance and homebuilder protective policies contain limitations with respect to coverage, and these insurance rights may not be adequate to cover all construction defect, product liability and warranty claims for which we may be liable. In the future, coverage could be further restricted and become more costly. In addition, although we generally seek to require our subcontractors and design professionals to indemnify us for liabilities arising from their work, we may be unable to enforce any such contractual indemnities. Uninsured and unindemnified construction defect, product liability and warranty claims, as well as the cost of product liability insurance and our homebuilder protective policy, could adversely affect our results of operations and profitability.

We may be subject to mold litigation and mold claims arising in the ordinary course of business for which we have no insurance that could adversely affect our results of operations.

        Lawsuits have been filed against homebuilders, including us, and insurers asserting claims of property damage and personal injury caused by the presence of mold in homes. Some of these lawsuits have resulted in substantial monetary judgments or settlements against homebuilders and their insurers. Our insurance carriers have excluded coverage for claims arising from the presence of mold and we have not set aside any funds to pay for potential damages relating to mold claims. Uninsured mold liability and claims against us could adversely affect our results of operations and profitability.

We may be subject to environmental liabilities that could adversely affect our results of operations or the value of our properties.

        Our operations are subject to a variety of environmental laws and regulations including those relating to discharges to air and water, storage and disposal of waste, disturbance of wetlands and clean up of contaminated soil or groundwater. In addition, development and sale of real property creates a potential for environmental liability on our part as owner and developer, for our own acts as well as the acts of prior owners or operators. If we fail to comply with environmental requirements or regulated materials are discovered on, under or emanating from any of our current or former properties, we may be held liable for costs and liabilities relating to those materials. In addition, environmental hazards on parcels of land adjacent to any of our properties could also negatively impact the value of our properties or result in liabilities. Should a substantial environmental hazard be found on any of our properties or adjacent properties, our results of operations and the value of the contaminated property could be adversely affected. New requirements or more stringent enforcement of existing laws or regulations could also result in increased costs.

We depend upon the continued services of certain members of our senior management team and the loss of their services could harm our business.

        Our future success and ability to implement our current business plan depends, in part, on the continuing services of our senior management team, led by our Chairman and Chief Executive Officer, Jeffrey P. Orleans. Members of our senior management team possess industry, sales, marketing,

19

financial and managerial knowledge, experience and skills that are critical to the operation of our business and may be difficult to replace. If we lose or suffer an extended interruption in the services of one or more members of our senior management team, our financial condition and operating results may be adversely affected. In November 2007, the Company announced that its President and Chief Operating Officer, Mr. Michael T. Vesey, had taken a leave of absence related to an existing medical condition. Mr. Vesey resumed his responsibilities as President and Chief Operating Officer of the Company in February 2008, though his medical condition persists. While the Company believes that Mr. Vesey's responsibilities were carried out effectively by existing management during his absence, in the event of an extended interruption of Mr. Vesey's services in the future, or in the event of an extended interruption in the services of any other member of our senior management team, no assurance can be given that the Company's senior management would be able to carry out the duties and responsibilities of the absent executive without an adverse affect on future operations. Furthermore, the market for qualified individuals is also highly competitive and we may not be able to attract and retain qualified personnel to replace members of our senior management team if needed.

Shortages of materials and increases in the price of materials can harm our business by delaying construction, increasing costs, or both.

        We and the homebuilding industry from time to time have experienced significant difficulties with respect to:

•

shortages of materials;



•

increases in the cost of certain materials, such as asphalt, siding, roofing, lumber, drywall and cement, which are significant components of home construction costs; and



•

shortages of qualified trades people and other labor.

        These difficulties have in the past and likely will in the future cause unexpected short-term increases in construction costs and cause construction delays for us. We will not be able to recover unexpected increases in construction costs by raising our home prices because, typically, the price of each home is established at the time a customer executes a home sale contract. Furthermore, sustained increases in construction costs may, over time, erode our profit margins. We have historically been able to offset sustained increases in construction costs with increases in the prices of our homes and through operating efficiencies. However, the current homebuilding industry market conditions require that we reduce the prices of our homes. As a result, the effect of construction cost increases and reductions in home prices have been to significantly reduce the margins on the homes we sell. This makes it more difficult for us to recover the full cost of previously purchased land and construction costs, and has contributed to the significant reductions in the value of our inventory. Continued increased pricing competition may further restrict our ability to pass on any additional potential cost increases, and we may not be able to achieve sufficient operating efficiencies to maintain our current profit margins.

We depend on the continued availability and satisfactory performance of our subcontractors which, if unavailable, could have a material adverse effect on our business by limiting our ability to build and deliver homes.

        We conduct our construction operations only as a general contractor. Virtually all construction work is performed by unaffiliated third-party subcontractors. As a consequence, we depend on the continued availability of and satisfactory performance by these subcontractors for the construction of our homes. If these unaffiliated third-party subcontractors do not continue to be available and perform satisfactorily, our ability to build and deliver homes could be limited. This could lead to a reduction in our total earned revenues and earnings and have a material adverse effect on our business.

20

Our business is subject to governmental regulations that may delay, increase the cost of, prohibit or severely restrict our development and homebuilding projects and reduce our total earned revenues and growth.

        We are subject to extensive and complex laws and regulations that affect the land development and homebuilding process, including laws and regulations related to zoning, permitted land uses, levels of density, building design, elevation of properties, water and waste disposal, affordable housing and use of open spaces. In addition, our subcontractors and we are subject to laws and regulations relating to worker health and safety. We also are subject to a variety of local, state and federal laws and regulations concerning the protection of health and the environment. In some of the markets in which we operate, we are required to pay environmental impact fees, use energy saving construction materials and give commitments to provide certain infrastructure such as roads and sewage systems. We must also obtain permits and approvals from local authorities to complete residential development or home construction. The laws and regulations under which our subcontractors and we operate, and their and our obligations to comply with them, may result in delays in construction and development, cause us to incur substantial compliance and other increased costs, and prohibit or severely restrict development and homebuilding activity in areas in which we operate. If we are unable to continue to develop communities and build and deliver homes as a result of these restrictions or if our compliance costs increase substantially, our total earned revenues and earnings may be reduced.

States, cities and counties in which we operate have adopted, or may adopt, slow or no growth initiatives which would reduce our ability to build and sell homes in these areas and could adversely affect our total earned revenues and earnings.

        Several states, cities and counties in which we operate have approved, and others in which we operate may approve, various "slow growth" or "no growth" initiatives and other ballot measures that could reduce the amount of land and building opportunities within those localities. This could lead us to sell fewer homes and reduce our earnings. Approval of slow or no growth measures would reduce our ability to acquire land and to build and sell homes in the affected markets and create additional costs and administration requirements, which in turn could have an adverse effect on our total earned revenues and earnings.

        Expansion of regulation in the housing industry has increased the time required to obtain the necessary approvals to begin construction and has prolonged the time between the initial acquisition of land or land options and the commencement and completion of construction. These delays can increase our costs, decrease our profitability and increase the risks associated with the land inventories we maintain. Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer taps. In some areas, municipalities may enact growth initiatives that would restrict the number of building permits available in a given year. If municipalities in which we operate take actions like these, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to build in those municipalities. This, in turn, could reduce the number of homes we sell and decrease our total earned revenues.

Increases in taxes or governmental fees could increase our costs and adverse changes in tax laws could reduce customer demand for our homes, either of which could reduce our total earned revenues or profitability.

        Increases in real estate taxes and other local government fees, such as fees imposed on developers to fund schools, open space, road improvements or low and moderate income housing, could increase our costs and have an adverse effect on our operations. In addition, increases in local real estate taxes could adversely affect our potential customers who may consider those costs in determining whether to make a new home purchase and decide, as a result, not to purchase one of our homes. In addition, any changes in the income tax laws that would reduce or eliminate tax incentives to homeowners could make housing less affordable or otherwise reduce the demand for housing, which in turn could reduce our total earned revenues and earnings.

21

We may not be successful in our effort to identify, complete or integrate acquisitions or to enter new markets through start-up operations, which could disrupt the activities of our current business, adversely affect our results of operations and future growth or cause losses.

        A principal component of our business strategy is to continue to grow profitably, including, when appropriate, by acquiring other homebuilders. We may not be successful in implementing our acquisition strategy, and growth may not continue at historical levels or at all. When acquiring another company, we may have difficulty assimilating the operations of acquired businesses, incur unanticipated liabilities or expenses, and our management's attention may be diverted from our current business. The acquisition of other companies may also result in our entering markets in which we have limited or no experience. The failure to identify or complete business acquisitions, or successfully integrate the businesses we acquire, could adversely affect our results of operations and future growth. In addition, our acquisitions may not be as profitable as we anticipate or could even produce losses.

        Furthermore, we may choose to enter new markets or expand operations in existing markets by starting new operations, rather than by acquiring an existing homebuilding company. If we choose to expand through start-up operations, we will not have the advantage of the experience and brand recognition of an established homebuilding company. As a result, we may incur substantial start-up costs in establishing our operations in new markets, and we may not be successful in taking operations from the start-up phase to profitability. If we are not successful in making start-up operations profitable, we may not be able to recover our investment and may incur losses.

Jeffrey P. Orleans, Chairman and Chief Executive Officer and our majority shareholder, can cause us to take certain actions or preclude use from taking actions without the approval of the other shareholders and may have interests that could conflict with other shareholders.

        Jeffrey P. Orleans, our Chairman and Chief Executive Officer, as of June 30, 2008, beneficially owned approximately 60% of the voting power of our common stock. As a result, Mr. Orleans has the ability to control the outcome of virtually all corporate actions, including the election of all directors, the approval of any merger, the commencement of bankruptcy proceedings and other significant corporate actions. His interest in exercising control over our business may conflict with the interests of other shareholders. This voting power might also discourage someone from acquiring us or from making a significant equity investment in us, even if we need the investment to meet our obligations and to operate our business.

Our business, total earned revenues and earnings may be adversely affected by adverse weather conditions or natural disasters.

        Adverse weather conditions, such as extended periods of rain, snow or cold temperatures and natural disasters, such as hurricanes, tornadoes, floods and fires, can delay completion and sale of homes, damage partially complete or other unsold homes in our inventory and negatively impact the demand for homes or increase the cost of building homes. To the extent that adverse weather conditions occur for extended periods or natural disasters occur, our business and quarterly results may be adversely affected. To the extent our insurance is not adequate to cover business interruption losses or repair costs resulting from these events, our total earned revenues and earnings may be adversely affected.

Acts of war or terrorism may seriously harm our business.

        Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power, including the armed conflicts in Iraq and Afghanistan, or acts of terrorism, may cause disruption to the economy, our company, our employees and our customers, which could reduce demand for our homes and adversely impact our total earned revenues and earnings.

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We may not be able to utilize all of our deferred tax assets.

        During the year ended June 30, 2008, we established a deferred tax asset valuation allowance of $53,642. Our deferred tax assets consist primarily of inventory valuation adjustments, net operating loss carryforwards, goodwill impairments, and reserves and accruals that are not currently deductible for tax purposes offset in part by capitalized interest. Some or all of these deferred tax assets could expire unused if we are unable to generate taxable income in the future sufficient to utilize them or we enter into transactions that limit our right to use them. If a material portion of our deferred tax assets expire unused, it could have a material negative impact on our financial position or results of operations, which could have a material adverse affect on the Company's financial position, results of operations and cash flows.

Item 1B. Unresolved Staff Comments

        There are no matters required to be reported hereunder.

Item 2. Properties.

        The Company leases office space for its corporate headquarters at 3333 Street Road, Bensalem, Pennsylvania 19020, consisting of approximately 30,000 square feet. The Company also leases additional office space in each region for certain centralized support services related to the operations in those regions, as well as model homes in some of our communities.

        Listed below is certain information with respect to the leased properties housing regional headquarters and support services:

Location	Region	Square Feet		Use of Facility
Bensalem, PA	Northern		30,000	Corporate and Northern regional headquarters
Charlotte, NC	Southern		16,300	Centralized support services, design center
Richmond, VA	Southern		12,800	Southern & Florida regional headquarters, centralized support services, design center
Cary, NC	Southern		11,300	Centralized support services, design center
Orange City, FL	Florida		10,600	Centralized support services
Schaumburg, IL	Midwest		8,800	Midwestern regional headquarters
Mt. Laurel, NJ	Northern		8,000	Centralized support services, property management
Bensalem, PA	Northern		6,400	Design center
Greensboro, NC	Southern		2,000	Centralized support services
Tidewater, VA	Southern		1,000	Centralized support services

Item 3. Legal Proceedings.

        The Company is not currently subject to any material legal proceedings. From time to time, however, the Company is named as a defendant in legal actions arising from its normal business activities. Although the Company cannot accurately predict the amount of liability, if any, that could arise with respect to legal actions currently pending against it, in its opinion, any such liability will not have a material adverse effect on the financial position, or results of our operations.

Item 4. Submission of Matters to a Vote of Security Holders.

        No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

23

PART II

Item 5. Market for Registrant's Common Stock Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        The principal market on which the Company's Common Stock is traded is the American Stock Exchange, Inc. (Symbol: OHB). The number of common stockholders of record of the Company as of September 10, 2008 was 143. Additional holders of the Company's common stock are "street name" or beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions.

        The following table sets forth, for the periods indicated, the high and low sales prices for our Common Stock as reported by the American Stock Exchange. These prices represent actual transactions, but do not reflect adjustment for retail markups, markdowns or commissions.

	Years Ended June 30,
	2008				2007
Fiscal Quarter	High		Low		High		Low
First Quarter	$	8.80	$	5.02	$	16.41	$	11.15
Second Quarter		7.50		3.44		18.80		11.12
Third Quarter		6.65		2.93		18.37		8.85
Fourth Quarter		6.33		3.40		9.32		7.49

        For the fiscal years ended June 30, 2008 and 2007, we declared dividends per share as follows:

	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
2008	$	0.02	$	0.02	$	0.02	$	0.02
2007	$	0.02	$	0.02	$	0.02	$	0.00

        The Company does not anticipate paying dividends in fiscal year 2009 as it is prohibited under the terms of the Second Amended Credit Agreement signed on September 30, 2008.

        In September 2005, the Board of Directors authorized the repurchase of up to 1,000,000 shares of the Company's common stock. The repurchases, which represents approximately 5% of the Company's 18,839,141 shares of common stock currently outstanding, may be made from time to time through open market purchases or privately negotiated transactions at the Company's discretion and in accordance with the rules of the Securities and Exchange Commission. The Company repurchased no shares of common stock during the fourth quarter of 2008:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans		Maximum Number of Shares That May Yet Be Purchased Under the Plan
April 1 - 30, 2008		—		—		—		785,461
May 1 - 31, 2008		—		—		—		785,461
June 1 - 30, 2008		—		—		—		785,461

        Under the terms and conditions of the fourth amendment to the Company's revolving credit facility, which was effective as of June 30, 2007, the Company is no longer permitted to repurchase shares of the Company's stock pursuant to this or any other repurchase plan. The Company has not repurchased any shares of its common stock since June 2006.

24

Performance Graph

        The following graph compares the cumulative 5-year total return to shareholders of Orleans Homebuilders, Inc.'s common stock relative to the cumulate total returns of the AMEX Composite Index and the S&P Homebuilding Index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our commons stock and in each of the indexes on June 30, 2003 and its relative performance is tracked through June 30, 2008. Historic price is not indicative of future stock price performance.

        This performance graph shall not be deemed to be "soliciting material" or to be "filed" under either the Securities Act of 1933, as amended or the Securities Act of 1934, as amended.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Orleans Homebuilders, Inc., The AMEX Composite Index
And The S&P Homebuilding Index

$100 invested on 6/30/03 in stock or index-including reinvestment of dividends.
Fiscal year ending June 30.

25

Securities Authorized for Issuance Under Equity Compensation Plans

        The following table provides certain information with respect to all of the Company's equity compensation plans in effect as of June 30, 2008:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		752,500	$	9.01		1,277,500
Equity compensation plans not approved by security holders		—		—		—
Total		752,500				1,277,500

26

Item 6. Selected Financial Data.

        The following table sets forth the Company's selected historical consolidated financial data as of and for each of the last five fiscal years ended June 30. The financial data has been derived from the Company's Audited Consolidated Financial Statements and related notes. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of this annual report.

			Fiscal year ended June 30,
			2008(1)			2007(2)			2006(3)			2005(4)		2004(5)
Statement of earnings data:
Total earned revenue:
	Residential properties		$	562,183		$	647,316		$	975,483		$	911,004	$	540,745
	Land sales			11,432			25,170			2,034			474		787
	Other income			9,667			10,047			9,675			7,752		5,726
		Total earned revenues		583,282			682,533			987,192			919,230		547,258
Costs and expenses:
	Residential properties			553,600			613,954			761,270			727,006		416,967
	Land sales			47,682			26,022			1,685			467		907
	Other			7,477			6,571			6,655			4,971		3,962
	Selling, general and administrative			96,430			114,527			113,673			95,701		62,364
	Impairment of goodwill			—			16,334			—			—		—
	Interest, net of amount capitalized			741			—			—			102		336
		Total costs and expenses		705,930			777,408			883,283			828,247		484,536
(Loss) income from continuing operations before income taxes				(122,648	)		(94,875	)		103,909			90,983		62,722
Income tax (benefit) provision				(976	)		(37,458	)		40,547			35,399		24,643
(Loss) income from continuing operations				(121,672	)		(57,417	)		63,362			55,584		38,079
Discontinued operations:
	(Loss) income from discontinued operations, net of taxes			(21,741	)		(9,433	)		(321	)		—		—
Net (loss) income			$	(143,413	)	$	(66,850	)	$	63,041		$	55,584	$	38,079
Preferred Dividends				—			—			—			—		104
Net (loss) income available for common shareholders			$	(143,413	)	$	(66,850	)	$	63,041		$	55,584	$	37,975
Basic (loss) earnings per share
	Continuing operations		$	(6.60	)	$	(3.11	)	$	3.43		$	3.09	$	2.57
	Discontinued operations		$	(1.18	)	$	(0.51	)	$	(0.02	)	$	—	$	—
	Basic (loss) earnings per share		$	(7.78	)	$	(3.62	)	$	3.41		$	3.09	$	2.57
Diluted (loss) earnings per share
	Continuing operations		$	(6.60	)	$	(3.11	)	$	3.37		$	2.96	$	2.20
	Discontinued operations		$	(1.18	)	$	(0.51	)	$	(0.02	)	$	—	$	—
	Diluted (loss) earnings per share		$	(7.78	)	$	(3.62	)	$	3.35		$	2.96	$	2.20
Weighted average common shares outstanding
Basic				18,428			18,458			18,483			17,978		14,784
Diluted				18,428			18,458			18,824			18,809		17,336
Dividends per share			$	0.08		$	0.06		$	0.08		$	0.04	$	—

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Supplemental operating data:
Homes delivered (homes)		1,262		1,487		2,303		2,507		1,753
Average price per home delivered	$	445	$	435	$	424	$	363	$	308
New sales contracts, net of cancellations (homes)		1,139		1,381		1,612		2,256		1,822
Backlog at end of period (homes)		486		609		715		1,406		1,119
Backlog at end of period, contract value	$	238,309	$	317,913	$	334,676	$	553,237	$	390,827

	As of June 30,
	2008		2007		2006		2005		2004
Balance sheet data:
Residential properties	$	193,257	$	228,146	$	272,068	$	190,855	$	140,401
Land and improvements		359,555		511,872		544,574		398,290		161,265
Inventory not owned—VIE		13,050		47,214		117,073		88,252		88,995
Inventory not owned—other financial interests		12,171		—		—		—		—
Land deposits and costs of future developments		10,380		13,102		26,862		27,408		23,356
Total assets		716,112		910,944		1,060,503		861,540		486,602
Obligations related to inventory not owned—VIE		10,875		38,914		103,636		79,585		81,992
Obligations related to inventory not owned—other financial interests		12,071		—		—		—		—
Mortgage obligations secured by real estate		396,133		469,123		422,608		399,030		128,773
Subordinated notes		105,000		105,000		105,000		—		—
Other notes payable		718		787		5,885		9,400		4,018
Shareholders' equity		82,501		224,534		291,942		231,956		174,905

(1)

Continuing operations includes inventory impairment charges of $95,475, write-offs of abandoned projects and other pre-acquisition costs of $8,760 and the statement of operation impact of the establishment of a deferred tax asset valuation allowance in the amount of $53,642. Discontinued operations include inventory impairment charges of $20,706.

(2)

Continuing operations includes inventory impairment charges of $62,787 and write-offs of abandoned projects and other pre-acquisition costs of $19,597. Discontinued operations include inventory impairment charges of $13,733 and write-offs of abandoned projects and other pre-acquisition costs of $67.

(3)

Continuing operations includes inventory impairment charges of $1,877 and write-offs of abandoned projects and other pre-acquisition costs of $4,512.

(4)

Includes the operations of Realen Homes for the period subsequent to the July 28, 2004 acquisition date through June 30, 2005.

(5)

Includes the operations of Masterpiece Homes for the period subsequent to the July 28, 2003 acquisition date through June 30, 2004.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        The Company primarily develops, builds and markets high quality single-family homes, townhouses and condominiums. As of June 30, 2008, the Company operated in four regions in the following 11 markets:

        Northern region:

•

Southeastern Pennsylvania;

•

Central New Jersey;

•

Southern New Jersey; and

•

Orange County, New York

        Southern region:

•

Charlotte, North Carolina (including adjacent counties in South Carolina);

•

Richmond, Virginia;

•

Raleigh, North Carolina;

•

Greensboro, North Carolina; and

•

Tidewater, Virginia

        Midwestern region:

•

Chicago, Illinois

        Florida region:

•

Orlando, Florida

        The Company has been in operation for approximately 90 years, starting out in the Philadelphia and New Jersey markets. We entered the North Carolina and Virginia markets in fiscal year 2001 through our acquisition of Parker & Lancaster Corporation, a privately-held residential homebuilder. The Company entered the Orlando, Florida market on July 28, 2003, through its acquisition of Masterpiece Homes, Inc. ("Masterpiece Homes"), a privately-held residential homebuilder. On July 28, 2004, we entered the Chicago, Illinois market through the acquisition of Realen Homes, L.P. ("Realen Homes"), an established privately-held homebuilder with operations in Chicago, Illinois and southeastern Pennsylvania. On December 23, 2004, the Company acquired, through a wholly-owned subsidiary, certain real estate assets from Peachtree Residential Properties, LLC, a North Carolina limited liability company and Peachtree Townhome Communities, LLC, a North Carolina limited liability company which, at the time we acquired the assets, were wholly-owned subsidiaries of Peachtree Residential Properties, Inc., a Georgia corporation (collectively, "Peachtree Residential Properties"). In December 2005, we entered the Phoenix, Arizona market as a start-up operation via the purchase of an undeveloped parcel of land. On December 31, 2007, the Company committed to exiting its Arizona market and, in connection with this decision, on that date we disposed of our entire land position and related work-in-process homes in Arizona, which constituted substantially all of our assets in the western region. The Consolidated Financial Statements have been reclassified for all prior periods presented to reflect this business as a discontinued operation (see Note 2—Discontinued Operations). We believe that we are one of the 50 largest homebuilders in the United States and are one of the top ten homebuilders in both the Philadelphia, Pennsylvania and Richmond, Virginia markets.

        During the second half of fiscal year 2006, all of fiscal years 2007 and 2008 as well as subsequent to the fiscal year end, the Company faced several challenges relating to unfavorable market conditions in the housing industry, including (a) increased new and resale home inventory levels (including the growing number of foreclosed homes offered at substantially reduced prices); (b) decreased homebuyer demand due to lower consumer confidence in the overall housing market; (c) increased uncertainty in the overall mortgage market; and (d) increased mortgage underwriting standards. The decrease in homebuyer demand as a result of lower consumer confidence can be attributed to concerns of

29

prospective buyers of new homes about the direction of home prices, which has increased general homebuyer uncertainty regarding whether it is the right time to buy a home. The uncertainty in the mortgage market is partially the result of concerns regarding the sub-prime mortgage market, which has experienced rising delinquencies and defaults by borrowers as they experience financial difficulties due to rising interest rates. This credit deterioration has led to the bankruptcies of major sub-prime mortgage lenders, reduced general availability of mortgage financing and the tightening of lending standards. While the Company has minimal exposure to the sub-prime markets, these factors may make it more difficult for our potential customers to sell their existing homes. These market challenges are evidenced by the overall reduction in new orders for the fiscal year ended June 30, 2008 as compared to the fiscal year ended June 30, 2007. New orders decreased $147,974, or 23.5%, which represents 242 homes.

        As a result of these and other challenges, the Company recorded inventory impairments and write-offs of abandoned projects and other pre-acquisition costs. In addition to these charges, the Company continued to reduce headcount in all of its regions and take other steps to control increasing costs. The Company continues to respond to the uncertainties noted above by increasing sales incentives and offering limited time promotions with the objective of improving new orders and reducing home inventory levels.

        Similarly, the Company assesses whether goodwill is impaired. This assessment is based on the estimated future cash flows. Actual results could differ from such estimates which could result in the determination that the goodwill is no longer recoverable.

        During the fiscal year ended June 30, 2008, a valuation allowance was established in the amount of $53,642 for the deferred tax assets due to the lack of sufficient objective evidence regarding the realization of these assets in the foreseeable future. Statement of Financial Accounting Standards ("SFAS") No. 109 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a "more likely than not" standard. In making such judgments, significant weight is given to evidence that can be objectively verified. SFAS No. 109 provides that a cumulative loss in recent years is significant negative evidence in considering whether deferred tax assets are realizable and also restricts the amount of reliance on projections of future taxable income to support the recovery of deferred tax assets. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time.

        During the fourth quarter of fiscal year 2008, the Company recognized additional impairment charges of $2,825 reflecting the impact of cumulative out of period adjustments. This error was related to impairments taken on the Company's residential properties and had the effect of increasing residential property expenses and reducing net income by $2,825. The Company concluded that this adjustment is not material to the consolidated financial statements for any prior period nor to the fourth quarter of fiscal year 2008.

Results of Operations

        The tables included in "Item 1—Business" summarize the Company's revenues, new orders and backlog data for fiscal year 2008 with comparable data for fiscal years 2007 and 2006. The Company classifies a sales contract as a new order for backlog purposes at the time a homebuyer executes a contract to purchase a home from the Company.

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Fiscal Year 2008 Compared to Fiscal Year 2007

Orders and Backlog

        New orders for the fiscal year ended June 30, 2008 decreased $147,974, or 23.5%, to $482,579 on 1,139 homes, compared to $630,553 on 1,381 homes for the fiscal year ended June 30, 2007. The average price per home of net new orders decreased by approximately 7.2% to $424 for the fiscal year ended June 30, 2008 compared to $457 for the fiscal year ended June 30, 2007, primarily due to the unfavorable market conditions. Increases in the availability of both new and existing homes, including the increased number of homes in foreclosure has contributed to the decline in the average price of new and existing homes, including homes sold by the Company. Approximately 83% of the Company's net new order activity during the past two fiscal years occurred in the northern and southern regions, while the Midwest and Florida region accounted for approximately 12% and 5% of the new order activity, respectively.

        The decrease in the Company's net new orders during the fiscal year ended June 30, 2008, compared to the fiscal year ended June 30, 2007, primarily was attributable to the continued unfavorable market conditions in the housing industry, as noted above.

        The backlog at June 30, 2008 decreased $79,604, or 25.0%, to $238,309 on 486 homes compared to the backlog at June 30, 2007 of $317,913 on 609 homes. At June 30, 2008, nearly 90% of the Company's backlog related to the northern and southern regions compared with nearly 87% for those regions at June 30, 2007. The average price per home included in the Company's backlog decreased 6.1% to $490 at June 30, 2008 compared to $522 at June 30, 2007. The decrease in the average price per home included in the Company's backlog is primarily attributable to increases in sales incentives offered by the Company in response to the difficult market conditions.

        The Company experienced cancellation rates of approximately 26% and 23%, respectively for the fiscal years ended June 30, 2008 and 2007. Substantially all of the orders in sales backlog as of June 30, 2008 are scheduled to close during fiscal year 2009.

Northern Region:

        New orders for the fiscal year ended June 30, 2008 decreased $55,135 to $196,217, or 21.9%, on 441 homes, compared to $251,352 on 490 homes for the fiscal year ended June 30, 2007. The decrease in new orders is primarily attributable to unfavorable market conditions noted above. The average price per home of new orders decreased by 13.3% to $445 for the fiscal year ended June 30, 2008 compared to $513 for the fiscal year ended June 30, 2007. The decrease in the average price per home of new orders is primarily the result of the increased sales incentives noted above.

        The Company had 31 active selling communities in the northern region as of June 30, 2008 compared to 34 active selling communities at June 30, 2007.

Southern Region:

        New orders for the fiscal year ended June 30, 2008 decreased $41,295 to $216,945, or 16.0%, on 487 homes compared to $258,240 on 520 homes for the fiscal year ended June 30, 2007. The decrease in new orders was mainly attributable to the downturn in the housing market. The average price per home of new orders decreased 10.3% to $445 for the fiscal year ended June 30, 2008 compared to $497 for the fiscal year ended June 30, 2007. The decrease in the average price per home of new orders is primarily the result of the increased sales incentives noted above.

        The Company had 49 active selling communities in the southern region as of June 30, 2008 compared to 50 active selling communities at June 30, 2007.

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Midwestern Region:

        New orders for the fiscal year ended June 30, 2008 decreased $30,246 to $52,157, or 36.7%, on 135 homes compared to $82,403 on 182 homes for the fiscal year ended June 30, 2007. The decrease in new orders was primarily the result of decreased homebuyer demand due to lower consumer confidence in the overall housing market. The Company has continued to respond to this decreased homebuyer demand by increasing sales incentives. The average price per home of new orders decreased by 14.7% to $386 for the fiscal year ended June 30, 2008 compared to $453 for the fiscal year ended June 30, 2007.

        The Company had eight active selling communities in the midwestern region as of both June 30, 2008 and June 30, 2007.

Florida Region:

        New orders for the fiscal year ended June 30, 2008 decreased $21,298 to $17,260, or 55.2%, on 76 homes, compared to $38,558 on 189 homes for the fiscal year ended June 30, 2007. The decrease in new orders for the fiscal year is primarily the result of the continued deterioration of market conditions in this region. New orders were also negatively impacted by our exit from the Palm Bay and Palm Coast markets. The average price per home of new orders increased by 11.3% to $227 for the fiscal year ended June 30, 2008 compared to $204 for the fiscal year ended June 30, 2007. The increase in the average price per home of new orders was primarily a result of our exit from the Palm Bay and Palm Coast markets and our focus on the more expensive Orlando market.

        The Company had three active selling communities in the Florida region as of June 30, 2008, compared to six active selling communities as of June 30, 2007.

Total Earned Revenues

        Total earned revenues, which includes residential revenue, land sale revenue and other income, for the fiscal year ended June 30, 2008 decreased $99,251 to $583,282, or 14.5%, compared to $682,533 for the fiscal year ended June 30, 2007.

Residential Revenue

        Residential revenue earned from the sale of residential homes included 1,262 homes totaling $562,183 during the fiscal year ended June 30, 2008, as compared to 1,487 homes totaling $647,316 during the fiscal year ended June 30, 2007. The average selling price per home delivered increased by approximately 2.3% to $445 for the fiscal year ended June 30, 2008 compared to $435 for the fiscal year ended June 30, 2007.

Northern Region:

        Residential revenue earned for the fiscal year ended June 30, 2008 increased $23,794 to $231,034, or 11.5%, on 486 homes delivered as compared to $207,240 on 429 homes delivered during the fiscal year ended June 30, 2007. The increase in residential revenue earned is primarily due to closings at communities opened late in fiscal year 2007 or during fiscal year 2008. The average selling price per home delivered for the fiscal year ended June 30, 2008 decrease by 1.6% to $475 compared to $483 for the fiscal year ended June 30, 2007.

Southern Region:

        Residential revenue earned for the fiscal year ended June 30, 2008 decreased $37,642 to $243,714, or 13.4%, on 514 homes delivered as compared to $281,356 on 579 homes delivered during the fiscal year ended June 30, 2007. The decrease in residential revenue earned and homes delivered was

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primarily attributable to the overall decline in market conditions, as noted above, that led to reductions in new order activity in the region. The average selling price per home delivered in the region decreased by 2.4% to $474 for the fiscal year ended June 30, 2008 compared to $486 for the fiscal year ended June 30, 2007.

Midwestern Region:

        Residential revenue earned for the fiscal year ended June 30, 2008 decreased $32,804 to $59,005, or 35.7%, on 142 homes, compared to $91,809 on 208 homes for the fiscal year ended June 30, 2007. The decrease in residential revenue earned is primarily the result of the overall decline in market conditions, as noted above, that led to decreased new order activity in the region which began during the fourth quarter of fiscal year 2006 and continued throughout fiscal years 2007 and 2008. The average selling price per home delivered decreased 5.9% to $416 for the fiscal year ended June 30, 2008 compared to $441 for the fiscal year ended June 30, 2007.

Florida Region:

        Residential revenue earned for the fiscal year ended June 30, 2008 decreased $38,481 to $28,430, or 57.5%, on 120 homes, compared to $66,911 on 271 homes for the fiscal year ended June 30, 2007. The decrease in residential revenue earned is primarily due to the overall decline in market conditions, coupled with our exit from the Palm Coast and Palm Bay markets. The average selling price per home delivered decreased 4.0% to $237 for the fiscal year ended June 30, 2008 compared to $247 for the fiscal year ended June 30, 2007.

Land Sales

        During the fiscal year ended June 30, 2008, the Company received proceeds on the sale of land of $36,157. Of the $36,157 received during the fiscal year, $11,432 was recognized as land sales revenue; $11,300 related to proceeds in the Company's western region and was included in discontinued operations; and $13,425 related to two parcels of land that were sold and subsequently subject to an option agreement (see Note 5—Inventory). Due to the federal income tax losses recorded by the Company related to these transactions, the Company received approximately $34,000 of federal income tax refunds as a result of these transactions and other operations for its taxation year ended December 31, 2007. During the fiscal year ended June 30, 2007, the Company recorded land sale revenue of $25,170.

Other Income

        Other income consists primarily of property management fees and mortgage processing income. Other income for the fiscal year ended June 30, 2008 decreased $380 or 3.8% to $9,667, compared to $10,047 for the fiscal year ended June 30, 2007.

Costs and Expenses

        Costs and expenses for the fiscal year ended June 30, 2008 decreased $72,219 or 9.3% to $705,189, compared with $777,408 for the fiscal year ended June 30, 2007. Costs and expenses for the fiscal year ended June 30, 2008 included inventory impairments of $95,475 and write-off of abandoned projects and other pre-acquisition costs of $8,760. Costs and expenses for the fiscal year ended June 30, 2007 included inventory impairments of $62,787, goodwill impairments of $16,334 and write-off of abandoned projects and other pre-acquisition costs of $19,597. Decreases in costs and expenses are primarily the result of lower variable costs that decreased in conjunction with the decreases in residential revenues noted above, the reduction in selling, general and administrative costs and the

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prior fiscal year impairment of goodwill. These reductions were partially offset by the impact of higher inventory impairments.

Cost of Residential Properties

        The cost of residential properties for the fiscal year ended June 30, 2008 decreased $60,354 to $553,600, or 9.8%, when compared with $613,954 for the fiscal year ended June 30, 2007. The fiscal years ended June 30, 2008 and 2007 included residential property inventory impairments of $58,919 and $62,787, respectively. Decreases in cost of residential properties is primarily the result of lower variable costs that decreased in conjunction with the decreases in residential revenues noted above, coupled with the impact of lower residential property inventory impairments.

Cost of Land Sales

        The cost of residential properties for the fiscal year ended June 30, 2008 increased $21,660 to $47,682, or 83.2%, when compared with $26,022 for the fiscal year ended June 30, 2007. The fiscal year ended June 30, 2008 included inventory impairments related to land sales of $36,556. These impairments include the land sales related to land which the Company maintained an option to purchase. See note 5 to the Consolidated Financial Statements contained in this report.

Inventory Impairments:

        As a result of increased sales incentives offered during the fiscal year ended June 30, 2008, a decrease in anticipated absorption rates at various communities, increasing uncertainty with respect to the overall mortgage market, increased mortgage underwriting standards and a slower than anticipated pace of new orders, the Company recorded impairment charges of $83,836 related to land held for development or sale and improvements and $11,639 related to residential properties completed or under construction, for the fiscal year ended June 30, 2008. The impairment losses recorded in fiscal year 2008 were recorded in all of our homebuilding segments, most notable with respect to communities in the midwestern region, which had more than 40% of the impairments. The Company recorded impairment charges of $54,489 related to land held for development or sale and improvements for the fiscal year ended June 30, 2007, $7,318 related to residential properties completed or under construction and $980 related to prepaid sales and marketing expenses. The impairment losses recorded in fiscal year 2007 were recorded in all of our homebuilding regions. The impairment losses were charged to the cost of residential properties and represent the amounts by which the book values of the residential properties and land held for development or sale and improvements exceeded the estimated fair value of the assets.

        The fiscal year 2007 impairment related to residential properties completed or under construction included $5,000 of impairments on model homes related to 51 specific model homes in three of the Company's regions.

Gross Profit Margin:

        The Company's consolidated gross profit margin for the fiscal year ended June 30, 2008 decreased to (4.4)% compared to 5.3% for the fiscal year ended June 30, 2007. For the fiscal years ended June 30, 2008 and 2007, gross profit included inventory impairments of $95,475 or 16.4% of revenue, and $62,787 or 9.2% of revenue, respectively.

        Gross profit is defined as earned revenue less residential property expense, land sale expense and other expense.

        The decrease in the Company's consolidated gross profit margins was primarily attributable to reduced gross profit margins in all of the Company's regions. The decreases primarily resulted from the

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unfavorable market conditions which led to an increase in sales incentives. In addition, the Company sells a variety of home types in various communities and regions, each yielding a different gross profit margin. As a result, depending on the mix of both communities and home types delivered, the consolidated gross profit margin may fluctuate up or down on a periodic basis and periodic profit margins may not be representative of the consolidated gross profit margin for future fiscal years.

Interest Included in Cost of Residential Properties and Land Sold:

        Interest included in the costs and expenses of residential properties and land sold for the fiscal years ended June 30, 2008 and 2007 was $30,050 and $18,311, respectively. The increase of $11,739 in interest included in the costs and expenses of residential properties and land sold was primarily attributable to the land sales that took place during the second quarter of fiscal year 2008. The interest incurred during the construction periods is capitalized to inventory and then expensed to the cost of residential properties in the period in which the home settles. The fiscal 2008 interest included in cost of residential properties and land sales consists of $20,902 related to residential properties and $9,148 related to land sales.

Selling, General & Administrative Expenses

        Selling, general and administrative expenses include selling and advertising costs, commissions and other general and administrative costs, which include write-offs of abandoned projects and other pre-acquisition costs. For the fiscal year ended June 30, 2008, selling, general and administrative expenses decreased $18,097 to $96,430, or 15.8%, when compared with $114,527 for the fiscal year ended June 30, 2007. This decrease was primarily due to cost-cutting measures taken in response to the continuing weakness in the market, coupled with lower write-offs of abandoned projects and other pre-acquisition costs. For the fiscal years ended June 30, 2008 and 2007, selling, general and administrative expenses included write-offs of abandoned projects and other pre-acquisition costs of $8,760 and $19,597, respectively. The selling, general and administrative expenses as a percentage of residential revenue earned for the fiscal year ended June 30, 2008, decreased to 17.2% as compared to the 17.7% for the year ended June 30, 2007.

Selling and Advertising:

        For the fiscal year ended June 30, 2008, selling and advertising costs decreased $3,641 to $28,558, or 11.3%, when compared with $32,199 for the fiscal year ended June 30, 2007. Selling and advertising costs includes advertising, community sales office expense, model home expense, amortization of deferred marketing costs and other selling costs. During the fiscal year, the Company decreased spending on advertising in an effort to reduce costs in proportion to the reduction in residential revenue. As a percentage of residential revenue, selling and advertising was 5.1% and 5.0% in fiscal years 2008 and 2007, respectively.

Commissions:

        The Company's commission expense for the fiscal year ended June 30, 2008, decreased $2,865 to $21,519, or 11.7%, when compared with $24,384 for the fiscal year ended June 30, 2007. This decrease is primarily the result of decreased residential revenue earned during the fiscal year ended June 30, 2008. Commission expense as a percentage of residential revenue earned was 3.8% in both fiscal years 2008 and 2007.

General and Administrative:

        For the fiscal year ended June 30, 2008, general and administrative costs decreased $11,591 to $46,353, or 20.0%, when compared to $57,944 for the fiscal year ended June 30, 2007. General and

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administrative costs included write-offs of abandoned projects and other pre-acquisition costs of $8,760 and $19,597 for the fiscal years ended June 30, 2008 and 2007, respectively. The decrease in general and administrative expenses was primarily due to the staff reductions that took place during fiscal year 2008, coupled with the lower write-offs of abandoned projects and other pre-acquisition costs.

        As a result of the unfavorable market conditions discussed above, the Company reviewed its land under option and agreements of sale and other pre-acquisition costs to determine if the anticipated economics of the transactions remained acceptable to the Company given the state of the homebuilding industry. For those agreements deemed unfavorable, the Company attempted to renegotiate the transaction to more favorable terms. In those situations where the contract could not be renegotiated on terms the Company believed were favorable to the Company, the option or agreement of sale was written-off, resulting in write-offs of abandoned projects and pre-acquisition costs of $8,760 and $19,597 for the fiscal years ended June 30, 2008 and 2007, respectively.

Impairment of Goodwill

        As of June 30, 2008, the Company performed an impairment evaluation related to the goodwill that arose from the PLC acquisition made in the southern region. This goodwill represents the remaining goodwill reflected in the Company's balance sheet after impairments taken in 2007. Based on the result of this evaluation there was no impairment to goodwill recorded in the fiscal year ended June 30, 2008.

        During the fiscal year ended June 30, 2007, the Company performed impairment evaluations related to the goodwill that arose from the Realen Homes, PLC and Masterpiece Homes acquisitions.

        The assessments were performed in accordance with SFAS No. 142. Management evaluated the recoverability of the goodwill by comparing the carrying value of the Company's reporting units to their fair value. Fair value was determined based on the discounted future cash flows. These cash flows are significantly impacted by estimates related to current and future economic conditions, including absorption rates and margins reflective of slowing demand, as well as anticipated future demand. The amounts included in the discounted cash flow analysis are based on management's best estimate of future results. Discount rates were based on the Company's weighted average cost of capital adjusted for business risks. Due to uncertainties in the estimation process, actual results could differ significantly from such estimates. Additionally, future changes in any of these factors could result in future impairments of the remaining goodwill

        As a result of the assessment, the Company recorded an impairment charge to reduce goodwill of $16,334 during fiscal year 2007, consisting of $13,327 and $3,007 related to the Realen Homes and Masterpiece Homes acquisitions, respectively. No impairment charge was necessary for the PLC acquisition.

Income Tax Benefit

        Income taxes from continuing operations for the fiscal year ended June 30, 2008, was a benefit of $976 as compared to a benefit of $37,458 for the fiscal year ended June 30, 2007. The income tax benefit as a percentage of loss from continuing operations before income taxes was 0.8% and 39.5% for the fiscal years ended June 30, 2008 and 2007, respectively. The significant change in the Company's tax rate was a result of the establishment of a valuation allowance against the deferred tax assets due to the lack of objectively verifiable evidence regarding the realization of these assets in the foreseeable future. The valuation allowance established during the fiscal year ended June 30, 2008 amounted to $53,642.

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Loss from Discontinued Operations:

        On December 31, 2007, the Company specifically committed to exiting its Arizona market and, in connection with this decision, on that date, it disposed of its entire land position and its related work-in-process homes in Arizona. We have historically reported this business as the western region operating segment. The disposed work-in-process inventory and land assets constituted substantially all of our assets in the western region. As such, all charges associated with the western region are included as a discontinued operation and all amounts previously reported related to the western region have been reclassified to be presented with discontinued operations.

        Loss from discontinued operations was $21,741 or $1.18 per share for the fiscal year ended June 30, 2008 compared to a loss of $9,433 or $0.51 per share for the fiscal year ended June 30, 2007. The loss in the fiscal year ended June 30, 2008 includes impairment charges to reduce the carrying value of the land prior to being sold in the amount of $20,706. The loss in the fiscal year ended June 30, 2007, includes impairment charges in the amount of $13,733 million. In fiscal year 2008, discontinued operations included $4,140 of interest in cost of sales.

Net Loss

        As a result of all of the above, a net loss of $143,413 was recorded in fiscal year 2008 as compared to a net loss of $66,850 in fiscal year 2007. On a per share basis, the fiscal year 2008 net loss was $7.78—basic and fully diluted as compared to $3.62—basic and fully diluted for fiscal year 2007.

Fiscal Year 2007 Compared to Fiscal Year 2006

Orders and Backlog

        New orders for the fiscal year ended June 30, 2007 decreased $126,369, or 16.7%, to $630,553 on 1,381 homes, compared to $756,922 on 1,612 homes for the fiscal year ended June 30, 2006. The average price per home of net new orders decreased by approximately 2.8% to $457 for the fiscal year ended June 30, 2007 compared to $470 for the fiscal year ended June 30, 2006. Approximately 81% of the Company's net new order activity during fiscal years 2007 and 2006 occurred in the northern and southern regions.

        The decrease in the Company's net new orders during the fiscal year ended June 30, 2007, compared to the fiscal year ended June 30, 2006, primarily was attributable to unfavorable market conditions in the housing industry.

        The backlog at June 30, 2007 decreased $16,763, or 5.0%, to $317,913 on 609 homes compared to the backlog at June 30, 2006 of $334,676 on 715 homes. At June 30, 2007, 86.6% of the Company's backlog related to the northern and southern regions compared with 75.9% for those regions at June 30, 2006. During the first two quarters of the fiscal year ended June 30, 2007, there were cancellations of $20,266 in the Florida region related to the backlog at June 30, 2006. These cancellations relate primarily to the exit of investors from the region and the overall market decline in the Florida region. As of June 30, 2007, the Company believes that the backlog in the Florida region has reduced exposure to cancellations as a result of investor's exiting the markets in which the Company operates. Excluding these cancellations in Florida, there was minimal change in the backlog at June 30, 2007 as compared to the backlog at June 30, 2006. The average price per home included in the Company's backlog increased 11.5% to $522 at June 30, 2007 compared to $468 at June 30, 2006. The increase in the average price per home included in the Company's backlog is primarily attributable to changes in product mix and the opening of new communities with higher average price points in the northern, southern and midwestern regions. Specifically, single family homes, which typically have higher price points than multi-family homes, comprised a larger percentage of the backlog at June 30, 2007 when compared to the backlog at June 30, 2006.

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        The Company experienced a cancellation rate of 23% for the fiscal years ended June 30, 2007 and 2006.

Northern Region:

        New orders for the fiscal year ended June 30, 2007 increased $8,623 to $251,352, or 3.6%, on 490 homes, compared to $242,729 on 455 homes for the fiscal year ended June 30, 2006. The increase in new orders is primarily attributable to six communities that were open for the full fiscal year ended June 30, 2007, but were only opened during the fourth quarter of the fiscal year ended June 30, 2006. Additionally, the Company offered increased sales incentives in an effort to increase customer demand and counteract the unfavorable market conditions. The average price per home of new orders decreased by 3.8% to $513 for the fiscal year ended June 30, 2007 compared to $533 for the fiscal year ended June 30, 2006. The decrease in the average price per home of new orders is primarily the result of the increased sales incentives noted above.

        The Company had 34 active selling communities in the northern region as of June 30, 2007 compared to 33 active selling communities at June 30, 2006.

Southern Region:

        New orders for the fiscal year ended June 30, 2007 decreased $109,094 to $258,240, or 29.7%, on 520 homes compared to $367,334 on 791 homes for the fiscal year ended June 30, 2006. The decrease in new orders was mainly attributable to the downturn in the housing market, but was partially offset by an increase in the average price per home of new orders of 7.1% to $497 for the fiscal year ended June 30, 2007 compared to $464 for the fiscal year ended June 30, 2006. This increase in the average price per home of new orders is attributable to two factors. First, the Company increased prices in many of its communities in this region during the fiscal year ended June 30, 2007 when compared with the same communities and homes offered for sale during the fiscal year ended June 30, 2006. Second, the Company opened new communities in the region during the fiscal year ended June 30, 2007 that have higher price points than the communities they replaced that were open during the fiscal year ended June 30, 2006.

        The Company had 50 active selling communities in the southern region as of June 30, 2007 compared to 43 active selling communities at June 30, 2006.

Midwestern Region:

        New orders for the fiscal year ended June 30, 2007 decreased $15,542 to $82,403, or 15.9%, on 182 homes compared to $97,945 on 221 homes for the fiscal year ended June 30, 2006. The decrease in new orders, which began during the fourth quarter of fiscal year 2006, primarily was the result of decreased homebuyer demand due to lower consumer confidence in the overall housing market. The Company has responded to this decreased homebuyer demand by increasing sales incentives and offering limited time promotions with the objective of improving new orders and reducing home inventory levels. The average price per home of new orders increased by 2.3% to $453 for the fiscal year ended June 30, 2007 compared to $443 for the fiscal year ended June 30, 2006.

        The Company had eight active selling communities in the midwestern region as of June 30, 2007, compared to nine active selling communities as of June 30, 2006.

Florida Region:

        New orders for the fiscal year ended June 30, 2007 decreased $10,356 to $38,558, or 21.2%, on 189 homes, compared to $48,914 on 145 homes for the fiscal year ended June 30, 2006. The decrease in new orders was a result of decreased homebuyer demand due to lower consumer confidence in the

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overall housing market for this region. The average price per home of new orders decreased by 39.5% to $204 for the fiscal year ended June 30, 2007 compared to $337 for the fiscal year ended June 30, 2006. The decrease in the average price per home of new orders was primarily a result of increased sales incentives being offered by the Company in an effort to decrease its new home inventory levels.

        The Company had six active selling communities in the Florida region as of June 30, 2007, compared to four active selling communities as of June 30, 2006.

Total Earned Revenues

        Total earned revenues, which includes residential revenue, land sale revenue and other income, for the fiscal year ended June 30, 2007 decreased $304,659 or 30.9% to $682,533, compared to $987,192 for the fiscal year ended June 30, 2006.

Residential Revenue

        Residential revenue earned from the sale of residential homes included 1,487 homes totaling $647,316 during the fiscal year ended June 30, 2007, as compared to 2,303 homes totaling $975,483 during the fiscal year ended June 30, 2006. The average selling price per home delivered increased by approximately 2.6% to $435 for the fiscal year ended June 30, 2007 compared to $424 for the fiscal year ended June 30, 2006.

Northern Region:

        Residential revenue earned for the fiscal year ended June 30, 2007 decreased $185,487 to $207,240, or 47.2%, on 429 homes delivered as compared to $392,727 on 796 homes delivered during the fiscal year ended June 30, 2006. The decrease in residential revenue earned is primarily due to the overall decline in market conditions. Also contributing to the decrease in residential revenues was a decrease in the average selling price per home delivered during the fiscal year ended June 30, 2007 of 2.0% to $483 compared to $493 for the fiscal year ended June 30, 2006. The decrease in the average selling price per home delivered is attributable to increased sales incentives offered during fiscal year 2007 as well as a change in the product mix of homes delivered. Specifically, townhomes and condominiums, which typically have lower average sales prices than single family homes, comprised a larger percentage of the total number of homes delivered in the region during the fiscal year ended June 30, 2007 when compared to the fiscal year ended June 30, 2006.

Southern Region:

        Residential revenue earned for the fiscal year ended June 30, 2007 decreased $90,625 to $281,356, or 24.4%, on 579 homes delivered as compared to $371,981 on 862 homes delivered during the fiscal year ended June 30, 2006. The decrease in residential revenue earned and homes delivered was primarily attributable to the overall decline in market conditions, which led to reductions in new order activity in the region. The decrease was partially offset by an increase in the average selling price per home delivered of 12.5% to $486 for the fiscal year ended June 30, 2007 compared to $432 for the fiscal year ended June 30, 2006. The increase in the average price per home delivered is attributable to a change in the product mix of homes delivered during the fiscal year ended June 30, 2007 compared to the fiscal year ended June 30, 2006. Specifically, the Company delivered a larger percentage of luxury and move-up homes during the fiscal year ended June 30, 2007 than the fiscal year ended June 30, 2006.

Midwestern Region:

        Residential revenue earned for the fiscal year ended June 30, 2007 decreased $27,021 to $91,809, or 22.7%, on 208 homes, compared to $118,830 on 279 homes for the fiscal year ended June 30, 2006.

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The decrease in residential revenue earned is primarily the result of the overall decline in market conditions that led to decreased new order activity in the region which began during the fourth quarter of fiscal year 2006 and continued throughout fiscal year 2007. The average selling price per home delivered increased 3.5% to $441 for the fiscal year ended June 30, 2007 compared to $426 for the year ended June 30, 2006.

Florida Region:

        Residential revenue earned for the fiscal year ended June 30, 2007 decreased $25,034 to $66,911, or 27.2%, on 271 homes, compared to $91,945 on 366 homes for the fiscal year ended June 30, 2006. The decrease in residential revenue earned is primarily due to the overall decline in market conditions and the exit of investors from the region, as noted above. As noted above, $20,266 of the backlog at June 30, 2006 cancelled and as such did not deliver during the year ended June 30, 2007. The Company counteracted these cancellations by offering increased sales incentives on the resulting speculative homes. As a result, the average selling price per home delivered decreased 1.6% to $247 for the fiscal year ended June 30, 2007 compared to $251 for the fiscal year ended June 30, 2006.

Land Sales

        Land sales revenue for the fiscal year ended June 30, 2007 increased $23,136 to $25,170, compared to $2,034 for the fiscal year ended June 30, 2006. The increase in land sales revenue was primarily attributable to the sales of several land parcels in the southern region and scattered lot inventory in the Palm Bay, Florida region. The Company pursued land sales during the year ended June 30, 2007 in response to the overall decline in market conditions as a way to increase liquidity.

Other Income

        Other income consists primarily of property management fees and mortgage processing income. Other income for the fiscal year ended June 30, 2007 decreased $372 to $10,047, or 3.8%, compared to $9,675 for the fiscal year ended June 30, 2006.

Costs and Expenses

        Costs and expenses for the fiscal year ended June 30, 2007 decreased $105,875 to $777,408, or 12.0%, when compared with $883,283 for the fiscal year ended June 30, 2006. Costs and expenses for the fiscal year ended June 30, 2007 included inventory impairments of $62,787, goodwill impairments of $16,334 and the write-off of abandoned projects and other pre-acquisition costs of $19,597. Costs and expenses for the fiscal year ended June 30, 2006 included inventory impairments of $1,877 and the write-off of abandoned projects and other pre-acquisition costs of $4,452. Decreases in costs and expenses are primarily the result of lower variable costs that decreased in conjunction with the decreases in residential revenues noted above, offset by the impact of inventory impairments, goodwill impairments and the write-offs of abandoned projects and other pre-acquisitions costs.

Cost of Residential Properties

        The cost of residential properties for the fiscal year ended June 30, 2007 decreased $147,316 to $613,954, or 19.4%, when compared with $761,270 for the fiscal year ended June 30, 2006. The year ended June 30, 2007 and 2006 included inventory impairments of $62,787 and $1,877, respectively. Decreases in cost of residential properties is primarily the result of lower variable costs that decreased in conjunction with the decreases in residential revenues noted above, offset by the impact of inventory impairments.

40

Inventory Impairments:

        As a result of increased sales incentives offered during the fiscal year ended June 30, 2007, a decrease in anticipated absorption rates at various communities, increasing uncertainty with respect to the overall mortgage market, increased mortgage underwriting standards and a slower than anticipated pace of new orders, the Company recorded impairment charges of $54,489 related to land held for development or sale and improvements and $7,318 related to residential properties completed or under construction, which includes $5,000 relating to model home inventory, for the fiscal year ended June 30, 2007. Additionally, the Company recorded an impairment charge of $980 related to prepaid sales and marketing expenses. The impairment losses recorded in fiscal year 2007 were recorded in all of our homebuilding segments. More than 40% of the fiscal year 2007 continuing operations impairment charges occurred in our Florida region. The Company recorded impairment charges of $1,877 related to land held for development or sale and improvements for the fiscal year ended June 30, 2006. The impairment losses recorded in fiscal year 2006 were split between the Florida and northern regions, with 68% of the loss being recorded in Florida. The impairment losses were charged to the cost of residential properties and represent the amounts by which the book values of the residential properties and land held for development or sale and improvements exceeded the estimated fair value of the assets.

        The $5,000 impairment on model homes noted above relates to 51 specific model homes in three of the Company's regions.

Gross Profit Margin:

        The Company's consolidated gross profit margin for the fiscal year ended June 30, 2007 decreased 16.7% to 5.3% compared to 22.0% for the fiscal year ended June 30, 2006. For the fiscal years ended June 30, 2007 and 2006, gross profit included inventory impairments of $62,787 or 9.2%, and $1,877 or 0.2%, respectively.

        The decrease in the Company's consolidated gross profit margins was primarily attributable to reduced gross profit margins in all of the Company's regions. The decreases primarily resulted from the inventory impairment charges and increased sales incentives offered during the fiscal year ended June 30, 2007 in an effort to generate new orders and reduce new home inventory. Additionally, increases in interest, the cost of land and warranty related costs led to the decrease in gross profit margin.

        In addition, the Company sells a variety of home types in various communities and regions, each yielding a different gross profit margin. As a result, depending on the mix of both communities and home types delivered, the consolidated gross profit margin may fluctuate up or down on a periodic basis and periodic profit margins may not be representative of the consolidated gross profit margin for future fiscal years.

Interest Included in Cost of Residential Properties and Land Sold:

        Interest included in the costs and expenses of residential properties and land sold for the fiscal years ended June 30, 2007 and 2006 was $18,311 and $15,160, respectively. The increase of $3,151 in interest included in the costs and expenses of residential properties and land sold was attributable to an increase in land sales and increases in bank debt and the interest rates on the Company's subordinated notes issued in fiscal 2006, partially offset by decreases in residential revenue.

Selling, General & Administrative Expenses

        Selling, general and administrative expenses include selling and advertising costs, commissions and other general and administrative costs, which include write-offs of abandoned projects and other

41

pre-acquisition costs. For the fiscal year ended June 30, 2007, selling, general and administrative expenses increased $854 to $114,527, or 0.8%, when compared with $113,673 for the fiscal year ended June 30, 2006. For the years ended June 30, 2007 and 2006, selling, general and administrative expenses included write-offs of abandoned projects and other pre-acquisition costs of $19,957 and $4,452, respectively.

        The selling, general and administrative expenses as a percentage of residential revenue earned for the year ended June 30, 2007 increased 5.3% to 16.8% as compared to the 11.5% for the fiscal year ended June 30, 2006. This increase was related primarily to the write-offs of abandoned projects and other pre-acquisition costs, which represented 2.9% and 0.5% of revenues for the years ended June 30, 2007 and 2006, respectively.

Selling and Advertising:

        For the fiscal year ended June 30, 2007, selling and advertising costs increased $5,015 to $32,199 or 18.4%, when compared with $27,184 for the year ended June 30, 2006. Selling and advertising costs includes advertising, community sales office expense, model home expense, amortization of deferred marketing costs and other selling costs. During the fiscal year, the Company increased spending on advertising in an effort to generate homebuyer traffic. Similarly, the Company increased spending on landscaping in an effort to make the communities more attractive to prospective homebuyers. Finally, the increase in the amortization of deferred marketing costs and other sales office expenses was attributable to an increase in communities open when compared with the same period in the prior year.

Commissions:

        The Company's commission expense for the fiscal year ended June 30, 2007 decreased $9,862 to $24,384, or 28.8%, when compared with $34,246 for the fiscal year ended June 30, 2006. This decrease is primarily the result of decreased residential revenue earned during the fiscal year ended June 30, 2007, partially offset by an increase in the commission expense as a percentage of residential revenue earned. Commission expense as a percentage of residential revenue earned was 3.8% for the fiscal year ended June 30, 2007 compared to 3.5% for the fiscal year ended June 30, 2006. This increase in commission expense as a percentage of residential revenue earned is the result of added incentives offered to sales people in an effort to generate increases in new order activity.

General and Administrative:

        For the year ended June 30, 2007, general and administrative costs increased $5,701 to $57,944, or 10.9%, when compared to $52,243 for the fiscal year ended June 30, 2006. General and administrative costs included write-offs of abandoned projects and other pre-acquisition costs of $19,597 and $4,452 for the fiscal years ended June 30, 2007 and 2006, respectively. The increase in general and administrative costs is primarily the result of an increase of $15,145 in write-offs of abandoned projects and other pre-acquisition costs as noted above, partially offset by a $10,472 decrease in bonus expense.

        As a result of the unfavorable market conditions discussed above, the Company reviewed its land under option and agreements of sale and other pre-acquisition costs to determine if the anticipated economics of the transactions remained acceptable to the Company given the state of the homebuilding industry. For those agreements deemed unfavorable, the Company attempted to renegotiate the transaction to more favorable terms. In those situations where the contract could not be renegotiated on terms the Company believed were favorable to the Company, the option or agreement of sale was written-off, resulting in write-offs of abandoned projects and pre-acquisition costs of $19,597 and $4,452 for the fiscal years ended June 30, 2007 and 2006, respectively.

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Impairment of Goodwill

        During the fiscal year ended June 30, 2007, the Company performed impairment evaluations related to the goodwill that arose from the Realen Homes, PLC and Masterpiece Homes acquisitions.

        The assessments were performed in accordance with SFAS No. 142 due to decreased current and expected future absorption rates and declining margins as a result of the deteriorating market conditions in the regions in which Realen Homes and Masterpiece Homes operate. Fair value of the acquisitions was determined using a discounted cash flow model based on absorption rates and margins reflective of slowing demand as well as anticipated future demand. Discount rates were based on the Company's weighted average cost of capital adjusted for business risks. Those amounts are based on management's best estimate of future results. As a result of the assessment, the Company recorded an impairment charge to reduce goodwill of $16,334 during fiscal year 2007, consisting of $13,327 and $3,007 related to the Realen Homes and Masterpiece Homes acquisitions, respectively. An impairment charge of $7,918 and $5,409 was recorded in the Company's northern and midwestern regions, respectively, related to the Realen Homes acquisition. The entire impairment charge for Masterpiece Homes was recorded in the Company's Florida region. Based upon the assessments, no impairment charge was necessary for the Company's southern region.

Income Tax Benefit / Expense

        Income taxes from continuing operations for the fiscal year ended June 30, 2007 decreased $78,005 to an income tax benefit of $37,458 from an income tax expense of $40,547 for the fiscal year ended June 30, 2006. Income tax benefit / expense as a percentage of income from operations before income taxes was 39.5% and 39.0% for the fiscal year ended June 30, 2007 and the fiscal year ended June 30, 2006, respectively. The Company's tax provision includes tax benefits provided by the American Jobs Creation Act of 2004 of $0 and approximately $1,096 for the fiscal years ended June 30, 2007 and 2006, respectively.

Loss from Discontinued Operations:

        Loss from discontinued operations was $9,433 or $0.51 per share for the fiscal year ended June 30, 2007 compared to a loss of $321 or $0.02 per share for the fiscal year ended June 30, 2006. The loss in the fiscal year ended June 30, 2007, includes impairment charges in the amount of $13,733.

Net Loss / Income

        Net income for the fiscal year ended June 30, 2007 decreased $129,891 to a net loss of $66,850, compared with net income of $63,041 for the fiscal year ended June 30, 2006. Net income included inventory impairment charges of $46,563 and $1,133, net of tax, write-offs of abandoned projects and other pre-acquisition costs of $11,908 and $2,651, net of tax, and goodwill impairment charges of $9,709 and $0, net of tax.

        In all of the Company's regions, the decrease in net income is the result of the overall deterioration in market conditions as noted above. These unfavorable market conditions in the housing industry have led to inventory impairments and write-offs of abandoned projects and other pre-acquisition costs in each region and goodwill impairment charges in the northern, midwestern and Florida regions. Additionally, as a result of the downturn in market conditions, all of the Company's regions have experienced a decrease in residential revenue and gross profit margin.

Liquidity and Capital Resources

        On an ongoing basis, we require capital for expenditures to purchase and develop land, to construct homes, to fund related carrying costs and overhead and to fund various advertising and

43

marketing programs to facilitate sales. These expenditures include site preparation, roads, water and sewer lines, impact fees and earthwork, as well as the construction costs of the homes and amenities. Our sources of capital include funds derived from operations, sales of assets and various borrowings, most of which are secured. Accordingly, our short and long term liquidity depends principally upon our level of net income, working capital management, accounts payable, accruals and bank borrowings. In an effort to increase liquidity, we may continue to pursue sales of parcels of land, as well as alternatives for selling a portion of our model home portfolio and other assets; however, we can offer no assurances as to whether or when such transactions will occur or whether the transactions will be on terms advantageous to us. In addition, we remained focused on reducing our inventory balances, curtailing land purchases and right sizing our operations in order to preserve cash.

        The Company received approximately $54,788 of income tax refunds during fiscal year 2008. The majority of these refunds resulted from certain land sales that took place in December 2007 as well as tax operating losses in the taxation year ended December 31, 2007. Federal tax refunds of approximately $34,000 were received in March 2008 related to these land sales and tax operating losses.

        We believe that cash on hand, funds generated from operations and financial commitments from available lenders will provide sufficient capital for us to meet our existing operating needs.

Revolving Credit Facility

        As of June 30, 2008, we had $160,363 of borrowing capacity under our secured revolving credit facility discussed below, subject to borrowing base availability, and borrowings in excess of availability of $20,411. On July 11, 2008, we made a payment of $13,000, which reduced our borrowings in excess of availability to $7,411. Borrowings remained in excess of availability primarily due to previously discussed impairment charges. But for the impairment charges taken in June 2008, our borrowing base availability would have been positive and we would not have had any borrowings in excess of availability at June 30, 2008. Since June 30, 2008, we have not had borrowings in excess of availability. The negative borrowing base availability did not have any adverse impact on the Company. At June 30, 2008, we had liquidity of $71,199, a decrease of $1,312 from June 30, 2007.

        We calculate liquidity as follows:

	As of June 30,
	2008			2007
Cash and cash equivalents	$	72,341		$	19,991
Restricted cash—due from title companies		19,269			25,483
Net borrowing base availability		(20,411	)		27,037
Liquidity	$	71,199		$	72,511

        As of August 31, 2008, our cash and cash equivalents were approximately $44,900, we had no restricted cash due from title companies, our net borrowing base availability was approximately $3,200 and our liquidity was approximately $48,100. The agent to the lenders under the revolving credit facility and the Company recently completed appraisals of projects in all regions in several divisions consisting on projects consisting of approximately 35% of the borrowing base assets as of May 31, 2008, prior to the determination of any inventory impairments. These asset appraisals are not scheduled to be utilized in availability determinations until the borrowing base certificate dated as of September 30, 2008. The results of the appraisals included both individual reductions in appraised values as well as some increases in appraised values. While these project appraisals are not scheduled to be utilized in borrowing base availability determinations until the borrowing base certificate dated as of September 30, 2008, the Company estimates that the net borrowing base availability, done on a lower of GAAP cost or appraised value basis for each individual project category and as adjusted for

44

increases and decreases in these project appraisals would have resulted in an increase in borrowing base availability of approximately $1.5 million as of June 30, 2008 and approximately $2.7 million as of August 31, 2008, respectively. Under this amended and restated credit agreement, the Company has permitted lenders to conduct future appraisals on a fair market value basis on all projects with a GAAP cost of at least $4,000 to be phased in generally over the next three fiscal quarters, but excluding the projects already recently appraised. The result of these appraisals is subject to numerous factors, and accordingly no assurance can be given on the result of either the recent or future bank appraisals or the corresponding liquidity impact to the Company.

        A majority of our debt is variable rate, based on the 30-day LIBOR rate, and therefore, we are exposed to market risk in connection with interest rate changes. At June 30, 2008, the 30-day LIBOR rate of interest was 2.4625%.

        On December 22, 2004, Greenwood Financial, Inc., a wholly-owned subsidiary of the Company and other wholly-owned subsidiaries of the Company, as borrowers, and Orleans Homebuilders, Inc., as guarantor, entered into a Revolving Credit Loan Agreement for a Senior Secured Revolving Credit and Letter of Credit Facility with various banks as lenders (as amended and restated and further amended, the "Revolving Credit Facility"). The Revolving Credit Loan Agreement was amended on January 24, 2006, via the Amended and Restated Revolving Credit Loan Agreement (the "Amended Credit Agreement"). In connection with the Amended Credit Agreement, Orleans Homebuilders, Inc. executed a Guaranty, which was amended on September 6, 2007,and amended and restated on September 30, 2008. The Amended and Restated Credit Agreement was amended on November 1, 2006 (the "First Amendment"), February 7, 2007 (the "Second Amendment"), May 8, 2007 (the "Third Amendment"), September 6, 2007 (the "Fourth Amendment"), December 21, 2007 (the "Fifth Amendment"), a limited waiver (the "waiver letter") to the Amended Credit Agreement, which was extended on September 15, 2008, and amended and restated in the Second Amended and Restated Revolving Credit Loan Agreement, dated September 30, 2008 (the "Second Amended Credit Agreement").

Waiver

        Absent the deferred tax asset valuation allowance of $43,500 during the March 31, 2008 fiscal quarter, the Company would have been in compliance with all of the financial covenants in the Amended Credit Agreement at March 31, 2008. However, as a result of the deferred tax asset valuation allowance, absent the waiver letter dated May 9, 2008, as extended on September 15, 2008, the Company would have been in default of the minimum consolidated tangible net worth, maximum leverage ratio, and maximum land to consolidated adjusted tangible net worth ratio covenants set fort in the Amended Credit Agreement at March 31, 2008 (the "Subject Covenants"). Subject to certain limitations, the waiver letter temporarily waived compliance with the Subject Covenants generally from January 1, 2008 to September 30, 2008 (the "Waiver Period"), unless another event of default occurs or we fail to comply with the covenants in the waiver letter.

        In the waiver letter, the Company also agreed that it will act in good faith and use its best efforts to work with the agent lender during the Wavier Period to identify a material group of assets in its borrowing base for reappraisal prior to September 15, 2008, which have been completed and account for approximately 35% of the Company's collateral assets.

Second Amended Credit Agreement:

        On September 30, 2008, the Company entered into the Second Amended Credit Agreement which provides, among other things, that:

•

The maturity date is December 20, 2009 for all lenders.

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•

The amount of the Revolving Credit Facility is $440,000, except that the amount of the Revolving Credit Facility will be $425,000 through December 31, 2008, and $415,000 from July 1, 2009 through December 20, 2009, unless otherwise permanently reduced as a result of certain required prepayments. The amount actually available under the Revolving Credit Facility is also subject to the borrowing base availability requirements in the Revolving Credit Facility.



•

The letter of credit sublimit is reduced to $60,000.



•

The swing line limit is reduced to $10,000.



•

The unused fee is increased to 0.35%.



•

The interest rate is changed to the LIBOR interest rate plus 5.0%.



•

A fee will be earned and payable on September 15, 2009 equal to 8.0% per annum, calculated on a daily basis, of the difference between $250,000 and the aggregate level of the lenders' lending commitments under the Revolving Credit Facility as they exist from time to time between September 30, 2008 and the earlier of September 15, 2009 and the date the commitments are permanently reduced to $250,000; however this fee will be reduced by 80% if the aggregate level of commitments on or before September 15, 2009 have been permanently reduced to $250,000.



•

If the Company's indebtedness is not paid in full by December 20, 2009, a separate fee will be earned and payable on December 20, 2009 equal to 8.0% per annum, calculated on a daily basis, of the difference between $250,000 and the average daily outstanding cash borrowing as they exist from time to time after September 15, 2009.



•

The letter of credit fees were changed to be the applicable spread, with the issuer retaining an issuance fee of 0.125%.



•

The borrowing base calculation was amended to increase the maximum percentages for certain asset classes.



•

Both of the leverage covenants, the debt service coverage ratio covenant and the units in inventory covenant were eliminated.



•

The minimum consolidated tangible net worth covenant was lowered to be not less than $75,000, (1) reduced by the sum of (a) inventory impairments under GAAP on assets in the borrowing base taken by the Company and recorded after March 31, 2008, plus (b) the amount of any interest incurred less the amount of interest capitalized under Statement of Financial Accounting Standard No. 34 ("SFAS 34"), and recorded after March 31, 2008, plus (c) any additional deferred tax asset valuation reserves recorded after March 31, 2008 (provided that clauses (a) and (c) are limited to an aggregate amount not to exceed $30,000), plus (d) any impairments or write-offs relating to tangible assets or pre-acquisition costs not contained in the borrowing base recorded after March 31, 2008, and (2) increased by the sum of (x) any favorable adjustment recorded after March 31, 2008, to the deferred tax asset valuation allowance as reported in the Company's third quarter fiscal 2008 financials, plus (y) 50% of positive quarterly net income after March 31, 2008 plus (z) 50% of any net securities proceeds received by the Company and the borrowers under the Revolving Credit Facility after March 31, 2008. However, in no event may the consolidated tangible net worth, after taking into account the reductions and increases above, at any time be less than $35,000.



•

The minimum liquidity level is reduced to $15,000.



•

The minimum cash flow from operations ratio is reduced and the related definition of debt service was amended to exclude any amortized deferred financing costs related to all

46

amendments to the Amended Credit Agreement, the Second Amended Credit Agreement and/or the trust preferred securities and any future amendments to any of the foregoing.



•

A $5,000 limit was put on our cash available for joint ventures, however, the Company may invest 50% of any net securities proceeds raised by the Company after March 31, 2008 in joint ventures that are non-recourse to the Company and may maintain current investments in cost-sharing arrangements or partnerships already in existence.



•

The maximum amount of cash or cash equivalents (excluding cash at title companies) we are allowed to maintain was set at a maximum of $32,500 for any consecutive five-day period.



•

The borrowers may purchase (a) up to $8,000 of real estate (whether purchase money or otherwise) in the normal course of business, consistent with projections provided to the lenders and (b) improved land (i.e., finished lot takedowns and/or controlled rolling lot options) purchased by the borrowers in the normal course of business, consistent with the projections provided to the Lenders.

        The Company also agreed that no dividends or distributions will be paid, no subordinated debt will be repaid, except for interest payable on such debt, and limitations were placed on purchases of additional land, including the method for financing such land.

        The lenders have agreed to allow the Company to pursue second lien indebtedness in certain limited circumstances. Any second lien indebtedness is subject to the approval of the lenders and the proceeds of any second lien indebtedness must be used to prepay amounts advanced under the facility and the amount of the facility will be permanently reduced by the amount of any such prepayment. The Company and the lenders have agreed that re-appraisals will be done on the Company's collateral assets. Approximately 35% of those assets have already been reappraised. The results of the appraisals included both individual reductions in appraised values as well as some increases in appraised values. While these project appraisals are not scheduled to be utilized in borrowing base availability determinations until the borrowing base certificate dated as of September 30, 2008, the Company estimates that the net borrowing base availability, done on a lower of GAAP cost or appraised value basis for each individual project category and as adjusted for increases and decreases in these project appraisals would have resulted in an increase in borrowing base availability of approximately $1.5 million as of June 30, 2008 and approximately $2.7 million as of August 31, 2008, respectively. Under this amended and restated credit agreement, the Company has permitted lenders to conduct future appraisals on a fair market value basis on all projects with a GAAP cost of at least $4,000 to be phased in generally over the next three fiscal quarters ended June 30, 2009, but excluding the projects already recently appraised. The result of these appraisals is subject to numerous factors, and accordingly no assurance can be given on the result of either the recent or future bank appraisals or the corresponding liquidity impact to the Company.

        Additional covenants were added to the facility, including requirements that the Company and borrowers grant a mortgage on any real property not already included in the borrowing base and subject to the Revolving Credit Facility; that all real property sales must be accomplished through a title company, with the net proceeds of such a sale going directly to the Agent for application to the outstanding balance under the Revolving Credit Facility; that any purchases of real estate must be done through a title company through advances under the Revolving Credit Facility and all such acquisitions must be subject to mortgages in favor of the lenders; and at the time of any such advance, the Company will be required to provide an estimate of the portion of the borrowing that will be used for construction needs and asset purchases with respect to an applicable project.

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Terms of the Revolving Credit Facility:

        The borrowing limit under the Revolving Credit Facility is $440,000, except that the amount of the Revolving Credit Facility will be $425,000 through December 31, 2008, and $415,000 from July 1, 2009 through December 20, 2009, unless otherwise permanently reduced as a result of certain required prepayments. The total amount of loans and advances outstanding at any time under the Revolving Credit Facility may not exceed the lesser of the then-current borrowing base availability or the revolving sublimit as defined in the Revolving Credit Facility. The borrowing base availability is based on the lesser of the appraised value or cost of real estate owned by us that has been admitted to the borrowing base and is subject to various limitations and qualifications set forth in the Revolving Credit Agreement.

        Borrowings and advances under the Revolving Credit Facility bear interest on a per annum basis equal to the LIBOR Market Index Rate plus 500 basis points beginning October 1, 2008. Prior to October 1, 2008, the applicable spread had been 400 basis points. During the term of the Revolving Credit Facility, interest is payable monthly in arrears. At June 30, 2008, the interest rate was 6.4625%, which included a 400 basis point spread.

        A fee will be earned and payable on September 15, 2009 equal to 8.0% per annum, calculated on a daily basis, of the difference between $250,000 and the aggregate level of the lenders' lending commitments under the Revolving Credit Facility as they exist from time to time between September 30, 2008 and the earlier of September 15, 2009 and the date the commitments are permanently reduced to $250,000; however this fee will be reduced by 80% if the aggregate level of commitments on or before September 15, 2009 have been permanently reduced to $250,000. Under this provision, we currently estimate that the minimum we will be required to pay is $0 and the maximum is $9,150, and the Company expects that it will pay no amounts under this provision as it intends to refinance the debt before the payment is due and payable. There can be no assurance that such refinancing will occur. In addition, if all indebtedness under the Revolving Credit Facility is not fully repaid by December 30, 2009, a separate fee will be earned and payable on December 20, 2009 equal to 8.0% per annum of the amount by which the aggregate commitments under the Revolving Credit Facility that exist from time to time after September 15, 2009 exceed $250,000, calculated on a daily basis.

        In addition to any interest that may be payable with respect to amounts advanced by the lenders pursuant to a letter of credit, we will be required to pay to the lender(s) issuing letters of credit an issuance fee of 0.125% of the amount of the letters of credit.

        Under and subject to the terms of the Revolving Credit Facility, the borrowers may borrow and re-borrow for the purpose of financing the acquisition and development of real estate, the construction of homes and improvements, for investment in joint ventures, for working capital and for such other appropriate corporate purposes as may be approved by the lenders. Capitalized terms used below and not otherwise defined have the meanings set forth in the Amended and Restated Credit Agreement.

        Approximately 35% of the Company's collateral assets have been reappraised pursuant to the terms of the waiver letter and the Company and approximately one third of the assets in the borrowing base with a book value in excess of $4,000 that have not yet been appraised, will be appraised in each of the second, third and fourth quarters of fiscal year 2009. The re-appraisals that have been done to date have not had a material impact on the Company's valuation of the collateral assets, but there is no assurance that future re-appraisals will not have an impact on our valuations and thereby potentially reduce our borrowing base availability.

        Various conditions must be satisfied in order for real estate to be admitted to the borrowing base, including that a mortgage in favor of lenders has been delivered to the agent for lenders and that all governmental approvals necessary to begin development of for-sale residential housing, other than

48

building permits and certain other permits borrower in good faith believes will be issued within 120 days, have been obtained. Depending on the stage of development of the real estate, the loan to value or loan to cost advance rate in the borrowing base ranges from 50% to 95% of the appraised value or cost of the real estate. Based on these ranges, the Company is restricted as to the type of land it can have in various stages of development as well as the dollar value, of borrowing base availability of land under development.

        As security for all obligations of borrowers to lenders under the Revolving Credit Facility, lenders continue to have a first priority mortgage lien on all real estate owned by the Company or any borrower and included in the borrowing base under the Revolving Credit Facility. As further security, pursuant to the Second Amended Credit Facility, the Company has also agreed to grant to the lenders a security interest in and assignment of all future tax refunds and proceeds thereof received or payable to the borrowers or the Company after the closing of the Second Amended Credit Agreement, mortgages in favor of lenders with respect to all real property owned by the borrowers or the Company that is not already subject to a lien in favor of the lenders under the Revolving Credit Facility and a security interest in inter-company debt. Orleans Homebuilders, Inc. has guaranteed the obligations of the borrowers to lenders pursuant to a Guaranty executed by Orleans Homebuilders, Inc. on January 26, 2006, amended on September 6, 2007 and amended and restated on September 30, 2008.

        Under the Guaranty, Orleans Homebuilders, Inc. granted lenders a security interest in any balance or assets in any deposit or other account that Orleans Homebuilders, Inc. has with any lender. However, the Company and its subsidiaries maintain the majority of the cash available to them in accounts and as United States treasury securities in accounts outside of the lenders under the Revolving Credit Facility.

        The Revolving Credit Facility contains customary covenants that, subject to certain exceptions, limit or eliminate the ability of the Company to (among other things):

•

Incur or assume other indebtedness, except certain permitted indebtedness and possible second lien indebtedness if appropriately approved;



•

Grant or permit to exist any lien, except certain permitted liens;



•

Enter into any merger, consolidation or acquisition of all or substantially all the assets of another entity;



•

Sell, assign, lease or otherwise dispose of all or substantially all of its assets;



•

Enter into any transaction with an affiliate that is not a borrower or a guarantor under the Revolving Credit Facility, or a subsidiary of either;



•

Pay any dividends;



•

Redeem any stock or subordinated debt; and



•

Invest in joint ventures or other entities that are not obligors under the Revolving Credit Facility.

        In addition, under the Revolving Credit Facility, all real property sales must be accomplished through a title company, with the net proceeds of such a sale going directly to the Agent for application to the outstanding balance under the Revolving Credit Facility. Any purchases of real estate must be done through a title company through advances under the Revolving Credit Facility and all such acquisitions must be subject to mortgages in favor of the lenders; and, at the time of any such advance, the Company will be required to provide an estimate of the portion of the borrowing that will be used for construction needs. However, the Company may make additional draws from time-to-time pursuant to the terms of the Revolving Credit Facility.

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        The Revolving Credit Facility also contains various financial covenants. Among other things, the financial covenants, as amended, require that:

•

We must maintain a minimum consolidated tangible net worth of at least $75,000 (1) reduced by the sum of (a) inventory impairments under GAAP on assets in the borrowing base taken by the Company and recorded after March 31, 2008, plus (b) the amount of any interest expense incurred less the amount of interest capitalized under Statement of Financial Accounting Standard No. 34 ("SFAS 34"),") and recorded after March 31, 2008, plus (c) any additional deferred tax asset valuation reserves recorded after March 31, 2008 (provided that clauses (a) and (c) are limited to an aggregate amount not to exceed $30,000), plus (d) any impairments or write-offs relating to tangible assets or pre-acquisition costs not contained in the borrowing base recorded after March 31, 2008, and (2) increased by the sum of (x) any favorable adjustment recorded after March 31, 2008 to the deferred tax asset valuation allowance as reported in the Company's third quarter fiscal 2008 financials, plus (y) 50% of positive quarterly net income after March 31, 2008 plus (z) 50% of any net securities proceeds received by the Company and the borrowers under the Revolving Credit Facility after March 31, 2008. However, in no event may the consolidated tangible net worth, after taking into account the reductions and increases above, at any time be less than $35,000.



•

We must maintain a required liquidity level based on cash plus borrowing base availability of at least $15,000 of cash and cash equivalents (including cash held at a title company) on a consolidated basis at all times.



•

Our minimum cash flow from operations ratio based on cash flow from operations to interest incurred covenant, must exceed 1.25-to-1.00 for the quarters ending September 30, 2008 and December 31, 2008; 0.40-to-1.00 for the quarter ending March 31, 2009; 1.00-to-1.00 for the quarter ending June 30, 2009; and 1.25-to-1.00 for the quarter ending September 30, 2009 and thereafter. Cash flow from operations is calculated based on the last twelve months cash flow from operations, adjusted for interest paid (excluding any amortized deferred financing costs related to all amendments to the Amended Credit Agreement, this Second Amended Credit Agreement and the trust preferred securities and any future amendments to any of the foregoing), amounts from the disposition of model homes that are subject to a sale-leaseback transaction to the extent such amounts are not otherwise included in net cash provided by operating activities, and interest income.



•

Investments in new non-recourse joint ventures whereby we will provide services to develop uncompleted assets are permitted in an amount not to exceed $5,000. However, the Company may also invest 50% of any net securities proceeds raised by the Company after March 31, 2008 in joint ventures that are non-recourse to the Company and may maintain current investments in cost-sharing arrangements or partnerships already in existence.



•

The maximum amount of cash or cash equivalents (excluding cash at title companies) we are allowed to maintain was set at a maximum of $32,500 for any consecutive five-day period.



•

The Company may purchase (a) up to $8,000 of real estate (whether purchase money or otherwise) in the normal course of business, consistent with projections provided to the lenders and (b) improved land (i.e., finished lot takedowns and/or controlled rolling lot options) purchased by the borrowers in the normal course of business, consistent with the projections provided to the Lenders.

        At the fiscal quarters ended September 30, 2006, December 31, 2006, March 31, 2007, June 30, 2007, March 31, 2008 and June 30, 2008, we would have been in violation of certain financial covenants in the Amended and Restated Credit Agreement if not for the First Amendment, Second Amendment,

50

Third Amendment, Fourth Amendment, waiver letter and the Second Amended Credit Agreement, respectively.

        The Revolving Credit Facility provides that, subject to any applicable notice and cure provisions, each of the following (among others) is an event of default:

•

Failure by borrowers to pay when due any amounts owing under the Revolving Credit Facility;



•

Failure by the Company to observe or perform any promise, covenant, warranty, obligation, representation or agreement under the Revolving Credit Facility or any other loan document;



•

Bankruptcy and other insolvency events with respect to any borrower or the Company;



•

Dissolution or reorganization of any borrower or the Company;



•

The entry of a judgment or judgments against borrower(s) or the Company: (i) in an aggregate amount that is at least $500 in excess of available insurance proceeds, if such judgment or judgments are not dismissed or bonded within 30 days; or (ii) that prevents borrowers from conveying lots and units in the ordinary course of business if such judgment or judgments are not dismissed or bonded within 30 days; or the issuance of any writs of attachment, execution or garnishment against any borrower or the Company;



•

Any material adverse change in the financial condition of a borrower or the Company which causes the lenders, in good faith, to believe that the performance of any of the obligations under the Revolving Credit Facility is impaired or doubtful for any reason; and



•

Specified cross defaults.

        Upon the occurrence and continuation of an event of default, after completion of any applicable grace or cure period, lenders may demand immediate payment in full of all indebtedness outstanding under the Revolving Credit Facility, terminate their obligations to make any loans or advances or issue any letter of credit, set off and apply any and all deposits held by any lender for the credit or account of any borrower. In addition, upon the occurrence of certain events of bankruptcy or other insolvency events with respect to any borrower or the Company, all indebtedness outstanding under the Revolving Credit Facility shall be immediately due and payable without any act or action by lenders. A default under our Revolving Credit Facility could also prevent us from making required payments under our trust preferred securities, which would cause a default under those securities.

        If we do not meet our forecast in our budgets, we could violate our debt covenants and, absent a waiver or amendment from our lenders, we could be in default under our Revolving Credit Facility and, as a result, our debt could become due which would have a material adverse effect on our financial position and results of operations.

Trust Preferred Securities:

        On November 23, 2005, the Company issued $75,000 of trust preferred securities which mature on January 30, 2036 and are callable, in whole or in part, at par plus accrued interest on or after January 30, 2011. For the first ten years, the securities have a fixed interest rate of 8.61% per annum, provided that certain covenant levels are maintained. Thereafter, the securities have a floating interest rate equal to three-month LIBOR plus 360 basis points per annum, resetting quarterly. The securities are treated as debt obligations for financial statement purposes. The Company used proceeds from the sale of these securities to repay outstanding obligations under the Revolving Credit Facility discussed above.

        The trust's preferred and common securities require quarterly distributions of interest by the trust to the holders of the trust securities at a fixed interest rate equal to 8.61% per annum through January 30, 2016 and, after January 30, 2016, at a variable interest rate (reset quarterly) equal to the

51

three-month London Interbank Offered Rate ("LIBOR") plus 360 basis points. In the event the Company fails to meet the debt service ratio or minimum tangible net worth requirement set forth in the August 13, 2007 supplemental indenture as of the end of a fiscal quarter for at least three of the last four consecutive fiscal quarters ending on or after June 30, 2008, the applicable rate of interest will be increased by 300 basis points. We began accruing for this increased interest rate on July 31, 2008, which will be paid to holders for the first time with the coupon payable on October 31, 2008. The interest rate will return to the regularly applicable rate once the Company is in compliance with the debt service ratio and minimum tangible net worth requirements as of the end of any fiscal quarter. The terms of the trust securities are governed by an Amended and Restated Trust Agreement, dated November 23, 2005, among OHI Financing, Inc., ("OHI Financing") as depositor, JPMorgan Chase Bank, National Association, as property trustee, Chase Bank USA, National Association, as the Delaware trustee, and the administrative trustees named therein.

        The trust used the proceeds from the sale of the trust's securities to purchase $77,320 in aggregate principal amount of unsecured junior subordinated notes due January 30, 2036 issued by OHI Financing, which includes $2,300 of inter-company issuances. The junior subordinated notes were issued pursuant to a Junior Subordinated Indenture, dated November 23, 2005, as amended by a Supplemental Indenture dated August 13, 2007, collectively referred to herein as the "Indenture," among OHI Financing, as issuer, and JPMorgan Chase Bank, National Association, as trustee. The terms of the junior subordinated notes are substantially the same as the terms of the trust's preferred securities. The interest payments on the junior subordinated notes paid by OHI Financing, Inc. will be used by the trust to pay the quarterly distributions to the holders of the trust's preferred and common securities. Pursuant to the parent guarantee agreement dated November 23, 2005 by and between the Company and JPMorgan Chase Bank, National Association, as trustee, the Company has unconditionally guaranteed OHI Financing, Inc.'s payment and other obligations under the indenture and the junior subordinated notes. The Company used the proceeds from the issuance and sale of the trust preferred securities and the subsequent purchase of the junior subordinated notes to partially repay indebtedness.

        The Indenture permits OHI Financing to redeem the junior subordinated notes at par, plus accrued interest on or after January 30, 2011. If OHI Financing redeems any amount of the junior subordinated notes, the Trust Agreement requires the trust to redeem a like amount of the trust securities. Under certain circumstances relating to the tax treatment of the trust or the interest payments made on the junior subordinated notes or the classification of the trust as an "investment company" under the Investment Company Act of 1940, as amended, OHI Financing may also redeem the junior subordinated notes prior to January 30, 2011 at a 7.5% premium.

        With certain exceptions relating to debt to a trust, partnership or other entity affiliated with the Company that is a financing vehicle for the Company, the junior subordinated notes and the Company's obligations under the parent guarantee are expressly subordinate to all of the Company's existing and future debt unless it is provided in the instrument creating or evidencing such debt, or pursuant to which such debt is outstanding, that such debt is not superior in right to payment of the junior subordinated notes or the obligations under the parent company's guarantee, as the case may be.

        Under the Indenture, OHI Financing will generally have to make eight consecutive Adjusted Interest Rate coupon payments (other than the eight consecutive Adjusted Interest Rate coupon payments that could be made on each of the coupon payment dates from October 30, 2008 to and including July 30, 2010) to cause an event of default under the Indenture (or in some cases six consecutive coupon payments). More specifically, the Indenture provides that the earliest an event of default could occur as a result of the payment of the Adjusted Interest Rate is (i) upon the payment of the Adjusted Interest Rate coupon for October 30, 2010, if applicable, provided there have been eight prior consecutive Adjusted Interest Rate coupons paid by OHI Financing; (ii) on either the fiscal quarter ended March 31, 2010 or the fiscal year ended June 30, 2010, if at either date both the trailing

52

twelve months' interest coverage ratio is less than 1.25 to 1, and OHI Financing has made the six prior consecutive Adjusted Interest Rate coupon payments; or (iii) on the fiscal quarter ended September 30, 2010, if at such time both the trailing twelve months' interest coverage ratio is less than 1.75 to 1, and OHI Financing has made the eight prior consecutive Adjusted Interest Rate coupon payments. The Adjusted Interest Rate must be paid for eight (or in some instances six) consecutive coupons in order to trigger an event of default. If the interest coverage ratio test and the minimum consolidated tangible net worth test, are both met, OHI Financing would make the payment of the Regular Interest Rate for the next coupon, and the Adjusted Interest Rate test "resets" requiring OHI Financing to make eight (or in some instances six) new consecutive coupon payments at the Adjusted Interest Rate before triggering an event of default. The interest coverage ratio and minimum consolidated tangible net worth measure are not traditional financial maintenance covenants; they are only utilized in determining if the Adjusted Interest Rate or the Regular Interest Rate is applicable.

        The junior subordinated notes and the trust securities could become immediately payable upon an event of default. Under the terms of the Trust Agreement and the Indenture, subject to any applicable cure period, an event of default generally occurs upon:

•

non-payment of any interest on the junior subordinated notes when it becomes due and payable, and continuance of the default for a period of 30 days;



•

non-payment of the principal of, or any premium on, the junior subordinated notes at their maturity;



•

default in the performance, or breach, of any covenant or warranty made by OHI Financing, Inc., in the indenture and the continuance of the default or breach for a period of 30 days after written notice to OHI Financing, Inc.;



•

non-payment of any distribution on the trust's securities when it becomes due and payable, and continuance of the default for a period of 30 days;



•

non-payment of the redemption price of any trust's security when it becomes due and payable;



•

default in the performance, or breach, in any material respect of any covenant or warranty of any of the trustees in the Trust Agreement, which default or breach continues for a period of 30 days after written notice to the trustees and OHI Financing, Inc.;



•

default in the performance, or breach (which default or breach must be material in certain cases), of any covenant or warranty made by OHI Financing, Inc. In the purchase agreement pursuant to which the trust securities and the junior subordinated notes were sold and purchased and the continuation of such default or breach for a period of 30 days after written notice to OHI Financing, Inc.;



•

bankruptcy, insolvency or liquidation of the property trustee, if a successor property trustee has not been appointed within 90 days thereafter;



•

the bankruptcy or insolvency of OHI Financing, Inc.; or



•

certain dissolutions or liquidations, or terminations of the business or existence, of the trust.

        Pursuant to the August 13, 2008 Supplemental Indenture, OHI Financing established a $5,000 reserve fund in September 2007 for the benefit of the holders of the trust preferred securities by posting a letter of credit with the trustee. If the adjusted interest rate is in effect for the four consecutive coupon payments ending July 30, 2009, this reserve fund must be increased by $2,500. Under certain events of default, this reserve fund may be drawn by the trustee and used in respect of the trust preferred obligations. The reserve fund may be released upon the earlier of compliance with the applicable interest coverage ratio resulting in OHI Financing paying interest at the regular interest

53

rate rather than the adjusted interest rate, or redemption or defeasance of the notes in accordance with the terms of the Indenture.

        On September 20, 2005, the Company issued $30,000 of trust preferred securities which mature on September 30, 2035 and are callable, in whole or in part, at par plus accrued interest on or after September 30, 2010. For the first ten years, the securities have a fixed interest rate of 8.52% per annum. Thereafter, the securities have a floating interest rate equal to three-month LIBOR plus 380 basis points per annum, resetting quarterly. The securities are treated as debt obligations for financial statement purposes. The Company used proceeds from the sale of these securities to fund land purchases and residential construction. The obligations relating to the trust preferred securities are subordinated to the Revolving Credit Facility.

Employee Retirement Plan

        On December 1, 2005, the Company adopted an unfunded, non-qualified target defined benefit retirement plan, effective as of September 1, 2005, which covers a group of management employees of the Company. The Company owns life insurance policies on all participants in the Supplemental Executive Retirement Plan ("SERP"). This SERP, which was amended on March 13, 2006, and September 27, 2007, is intended to provide the participants with an annual supplemental retirement benefit based upon their years of service with the Company and highest average compensation for five consecutive years. The annual supplemental benefit for each participant will be adjusted based on the actual performance of the SERP compared to the target. The benefit is payable for life with a minimum of ten years guaranteed. In order to qualify for normal retirement benefits, a participant must attain age 65 with at least five years of participation in the SERP. Early retirement will be permitted beginning at age 55, after five years of participation in the SERP. Early retirement benefits will be adjusted actuarially to reflect the early retirement date.

        If a participant terminates employment with the Company prior to attaining his or her normal retirement age, other than by reason of early retirement, death or disability, the participant generally will forfeit all benefits under the SERP.

        The Company can amend or terminate the SERP at any time. However, no amendment or termination will affect the participants' accrued benefits as determined in accordance with the SERP or delay any payments to a participant beyond the time that such amount would otherwise be payable without regard to the amendment.

Deferred Compensation Plan

        On December 1, 2005, the Company adopted an Executive Compensation Deferral Plan (the "Deferral Plan") effective as of June 1, 2005. Under the Plan, participants will have the ability to defer a portion of their compensation which will be credited to an account maintained by the Company for the participant. Amounts contributed by participants are always vested. Participant deferral accounts will be maintained by the Company for recordkeeping purposes only. Participants will have no interest in any assets which may be set aside by the Company to meet its obligations under the Deferral Plan.

Share Repurchase Program

        In September 2005, the Board of Directors authorized the repurchase of up to 1,000,000 shares of the Company's common stock. The repurchases, may be made from time to time through open market purchases or privately negotiated transactions at the Company's discretion and in accordance with the rules of the Securities and Exchange Commission. Effective June 30, 2007 and pursuant to the terms and conditions of the Fourth Amendment, the Company is no longer permitted to repurchase shares of common stock.

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        The Company did not repurchase any of its common stock during the fiscal years ended June 30, 2008 and 2007.

Cash Flow Statement

        Net cash provided by operating activities for the fiscal year ended June 30, 2008 was $107,834, compared to net cash used in operating activities for the fiscal year ended June 30, 2007 of $37,146. This increase was primarily attributable to approximately $54,788 of income tax refunds received during fiscal year 2008, an increase in accounts payable and other liabilities in fiscal year ended June 30, 2008 as compared to a decrease in fiscal year 2007 and a larger decrease in real estate held for development and sale in the current fiscal year as compared to the previous fiscal year. The difference in accounts payable and other liabilities was primarily due to better management of payables. The change in real estate held for development and sale was primarily due to lower spending on new land. These increases were partially offset by an increase in the net loss. Net cash provided by investing activities for the fiscal year ended June 30, 2008 was $11,628, as compared to net cash used in investing activities of $339 for the fiscal year ended June 30, 2007. This increase was primarily related to the sale of our Western region from which we received proceeds of $11,300. Net cash used in financing activities for the fiscal year ended June 30, 2008 was $67,112, compared to net cash provided by financing activities of $41,512 for the fiscal year ended June 30, 2007. The change was primarily due to net payments of loans secured by real estate assets of $72,990 in fiscal year 2008 as compared to net borrowings of loans secured by real estate assets of $46,515 in fiscal year 2007.

Lot Positions

        As of June 30, 2008, the Company owned or controlled approximately 7,229 building lots. Included in the aforementioned lots, the Company had contracted to purchase, or has under option, undeveloped land and improved building lots for an aggregate purchase price of approximately $124,186 that are expected to yield approximately 1,847 building lots.

Undeveloped Land Acquisitions

        The process of acquiring desirable undeveloped land is extremely competitive, particularly in the northern region, mostly due to the lack of available parcels suitable for development. In addition, expansion of regulation in the housing industry has increased the time it takes to acquire undeveloped land with all of the necessary governmental approvals required to begin construction. Generally, the Company structures its land acquisitions so that it has the right to cancel its agreements to purchase undeveloped land by forfeiture of its deposit under the agreement. For the fiscal year ended June 30, 2008, the Company forfeited $2,094 of land deposits and expensed an additional $6,303 of pre-acquisition costs related to the write-off of purchase agreements with respect to undeveloped land. Included in the balance sheet captions "Inventory not owned—Variable Interest Entities" and "Land deposits and costs of future development," at June 30, 2008 the Company had $9,118 invested in 11 parcels of undeveloped land, of which $3,586 is cash deposits, a portion of which is non-refundable. At June 30, 2008, overall undeveloped parcels of land under contract had an aggregate purchase price of approximately $54,254 and were expected to yield approximately 1,006 building lots.

        The Company attempts to further mitigate the risks involved in acquiring undeveloped land by structuring its undeveloped land acquisitions so that the deposits required under the agreements coincide with certain benchmarks in the governmental approval process, thereby limiting the amount at risk. This process allows the Company to periodically review the approval process and make a decision on the viability of developing the parcel to be acquired based upon expected profitability. In some circumstances the Company may be required to make deposits solely due to the passage of time. This structure still provides the Company an opportunity to periodically review the viability of developing the parcel of land. In addition, the Company primarily structures its agreements to purchase

55

undeveloped land to be contingent upon obtaining all governmental approvals necessary for construction. Under most agreements, the Company secures the responsibility for obtaining the required governmental approvals as the Company believes that it has significant expertise in this area. The Company intends to complete the acquisition of undeveloped land only after all governmental approvals are in place. In certain rare circumstances, however, when all extensions have been exhausted, the Company must make a decision on whether to proceed with the purchase even though all governmental approvals have not yet been received. In these circumstances, the Company performs reasonable due diligence to ascertain the likelihood that the necessary governmental approvals will be granted.

Improved Lot Acquisitions

        The process of acquiring improved building lots from developers is extremely competitive. The Company competes with many homebuilders to acquire improved building lots, some of which have greater financial resources than the Company. The acquisition of improved lots is usually less risky than the acquisition of undeveloped land as the contingencies and risks involved in the land development process are borne by the developer rather than the Company. In addition, governmental approvals are generally in place when the improved building lots are acquired.

        At June 30, 2008, the Company had contracted to purchase or had under option approximately 841 improved building lots for an aggregate purchase price of approximately $69,932. At June 30, 2008, the Company had $1,262 invested in these improved building lots, of which $1,260 is deposits. For the fiscal year ended June 30, 2008, the Company forfeited $363 of land deposits with respect to improved building lots.

        The Company expects to utilize primarily the Revolving Credit Facility as described above as well as other existing capital resources, to finance the acquisitions of undeveloped land and improved lots described above. The Company anticipates completing a majority of these acquisitions during the next several years.

Inflation

        We may be adversely affected during periods of high inflation because of higher land and construction costs. Inflation may also increase our financing, labor, and material costs. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand. While we attempt to pass to our customers increases in our costs through increased sales prices, the current industry conditions have resulted in lower sales prices in many of our markets. If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase significantly, affecting our prospective homebuyers' ability to adequately finance home purchases, our revenues, gross margins, and net income would be adversely affected. In addition, deflation can impact the value of real estate and make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results of operations.

Off-Balance Sheet Arrangements, Contractual Obligations and Commitments

        Certain off-balance sheet arrangements, contractual obligations and commitments are disclosed in various sections of the Consolidated Financial Statements, Notes to Consolidated Financial Statements and below. Some typical off-balance sheet arrangements affecting the Company and commonly affecting homebuilders in general, include:

•

Cost sharing arrangements and unconsolidated real estate joint ventures—capital contribution requirements;



•

Debt and debt service guarantees;

56

•

Surety bonds and standby letters of credit;



•

Executed contracts for construction and development activity; and



•

Variable interest entities, which are not consolidated.

        Each of these items is described below or in "Critical Accounting Policies" following this section.

         Cost Sharing Arrangements and Unconsolidated Real Estate Joint Ventures—Capital Contribution Requirements.    The Company has developed and owned communities through joint ventures, accounted for using the equity method, with other parties in the past. However, at the present time joint venture activities do not constitute a material portion of the Company's operations. In addition, the Company has partnered with other homebuilders and developers, under cost sharing agreements, to acquire land and/or to develop or improve common off-site facilities, such as sewer treatment plants, that will benefit both parties. Most of these agreements are established as cost sharing agreements whereby the homebuilders and developers share in the cost of acquiring the parcel or improving the off-site facility. The Company currently does not have any material unfunded commitments or capital contribution requirements with respect to joint ventures or cost sharing arrangements.

         Debt and Debt Service Guarantees.    At June 30, 2008, the Company had mortgage and other note obligations, subordinated notes, and other notes payable on the balance sheet totaling $501,851. The Company currently does not have any off-balance sheet debt service guarantees.

         Surety Bonds and Standby Letters of Credit.    As of June 30, 2008, the Company had $88,878 in surety bonds and $26,021 in outstanding standby letters of credit in favor of local municipalities or financial institutions to guarantee the construction of real property improvements or financial obligations. The surety bonds guarantee the construction of public improvements and infrastructure such as sewer, streets, traffic signals, grading, and wildlife preservations in connection with the various communities the Company is developing. Surety bonds are commonly required by public agencies from homebuilders and other real estate developers. The surety bonds and standby letters of credit are renewable and expire upon completion of the required improvements. Standby letters of credit are a form of credit enhancement that is commonly required in real estate development to secure the construction of public improvements. In the past three fiscal years, no surety bonds or standby letters of credit have been drawn on for use to satisfy the Company's obligations to perform under the agreements with the public agencies.

         Executed Contracts for Site Work and Construction Activity.    The Company has entered into site work and construction contracts with various suppliers and contractors. These contracts are for construction and development activity in the numerous communities the Company has under development, and are originated in the normal course of business. The site work contracts generally require specific performance by the contractor to prepare the land for construction and are written on a community-by-community basis. For larger communities, site work contracts are awarded in phases in order to limit any long-term commitment by the Company or its contractors. Generally, site work contracts are completed in less than one year. The Company acts as a general contractor and contracts with various subcontractors at specified prices for construction of the homes it sells. Subcontractors generally work on a piece meal basis and are not awarded contracts for a specified number of homes. These commitments are typically funded by the Company's Revolving Credit Facility and cash from operations.

Variable Interest Entities

        In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). The FASB issued a revised FIN 46 ("FIN 46-R") in December 2003 which modifies and clarifies various aspects of the original

57

interpretations. A Variable Interest Entity ("VIE") is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity is deemed to be a VIE, pursuant to FIN 46-R, an enterprise that absorbs a majority of the expected losses of the VIE is considered the primary beneficiary and must consolidate the VIE.

        Based on the provisions of FIN 46-R, the Company has concluded that whenever it enters into an option agreement to acquire land or lots from an entity and pays a significant deposit that is not unconditionally refundable, a VIE is created under condition (ii) (b) of the previous paragraph. The Company has been deemed to have provided subordinated financial support, which refers to variable interests that will absorb some or all of an entity's expected theoretical losses if they occur. For each VIE created, the Company will compute expected losses and residual returns based on the probability of future cash flows as outlined in FIN 46-R. If the Company is deemed to be the primary beneficiary of the VIE it will consolidate the VIE on its balance sheet. The fair value of the VIEs inventory will be reported as "Inventory not owned—Variable Interest Entities."

        At June 30, 2008, the Company consolidated three VIEs as a result of its options to purchase land or lots from the selling entities. The Company paid cash of $925 and issued letters of credit deposits of $125 to these VIEs and incurred additional pre-acquisition costs totaling $1,250. The Company's deposits and any costs incurred prior to acquisition of the land or lots represent the Company's maximum exposure to loss. The fair value of the VIEs inventory is reported as "Inventory not owned—Variable Interest Entities." The Company recorded $13,050 in Inventory Not Owned—Variable Interest Entities as of June 30, 2008. The fair value of the property to be acquired less cash deposits and pre-acquisition costs, which totaled $10,875 at June 30, 2008, was reported on the balance sheet as "Obligations related to inventory not owned—Variable Interest Entities." Creditors, if any, of these VIEs have no recourse against the Company.

        The Company will continue to secure land and lots using options. Excluding the deposits and other costs capitalized in connection with the VIEs discussed in the prior paragraph, the Company had total costs incurred to acquire land and lots at June 30, 2008 of approximately $10,380, including $4,846 of cash deposits. The total purchase price under these cancelable contracts or options is approximately $124,186. The maximum exposure to loss is limited to the deposits, although some deposits are refundable, and costs incurred prior to the acquisition of the land or lots.

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Summary of Outstanding Obligations

        The following table summarizes the Company's outstanding obligations as of June 30, 2008 and the effect such obligations are expected to have on its liquidity and cash flow in future periods. For mortgage and other note obligations, payments due by period are shown based on the expiration date of the loan.

			Payments due during fiscal year ended June 30,
													Payments due thereafter
	Total		2009		2010		2011		2012		2013
Obligations:
Mortgage and other note obligations	$	501,851	$	901	$	395,950	$	—	$	—	$	—	$	105,000
Interest on subordinated notes	$	253,690	$	9,014	$	9,014	$	9,014	$	9,014	$	9,014	$	208,620
Operating leases		3,976		1,821		1,060		452		373		142		128
Affordable housing contributions		175,000		100,000		75,000		—		—		—		—
Total obligations	$	934,517	$	111,736	$	481,024	$	9,466	$	9,387	$	9,156	$	313,748

        The above table does not include certain obligations incurred in the ordinary course of business, such as trade payables.

        The above table also does not include any amounts needed to acquire lots or land under option or cancelable purchase contracts because these arrangements are completed only at the Company's discretion, subject only to loss of option or deposit amounts and costs capitalized to date. Therefore, these option and cancelable purchase contracts do not represent binding enforceable purchase obligations. As of June 30, 2008, the Company had contracted to purchase, or had under option, undeveloped land and improved building lots for an aggregate purchase price of approximately $124,186 that are expected to yield approximately 1,847 lots.

Critical Accounting Policies

        The preparation of the Company's Consolidated Financial Statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenue recognition, impairment of real estate assets, capitalization of costs, environmental liability exposure, miscellaneous litigation reserves, and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because of the nature of the judgments and assumptions made, we are subject to uncertainties such as the impact of certain events, economic, environmental and political factors and changes in our business environment. Accordingly, actual results may differ from these estimates under different assumptions or conditions which could have a material impact on the carrying value of recorded assets and liabilities and the results of operations.

        The Company believes the following critical accounting policies reflect the more significant, subjective or complex judgments, and estimates used in the preparation of the Consolidated Financial Statements.

         Consolidation of Variable Interest Entities.    In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). The FASB issued a revised FIN 46 ("FIN 46-R") in December 2003 which modifies and clarifies various aspects of

59

the original interpretations. Variable interest entities are entities controlled by another entity through means other than voting rights. FIN 46-R provides guidance on determining whether and how a business enterprise should consolidate a variable interest entity. FIN 46-R requires significant use of judgment and estimates in determining its application. See Note 1 of Notes to Consolidated Financial Statements for additional discussion of FIN 46-R.

         Valuation of Deferred Tax Assets    We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted.

        SFAS 109, Accounting for Income Taxes, ("SFAS 109") requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish a valuation allowance against deferred tax assets is assessed periodically based on the SFAS 109 more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, excess of appreciated asset value over the tax basis of net assets, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives.

        During the fiscal year ended June 30, 2008, we established a deferred tax asset valuation allowance in the amount of $53,642. The valuation allowance was established due to the lack of objectively verifiable evidence regarding the realization of these assets in the foreseeable future. Our analysis of the need for a valuation allowance recognizes that we have incurred a cumulative loss and also considered the continued difficult current market conditions, as well as losses and impairment charges which led to the impairments of certain real estate held for development or sale.

        We believe that the accounting estimate for the valuation of deferred tax assets is a critical accounting estimate because judgment is required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results and future business results, including further market deterioration, may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Changes that are not anticipated in our current estimates could have a material period-to-period impact on our financial position or results of operations.

         Estimates.    As more fully explained under the caption inventories and goodwill, when an impairment is indicated, impairment charges are recorded to reduce the Company's (i) real estate inventories to fair value and (ii) goodwill balances to its fair value. These impairment amounts consider estimated future cash flows which are dependent upon management's plans for future operations, recent operating results and projected cash flows, which include assumptions related to expected future demand and market conditions. The adequacy of the Company's impairment charges could be materially affected by changes in market conditions or expectations for changes in market conditions.

        Estimates of construction costs for homes closed are recorded in the period when the related home is closed. These estimates are based on detailed budgets for each home and community and

60

historical experience and trends. If actual costs differ from those estimated at the time of closing, adjustments to cost of sales could be recorded.

        Reserves for the estimated cost of homes under warranty are recorded in the period in which the related home is closed and are based on historical experience and trends. Should actual warranty experience change, revisions to the estimated warranty liability would be required.

        Estimates for the costs to complete land development are recorded upon completion of the related land development project. Estimates for land and land development costs are allocated to development phases based on the estimated relative sales value and then allocated to the total number of lots expected to be developed within each subdivision. Such cost estimates and are based on detailed budgets for the land development project and historical experience and trends. If actual costs or the total number of lots developed changes, changes in amounts allocated to future lots in that project would be adjusted to reflect such changes.

         Revenue Recognition and Cost of Sales.    The Company primarily derives its total earned revenues from the sale of residential property. The Company recognizes residential revenue when title is conveyed to the homebuyer at the time of closing. From time to time, the Company also sells developed and undeveloped land in bulk and under option agreements. Revenues from sales of land and other real estate are recognized when the Company has received an adequate cash down payment and all other conditions necessary for profit recognition have been satisfied. During fiscal years 2008, 2007 and 2006, all sales transactions met the criteria for and were accounted for utilizing the full accrual method. However, as more fully described in the Notes to the Consolidated Financial statements, two land sales where the Company retained the option to repurchase finished lots was accounted for as a financing transaction.

        To the extent that certain sales or portions thereof do not meet all conditions necessary for profit recognition, the Company would use other methods to recognize profit, including the percentage-of-completion, cost recovery and the deposit methods. These methods of profit recognition defer a portion or all of the profit to the extent it is dependent upon the occurrence of future events.

        Costs incurred for homes closed include those which are specifically identified to the home such as construction costs and all applicable land acquisition, land development and related costs (both incurred and estimated to be incurred) based on the allocated cost amount to the lot sold. Allocations of such costs to the lot sold generally, include a pro rata allocation determined based on the number of lots expected to be sold; where appropriate, costs may first be allocated based on a relative sales value method and then applied to the number of lots expected to be sold. Estimates of future costs to be incurred after the completion of each sale are included in cost of sales. A change in circumstances that causes these estimates of future costs to increase or decrease significantly would affect the gain or loss recognized on future sales.

        From time to time, the Company will sell and lease back its model homes. The Company accounts for sale-leaseback transactions in accordance with the provisions of SFAS No. 98, Accounting for Leases ("Statement No. 98").

         Inventories.    Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes, indirect project costs and interest related to development and construction. We review inventories for impairment during each reporting period on a community by community basis. Where there are multiple communities located within a parcel, the impairment is determined at the overall parcel level. SFAS No. 144 requires that if the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, impairment is indicated and an impairment charge should be recorded to write down the carrying amount of such asset to its fair value.

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        In conducting our review for indicators of impairment on a community level, we evaluate, among other things, the margins on homes that have been delivered, margins under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, and the fair value of the land itself.

        In determining the recoverability of the carrying value of the assets in a community that we have evaluated as requiring a test for impairment, significant quantitative and qualitative assumptions are made relative to the future home sales prices, sales incentives, direct and indirect costs (including interest expected to be capitalized) and home construction and land development and the pace of new home orders. In addition, these assumptions are dependent on the specific market conditions and competitive factors for the community being tested. Our estimates are made using information available at the date of the recoverability test. However, as facts and circumstances may change in future reporting periods, our estimates of recoverability are subject to change. When impairment is indicated, we estimate the fair value of our communities using a discounted cash flow model. The determination of fair value also requires discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams.

        As of June 30, 2008, there were a number of parcels which were tested for impairment as a trigger was identified. Some of these parcels included those that had previously been impaired. In some cases, the undiscounted cash flow analysis prepared by management did not indicate an impairment, requiring the asset to be written down to its fair value. However, these cash flows are subject to significant estimates and assumptions made by management. In some cases, the results of whether an impairment is indicated from the undiscounted cash flow analysis is highly sensitive to changes in assumptions. These parcels could suffer impairment in the future, and such impairment amounts could be material to the Company's results of operations and financial position.

        As noted above, when impairment is indicated, we estimate the fair value of inventory under SFAS No. 144 based on current market conditions and current assumptions made by management, which may differ materially from actual results if market conditions change. For example, further market deterioration may lead to us incurring additional impairment charges on previously impaired inventory, as well as on inventory not currently impaired but for which indicators of impairment may arise if further market deterioration occurs.

        In estimating the fair value of the property, the Company believes that a market participant would obtain financing at market rates. The financing considers cash flows to finance the original purchase price plus future expenditures and requires repayments upon sale of the constructed homes. Accordingly, the aforementioned net cash flows consider the related cash flows derived from such borrowings.

         Capitalization of Costs.    Costs capitalized include land, land development and home construction costs, real estate taxes, indirect project costs and interest related to development and construction. We evaluate amounts recorded related to option deposits and preacquisition costs to determine whether there is an indicator for impairment. In the cases where we decide to abandon a project because it is no longer probable that the Company will continue with the project, costs previously capitalized are written off as such costs will not provide any future benefits. In addition, decreases in development activity may result in a portion of capitalized costs being expensed.

         Goodwill.    In accordance with SFAS No. 142, annually in the fourth quarter and when events or changes in circumstances indicate that the carrying amount of the Company's goodwill may not be recoverable, management evaluates the recoverability of goodwill by comparing the carrying amount of the related reporting unit to its estimated fair value. Fair value was determined based on the estimated discounted future cash flows. These cash flows are significantly impacted by estimates related to current and future economic conditions, including absorption rates and margins reflective of slowing demand, as well as anticipated future demand. The amounts included in the discounted cash flow analysis are

62

based on management's best estimate of future results. Discount rates were based on the Company's weighted average cost of capital adjusted for business risks. Due to uncertainties in the estimation process, actual results could differ significantly from such estimates. Additionally, future changes in any of these factors could result in future impairments of the remaining goodwill which could have a significant impact on our financial position and results of operations.

         Income Taxes.    As part of the process of preparing the consolidated financial statements, significant management judgment is required to estimate income taxes. Estimates are based on interpretation of tax laws. The Company estimates actual current tax due and assesses temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. See Note 9 of Notes to Consolidated Financial Statements for a discussion of income taxes. Adjustments may be required by a change in assessment of deferred tax assets and liabilities, changes due to audit adjustments by Federal and State tax authorities, and changes in tax laws. To the extent adjustments are required in any given period; the adjustments would be included within the tax provision in the statement of operations and/or balance sheet. These adjustments could materially impact our financial position and results of operations and liquidity.

         Stock Based Compensation.    Effective July 1, 2002, the Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock Issued to Employees" ("SFAS 123"). The Company selected the prospective method of adoption as permitted by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." Effective July 1, 2005 the Company adopted SFAS No. 123-R "Share-Based Payment", revised ("SFAS 123-R") which eliminates the alternative to use the intrinsic value method of accounting for stock based compensation and requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). See Note 10 of Notes to Consolidated Financial Statements for additional disclosure and discussion of stock-based compensation

        In December 2004, the FASB revised SFAS 123 through the issuance of SFAS No. 123-R "Share Based Payment", revised. SFAS 123-R was effective for the Company commencing July 1, 2005. SFAS 123-R, among other things, eliminates the alternative to use the intrinsic value method of accounting for stock based compensation and requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The fair value based method in SFAS 123-R is similar to the fair-value-based method in SFAS 123 in most respects, subject to certain key differences. As the Company previously adopted the fair value recognition provisions of SFAS 123 prospectively for all stock awards granted, commencing on July 1, 2002, the impact of the modified prospective adoption of SFAS 123-R did not have a significant impact on the financial position or results of operations of the Company. For stock options, the Company amortizes compensation expense on a graded basis over the vesting period of each option grant. The Company utilizes the Black-Scholes option pricing model to calculate the value of each option granted which forms the basis for the compensation expense to be recorded associated with stock options.

Recent Accounting Pronouncements

New Accounting Pronouncements:

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 provides guidance for using fair value to measure assets and liabilities. SFAS 157 will be effective for our fiscal year ending June 30, 2009, except for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on a recurring basis, for which the effective date will be for our fiscal year ending June 30, 2010. The Company is currently evaluating this standard and has not yet determined what impact it would have on our consolidated financial statements.

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        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 provides an entity with the option to measure many financial instruments and certain other items at fair value. Under the fair value option, an entity will report unrealized gains and losses on those items at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007, which for the Company is the fiscal year ending June 30, 2009. We are currently evaluating this standard and have not yet determined what impact, if any, the fair value option would have on our consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 requires that a noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent's ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. SFAS 160 is effective for our fiscal year ending June 30, 2010. We are evaluating the impact the adoption of SFAS 160 will have on our consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations. SFAS 141(R) expands on required disclosures to improve the statement users' abilities to evaluate the nature and financial effects of business combinations. SFAS 141(R) is effective for our fiscal year ending June 30, 2010. We are evaluating the impact the adoption of SFAS 141(R) will have on our consolidated financial statements.

        In December 2007, the United States Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin 110 ("SAB 110") to amend the SEC's views discussed in Staff Accounting Bulletin 107 ("SAB 107") regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with SFAS No. 123(R). SAB 110 is effective for us beginning in the first quarter of fiscal year 2009. The Company does not expect the adoption of SAB 110 to have a material impact on our consolidated financial statements.

        In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB 133, Accounting for Derivative Instruments and Hedging Activities." This statement requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. The Statement is effective for financial statements for fiscal years and interim periods beginning after November 15, 2008 and is not expected to have an impact on the Company's financial statements.

        In May, 2008, The FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." This statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section, 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are presented in conformity with accounting principles generally accepted in the United States of America. We are evaluating the impact, if any; SFAS No. 162 will have on our financial statements. This statement will be adopted by us 60 days following the SEC's approval.

        In June 2008, the FASB issued FASB Staff Position ("FSP") Emerging Issues Task Force 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." Under the FSP, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing

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earnings per share pursuant to the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. The Company's outstanding restricted stock awards will be considered participating securities under the FSP. The FSP is effective for the Company's fiscal year beginning July 1, 2009 and requires retrospective application. The Company does not expect the adoption of the FSP to have a material impact on its reported earnings per share.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

        Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of the Company, due to adverse changes in financial and commodity market prices and interest rates. The Company's principal market risk exposure continues to be interest rate risk. A majority of the Company's debt is variable based on LIBOR, and, therefore, affected by changes in market interest rates. Based on current operations, an increase or decrease in interest rates of 100 basis points will result in a corresponding increase or decrease in cost of sales and interest charges incurred by the Company of approximately $3,960 in a fiscal year, a portion of which will be capitalized and included in cost of sales as homes are delivered. The Company believes that reasonably possible near-term interest rate changes will not result in a material negative effect on future earnings, fair values or cash flows of the Company.

        Our subordinated notes are fixed-rate debt and therefore changes in interest rates generally will affect the fair value of these debt instruments. As of June 30, 2008, our subordinated notes had a carrying value of $105,000 and an estimated fair value of approximately $75,000, based on fair value indications of the coupon rate of similar instruments in a similar market since there is no market quoted price for such instruments.

        Changes in the prices of commodities that are a significant component of home construction costs, particularly lumber, may result in unexpected short term increases in construction costs. Since the sales price of the Company's homes is fixed at the time the buyer enters into a contract to acquire a home and because the Company generally contracts to sell its homes before construction begins, any increase in costs in excess of those anticipated may result in gross margins lower than anticipated for the homes in the Company's backlog. The Company attempts to mitigate the market risks of price fluctuation of commodities by entering into fixed-price contracts with its subcontractors and material suppliers for a specified period of time, generally commensurate with the building cycle.

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Item 8. Financial Statements and Supplementary Data.

ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	67
Consolidated balance sheets at June 30, 2008 and June 30, 2007	68
Consolidated statements of operations for the years ended June 30, 2008, 2007 and 2006	69
Consolidated statements of changes in shareholders' equity and total comprehensive (loss) income for the years ended ended June 30, 2008, 2007 and 2006	70
Consolidated statements of cash flows for the years ended June 30, 2008, 2007 and 2006	71
Notes to consolidated financial statements	72

        All other schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Orleans Homebuilders, Inc.:

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in shareholders' equity and total comprehensive (loss) income and cash flows present fairly, in all material respects, the financial position of Orleans Homebuilders, Inc. and its subsidiaries at June 30, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, PA
September 30, 2008

67

ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except par value)

			June 30, 2008			June 30, 2007
Assets
Cash and cash equivalents			$	72,341		$	19,991
Restricted cash—due from title company				19,269			25,483
Restricted cash—customer deposits				8,264			11,362
Real estate held for development and sale:
	Residential properties completed or under construction			193,257			228,146
	Land held for development or sale and improvements			359,555			511,872
	Inventory not owned—variable interest entities			13,050			47,214
	Inventory not owned—other financial interests			12,171			—
Property and equipment, at cost, less accumulated depreciation				1,491			2,555
Deferred taxes				—			23,480
Goodwill				4,180			4,180
Receivables, deferred charges and other assets				22,154			23,559
Land deposits and costs of future development				10,380			13,102
		Total Assets	$	716,112		$	910,944
Liabilities and Shareholders' Equity
Liabilities:
	Accounts payable		$	44,916		$	30,891
	Accrued expenses			51,768			26,303
	Deferred revenue			274			—
	Customer deposits			11,856			15,392
	Obligations related to inventory not owned—variable interest entities			10,875			38,914
	Obligations related to inventory not owned—other financial interests			12,071			—
	Mortgage and other note obligations			396,133			469,123
	Subordinated notes			105,000			105,000
	Other notes payable			718			787
		Total Liabilities		633,611			686,410
Commitments and contingencies (See note 12)
Shareholders' Equity:
Common stock, $0.10 par, 23,000,000 shares authorized, 18,938,131 and 18,698,131 shares issued at June 30, 2008 and June 30, 2007				1,894			1,870
Capital in excess of par value—common stock				75,204			73,012
Accumulated other comprehensive loss				(816	)		(1,862	)
Retained earnings				7,473			154,003
Treasury stock, at cost (98,990 and 196,490 shares
	held at June 30, 2008 and June 30, 2007)			(1,254	)		(2,489	)
	Total Shareholders' Equity			82,501			224,534
	Total Liabilities and Shareholders' Equity		$	716,112		$	910,944

See accompanying notes which are an integral part of the consolidated financial statements.

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ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share amounts)

			For the year ended June 30,
			2008			2007			2006
Earned revenue
	Residential properties		$	562,183		$	647,316		$	975,483
	Land sales			11,432			25,170			2,034
	Other income			9,667			10,047			9,675
				583,282			682,533			987,192
Costs and expenses
	Residential properties			553,600			613,954			761,270
	Land sales			47,682			26,022			1,685
	Other			7,477			6,571			6,655
	Selling, general and administrative			96,430			114,527			113,673
	Impairment of goodwill			—			16,334			—
	Interest:
		Incurred		45,977			47,776			38,095
		Less capitalized		(45,236	)		(47,776	)		(38,095	)
				705,930			777,408			883,283
(Loss) income from continuing operations before income taxes				(122,648	)		(94,875	)		103,909
Income tax (benefit) provision				(976	)		(37,458	)		40,547
(Loss) income from continuing operations				(121,672	)		(57,417	)		63,362
Discontinued operations:
	Loss from discontinued operations, net of taxes			(21,741	)		(9,433	)		(321	)
Net (loss) income			$	(143,413	)	$	(66,850	)	$	63,041
Basic (loss) earnings per share
	Continuing operations		$	(6.60	)	$	(3.11	)	$	3.43
	Discontinued operations		$	(1.18	)	$	(0.51	)	$	(0.02	)
	Net (loss) earnings per share		$	(7.78	)	$	(3.62	)	$	3.41
Diluted (loss) earnings per share
	Continuing operations		$	(6.60	)	$	(3.11	)	$	3.37
	Discontinued operations		$	(1.18	)	$	(0.51	)	$	(0.02	)
	Net (loss) earnings per share		$	(7.78	)	$	(3.62	)	$	3.35
Dividends declared per share			$	0.08		$	0.06		$	0.08
Basic weighted average shares outstanding				18,428			18,458			18,483
Diluted weighted average shares outstanding				18,428			18,458			18,824

See accompanying notes which are an integral part of the consolidated financial statements.

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ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND TOTAL COMPREHENSIVE (LOSS) INCOME
(dollars in thousands, except per share amounts)

	Years Ended June 30,
	2008						2007						2006
	Shares			Amount			Shares			Amount			Shares			Amount
Common Stock
Beginning balance		18,698,131		$	1,870			18,698,131		$	1,870			18,698,131		$	1,870
Restricted stock award		240,000			24
Ending balance		18,938,131		$	1,894			18,698,131		$	1,870			18,698,131		$	1,870
Additional Paid in Capital
Beginning balance				$	73,012					$	72,624					$	70,450
Fair market value of stock options issued					2,075						1,802						195
Redeemable common stock sold/expired					—						240						649
Stock options, net					(207	)					(2,955	)					(115	)
Tax benefit of stock option exercises					—						1,068						955
Shares awarded under Stock award plan					348						233						490
Restricted stock award					(24	)					—						—
Ending balance				$	75,204					$	73,012					$	72,624
Retained Earnings
Beginning balance				$	154,003					$	221,967					$	160,407
FIN 48 transition adjustment					(715	)					—						—
Loss on reissuance of treasury stock					(910	)					—						—
Dividends to shareholders, per share 2008—$0.08, 2007—$0.06, 2006—$0.08					(1,492	)					(1,114	)					(1,481	)
Net (loss) income					(143,413	)					(66,850	)					63,041
Ending balance				$	7,473					$	154,003					$	221,967
Accumulated Other Comprehensive Loss
Beginning balance				$	(1,862	)				$	—					$	—
Adjustment for SFAS 158, net of tax					1,046						(1,862	)
Ending balance				$	(816	)				$	(1,862	)				$	—
Treasury Stock
Beginning balance		196,490		$	(2,489	)		337,324		$	(4,519	)		176,911		$	(771	)
Stock options, net		(97,500	)		1,235			(221,460	)		2,979			(40,000	)		174
Tax benefit of stock option exercises		—			—			80,626			(949	)		—			—
Treasury stock purchase		—			—			—			—			214,539			(3,984	)
Shares awarded under stock award Plan		—			—			—			—			(14,126	)		62
Ending balance		98,990		$	(1,254	)		196,490		$	(2,489	)		337,324		$	(4,519	)
Total shareholders' equity				$	82,501					$	224,534					$	291,942
Total Comprehensive (Loss) Income
Net (loss) income				$	(143,413	)				$	(66,850	)				$	63,041
Adjustment for SFAS 158, net of tax in 2007					1,046						(1,862	)					—
Total Comprehensive (Loss) Income				$	(142,367	)				$	(68,712	)				$	63,041

See accompanying notes, which are an integral part of the consolidated financial statements

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ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

			Year Ended June 30,
			2008			2007			2006
Cash flows from operating activities:
	Net (loss) income		$	(143,413	)	$	(66,850	)	$	63,041
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
	Depreciation and amortization			4,398			3,743			2,956
	Write-off of real estate held for development and sale			116,181			76,520			—
	Write-off of land deposits and costs of future development			8,760			19,664			—
	Write-off of goodwill			—			16,334			—
	Gain on sale of fixed assets			(363	)		—			—
	Amortization of note discount			—			6			68
	Deferred taxes			23,480			(23,161	)		3,499
	Stock based compensation expense			2,423			2,161			594
Changes in operating assets and liabilities:
	Restricted cash—due from title company			6,214			(179	)		3,481
	Restricted cash—customer deposits			3,098			(2,069	)		10,807
	Real estate held for development and sale			59,725			504			(227,497	)
	Receivables, deferred charges and other assets			2,856			(3,469	)		(708	)
	Land deposits and costs of future developments			(12,084	)		2,833			(4,224	)
	Accounts payable and other liabilities			40,095			(62,366	)		(3,112	)
	Customer deposits			(3,536	)		(817	)		(11,529	)
		Net cash provided by (used in) operating activities		107,834			(37,146	)		(162,624	)
Cash flows from investing activities:
	Purchases of property and equipment			(193	)		(339	)		(1,199	)
	Proceeds from sale of fixed assets			521			—			—
	Net proceeds from disposition of business			11,300			—			—
		Net cash provided by (used in) investing activities		11,628			(339	)		(1,199	)
Cash flows from financing activities:
	Borrowings from loans collateralized by real estate assets			77,000			128,000			210,962
	Repayment of loans collateralized by real estate assets			(149,990	)		(81,485	)		(187,384	)
	Borrowings from subordinated notes			—			—			105,000
	Repayment of other note obligations			(69	)		(2,504	)		(3,583	)
	Financing costs of long-term debt			(4,750	)		(1,527	)		(3,613	)
	Proceeds from other financial interests			13,425			—			—
	Payments on liabilities associated with other financial interests			(1,354	)		—			—
	Purchase of treasury stock			—			(949	)		(3,984	)
	Proceeds from stock award plans			—			—			284
	Tax benefit from exercise of stock options			—			1,068			955
	Proceeds from stock options exercised			118			23			59
	Common stock cash dividend paid			(1,492	)		(1,114	)		(1,485	)
		Net cash (used in) provided by financing activities		(67,112	)		41,512			117,211
		Net increase (decrease) in cash and cash equivalents		52,350			4,027			(46,612	)
		Cash and cash equivalents at beginning of year		19,991			15,964			62,576
		Cash and cash equivalents at end of year	$	72,341		$	19,991		$	15,964
Supplemental disclosure of cash flow activities:
		Interest paid, net of amounts capitalized	$	500		$	—		$	—
		Income taxes (received) paid, net	$	(53,549	)	$	8,768		$	47,229
		(Decrease) increase in consolidated inventory not owned	$	(28,039	)	$	(64,722	)	$	24,051

See accompanying notes which are an integral part of the consolidated financial statements.

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ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts are in thousands, except per share data or as otherwise noted)

Note 1.    Summary of Significant Accounting Policies and Basis of Presentation

        During the fiscal year ended June 30, 2008, Orleans Homebuilders, Inc. and its subsidiaries (the "Company" or "OHB") were engaged in residential real estate development in Southeastern Pennsylvania; central New Jersey; southern New Jersey; Orange County, New York; Charlotte, Raleigh and Greensboro, North Carolina; Richmond and Tidewater, Virginia; Orlando, Florida; and Chicago, Illinois. The Company is also in the mortgage processing and community management businesses.

        During the fourth quarter of fiscal year 2008, the Company recognized additional impairment charges of $2,825 reflecting the impact of cumulative out of period adjustments. This error was related to impairments taken on the Company's residential properties and had the effect of increasing residential property expenses and reducing net income by $2,825. The Company concluded that this adjustment is not material to the consolidated financial statements for any prior period nor to the fourth quarter of fiscal year 2008.

        A summary of the significant accounting principles and practices used in the preparation of the consolidated financial statements is as follows:

Principles of consolidation

        The consolidated financial statements include the accounts of the Company and its controlled subsidiaries. Equity investments in which the Company exercises significant influence, but does not control and is not the primary beneficiary, are accounted for using the equity method of accounting. Investments in which the Company does not exercise significant influence over the investee are accounted for using the cost method of accounting. Intercompany transactions are eliminated.

        Certain prior year amounts have been reclassified to conform to the fiscal year 2008 presentation.

Cash and Cash Equivalents

        The Company considers all highly liquid instruments purchased with an initial maturity of three months or less to be cash equivalents.

Restricted Cash

        Restricted cash consists of customer deposits on home sales held in restricted accounts until title transfers to the homebuyer, as required by the state and local governments in which the homes were sold. In addition, restricted cash includes amounts in transit from title companies for transactions closed at or near year-end.

Earned revenues from real estate transactions

        The Company recognizes revenues from sales of residential properties at the time of closing. The Company also sells developed and undeveloped land in bulk and under option agreements. Revenues from sales of land and other real estate are recognized when the Company has received an adequate cash down payment and all other conditions necessary for profit recognition have been satisfied. During the three years ended June 30, 2008, 2007, and 2006, all sales transactions met the criteria for and were accounted for utilizing the full accrual method.

        To the extent that certain sales or portions thereof do not meet all conditions necessary for profit recognition, the Company uses other methods to recognize profit, including the percentage-of-completion,

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cost recovery and the deposit methods. These methods of profit recognition defer a portion or all of the profit to the extent it is dependent upon the occurrence of future events.

        From time to time, the Company will sell and lease back its model homes. The Company accounts for sale-leaseback transactions in accordance with the provisions of SFAS No. 98, "Accounting for Leases" ("Statement No. 98"). If all other conditions for profit recognition are satisfied and (i) the leaseback is minor, profit will be recognized at the time of sale or (ii) if the leaseback is other than minor but the Company retains less than substantially all of the economic benefits, than profit will be recognized over the lease term, subject to certain limitations. If a loss is indicated by the terms of the transaction, then the loss will be recognized at the time of the sale leaseback.

Real estate capitalization and cost allocation

        Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to estimated fair value. Costs include land and land improvements, direct construction costs and development costs, including predevelopment costs, interest on indebtedness, real estate taxes, insurance, construction overhead and indirect project costs. Advertising costs are expensed as incurred.

        Costs incurred for homes closed include those which are specifically identified to the home such as construction costs and all applicable land acquisition, land development and related costs (both incurred and estimated to be incurred) based on the allocated cost amount to the lot sold. Allocations of such costs to the lot sold generally, include a pro rata allocation determined based on the number of lots expected to be sold; where appropriate, costs may first be allocated based on a relative sales value method and then applied to the number of lots expected to be sold. Estimates of future costs to be incurred after the completion of each sale are included in cost of sales. A change in circumstances that causes these estimates of future costs to increase or decrease significantly would affect the gain or loss recognized on future sales.

        Land and land improvements applicable to condominiums, townhomes and single-family homes, are transferred to construction in progress when construction commences.

        Interest costs included in costs and expenses of residential properties and land sold in continuing operations for fiscal years 2008, 2007 and 2006 were $30,050, $18,311, and $15,160, respectively.

Goodwill and intangible assets

        Effective July 1, 2001, the Company adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which establishes standards for financial accounting and reporting for intangible assets acquired individually or with a group of other assets and for the reporting of goodwill and other intangible assets acquired in a business acquisition subsequent to initial accounting under SFAS No. 141, "Business Combinations" ("SFAS No. 141"). In accordance with SFAS No. 142, upon adoption of SFAS No. 142, the Company discontinued the amortization relating to all existing indefinite lived intangible assets.

        Intangible assets that have finite useful lives will be amortized over their useful lives. Currently, the Company has no intangible assets that have finite useful lives. In accordance with SFAS 142, annually in the fourth quarter and when events or changes in circumstances indicate that the carrying amount of the Company's goodwill may not be recoverable, management evaluates the recoverability of goodwill by comparing the carrying amount of the related reporting unit to its estimated fair value.

Variable Interest Entities:

        The Company has a number of land purchase contracts, sometimes referred to herein as "land purchase agreements," "purchase agreements," "options" or "option agreements," and several

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investments in unconsolidated entities which it evaluates in accordance with FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51," as amended by FIN 46R ("FIN 46R"). Pursuant to FIN 46R, an enterprise that absorbs a majority of the expected losses or receives a majority of the expected residual returns of a variable interest entity ("VIE") is considered to be the primary beneficiary and must consolidate the VIE. A VIE is an entity with insufficient equity investment or in which the equity investors lack some of the characteristics of a controlling financial interest. For land purchase contracts with sellers meeting the definition of a VIE, the Company performs a review to determine which party is the primary beneficiary of the VIE. This review requires substantial judgment and estimation. These judgments and estimates involve assigning probabilities to various estimated cash flow possibilities relative to the entity's expected profits and losses and the cash flows associated with changes in the fair value of the land under contract.

Advertising costs

        The total amount of advertising costs charged to selling, general and administrative expense was $9,657, $11,439 and $10,797 for fiscal years 2008, 2007, and 2006, respectively. The Company's advertising costs are expensed as incurred.

Property and Equipment

        Property and equipment are recorded at cost. The assets are depreciated over their estimated useful lives using the straight-line method. At the time property and equipment are disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. The estimated useful life for the Company's property and equipment generally ranges from three years to seven years. The estimated useful life for leasehold improvements is generally five years or the life of the lease, whichever is shorter.

Depreciation, amortization and maintenance expense

        Depreciation and amortization is primarily provided on the straight-line method at rates calculated to amortize the cost of the assets over their estimated useful lives. Expenditures for maintenance, repairs and minor renewals are expensed as incurred; major renewals and betterments are capitalized. At the time depreciable assets are retired or otherwise disposed of, the cost and the accumulated depreciation of the assets are eliminated from the accounts and any profit or loss is recognized.

Inventories

        Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes and interest related to development and construction. The Company reviews inventories for impairment during each reporting period on a community by community basis. Where there are multiple communities located within a parcel, the impairment is determined at the overall parcel level. SFAS No. 144 requires that if the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, impairment is indicated and an impairment charge should be recorded to write down the carrying amount of such asset to its fair value.

        In conducting the review for indicators of impairment on a community level, the Company evaluates, among other things, the margins on homes that have been delivered, margins under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, and the estimated fair value of the land itself.

        In determining the recoverability of the carrying value of the assets in a community that the Company has evaluated as requiring a test for impairment, significant quantitative and qualitative

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assumptions are made relative to the future home sales prices, sales incentives, direct and indirect costs (including interest expected to be capitalized) and home construction and land development and the pace of new home orders. In addition, these assumptions are dependent on the specific market conditions and competitive factors for the community being tested. The Company's estimates are made using information available at the date of the recoverability test. However, as facts and circumstances may change in future reporting periods, the estimates of recoverability are subject to change. When impairment is indicated, the Company estimates the fair value of its communities using a discounted cash flow model. The determination of fair value also requires discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams.

        As noted above, when impairment is indicated, the Company estimates the fair value of inventory under SFAS 144 based on current market conditions and current assumptions made by management, which may differ materially from actual results if market conditions change. For example, further market deterioration may lead to additional impairment charges on previously impaired inventory, as well as on inventory not currently impaired but for which indicators of impairment may arise if further market deterioration occurs.

        As of June 30, 2008, there were a number of parcels which were tested for impairment as a trigger was identified. Some of these parcels included those that had previously been impaired. In some cases, the undiscounted cash flow analysis prepared by management did not indicate an impairment, requiring the asset to be written down to its fair value. However, these cash flows are subject to significant estimates and assumptions made by management. In some cases, the results of whether an impairment is indicated from the undiscounted cash flow analysis is highly sensitive to changes in assumptions. These parcels could suffer impairment in the future, and such impairment amounts could be material to the Company's results of operations and financial position.

        In estimating the fair value of the property, the Company believes that a market participant would obtain financing at market rates. The financing considers cash flows to finance the original purchase price plus future expenditures and requires repayments upon sale of the constructed homes. Accordingly, the aforementioned net cash flows consider the related cash flows derived from such borrowings.

Stock-Based Compensation

        Effective July 1, 2005, the Company adopted SFAS No. 123 (revised 2004), "Share-Based Payment". SFAS No. 123(R) requires the recognition of the fair value of stock compensation in net income. SFAS 123(R), among other things, eliminates the alternative to use the intrinsic value method of accounting for stock based compensation and requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). The fair value based method in SFAS 123(R) is similar to the fair-value-based method in SFAS No. 123 in most respects, subject to certain key differences. As the Company previously adopted the fair value recognition provisions of SFAS No. 123 prospectively for all stock awards granted, commencing on July 1, 2002 as provided under SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure", the impact of the modified prospective adoption of SFAS 123(R) did not have a significant impact on the financial position or results of operations of the Company. See Note 10 for additional disclosure and discussion of stock-based compensation.

Product Warranty

        Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be

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incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. The Company regularly monitors its warranty reserve and makes adjustments in order to reflect changes in trends and historical data as information becomes available. Warranty reserves are included in accrued expenses in the consolidated balance sheets.

Income taxes

        Income taxes are accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes", ("SFAS 109"). The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted. SFAS 109 requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically by the Company based on the SFAS 109 more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, excess of appreciated asset value over the tax basis of net assets, the duration of statutory carryforward periods, the Company's experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives. In making such assessments, significant weight is given to evidence that can be objectively verified.

        At June 30, 2007, the Company's net deferred tax asset was $23,480. Due to the continuing challenging market conditions in the homebuilding industry, in the period ending March 31, 2008, the Company recorded a $43,544 valuation allowance on its deferred tax assets, representing those deferred tax asset amounts for which ultimate realization is dependant upon the generation of future taxable income during the periods in which the related temporary differences become deductible. During the quarter ended June 30, 2008, the Company updated its assessment and recorded an additional $10,098 valuation allowance for deferred tax assets primarily created during the three months ended June 30, 2008. The total valuation allowance at June 30, 2008 was $53,642. The valuation allowance was established due to the lack of evidence regarding the realization of these assets in the foreseeable future.

        In June 2006, the FASB issued FIN 48. FIN 48 prescribes a more likely than not recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with this interpretation is a two-step process. In the first step, recognition, the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meets the more-likely-than-not criteria. The tax position is measured at the largest amount of benefit that is more than 50 percent likely to be realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in: (a) an increase in a liability for income taxes payable or a reduction of an income tax refund receivable, (b) a reduction in a deferred tax asset or an increase in a deferred tax liability or (c) both (a) and (b). Tax positions that previously failed to

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meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be de-recognized in the first subsequent financial reporting period in which that threshold is no longer met. Use of a valuation allowance as described in SFAS 109 is not an appropriate substitute for the de-recognition of a tax position. The requirement to assess the need for a valuation allowance for deferred tax assets based on sufficiency of future taxable income is unchanged by this interpretation.

        As of July 1, 2007, the Company adopted the provisions of FIN 48. The Company recognized the cumulative effect of applying its provisions by reducing its July 1, 2007 retained earnings opening balance by $715 with a corresponding increase to the appropriate tax liability accounts. The amount of unrecognized tax benefit as of July 1, 2007 after the FIN 48 adjustment was $2,535. This amount relates to unrecognized tax positions that, if recognized, would affect the annual effective tax rate of the Company. The Company's unrecognized tax liability results primarily from the varying application of statutes, regulations and interpretations including recent state tax cases regarding similar issues.

Earnings per share

        Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share include additional common shares that would have been outstanding if the dilutive potential common shares had been issued. See Note 11 for additional disclosure and discussion of earnings per share.

Disclosures about fair value of financial instruments

        SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires the Company to disclose the estimated fair market value of its financial instruments. The Company believes that the carrying value of its financial instruments (primarily mortgage notes payable) approximates fair market value with the exception of its subordinated notes. See note 15 for additional disclosure of fair value.

Segment reporting

        SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" establishes standards for the manner in which public enterprises report segment information about operating segments. The Company has determined that its operations primarily involve four reportable homebuilding segments operating in 11 markets. See Note 14 for additional disclosure and discussion of segment reporting.

Management's estimates and assumptions

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

New Accounting Pronouncements:

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 provides guidance for using fair value to measure assets and liabilities. SFAS 157 will be effective in fiscal year ending June 30, 2009, except for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on a recurring basis, for which the effective date will be fiscal year ending June 30, 2010. The Company is currently evaluating this standard and has not yet determined what impact it would have on its consolidated financial statements.

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        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 provides an entity with the option to measure many financial instruments and certain other items at fair value. Under the fair value option, an entity will report unrealized gains and losses on those items at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007, which for the Company is the fiscal year ending June 30, 2009. The Company is currently evaluating this standard and has not yet determined what impact, if any, the fair value option would have on its consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 requires that a noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent's ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. SFAS 160 is effective for fiscal year ending June 30, 2010. The Company is evaluating the impact the adoption of SFAS 160 will have on its consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"). SFAS 141(R) broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations. SFAS 141(R) expands on required disclosures to improve the statement users' abilities to evaluate the nature and financial effects of business combinations. SFAS 141(R) is effective for fiscal year ending June 30, 2010. The Company is evaluating the impact the adoption of SFAS 141(R) will have on its consolidated financial statements.

        In December 2007, the United States Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin 110 ("SAB 110") to amend the SEC's views discussed in Staff Accounting Bulletin 107 ("SAB 107") regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with SFAS No. 123(R). SAB 110 is effective for beginning in the first quarter of fiscal year 2009.

        In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB 133, Accounting for Derivative Instruments and Hedging Activities." This statement requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. The Statement is effective for financial statements for fiscal years and interim periods beginning after November 15, 2008 and is not expected to have an impact on the Company's financial statements.

        In May, 2008, The FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." This statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section, 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are presented in conformity with accounting principles generally accepted in the United States of America. The Company is evaluating the impact, if any; SFAS No. 162 will have on its financial statements. This statement will be adopted by the Company 60 days following the SEC's approval.

        In June 2008, the FASB issued FASB Staff Position ("FSP") Emerging Issues Task Force 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." Under the FSP, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing

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earnings per share pursuant to the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. The Company's outstanding restricted stock awards will be considered participating securities under the FSP. The FSP is effective for the Company's fiscal year beginning July 1, 2009 and requires retrospective application. The Company does not expect the adoption of the FSP to have a material impact on its reported earnings per share.

Note 2.    Discontinued Operations

        On December 31, 2007, the Company committed to exiting its Arizona market and, in connection with this decision, on that date, disposed of its entire land position and its related work-in-process homes in Arizona, which constituted substantially all of its assets in Arizona. The Company has historically reported this business as the western region operating segment. The disposed work-in-process inventory and land assets constituted substantially all of the Company's assets in the western region. As such, all charges associated with the western region are included as a discontinued operation.

        As the western region represented a component of the Company's business, the consolidated financial statements have been reclassified for all periods presented to present this business as discontinued operations. Prior to the sale, during the second quarter of fiscal year 2008, an impairment charge of $20,706 was recognized to reduce the carrying value of the land and work-in-process sold to its fair value less costs to sell. Costs and expenses directly associated with this business have been reclassified as discontinued operations on the consolidated statements of operations. Corporate expenses such as general corporate overhead have not been allocated to discontinued operations. Interest in cost of sales was $4,140 in fiscal year 2008. Interest incurred and capitalized during fiscal years ended June 30, 2008, 2007 and 2006 was $995, $2,168 and $934, respectively.

        Summarized financial information for the western region is set forth below:

	For the year ended June 30,
	2008			2007			2006
Operating loss	$	(21,741	)	$	(15,655	)	$	(493	)
Tax benefit		—			(6,222	)		(172	)
Net loss from discontinued operations	$	(21,741	)	$	(9,433	)	$	(321	)

        As further discussed in Note 9, the Company allocates its total tax provision between continuing and discontinued operations. No tax provision for the fiscal year ended June 30, 2008 has been allocated to discontinued operations.

        Discontinued operations have not been segregated in the condensed consolidated statement of cash flows. Therefore, amounts for certain captions will not agree with respective data in the consolidated statements of operations.

Note 3.    Certain Transactions with Related Parties

        During fiscal year 2003 the Company entered into two separate ten year leases for the rental of office space with a company that is controlled by Mr. Orleans. The Company took possession of the leased premises in May 2004 at which time the lease term began. The annual rental for the leased office space is $112 and escalates to $128 after the fifth year of the lease. The Company is also responsible to pay its pro rata share of common area maintenance costs.

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        The Company places some of its corporate insurance through A.P. Orleans Insurance Agency, Inc., of which Mr. Orleans is the sole stockholder. The Company also uses A.P. Orleans Insurance Agency, Inc. to purchase surety bonds that the Company is required to maintain with various municipalities as part of its ongoing operations as a developer on specific projects in those municipalities. The Company paid premiums and fees associated with insurance policies and surety bonds provided by the entity controlled by Mr. Orleans of $1,622, $2,013, and $2,109 during fiscal years 2008, 2007, and 2006, respectively.

        The Company leases office space and obtains real estate title insurance for various parcels of land acquired by the Company from companies controlled by Mr. Russell Parker, the former president of the Company's subsidiary, PLC. The annual rental for the office space leased from an entity partially owned by Mr. Parker was $147, $129 and $129 for fiscal years 2008, 2007 and 2006, respectively. The rental expense is considered to approximate a fair market value rental. The Company paid real estate title insurance premiums to an entity formerly controlled by Mr. Parker, of approximately $20, and $173 for fiscal years 2007 and 2006, respectively. No premiums were paid to this real estate title insurance company in fiscal year 2008. This real estate title insurance company has had no operations since September 2006.

        Real estate title insurance paid by the Company is capitalized as a cost of acquiring the specific parcel in accordance with the Company's real estate capitalization and cost allocation policies and is subsequently expensed as part of cost of sales upon consummation of sales to the third party homebuyers. See Note 1 for a discussion of these policies.

        In November 2006, the Company entered into an agreement of sale to purchase 23 townhouse lots from Mr. Parker. The purchase price is calculated at 20% of the net sales price, less lot improvement costs, and is payable on a per lot basis at the time of conveyance of a completed home on the improved lot to a third party purchaser. During the fiscal year ended June 30, 2008, the Company closed on five of these lots. At the time of the closings, the Company paid Mr. Parker a total of $125.

        During the fiscal year ended June 30, 2008, the Company discovered that it had overcharged Mr. Orleans for his personal use of the Company plane during the fiscal years ended June 30, 2008, 2007, 2006 and 2005. The overcharge occurred due to the Company charging Mr. Orleans based on the full absorption method rather than based on incremental costs. At June 30, 2008, the Company accrued $1,046 for this overcharge. This amount was paid to Mr. Orleans subsequent to year end.

Note 4.    Goodwill

        As of June 30, 2008, the Company performed an impairment evaluation related to the goodwill that arose from the PLC acquisition made in the southern region. This goodwill represents the remaining goodwill reflected in the Company's balance sheet after impairments taken in 2007.

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        During the fiscal year ended June 30, 2007, the Company performed impairment evaluations related to the goodwill that arose from the Realen Homes, PLC and Masterpiece Homes acquisitions.

        The assessments were performed in accordance with SFAS No. 142. Management evaluated the recoverability of the goodwill by comparing the carrying value of the Company's reporting units to their fair value. Fair value was determined based on the discounted future cash flows. These cash flows are significantly impacted by estimates related to current and future economic conditions, including absorption rates and margins reflective of slowing demand, as well as anticipated future demand. The amounts included in the discounted cash flow analysis are based on management's best estimate of future results. Discount rates were based on the Company's weighted average cost of capital adjusted for business risks. Due to uncertainties in the estimation process, actual results could differ significantly from such estimates. Additionally, future changes in any of these factors could result in future impairments of the remaining goodwill.

        As a result of the assessment, the Company recorded an impairment charge to reduce goodwill of $16,334 during fiscal year 2007, consisting of $13,327 and $3,007 related to the Realen Homes and Masterpiece Homes acquisitions, respectively. Below is a rollforward of goodwill by region for the fiscal year ended June 30, 2007:

	North			South		Midwest			Florida			Total
Balance at June 30, 2006	$	7,918		$	4,180	$	5,409		$	3,007		$	20,514
Fiscal year 2007 goodwill impairment		(7,918	)		—		(5,409	)		(3,007	)		(16,334	)
Balance at June 30, 2007	$	—		$	4,180	$	—		$	—		$	4,180

        There were no changes to goodwill during the fiscal year ended June 30, 2008.

Note 5.    Real Estate Held for Development and Sale

        A summary of real estate held for development and sale is as follows:

	As of June 30,
	2008		2007
Condominiums and townhomes	$	28,166	$	22,751
Single family homes		165,091		205,395
Land held for development or sale and improvement		359,555		511,872
Inventory not owned—variable interest entities		13,050		47,214
Inventory not owned—other financial interests		12,171		—
Total real estate held for development and sale	$	578,033	$	787,232

Variable Interest Entities

        In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). The FASB issued a revised FIN 46 ("FIN 46-R) in December 2003 which modifies and clarifies various aspects of the original interpretations. A Variable Interest Entity ("VIE") is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are protected from absorbing expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity is deemed to be a VIE, pursuant to FIN 46-R, an enterprise that absorbs a majority of the expected losses of the VIE is considered the primary beneficiary and must consolidate the VIE.

        Based on the provisions of FIN 46-R, the Company has concluded that whenever it enters into an option agreement to acquire land or lots from an entity and pays a significant deposit that is not

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unconditionally refundable, a VIE is created under condition (ii) (b) of the previous paragraph. The Company has been deemed to have provided subordinated financial support, which refers to variable interests that will absorb some or all of an entity's expected theoretical losses if they occur. For each VIE created, the Company will perform an analysis of the expected losses and residual returns based on the probability of future cash flows based on the expected variability as outlined in FIN 46-R. If the Company is deemed to be the primary beneficiary of the VIE it will consolidate the VIE on its balance sheet. The fair value of the VIEs inventory, generally believed to be the purchase price of the land under option, will be reported as "Inventory not owned—Variable Interest Entities."

        At June 30, 2008, the Company consolidated three VIEs as a result of its options to purchase land or lots from the selling entities. The Company paid cash of $925 and issued letters of credit of $125 to these VIEs and incurred additional pre-acquisition costs totaling $1,250. The Company's deposits and any costs incurred prior to acquisition of the land or lots represent the Company's maximum exposure to loss. The fair value of the VIEs inventory, determined as of the date of consolidation, is reported as "Inventory not owned—Variable Interest Entities." The Company recorded $13,050 in Inventory Not Owned—Variable Interest Entities as of June 30, 2008. The fair value of the property to be acquired less cash deposits and pre-acquisition costs, which totaled $10,875 at June 30, 2008, was reported on the balance sheet as "Obligations related to inventory not owned—Variable Interest Entities." Creditors, if any, of these VIEs have no recourse against the Company.

        At June 30, 2007, the Company consolidated ten VIEs as a result of its options to purchase land or lots from the selling entities. The Company paid cash or issued letters of credit deposits to these VIEs totaling $5,264 and incurred additional pre-acquisition costs totaling $3,088. The Company's deposits and any costs incurred prior to acquisition of the land or lots represent the Company's maximum exposure to loss. The fair value of the VIEs inventory, determined as of the date of consolidation, is reported as "Inventory not owned—Variable Interest Entities." The Company recorded $47,214 in Inventory Not Owned—Variable Interest Entities as of June 30, 2007. The fair value of the property to be acquired less cash deposits and pre-acquisition costs, which totaled $38,914 at June 30, 2007, was reported on the balance sheet as "Obligations related to inventory not owned—Variable Interest Entities."

        The Company will continue to secure land and lots using options. Excluding the deposits and other costs capitalized in connection with the VIEs discussed in the prior paragraph, the Company had total costs incurred to acquire land and lots at June 30, 2008 of approximately $10,380, including $4,846 of cash deposits.

        The total purchase price under cancelable contracts or options is approximately $124,186. The maximum exposure to loss is limited to the deposits, although some deposits are refundable, and costs incurred prior to the acquisition of the land or lots.

Other Financial Interests

        Sold land that is subject to an option agreement is accounted for using the finance method of accounting. The option provides the Company with the option, but not the obligation, to repurchase individual lots on a periodic lot takedown schedule. Details of the financing method of accounting are described below:

•

The costs associated with the land parcel at the time it is sold are reported in 'Inventory not owned—Other Financial Interests' on the Company's consolidated balance sheet.



•

The cash received from the buyer is reported as a liability within 'Obligations related to inventory not owned—Other Financial Interests' on the Company's consolidated balance sheet. The liability is accreted at an interest rate consistent with the Company's effective borrowing rate over the life of the option. The Company will report interest incurred in connection with the accretion of the liability. Interest incurred will be subject to capitalization into Inventory not owned—other financial interests.

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•

The lot purchase price under the option includes both the amount to repurchase the land sold at its original cost to the buyer plus interest, as well as improvements made by the buyer subsequent to his purchase and prior to the Company's repurchase. Upon exercise of the option, the amount of the lot purchase price attributable to the original cost to the buyer plus interest will be applied to the accreted liability. The amount of the lot purchase price in excess of the accreted liability represents reimbursement to the buyer for lot improvement costs and will be capitalized within land held for development or sale and improvements. The cost of the lot within land held for development or sale and improvements will be expensed through cost of residential properties and land sold in accordance with the Company's policy.



•

Upon termination or expiration of the option, the Company will recognize land sales revenue and cost of land sales.

Sold and Unsold Residential Properties

        Sales status of residential properties completed or under construction is as follows:

	As of June 30,
	2008		2007
Under contract for sale	$	109,980	$	126,856
Unsold		83,277		101,290
Total residential property completed or under construction	$	193,257	$	228,146

Impairments

        As more fully discussed in note 1, the Company accounts for its real estate held for development and sale in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Recoverability of real estate held for development and sale is measured by comparing the carrying value to the future undiscounted net cash flows expected to be generated by the asset. The impairment loss is the difference between the book value of the assets and the estimated fair value determined on a discounted cash flow basis. Estimated cash flows are discounted at a rate commensurate with the inherent risk of the assets and cash flows, which approximates fair value. The estimates used in the determination of the estimated cash flows and fair value of the asset are based on factors known to the Company at the time such estimates are made and the Company's expectations of future operations. These estimates of cash flows are significantly impacted by estimates of the amounts and timing of revenues and costs and other factors, which, in turn, are impacted by local market economic conditions and the actions of competitors. Should the estimates or expectations used in determining estimated cash flows or fair value decrease or differ from current estimates in the future, the Company may be required to recognize additional impairments related to these assets or other assets.

        As of June 30, 2008, there were a number of parcels which were tested for impairment as a trigger was identified. Some of these parcels included those that had previously been impaired. In some cases, the undiscounted cash flow analysis prepared by management did not indicate an impairment, requiring the asset to be written down to its fair value. However, these cash flows are subject to significant estimates and assumptions made by management. In some cases, the results of whether an impairment is indicated from the undiscounted cash flow analysis is highly sensitive to changes in assumptions. These parcels could suffer impairment in the future, and such impairment amounts could be material to the Company's results of operations and financial position.

        When impairment is indicated, the Company estimates the fair value of inventory under SFAS No. 144 based on current market conditions and current assumptions made by management, which may differ materially from actual results if market conditions change. For example, further market

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deterioration may lead the Company to incur additional impairment charges on previously impaired inventory, as well as on inventory not currently impaired but for which indicators of impairment may arise if further market deterioration occurs.

        In estimating the fair value of the property, the Company believes that a market participant would obtain financing at market rates. The financing considers cash flows to finance the original purchase price plus future expenditures and requires repayments upon sale of the constructed homes. Accordingly, the aforementioned net cash flows consider the related cash flows derived from such borrowings.

        The following table represents inventory impairments by region included in continuing operations for the fiscal years ended June 30, 2008, 2007 and 2006:

	Year Ended June 30,
	2008				2007				2006
	Communities		Impairment		Communities		Impairment		Communities		Impairment
Northern		15	$	21,233		10	$	16,460		1	$	600
Southern		12		11,449		11		5,780		—		—
Midwestern		9		19,004		5		15,053		—		—
Florida		6		7,233		7		25,494		1		1,277
Total		42	$	58,919		33	$	62,787		2	$	1,877

        The Company also incurred impairments of $13,733 related to its discontinued operation in fiscal year ended June 30, 2007.

        During the fiscal year ended June 30, 2008, the Company received proceeds on the sale of land of $36,157. Of the $36,157 received, $11,432 was recognized as land sales revenue; $11,300 related to proceeds in the Company's western region and was included in discontinued operations; and $13,425 related to two parcels of land that were sold and subsequently subject to an option agreement and are accounted for as financing transactions.

        Prior to the closing of certain of the land sales that took place during the fiscal year ended June 30, 2008, the Company recorded asset impairments on the land to be sold as follows:

	Year Ended June 30, 2008
	Parcels		Impairment
Southern		2	$	5,008
Midwestern		2		23,163
Florida		4		8,385
Total		8	$	36,556

        The Company also incurred land impairments of $20,706 related to one parcel in the disposition of its discontinued operation in the fiscal year ended June 30, 2008.

Note 6.    Property and Equipment

        Property and equipment consists of the following:

	As of June 30,
	2008			2007
Property and equipment	$	7,381		$	7,978
Less: Accumulated depreciation		(5,890	)		(5,423	)
Total property and equipment	$	1,491		$	2,555

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        Depreciation expense, included in Other Costs and Expenses on the Company's Consolidated Statements of Operations, was $1,092, $1,120 and $1,271 during fiscal years 2008, 2007 and 2006, respectively.

Note 7.    Debt Obligations

        The following table summarizes the components of the Company's outstanding Debt Obligations:

						Outstanding Balance June 30,
	Final Maturity Date Fiscal Year		Annual Effective Interest Rate
						2008		2007
Mortgage and other note obligations		2010		variable		$	396,133	$	469,123
Subordinated notes—September 2005		2036		8.52	%		30,000		30,000
Subordinated notes—November 2005		2036		8.61	%		75,000		75,000
Subtotal subordinated note						$	105,000	$	105,000
Other notes payable—property and equipment		2009		variable		$	718	$	787

        The maximum balance outstanding under the Revolving Credit Facility, Subordinated notes, construction and inventory loan agreements at any month end during fiscal years 2008, 2007 and 2006 was $599,900, $617,122 and $623,606, respectively. The average month end balances of those obligations during fiscal years 2008, 2007 and 2006 was $556,298, $592,534 and $523,612, respectively, bearing interest at an approximate average annual rate of 7.46%, 7.74% and 6.85%, respectively.

        As of June 30, 2008, the Company had $395,950 outstanding and $160,363 of borrowing capacity under its secured revolving credit facility discussed below. As of June 30, 2008, the Company had borrowings in excess of availability of $20,411. On July 11, 2008, the Company made a payment of $13,000, which reduced its borrowings in excess of capacity to $7,411. In addition, approximately $28,687 of letters of credit and other assurances of the availability of funds have been provided under the Revolving Credit Facility, as defined below. A majority of the Company's debt is variable rate, primarily based on 30-day LIBOR, and therefore, the Company is exposed to market risk in connection with interest rate changes. At June 30, 2008, the 30-day LIBOR rate of interest was 2.4625%.

        See note 5 for a discussion of obligations related to inventory not owned—other financial interests

Revolving Credit Facility

        On December 22, 2004, Greenwood Financial, Inc., a wholly-owned subsidiary of the Company and other wholly-owned subsidiaries of the Company, as borrowers, and Orleans Homebuilders, Inc., as guarantor, entered into a Revolving Credit Loan Agreement for a Senior Secured Revolving Credit and Letter of Credit Facility with various banks as lenders (as amended and restated and further amended, the "Revolving Credit Facility"). The Revolving Credit Loan Agreement was amended on January 24, 2006, via the Amended and Restated Revolving Credit Loan Agreement (the "Amended Credit Agreement"). The Amended Credit Agreement increased the borrowing limit from $500,000 to $650,000. A subsequent amendment reduced the borrowing limit to $585,000. In connection with the Amended Credit Agreement, Orleans Homebuilders, Inc. executed a Guaranty, which was amended on September 6, 2007,and amended and restated on September 30, 2008. The Amended and Restated Credit Agreement was amended on November 1, 2006 (the "First Amendment"), February 7, 2007 (the "Second Amendment"), May 8, 2007 (the "Third Amendment"), September 6, 2007 (the "Fourth Amendment"), December 21, 2007 (the "Fifth Amendment"), a limited waiver (the "waiver letter") to the Amended Credit Agreement, which was extended on September 15, 2008, and amended and restated in the Second Amended and Restated Revolving Credit Loan Agreement, dated September 30, 2008 (the "Second Amended Credit Agreement").

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        Pursuant to the Fourth Amendment, and subject to the terms of the Revolving Credit Agreement, approximately $447,300 of the $585,000 Revolving Credit Facility has a maturity date of December 20, 2009 and the remaining $137,700 had a maturity date of December 20, 2008. Borrowings and advances under the Revolving Credit Facility accrued interest on a per annum basis equal to the LIBOR Market Index Rate plus a non-default variable spread ranging from 165 basis points to 275 basis points, depending upon the Company's leverage ratio. During the term of the Revolving Credit Facility, interest is payable monthly in arrears. At June 30, 2007, the interest rate was 7.820%, which included a 250.0 basis point spread.

Waiver

        Absent the deferred tax asset valuation allowance of $43,500 during the March 31, 2008 fiscal quarter, the Company would have been in compliance with all of the financial covenants in the Amended Credit Agreement at March 31, 2008. However, as a result of the deferred tax asset valuation allowance, absent the waiver letter dated May 9, 2008, as extended on September 15, 2008, the Company would have been in default of the minimum consolidated tangible net worth, maximum leverage ratio, and maximum land to consolidated adjusted tangible net worth ratio covenants set fort in the Amended Credit Agreement at March 31, 2008 (the "Subject Covenants"). Subject to certain limitations, the waiver letter temporarily waived compliance with the Subject Covenants generally from January 1, 2008 to September 30, 2008 (the "Waiver Period"), unless another event of default occurs or the Company fails to comply with the covenants in the waiver letter.

        In the waiver letter, the Company also agreed that it will act in good faith and use its best efforts to work with the agent lender during the Wavier Period to identify a material group of assets in its borrowing base for reappraisal prior to September 15, 2008, which have been completed and account for approximately 35% of the Company's collateral assets.

Second Amended Credit Agreement:

        On September 30, 2008, the Company entered into the Second Amended Credit Agreement which provides, among other things, that:

•

The maturity date is December 20, 2009 for all lenders.



•

The amount of the Revolving Credit Facility is $440,000, except that the amount of the Revolving Credit Facility will be $425,000 through December 31, 2008, and $415,000 from July 1, 2009 through December 20, 2009, unless otherwise permanently reduced as a result of certain required prepayments. The amount actually available under the Revolving Credit Facility is also subject to the borrowing base availability requirements in the Revolving Credit Facility.



•

The letter of credit sublimit is reduced to $60,000.



•

The swing line limit is reduced to $10,000.



•

The unused fee is increased to 0.35%.



•

The interest rate is changed to the LIBOR interest rate plus 5.0%.



•

A fee will be earned and payable on September 15, 2009 equal to 8.0% per annum, calculated on a daily basis, of the difference between $250,000 and the aggregate level of the lenders' lending commitments under the Revolving Credit Facility as they exist from time to time between September 30, 2008 and the earlier of September 15, 2009 and the date the commitments are permanently reduced to $250,000; however this fee will be reduced by 80% if the aggregate level of commitments on or before September 15, 2009 have been permanently reduced to $250,000.



•

If the Company's indebtedness is not paid in full by December 20, 2009, a separate fee will be earned and payable on December 20, 2009 equal to 8.0% per annum, calculated on a daily basis,

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of the difference between $250,000 and the average daily outstanding cash borrowing as they exist from time to time after September 15, 2009.



•

The letter of credit fees were changed to be the applicable spread, with the issuer retaining an issuance fee of 0.125%.



•

The borrowing base calculation was amended to increase the maximum percentages for certain asset classes.



•

Both of the leverage covenants, the debt service coverage ratio covenant and the units in inventory covenant were eliminated.



•

The minimum consolidated tangible net worth covenant was lowered to be not less than $75,000, (1) reduced by the sum of (a) inventory impairments under GAAP on assets in the borrowing base taken by the Company and recorded after March 31, 2008, plus (b) the amount of any interest incurred less the amount of interest capitalized under Statement of Financial Accounting Standard No. 34 ("SFAS 34"), and recorded after March 31, 2008, plus (c) any additional deferred tax asset valuation reserves recorded after March 31, 2008 (provided that clauses (a) and (c) are limited to an aggregate amount not to exceed $30,000), plus (d) any impairments or write-offs relating to tangible assets or pre-acquisition costs not contained in the borrowing base recorded after March 31, 2008, and (2) increased by the sum of (x) any favorable adjustment recorded after March 31, 2008, to the deferred tax asset valuation allowance as reported in the Company's third quarter fiscal 2008 financials, plus (y) 50% of positive quarterly net income after March 31, 2008 plus (z) 50% of any net securities proceeds received by the Company and the borrowers under the Revolving Credit Facility after March 31, 2008. However, in no event may the consolidated tangible net worth, after taking into account the reductions and increases above, at any time be less than $35,000.



•

The minimum liquidity level is reduced to $15,000.



•

The minimum cash flow from operations ratio is reduced and the related definition of debt service was amended to exclude any amortized deferred financing costs related to all amendments to the Amended Credit Agreement, the Second Amended Credit Agreement and/or the trust preferred securities and any future amendments to any of the foregoing.



•

A $5,000 limit was put on the Company's cash available for joint ventures, however, the Company may invest 50% of any net securities proceeds raised by the Company after March 31, 2008 in joint ventures that are non-recourse to the Company and may maintain current investments in cost-sharing arrangements or partnerships already in existence.



•

The maximum amount of cash or cash equivalents (excluding cash at title companies) the Company is allowed to maintain was set at a maximum of $32,500 for any consecutive five-day period.



•

The borrowers may purchase (a) up to $8,000 of real estate (whether purchase money or otherwise) in the normal course of business, consistent with projections provided to the lenders and (b) improved land (i.e., finished lot takedowns and/or controlled rolling lot options) purchased by the borrowers in the normal course of business, consistent with the projections provided to the Lenders.

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        The Company also agreed that no dividends or distributions will be paid, no subordinated debt will be repaid, except for interest payable on such debt, and limitations were placed on purchases of additional land, including the method for financing such land.

        The lenders have agreed to allow the Company to pursue second lien indebtedness in certain limited circumstances. Any second lien indebtedness is subject to the approval of the lenders and the proceeds of any second lien indebtedness must be used to prepay amounts advanced under the facility and the amount of the facility will be permanently reduced by the amount of any such prepayment. The Company and the lenders have agreed that re-appraisals will be done on the Company's collateral assets. Approximately 35% of those assets have already been reappraised. Under this amended and restated credit agreement, the Company has permitted lenders to conduct future appraisals on a fair market value basis on all projects with a GAAP cost of at least $4,000 to be phased in generally over the next three fiscal quarters ending June 30, 2009, but excluding the projects already recently appraised. The result of these appraisals is subject to numerous factors, and accordingly no assurance can be given on the result of either the recent or future bank appraisals or the corresponding liquidity impact to the Company.

        Additional covenants were added to the facility, including requirements that the Company and borrowers grant a mortgage on any real property not already included in the borrowing base and subject to the Revolving Credit Facility; that all real property sales must be accomplished through a title company, with the net proceeds of such a sale going directly to the Agent for application to the outstanding balance under the Revolving Credit Facility; that any purchases of real estate must be done through a title company through advances under the Revolving Credit Facility and all such acquisitions must be subject to mortgages in favor of the lenders; and at the time of any such advance, the Company will be required to provide an estimate of the portion of the borrowing that will be used for construction needs and asset purchases with respect to an applicable project.

Terms of the Revolving Credit Facility:

        The borrowing limit under the Revolving Credit Facility is $440,000, except that the amount of the Revolving Credit Facility will be $425,000 through December 31, 2008, and $415,000 from July 1, 2009 through December 20, 2009, unless otherwise permanently reduced as a result of certain required prepayments. The total amount of loans and advances outstanding at any time under the Revolving Credit Facility may not exceed the lesser of the then-current borrowing base availability or the revolving sublimit as defined in the Revolving Credit Facility. The borrowing base availability is based on the lesser of the appraised value or cost of real estate owned by the Company that has been admitted to the borrowing base and is subject to various limitations and qualifications set forth in the Revolving Credit Agreement.

        Borrowings and advances under the Revolving Credit Facility bear interest on a per annum basis equal to the LIBOR Market Index Rate plus 500 basis points beginning October 1, 2008. Prior to October 1, 2008, the applicable spread had been 400 basis points. During the term of the Revolving Credit Facility, interest is payable monthly in arrears. At June 30, 2008, the interest rate was 6.4625%, which included a 400 basis point spread.

        A fee will be earned and payable on September 15, 2009 equal to 8.0% per annum, calculated on a daily basis, of the difference between $250,000 and the aggregate level of the lenders' lending commitments under the Revolving Credit Facility as they exist from time to time between September 30, 2008 and the earlier of September 15, 2009 and the date the commitments are permanently reduced to $250,000; however this fee will be reduced by 80% if the aggregate level of commitments on or before September 15, 2009 have been permanently reduced to $250,000. Under this provision, the Company currently estimates that the minimum it will be required to pay is $0 and the maximum is $9,150. The Company expects that it will pay no amounts under this provision as it intends

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to refinance the debt before the payment is due and payable. There can be no assurance that such refinancing will occur. In addition, if all indebtedness under the Revolving Credit Facility is not fully repaid by December 30, 2009, a separate fee will be earned and payable on December 20, 2009 equal to 8.0% per annum of the amount by which the aggregate commitments under the Revolving Credit Facility that exist from time to time after September 15, 2009 exceed $250,000, calculated on a daily basis.

        In addition to any interest that may be payable with respect to amounts advanced by the lenders pursuant to a letter of credit, the Company will be required to pay to the lender(s) issuing letters of credit an issuance fee of 0.125% of the amount of the letters of credit.

        Under and subject to the terms of the Revolving Credit Facility, the borrowers may borrow and re-borrow for the purpose of financing the acquisition and development of real estate, the construction of homes and improvements, for investment in joint ventures, for working capital and for such other appropriate corporate purposes as may be approved by the lenders.

        Approximately 35% of the Company's collateral assets have been reappraised pursuant to the terms of the waiver letter and the Company and approximately one third of the assets in the borrowing base with a book value in excess of $4,000 that have not yet been appraised, will be appraised in each of the second, third and fourth quarters of fiscal year 2009. The re-appraisals that have been done to date have not had a material impact on the Company's borrowing base availability, but there can be no assurance that future reappraisals will not reduce borrowing base availability.

        Various conditions must be satisfied in order for real estate to be admitted to the borrowing base, including that a mortgage in favor of lenders has been delivered to the agent for lenders and that all governmental approvals necessary to begin development of for-sale residential housing, other than building permits and certain other permits borrower in good faith believes will be issued within 120 days, have been obtained. Depending on the stage of development of the real estate, the loan to value or loan to cost advance rate in the borrowing base ranges from 50% to 95% of the appraised value or cost of the real estate. Based on these ranges, the Company is restricted as to the type of land it can have in various stages of development as well as the dollar value, of borrowing base availability of land under development.

        As security for all obligations of borrowers to lenders under the Revolving Credit Facility, lenders continue to have a first priority mortgage lien on all real estate owned by the Company or any borrower and included in the borrowing base under the Revolving Credit Facility. As further security, pursuant to the Second Amended Credit Facility, the Company has also agreed to grant to the lenders a security interest in and assignment of all future tax refunds and proceeds thereof received or payable to the borrowers or the Company after the closing of the Second Amended Credit Agreement, mortgages in favor of lenders with respect to all real property owned by the borrowers or the Company that is not already subject to a lien in favor of the lenders under the Revolving Credit Facility and a security interest in inter-company debt. Orleans Homebuilders, Inc. has guaranteed the obligations of the borrowers to lenders pursuant to a Guaranty executed by Orleans Homebuilders, Inc. on January 26, 2006, amended on September 6, 2007 and amended and restated on September 30, 2008.

        Under the Guaranty, Orleans Homebuilders, Inc. granted lenders a security interest in any balance or assets in any deposit or other account that Orleans Homebuilders, Inc. has with any lender. However, the Company and its subsidiaries maintain the significant majority of the cash available to them in accounts and as treasury securities outside of the lenders under the Revolving Credit Facility.

        The Revolving Credit Facility contains customary covenants that, subject to certain exceptions, limit or eliminate the ability of the Company to (among other things):

•

Incur or assume other indebtedness, except certain permitted indebtedness and possible second lien indebtedness if appropriately approved;

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•

Grant or permit to exist any lien, except certain permitted liens;



•

Enter into any merger, consolidation or acquisition of all or substantially all the assets of another entity;



•

Sell, assign, lease or otherwise dispose of all or substantially all of its assets;



•

Enter into any transaction with an affiliate that is not a borrower or a guarantor under the Revolving Credit Facility, or a subsidiary of either;



•

Pay any dividends;



•

Redeem any stock or subordinated debt; and



•

Invest in joint ventures or other entities that are not obligors under the Revolving Credit Facility.

        In addition, under the Revolving Credit Facility, all real property sales must be accomplished through a title company, with the net proceeds of such a sale going directly to the Agent for application to the outstanding balance under the Revolving Credit Facility. Any purchases of real estate must be done through a title company through advances under the Revolving Credit Facility and all such acquisitions must be subject to mortgages in favor of the lenders; and, at the time of any such advance, the Company will be required to provide an estimate of the portion of the borrowing that will be used for construction needs. However, the Company may make additional draws from time-to-time pursuant to the terms of the Revolving Credit Facility.

        The Revolving Credit Facility also contains various financial covenants. Among other things, the financial covenants, as amended, require that:

•

The Company must maintain a minimum consolidated tangible net worth of at least $75,000 (1) reduced by the sum of (a) inventory impairments under GAAP on assets in the borrowing base taken by the Company and recorded after March 31, 2008, plus (b) the amount of any interest expense incurred less the amount of interest capitalized under Statement of Financial Accounting Standard No. 34 ("SFAS 34"),") and recorded after March 31, 2008, plus (c) any additional deferred tax asset valuation reserves recorded after March 31, 2008 (provided that clauses (a) and (c) are limited to an aggregate amount not to exceed $30,000), plus (d) any impairments or write-offs relating to tangible assets or pre-acquisition costs not contained in the borrowing base recorded after March 31, 2008, and (2) increased by the sum of (x) any favorable adjustment recorded after March 31, 2008 to the deferred tax asset valuation allowance as reported in the Company's third quarter fiscal 2008 financials, plus (y) 50% of positive quarterly net income after March 31, 2008 plus (z) 50% of any net securities proceeds received by the Company and the borrowers under the Revolving Credit Facility after March 31, 2008. However, in no event may the consolidated tangible net worth, after taking into account the reductions and increases above, at any time be less than $35,000.



•

The Company must maintain a required liquidity level based on cash plus borrowing base availability of at least $15,000 of cash and cash equivalents (including cash held at a title company) on a consolidated basis at all times.



•

The Company's minimum cash flow from operations ratio based on cash flow from operations to interest incurred covenant, must exceed 1.25-to-1.00 for the quarters ending September 30, 2008 and December 31, 2008; 0.40-to-1.00 for the quarter ending March 31, 2009; 1.00-to-1.00 for the quarter ending June 30, 2009; and 1.25-to-1.00 for the quarter ending September 30, 2009 and thereafter. Cash flow from operations is calculated based on the last twelve months cash flow from operations, adjusted for interest paid (excluding any amortized deferred financing costs related to all amendments to the Amended Credit Agreement, the Second Amended Credit

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Agreement and the trust preferred securities and any future amendments to any of the foregoing), amounts from the disposition of model homes that are subject to a sale-leaseback transaction to the extent such amounts are not otherwise included in net cash provided by operating activities, and interest income.



•

Investments in new non-recourse joint ventures whereby the Company will provide services to develop uncompleted assets are permitted in an amount not to exceed $5,000. However, the Company may also invest 50% of any net securities proceeds raised by the Company after March 31, 2008 in joint ventures that are non-recourse to the Company and may maintain current investments in cost-sharing arrangements or partnerships already in existence.



•

The maximum amount of cash or cash equivalents (excluding cash at title companies) the Company is allowed to maintain was set at a maximum of $32,500 for any consecutive five-day period.



•

The Company may purchase (a) up to $8,000 of real estate (whether purchase money or otherwise) in the normal course of business, consistent with projections provided to the lenders and (b) improved land (i.e., finished lot takedowns and/or controlled rolling lot options) purchased by the borrowers in the normal course of business, consistent with the projections provided to the Lenders.

        At the fiscal quarters ended September 30, 2006, December 31, 2006, March 31, 2007, June 30, 2007, March 31, 2008 and June 30, 2008, the Company would have been in violation of certain financial covenants in the Amended and Restated Credit Agreement if not for the First Amendment, Second Amendment, Third Amendment, Fourth Amendment, waiver letter and the Second Amended Credit Agreement, respectively.

        The Revolving Credit Facility provides that, subject to any applicable notice and cure provisions, each of the following (among others) is an event of default:

•

Failure by borrowers to pay when due any amounts owing under the Revolving Credit Facility;



•

Failure by the Company to observe or perform any promise, covenant, warranty, obligation, representation or agreement under the Revolving Credit Facility or any other loan document;



•

Bankruptcy and other insolvency events with respect to any borrower or the Company;



•

Dissolution or reorganization of any borrower or the Company;



•

The entry of a judgment or judgments against borrower(s) or the Company: (i) in an aggregate amount that is at least $500 in excess of available insurance proceeds, if such judgment or judgments are not dismissed or bonded within 30 days; or (ii) that prevents borrowers from conveying lots and units in the ordinary course of business if such judgment or judgments are not dismissed or bonded within 30 days; or the issuance of any writs of attachment, execution or garnishment against any borrower or the Company;



•

Any material adverse change in the financial condition of a borrower or the Company which causes the lenders, in good faith, to believe that the performance of any of the obligations under the Revolving Credit Facility is impaired or doubtful for any reason; and



•

Specified cross defaults.

        Upon the occurrence and continuation of an event of default, after completion of any applicable grace or cure period, lenders may demand immediate payment in full of all indebtedness outstanding under the Revolving Credit Facility, terminate their obligations to make any loans or advances or issue any letter of credit, set off and apply any and all deposits held by any lender for the credit or account of any borrower. In addition, upon the occurrence of certain events of bankruptcy or other insolvency

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events with respect to any borrower or the Company, all indebtedness outstanding under the Revolving Credit Facility shall be immediately due and payable without any act or action by lenders. A default under the Company's Revolving Credit Facility could also prevent the Company from making required payments under the Company's trust preferred securities, which would cause a default under those securities.

        If the Company does not meet its forecast in its budgets, the Company could violate its debt covenants and, absent a waiver or amendment from its lenders, the Company could be in default under its Revolving Credit Facility and, as a result, its debt could become due which would have a material adverse effect on the Company's financial position and results of operations.

Trust Preferred Securities:

        On November 23, 2005, the Company issued $75,000 of trust preferred securities which mature on January 30, 2036 and are callable, in whole or in part, at par plus accrued interest on or after January 30, 2011. For the first ten years, the securities have a fixed interest rate of 8.61% per annum, provided that certain covenant levels are maintained. Thereafter, the securities have a floating interest rate equal to three-month LIBOR plus 360 basis points per annum, resetting quarterly. The securities are treated as debt obligations for financial statement purposes. The Company used proceeds from the sale of these securities to repay outstanding obligations under the Revolving Credit Facility discussed above.

        The trust's preferred and common securities require quarterly distributions of interest by the trust to the holders of the trust securities at a fixed interest rate equal to 8.61% per annum through January 30, 2016 and, after January 30, 2016, at a variable interest rate (reset quarterly) equal to the three-month London Interbank Offered Rate ("LIBOR") plus 360 basis points. In the event the Company fails to meet the debt service ratio or minimum tangible net worth requirement set forth in the August 13, 2007 supplemental indenture as of the end of a fiscal quarter for at least three of the last four consecutive fiscal quarters ending on or after June 30, 2008, the applicable rate of interest will be increased by 300 basis points. The Company began accruing for this increased interest rate on July 31, 2008, which will be paid to holders for the first time with the coupon payable on October 31, 2008. The interest rate will return to the regularly applicable rate once the Company is in compliance with the debt service ratio and minimum tangible net worth requirements as of the end of any fiscal quarter. The terms of the trust securities are governed by an Amended and Restated Trust Agreement, dated November 23, 2005, among OHI Financing, Inc., ("OHI Financing") as depositor, JPMorgan Chase Bank, National Association, as property trustee, Chase Bank USA, National Association, as the Delaware trustee, and the administrative trustees named therein.

        The trust used the proceeds from the sale of the trust's securities to purchase $77,320 in aggregate principal amount of unsecured junior subordinated notes due January 30, 2036 issued by OHI Financing, which includes $2,300 of inter-company issuances. The junior subordinated notes were issued pursuant to a Junior Subordinated Indenture, dated November 23, 2005, as amended by a Supplemental Indenture dated August 13, 2007, collectively referred to herein as the "Indenture," among OHI Financing, as issuer, and JPMorgan Chase Bank, National Association, as trustee. The terms of the junior subordinated notes are substantially the same as the terms of the trust's preferred securities. The interest payments on the junior subordinated notes paid by OHI Financing, Inc. will be used by the trust to pay the quarterly distributions to the holders of the trust's preferred and common securities. Pursuant to the parent guarantee agreement dated November 23, 2005 by and between the Company and JPMorgan Chase Bank, National Association, as trustee, the Company has unconditionally guaranteed OHI Financing, Inc.'s payment and other obligations under the indenture and the junior subordinated notes. The Company used the proceeds from the issuance and sale of the trust preferred securities and the subsequent purchase of the junior subordinated notes to partially repay indebtedness.

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        The Indenture permits OHI Financing to redeem the junior subordinated notes at par, plus accrued interest on or after January 30, 2011. If OHI Financing redeems any amount of the junior subordinated notes, the Trust Agreement requires the trust to redeem a like amount of the trust securities. Under certain circumstances relating to the tax treatment of the trust or the interest payments made on the junior subordinated notes or the classification of the trust as an "investment company" under the Investment Company Act of 1940, as amended, OHI Financing may also redeem the junior subordinated notes prior to January 30, 2011 at a 7.5% premium.

        With certain exceptions relating to debt to a trust, partnership or other entity affiliated with the Company that is a financing vehicle for the Company, the junior subordinated notes and the Company's obligations under the parent guarantee are expressly subordinate to all of the Company's existing and future debt unless it is provided in the instrument creating or evidencing such debt, or pursuant to which such debt is outstanding, that such debt is not superior in right to payment of the junior subordinated notes or the obligations under the parent company's guarantee, as the case may be.

        Under the Indenture, OHI Financing will generally have to make eight consecutive Adjusted Interest Rate coupon payments (other than the eight consecutive Adjusted Interest Rate coupon payments that could be made on each of the coupon payment dates from October 30, 2008 to and including July 30, 2010) to cause an event of default under the Indenture (or in some cases six consecutive coupon payments). More specifically, the Indenture provides that the earliest an event of default could occur as a result of the payment of the Adjusted Interest Rate is (i) upon the payment of the Adjusted Interest Rate coupon for October 30, 2010, if applicable, provided there have been eight prior consecutive Adjusted Interest Rate coupons paid by OHI Financing; (ii) on either the fiscal quarter ended March 31, 2010 or the fiscal year ended June 30, 2010, if at either date both the trailing twelve months' interest coverage ratio is less than 1.25 to 1, and OHI Financing has made the six prior consecutive Adjusted Interest Rate coupon payments; or (iii) on the fiscal quarter ended September 30, 2010, if at such time both the trailing twelve months' interest coverage ratio is less than 1.75 to 1, and OHI Financing has made the eight prior consecutive Adjusted Interest Rate coupon payments. The Adjusted Interest Rate must be paid for eight (or in some instances six) consecutive coupons in order to trigger an event of default. If the interest coverage ratio test and the minimum consolidated tangible net worth test, are both met, OHI Financing would make the payment of the Regular Interest Rate for the next coupon, and the Adjusted Interest Rate test "resets" requiring OHI Financing to make eight (or in some instances six) new consecutive coupon payments at the Adjusted Interest Rate before triggering an event of default. The interest coverage ratio and minimum consolidated tangible net worth measure are not traditional financial maintenance covenants; they are only utilized in determining if the Adjusted Interest Rate or the Regular Interest Rate is applicable.

        The junior subordinated notes and the trust securities could become immediately payable upon an event of default. Under the terms of the Trust Agreement and the Indenture, subject to any applicable cure period, an event of default generally occurs upon:

•

non-payment of any interest on the junior subordinated notes when it becomes due and payable, and continuance of the default for a period of 30 days;



•

non-payment of the principal of, or any premium on, the junior subordinated notes at their maturity;



•

default in the performance, or breach, of any covenant or warranty made by OHI Financing, Inc., in the indenture and the continuance of the default or breach for a period of 30 days after written notice to OHI Financing, Inc.;



•

non-payment of any distribution on the trust's securities when it becomes due and payable, and continuance of the default for a period of 30 days;



•

non-payment of the redemption price of any trust's security when it becomes due and payable;

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•

default in the performance, or breach, in any material respect of any covenant or warranty of any of the trustees in the Trust Agreement, which default or breach continues for a period of 30 days after written notice to the trustees and OHI Financing, Inc.;



•

default in the performance, or breach (which default or breach must be material in certain cases), of any covenant or warranty made by OHI Financing, Inc. In the purchase agreement pursuant to which the trust securities and the junior subordinated notes were sold and purchased and the continuation of such default or breach for a period of 30 days after written notice to OHI Financing, Inc.;



•

bankruptcy, insolvency or liquidation of the property trustee, if a successor property trustee has not been appointed within 90 days thereafter;



•

the bankruptcy or insolvency of OHI Financing, Inc.; or



•

certain dissolutions or liquidations, or terminations of the business or existence, of the trust.

        Pursuant to the August 13, 2007 Supplemental Indenture, OHI Financing established a $5,000 reserve fund in September 2007 for the benefit of the holders of the trust preferred securities by posting a letter of credit with the trustee. If the adjusted interest rate is in effect for the four consecutive coupon payments ending July 30, 2009, this reserve fund must be increased by $2,500. Under certain events of default, this reserve fund may be drawn by the trustee and used in respect of the trust preferred obligations. The reserve fund may be released upon the earlier of compliance with the applicable interest coverage ratio resulting in OHI Financing paying interest at the regular interest rate rather than the adjusted interest rate, or redemption or defeasance of the notes in accordance with the terms of the Indenture.

        On September 20, 2005, the Company issued $30,000 of trust preferred securities which mature on September 30, 2035 and are callable, in whole or in part, at par plus accrued interest on or after September 30, 2010. For the first ten years, the securities have a fixed interest rate of 8.52% per annum. Thereafter, the securities have a floating interest rate equal to three-month LIBOR plus 380 basis points per annum, resetting quarterly. The securities are treated as debt obligations for financial statement purposes. The Company used proceeds from the sale of these securities to fund land purchases and residential construction. The obligations relating to the trust preferred securities are subordinated to the Revolving Credit Facility.

Other Notes Payable

        The other notes payable of $718 and $787 as of June 30, 2008 and 2007, respectively, is comprised of a note executed in December 2003 by the Company to finance the purchase of a 6.25% ownership interest in a corporate jet. The note is payable monthly with an interest rate of LIBOR plus 360 basis points and a term of five years with a balloon payment of $686 due in December 2008.

        The following table summarizes the Company's outstanding debt obligations as of June 30, 2008 and the effect such obligations are expected to have on the Company's liquidity and cash flow in future periods. For mortgage and other note obligations, payments due by period are shown based on the expiration date of the loan while the Revolving Credit Facility is collateralized by the assets of the Company and based on the Second Amended Credit Agreement matures on December 20, 2009. The schedule of debt maturities in the table reflects the terms of the Second Amended Credit Agreement.

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Schedule of Debt Maturities

	Total		2009		2010		2011		2012		2013		Thereafter
Mortgage and other note obligations	$	396,133	$	183	$	395,950	$	—	$	—	$	—	$	—
Subordinated notes		105,000		—		—		—		—		—		105,000
Other notes payable		718		718		—		—		—		—		—
Total	$	501,851	$	901	$	395,950	$	—	$	—	$	—	$	105,000

Note 8.    Redeemable Common Stock

        In connection with the Company's acquisition of PLC on October 13, 2000, the Company issued 300,000 shares of common stock of the Company to the former shareholders of PLC. The former shareholders of Parker and Lancaster Corporation had the right to cause the Company to repurchase the common stock approximately five years after the closing of the acquisition at a price of $3.33 per share. The redemption feature of these shares expired during the quarter ended December 31, 2005. Prior to the expiration of the redemption feature, the former shareholders of PLC sold 110,708 of these shares of the Company's Common Stock.

        In connection with the Company's acquisition of Masterpiece Homes on July 28, 2003, the Company sold 30,000 shares of common stock of the Company to the president of Masterpiece Homes at $8 per share. The president of Masterpiece Homes has the right to cause the Company to repurchase these shares of common stock at $8 per share by giving notice to the Company no later than the earlier of December 31, 2006 or 30 days after termination of his employment, as specified in his employment agreement. The President of Masterpiece Homes did not sell any of these shares or require repurchase by the Company.

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Note 9.    Income Taxes

        The provision for income taxes is summarized as follows:

		For the year ended June 30,
		2008			2007			2006
Current		$	(24,456	)	$	(20,519	)	$	36,876
Deferred			23,480			(23,161	)		3,499
	Total (benefit) provision for income taxes	$	(976	)	$	(43,680	)	$	40,375
(Benefit) provision for income taxes—continuing operations		$	(976	)	$	(37,458	)	$	40,547
Benefit for income taxes—discontinued operations			—			(6,222	)		(172	)
	Total (benefit) provision for income taxes	$	(976	)	$	(43,680	)	$	40,375

        The differences between taxes computed at federal income tax rates and amounts provided for continuing operations are as follows:

		For the year ended June 30,
		2008			2007			2006
Amount computed at statutory rate		$	(42,931	)	$	(33,207	)	$	36,368
State income taxes, net of federal tax benefit			(5,945	)		(4,862	)		4,956
Qualified production activities income deduction			—			—			(1,096	)
Other, net			2,411			611			319
Valuation Allowance			45,489			—			—
	Total (benefit) provision for income taxes	$	(976	)	$	(37,458	)	$	40,547

        The American Jobs Creation Act of 2004 provided for a special deduction for Qualified Production Activities, which is applicable to the Company's homebuilding operations. The statute provides for a special additional deduction on qualified expenditures subject to certain limitations. The deduction phases in over a period of time with the allowable percentage of 3.0% in tax years 2005 and 2006, 6.0% in tax years ended 2007-2009 and 9.0% thereafter. Pursuant to FSP FAS 109-1, the special deduction has no effect on deferred tax assets and liabilities existing at the date of enactment. The impact of the deduction is reported in the period in which the deduction is claimed. As discussed in Note 1, the Company files a consolidated tax return on a calendar year basis and, accordingly, began applying the special deduction effective January 1, 2005.

        During the quarter ended March 31, 2008, a full valuation allowance was established for the deferred tax assets due to the lack of sufficient objective evidence regarding the realization of these assets in the foreseeable future. As a result of an additional valuation adjustment recorded against deferred tax assets established in the fourth quarter of fiscal year 2008, primarily related to inventory impairments, the balance of the non-cash valuation allowance at June 30, 2008 was $53,642. SFAS 109 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a "more likely than not" standard. In making such judgments, significant weight is given to evidence that can be objectively verified. SFAS 109 provides that a cumulative loss in recent years is significant negative evidence in considering whether deferred tax assets are realizable and also restricts the amount of reliance on projections of future taxable income to support the recovery of deferred tax assets. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time. To the extent that the Company generates taxable income in the future to utilize the tax benefits of the related deferred tax assets, subject to certain potential limitations, it will be able to reduce its effective tax rate by reducing the valuation

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allowance. Conversely, any future operating losses generated by the Company in the near-term would increase the deferred tax asset valuation allowance and adversely impact its income tax provision (benefit) to the extent it is in a cumulative loss position as described in SFAS 109.

        Effective July 1, 2007, the Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes," an interpretation of FASB Statement No. 109, "Accounting for Income Taxes" ("FIN 48"). FIN 48 prescribes a more likely than not recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with this interpretation is a two-step process. In the first step, recognition, the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meets the more-likely-than-not criteria. The tax position is measured at the largest amount of benefit that is more than 50 percent likely to be realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in: (a) an increase in a liability for income taxes payable or a reduction of an income tax refund receivable, (b) a reduction in a deferred tax asset or an increase in a deferred tax liability or (c) both (a) and (b). Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be de-recognized in the first subsequent financial reporting period in which that threshold is no longer met. Use of a valuation allowance as described in SFAS 109 is not an appropriate substitute for the de-recognition of a tax position. The requirement to assess the need for a valuation allowance for deferred tax assets based on sufficiency of future taxable income is unchanged by this interpretation.

        As of July 1, 2007, the Company recognized the cumulative effect of applying its provisions by reducing its retained earnings opening balance by $715 with a corresponding increase to the appropriate tax liability accounts. The amount of unrecognized tax benefit as of June 30, 2008 was $2,925, net of the federal income tax benefit and including potential interest and penalties. This amount relates to unrecognized tax positions that, if recognized, would affect the annual effective tax rate of the Company. The Company's unrecognized tax liability results primarily from the varying application of statutes, regulations and interpretations including recent state tax cases regarding similar issues. The Company anticipates that it will pay substantially all of the balance associated with its uncertain tax positions within 12 months subsequent to the balance sheet date, as it has entered into a voluntary disclosure agreement to resolve an issue.

        The total amount of unrecognized tax benefit that, if recognized, would affect the Company's effective tax rate was $2,015 as of July 1, 2007 and $2,925 as of June 30, 2008. The Company recognized interest and penalties accrued in relation to unrecognized tax benefits in tax expense. For the year ended June 30, 2008, the Company accrued $1,400 of gross interest and penalties. As of June 30, 2008, gross accrued interest and penalties were $2,668. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	Year Ended June 30, 2008
Balance at July 1, 2007	$	(3,100	)
Changes for tax positions in prior years		(1,400	)
Balance at June 30, 2008	$	(4,500	)

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        The impact of the adoption of FIN 48 on retained earnings as of July 1, 2007 is as follows:

Retained earnings as of June 30, 2007	$	154,003
Impact of adoption of FIN 48 on retained earnings as of July 1, 2007		(715	)
Retained earnings as of July 1, 2007	$	153,288

        The components of the net deferred tax (liability) asset consisted of the following:

		Balance at June 30,
		2008			2007
Gross deferred tax liabilities:
	Capitalized interest and real estate taxes	$	(13,092	)	$	(19,105	)
	State income taxes		—			(1,300	)
	Other		(2,414	)		—
Gross deferred tax liabilities			(15,506	)		(20,405	)
Less gross deferred tax assets:
	Reserve for books, not for tax		1,280			2,166
	Bonus accruals		582			268
	Inventory adjustments		25,375			33,240
	Impairment of goodwill		4,003			3,311
	Net operating loss carryforwards		32,835			—
	Other		5,073			4,900
Total gross deferred tax assets			69,148			43,885
Valuation Allowance			(53,642	)		—
Net deferred tax assets		$	—		$	23,480

        Temporary differences represent the cumulative taxable or deductible amounts recorded in the financial statements in different years from those recognized in the tax returns. The fiscal year ended June 30, 2008 includes an income tax charge to record the establishment of a valuation allowance on the Company's net deferred tax assets. In accordance with SFAS 109, Accounting for Income Taxes, the total tax provision has been allocated between continuing operations and discontinued operations. As a result of this allocation, for the fiscal year ended June 30, 2008, the provision for income taxes reflected in discontinued operations is zero with an income tax benefit of $976 in continuing operations.

        The Company files numerous income tax returns in both US federal and state jurisdictions. The statute of limitations with respect to federal and state tax purposes for all returns through and including December 31, 2004 has expired.

        As of June 30, 2008 certain of the Company's federal and certain of their state income tax returns are under audit and are at various stages of the audit process.

Note 10.    Stock Based Compensation and Other Employee Compensation

Stock Award Plan

        In October 2003, the Board of Directors adopted the Orleans Homebuilders, Inc. Stock Award Plan (the "Stock Award Plan"). The Stock Award Plan provides for the grant of stock awards of up to an aggregate of 400,000 shares of the Company's common stock. The Stock Award Plan allows for the payment of all or a portion of the incentive compensation awarded under the Company's bonus compensation plans to be paid by means of a transfer of shares of common stock. The plan has a ten year life and is open to all employees of the Company and its subsidiaries. At June 30, 2008, the

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Company had awarded 395,904 shares of common stock under the Stock Award Plan and the Company had 4,096 shares of the common stock available to issue under the Stock Award Plan.

        In October of 2004 and October of 2005, the Compensation Committee of the Company resolved to award certain executives the right to use up to 10% of their incentive compensation to acquire shares of the Company's common stock at a 15% discount. The stock awards are pursuant to the terms of the Company's Stock Award Plan and vest in equal annual installments over three years following the award date. The Company recognizes compensation expense for the discounts over the vesting periods of the awards. The Company awarded 14,126 shares of the Company's common stock during the year ended June 30, 2006; none in fiscal years 2008 and 2007. The discount on the shares issued during fiscal year 2006 was $50, of which $8 was recognized as compensation expense during fiscal year 2008. An additional $1 will be recognized as compensation expense during the first quarter of fiscal year 2009.

        On March 4, 2005, the Compensation Committee of the Company resolved to grant Michael T. Vesey, the Company's President, Chief Operating Officer and a member of the Company's Board of Directors, 125,000 restricted shares of the Company's common stock pursuant to the terms of the Company's Stock Award Plan. The award was subject to Mr. Vesey's execution of a Restricted Stock Award Agreement which he has executed. The Compensation Committee also approved the payment of bonus compensation to Mr. Vesey sufficient to allow Mr. Vesey to pay the income tax liability triggered on each vesting date.

        The shares of restricted stock granted to Mr. Vesey will vest at a rate of 10,000 per year on the first through fifth anniversaries of the date of grant and 15,000 per year on the sixth through tenth anniversaries of the date of the grant, with all shares being fully vested by or on the tenth anniversary of the date of grant, assuming Mr. Vesey's continued employment with the Company. In addition, upon certain conditions, such as by reason of death, disability or in the event of a change of control as defined in the Stock Award Plan, any shares of restricted stock not vested at that time will vest, assuming Mr. Vesey is then employed by the Company. Any shares that are not vested are subject to forfeiture in the event Mr. Vesey's employment with the Company terminates for any reason other than by reason of death or disability. At June 30, 2008, 30,000 shares of the restricted stock award were vested and the remaining 95,000 shares vest over the remaining vesting period described above

        On December 6, 2007, the Compensation Committee of the Company resolved to grant Garry P. Herdler, the Company's Executive Vice President and Chief Financial Officer, 240,000 restricted shares of the Company's common stock pursuant to the terms of the Company's Stock Award Plan. The award was subject to Mr. Herdler's execution of a Restricted Stock Award Agreement which he has executed. In addition, upon certain conditions, such as death or disability, in the event of a "change of control", termination of employment by the Company without "cause", termination of employment by Mr. Herdler for "good reason" (each as defined in Mr. Herdler's Restricted Stock Award Agreement and his employment agreement), any shares of restricted stock not vested at that time will vest, assuming Mr. Herdler is then employed by the Company. Except as noted in the prior sentence, any shares that are not vested are subject to forfeiture in the event Mr. Herdler's employment with the Company terminates. The Compensation Committee also approved the payment of bonus compensation to Mr. Herdler sufficient to allow Mr. Herdler to pay the income tax liability triggered on each vesting date.

        The shares of restricted stock granted to Mr. Herdler will vest at a rate of 48,000 per year, with all shares being fully vested by or on the fifth anniversary of the date of grant, assuming Mr. Herdler's continued employment with the Company. In addition, in the event of a change of control as defined in the Stock Award Plan, any shares of restricted stock not vested at that time will vest, assuming Mr. Herdler is then employed by the Company. Any shares that are not vested are subject to forfeiture in the event Mr. Herdler's employment with the Company terminates for any reason. At June 30, 2008, all of the shares of the restricted stock award were unvested.

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        On a monthly basis, the Company records compensation expense on a straight-line basis for the portion of the awards earned along with additional compensation expense sufficient to cover the taxes Mr. Vesey and Mr. Herdler will have to pay on the awards. The total fair value of the restricted stock award to Mr. Vesey was $3,988 of which $319, $269 and $337 was recorded as compensation expense for the fiscal years ended June 30, 2008, 2007 and 2006, respectively. The total fair value of the restricted stock award to Mr. Herdler was $1,606, of which $187 was recorded as compensation for the fiscal year ended June 30, 2008.

Stock Option Plans

        In July 2003, as part of an employment agreement with the president of Masterpiece Homes, the Company granted stock options to purchase 45,000 shares of the Company's Common Stock at $10.64 per share. The weighted average fair value of the stock option grant was $7.52. The total fair market value of the stock option grant was approximately $338 of which $16 and $56 was recorded as compensation expense for the fiscal years ended June 30, 2007, and 2006, respectively. No compensation expense was recorded in the fiscal year ended June 30, 2008 as the award became fully vested during fiscal year 2007.

        On August 26, 2004, the board of directors of the Company adopted the Orleans Homebuilders, Inc. 2004 Omnibus Stock Incentive Plan, (the "2004 Stock Incentive Plan"), which is intended to function as an amendment, restatement and combination of all stock option and award plans of the Company other than the Orleans Homebuilders, Inc. Stock Award Plan. On August 26, 2004, the Company granted to an executive officer an option to acquire 20,000 shares of Common Stock and granted to a non-executive officer an option to acquire 7,500 shares of Common Stock. The options vest in four equal annual installments starting June 2005, and have an exercise price of $21.60 per share, the fair market value on the date of grant, and expire in 2014. The weighted average fair value of the stock option grants was $11.03. The total fair market value of the stock option grants was approximately $303 of which $19, $44 and $82 was recorded as compensation expense for the fiscal years ended June 30, 2008, 2007 and 2006, respectively.

        On June 19, 2006, the Company granted, pursuant to the registration of securities on June 18, 2007 that increased the total number of stock options under the 2004 Stock Incentive Plan to 400,000 from 50,000, an executive officer, an option to purchase 250,000 shares of the Company's Common Stock. The stock options were issued pursuant to an employment agreement of the same date. The stock options vest in four equal annual installments starting in June 2007, and have an exercise price of $15.63 per share, the fair market value on the date of grant, and expire in 2016. The weighted average fair value of the stock option grant was $10.62. The total fair market value of the stock option grant was approximately $2,655 of which $705, $1,355 and $58 were recorded as compensation expense for the fiscal years ended June 30, 2008, 2007 and 2006 respectively.

        On February 27, 2007, the Company granted, subject to shareholder approval of an amendment to the 2004 Stock Incentive Plan to increase the total number of stock options under the plan to 1,000,000 from 400,000, an executive officer an option to purchase 240,000 shares of the Company's Common Stock. The stock options were issued pursuant to an employment agreement of the same date. The stock options vest in five equal annual installments starting in February 2008, and have an exercise price of $15.60 per share, the fair market value on the date of grant, and expire in 2016. The weighted average fair value of the stock option grant was $10.56. The total fair market value of the stock option grant was approximately $2,534. On December 6, 2007, the Company repriced these options from $15.60 to $4.65, the fair market value on the date of the repricing. All other terms of the options, including vesting schedules, term and expiration dates, remain unchanged as a result of the repricing.

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The incremental value of the modified share option and the total compensation cost to be recognized was calculated as follows:

Fair value of modified share option	$	2.72
Less: fair value of original share option at modification date		1.86
Incremental value of modified share option	$	0.86
Unrecognized compensation cost for original share option		6.94
Total compensation costs per share to be recognized	$	7.80

        During the fiscal years ended June 30, 2008 and 2007, $1,252 and $386 was recorded as compensation expense relating to this option grant.

        On December 6, 2007, the shareholders approved an amendment to the 2004 Stock Incentive plan to increase the total number of stock options under the plan to 2,000,000 from 1,000,000.

        On December 20, 2007, the Company granted to three executive officers and one non-executive officer options to purchase 180,000 shares of the Company's Common Stock. The stock options vest in five equal annual installments starting in December 2009, and have an exercise price of $4.03 per share, the fair market value on the date of grant, and expire in 2018. The weighted average fair value of the stock option grant was $2.32. The total fair market value of the stock option grant was approximately $418 of which $95 was recorded as compensation expense for the fiscal year ended June 30, 2008.

        On May 23, 2008, the Company granted an executive officer an option to purchase 25,000 shares of the Company's Common Stock. The stock options vest in five equal annual installments starting in May 2009, and have an exercise price of $4.85 per share, the fair market value on the date of grant, and expire in 2018. The weighted average fair value of the stock option grant was $2.77. The total fair market value of the stock option grant was approximately $69 of which $3 was recorded as compensation expense for the fiscal year ended June 30, 2008.

        At June 30, 2008, the total compensation costs related to non-vested options not yet recognized was $2,026, which will be recognized over a weighted average of 41 months.

        The following tables summarize stock option activity for the Company's stock option plans during the three years ended June 30:

	2008		2007		2006
Weighted-average fair value of options granted during the year	$	2.37	$	10.56	$	10.62
Intrinsic value of options exercised during the year	$	450	$	2,671	$	985
Cash received from options exercises during the year	$	118	$	23	$	59
Total fair value of shares vested during the year	$	1,247	$	852	$	189

	2008					2007					2006
	Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price
Outstanding, beginning of year		645,000		$	13.46		655,000		$	2.48		445,000		$	3.26
Granted		205,000			4.13		240,000			15.60		250,000			15.63
Exercised		(97,500	)		1.21		(250,000	)		1.44		(40,000	)		1.48
Outstanding, end of year		752,500			9.01		645,000			13.46		655,000			8.09
Exercisable, end of year		230,500		$	13.41		210,625		$	8.83		376,250		$	2.48
Available for grant, end of year		1,277,500					482,500					122,500

        No options expired or were forfeited during the fiscal years ended June 30, 2008, 2007 or 2006. The source of the shares exercised during the fiscal years ended June 30, 2008, 2007 and 2006, was treasury stock.

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        The following table summarizes information about the Company's stock options at June 30, 2008:

	Options Outstanding						Options Exercisable
Exercise Price	Outstanding at June 30, 2008		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Exercisable at June 30, 2008		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$4.03		180,000		9.5	$	4.03		—		N/A		N/A
4.65		240,000		9.2		4.65		48,000		9.4	$	4.65
4.85		25,000		9.9		4.85		—		N/A		N/A
10.64		30,000		5.1		10.64		30,000		5.1		10.64
15.63		250,000		8.0		15.63		125,000		8.0		15.63
21.60		27,500		6.2		21.60		27,500		6.2		21.60
		752,500		8.7	$	9.01		230,500		7.7	$	13.41

        There was no intrinsic value for outstanding stock options and for stock options that are exercisable as of June 30, 2008.

        A summary of the status of the Company's non-vested stock options as of June 30, 2008, and changes during the fiscal year ended June 30, 2008 is summarized below:

	Number of Shares Underlying Options			Weighted Average Option Grant Date Fair Value
Non-vested at June 30, 2007		434,375		$	10.59
Granted		205,000		$	2.37
Vested		(117,375	)	$	10.62
Non-vested at June 30, 2008		522,000		$	7.36

        The following is a summary of the significant assumptions the Company used to estimate the fair value of the stock options issued during the three years ended June 30:

	2008			2007			2006
Risk-free interest rate		1.80% – 4.04	%		4.50	%		5.14	%
Volatility		63.34% – 63.57	%		62.03	%		61.06	%
Expected life (years)		9.00			9.00			9.00
Dividend yield		1.65 – 1.99	%		0.51	%		0.51	%

        The Company used the assumptions described above in the Black-Scholes option pricing model to determine the aggregate fair value of the stock options granted during the fiscal years ended June 30, 2008, 2007, and 2006. The aggregate fair value of the Company's stock option grants are amortized to compensation expense over their respective vesting periods on a graded basis and included in selling, general and administrative expenses on the Consolidated Statements of Operations. The Company typically issues shares of common stock from treasury stock upon the exercise of stock options, but such shares may also be newly issued.

        The pretax compensation expense associated with stock based compensation for the fiscal years ended June 30, 2008, 2007, and 2006 was $2,075, $1,954, and $594, respectively. Total compensation cost related to non-vested stock based compensation not yet recognized of $2,026 will be recognized according to vesting schedules through May 2013. The Company recognized tax benefits of $0, $1,068 and $955 during the fiscal years ended June 30, 2008, 2007 and 2006 resulting from the disqualified disposition of shares issued to employees in connection with the exercise of incentive stock options and the exercise of non-qualified stock options.

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Employee Bonus Compensation

        The Company has a bonus compensation plan for its executive officers and key employees calculated at eight percent of its consolidated operating profits before taxes and excluding nonrecurring items, income or loss arising from extraordinary items, discontinued operations, debt repurchased at a discount, and the amount of awards under the bonus compensation plan ("Pre-Tax Profits"). Three percent of the Pre-Tax Profits is awarded as an incentive to the Chairman and one and one-half percent is awarded to the President and Chief Operating Officer. The remaining three and one-half percent of the Pre-Tax Profits is awarded at the discretion of the Company's Compensation Committee in consultation with the Chief Executive Officer and President to other executive officers and key employees whose performance merits recognition under goals and policies established by the Compensation Committee. This remaining three and one-half percent includes bonus compensation to the Executive Vice President and Chief Financial Officer of the positive difference between the sum of 0.75% of the Company's first $100,000 of pre-tax, pre-bonus consolidated income and 0.50% of the Company's pre-tax, pre-bonus income in excess of $100,000 less the Executive Vice President and Chief Financial Officer's guaranteed bonus for the fiscal year in accordance with his employment agreement. Certain regional employees not participating in the bonus compensation plan are awarded bonuses calculated at up to eight percent of operating profits before taxes and after an allocated capital charge at a regional level. Additionally, certain employees are awarded bonuses at the discretion of senior management. The Compensation Committee of the Board of Directors also has the authority to award discretionary bonuses to the Company's executive officers. The total amount of bonus compensation charged to selling, general and administrative expense under these plans was $3,328, $4,999, and $13,578 for the three years ended June 30, 2008, 2007 and 2006, respectively.

        In connection with the Masterpiece Homes acquisition on July 28, 2003, and under an employment agreement with the president of Masterpiece Homes, contingent payments representing 25% of the pretax profits of Masterpiece Homes for the calendar years ended December 31, 2004, 2005 and 2006 are payable to the president of Masterpiece Homes. All contingent payments were settled during the fiscal year ended June 30, 2007 and as such, no accrual was recorded at June 30, 2007. Due to poor operating performance during the calendar year ended December 31, 2006, a credit of $1,130 was recorded to selling, general and administrative expense for the fiscal year ended June 30, 2007 to partially offset charges to selling, general and administrative expense of $1,890, and $1,584 during the fiscal years ended June 30, 2006, and 2005, respectively.

401(k) Plan

        The Company's 401(k) Plan allows employees to participate in the plan after attaining age 21 and completing one month of continuous service with the Company. All employer contributions immediately vest under the Company's 401(k) Plan. At the discretion of the Board of Directors, the Company may make matching contributions on the participant's behalf after one year of employment of up to 50% of the participant's eligible annual contribution up to 6%. The Company made gross contributions of $1,033, $811 and $665 for the three fiscal years ended June 30, 2008, 2007 and 2006, respectively.

Supplemental Executive Retirement Plan

        On December 1, 2005, the Company adopted an unfunded, non-qualified target defined benefit retirement plan, effective as of September 1, 2005, which covers a group of management employees of the Company. The Company owns life insurance policies on all participants in the Supplemental Executive Retirement Plan ("SERP"). This SERP, which was amended on March 13, 2006 and September 27, 2007, is intended to provide the participants with an annual supplemental retirement benefit based upon their years of service with the Company and highest average compensation for five consecutive years. The annual supplemental benefit for each participant will be adjusted based on the

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actual performance of the SERP compared to the target. The benefit is payable for life with a minimum of ten years guaranteed. In order to qualify for normal retirement benefits, a participant must attain age 65 with at least five years of participation in the SERP. Early retirement will be permitted beginning at age 55, after 5 years of participation in the SERP. Early retirement benefits will be adjusted actuarially to reflect the early retirement date.

        If a participant terminates employment with the Company prior to attaining his or her normal retirement date, other than by reason of early retirement, death or disability, the participant will forfeit all benefits under the SERP.

        The Company can amend or terminate the SERP at any time. However, no amendment or termination will affect the participants' accrued benefits as determined in accordance with the SERP or delay any payments to a participant beyond the time that such amount would otherwise be payable without regard to the amendment.

        The Company adopted SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS 158") effective June 30, 2007. SFAS 158 requires companies to recognize the overfunded or underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which the changes occur. In addition, SFAS 158 requires companies to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.

        The Company used a 4.00% annual compensation increase for fiscal years ended June 30, 2008, 2007 and 2006 and a 6.00%, 6.10% and 6.16% discount rate in its calculation of the present value of its projected benefit obligation for fiscal years ended June 30, 2008, 2007 and 2006, respectively. The discount rate used represented the Moody's AA bond rate for long-term bonds as of June 2008.

        The components of net periodic pension cost of the Company's SERP included in selling, general and administrative expense in the Company's Consolidated Statement of Operations for the year ended June 30, 2008, 2007 and 2006 were as follows:

	For the year ended June 30,
	2008			2007		2006
Net periodic pension cost:
Service cost	$	612		$	774	$	513
Interest cost		339			475		256
Amortization of prior service cost		415			362		302
Amortization of actuarial loss (gain)		(184	)		3		—
Total net periodic pension cost	$	1,182		$	1,614	$	1,071

        Assumptions used for determining net periodic pension costs:

Discount rate	6.10	%	6.16	%	5.02	%
Salary scale	4.00	%	4.00	%	4.00	%

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        As of June 30, 2008 and 2007, the status of the Company's SERP was as follows:

	Balance at June 30,
	2008			2007
Projected benefit obligation, beginning of year	$	5,563		$	7,715
Service cost		612			774
Interest cost		339			475
Plan amendments		34			—
Actuarial gain		(850	)		(3,401	)
Projected benefit obligation, end of year	$	5,698		$	5,563
Funded status	$	(5,698	)	$	(5,563	)

        During the fiscal years ended June 30, 2008 and 2007, the following was recognized as components of other comprehensive loss:

		Balance at June 30,
		2008			2007
Amounts arising during period:
	Unrecognized actuarial gain	$	3,248		$	2,583
	Unrecognized prior service cost		(5,080	)		(5,461	)
Recognized in other comprehensive loss			(1,832	)		(2,878	)
	Deferred taxes		1,016			1,016
Recognized in other comprehensive loss, net of tax		$	(816	)	$	(1,862	)

        The Accumulated Benefit Obligation was approximately $4,093 and $4,003 at June 30, 2008 and 2007, respectively.

        Assets and (liabilities) recognized in the balance sheet at June 30, 2007 and the incremental effect of applying SFAS 158 is as follows:

	Before Application of SFAS 158		Adjustments			After Application of SFAS 158
Liability for pension benefits	$	2,685	$	2,878		$	5,563
Deferred income tax asset		22,464		1,016			23,480
Total liabilities		684,548		1,862			686,410
Accumulated other comprehensive loss, net of tax		—		(1,862	)		(1,862	)
Total stockholders' equity		226,396		(1,862	)		224,534

        During fiscal year 2009, the Company expects to recognize $418 of prior service cost that is currently included as unrecognized prior service cost and $268 of gain that is currently included as unrecognized gain, both of which are included as components of accumulated other comprehensive income.

        The Company expects to makes its first benefit payments under the SERP during the fiscal year ended June 30, 2012. The expected benefit payments during fiscal years 2012 and 2013 will be approximately $272 each and the aggregate expected benefit payments for fiscal years 2014 through 2018 will be approximately $1,361.

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Deferred Compensation Plan

        On December 1, 2005, the Company adopted an Executive Compensation Deferral Plan (the "Deferral Plan") effective as of June 1, 2005. Under the Plan, participants will have the ability to defer a portion of their compensation which will be credited to an account maintained by the Company for the participant. Amounts contributed by participants are always vested. Participant deferral accounts will be maintained by the Company for recordkeeping purposes only, as the Company is not obligated to invest the contributions in the designated investments. Participants will have no interest in any assets which may be set aside by the Company to meet its obligations under the Deferral Plan. The Company records as expense the amount the employee contribution would have earned had the funds been invested in the designated investment. During the fiscal year ended June 30, 2008, the Company recorded a benefit of $109 as the designated investments had losses. During the fiscal year ended June 30, 2007, the Company recorded expense of $266 to account for earnings in the designated investments. No expense or benefit was recorded in the fiscal year ended June 30, 2006. At June 30, 2008 and 2007, the liability for the Company's Deferred Compensation Plan was $1,351 and $1,844, respectively,

Note 11.    Earnings Per Share Computation

        The weighted average number of shares used to compute basic earnings per common share and diluted earnings per common share, and a reconciliation of the numerator and denominator used in the computation for the three years ended June 30, 2008, 2007 and 2006, respectively, are shown in the following table:

		For the year ended June 30,
		2008			2007			2006
Numerator:
(Loss) income from continuing operations for basic and diluted EPS		$	(121,672	)	$	(57,417	)	$	63,362
Denominator
Weighted average common shares outstanding (in thousands)			18,428			18,458			18,483
Effect of assumed shares issued under treasury stock method for
	stock options (in thousands)		—			—			341
Diluted EPS shares (in thousands)			18,428			18,458			18,824
Basic (loss) income per common share from continuing operations		$	(6.60	)	$	(3.11	)	$	3.43
Diluted (loss) income per common share from continuing operations		$	(6.60	)	$	(3.11	)	$	3.37

        Assumed shares (in thousands) under the treasury stock method for stock options of 56 and 156 for the fiscal years ended June 30, 2008 and 2007, respectively, were not included in the computation of diluted earnings per share because the impact was anti-dilutive for those periods.

Note 12.    Commitments and Contingencies

General

        At June 30, 2008, the Company had outstanding bank letters of credit, surety bonds and financial security agreements amounting to $114,899 as collateral for completion of improvements at various developments of the Company.

        At June 30, 2008 the Company had agreements to purchase land and approved homesites aggregating approximately 1,847 building lots with purchase prices totaling approximately $124,186.

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Generally, the Company structures its land acquisitions so that it has the right to cancel its agreements to purchase undeveloped land and improved lots by forfeiture of its deposit under the agreement. Furthermore, purchase of the properties generally is contingent upon obtaining all governmental approvals and satisfaction of certain requirements by the Company and the sellers. The Company expects to utilize purchase money mortgages, secured financings and existing capital resources to finance these acquisitions. Contingent on the aforementioned, the Company anticipates completing a majority of these acquisitions during the next several years. Within the land and lot option purchase contracts in force at June 30, 2008, there were a limited number of contracts representing $365, subject to specific performance clauses, which may require the Company to purchase the land or lots upon the seller or the Company meeting certain obligations. If the seller meets those specific performance clauses, the Company would forfeit its deposit if the election is made not to purchase the property under contract.

        In January 1983, the New Jersey Supreme Court rendered a decision known as the "Mount Laurel II" decision, which has the effect of requiring certain municipalities in New Jersey to provide housing for persons of low and moderate income. In order to comply with such requirements, municipalities in New Jersey may require developers, including the Company, in connection with the development of residential communities, to contribute funds or otherwise assist in the achievement of the municipalities' fair share of low or moderate-income housing. The Company currently has a commitment with various municipalities in New Jersey for affordable housing contributions totaling approximately $175, payable in installments through June 2010. In July, 2008, legislation was passed in New Jersey that effectively ends the Regional Contribution Agreement as a means to address affordable housing requirements under the Fair Housing Act and in its place creates a statewide non-residential development fee of 2.5% that will be charged on non-residential construction or improvements to raise revenue for the construction and rehabilitation of affordable and workforce housing in New Jersey. The Company is currently assessing what impact this new legislation will have on its New Jersey operations.

Warranty Costs

        Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. The Company regularly monitors its warranty reserve and makes adjustments in order to reflect changes in trends and historical data as information becomes available. Warranty reserves are included in accrued expenses in the consolidated balance sheets.

        Many of the items relating to workmanship are completed by the existing labor force utilized to construct the other new homes in that community and are therefore already factored into the labor and overhead cost to produce each home. Any significant material defects are generally under warranty with the Company's supplier. The Company has not historically incurred any significant litigation requiring additional specific reserves for its product offerings.

        Generally, the Company provides all of its homebuyers with a limited one year warranty as to workmanship. Under certain circumstances, this warranty may be extended to two years. In practice, the Company may extend this warranty period with the ultimate goal of satisfying the customer. In addition, the Company enrolls all of its homes in a limited warranty program with a third party provider (with the premium paid for this program included in the individual unit budgets described above). This limited warranty program generally covers certain defects for periods of one to two years and major structural defects for up to ten years and actual costs incurred are paid for by the third party provider.

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        The Company's warranty and customer satisfaction costs are charged to cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. The amount charged to additions represents warranty and customer satisfaction costs factored into the cost of each home. The amount recorded as charges incurred represents the actual warranty and customer satisfaction cost incurred for the period presented. Certain costs to complete, not included as warranty costs, have been excluded from the rollforward below:

	For the Year Ended June 30,
	2008			2007
Balance at beginning of fiscal year	$	2,908		$	2,188
Warranty costs accrued		3,327			5,018
Actual warranty costs incurred		(2,882	)		(4,298	)
Balance at end of fiscal year	$	3,353		$	2,908

Litigation

        From time to time, the Company is named as a defendant in legal actions arising from its normal business activities. Although the amount of any liability that could arise with respect to currently pending actions cannot be accurately predicted, in the opinion of the Company any such liability will not have a material adverse effect on the financial position or operating results of the Company.

Leases

        The Company's leasing arrangements as lessee include the leasing of certain office space, model homes and equipment. These leases have been classified as operating leases. Rent expense was approximately $2,256, $2,342 and $1,981 for the three years ended June 30, 2008, 2007 and 2006, respectively. The Company has the following operating lease commitments:

Fiscal Year	Amount
2009	$	1,821
2010		1,060
2011		452
2012		373
2013		142
Thereafter		128
Total	$	3,976

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Note 13.    Quarterly Financial Data (Unaudited)

        Unaudited summarized financial data by quarter for 2008 and 2007 are as follows:

	Three months ended
	September 30			December 31			March 31			June 30
Fiscal 2008
Residential property revenues	$	119,357		$	144,490		$	109,018		$	189,318
Inventory Impairments		712			59,473			15,267			20,023
Residential property gross profit (loss)		16,404			(2,935	)		(1,890	)		(2,996	)
Loss from continuing operations		(1,763	)		(38,607	)		(47,111	)		(34,191	)
Loss from discontinued operations		(292	)		(12,778	)		(8,634	)		(37	)
Loss available for common shareholders		(2,055	)		(51,385	)		(55,745	)		(34,228	)
Loss per share—continuing operations:
Basic	$	(0.10	)	$	(2.09	)	$	(2.54	)	$	(1.85	)
Diluted	$	(0.10	)	$	(2.09	)	$	(2.54	)	$	(1.85	)
Loss per share—discontinued operations:
Basic	$	(0.02	)	$	(0.69	)	$	(0.47	)	$	—
Diluted	$	(0.02	)	$	(0.69	)	$	(0.47	)	$	—
Loss per share
Basic	$	(0.11	)	$	(2.78	)	$	(3.01	)	$	(1.86	)
Diluted	$	(0.11	)	$	(2.78	)	$	(3.01	)	$	(1.86	)
Fiscal 2007
Residential property revenues	$	161,772		$	153,172		$	128,886		$	203,486
Inventory Impairments		2,800			7,050			33,603			19,334
Residential property gross profit (loss)		30,459			17,845			(20,237	)		5,295
Goodwill Impairment		—			—			16,334			—
Income (loss) from continuing operations		4,042			(7,029	)		(42,694	)		(11,736	)
(Loss) income from discontinued operations		(143	)		(495	)		(9,201	)		406
Income (loss) available for common shareholders		3,899			(7,524	)		(51,895	)		(11,330	)
Earnings (loss) per share—continuing operations:
Basic	$	0.22		$	(0.38	)	$	(2.31	)	$	(0.63	)
Diluted	$	0.22		$	(0.38	)	$	(2.31	)	$	(0.63	)
(Loss) earnings per share—discontinued operations:
Basic	$	(0.01	)	$	(0.03	)	$	(0.50	)	$	0.02
Diluted	$	(0.01	)	$	(0.03	)	$	(0.50	)	$	0.02
Earnings (loss) per share
Basic	$	0.21		$	(0.41	)	$	(2.81	)	$	(0.61	)
Diluted	$	0.21		$	(0.41	)	$	(2.81	)	$	(0.61	)

        The fourth quarter of fiscal year ended June 30, 2008 results of operations reflects a cumulative out of period adjustment of $2,825 as described in note 1 and an income tax benefit of $3,300 which relates to the third quarter of fiscal year ended June 30, 2008.

Note 14.    Segment reporting

        SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" establishes standards for the manner in which public enterprises report segment information about operating segments. The Company has determined that its operations primarily involve four reportable homebuilding segments operating in 11 markets. Revenues are primarily derived from the sale of homes which the Company constructs. The segments reported have been determined to have similar economic characteristics including similar historical and expected future operating performance,

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employment trends, land acquisitions and land constraints, municipality behavior and met the other aggregation criteria in SFAS 131. The reportable homebuilding segments include operations conducting business in the following markets:

        Northern region:

•

Southeastern Pennsylvania;

•

Central New Jersey;

•

Southern New Jersey; and

•

Orange County, New York

        Southern region:

•

Charlotte, North Carolina (including adjacent counties in South Carolina);

•

Richmond, Virginia;

•

Raleigh, North Carolina;

•

Greensboro, North Carolina; and

•

Tidewater, Virginia

        Midwestern region:

•

Chicago, Illinois

        Florida region:

•

Orlando, Florida

        During the fiscal year ended June 30, 2008, the Company exited from the Phoenix, Arizona market. See note 2, Discontinued Operations.

        The Company's evaluation of segment performance is based on net income before taxes. In fiscal 2008, the Company changed its methodology in allocating corporate costs to the regions through the allocation of a fixed amount of corporate expense to each region based on budgeted revenue, the effect of which was the allocation of costs to the Southern, Florida and Midwestern regions. This allocation was made in order to better reflect the support the Corporate office provides to the regions.

        Below is a summary of revenue, net (loss) income from continuing operations before taxes and interest included in the cost of residential properties for each reportable segment for the years ended June 30, 2008, 2007, and 2006:

	Year Ended June 30,
	2008			2007			2006
Total Revenue
Northern	$	231,570		$	210,966		$	393,873
Southern		245,212			301,807			372,895
Midwestern		60,771			93,001			119,043
Florida		36,482			70,190			93,597
Corporate and unallocated(A)		9,247			6,569			7,784
Consolidated Total	$	583,282		$	682,533		$	987,192
(Loss) Income from Continuing Operations Before Taxes
Northern	$	(36,436	)	$	(35,598	)	$	63,516
Southern		(16,769	)		8,246			34,919
Midwestern		(51,281	)		(22,545	)		11,460
Florida		(21,349	)		(32,431	)		5,671
Corporate and unallocated(A)		3,187			(12,547	)		(11,657	)
Consolidated Total	$	(122,648	)	$	(94,875	)	$	103,909

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Interest Expense and Interest in Cost of Residential Properties
Northern	$	9,435	$	6,956	$	5,779
Southern		8,968		7,388		6,628
Midwestern		7,275		2,702		1,205
Florida		4,372		1,265		1,548
Consolidated Total	$	30,050	$	18,311	$	15,160

(A)

Corporate and unallocated includes the revenues and expenses of the Company's mortgage brokerage and property management operations as well as corporate level selling, general, administrative expenses in excess of amounts allocated to the regions. These selling, general, and administrative expenses are primarily comprised of corporate salaries, bonuses, and benefits; accounting and consulting fees; corporate travel expenses; net periodic pension costs; and compensation expense resulting from the fair valuation of stock options.

        Below is as a summary of total assets and goodwill for each reportable segment at June 30, 2008 and 2007:

	June 30,
	2008		2007
Assets
Northern	$	341,971	$	413,347
Southern		241,696		294,796
Midwestern		46,666		61,746
Florida		21,374		106,604
West		18		33,841
Corporate and unallocated(B)		64,387		610
Consolidated Total	$	716,112	$	910,944
Goodwill
Southern		4,180		4,180
Consolidated Total	$	4,180	$	4,180

(B)

Corporate and Unallocated primarily includes cash and debt acquisition costs.

Note 15.    Fair Value of Financial Instruments

        The estimated fair values of the Company's financial instruments at June 30, 2008 and 2007 were as follows:

	2008				2007
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	72,341	$	72,341	$	19,991	$	19,991
Restricted cash—due from title company		19,269		19,269		25,483		25,483
Restricted cash—customer deposits		8,264		8,264		11,362		11,362
Mortgage and other note obligations		396,133		396,133		469,123		469,123
Subordinated notes		105,000		75,000		105,000		97,350

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        The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents—the carrying amount approximates fair value because of the short maturity of these instruments.

Restricted cash—due from title company—the carrying amount approximates fair value because of the short maturity of these instruments.

Restricted cash—customer deposits—the carrying amount approximates fair value because of the short maturity of these instruments.

Mortgage and other note obligations—these obligations are variable-rate borrowings which are tied to market indices and therefore approximate fair value.

Subordinated notes—these obligations are fixed-rate borrowings. The fair value is the estimated market value at June 30, 2008 and June 30, 2007, based on fair value indications of the coupon rate of similar instruments in a similar market since there is no market quoted price for such instruments.

Note 16.    Subsequent events

        On May 9, 2008, the Company received a Waiver Letter under the Company's Amended and Restated Revolving Credit Loan Agreement by and among Greenwood Financial, Inc. ("Greenwood Financial"), a wholly-owned subsidiary of the Company, and certain affiliates of Greenwood Financial (collectively, the "Borrowers"), the Company, as guarantor, Wachovia Bank, National Association, as administrative agent, and various other lenders party thereto, originally entered into on January 24, 2006 and amended on November 1, 2006, February 7, 2007, May 8, 2007, September 6, 2007 and December 1, 2007 (as amended, the "Revolving Credit Facility"). The Waiver Letter temporarily waived compliance with certain covenants contained in the Revolving Credit Facility generally from January 1, 2008 through and including September 15, 2008 (the "Waiver Period"), unless another event of default occurred or the Company failed to meet the revised minimum consolidated tangible net worth and leverage covenants set forth in the Waiver Letter. On September 15, 2008, the Company received an extension of the Waiver Period under the Waiver Letter to September 30, 2008, until the Second Amended and Restated Credit Agreement was executed on September 30, 2008.

Second Amended Credit Agreement:

        On September 30, 2008, the Company entered into the Second Amended and Restated Revolving Credit Agreement (the "Second Amended Credit Agreement") which amends and restates the terms of the Revolving Credit Facility and provides, among other things, that:

•

The maturity date will be December 20, 2009 for all lenders.



•

The amount of the Revolving Credit Facility is $440,000, except that the amount of the Revolving Credit Facility will be $425,000 through December 31, 2008, and $415,000 from July 1, 2009 through December 20, 2009, unless otherwise reduced below these levels as a result of the minimum borrowing base availability requirements in the Revolving Credit Facility.



•

The letter of credit sublimit was reduced to $60,000.



•

The swing line limit was reduced to $10,000,



•

The unused fee was increased to 0.35%.



•

The interest rate was changed to the LIBOR interest rate plus 5.0%.

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•

A fee will be earned and payable on September 15, 2009 equal to 8.0% per annum, calculated on a daily basis, of the difference between $250,000 and the aggregate level of the lenders' lending commitments under the Revolving Credit Facility as they exist from time to time between September 30, 2008 and the earlier of September 15, 2009 and the date the commitments are permanently reduced to $250,000; however this fee will be reduced by 80% if the aggregate level of commitments on or before September 15, 2009 have been permanently reduced to $250,000.



•

If the Company's indebtedness is not paid in full by December 20, 2009, a separate fee will be earned and payable on December 20, 2009 equal to 8.0% per annum, calculated on a daily basis, of the difference between $250,000 and the average daily outstanding cash borrowing as they exist from time to time after September 15, 2009.



•

The letter of credit fees were changed to be the applicable spread, with the issuer retaining an issuance fee of 0.125%.



•

The borrowing base calculation was amended to increase the maximum percentages for certain asset classes.



•

Both of the leverage covenants, the debt service coverage ratio covenant and the units in inventory covenant were eliminated.



•

The minimum consolidated tangible net worth covenant was lowered to be not less than $75,000, (1) reduced by the sum of (a) inventory impairments under GAAP on assets in the borrowing base taken by the Company and recorded after March 31, 2008, plus (b) the amount of any interest incurred less the amount of interest capitalized under Statement of Financial Accounting Standard No. 34 ("SFAS 34"), plus (c) any additional deferred tax asset valuation reserves recorded after March 31, 2008 (provided that clauses (a) and (c) are limited to an aggregate amount not to exceed $30,000), plus (d) any impairments or write-offs relating to tangible assets or pre-acquisition costs not contained in the borrowing base recorded after March 31, 2008, and (2) increased by the sum of (x) any favorable adjustment to the deferred tax asset valuation allowance taken by the Company as reported in the Company's third quarter financials, plus (y) 50% of positive quarterly net income plus (z) 50% of any net securities proceeds received by the Company and the borrowers under the Revolving Credit Facility after March 31, 2008. However, in no event may the consolidated tangible net worth, after taking into account the reductions and increases above, at any time be less than $35,000.



•

The minimum liquidity level was reduced to $15,000.



•

The minimum cash flow from operations ratio was reduced and the related definition of debt service was amended to exclude any amortized deferred financing costs related to all amendments to the Amended Credit Agreement, the Second Amended Credit Agreement and/or the trust preferred securities and any future amendments to any of the foregoing.



•

A $5,000 limit was put on the Company's cash available for joint ventures, however, the Company may invest 50% of any net securities proceeds raised by the Company after March 31, 2008 in joint ventures that are non-recourse to the Company and may maintain current investments in cost-sharing arrangements or partnerships already in existence.



•

The maximum amount of cash or cash equivalents (excluding cash at title companies) the Company is allowed to maintain was set at a maximum of $32,500 for any consecutive five-day period.



•

The borrowers may purchase (a) up to $8,000 of real estate (whether purchase money or otherwise) in the normal course of business, consistent with projections provided to the lenders and (b) improved land (i.e., finished lot takedowns and/or controlled rolling lot options)

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purchased by the borrowers in the normal course of business, consistent with the projections provided to the Lenders.

        The Company also agreed that no dividends or distributions will be paid, no subordinated debt will be repaid under the current Revolving Credit Facility except for interest payable on such debt, and limitations were placed on purchases of additional land including the method for financing such land.

        The bank has agreed to allow the Company to pursue second lien indebtedness in certain limited circumstances. The Company and the lenders have agreed that re-appraisals will be done on the Company's collateral assets. Approximately 35% of those assets have already been appraised and approximately one third of the assets in the borrowing base with a book value in excess of $4,000 that have not yet been appraised, will be appraised in each of the second, third and fourth quarters of fiscal year 2009. The re-appraisals that have been done to date have not had a material impact on the Company's borrowing base, but there can be no assurance that future re-appraisals will not reduce the Company's borrowing base availability.

        Additional covenants were added to the facility, including requirements that the Company grant a mortgage on any real property not already subject to the Revolving Credit Facility; that all real property sales must be accomplished through a title company, with the net proceeds of such a sale going directly to the Agent for application to the outstanding balance under the Revolving Credit Facility; that any purchases of real estate must be done through a title company through advances under the Revolving Credit Facility and all such acquisitions must be subject to mortgages in favor of the revolver; and at the time of any such advance, the Company will be required to provide an estimate of the portion of the borrowing that will be used for construction needs and asset purchases with respect to an applicable project.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        There are no matters required to be reported hereunder.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

        The Company's management, with the participation of the Company's Chief Executive Officer, President and Chief Operating Officer, Executive Vice President and Chief Financial Officer and Vice President and Corporate Controller, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer, President and Chief Operating Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller concluded that the Company's disclosure controls and procedures, as of the end of the period covered by this report, were effective.

Changes in Internal Control Over Financial Reporting

        There has been no change in the Company's internal control over financial reporting during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

        The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the Company's financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

        The Company's management with the participation of the Company's Chief Executive Officer, President and Chief Operating Officer, Executive Vice President and Chief Financial Officer and Vice President and Corporate Controller conducted an evaluation of the effectiveness of the Company's internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management's evaluation under the framework in Internal Control—Integrated Framework, the Company's management concluded that the Company's internal control over financial reporting was effective at the reasonable assurance level as of June 30, 2008.

        The effectiveness of the Company's internal control over financial reporting as of June 30, 2008 has been audited by PricewaterhouseCoopers LLP, an independent registered accounting firm as stated in their report which is included at page 67 in this Annual Report on Form 10-K.

Item 9B. Other Information.

        On September 30, 2008, the Company entered into the Second Amended and Restated Revolving Credit Loan Agreement by and among Greenwood Financial, Inc. ("Greenwood Financial"), a wholly-owned subsidiary of the Company, and certain affiliates of Greenwood Financial, the Company, as guarantor, Wachovia Bank, National Association, as administrative agent, and various other lenders party thereto (the "Second Amended Credit Agreement"), which amended and restated the terms of the Company's Revolving Credit Facility. For additional information with respect to the Second Amended Credit Agreement, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving Credit Facility—Second Amended Credit Agreement." The description of the Second Amended Credit Agreement

115

contained in this Form 10-K is qualified in its entirety by reference to the Second Amended Credit Agreement, which is attached hereto as Exhibit 10.18(i).

        On September 30, 2008, in connection with the Second Amended Credit Agreement, Orleans Homebuilders, Inc. entered into an Amended and Restated Guaranty with Wachovia Bank, National Association, which was amended to include additional representations and warranties. This description of the Amended and Restated Guaranty is qualified in its entirety by reference to the Amended and Restated Guaranty, which is attached hereto as Exhibit 10.19(c).

        On September 30, 2008, in connection with the Second Amended Credit Agreement, Orleans Homebuilders, Inc. and certain of its subsidiaries entered into a Security Agreement with Wachovia Bank, National Association, to grant to the lenders a security interest in certain inter-company debt and all future tax refunds and the proceeds thereof received or payable to the borrowers or the Company after the closing of the Second Amended Credit Agreement. This description of the Security Agreement is qualified in its entirety by reference to the Security Agreement, which is attached hereto as Exhibit 10.35.

        Pursuant to the Second Amended Credit Agreement, the Company may no longer pay any dividends to its shareholders.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

        Incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in December 2008.

Item 11. Executive Compensation.

        Incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in December 2008.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

        Incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in December 2008.

Item 13. Certain Relationships and Related Transactions and Director Independence.

        Incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in December 2008.

Item 14. Principal Accounting Fees and Services.

        Incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in December 2008.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)

Financial Statements and Financial Statement Schedules



1.

Financial Statements

        The financial statements listed in the index on the first page under Item 8 are filed as part of this Form 10-K.

2.

Financial Statement Schedules

        None.

3.

Exhibits

Exhibit Number
2.1	Stock Purchase Agreement dated as of October 12, 2000, by and among the Company, Parker & Lancaster Corporation, and the selling stockholders party thereto (incorporated by reference to Exhibit 2 to the Company's Form 8-K filed with the Securities and Exchange Commission on October 27, 2000).
2.2	Stock Purchase Agreement among Orleans Homebuilders, Inc., Masterpiece Homes, Inc., Robert Fitzsimmons, the David R. Robinson Trust and David R. Robinson (incorporated by reference to Exhibit 2.1 to the Company's Form 10-Q for the period ended September 30, 2003).
2.3	Purchase Agreement dated as of July 28, 2004 among Orleans Homebuilders, Inc., Realen Homes, L.P., Realen General Partner, LLC, DB Homes Venture, L.P., DeLuca Enterprises, Inc. DeLuca Sub., Inc., BPG Real Estate Investors-B, L.P., Berwind Property Group, Ltd., and Berwind Property Group, Inc. (incorporated by reference to Exhibit 2 to the Company's Form 8-K filed with the Securities and Exchange Commission on August 11, 2004).
3.1	Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q filed with the Securities and Exchange Commission on May 8, 2006).
3.2	Amended and Restated By-laws of Orleans Homebuilders, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on December 11, 2004).
4.1	In accordance with Regulation S-K, Item 601(b)(4)(iii)(A) certain instruments respecting long-term debt of the Company have been omitted; the Company agrees to furnish a copy of any such instrument to the SEC upon request.
10.1**	Form of Indemnity Agreement executed by the Company with Directors of the Company (incorporated by reference to Exhibit B to the Company's Proxy Statement with respect to its 1986 Annual Meeting of Stockholders).
10.2**	(a) Employment Agreement between the Company and Jeffrey P. Orleans, dated June 26, 1987 (incorporated by reference to Exhibit 10.2 to the Form S-1).
	(b) First Amendment to Employment Agreement by and between Orleans Homebuilders, Inc. and Jeffrey P. Orleans dated December 31, 2005 (incorporated by reference to Exhibit 10.9 to the Company's Form 10-Q filed with the Securities and Exchange Commission on February 9, 2006).

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10.3	$39,040,921 Mortgage Note dated November 7, 2003 by Orleans at Lambertville, LLC in favor of Wachovia Bank, National Association (incorporated by reference to Exhibit 10.8 of the Company's Amendment No. 2 to Registration Statement on Form S-2 filed with the Securities and Exchange Commission on March 1, 2004 (S.E.C. File No. 333-111916)).
10.4	Construction Loan Agreement dated November 7, 2003 by and between Wachovia Bank, National Association and Orleans at Lambertville, LLC (incorporated by reference to Exhibit 10.9 of the Company's Amendment No. 2 to Registration Statement on Form S-2 filed with the Securities and Exchange Commission on March 1, 2004 (S.E.C. File No. 333-111916)).
10.5	Third Allonge and Modification to Master Loan Agreement and Other Loan Documents dated September 22, 2003 by and among Parker & Lancaster Corporation, Parker Lancaster & Orleans, Inc. and Bank of America, N.A. (incorporated by reference to Exhibit 10.14 of the Company's Amendment No. 2 to Registration Statement on Form S-2 filed with the Securities and Exchange Commission on March 1, 2004 (S.E.C. File No. 333-111916)).
10.6	Fourth Allonge and Modification to Master Loan Agreement and Other Loan Documents dated November 18, 2003 by and among Parker & Lancaster Corporation, Parker & Orleans Homebuilders, Inc. and Bank of America, N.A. (incorporated by reference to Exhibit 10.15 of the Company's Amendment No. 2 to Registration Statement on Form S-2 filed with the Securities and Exchange Commission on March 1, 2004 (S.E.C. File No. 333-111916)).
10.7	Loan Modification Agreement (Master Line) dated November 11, 2003 by and among Parker & Lancaster Corporation, Parker Lancaster & Orleans, Inc., the Company, and South Trust Bank (incorporated by reference to Exhibit 10.31 of the Company's Amendment No. 2 to Registration Statement on Form S-2 filed with the Securities and Exchange Commission on March 1, 2004 (S.E.C. File No. 333-111916)).
10.8	Bridge Loan Agreement dated July 28, 2004 by and among Orleans, Inc. and Wachovia Bank (incorporated by reference to Exhibit 10.32 of the Company's Form 10-K filed with the Securities and Exchange Commission on August 26, 2004).
10.9	First Amendment to the Bridge Loan Agreement made by and among Orleans Homebuilders, Inc. and Wachovia National Bank dated November 17, 2004 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on November 19, 2004).
10.10	Guaranty by Orleans Homebuilders, Inc., dated December 22, 2004 (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed with the Securities and Exchange Commission on December 29, 2004).
10.11**	Stock Award Plan (incorporated by reference to Appendix B to the Company's Proxy Statement with respect to its 2003 Annual Meeting of Stockholders).
10.12**	(a) Amended and Restated Orleans Homebuilders, Inc. 2004 Omnibus Stock Incentive Plan (Effective as of August 26, 2004; Amended and Restated as of June 6, 2006) (incorporated by reference to Appendix A to the Company's Proxy Statement with respect to its 2006 Annual Meeting of Stockholders).
	(b) Second Amended and Restated 2004 Omnibus Stock Incentive Plan (incorporated by reference to Appendix D of the Company's Proxy Statement with respect to its 2007 Annual Meeting of Stockholders).
10.13**	Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on March 10, 2005).

119

10.14**	Orleans Homebuilders, Inc. Incentive Compensation Plan, as amended (incorporated by reference to Exhibit 10.16 to the Company's Form 10-K/A filed with the Securities and Exchange Commission on September 16, 2005).
10.15**	Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on October 26, 2005).
10.16**	Supplemental Executive Retirement Plan, effective September 1, 2005 (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed with the Securities and Exchange Commission on February 9, 2006).
10.17**	Executive Compensation Deferral Plan, effective June 1, 2005 (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed with the Securities and Exchange Commission on February 9, 2006).
10.18	(a) Amended and Restated Revolving Credit Loan Agreement among Greenwood Financial, Inc. and certain other subsidiaries of Orleans Homebuilders, Inc., Orleans Homebuilders, Inc. and Wachovia Bank, National Association and certain other lenders, dated January 24, 2006 (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed with the Securities and Exchange Commission on February 9, 2006).
	(b) First Amendment to Amended and Restated Revolving Credit Loan Agreement, dated November 1, 2006 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on November 03, 2006).
	(c) Second Amendment to Amended and Restated Revolving Credit Loan Agreement, executed February 7, 2007 (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed with the Securities and Exchange Commission on February 9, 2007).
	(d) Third Amendment to Amended and Restated Revolving Credit Loan Agreement, dated May 8, 2007 (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed with the Securities and Exchange Commission on May 10, 2007)
	(e) Fourth Amendment to Amended and Restated Revolving Credit Loan Agreement, dated September 7, 2007 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on September 12, 2007).
	(f) Fifth Amendment to Amended and Restated Revolving Credit Loan Agreement, dated as of December 21, 2007 and effective as of December 1, 2007, by and among Greenwood Financial, Inc. and certain affiliates, Orleans Homebuilders,  Inc., Wachovia Bank, National Association and various other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on December 28, 2007).
	(g) Waiver Letter, dated as of May 9, 2008, by and among Greenwood Financial, Inc. and certain affiliates, Orleans Homebuilders, Inc., Wachovia Bank, National Association and various other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on May 13, 2008).
	(h) Extension of the Waiver Letter, dated as of September 15, 2008, by and among Greenwood Financial, Inc. and certain affiliates, Orleans Homebuilders, Inc., Wachovia Bank, National Association and various other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on September 17, 2008).

120

	(i)* Second Amended and Restated Revolving Credit Loan Agreement among Greenwood Financial, Inc. and certain affiliates as borrowers, Orleans Homebuilders, Inc., as Guarantor, Wachovia Bank, National Association, as Administrative Agent, Wachovia Capital Markets, LLC, as Lead Arranger, Bank of America, N.A., as Syndication Agent, Sovereign Bank, as Documentation Agent, Manufacturers and Traders Trust Company, as Documentation Agent and Wachovia Bank, National Association and certain other Lenders dated as of September 30, 2008.
10.19	(a) Guaranty by Orleans Homebuilders, Inc. dated January 24, 2006 (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed with the Securities and Exchange Commission on February 9, 2006).
	(b) First Amendment to Guaranty by Orleans Homebuilders, Inc. dated September 7, 2007 (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed with the Securities and Exchange Commission on September 12, 2007.
	(c)* Amended and Restated Guaranty by Orleans Homebuilders, Inc. dated September 30, 2008.
10.20	(a) Junior Subordinated Indenture by and between OHI Financing, Inc. and JPMorgan Chase Bank, National Association, dated November 23, 2005 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 30, 2005).
	(b) Supplemental Indenture No. 1, dated as of August 13, 2007 to the Junior Subordinated Indenture, dated as of November 23, 2005 (as amended, supplemented, amended and restated or otherwise modified from time to time), among OHI Financing, Inc., and The Bank of New York Trust Company, National Association, a national banking association (as successor to JPMorgan Chase Bank, National Association, a national banking association) (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 14, 2007).
10.21	Amended and Restated Trust Agreement by and Among OHI Financing, Inc., JPMorgan Chase Bank, National Association and the Administrative Trustees named therein, dated November 23, 2005 (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed with the Securities and Exchange Commission on November 30, 2005).
10.22	Parent Guarantee Agreement by and between Orleans Homebuilders, Inc. and JPMorgan Chase Bank, National Association dated November 23, 2005 (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed with the Securities and Exchange Commission on November 30, 2005).
10.23**	Amendment to Orleans Homebuilders, Inc. Supplemental Executive Retirement Plan, dated March 13, 2006 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on March 15, 2006).
10.24**	At-Will Employment Agreement between the Company and C. Dean Amann, II, effective June 19, 2006 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on June 23, 2006).
10.25**	Form of Non-Qualified Stock Option (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on June 23, 2006).
10.26**	Summary of Terms of Incentive Compensation Arrangement for Division Presidents (incorporated by reference to Exhibit 10.29 to the Company's Form 10-K filed with the Securities and Exchange Commission on September 11, 2006).

121

10.27**	Summary of Compensation to members of the Board of Directors (incorporated by reference to Exhibit 10.30 to the Company's Form 10-K filed with the Securities and Exchange Commission on September 11, 2006).
10.28**	Orleans Homebuilders, Inc. Cash Bonus Plan for C. Dean Amann, II (incorporated by reference to Appendix B to the Company's Proxy Statement with respect to its 2006 Annual Meeting of Stockholders).
10.29**	Employment Agreement between the Company and Garry P. Herdler, dated February 27, 2007 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 5, 2007).
10.30**	Orleans Homebuilders, Inc. Cash Bonus Plan for Garry Herdler (incorporated by reference to Appendix E of the Company's Proxy Statement with respect to its 2007 Annual Meeting of Stockholders).
10.31**	Division and Regional Presidents 2008 Bonus Plan, effective as of September 27, 2007 incorporated by reference to Exhibit 10.7 to the Company's Form 10-Q filed with the Securities and Exchange Commission on November 7, 2007)
10.32**	Orleans Homebuilders, Inc. Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed with the Securities and Exchange Commission on December 11, 2007).
10.33**	Letter Agreement between Orleans Homebuilders, Inc. and Garry P. Herdler (incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed with the Securities and Exchange Commission on December 11, 2007).
10.34**	Orleans Homebuilders, Inc. Amendment to Non-Qualified Stock Option (incorporated by reference to Exhibit 10.5 to the Company's Form 8-K filed with the Securities and Exchange Commission on December 11, 2007).
10.35*	Security Agreement among Orleans Homebuilders, Inc., certain subsidiaries of Orleans Homebuilders, Inc. and Wachovia Bank, National Association, dated September 30, 2008.
21*	Subsidiaries of the Registrant.
23.1*	Consent of PricewaterhouseCoopers LLP.
31.1*	Certification of Jeffrey P. Orleans pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Michael T. Vesey pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3*	Certification of Garry P. Herdler pursuant to Section 302 Sarbanes-Oxley Act of 2002.
32.1*	Certification of Jeffrey P. Orleans pursuant to Section 906 Sarbanes-Oxley Act of 2002.
32.2*	Certification of Michael T. Vesey pursuant to Section 906 Sarbanes-Oxley Act of 2002.
32.3*	Certification of Garry P. Herdler pursuant to Section 906 Sarbanes-Oxley Act of 2002.

*

Exhibits included with this filing.

**

Management contract or compensatory plan or arrangement

122

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ORLEANS HOMEBUILDERS, INC.
By:	/s/ Jeffrey P. Orleans Jeffrey P. Orleans, Chairman of the Board and Chief Executive Officer	September 29, 2008

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

/s/ Jeffrey P. Orleans Jeffrey P. Orleans Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	September 29, 2008
/s/ Benjamin D. Goldman Benjamin D. Goldman Vice Chairman and Director	September 29, 2008
/s/ Jerome Goodman Jerome Goodman Director	September 29, 2008
/s/ Robert N. Goodman Robert N. Goodman Director	September 29, 2008
/s/ Andrew N. Heine Andrew N. Heine Director	September 29, 2008
/s/ David Kaplan David Kaplan Director	September 29, 2008

123

/s/ Lewis Katz Lewis Katz Director	September 29, 2008
/s/ Robert M. Segal Robert M. Segal Director	September 29, 2008
/s/ John W. Temple John W. Temple Director	September 29, 2008
/s/ Michael T. Vesey Michael T. Vesey President and Chief Operating Officer and Director	September 29, 2008
/s/ Garry P. Herdler Garry P. Herdler Executive Vice President and Chief Financial Officer (Principal Financial Officer)	September 29, 2008
/s/ Mark D. Weaver Mark D. Weaver Vice President and Controller (Principal Accounting Officer)	September 29, 2008

124

Exhibit Index

10.18(i)	Second Amended and Restated Revolving Credit Loan Agreement among Greenwood Financial, Inc. and certain affiliates as borrowers, Orleans Homebuilders, Inc., as Guarantor, Wachovia Bank, National Association, as Administrative Agent, Wachovia Capital Markets, LLC, as Lead Arranger, Bank of America, N.A., as Syndication Agent, Sovereign Bank, as Documentation Agent, Manufacturers and Traders Trust Company, as Documentation Agent and Wachovia Bank, National Association and certain other Lenders dated as of September 30, 2008.
10.19(c)	Amended and Restated Guaranty by Orleans Homebuilders, Inc. dated September 30, 2008.
10.35	Security Agreement among Orleans Homebuilders, Inc., certain subsidiaries of Orleans Homebuilders, Inc. and Wachovia Bank, National Association, dated September 30, 2008.
21	Subsidiaries of the Registrant.
23.1	Consent of PricewaterhouseCoopers LLP.
31.1	Certification of Jeffrey P. Orleans pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.
31.2	Certification of Michael T. Vesey pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.
31.3	Certification of Garry P. Herdler pursuant to Section 302 Sarbanes – Oxley Act of 2002.
32.1	Certification of Jeffrey P. Orleans pursuant to Section 906 Sarbanes – Oxley Act of 2002.
32.2	Certification of Michael T. Vesey pursuant to Section 906 Sarbanes – Oxley Act of 2002.
32.3	Certification of Garry P. Herdler pursuant to Section 906 Sarbanes – Oxley Act of 2002.

125

QuickLinks

TABLE OF CONTENTS
PART I

Item 1. Business.

Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.

PART II

Item 5. Market for Registrant's Common Stock Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Item 6. Selected Financial Data.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions and Director Independence.
Item 14. Principal Accounting Fees and Services.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

SIGNATURES
Exhibit Index

EX-10.18(I)

Exhibit 10.18(i)

SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT

among

GREENWOOD FINANCIAL, INC. AND CERTAIN AFFILIATES,
as Borrowers

ORLEANS HOMEBUILDERS, INC.,
as Guarantor

WACHOVIA BANK, NATIONAL ASSOCIATION,
as Administrative Agent

WACHOVIA CAPITAL MARKETS, LLC,
as Lead Arranger

BANK OF AMERICA, N.A.,
as Syndication Agent

SOVEREIGN BANK,
as Documentation Agent

MANUFACTURERS AND TRADERS TRUST COMPANY,
as Documentation Agent

NATIONAL CITY BANK,
as Documentation Agent

and

WACHOVIA BANK, NATIONAL ASSOCIATION
FIRSTRUST BANK
GUARANTY BANK
CITIZENS BANK OF PENNSYLVANIA
COMMERCE BANK, N.A.
SUNTRUST BANK
REGIONS BANK, successor to Amsouth Bank
FRANKLIN BANK, SSB
COMERICA BANK
COMPASS BANK, an Alabama Banking Corporation
JPMORGAN CHASE BANK, N.A.
LASALLE BANK NATIONAL ASSOCIATION
DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Lenders

$440,000,000
Senior Secured Revolving Credit and Letter of Credit Facility
Dated:  As of September 30, 2008

TABLE OF CONTENTS

		Page
ARTICLE I. DEFINITIONS		2
1.1	Definitions	2
1.2	Construction of Terms	20
1.3	Accounting Reports and Principles	20
1.4	Business Day; Time	20
1.5	Charging Accounts	20
ARTICLE II. AMOUNT AND TERMS OF THE FACILITY; SECURITY FOR THE FACILITY		21
2.1	The Facility	21
2.2	Term of Facility	23
2.3	Repayment Terms	24
2.4	Interest Rate	25
2.5	Default Rate	26
2.6	Fees Payable by Borrowers	26
2.7	Prepayments	28
2.8	No Setoff or Deduction	27
2.9	Illegality	28
2.10	Notes	28
2.11	Security	28
2.12	General Provisions	30
2.13	Advances Made Through Title Company	32
2.14	Swap Contracts	32
2.15	Alternate Interest Rate	32
2.16	Taxes	33
2.17	Increased Costs	34
2.18	Designation of a Different Lending Office	35
2.19	Survival of Indemnity	35
2.20	Replacement of Lenders	36
2.21	Lending Office	36
ARTICLE III. NOTICE OF BORROWING; BORROWING BASE; BORROWING BASE AVAILABILITY		36
3.1	Notice of Borrowing	36
3.2	Admission of Projects to Borrowing Base	37

i

3.3	Borrowing Base Availability	37
3.4	Submission of Borrowing Base Certificate	40
3.5	Inspection of Projects	40
ARTICLE IV. CONDITIONS OF LENDING		40
4.1	Agreement to Make Available the Facility	40
4.2	Availability of Letters of Credit and Tri-Party Agreements	44
4.3	Conditions Precedent to Loans	44
ARTICLE V. REPRESENTATIONS AND WARRANTIES		45
5.1	Use of Proceeds	45
5.2	Incorporation, Good Standing, and Due Qualification	45
5.3	Power and Authority	46
5.4	Legally Enforceable Agreement	47
5.5	Financial Statements; Accuracy of Information	46
5.6	Conflicts	47
5.7	Consents	48
5.8	Litigation	47
5.9	Other Agreements	47
5.10	No Defaults and Outstanding Judgments or Orders	47
5.11	Taxes	47
5.12	Debt	48
5.13	Ownership and Liens	48
5.14	ERISA	48
5.15	Representations and Warranties as to Real Estate	48
5.16	No Violation	50
5.17	Accurate and Complete Disclosure	50
5.18	Compliance with Covenants	50
5.19	Solvency	50
ARTICLE VI. AFFIRMATIVE COVENANTS		49
6.1	Reporting Requirements	50
6.2	Payment of Taxes	51
6.3	Access to Properties, Books and Records	52
6.4	Maintenance of Records	52
6.5	Maintenance of Existence	53
6.6	Insurance	53
6.7	ERISA	55
6.8	Accounts	55

ii

6.9	Compliance with Laws	55
6.10	Payment of Debt	54
6.11	[Intentionally Omitted]	54
6.12	Further Assurances	54
ARTICLE VII. NEGATIVE COVENANTS		55
7.1	Creation of Debt	55
7.2	Grant of Liens	56
7.3	Mergers and Acquisitions	56
7.4	Transaction With Affiliates	55
7.5	Use of Proceeds	55
7.6	Restricted Payments	56
7.7	Amendments of Documents Relating to Subordinated Debt	56
7.8	Second Lien Indebtedness	57
7.9	Investments.	58
7.10	Limitation on Holdings of Cash and Cash Equivalents.	60
ARTICLE VIII. FINANCIAL COVENANTS		59
8.1	[Intentionally Omitted]	59
8.2	Consolidated Tangible Net Worth	59
8.3	[Intentionally Omitted]	61
8.4	[Intentionally Omitted.]	61
8.5	Real Estate Acquisitions	61
8.6	[Intentionally Omitted]	60
8.7	Cash Flow From Operations	60
8.8	Liquidity	60
8.9	Reports Regarding Financial Covenants	60
ARTICLE IX. EVENTS OF DEFAULT		62
ARTICLE X. REMEDIES		62
10.1	Remedies of Lenders	62
10.2	Effect of Delay	63
10.3	Acceptance of Partial Payment	63
10.4	Other Available Remedies	63
10.5	Waiver of Marshalling of Assets	63
10.6	Waiver of Counterclaim	65

iii

ARTICLE XI. THE AGENT		65
11.1	Appointment	65
11.2	Delegation of Duties	64
11.3	Exculpatory Provisions	64
11.4	Reliance by Agent	66
11.5	Non-Reliance on Agent and Other Lenders	65
11.6	Indemnification	67
11.7	Consequential Damages	66
11.8	Agent in Its Individual Capacity	66
11.9	Resignation or Removal of Agent as Administrative Agent	68
11.10	Amendments, Waivers and Consents	67
11.11	Authority	69
11.12	Borrower Default	68
11.13	Lender Default	68
11.14	Ratable Sharing	71
11.15	Documentation	70
ARTICLE XII. INTENTIONALLY OMITTED.		70
ARTICLE XIII. MISCELLANEOUS		72
13.1	Modifications	72
13.2	Binding Nature	72
13.3	Governing Law	72
13.4	Time of Performance	72
13.5	Severability	71
13.6	Captions	71
13.7	Computations	71
13.8	Continuing Obligation	71
13.9	Assignment and Participation	73
13.10	Notices	74
13.11	Cumulative Remedies	78
13.12	Third Party Beneficiaries	77
13.13	Entire Agreement	77
13.14	Counterparts	77
13.15	Expenses and Indemnification	77
13.16	Relationship of Parties	80
13.17	Joint and Several Liability	79

iv

13.18		Damage Waiver	79
13.19		Publicity	79
13.20		No Implied Waiver	79
13.21		USA Patriot Act	81
13.22		Taxes	81
13.23		Conflict; Construction of Documents; Reliance	81
13.24		Jurisdiction	80
13.25		Waiver of Jury Trial	82
13.26		Existing Credit Agreement; No Novation	81
13.27		Releases.	81
13.28		Electronic Execution of Assignments	84
Exhibits
1.1C	-	Form of Joinder
1.1E	-	Form of Line of Credit Note
1.1F	-	Notice of Borrowing of a Loan
2.1.4.2	-	Form of Application and Agreement for Irrevocable Standby Letter of Credit
3.4	-	Form of Borrowing Base Certificate
8.9	-	Form of Covenant Compliance Certificate
13.9	-	Form of Assignment and Acceptance
Schedules
1.1A	-	Schedule of Borrowers
1.1B	-	Schedule of Commitments
1.1D	-	Schedule of Outstanding Letters of Credit and Tri-Party Agreements
1.1G	-	Schedule of Existing Debt
5.1	-	Schedule of Ownership and Jurisdiction of Organization
5.8	-	Schedule of Litigation
5.13	-	Schedule of Projects
7.9	-	Schedule of Existing Cost-Sharing Partnerships
13.27.2	-	Schedule of Limited Waiver Project

v

SECOND AMENDED AND RESTATED
REVOLVING CREDIT LOAN AGREEMENT

This Second Amended and Restated Revolving Credit Loan Agreement (“this Agreement”), made as of the 30^th day of September, 2008, by and among GREENWOOD FINANCIAL, INC., a Delaware corporation (“Master Borrower”), each of the other entities identified on Schedule 1.1A that is attached hereto as Borrowers, the Lenders who are or may become a party hereto, and WACHOVIA BANK, NATIONAL ASSOCIATION, as Agent for the Lenders (“Agent”).

BACKGROUND

A.            Master Borrower is a corporation principally formed to engage in financing transactions with and on behalf of the Guarantor and the other Borrowers.  Each of the other Borrowers is a corporation, limited partnership or limited liability company formed to acquire land in one or more of the States of Pennsylvania, New Jersey, New York, Maryland, Illinois, Delaware, Virginia, North Carolina, South Carolina and Florida, to improve such land with residential dwellings, and to sell such dwellings, or to invest in Eligible Affiliates formed for such purposes (the “Business”).

B.            Pursuant to that certain Amended and Restated Revolving Credit Loan Agreement dated as of December 22, 2004 (the “Original Credit Agreement”), executed by Master Borrower, certain of the other Borrowers, Agent and certain of the Lenders, such Lenders agreed to provide a credit facility to Borrowers on the terms and conditions contained in the Original Credit Agreement to finance Borrowers’ acquisition of residential real estate and construction activities.

C.            Pursuant to that certain Amended and Restated Revolving Credit Loan Agreement dated as of January 24, 2006 (as amended prior to the date hereof, the “Existing Credit Agreement”), executed by Master Borrower, certain of the other Borrowers, Agent and certain of the Lenders, such Lenders agreed to amend and restate the Original Credit Agreement on the terms and conditions contained in the Existing Credit Agreement.

D.            Borrowers and Lenders desire to amend and restate the Existing Credit Agreement on the terms and conditions set forth herein, and to continue to secure all of the Indebtedness hereunder and under the other Loan Documents with a first priority Lien on certain Projects, and Guarantor desires to continue its guaranty of the Indebtedness hereunder and to continue to secure its guaranty with a first priority lien on all of its deposit accounts held at a Lender and any income tax refunds received or payable to Borrowers or Guarantor after the Closing Date.

NOW, THEREFORE, in consideration of their mutual covenants and agreements herein contained, the parties hereto hereby amend and restate the Existing Credit Agreement in full and, intending to be legally bound, hereby agree as follows:

1

ARTICLE I.
DEFINITIONS

1.1           Definitions.  In addition to other words and terms defined elsewhere in this Agreement, as used in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof otherwise clearly requires:

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by Agent.

“Advance” means the cash that Lenders advance to a Borrower under the Facility, all subject to and in accordance with the provisions of Article II hereof.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Agent” means Wachovia Bank, National Association, in its capacity as agent for Lenders, and any successor thereto appointed pursuant to Section 11.9.

“Agreement” means this Second Amended and Restated Revolving Credit Loan Agreement, and any schedules, exhibits, riders, extensions, supplements, amendments, or modifications to this Amended and Restated Revolving Credit Loan Agreement.

“Alternate Interest Rate” means, on any day, the per annum rate of interest that is equal to the sum of (i) the Federal Funds Rate in effect on such day plus (ii) one-quarter of one percent (0.25%) per annum (that is, 25 “basis points”) plus (iii) the Applicable Spread in effect on such day.

“Applicable Spread” means 5.00% per annum.

“Appraisal” means an appraisal or re-appraisal, on a fair market value basis, of a Project that (i) is directed to Agent and, if the Project is not admitted to the Borrowing Base as of the date hereof, is dated not earlier than six (6) months before the date the Project is admitted to the Borrowing Base, (ii) contains terms and conditions satisfactory to Agent and (iii) conforms in all respects to Title X of the Federal Financial and Institutional Reform, Recovery and Enforcement Act of 1989 (FIRREA).  The cost of each Appraisal shall be paid by Borrowers.

“Appraised Value” means, with respect to the Real Estate, Units and Improvements in any Project, the value thereof as determined pursuant to Section 3.3.4.  The “Appraised Value” of Improved Land and Units shall be determined on an “as completed” basis in accordance with Section 3.3.4.

“Approved Bank” any commercial bank incorporated under the laws of the United States or any state thereof, having capital and unimpaired surplus in excess of $500,000,000.

“Approved Fund” means any Fund that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender.

2

“Approved Jurisdiction” means the States or Commonwealths of Pennsylvania, New Jersey, New York, Maryland, Illinois, Delaware, Virginia, North Carolina, South Carolina, Florida, and such other State or Commonwealth as may from time to time be approved by Requisite Lenders.

“Approved Land” means land that has received all Governmental Approvals necessary for immediate development as for-sale residential housing, other than building permits; provided that land that has received all such Governmental Approvals except for state- and federally-issued permits (but not local subdivision and land development approvals, which may, however, be conditioned upon the receipt of state- and federally-issued permits) that the owning Borrower in good faith believes will be issued within 120 days may be included in the Borrowing Base as “Approved Land” for a period of 120 days; provided further that if all such state- and federally-issued permits are not issued within such 120 day period, such land shall no longer be deemed to be “Approved Land” until all such state- and federally-issued permits are actually obtained.

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 13.9.1), and accepted by Agent, in substantially the form of Exhibit 13.9 attached hereto or any other form approved by Agent.

“Authorized Signer” means any of the Persons listed on the certificate to be delivered to Agent at Closing in accordance with Section 4.1.6 or on any replacement certificate with respect thereto subsequently delivered to Agent at any time.

“Bankruptcy Code” means Title 11 of the United States Code as now or hereafter in effect, or any successor statute.

“Borrower” means, individually and at any time, Master Borrower, each Person identified on Schedule 1.1A and each Eligible Affiliate which has theretofore qualified as a “Borrower” pursuant to Section 2.1.1.3, together with any Person that is a successor to all or substantially all of the assets and liabilities of any Person that immediately prior to such succession was a Borrower (including, in particular, any liabilities of such Person arising out of this Agreement or any other Loan Document) and which succession was a result of any merger, consolidation, conversion or other reorganization undertaken pursuant to an Internal Reorganization; provided that if any entity that is a successor to any Borrower(s) as a result of an Internal Reorganization was not previously a Borrower, such entity shall promptly execute and deliver to Agent and the Lenders such documents as are required to be executed and delivered by new Borrowers by Section 2.1.1.3.

“Borrowing Base” means at any time the Real Estate, Lots, Improvements and Units (excluding (i) dwelling units in any mid-rise or high-rise structure containing more than three (3) stories of space for residential occupancy and (ii) any asset classified as “Inventory not Owned” (FASB 46) on Guarantor’s or any Borrower’s balance sheet) that are part of Borrowing Base Projects, subject to the limitations contained in this Agreement.  The Borrowing Base shall change from time to time as provided herein.  The Borrowing Base may not include any Real Estate, Lots, Improvements or Units (i) owned by a Borrower that is not a wholly-owned Affiliate of Guarantor or (ii) that is not part of an Eligible Project.

3

“Borrowing Base Availability” means, at any time, (i) the amount determined pursuant to Section 3.3, based on the most recently delivered Borrowing Base Certificate, minus (ii) the aggregate amount of liability of Agent under then-outstanding Financial Letters of Credit, minus (iii) the aggregate amount of Swing Line Loans outstanding, minus (iv) the aggregate principal amount of all OHI Financing Subordinated Debt that by its terms matures within one (1) year and Subordinated Debt that by its terms matures within one (1) year.

“Borrowing Base Certificate” means a certificate in the form as shown on Exhibit 3.4, attached hereto, the purpose of which is to state, on a per Lot and per Unit basis, the amount of the Borrowing Base Availability as of the date thereof.

“Borrowing Base Project” means an Eligible Project that is then included in the Borrowing Base Certificate most recently delivered to Agent.

“Business” has the meaning defined in the Recitals of this Agreement.

“Business Day” means any day other than a Saturday, a Sunday, a public holiday under the laws of the Commonwealth of Pennsylvania or of the State of North Carolina or another day on which banking institutions in such jurisdictions are authorized or obligated to close.

“Capital Lease” means all leases that have been or should be capitalized on the books of the lessee in accordance with GAAP.

“Capital Stock” means the capital stock of or other equity interests in a Person.

“Cash” means money, currency or a credit balance in an unrestricted deposit account or a securities account controlled by a Borrower or Guarantor.

“Cash Equivalents” means (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one (1) year from the date of acquisition, (ii) time deposits, certificates of deposit or bankers’ acceptances of any Approved Bank, with such deposits, acceptances or certificates having maturities of not more than one (1) year from the date of acquisition, (iii) repurchase obligations with a term of not more than seven (7) days for underlying securities of the types described in clauses (i) and (ii) above entered into with any Approved Bank, (iv) commercial paper or finance company paper issued by any Person incorporated under the laws of the United States or any state thereof and rated at least A-1 or the equivalent thereof by Standard & Poor’s Corporation or at least P-1 or the equivalent thereof by Moody’s Investors Service, Inc., and in each case maturing not more than one year after the date of acquisition, and (v) investments in money market funds or mutual funds, at least eighty-five percent (85%) of whose assets consist of securities and other obligations of the type described in clauses (i) through (iv) above.  All such Cash Equivalents must be denominated solely for payment in Dollars.  Overnight deposits and demand deposits maintained in the ordinary course of business shall be considered cash.

“Cash Flow Coverage Ratio” means, as of the last day of any Fiscal Quarter, the ratio of Guarantor’s CFFO to Debt Service for the Relevant Accounting Period then ended.

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“Cash Flow from Operations” and “CFFO” means, with respect to each Relevant Accounting Period, (i) net cash provided from (or used in) operating activities plus (ii) proceeds from the disposition of Model Units that are subject to a sale-leaseback transaction, to the extent that such proceeds are not included in net cash provided from operating activities, plus (iii) interest expensed in the cost of goods sold plus (iv) interest expensed from operations, minus (v) interest income.

 “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (i) the adoption or taking effect of any law, rule, regulation or treaty, (ii) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (iii) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

“Closing” and “Closing Date” means the date on which each of the Loan Documents has been executed and delivered by all of the parties thereto and Borrowers have satisfied all of the conditions contained in Section 4.1 or such conditions have been waived in accordance with the provisions of Section 4.1.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations and published interpretations thereof.

“Collateral” means, at any time, (i) all income tax refunds and proceeds thereof received by Borrowers and Guarantor or payable to Borrowers and Guarantor after the Closing Date, and (ii) all real, personal or other property that is encumbered by a Mortgage or is otherwise subject to a Lien as security for the Indebtedness.

“Commitment” means, as to any Lender, the obligation of such Lender to make Loans to Borrowers hereunder and to honor drawings and demands under Letters of Credit and Tri-Party Agreements issued or executed hereunder, in an aggregate principal or face amount at any time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 1.1B hereto, as the same may be reduced or modified at any time or from time to time pursuant to the terms hereof.

“Consolidated Tangible Net Worth” means (i) Guarantor’s GAAP net worth (excluding the effects of any other comprehensive income (loss) attributable to any Swap Contract) minus (ii) goodwill, patents, trademarks, tradenames, organization expense, unamortized debt discount and expense and other intangibles as shown in the Financial Statements as of the last day of the Last Reported Fiscal Quarter plus (iii) the amount of any unfunded liability attributable to Guarantor’s Supplemental Executive Retirement Plan (but only to the extent of any intangible asset attributable to such plan) plus (iv) the amount of any fees paid to Lenders pursuant to Section 2.6.5.

“Consolidated Total Assets” means, as of any date, all assets of Guarantor, as shown on Guarantor’s most recent Financial Statements.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise

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voting power, by contract or otherwise.  “Controlling” and “Controlled” have meanings correlative thereto.

“Covenant Compliance Certificate” means a certificate in the form attached hereto as Exhibit 8.7.

“Cost Incurred” means, at any time with respect to Lots and Units, the then-current book value thereof, determined in accordance with GAAP.

“Debt” mean, for any Person as of any date, without duplication, all (i) indebtedness or liability for borrowed money; (ii) obligations, whether or not for money borrowed (a) represented by notes payable, or drafts accepted, in each case representing extensions of credit, (b) evidenced by bonds, debentures, notes or similar instruments, or (c) constituting purchase money indebtedness, title retention debt instruments or other similar instruments, upon which interest charges are customarily paid or that are issued or assumed as full or partial payment for property or services rendered; (iii) master lease obligations and obligations that are treated as capitalized leases under GAAP; (iv) reimbursement obligations under surety bonds, letters of credit and/or tri-party agreements issued with respect to Improvements (whether or not the same have been presented for payment); (v) reimbursement obligations under Financial Letters of Credit and surety bonds (regardless of whether the same have been presented for payment); (vi) obligations, contingent or otherwise, under any synthetic lease, tax retention operating lease, off balance sheet loan or similar off balance sheet financing arrangement if the transaction giving rise to such obligation (a) is considered indebtedness for borrowed money for tax purposes but is classified as an operating lease under GAAP and (b) does not (and is not required pursuant to GAAP to) appear as a liability on the balance sheet of a Person; (vii) liabilities arising under any “swap agreement” (as that term is defined in 11 U.S.C. § 101, as heretofore or hereafter amended; and (viii) without duplication, all liabilities of third parties of the type described in (i)–(vii), inclusive, that are guaranteed by or otherwise recourse to a Person, whether or not the obligations have been assumed.  Notwithstanding anything to the contrary in this definition of Debt, Debt shall not include (i) the amount of any Permitted Debt that is attributable to any Option Agreement, or (ii) any obligation arising out of the sale and/or sale and leaseback of any model Units, provided that (a) each such transaction (or series of transactions) with any purchaser or group of affiliated purchasers shall be with respect to five (5) or fewer model Units in the aggregate, (b) Agent determines, in its sole discretion, that if the Borrower, Guarantor or any wholly-owned subsidiary of either that is party to such transaction defaults thereunder, such entity shall have no material financial obligation and no material liability as a consequence of such default, other than the termination of the transaction, and (c) the maximum aggregate amount that may at any time be excluded from Debt pursuant to this clause (ii) shall not exceed $10,000,000.

“Debt Service” means, with respect to a Relevant Accounting Period, (i) interest paid (whether expensed or capitalized) as reported on Guarantor’s Financial Statements (but excluding interest attributable under GAAP to any Option Agreement) plus (ii) required principal payments on any Debt (excluding (a) with, respect to any permitted purchase money mortgage debt, release prices paid upon the conveyance of any Unit, (b) principal payments of Loans, Swing Line Loans and Letter of Credit Advances, and (c) any payments made pursuant to any Option Agreement) plus (iii) mandatory preferred stock dividends, minus (iv) interest income, minus (v) to the extent included in the calculation of interest paid in clause (i) above, any

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amortized deferred financing costs related to all amendments to the Existing Credit Agreement, this Agreement and/or the OHI Financing Subordinated Debt and any future amendments to any of the foregoing.

 “Default Rate” means a rate of interest that is equal to the applicable Interest Rate otherwise payable with respect to Loans plus four percent (4%) per annum.

“Deposit Account” means a demand, time, savings, passbook or like account with a federally insured bank or savings and loan association, other than an account evidenced by a negotiable certificate of deposit.

“Designated Officer” means Julie Pasceri-Young or any other person designated in writing by Agent as its representative for the purpose of receiving notice hereunder.

“Development Land” means Approved Land on which the construction of Improvements has been commenced and is in process.

“Dollars” and the sign “$” mean lawful money of the United States of America.

“Eligible Affiliate” means an entity that, directly or indirectly, is 100% owned by Guarantor.

“Eligible Assignee” means (i) a Lender, (ii) an Affiliate of a Lender, (iii) an Approved Fund, and (iv) any other Person (other than a natural person) approved by (a) Agent and (b) unless an Event of Default has occurred and is continuing, Master Borrower, on behalf of all Borrowers (each such approval not to be unreasonably withheld or delayed); provided that, notwithstanding the foregoing, “Eligible Assignee” shall not include Guarantor or any of Guarantor’s Affiliates.

 “Eligible Project” means a Project that has satisfied the conditions for inclusion in the Borrowing Base set forth in Section 3.2.2.

“Environmental Condition” means any condition affecting (i) the work place where business operations take place, or (ii) any natural resource, including without limitation the air, soil, surface and groundwater which must be reported to a Governmental Authority or which must be remediated under any of the Environmental Laws.

“Environmental Law” means any presently existing or hereafter enacted or decided federal, state or local statutory or common law relating to pollution or protection of the environment, including without limitation, any common law of nuisance or trespass, and any law or regulation relating to emissions, discharges, releases or threatened release of pollutants, contaminants or chemicals or industrial, toxic or hazardous substances or wastes into the environment (including without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants or chemicals, or industrial, toxic or hazardous substances or wastes.

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“Environmental Report” means a Phase I (and, if recommended by a Phase I, a Phase II) environmental site assessment that is (i) prepared with respect to Real Estate in accordance with Agent’s then-current protocol for environmental studies of land for residential development by a qualified environmental engineer acceptable to Agent in its reasonable business judgment, (ii) if the Real Estate is not part of a Borrowing Base Project as of the date hereof, dated not earlier than twelve (12) months prior to the Project’s admission to the Borrowing Base and (iii) if not addressed to Agent, as agent for the Lenders, accompanied by a reliance letter (in form acceptable to Agent in good faith) addressed to Agent as agent for the Lenders.  Borrowers shall be responsible for the cost of each such Environmental Assessment.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereof.

“ERISA Affiliate” means any trade or business (whether or not incorporated), which together with any Borrower or Guarantor (or some or all of them) would be treated as a single employer under Section 4001 of ERISA.

“Eurocurrency Reserve Requirements” means, for any day as applied to a Loan, a Swing Line Loan or a Letter of Credit Advance, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board of Governors of the Federal Reserve System) maintained by a member bank of the Federal Reserve System.

“Event of Default” or “Default” means any of the events specified in Article IX, and elsewhere in this Agreement, upon the occurrence of which the Lenders may exercise their rights and remedies hereunder and/or under the other Loan Documents.

“Excluded Taxes” means, with respect to Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of Borrowers hereunder, (i) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (ii) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Borrower is located and (iii) in the case of a Foreign Lender (other than an assignee pursuant to a request by Borrowers under Section 13.9.7 hereof), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 2.16.5 hereof, except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from Borrowers with respect to such withholding tax pursuant to Section 2.16.1 hereof.

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“Existing Credit Agreement” has the meaning defined in the Recitals to this Agreement.

“Facility” means the credit facility under which (i) Loans may be borrowed, repaid and reborrowed, in the maximum outstanding amount of the Revolving Sublimit, (ii) Letters of Credit and Tri-Party Agreements (including those presently existing) may be issued or executed by an Issuer on behalf of Lenders in the aggregate maximum undrawn amount not exceeding, at any time, the Letter of Credit Sublimit, and (iii) Swing Line Loans may be borrowed, repaid and reborrowed in the maximum outstanding amount of the Swing Line Limit, all as more fully described in Article II.

“Facility Amount” means $440,000,000, or such lower amount resulting from a permanent reduction in the Facility Amount in accordance with the terms of this Agreement; provided that (i) from the Closing Date through December 31, 2008, the aggregate amount of outstanding Loans, Swing Line Loans and liability under Letters of Credit and Tri-Party Agreements shall not exceed $425,000,000, and (ii) the Facility Amount shall be permanently reduced to $415,000,000 on July 1, 2009 if the Facility Amount has not otherwise been reduced to or below $415,000,000 in accordance with the terms of this Agreement prior to July 1, 2009.  In each case, the Facility Amount includes the Revolving Sublimit, the Letter of Credit Sublimit and the Swing Line Limit.

“Federal Funds Rate” means for any day the rate per annum, based on a year of 360 days and actual days elapsed, and rounded upward to the nearest 1/100th of one percent (0.01%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by Federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate” as of the Closing Date; provided that, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the “Federal Funds Effective Rate” for such day shall be the Federal Funds Rate for the last day on which such rate was announced.

“Financial Letters of Credit” has the meaning defined in Section 2.1.3.

“Financial Statements” mean the reports of financial condition required to be delivered pursuant to Sections 6.1.1 and 6.1.2.

“Fiscal Quarter” means each of the three (3) month periods that ends on the last day of the third (3^rd), sixth (6^th), ninth (9^th) and twelfth (12^th) months of a Fiscal Year.

“Fiscal Year” means the period of twelve (12) consecutive calendar months on the basis of which Guarantor reports its income for GAAP purposes, which twelve (12) month period currently ends on each June 30.

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which any Borrower is resident for tax purposes.  For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

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“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business.

“Funding Date” means the Business Day on which a Loan or Swing Line Loan is advanced.

“GAAP” means generally accepted accounting principles as 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 as in effect on the date hereof or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination and which are applied on a consistent basis.

“Governmental Approvals” means all authorizations, consents, approvals, permits, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities.

“Governmental Authority” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

“Guarantor” means Orleans Homebuilders, Inc., a Delaware corporation.

“Guaranty” means the guaranty and suretyship agreement executed by the Guarantor pursuant to Section 2.11.1.1.

“Improved Land” means Approved Land that is fully developed with Improvements that have been completed (other than the finish paving of streets).

“Improvements” means the site improvements required for the development, improvement and sale of a Project, including, but not limited to, roads, curbs, sidewalks, storm water drainage lines and facilities and water and sewer lines and facilities.

“Indebtedness” means all obligations owing to the Agent or Lenders, or any of them, under this Agreement, the Line of Credit Notes, the Swing Line Note and any Swap Contract (including, but not limited to, the repayment of the Loans, Letter of Credit Advances, Swing Line Loans and all interest and other charges due thereon and hereunder), and all other Loan Documents, whether for past, present or future advances, renewals, extensions, modifications, interest, late charges, costs and fees of any type or otherwise.

“Indemnified Taxes” means all Taxes other than Excluded Taxes.

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“Interest Rate” means, on any day, the sum (expressed as a per annum rate of interest) of (i) the LIBOR Market Index Rate as of such day plus (ii) the Applicable Spread in effect on such day.

“Internal Reorganization” means (i) any reorganization (a) between or among any Borrower or Borrowers and Guarantor or (b) between or among any Borrower and one or more other Borrowers or (c) any combination thereof, by way of liquidations, mergers, consolidations, conveyances, assignments, sales, transfers and other dispositions of all or substantially all of the assets of a Borrower (whether in one transaction or in a series of transactions) or (b) any conversion from one form of entity to another (e.g., conversion from a corporation to a limited liability company); provided that (a) the Guarantor shall preserve and maintain its status as a validly existing corporation, and (b) all assets, liabilities, obligations and guarantees of any Borrower party to such reorganization will continue to be held by such Borrower or be assumed by another Borrower or Guarantor.

“Inventory Impairments” means the “after-tax” (with the after-tax effect determined in accordance with GAAP) dollar amount of any impairment charges, write-downs, asset write-offs, abandonment charges and deposit forfeitures or write-offs of other pre-acquisition costs and similar amounts and the amortization of intangibles arising pursuant to GAAP, and other similar accruals or expenses, in each case recorded or accrued to or against any asset (including without limitation owned or controlled Land, Units, works in progress, option contracts and/or other similar items).

“Investment” means (i) any direct or indirect purchase or other acquisition by Borrowers or Guarantor of, or of a beneficial interest in, any Securities (other than Cash or Cash Equivalents) of any other Person (excluding any Borrower or Guarantor), (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Borrower or Guarantor from any Person other than a Borrower or Guarantor, of any equity Securities of such Person or (iii) any direct or indirect loan, advance or capital contribution by any Borrower or Guarantor to any other Person (other than a Borrower or Guarantor), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business.  The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment (other than adjustments for the repayment of, or the refund of capital with respect to, the original principal amount of any such Investment).

“Issuer” means (i) each Lender that has heretofore issued a Letter of Credit or executed a Tri-Party Agreement and (ii) Agent.

“Joinder” means a joinder and assumption agreement, in the form attached hereto as Exhibit 1.1C, to be executed by each Eligible Affiliate that hereafter becomes a Borrower and to be attached to each Note, whereby such Eligible Affiliate shall assume and agree to pay, jointly and severally with all other Borrowers, the Indebtedness.

“Joint Venture” means an entity that is engaged principally in the business of for-sale residential real estate and in which Guarantor, directly or indirectly, owns at least a 30% interest.

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“Land” means, at any time, Raw Land, Approved Land, Development Land and Improved Land, excluding Lots (i) that are subject to Qualifying Agreement of Sale or (ii) on which Units are then being constructed.

“Land Sales Impairments” means the “after tax” (with the after-tax effect determined in accordance with GAAP) dollar amount of losses (including without limitation any loss on sale), impairment charges, write-downs, asset write-offs and other similar impairments, accruals or expenses that are attributable to the settlement of the sale of any Land and/or Units and that are accrued or recorded.

“Last Reported Fiscal Quarter” means, on any date, the later of (i) the Fiscal Quarter most recently concluded that ended at least 50 days before such date or (ii) the most recent Fiscal Quarter with respect to which Borrower has delivered to Agent a report as required by Section 6.1.2.

“Lender” means each Person executing this Agreement as a Lender, as set forth on the signature pages hereto, and each Person that hereafter becomes a party to this Agreement as a Lender pursuant to Section 13.9.

 “Lending Office” means with respect to a Lender, the office, branch, subsidiary or affiliate of such Lender identified in the questionnaire delivered by such Lender to Agent or otherwise selected by such Lender pursuant to Section 2.18 hereof.

“Letter of Credit” means (a) each letter of credit identified on Schedule 1.1D which has heretofore been issued with respect to a Borrowing Base Project or to developments previously completed by a Borrower or which is a Financial Letter of Credit, (b) each letter of credit issued by Agent on behalf of the Lenders for the benefit of Borrower that are to be issued by Agent to be for the purpose of providing security for (i) the construction by a Borrower of Improvements and other municipal and public facilities related to Borrowing Base Projects deemed to be financed under the Revolving Sublimit by their inclusion in the Borrowing Base, (ii) maintenance by a Borrower of Improvements and other municipal and public facilities related to the Borrowing Base Projects financed under the Revolving Sublimit, (iii) deposits under purchase contracts for residential land to which a Borrower is a party, as permitted by Section 8.5, but excluding deposits for Real Estate subject to a purchase money mortgage constituting a Permitted Lien, and (iv) general working capital and corporate purposes that are necessary for the operation of the Business of any Borrower, including for maintenance by a Borrower or by an Eligible Affiliate of public improvements with respect to a residential development that is not, and has not been, a Borrowing Base Project, and (c) any letter of credit issued by Agent in favor of any bank that is not a Lender to secure any Borrower’s reimbursement obligations on account of letters of credit and tri-party agreements issued by such bank of the type described in clause (b) (i) or (b) (ii) of this definition or in the definition of “Tri-Party” Agreement contained herein, as identified on Schedule 1.1.D.  Notwithstanding the foregoing, no Letter of Credit may be issued in connection with any Joint Venture or any Person that is not a Borrower or a Guarantor, except that Issuer may issue Letters of Credit solely to the extent required to comply with the reserve requirements under the OHI Financing Subordinated Debt in an aggregate amount not to exceed $7,500,000.

“Letter of Credit Advance” has the meaning defined in Section 2.1.4.4.

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“Letter of Credit Sublimit” means $60,000,000.

“LIBOR Market Index Rate” means, for any day, a rate per annum determined in accordance with the following formula (rounded upward to the nearest 1/100^th of 1%):

                     1-month LIBOR Rate               

1.0  –  Eurocurrency Reserve Requirements

“Lien” means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing).

“Line of Credit” means the commitment of Lenders to make Loans to Borrowers from time to time in the maximum aggregate amount equal to the lesser of (i) the Revolving Sublimit or (ii) the amount of then-current Borrowing Base Availability.

“Line of Credit Note” means each of the promissory notes made by Master Borrower and each Eligible Affiliate that is party to this Agreement as of the date hereof, payable to the order of each Lender and substantially in the form of Exhibit 1.1E hereto, evidencing the Facility, and any amendments and modifications thereto, any substitutes therefor, and any replacements, restatements, renewals or extension thereof, in whole or in part.

“Liquidity” means, at any time, the sum of all (i) Cash, cash from the sale of settled Units due from title companies, and Cash Equivalents of Guarantor and all Borrowers, each on a consolidated basis plus (ii) the amount by which the then-current Borrowing Base Availability exceeds the then-outstanding principal balance of the Loans.

“Loan” or “Loan(s)” means, individually or collectively, the Line of Credit and any Advances thereunder.

“Loan Document(s)” means this Agreement, the Notes, the Mortgages, the Guaranty, the Security Agreement, Letters of Credit and all documents executed in connection with the Loans evidenced by this Agreement and the Notes, and may include, without limitation, all certificates issued with respect to any of the foregoing and any renewals or modifications thereof.

“Loan Fees” means the various fees payable by Borrowers from time to time pursuant to Section 2.6.

“London Business Day” means any Business Day on which commercial banks are open for international business (including dealings in Dollar deposits) in London and in Charlotte, North Carolina.

“Lot” or “Lots” shall mean the portions of Real Estate that have been approved for construction thereon of a single family Unit.

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“Master Borrower” has the meaning defined in the Introductory Paragraph to this Agreement.

“Material Adverse Effect” means, with respect to Borrower, Guarantor, or any of them, a material and adverse effect upon the business, properties, assets, operations or condition (financial or otherwise) of Guarantor and Borrower and their respective subsidiaries taken as a whole, or upon their ability to perform their respective obligations under the Loan Documents in accordance with their respective terms.

“Maturity Date” means December 20, 2009.

“Mortgage” or “Mortgages” means the mortgages or deeds of trust (as appropriate for the jurisdiction in which the Project subject thereto is located) granted to Agent (for the ratable benefit of the Lenders) or to a wholly-owned subsidiary of Agent as trustee for Agent (including master consolidations and restatements of the Assigned Security Instruments) (for the ratable benefit of the Lenders), which shall be security for the repayment of the Indebtedness, and shall constitute first lien(s) upon the Project(s).  The Mortgages shall be in a form prepared by and acceptable to Agent.

“Multiemployer Plan” means a Plan described in Section 4001(a)(3) of ERISA that covers employees of either of a Borrower or any ERISA Affiliate.

“Net Asset Sale Proceeds”, with respect to any sale of any Real Estate, Lot or Unit, means Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received from such sale, net of any bona fide direct costs incurred in connection with such sale, including (i) transfer taxes or similar taxes customarily paid by seller, (ii) income taxes reasonably estimated to be actually payable within two years of the date of such sale as a result of any gain recognized in connection with such sale and (iii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Debt (other than the Indebtedness) that is (a) secured by a purchase money mortgage on the Lot or Unit in question and that is required to be repaid under the terms thereof as a result of such sale and (b) actually paid at the time of receipt of such cash payment to a Person that is not an Affiliate of any Borrower or Guarantor, and (iv) such other normal and customary charges and costs paid or credited by Borrower or Guarantor as seller (including, but not limited to, sales commissions, settlement charges, real estate taxes, sales incentives and credits, recording fees, escrows for uncompleted items, and title company charges).

“Net Securities Proceeds” means the cash proceeds (net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses) from the (i) issuance of Capital Stock of any Borrower or Guarantor or Eligible Affiliate to a Person that is not a Borrower or Guarantor and (ii) capital contributions made by a holder of Capital Stock of any Borrower or Guarantor or Eligible Affiliate if such holder is not a Borrower or a Guarantor (in each case, exclusive of equity issued and stock options granted to employees or directors under compensation plans).

“New York Mortgage” means each Mortgage that encumbers a Project located in the State of New York.

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“Notes” means the Line of Credit Notes and the Swing Line Note; “Note” means any of such Notes.

“Notice of Borrowing” means a written notice from a Borrower to Agent, in the appropriate form that is attached hereto as Exhibit 1.1G, requesting that a Loan or a Swing Line Loan in a specified amount be advanced to such Borrower on a specified Funding Date.

“1-month LIBOR Rate” means, with respect to each day, the rate for Dollar deposits of one-month maturity as reported on Reuters Screen LIBOR01 Page as of 11:00 a.m., London time, on such day or if such day is not a London Business Day, then the immediately preceding London Business Day (or if not so reported, then as determined by the Agent from another recognized source or interbank quotation).

 “OHI Financing Subordinated Debt” means the Debt incurred pursuant to (i) that certain Junior Subordinated Indenture dated as of November 23, 2005, between OHI Financing, Inc. and JPMorgan Chase Bank National Association, as amended by the Supplemental Indenture and (ii) that certain Junior Subordinated Indenture dated as of September 20, 2005, among OHI Financing, Inc., Guarantor and Wilmington Trust Company, including in each case without limitation any guaranty of such Debt by Guarantor together with any refinancing, renewal, replacement Debt, defeasance or refund thereof in accordance with the provisions of Section 7.7.

“Option Agreement” means an agreement of sale or purchase, option agreement, or any similar agreement executed by a Borrower or Guarantor, or a subsidiary of either, whereby such entity has the right to purchase Land or Units previously owned by a Borrower, Guarantor or a wholly-owned subsidiary of either, or portions thereof (except any such agreement giving rise to any liability recorded or reflected (or which would typically be recorded or reflected) on Guarantor’s balance sheet pursuant to GAAP as “Inventory not owned - Variable Interest Entities” and “Inventory not owned — Other Financial Interests”); and provided further that any such agreement shall be deemed to be an “Option Agreement” only if Agent determines, in its sole discretion, that, in the event of any default by such entity under such agreement such entity shall have no material financial obligations and no material liability as a consequence of such entity’s default thereunder (other than the termination of such agreement and/or forfeiture of any deposit made or other amounts paid in connection with such agreement).

“Organizational Documents” means, with respect to any entity, its articles of incorporation, by-laws, partnership agreement, certificate of limited partnership, limited liability company organization or formation agreement, limited liability company certificate or articles of formation and trust indenture, as appropriate to the entity.

“Original Credit Agreement” has the meaning defined in the Recitals to this Agreement.

“Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

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“Participant” has the meaning set forth in Section 13.9.4 hereof.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Permitted Debt” means:

(i)the Indebtedness;

(ii)normal operating liabilities such as trade accounts payable, taxes payable, lease obligations and customer deposits and unsecured notes given as deposits under agreements of sale for the purchase of Real Estate, Units or Lots in the ordinary course of business;

(iii)reimbursement obligations under surety bonds, Letters of Credit or Tri-Party Agreements (whether or not the same have been presented for payment);

(iv)purchase money mortgages in existence on the Closing Date with respect to Projects not in the Borrowing Base as of the Closing Date and set forth of Schedule 1.1G, each as in effect, and in the principal amount outstanding on the Closing Date;

(v)purchase money mortgage loans borrowed in connection with the acquisition of Real Estate, Units or Lots permitted under Section 8.5; provided that such purchase money loan is non-recourse to any asset other than the asset being acquired and so long as no payments of interest or principal are, or are required to be paid in respect thereof prior to the Maturity Date;

(vi)the guaranty, as in effect on the Closing Date, or as thereafter modified, amended or replaced with Agent’s consent in accordance with Section 7.7, by Guarantor of the OHI Financing Subordinated Debt;

(vii)obligations constituting deposits under agreements of sale for Units;

(viii)Debt for GAAP purposes attributable to Option Agreements, but only to the extent that the original notional principal amount of such Debt does not exceed $35,000,000; and

(ix)any Debt arising out of any loan from one Borrower to another Borrower or Guarantor or any loan from Guarantor to any Borrower.

 “Permitted Liens” shall mean:

(i)Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable;

(ii)Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property by Borrower in for construction thereon and of Units, and none of which is violated in any material respect by existing or proposed structures or land use;

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(iii)Liens, security interests or mortgages in favor of Agent for the benefit of the Lenders to secure the Indebtedness;

(iv)Liens securing Permitted Debt set forth on Schedule 1.1G;

(v)Liens on Real Estate, Units or Lots that secure purchase money loans made by the sellers of such Real Estate that are Permitted Debt and which, except for purchase money mortgages permitted pursuant to Section 8.5, are subordinate, in lien, priority and, during the pendency of an Event of Default, payment of the Mortgage that encumbers such Project; and

(vi)Liens shown on title insurance policies accepted by Agent.

“Person” means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature.

“Plan” means any plan established, maintained, or to which contributions have been made by either of the Borrower or any ERISA Affiliate.

“Prescribed Laws” means, collectively, (a) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (The USA PATRIOT ACT), (b) Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, (c) the International Emergency Economic Power Act, 50 U.S.C. §1701 et. seq. and (d) all other statutes and laws relating to money laundering or terrorism.

“Prohibited Transaction” means any transaction set forth in Section 4006 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time.

“Project” means, at any time, a tract of Real Estate or Lots in an Approved Jurisdiction, including all Units and/or Improvements constructed or to be constructed thereon and that is then owned by a Borrower or Guarantor.

“Pro Rata Share” means, as to any Lender at any time, the ratio of (i) the amount of the Commitment of such Lender to (ii) the aggregate Commitment of all of the Lenders.  The Pro Rata Share of each Lender as of the date of this Agreement is shown on Schedule 1.1B.

“Qualifying Agreement of Sale” means a valid, bona-fide agreement of sale for a Unit with an unrelated third-party purchaser who is not an Affiliate of Guarantor or of any Borrower, for fair market value, subject to the following conditions and limitations:

(i)provides for a cash deposit of at least 5% of the purchase price, except that the cash deposit with respect to agreements of sale for Units in the Richmond, Virginia, MSA may be $10,000 in lieu of 5% of the purchase price; and

(ii)contains no contingency other than for a mortgage commitment which does not exceed 95% (97% if the required mortgage is to be FHA-insured) of the gross sales price of the Unit and which is not contingent upon the sale or lease of any other real estate (and

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which contingency provision (unless the subject Unit is in the Richmond, Virginia, MSA) specifically provides that if the financing commitment does include such a sale or lease contingency, such contingency will not affect the purchaser’s obligation to close under the agreement of sale).

“Raw Land” means land located in an Approved Jurisdiction that is neither Approved Land nor Improved Land.

“Real Estate” means all Raw Land, Approved Land, Development Land and Improved Land, fee simple title to which is now or hereafter owned by a Borrower and upon which it intends to construct (or has constructed) Improvements and Units.

“Reduction Date” has the meaning defined in Section 2.6.5.

“Regulated Substances” means any substance the manufacture, storage, use, generation, treatment, disposal, transportation or other management of which is regulated by any of the Environmental Laws.

“Relevant Accounting Period” means, at any time, the period of four (4) consecutive Fiscal Quarters, the last of which is the Last Reported Fiscal Quarter.

“Reportable Event” means any of the events set forth in Section 4043 of ERISA.

“Requisite Lenders” means, at any date, any combination of Lenders whose Pro Rata Shares aggregate at least sixty six and two-thirds percent (66-2/3%).

“Revolving Sublimit” means $440,000,000; provided that (i) from the Closing Date through December 31, 2008, the aggregate amount of outstanding Loans shall not exceed $425,000,000, and (ii) the Revolving Sublimit shall be permanently reduced to $415,000,000 on July 1, 2009.

“RICO” means the Racketeer Influenced and Corrupt Organization Act, as amended by the Comprehensive Crime Control Act of 1984, 18 USC §§1961-68, as amended from time to time.

“Securities” means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated, certificated or uncertificated, or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.

“Security Agreement” means the security agreement executed by Borrowers and Guarantor pursuant to Section 2.11.1.3.

“Solvent”,  with respect to any Person, means that as of the date of determination both (i)(a) the then fair saleable value of the property of such Person is (1) greater than the total amount of liabilities (including contingent liabilities) of such Person and (2) not less than the amount that will be required to pay the probable liabilities on such Person’s then existing debts as they become absolute and due considering all financing alternatives and potential asset sales reasonably available to such Person; (b) such Person’s capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (c) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (ii) such Person is “solvent” within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Subordinated Debt” means Debt for borrowed money, the repayment of which by its terms is subordinated to the Indebtedness on terms and conditions satisfactory to Agent.

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“Swap Contract” means any “swap agreement” (as that term is defined in 11 U.S.C. § 101, as heretofore or hereafter amended, including, without limitation, an interest rate exchange, collar, cap, adjustable strike cap, adjustable strike corridor or similar agreement) entered into by any Borrower or Guarantor with any individual Lender, or a party that was a Lender at the time such swap agreement was entered into, in order to provide protection to, or minimize the impact upon, any Borrower and/or the Guarantor of increasing floating rates of interest applicable to some or all of the Loans.

“Swing Line Lender” means Wachovia Bank, National Association.

“Swing Line Limit” means $10,000,000.

“Swing Line Loan” means a loan made by Swing Line Lender to a Borrower pursuant to Section 2.1.2.

“Swing Line Note” means the $10,000,000 promissory note dated the date hereof, executed by Borrowers in favor of Swing Line Lender to evidence Swing Line Loans, and any amendments and modifications thereto, any substitutes therefor, and any replacements, restatements, renewals or extensions thereof, in whole or in part.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Tri-Party Agreement” means (a) an agreement executed by Agent pursuant to this Agreement, pursuant to which Agent assures to a Governmental Authority the availability of funds (up to a stated amount) to a Borrower or to such Governmental Authority for the purpose of completing construction of Improvements on a Project and (b) each agreement executed by an Issuer for the foregoing purposes and currently in effect, as identified on Schedule 1.1D attached hereto.

“2008 Maturity Date Lenders”  has the meaning assigned to such term in Section 2.6.1.

“Unit” or “Units” means an attached or detached for-sale single-family residential housing facility or an individual condominium dwelling in an Approved Jurisdiction.

“Unused Fee” means the fee payable by Borrowers pursuant to Section 2.6.3.

1.2Construction of Terms.  Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole and “or” has the inclusive meaning represented by the phrase “and/or.”  References in this Agreement to “determination” by Agent or Lenders include good faith estimates by Agent or Lenders (in the case of quantitative determinations) and good faith beliefs by the Agent or Lenders (in the case of qualitative determinations). The words “hereof,” “herein,” “hereunder” and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.  The Section and other headings contained in this Agreement preceding this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation thereof in any respect.  Reference to any Article, Section, Schedule and Exhibit are to this Agreement, unless otherwise specified.  All definitions of, and references to, any Loan Document mean the Loan Document that is identified

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herein, as the same may from time to time be amended in accordance with the provisions of this Agreement and the subject Loan Document.

1.3Accounting Reports and Principles.  The character or amount of any asset, liability, account or reserve and of any item of income or expense to be determined, and any consolidation or other accounting computation to be made, and the construction of any definition containing a financial term, pursuant to this Agreement or any other Loan Document, shall be construed, determined or made, as the case may be, in accordance with GAAP, consistently applied, unless such principles are inconsistent with any express provision of this Agreement.

1.4Business Day; Time.  Whenever any payment or other obligation hereunder, whether under a Note or under another Loan Document, is due on a day other than a Business Day, such shall be paid or performed on the Business Day next following the prescribed due date, except as otherwise specifically provided for herein to the contrary, and such extension of time shall be included in the computation of interest and charges.  Any reference made herein or in any other Loan Document to an hour of day shall refer to the then prevailing Eastern time, unless specifically provided herein to the contrary.

1.5           Charging Accounts.  Whenever Borrowers are obligated, pursuant to Article II hereof, or pursuant to the Notes or any other Loan Document, to make payments of any nature to Agent or Lenders, Agent shall be entitled, and each Borrower, by its execution of the Notes or a Joinder thereto, authorizes Agent, to draw against any Deposit Account owned by such Borrower at Agent on account of such fees and expenses or payments due.  Agent shall deliver to the subject Borrower a notice setting forth, in reasonable detail, the amount of the fees, expenses and/or payments to be satisfied by such draw, and the name or number of the account or accounts from which the draw was made. Any such charge shall be subject to the provisions of Section 11.14 hereof relating to the sharing of recoveries among Lenders.

ARTICLE II.

AMOUNT AND TERMS OF THE FACILITY;

SECURITY FOR THE FACILITY

2.1The Facility.

2.1.1Amount and Availability of Line of Credit.

2.1.1.1Provided that no Event of Default has occurred and is continuing, and subject to the terms and conditions set forth herein, commencing on the Closing Date and expiring on the Business Day immediately preceding the Maturity Date, Lenders severally, in accordance with their respective Pro Rata Shares, shall extend to Borrowers the Line of Credit, pursuant to which each Lender severally shall make advances of Loans to Borrowers in accordance with such Lender’s Pro Rata Share up to an aggregate for all Lenders of the Revolving Sublimit, provided that at no time shall Lenders be obligated to make any Loan if, as a result thereof, (i) the aggregate outstanding principal balance of all Loans and Swing Line Loans would exceed the then-current Borrowing Base Availability or (ii) the sum of (x) aggregate outstanding principal balance of all Loans and Swing Line Loans plus (y) the aggregate maximum liability of Lenders pursuant to then-outstanding Letters of Credit and Tri-Party Agreements would exceed the Facility Amount.  Borrowers may request Loans for the

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purpose of financing the acquisition, development and improvement of Real Estate and the construction thereon of Units and Improvements, for general working capital and corporate purposes, and for such other appropriate purposes to which the Requisite Lenders consent (which consent shall not be unreasonably withheld or delayed).  Borrowers may borrow, repay and re-borrow Loans at any time and from time to time prior to the Maturity Date.

2.1.1.2[Intentionally Omitted].

2.1.1.3Upon (i) the execution by Master Borrower and by an Eligible Affiliate that is not then a Borrower of a Joinder for each Lender, (ii) delivery to Agent of such Joinders and of each of the items referred to in Sections 4.1.3, 4.1.5, 4.1.6, 4.1.7 and 4.1.8 that pertains to such Eligible Affiliate, (iii) execution of each such Joinder by Agent and the appropriate Lender and (iv) delivery to such Eligible Affiliate of a fully executed Joinder by Agent and by each Lender, such Eligible Affiliate shall become, and thereafter be for purposes of this Agreement, a Borrower.

2.1.1.4Master Borrower shall have the right, at any time after the Closing Date, to terminate, upon not less than thirty (30) days’ prior written notice to Agent, or to reduce, upon not less than three (3) Business Days’ prior written notice to Agent, the Commitments of Lenders regarding the Facility, provided that the Facility Amount may not be so reduced by Master Borrower to an amount that is less than the sum of the aggregate principal balance of all Loans and Swing Line Loans then outstanding plus the aggregate amount of liabilities under all outstanding Letters of Credit and Tri-Party Agreements.  Any voluntary termination or reduction in the Facility Amount shall permanently reduce the Facility Amount with corresponding reductions in the Commitments.  If Borrowers desire to reduce the Facility Amount as aforesaid, Borrowers shall execute and deliver to Agent such documents and instruments as Agent shall reasonably require.  Each such reduction of the Facility Amount shall result in a reduction of the Revolving Sublimit in the same amount but not a reduction of the Letter of Credit Sublimit.

2.1.2Amount and Availability of Swing Line Loans.  Provided that no Event of Default has occurred and is continuing, and subject to the terms and conditions set forth herein, commencing on the Closing Date and expiring on the Business Day immediately preceding the Maturity Date, Swing Line Lender shall extend to Borrowers Swing Line Loans up to, in the aggregate at any time, the Swing Line Limit; provided that at no time shall Swing Line Lender be obligated to make any Swing Line Loan if as a result thereof, (i) the sum of (a) the aggregate outstanding principal balances of all Loans, Swing Line Loans and Letter of Credit Advances plus (b) the aggregate maximum liability of all Issuers under outstanding Letters of Credit or Tri-Party Agreements would exceed the Revolving Sublimit or (ii) the aggregate outstanding principal balances of all Loans, Letter of Credit Advances and Swing Line Loans would exceed the then-current Borrowing Base Availability.  The Borrowers may request Swing Line Loans for the purpose of the acquisition of Real Estate and the construction thereon of Units and Improvements and for general corporate purposes.  Borrowers may borrow, repay and re-borrow Swing Line Loans at any time and from time to time prior to the Maturity Date.  If a Swing Line Loan is requested at a time when any Lender is a Defaulting Lender or has given notice to Agent of its intent to be a Defaulting Lender, the amount of the Swing Line Loan advanced shall be reduced by such Defaulting Lender’s Pro-Rata Share thereof.

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2.1.3Amount and Availability of Letters of Credit and Tri-Party Agreements.  Provided that no Event of Default has occurred and is continuing, and subject to the terms and conditions set forth herein, Borrowers may request, and Agent, pursuant to this Section 2.1.2 shall issue or execute on behalf of the Lenders, (i) Letters of Credit or Tri-Party Agreements to assure Governmental Authorities of the completion of Improvements that are to be constructed in Projects and financed with the proceeds of Loans, but only if in each instance Agent’s liability under such Letter of Credit or Tri-Party Agreement is subject to periodic reduction by the beneficiary thereof as construction of the subject Improvements is completed, (ii) Letters of Credit to assure Governmental Authorities that Borrowers will perform their maintenance obligations with respect to Improvements financed with the proceeds of Loans, (iii) Letters of Credit that are in lieu of cash deposits under agreements of sale for the purchase of Real Estate, Lots or Units by Borrowers permitted pursuant to Section 8.5 and not subject to purchase money mortgage other than those securing the Indebtedness; and (iv) Letters of Credit for general working capital and corporate purposes of Borrowers that are necessary to the operation of their Business.  Letters of Credit of the types described in clauses (iii) and (iv) are sometimes referred to in this Agreement as “Financial Letters of Credit.”  Each Letter of Credit identified on Schedule 1.1D also shall be deemed to have been issued on behalf of the Lenders.  No Letter of Credit or Tri-Party Agreement shall be issued or executed by Agent if, as a result thereof, (x) the aggregate liability of Agent and all other Issuers under all Letters of Credit and Tri-Party Agreements then outstanding or in effect would exceed the Letter of Credit Sublimit or (y) the aggregate liability of Agent under all outstanding Financial Letters of Credit would exceed $25,000,000.

2.1.4Letters of Credit and Tri-Party Agreements Generally.

2.1.4.1The terms of all Letters of Credit and Tri-Party Agreements, and all documents ancillary thereto, shall be subject to Agent’s prior approval.

2.1.4.2At least five (5) Business Days prior to the date any Borrower desires Agent to issue a Letter of Credit, such Borrower shall deliver to Agent a completed and executed Application and Agreement for Irrevocable Standby Letter of Credit (each a “Letter of Credit Application”) in the form attached hereto as Exhibit 2.1.4.2.

2.1.4.3No Letter of Credit shall be issued or Tri-Party Agreement executed or maintained for a term that extends beyond the Maturity Date (as the same may be postponed pursuant to the terms of this Agreement), except if (a) all Lenders so agree in their sole discretion and (b) at the Maturity Date, Borrowers shall deliver to Agent good funds equal to 105% of Issuer’s maximum liability under all outstanding Letters of Credit and Tri-Party Agreements with an expiration date after the Maturity Date, to be held as cash Collateral for Borrowers’ reimbursement obligations and other Indebtedness, or (c) at the Maturity Date, with respect to any such Letter of Credit or Tri-Party Agreement, Borrowers deliver a back-to-back letter of credit issued by an Approved Bank with a face amount of 105% of the Issuer’s maximum liability under all outstanding Letters of Credit and Tri-Party Agreements with an expiration date after the Maturity Date.

2.1.4.4Any payment made by any Issuer pursuant to a Letter of Credit or Tri-Party Agreement that is not reimbursed within three (3) Business Days of such payment date shall be deemed to be a Loan (or, as provided in this Section 2.1.4.4 a Letter of Credit Advance)

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that was requested by Borrowers pursuant to Section 2.1.1, notwithstanding that Borrowers did not provide Agent with a Notice of Borrowing.  If the making of a Loan as the result of a drawing under a Letter of Credit or a demand for payment under a Tri-Party Agreement would cause the aggregate amount of all outstanding Loans to exceed the then-current Borrowing Base Availability, the amount of such excess shall be deemed to be a “Letter of Credit Advance.”

2.2Term of Facility.

2.2.1Line of Credit.

2.2.1.1The Line of Credit shall terminate on the Maturity Date, unless renewed or extended by Lenders in writing upon such terms as are then satisfactory to all Lenders.

2.2.1.2Termination of the Line of Credit shall not in any way affect or diminish the obligations of the Borrowers to repay any or all of the Loans or to otherwise comply with all of the terms of this Agreement and all other Loan Documents.

2.2.2Letters of Credit and Tri-Party Agreements.  The Letter of Credit Sublimit shall terminate on the Maturity Date.  Such termination shall end any obligation of Agent and the Lenders under this Agreement in regard to the issuance of any new Letters of Credit or execution of new Tri-Party Agreements, but such termination shall not in any way affect or diminish the obligations of the Borrowers to repay any or all Advances and Letter of Credit Advances made on account of a Letter of Credit or Tri-Party Agreement or to otherwise comply with all of the terms of this Agreement and all other Loan Documents.

2.2.3Swing Line.  The Swing Line shall terminate on the Maturity Date, unless renewed or extended by Lenders in writing upon such terms as are then satisfactory to all Lenders.  Termination of the Swing Line shall not in any way affect or diminish the obligations of the Borrower to repay any or all of the Swing Line Loans or to otherwise comply with all of the terms of this Agreement and all other Loan Documents.

2.3Repayment Terms.

2.3.1Loans.

2.3.1.1The entire outstanding principal balance of all Loans, together with all accrued interest thereon and other amounts payable by Borrowers pursuant to this Agreement, shall be due and payable without notice or demand on the Maturity Date.

2.3.1.2Commencing on October 15, 2008, and continuing on the 15th day of each succeeding month thereafter until to and including the month in which the Maturity Date occurs, the Borrowers shall pay to the Agent interest at the applicable Interest Rate, in arrears through (and including) the last day of the immediately preceding calendar month, on the aggregate outstanding principal balance of the Loans.

2.3.1.3At any time that the unpaid principal balance of outstanding Loans shall exceed the Borrowing Base Availability as shown on the most recently delivered

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Borrowing Base Certificate, Borrowers (without notice from Agent or any Lender) shall within five (5) Business Days after the date the Borrowing Base Certificate was delivered make a principal payment on account of the Loans in an amount that reduces the outstanding principal balance of all Loans to such Borrowing Base Availability.  The grace period provided in this Section 2.3.1.3 is in lieu of any other notice and grace periods contained in this Agreement or any other Loan Document.  No new Loans will be advanced at any time that the aggregate outstanding principal balance of Loans exceeds the then-current Borrowing Base Availability.

2.3.1.4At any time that the unpaid principal balance of outstanding Loans and Swing Line Loans plus all liability under Letters of Credit and Tri-Party Agreements shall exceed the Facility Amount, Borrowers (without notice from Agent or any Lender) shall within five (5) days thereafter make a principal payment on account of the Loans in an amount that reduces the outstanding principal balance of all Loans and Swing Line Loans plus all liability under Letters of Credit and Tri-Party Agreements to such Facility Amount.  The grace period provided in this Section 2.3.1.4 is in lieu of any other notice and grace periods contained in this Agreement or any other Loan Documents.  No new Loans will be advanced at any time that the aggregate outstanding principal balance of Loans and Swing Line Loans plus all liability under Letters of Credit and Tri-Party Agreements exceeds the Facility Amount.

2.3.1.5On the date of receipt of any Net Securities Proceeds after the Closing Date, (a) Company shall prepay the Loans in an aggregate amount equal to 50% of such Net Securities Proceeds and (b) the Facility Amount shall be permanently reduced in an aggregate amount equal to 50% of such Net Securities Proceeds (rounded to the nearest $100,000) with corresponding reductions in the Commitments.

2.3.1.6To the extent any Borrower or Guarantor receives any Net Asset Sale Proceeds, no later than two (2) Business Days after receipt by any Borrower or Guarantor of any Net Asset Sale Proceeds Borrowers shall prepay the Loans in an aggregate amount equal to such Net Asset Sale Proceeds.  The grace period provided in this Section 2.3.1.6 is in lieu of any other notice and grace periods contained in this Agreement or any other Loan Document.

2.3.1.7Any amount required to be applied as a mandatory prepayment of the Loans and/or a reduction of the Revolving Loan Commitment Amount pursuant to Section 2.3, or in connection with a sale of Real Estate, Lots or Units pursuant to Section 2.11.2, shall be applied first to prepay the Swing Line Loans to the full extent thereof and second, to the extent of any remaining portion of such amount, to prepay the Advances to the full extent thereof.

2.3.2Letter of Credit Advances.

2.3.2.1Each Letter of Credit Advance must be repaid on the first to occur of (i) 90 days after the Letter of Credit Advance was made, (ii) the Maturity Date or (iii) the date when the Borrowing Base Availability next exceeds the aggregate outstanding principal balance of all Loans (whether as a result of an increase in Borrowing Base Availability or repayment of a prior Loan), in which event the outstanding Letter of Credit Advances shall be repaid with the proceeds of a Loan to the extent then available under the Line of Credit, such Loan to be applied to outstanding Letter of Credit Advances in the order in which they were made.  Each such Loan, to the extent a new Loan may then be borrowed pursuant to Section 2.1.1, shall be made automatically by the Lenders, without receipt of a Notice of Borrowing from Borrowers, and

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except as aforesaid no Loan shall be made at a time when any Letter of Credit Advance is outstanding.

2.3.2.2Letter of Credit Advances shall bear interest at the applicable Interest Rate and Borrowers shall pay to Lenders, on the 15th day of each calendar month, accrued interest on all outstanding Letter of Credit Advances.

2.3.3Swing Line Loans.

2.3.3.1The entire outstanding principal balance of each Swing Line Loan, together with all accrued interest thereon, shall be due and payable without notice or demand on the third (3rd) Business Day after the Business Day on which such Swing Line Loan was advanced.  If a Swing Line Loan is not paid in full when due, Lenders shall make a Loan to Borrowers under the Line of Credit, the proceeds of which shall be used to repay the Swing Line Loan.  Each Loan required to be made pursuant to this Section 2.3.3.1 to repay a Swing Line Loan shall be made automatically by Lenders, without a Notice of Borrowing from Borrowers for such Loan.

2.3.3.2If at a time when there are outstanding both Letter of Credit Advances and Swing Line Loans and Borrowers may, pursuant to Section 2.1.1, obtain a Loan under the Line of Credit, the proceeds of such new Loan shall be applied first as provided in this Section 2.3.3 and then as provided in Section 2.3.2.

2.3.3.3Swing Line Loans shall bear interest at the applicable Interest Rate and Borrowers shall pay to Swing Line Lender, on the 15th day of each calendar month, accrued interest on all outstanding Swing Line Loans.

2.3.3.4Upon the making of a Swing Line Loan, each Lender shall be deemed to have purchased from Swing Line Lender a participation interest therein, in an amount equal to such Lender’s Pro Rata Share times the amount of the Swing Line Loan.  Upon demand by Swing Line Lender at any time if the Swing Line Loan for any reason is not paid when due, each Lender shall promptly provide to Swing Line Lender such Lender’s purchase price for its participation interest in such Swing Line Loan, calculated as aforesaid.  The obligation of each Lender so to provide such purchase price to Swing Line Lender shall be absolute and unconditional and shall not be affected by the occurrence of an Event of Default or of any other occurrence or event.

2.4Interest Rate.

2.4.1Each Loan, Letter of Credit Advance and Swing Line Loan shall bear interest at the applicable Interest Rate then in effect.  The Interest Rate shall change (i) automatically from time to time effective as of the effective date of each change in the LIBOR Market Index Rate, and (ii) to the extent allowed by law, on the effective date of any change in the highest lawful rate.

2.4.2Interest payable under the Notes shall be calculated on the basis of a 360 day year but charged for each year or portion thereof that any Loan, Letter of Credit Advance or Swing Line Loan outstanding.

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2.5Default Rate.  Any principal amount not paid when due (at the Maturity Date, by acceleration or otherwise) shall bear interest thereafter until paid in full (before or after judgment), payable on demand, at the Default Rate.

2.6Fees Payable by Borrowers.  Borrowers agree to pay to the Agent, for the account of Lenders, as consideration for the agreement of the Lenders to make available the Facility, the following Loan Fees:

2.6.1Amendment Fees.  On the Closing Date, Borrowers shall pay to Administrative Agent for the account of Lenders the following amendment fees (each an “Amendment Fee” and collectively, the “Amendment Fees”): (a) for the account of those Lenders extending their maturity date from December 20, 2008 to the Maturity Date (the “2008 Maturity Date Lenders”) and executing this Agreement, a fee equal to 0.45% of the aggregate amount of such 2008 Maturity Date Lenders’ Commitments, as such Commitments have been reduced on the Closing Date; and (b) for the account of those Lenders executing this Agreement, other than the 2008 Maturity Date Lenders who receive the Amendment Fee pursuant subsection (a) of this Section 2.6.1, a fee equal to 0.25% of the aggregate amount of such Lenders’ Commitments, as such Commitments have been reduced on the Closing Date.

2.6.2[Intentionally Omitted].

2.6.3Unused Fee.

2.6.3.1Borrowers shall pay, quarterly in arrears at the time each Compliance Certificate is due and on the Maturity Date, an Unused Fee at the rate of 0.35% per annum (that is, 35 “basis points”) the average daily unused portion of the Revolving Sublimit during the Fiscal Quarter most recently ended.

2.6.3.2The Unused Fee shall be calculated on the basis of a 365-day year.  Unused Fees shall be allocated to the Lenders in accordance with their respective Pro Rata Shares at the time payment of each Unused Fee is due.

2.6.4Letters of Credit and Tri-Party Agreement Fee.  Borrowers shall pay quarterly, in arrears on the first (1st) day of each Fiscal Quarter during such time that any Letter of Credit or Tri-Party Agreement remains outstanding, a fee based (the “Letter of Credit Fee”) on the amount available to be drawn under such Letter of Credit or Tri-Party Agreement during the preceding Fiscal Quarter.  Such fee shall be calculated on the basis of a 360-day year at the per annum rate equal to the Applicable Spread.  Each Issuer shall receive, out of all fees payable by Borrowers under this Section 2.6.4, a Letter of Credit and Tri-Party Agreement issuance fee calculated at the rate of 0.125% per annum (that is, 12.5 “basis points”) of the amount of such Issuer’s liability under the Letters of Credit and Tri-Party agreements executed by such Issuer, and the balance of all such fees paid by Borrowers shall be allocated to the Lenders in accordance with their respective Pro Rata Shares at the time payment of such fees is due.  The provisions of this Section 2.6.4 shall supersede all agreements heretofore made with regard to fees pertaining to Letters of Credit and Tri-Party Agreements identified on Schedule 1.1.D between any Borrower and the Issuers thereof.  Borrowers shall also pay to each Issuer, for its own account, such Issuer’s letter of credit issuance, renewal, amendment, delivery and billing fees that are such Issuer’s standard at the time a Letter of Credit is issued, renewed or amended.

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2.6.5Additional Loan Fees.  Borrowers shall pay two additional fees for the Facility.  The first additional fee shall be earned and payable on September 15, 2009 and shall be equal to 8% per annum of the amount by which the aggregate Commitments (based on the Facility Amount as it exists from time to time) exceeds $250,000,000, calculated on a daily basis as such Commitments (based on the Facility Amount as it exists from time to time) exist between the Closing Date and the earlier of (i) September 15, 2009 and (ii) the date the Commitments are permanently reduced to $250,000,000 (the “Reduction Date”); provided that such first additional fee will be reduced by 80% if the aggregate Commitments have been permanently reduced to $250,000,000 on or before September 15, 2009.  The second additional fee shall be earned and payable on December 20, 2009 if the Indebtedness are not paid in full by such date and such second additional fee shall be equal to 8% per annum of the amount that the aggregate Commitments exceeds $250,000,000 calculated on a daily basis as such Commitments exist from time to time after the Reduction Date.

2.6.6Loan Fees Generally.  Lenders may, if Borrowers fail to pay the same when due, disburse to themselves any Loan Fees then due, in whole or in part, as Loans under the Line of Credit, either on the dates as provided above or at any time or times thereafter, without the consent of Borrowers and without receiving a Notice of Borrowing.  If any such Loan Fee is so advanced to themselves by the Lenders from the Line of Credit, interest at the Interest Rate as provided herein shall begin to accrue upon each portion of the Loan Fees as so advanced.

2.7Prepayments.

2.7.1Borrowers may make prepayments (full or partial) with respect to the Indebtedness from time to time without penalty or premium.  The acceptance by Lenders of any prepayment at a time when an Event of Default has occurred and is continuing shall not constitute a waiver, release or accord and satisfaction thereof or of any rights in respect thereto by the Lenders.

2.7.2If a Loan or a Swing Line Loan is made or a drawing is made under any Letter of Credit or Tri-Party Agreement and any Lender fails to deliver to Agent, as required by the terms of this Agreement, such Lender’s Pro Rata Share of the Loan, Swing Line Loan or Letter of Credit Advance that results from such drawing and no other Lender or Lenders elect to fund the defaulting Lender’s share, Borrowers shall, within one (1) Business Day after notice from Agent, pay to Agent the amount of such defaulting Lender’s Pro-Rata Share of the Loan, Swing Line Loan or drawing, which amount, if related to a Letter of Credit Advance, Agent shall pay over to the issuer of the subject Letter of Credit or Tri-Party Agreement.  No such payment by Borrowers shall be deemed to constitute a cure of the default by the non-funding Lender of its obligations under this Agreement.

2.8No Setoff or Deduction.  All payments of principal and interest on the Loans, Letter of Credit Advances, Swing Loans and other amounts payable by the Borrowers hereunder shall be made by the Borrowers without setoff or counterclaim, and free and clear of, and without deduction or withholding for, or on account of, any present or future taxes or assessments imposed by any governmental authority, or by any department agency or other political subdivision or taxing authority.

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2.9Illegality.  Notwithstanding any other provision in this Agreement, if Agent determines that any applicable law, rule, or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by the Lenders with any request or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency shall make it unlawful or impossible for the Lenders to maintain the Facility, then upon notice to the Borrowers and Lenders by the Agent the Facility shall terminate and Borrowers shall immediately repay all Indebtedness.

2.10Notes.

2.10.1The obligation of Borrowers to repay all Loans and all Letter of Credit Advances, and all interest and other charges thereon, may be evidenced by the Line of Credit Notes.  If so requested by any Lender by written notice to Master Borrower (with a copy to Agent) at least two Business Days prior to the Closing Date or at any time thereafter, Borrowers shall execute and deliver to each Lender one Line of Credit Note in the principal amount of such Lender’s Commitment; provided that any such Line of Credit Note shall be deemed to replace any Line of Credit Note issued pursuant to the Original Credit Agreement or the Existing Credit Agreement and any such Line of Credit Note issued pursuant to the Original Credit Agreement or the Existing Credit Agreement shall be marked “cancelled” and returned promptly to Master Borrower or a lost note affidavit shall be provided in lieu thereof.

2.10.2The obligation of Borrowers to repay all Swing Line Loans, and all interest thereon, may be evidenced by the Swing Line Note.  If so requested by any Lender by written notice to Master Borrower (with a copy to Agent) at least two Business Days prior to the Closing Date or at any time thereafter, Borrowers shall execute and deliver to Swing Line Lender the Swing Line Note; provided that any such Swing Line Note shall be deemed to replace any Swing Line Note issued pursuant to the Original Credit Agreement or the Existing Credit Agreement and any such Swing Line Note issued pursuant to the Original Credit Agreement or the Existing Credit Agreement shall be marked “cancelled” and returned promptly to Master Borrower or a lost note affidavit shall be provided in lieu thereof.

2.11Security.

2.11.1Borrowers shall deliver to Agent, as security for the Indebtedness:

2.11.1.1An unlimited suretyship agreement of Guarantor, which shall guaranty payment and not merely collection, of the Indebtedness now or hereafter owing by Borrowers to the Lenders as provided herein and the prompt performance of all obligations under the Loan Documents.

2.11.1.2A first priority Mortgage lien on all Projects other than (a) Real Estate purchased after the Closing Date subject to a purchase money mortgage that constitutes a Permitted Lien and (b) any Project not in the Borrowing Base as of the Closing Date that is subject to a Permitted Lien.

2.11.1.3One or more promissory notes, in form and substance satisfactory to Agent, evidencing each item of Debt arising out of any loan owed by a Guarantor or any of its subsidiaries to Guarantor or any Borrower and all such security agreements, documents and instruments that may be necessary or, as reasonably determined by the Agent, desirable in order to create in favor of Agent, for the benefit of Lenders, a valid and (upon the delivery to Agent of each such promissory note) perfected first priority security interest in such promissory note.

2.11.1.4All such security agreements, documents and instruments, and duly completed UCC financing statements and such federal and state forms that may be

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necessary or, as reasonably determined by the Agent, desirable in order to create in favor of Agent, for the benefit of Lenders, a valid and (upon such filing and recording or filing) perfected first priority security interest in all income tax refunds and proceeds thereof received by, or payable to, Borrowers or Guarantor after the Closing Date.

2.11.2Real Estate and the Individual Lots and the Units thereon shall be released by Agent from the lien of the applicable Mortgage, after receipt by Agent of Net Asset Sale Proceeds.  Agent agrees to provide such releases in a commercially reasonable manner, including the delivery of a release in escrow to the title company or other closing agent prior to the closing thereunder.  All sales of Real Estate, Lots or Units shall be made through a title company or closing agent and the Net Asset Sale Proceeds shall be paid directly to Agent for application to the Indebtedness.  If a sale involves Lots and Units that have an Appraised Value or Cost Incurred of $5,000,000 or more, Borrowers shall deliver to the Agent in connection with such sale, (i) a new, current Borrowing Base Certificate evidencing that immediately after such release Borrowers would be in compliance with the terms of this Agreement (and, if not, by a payment of principal in an amount sufficient to cause Borrowers to be in compliance) and, (ii) a certification that there then exists no continuing Event of Default.  To facilitate the conveyance of Units in the ordinary course of any Borrower’s Business, the title insurer involved in such transaction may, by an e-mail addressed to refs_orleans@wachovia.com, request confirmation that the subject Lot and Unit will be so released by Agent and, if such is the case, Agent shall promptly respond to such inquiry by e-mail and the Agent agrees to execute the release and promptly deliver such release to the title company or closing agent.

2.12General Provisions.

2.12.1Advances.  Advances of Loans and Letter of Credit Advances shall be made by Lenders simultaneously and proportionately to their Pro Rata Shares, it being understood that the obligations of Lenders to advance funds to Borrowers hereunder are several and independent and that no Lender shall be responsible for any default by any other Lender in that other Lender’s obligation to make any such advance, nor shall the Commitment of any other Lender be increased or decreased as a result of the default of any other Lender in that other Lender’s obligation to make advances hereunder.  Borrowers may request no more than two (2) Advances of Loans under the Line of Credit during any calendar week, comprised of one Advance for construction needs, and a second Advance for general working capital and corporate purposes (which shall be in addition to Letter of Credit Advances and Swing Line Loans and shall exclude Loans made automatically as aforesaid to repay Letter of Credit Advances and Swing Line Loans); provided that Borrowers may request two (2) additional Advances of Loans under the Line of Credit during any calendar week (comprised of one Advance for construction needs, and a second Advance for general working capital and corporate purposes), if the initial Loans requested during such week were not funded as a result of a Defaulting Lender’s failure to fund and such additional request may be in amounts sufficient to fund the amount not so funded under the initial request, without regard to minimum Loan amounts set forth in Section 2.12.2.  In addition, Borrowers may request from time to time Advances for asset purchases of Real Estate, Lots or Units to be funded through a title company pursuant to Section 2.13.

2.12.2Notice of Borrowing.  Subject to the provisions of this Article II, whenever a Borrower desires to borrow a Loan under this Agreement, such Borrower shall deliver by telecopy to Agent a properly completed Notice of Borrowing, executed by an

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Authorized Signer, no later than 11:00 A.M. at least two (2) Business Days in advance of the proposed Funding Date.  The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount of the proposed Loan, (iii) amounts relating to construction needs and asset purchases with respect to a Project, payee and type of cost, and (iv) the amount relating to general working capital and corporate purposes.  Loans shall be in integral multiples of $500,000 but may not be in an amount less than $500,000.  Each Notice of Borrowing shall be delivered to Agent at 201 S. College Street, 8th Floor, Charlotte, NC 28288-5708, Attention: Syndication Agency Services, facsimile 704-383-7989, with a copy to Agent at 123 S. Broad Street, Philadelphia, Pennsylvania 19109, Attention:  Julie Pasceri-Young, facsimile 215-670-6530 (or to such other addresses or facsimile numbers as Agent may from time-to-time advise Borrowers by written notice).

2.12.3Funding of Loans.

2.12.3.1By 3:00 P.M. on the day Agent (i) receives a Notice of Borrowing pursuant to Section 2.12.2 or (ii) has actual knowledge that a drawing or a demand for payment has been or will be made under a Letter of Credit or Tri-Party Agreement, Agent shall notify each Lender by facsimile or electronic (e-mail) transmission of the proposed borrowing, drawing or demand.  Except as provided in Section 2.12.3.2, not later than noon on the Funding Date specified in the Notice of Borrowing (or the anticipated date of the honoring of any such drawing or demand, as specified in Agent’s notice to the Lenders), each Lender shall wire transfer to such account of Agent as Agent shall designate an amount in immediately available funds equal to the amount of each Lender’s Pro Rata Share of the Loan or Letter of Credit Advance to be made to or for the account of Borrowers on such Funding Date.  Agent shall cause such Loans to be made available to the requesting Borrower on the Funding Date pertaining thereto by depositing the amount thereof in the designated account of such Borrower with Agent; provided, that if the Notice of Borrowing relates to a request for an Advance to fund the acquisition of Real Estate, Lots or Units, the amount of the Advance shall be deposited into the escrow account or similar account for the title company or title clerk conducting the settlement with respect to the Real Estate, Lots or Units being acquired in compliance with Section 2.13.

2.12.3.2Each Lender shall make the amount of its Pro Rata Share of the Loan or Letter of Credit Advance available to Agent, in same day funds, not later than noon on the Funding Date, by wire transfer to Syndication Agency Services, 201 S. College Street, Charlotte, North Carolina, ABA #053 000 219, Account #5000000061196, Ref. Orleans Homebuilders, Inc. (or to such other account as Agent may from time to time advise the Lenders by written notice).  Unless Agent shall have been notified by any Lender prior to any Funding Date in respect of any requested Loan or of such Letter of Credit Advance that such Lender does not intend to make available to Agent such Lender’s Pro Rata Share of the requested Loan or of such Letter of Credit Advance on such Funding Date, Agent may assume that such Lender has made such amount available to the requesting Borrower on such Funding Date and Agent in its sole discretion may, but shall not be obligated to, make available to the requesting Borrower a corresponding amount on such Funding Date by depositing the proceeds thereof in the designated Deposit Account of the requesting Borrower with Agent.  In such event, if a Lender has not in fact made its Pro Rata Share of the requested Loan or of such Letter of Credit Advance, available to Agent, then the applicable Lender and Borrowers severally agree to pay to

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Agent forthwith on demand such corresponding amount, with interest thereon, for each day from and including the date such amount is made available to Borrowers to but excluding the date of payment to Agent, at (i) in the case of a payment to be made by such Lender, the Federal Funds Rate and (ii) in the case of a payment to be made by Borrowers, the Alternate Interest Rate.  If Borrowers and such Lender shall pay such interest to Agent for the same or an overlapping period, Agent shall promptly remit to Master Borrower the amount of such interest paid by Borrowers for such period.  If such Lender pays its Pro Rata Share of such Loan or Letter of Credit Advance to Agent, then the amount so paid shall constitute such Lender’s Loan or Letter of Credit Advance.  Any payment by Borrowers shall be without prejudice to any claim Borrowers may have against a Lender that shall have failed to make such payment to Agent.

2.12.4Request for and Funding of Swing Line Loans.  Borrowers may request a Swing Line Loan by delivering to Agent an appropriate Notice of Borrowing not later than 2:00 P.M. on any Business Day.  Swing Line Loans must be in an integral multiple of $100,000, but in no event less than $500,000.  Swing Line Lender will fund Swing Line Loans on the Business Day on which a Notice of Borrowing with respect thereto is received by depositing the amount thereof into the designated account of the requesting Borrower with Agent.

2.12.5Manner, Time and Application of Payment.  All payments of principal, interest and fees hereunder and under the Notes shall be made by Borrowers without notice, set-off or counterclaim and in immediately available same day funds and delivered to Agent not later than 1:00 P.M., on the date due for the account of Lenders; funds received by Agent after that time shall be deemed to have been paid by Borrowers on the next succeeding Business Day.  All such payments shall be made by wire transfer to the account identified in Section 2.12.3.2, or to such other account as Agent may from time to time specify by written notice to Borrowers.  Payments received for the account of Lenders shall be applied first, on account of accrued interest and then on account of outstanding principal.  Unless Agent shall have received notice from Master Borrower prior to the date on which any payment is due to Agent for the account of the Lenders hereunder that Borrowers will not make such payment, Agent may assume that Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due.  In such event, if Borrowers have not in fact made such payment, then each of the Lenders severally agrees to repay to Agent forthwith on demand the amount so distributed to such Lender, with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to Agent, at the Federal Funds Rate.

2.12.6Apportionment of Payments.  Aggregate principal and interest payments made by Borrowers in respect of Loans and Letter of Credit Advances (but not of Swing Line Loans) shall be apportioned proportionately to each Lender’s respective Pro Rata Share. Agent shall, within one (1) Business Day, distribute to each Lender its share of all payments received by Agent for the benefit of Lenders, and if any such payment is not so distributed, Agent shall pay to the intended recipient thereof interest on the unpaid amount thereof at the Federal Funds rate until paid.  All payments on account of such Swing Line Loans shall be distributed only to Swing Line Lender.

2.12.7Conditional Payment.  Borrowers agree that checks and other instruments received by Agent on behalf of Lenders or by any Lender in payment or on account of the

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Indebtedness constitute only conditional payment until such items are actually paid to Agent or such Lender.

2.12.8Advances Attributable to New York Projects.  Following the recording of a Mortgage that encumbers a Project in the State of New York (each a “New York Mortgage”) the amount of each Advance thereafter made (but only until the aggregate amount of such Advances equals the “Secured Amount” (as defined in such Mortgage) shall be deemed to have been advanced under, and secured by, such New York Mortgage.  The portion of the Indebtedness secured by such New York Mortgage shall be reduced only by the last and final sums that Borrowers repay with respect to the Indebtedness (as provided in this Section 2.12.8) and, from and after that date on which the aggregate amount of such Advances equals the Secured Amount, the portion of the Indebtedness secured by such New York Mortgage shall not be reduced by any intervening repayments of the Indebtedness by Borrowers.  So long as the outstanding balance of the Indebtedness exceeds the Secured Amount of a New York Mortgage, any payments and repayments of the Indebtedness shall not be deemed applied against, or to reduce, the portion of the Indebtedness secured by such New York Mortgage and such payments shall be deemed to reduce only such portions of the Indebtedness as are secured by Mortgages encumbering real property located outside of the State of New York, except as provided in the next sentence of this Section 2.12.8.  If at any time when more than one New York Mortgage is in effect a payment of the Indebtedness is made such that the outstanding principal amount of the Indebtedness would be less than the Secured Amount of any New York Mortgage, the amount of such payment shall be deemed applied in reduction of the Secured Amount of such New York Mortgage as shall be specified by Agent by written notice to Master Borrower.

2.13Advances Made Through Title Company.  Any purchases of Real Estate, Lots or Units must be made (i) in compliance with Section 8.5, (ii) through a title company using Advances under the Line of Credit, and (iii) after or concurrently with the satisfaction of the conditions set forth in Section 4.1.11 with respect to such Real Estate, Lots and Units.

2.14Swap Contracts.  In the event that any Borrower enters into any Swap Contract, such Swap Contract shall be secured by the Collateral and all amounts owed by Borrowers under such Swap Contracts (including, without limitation, all termination payments, if any) shall be secured by, and paid out of, the Collateral “pari passu” with the other Indebtedness.

2.15Alternate Interest Rate.

2.15.1If at any time Agent or the Requisite Lenders shall have reasonably determined (which determination shall be conclusive and binding upon Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the 1-month LIBOR Rate, Agent shall give telecopy, telephonic or written notice thereof to Master Borrower and the Lenders as soon as practicable thereafter. If such notice is given, and until such notice has been withdrawn by Agent, all Loans, Swing Line Loans and Letter of Credit Advances shall bear interest at the Alternate Interest Rate rather than by reference to the LIBOR Market Index Rate.

2.15.2If any Lender reasonably determines that maintenance of its Loans on which interest is charged at a rate based on the LIBOR Market Index Rate at a Lending Office would violate any applicable law, rule, regulation, or directive, whether or not having the force

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of law, then Agent shall give telecopy, telephonic or written notice thereof to Master Borrower and the Lenders as soon as practicable thereafter. If such notice is given, and until such notice has been withdrawn by Agent, all Loans, Swing Line Loans and Letter of Credit Advances shall bear interest at the Alternate Interest Rate rather than by reference to the LIBOR Market Index Rate.

2.16Taxes.

2.16.1Any and all payments by or on account of any obligation of Borrowers hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if Borrowers shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), Agent or the applicable Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrowers shall make such deductions and (iii) Borrowers shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

2.16.2Without limiting the provisions of Section 2.16, Borrowers shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

2.16.3Borrowers shall indemnify Agent and each Lender, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.16) paid by Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to Master Borrower by a Lender (with a copy to Agent), or by Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

2.16.4As soon as practicable after any payment of Indemnified Taxes or Other Taxes by Borrowers to a Governmental Authority, Borrowers shall deliver to Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Agent.

2.16.5Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which any Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to Master Borrower (with a copy to Agent), at the time or times prescribed by applicable law or reasonably requested by Master Borrower or Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding.  In addition, any Lender, if requested by Master Borrower or Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by Master Borrower or Agent as will enable Borrowers or Agent to determine whether or not such Lender is subject to

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backup withholding or information reporting requirements.  Without limiting the generality of the foregoing, in the event that a Borrower is resident for tax purposes in the United States of America, any Foreign Lender shall deliver to Master Borrower and Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of Master Borrower or Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable: (i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States of America is a party, (ii) duly completed copies of Internal Revenue Service Form W-8ECI, (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881I of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of Master Borrower or any Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or (iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit Borrowers to determine the withholding or deduction required to be made.

2.16.6If Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by Borrowers or with respect to which Borrowers have paid additional amounts pursuant to this Section, it shall pay to Master Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by Borrowers under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that Borrowers, upon the request of Agent or such Lender, agree to repay the amount so paid over to Master Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Agent or such Lender in the event Agent or such Lender is required to repay such refund to such Governmental Authority.  This Section 2.16 shall not be construed to require Agent or any Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to Master Borrower, any Borrower or any other Person.

2.17Increased Costs.

2.17.1If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except the Eurocurrency Reserve Requirements); (ii) subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any participation in any Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 2.16 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender); or (iii) impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Loans made by such Lender or participation therein; and the result of any of the foregoing shall be to increase the cost

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to such Lender of making or maintaining any Loan (or of maintaining its obligation to make any such Loan), or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, Borrowers will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

2.17.2If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitment of such Lender or the Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time Borrowers will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

2.17.3A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in Section 2.17.1 or 2.17.2 and delivered to Master Borrower shall be conclusive absent demonstrable error.  Borrowers shall pay such Lender the amount shown as due on any such certificate within thirty (30) days after receipt thereof.

2.17.4Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.17 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that Borrowers shall not be required to compensate a Lender pursuant to this Section for any increased costs incurred or reductions suffered more than nine (9) months prior to the date that such Lender notifies Master Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine (9) month period referred to above shall be extended to include the period of retroactive effect thereof).

2.18Designation of a Different Lending Office.  If any Lender requests compensation under Section 2.17, or requires Borrowers to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender, unless directed by Master Borrower not to do so, shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.16 or Section 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender.  Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

2.19Survival of Indemnity.  The obligations of Borrower under Sections 2.16 and 2.17 shall survive payment of the Indebtedness and termination of the Agreement.

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2.20Replacement of Lenders.  If any Lender requests compensation under Section 2.17, or if Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then Borrowers may, at their sole expense and effort, upon notice by Master Borrower to such Lender and Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 13.9 hereof), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment); provided that: (i) Borrowers shall have paid to Agent the assignment fee specified in Section 13.9 of the Agreement; (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents from the assignee (to the extent of such outstanding principal and accrued interest and fees) or Borrowers (in the case of all other amounts); (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.16 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments thereafter; and (iv) such assignment does not conflict with applicable law.  A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling Borrowers to require such assignment and delegation cease to apply.

2.21Lending Office.  Each Lender may book its Pro Rata Share of Loans and Letter of Credit Advances at any Lending Office selected by such Lender and may change its Lending Office from time to time. All terms of this Agreement shall apply to any such Lending Office and the Loans, Letter of Credit Advances and Notes issued hereunder shall be deemed held by each Lender for the benefit of any such Lending Office.  Each Lender may, by written notice to Agent and Master Borrower, designate replacement or additional Lending Offices through which Loans and Letter of Credit Advances will be made by it and for whose account Loan payments or a payment with respect to Letter of Credit Advances are to be made.

ARTICLE III.
NOTICE OF BORROWING; BORROWING BASE;
BORROWING BASE AVAILABILITY

3.1Notice of Borrowing.

3.1.1Request for Advances under Line of Credit and Swing Line.  Borrowers shall give Agent written notice (effective upon receipt) of a Borrower’s request for advances under the Line of Credit or Swing Line by delivering to Agent a fully completed Notice of Borrowing as provided in Section 2.12.2 or Section 2.12.4, as appropriate.

3.1.2Request for Letters of Credit and Tri-Party Agreements.  Borrowers shall give Agent written notice (effective upon receipt) of a Borrower’s request for issuance of a Letter of Credit or execution of a Tri-Party Agreement hereunder, specifying the purpose of the Letter of Credit or Tri-Party Agreement, the amount thereof and the date such Borrower desires it be issued or executed.  Each such request shall be delivered to Agent only at Agent’s office identified in Section 13.10 (or to such other address as Agent may from time-to-time advise Master Borrower by written notice), accompanied by a draft of the proposed Letter of Credit or

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Tri-Party Agreement (which must be acceptable to Agent in good faith) and the other documents required pursuant to Section 4.2.3 and shall be delivered to Agent at least five (5) Business Days in advance of the date Borrower desires the Letter of Credit or Tri-Party Agreement to be issued or executed.  Each Letter of Credit or Tri-Party Agreement shall be subject to the limitations as provided in this Agreement.

3.2Admission of Projects to Borrowing Base.

3.2.1The Borrowing Base Projects identified on the Borrowing Base Certificate delivered to Agent concurrently with the execution of this Agreement shall constitute the Borrowing Base Projects that comprise the Borrowing Base as of the date hereof.

3.2.2Eligible Projects shall from time to time be admitted to the Borrowing Base, provided that the fee owner of such Eligible Project, at the time the Eligible Project is so admitted, either is an existing Borrower or concurrently therewith becomes a Borrower.  Master Borrower shall give Agent written notice that Master Borrower desires that an Eligible Project be added to the Borrowing Base, such notice to be delivered to Agent sixty (60) days prior to the desired admission date.  Borrowers shall, also, before any Eligible Project is deemed admitted to the Borrowing Base, deliver to Agent with respect to such Project the documents set forth in Section 4.1.11.  The items referred to in Sections 4.1.11.5, 4.1.11.7, 4.1.11.9, 4.1.11.10 and 4.1.11.11 and a commitment for a policy of title insurance with respect to the subject Eligible Project shall be delivered to Agent at least twenty (20) calendar days before the date that Borrowers desire such Eligible Project be admitted to the Borrowing Base.

3.3Borrowing Base Availability.

3.3.1The aggregate amount of Loans that may be outstanding at any time shall not exceed the lesser of (i) the then-current Borrowing Base Availability or (ii) the Revolving Sublimit.  Borrowing Base Availability shall be determined at any time on the basis of the Borrowing Base Certificate most recently delivered to Agent, by applying to each of the following classes of assets of Borrowers that are part of Borrowing Base Projects the applicable “Advance Rate,” determined in accordance with Section 3.3.2:

Asset Class		LTV  Advance  Rate		LTC  Advance  Rate
(i)	Units subject to a Qualifying Agreement of Sale	85	%	95	%
(ii)	Units not subject to a Qualifying Agreement of Sale	80	%	80	%
(iii)	Lots part of Improved Land and not subject to a Qualifying Agreement of Sale	75	%	75	%
(iv)	Lots part of Development Land	75	%	75	%
(v)	Lots part of Approved Land	50	%	50	%

3.3.2The maximum aggregate amount of Borrowing Base Availability attributable to each of the asset classes that are part of Borrowing Base Projects identified in Section 3.3.1 on any Borrowing Base Certificate (each an “Asset Class”) shall be determined as follows:

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3.3.2.1For Asset Classes (i) and (ii), the least of (a) the applicable LTV Advance Rate multiplied by the most recently determined Appraised Value of the subject Unit, (b) the applicable LTV Advance Rate multiplied by the price set forth in the Qualifying Agreement of Sale, if any, to which the Unit is subject and (c) the applicable LTC Advance Rate multiplied by the Cost Incurred with respect to such Unit.

3.3.2.2For Asset Classes (iii) and (iv), the lesser of (a) the applicable LTV Advance Rate multiplied by the most recently determined Appraised Value of the subject Lot and (b) the applicable LTC Advance Rate multiplied by the Cost Incurred with respect to such Lot.

3.3.2.3For Asset Class (v), the lesser of (a) the applicable LTV Advance Rate multiplied by the most recently determined Appraised Value of the subject Lot and (b) the applicable LTC Advance Rate multiplied by the Cost Incurred with respect to such Lot.

3.3.2.4The maximum Borrowing Base Availability attributable to Asset Class (ii), including model Units, determined on the basis of any Borrowing Base Certificate that is delivered on or after September 25, 2008 in accordance with Section 3.4 shall not exceed 45% of the aggregate Borrowing Base Availability attributable to Asset Classes (i) and (ii) (including model Units) as shown on any such Borrowing Base Certificate.

3.3.2.5The maximum percentage of Borrowing Base Availability attributable to Asset Classes (iii), (iv) and (v), based on Borrowing Base Certificates (a) delivered on or before September 30, 2008, shall be 57%, and (b) delivered after September 30, 2008 shall be 55%, in each case of the total Borrowing Base Availability as shown thereon; provided that at no time shall Borrowing Base Availability attributable to Asset Classes (iii), (iv) and (v) exceed the following (with such limitations to be reduced dollar for dollar at the time and in the amounts of any impairments with respect to assets in Asset Classes (iii), (iv) and (v) and included in the Borrowing Base taken by Borrowers):

(i)Beginning with the Borrowing Base Certificate delivered on or after September 30, 2008: $230,000,000 (provided that, before October 15, 2008, Borrower may deliver a restatement of its Borrowing Base Certificate dated as of August 31, 2008 and such restatement shall not be subject to this Section 3.3.2.5(i));

(ii)Beginning with the Borrowing Base Certificate delivered after December 31, 2008: $225,000,000;

(iii)Beginning with the Borrowing Base Certificate delivered after March 31, 2009: $210,000,000;

(iv)Beginning with the Borrowing Base Certificate delivered after June 30, 2009: $200,000,000; and

(v)Beginning with the Borrowing Base Certificate delivered after September 30, 2009: $190,000,000.

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3.3.2.6The maximum Borrowing Base Availability attributable to Asset Class (v) based on a Borrowing Base Certificate shall not exceed 7.5% of the total Borrowing Base Availability as shown thereon.

3.3.2.7Once a Lot is the subject of a Qualifying Agreement of Sale, the land value of such Lot shall be transferred to Asset Class (i) and once vertical construction of a Unit is commenced on any Lot, the land value of such Lot shall (if not theretofore pursuant to this Section 3.3.2.5) be transferred from Asset Class (iii) or (iv) to Asset Class (i) or (ii), as appropriate.

3.3.3Borrowers acknowledge that the Agent may make changes or adjustments to the values set forth in any Appraisal as may be required by the Agent’s appraisal department in the exercise of its good faith business judgment, and that the Agent is not bound by the value set forth in any Appraisal performed pursuant to this Agreement and does not make any representations or warranties with respect to any Appraisal.  Borrowers further agree that Lenders shall have no liability as a result of or in connection with any such Appraisal for statements contained in such Appraisal, including without limitation, the accuracy and completeness of information, estimates, conclusions and opinions contained in such Appraisal, or variance of such Appraisal from the fair value.

3.3.4Re-Appraisals.  Appraisals must be current within one year on all Projects, except for any Project that has a GAAP book value of less than $4,000,000.  Notwithstanding the foregoing, after the Closing Date, Agent shall order Appraisals on one-third of the Projects without a current Appraisal on a quarterly basis until all Appraisals are current, which shall be not later than June 30, 2009 (or such later date as agreed to by Agent, but in no event later than September 30, 2009).  Each new Appraisal shall be ordered and reviewed by the Agent, with a copy furnished to Master Borrower for review. Master Borrower shall have ten (10) Business Days to respond to the Agent with comments to any Appraisal; however, the final Appraisal amount shall be determined by the Agent in its sole discretion after consideration of such comments.  Following the receipt and review of any new Appraisal, commencing with the next monthly Borrowing Base Certificate delivered, the appraised values from such Appraisal will be used in the calculation of the Borrowing Base in compliance with Sections 3.3.2.1, 3.3.2.2 and 3.3.2.3.  Notwithstanding the foregoing, Agent, at its discretion, shall have the right to obtain new Appraisals of all or any portion of the Projects (a) whenever an Event of Default has occurred and is continuing, (b) as required by the then current regulatory requirements generally applicable to real estate loans of the categories made under this Agreement, as reasonably interpreted by the Agent, (c) at any time following a condemnation of more than an immaterial portion of a Project, as determined in good faith by the Agent and (d) upon any material adverse change with respect to a Project, as determined in good faith by the Agent.  All Appraisal costs shall be at the expense of Borrowers.  For the avoidance of doubt, the one year period applicable to this Section 3.3.4 shall commence the day immediately following the date of the first Borrowing Base Certificate that includes a new Appraisal in its calculations.

3.3.5Specific Jurisdictions.

3.3.5.1Generally.  The amount of Borrowing Base Availability attributable to Projects in any Approved Jurisdiction in which the liens of Mortgages are limited to a stated amount that is less than the Facility Amount shall at no time exceed such stated

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amount (which shall not be an aggregate amount) contained in each of the then-outstanding Mortgages in such Approved Jurisdiction (that is, for example, if there are five (5) Mortgages encumbering Projects in Florida, each with a stated principal amount of $75,000,000, the maximum Borrowing Base Availability, at any time, on account of Florida Projects would be $75,000,000).

3.3.5.2New York.  The amount of Borrowing Base Availability attributable to any Project in the State of New York shall at no time exceed the stated amount of the Mortgage that encumbers such Project.

3.3.6Purchase Money Mortgages.  The aggregate amount of Borrowing Base Availability shall at all times be reduced by the then-outstanding aggregate principal balance of all purchase money mortgages encumbering Borrowing Base Projects that are Permitted Liens and that do not secure the Indebtedness.

3.4Submission of Borrowing Base Certificate.  In addition to any other requirement to do so as provided in this Agreement, (i) Borrowers shall submit to Agent a current Borrowing Base Certificate by the fifteenth (15th) day of each calendar month, and (ii) may submit a total of two (2) Borrowing Base Certificates during any calendar month, in each instance accompanied by such additional supporting information as may be reasonably requested by Agent.  Any such Borrowing Base Certificate delivered to Agent shall be deemed certified by Borrowers as to its completeness and its accuracy (including that each Lot and Unit identified thereon are encumbered by a Mortgage).  If approved by Agent, such Borrowing Base Certificate shall be determinative of the then-current Borrowing Base Availability.

3.5Inspection of Projects.  Borrowers shall permit Agent, by its employees and independent contractors, to enter upon and inspect, at any time and from time to time, all Projects that are then in the Borrowing Base, such inspections shall be made at a pace such that approximately 25% of all Projects in the Borrowing Base are so inspected during each Fiscal Quarter.  The costs of such inspections, as reasonably agreed upon by Master Borrower and Agent at the time a Project is admitted to the Borrowing Base, shall be Lender’s Costs.

ARTICLE IV.
CONDITIONS OF LENDING

4.1Agreement to Make Available the Facility.  The effectiveness of this Agreement is subject to the conditions precedent that Agent and Lenders shall have received (or, at Agent’s sole discretion with respect to any of the Section 4.1.11 requirements as they pertain to a Project or Projects, and with respect to the Section 4.1.12 requirements, waived) on or before the date hereof (which may include, at Agent’s discretion, documents delivered in connection with the Existing Credit Facility) all of the following collateral documents, each in form and substance satisfactory to the Agent:

4.1.1If requested pursuant to Section 2.10.1, the Line of Credit Notes, duly executed by the Master Borrower and by each other Borrower.

4.1.2The Guaranty, duly executed by Guarantor in favor of Agent for the ratable benefit of the Lenders.

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4.1.3The Security Agreement, duly executed by Guarantor in favor of Agent for the ratable benefit of the Lenders and, not later than 30 days after the Closing Date (or such later date as agreed to by Agent), such federal and state forms that may be necessary or, in the opinion of Agent, desirable in order to create in favor of Agent, for the benefit of Lenders, a valid and (upon such filing and recording or filing) perfected first priority security interest in all tax refunds and proceeds thereof received by, or payable to, Borrowers or Guarantor after the Closing Date.

4.1.4If requested pursuant to Section 2.10.2, the Swing Line Note, duly executed by the Master Borrower and by each other Borrower.

4.1.5Certified copies of all corporate, limited partnership and limited liability company action (as appropriate) taken by Borrowers and Guarantor, including resolutions of their respective Boards of Directors, authorizing the execution, delivery and performance of the Loan Documents to which each is a party.

4.1.6An incumbency and signature certificate (dated as the date of this Agreement) of the Secretaries, general partners, managers or members (as appropriate) of each Borrower and Guarantor, certifying the names and true signatures of the officers or other authorized Persons of Borrower and Guarantor authorized to sign the Loan Documents to which it is a party.

4.1.7A copy of the Organizational Documents of each Borrower and Guarantor, certified as true and correct by its respective Secretary, general partner, manager or members.

4.1.8A Subsistence Certificate for each Borrower and Guarantor, issued within thirty (30) days prior to the date hereof, from the state of such entity’s formation and all jurisdictions in which such Borrower or Guarantor is required to register as a foreign corporation, limited partnership or limited liability company.

4.1.9An Opinion directed to Agent and the Lenders and issued by the counsel to the Borrowers and Guarantor (who must be an independent attorney-at-law licensed to practice in Pennsylvania) that (i) Borrowers and Guarantor are duly organized, validly existing, and in good standing in the state of such entity’s formation and the Borrowers are authorized to do business in all jurisdictions where such authorization is required, (ii) each Borrower and Guarantor has the power to enter into the transactions contemplated by this Agreement and by the Loan Documents; (iii) the transactions contemplated by this Agreement and the Loan Documents do not violate any provision of any Organizational Document, or any other document known to such counsel, affecting any Borrower or Guarantor; (iv) the Loan Documents have been executed and delivered by, and constitute the valid and binding obligations of, Borrowers and Guarantor (to the extent executed thereby), enforceable in accordance with their terms, except as limited by applicable bankruptcy or other laws affecting creditor’s rights generally;; and (v) such other matters relating to the transactions contemplated herein as Agent or Agent’s counsel may reasonably request.

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4.1.10The most recent Financial Statements of Guarantor.

4.1.11On or before the Closing Date with respect to Borrowing Base Projects and not later than 90 days after the Closing Date (or such later date as agreed to by Agent) with respect to Projects not in the Borrowing Base as of the Closing Date, with respect to any Project (other than Real Estate subject to a purchase money mortgage constituting a Permitted Lien), Borrowers shall deliver or cause to be delivered to Agent (or, if required by any applicable rule or regulation by which Lenders are governed, Agent shall obtain) each of the following (and, in the case of any Project that is not a Eligible Project or has not otherwise been admitted to the Borrowing Base, shall provide updates thereof, as appropriate, when such Project is admitted to the Borrowing Base):

4.1.11.1A Mortgage, or an amendment thereto, for the ratable benefit of the Lenders, for such Project, executed and acknowledged by the Borrower that is the owner thereof, which shall be a first lien (subject only to Permitted Liens) on the Project in the Facility Amount, plus any interest and other charges due thereon; provided that if the Project is located in Florida, New York, Virginia or another Approved Jurisdiction that imposes taxes upon the recording of, or requires documentary stamps to be affixed to, Mortgages, the amount of the Mortgages in such Approval Jurisdictions may be limited in amount as from time to time designated by Master Borrower and approved by Agent, and such Mortgages may be effected by the subject Borrower and Agent executing a mortgage modification, spreader and reaffirmation agreement, in form acceptable to Agent, whereby the lien of an existing Mortgage is spread to encumber such Project.

4.1.11.2A collateral assignment to Agent, for the ratable benefit of the Lenders, of all Governmental Approvals (to the extent assignable), contracts and agreements to which the Project is subject, in form acceptable to Agent in good faith, executed by the Borrower that is the owner of such Project.

4.1.11.3Evidence as required by applicable banking regulations that no part of the Project on which any Unit is to be constructed is located in a flood plain or, if such evidence is not provided, a policy and certificate of flood insurance covering the Project, naming the Agent as insured.

4.1.11.4A marked-up title commitment of First American Title Insurance Company or another title insurance company satisfactory to the Agent, representing the title insurance company’s commitment to issue in favor of the Agent, for the ratable benefit of the Lenders, but at the Borrower’s expense, a standard form of mortgagee title insurance policy, or appropriate endorsements to any existing title policy, insuring the Mortgage on the Project, in an amount determined by Borrowers and Agent in good faith, as a first lien on the Real Estate included in the Project, free and clear of all prior Liens and encumbrances (other than Liens and encumbrances in favor of the Agent), subject only to such title conditions and Permitted Liens as may have been approved by the Agent.  The title commitment shall also provide that the policy of title insurance shall include such endorsements or additional coverage as determined by Agent to be necessary (which may include (if available) Pennsylvania Endorsements 100, 300, 710, 1010 and 1110 or their equivalents from other jurisdictions).

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4.1.11.5If requested by Agent, copies of any subdivision or land development plans applicable to such Project, evidence of the final approval of such plans and, if the recording of such plan has not been demonstrated to Agent, evidence reasonably acceptable to Agent that such plans will be recorded promptly upon the delivery of any required Letter of Credit or Tri-Party Agreement, and in any event not later than 60 days after the later of (i) the date such Project is admitted into the Borrowing Base or (ii) with respect to Projects admitted to the Borrowing Base after the Closing Date, the Borrower’s receipt of all state- or federally-issued Governmental Approvals that are prerequisite to the recording of the plans, but in the latter event no more than 155 days after the date the Project is admitted into the Borrowing Base.

4.1.11.6Evidence that the Borrower has procured insurance policies as required by the terms of this Agreement.  The evidence of insurance shall contain the agreement of the insurer to give not less than thirty (30) days’ notice to the Agent prior to cancellation of such policies or material change in the coverage thereof or ten (10) days’ notice for non-payment of premium and shall be on a form ACORD 27 (with respect to property insurance), ACORD 25 (with respect to liability insurance), or such similar form as is acceptable to Agent.

4.1.11.7If requested by Agent, a survey or other plan reasonably acceptable to Agent of the Real Estate included in the Project, showing any encroachments by or on the Real Estate and the location of all easements and rights-of-way affecting such Real Estate, all present and proposed utility lines, encroachments and building set-back lines.

4.1.11.8An environmental indemnity agreement with respect to the Project, executed by the Borrower and Guarantor, in form reasonably acceptable to Agent.

4.1.11.9An Appraisal of the Project, which Appraisal will be subject to Section 3.3.3.

4.1.11.10A Phase I environmental study for such Project, dated not earlier than twelve (12) months before the date that the Project is admitted to the Borrowing Base and that complies with (i) ASTM Standard E1527-00 if the Project is admitted to the Borrower Base prior to November 1, 2006 or (ii) ASTM Standard E1527-05 if the Project is admitted to the Borrowing Base on or after November 1, 2006, which study indicates that the Real Estate is not subject to any Environmental Conditions, is in compliance with all applicable Environmental Laws, that no Regulated Substances have been disposed of in, on or under the Real Estate, and that there are no underground storage tanks in the Real Estate.

4.1.11.11If requested by Agent, (i) copies of all Governmental Approvals theretofore issued with respect to the Project, permits, use registrations and approvals required under any law (including, without limitation thereto, planning, zoning, subdivision and building laws) for construction of the Units and Improvements and use thereof by the Borrower or by the purchasers thereof, and such other evidence as the Agent may require that the Units and use thereof contemplated by the Borrower, are permitted by and comply with all applicable laws including, without limitation thereto, zoning ordinances, and (ii) with respect to the addition of Approved or Improved Land to the Borrowing Base, a certification by the appropriate Borrower that all Governmental Approvals required for the lawful commencement of construction of Units thereon (other than building permits for such Units) have been issued and continue to be in full

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force and effect and available to the appropriate Borrower (or, with respect to Approved Land, the same will be issued within 120 days).

4.1.11.12Such other information and documents that the Agent may reasonably request.  The failure of the Agent to demand a certain type of information or document in regard to a Project will not constitute a waiver by the Agent of its right to demand that type of information or document in the future.

4.1.12      Not later than 30 days after the Closing Date, duly completed UCC financing statements and fixture filings, with respect to all personal and mixed property Collateral of the Borrowers and Guarantor, for filing in all jurisdictions as may be necessary or, in the opinion of Agent, desirable to perfect the security interests created in such Collateral pursuant to the Mortgages and Security Agreement;

4.1.13      This Agreement, duly executed by Guarantor, Borrowers, Agent, each 2008 Maturity Date Lender and Requisite Lenders.

4.1.14      A certificate duly executed by Guarantor and each Borrower certifying that, as of the Closing Date, after giving effect to the consummation of the transactions contemplated by the Loan Documents, each Borrower and Guarantor individually, and Guarantor on a consolidated basis, will be Solvent.

4.1.15Such other and further documents as may be required reasonably by the Agent or Lenders in order to consummate the transactions contemplated hereunder.

4.2Availability of Letters of Credit and Tri-Party Agreements.  The agreement of the Lenders to cause Agent to issue any Letter of Credit or Tri-Party Agreement is subject to the following conditions precedent, any of which may be waived by the Agent, at its sole discretion:

4.2.1The requesting Borrower shall have delivered to Agent executed (and, if necessary, notarized) copies of the following (all of which shall be in a form and contain such terms as shall be acceptable to the Lender, in its sole discretion):

4.2.1.1A Letter of Credit Application, if required.

4.2.1.2Copies of all financial security agreements, development agreements or similar documents, under which the obligations of the requesting Borrower are to be secured by the requested Letter of Credit or Tri-Party Agreement.  Such documents must be in a form satisfactory to the Agent.

4.2.1.3Such other information and documents that Agent may reasonably request.  It is understood that the failure of Agent to demand a certain type of information or document in regard to the issuance of a Letter of Credit or Tri-Party Agreement will not constitute a waiver by Agent of its right to demand that type of information or document in the future.

4.2.2The Project for which the Letter of Credit or Tri-Party Agreement has been requested is in an Approved Jurisdiction.

4.2.3On the date of issuance of such Letter of Credit or Tri-Party Agreement, all conditions precedent described in subsection 4.3 shall be satisfied to the same extent as if the issuance of such Letter of Credit or Tri-Party Agreement were the making of a Loan and the date of issuance of such Letter of Credit or Tri-Party Agreement were a Funding Date.

4.3Conditions Precedent to Loans.  The obligation of any Lender to make any Loan, or of Swing Line Lender to make any Swing Line Loan, shall be subject to the further conditions precedent that, on the Funding Date:

4.3.1All of the conditions, agreements and covenants set forth in this Agreement to be satisfied on or before the Funding Date by any Borrower or any Guarantor have been satisfied.

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4.3.2No Event of Default specified herein or in any other Loan Document shall have occurred and be continuing.

4.3.3The representations and warranties of the Borrowers and Guarantor herein or in any of the Loan Documents shall be true on and as of the date of the Loan or Swing Line Loan with the same force and effect as if made on and as of such date, except for those that relate to a specific date or those which cannot be made due to changes in circumstances of which Borrowers have given notice to Agent and which would not, but for delivery of notice or passage of time, or both, constitute an Event of Default, and the Borrowers shall so certify to Agent.

4.3.4No litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings not disclosed in writing by Borrowers to the Agent shall be pending or known to be threatened against any Borrower or Guarantor, and no material development not so disclosed shall have occurred in any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings so disclosed, which in any of the foregoing cases is likely to have a Material Adverse Effect on Borrowers or Guarantor.

4.3.5Neither immediately prior to such Loan or Swing Line Loan nor after giving effect thereto, Borrowers and Guarantor shall not have Investments in Cash and Cash Equivalents in excess of $32,500,000 on a consolidated basis.

4.3.6Agent shall have received such other approvals, opinions, or documents as the Agent may in good faith request.

ARTICLE V.
REPRESENTATIONS AND WARRANTIES

In addition to the representations and warranties contained in any other Loan Documents, Borrowers hereby make the following representations and warranties to Agent and the Lenders which, to the knowledge of Borrowers, are true and correct on the date hereof:

5.1Use of Proceeds.  The proceeds of the Facility shall be used by Borrowers only for Business purposes.

5.2Incorporation, Good Standing, and Due Qualification.

5.2.1Master Borrower and Guarantor are each a corporation duly incorporated, validly existing, and in good standing under the laws of the state of its incorporation, has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged in, and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to be so qualified will not have a material and adverse effect on the business and operations of the subject corporation.  Schedule 5.1 correctly sets forth the ownership interest of Guarantor and each of its Joint Ventures, subsidiaries and Eligible Affiliates and the jurisdiction of organization of Guarantor and each of its Joint Ventures, subsidiaries and Eligible Affiliates.

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5.2.2Each Borrower is either a corporation, limited partnership or limited liability company, duly incorporated or organized, validly existing, and in good standing under the laws of the state of its formation, has the power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged in, and is duly qualified as a foreign corporation, limited partnership or limited liability company and in good standing under the laws of each other jurisdiction in which such qualification is required.

5.3Power and Authority.  The execution, delivery, and performance by Borrowers and Guarantor of the Loan Documents to which they are parties have been duly authorized by all necessary corporate, partnership or limited liability company action, as appropriate, and do not and will not (i) require any consent or approval of the shareholders, partners or members of any such entity; (ii) contravene such entity’s Organizational Documents; (iii) violate any provision of or cause or result in a breach of or constitute a default under any law, rule, regulation (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to such entity; (iv) cause or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which such entity is a party or by which it or its properties may be bound or affected or; (v) cause or result in or require the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by such Guarantor or Borrower except as contemplated by this Agreement.

5.4Legally Enforceable Agreement.  This Agreement is, and each of the other Loan Documents executed by Borrowers or Guarantor when delivered under this Agreement will be, legal, valid, and binding obligations of Borrowers or Guarantor, enforceable against it or them in accordance with the respective terms thereof, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors’ rights generally.

5.5Financial Statements; Accuracy of Information.

5.5.1The Financial Statements of Borrowers and Guarantor for the period ending March 31, 2008 delivered to Agent and Lenders are true and correct and represent fairly their financial positions as of the date thereof and the results of their operations or affairs for the period indicated, and show (including the footnotes) all known liabilities, direct or contingent, of Borrowers or Guarantor as of the date thereof, all in accordance with GAAP consistently applied. Since the date of such Financial Statements, there has been no material adverse change in condition, financial or otherwise, of Borrowers or Guarantor or in its or their business and properties and, since such date, neither Borrowers nor Guarantor has incurred, other than in the ordinary course of business, any indebtedness, liabilities, obligations or commitments, contingent or otherwise. No information, exhibit, or report furnished by Borrowers or Guarantor to Agent or the Lenders in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statement contained therein not materially misleading. All projections delivered by Borrowers to Agent were made on a reasonable basis and in good faith.  Except as disclosed to Agent in writing, neither any Borrower nor Guarantor has any material contingent liabilities (including liabilities for taxes), unusual forward or long-term commitments or unrealized or anticipated losses from unfavorable commitments.

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5.5.2All information, financial statements, exhibits, and reports furnished by Borrowers or Guarantor to Agent or the Lenders in connection with this Agreement and the borrowings contemplated hereby are, and all such information, financial statements, exhibits and reports hereafter furnished by Borrowers or Guarantor to Agent or the Lenders will be, true and correct in every material respect on the date so furnished for the periods covered thereby, and no such information, financial statements, exhibit or report contains or will contain any material misstatement of fact or omits or will omit to state a material fact or any fact necessary to make the statement contained therein not materially misleading.

5.6Conflicts.  The execution, delivery and performance of this Agreement and the Loan Documents will not violate any provision of any indenture, agreement, or other instrument to which any Borrower, Guarantor, or any of their respective properties or assets are bound, and will not be in conflict with, result in a breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement, or other instrument, or result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of said properties or assets.

5.7Consents.  No authorization, consent, approval, license or exemption of, and no registration, qualification, designation, declaration or a filing with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign is necessary to the valid execution and delivery by Borrowers or Guarantor of this Agreement and the other Loan Documents to which each is a party.

5.8Litigation.  Except as disclosed on Schedule 5.8, there is no pending or threatened action or proceeding against or affecting any Borrower or Guarantor before any court, governmental agency, or arbitrator which may, in any one case or in the aggregate, have a Material Adverse Effect on Borrowers or the Guarantor.

5.9Other Agreements.  Neither any Borrower nor Guarantor is a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction which could have a Material Adverse Effect on the Borrowers or Guarantor.  Neither any Borrower nor Guarantor is in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party and which default would have a Material Adverse Effect on the Borrowers and Guarantor.

5.10No Defaults and Outstanding Judgments or Orders.  Each Borrower and Guarantor have satisfied, and none is in default with respect to, any final, unappealed and unstayed judgment, writ, injunction or decree of any court or arbitrator, and none of them is in default of any rule or regulation (if such default would have a Material Adverse Effect on Borrowers or Guarantor) of any federal, state, municipal, or other governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign by which it is bound.

5.11Taxes.  Borrowers and Guarantor (i) have filed all tax returns (federal, state, and local) required to be filed and (ii) have paid all taxes, assessments, and governmental charges and levies due thereon, including interest and penalties, except such as are being contested in good faith and with respect to which non-payment will not have a Material Adverse Effect upon Borrowers or Guarantor.

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5.12         Debt.  Neither any Borrower nor Guarantor has any Debt, except Permitted Debt that is disclosed in their Financial Statements or which arose or accrued after the date of the most recent Financial Statements and has been disclosed in writing to Agent.

5.13         Ownership and Liens.  Borrowers, Guarantor and each subsidiary of Guarantor has title to in all of its properties and assets, real and personal, free and clear of all liens other than Permitted Liens.  A list of all real estate assets owned by any Borrower or Guarantor is set forth on Schedule 5.13 hereto, including whether such real estate assets are included in the Borrowing Base or not.  Borrowers and Guarantor may update Schedule 5.13 from time to time by delivery to Agent of updates or amendments thereto.

5.14         ERISA.  Borrowers, Guarantor and each Subsidiary of Guarantor is in compliance in all material respects with all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; to the best of Borrower’s knowledge after due inquiry, no circumstances exist which constitute grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither of the any Borrower nor Guarantor nor any ERISA Affiliate has completely or partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; Borrowers, Guarantor and each ERISA Affiliate have met their minimum funding requirements under ERISA with respect to all of their Plans and the present fair market value of all Plan assets exceeds the present value of all vested benefits under each Plan, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA and the regulations thereunder for calculating the potential liability of the Borrower or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA; and neither any Borrower nor Guarantor nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA.

5.15         Representations and Warranties as to Real Estate.  As to Real Estate:

5.15.1      No Violations Relating to the Real Estate.  Borrowers have no knowledge of any violation, nor is there any notice or other record of violation of any zoning, subdivision, environmental, building or other statute, ordinance, regulation, restrictive covenant or other restriction applicable to the Real Estate, except for violations, if any, which Borrowers have disclosed in writing to Agent and are proceeding in good faith to remove or correct or which is subject to contest by applicable proceedings timely commenced and diligently pursued to conclusion and which non-compliance will not have a Material Adverse Effect on Borrowers.

5.15.2      Liens.  There exist no liens, encumbrances or other charges against the Real Estate, or any portion thereof, or any property relating thereto, including statutory and other liens of mechanics, workmen, contractors, subcontractors, suppliers, taxing authorities and others, except for Permitted Liens.

5.15.3      Compliance with Laws.  The Real Estate and any Units and Improvements thereon are being and, to the best of Borrowers’ knowledge and belief, have been operated in all material respects, in compliance with applicable federal and state laws and regulations (including but not limited to environmental laws and regulations) and with local ordinances, and all permits required thereunder have been obtained and complied with in all material respects.

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5.15.4      Environment.  Borrowers have duly complied with, and their businesses, operations, assets, equipment, property, leaseholds, or other facilities (including, but not limited to, the Real Estate) are in material compliance with, the provisions of all federal, state, and local Environmental Laws, and all health, and safety laws, codes and ordinances, and all rules and regulations applicable to Projects promulgated thereunder.  Except as set forth in the Environmental Reports heretofore delivered to Agent, no Borrower has received notice of, or knows of, or suspects the existence of any Environmental Condition which might constitute a violation of, any Environmental Law or any other federal, state, or local health or safety laws, codes or ordinances, and any rules or regulations promulgated thereunder with respect to its businesses, operations, assets, equipment, property, leaseholds, or other facilities (including, but not limited to, the Real Estate) with which it has not complied (subject to the prosecution of a good faith contest of any such notice that has not heretofore been determined adversely to such Borrower).

5.16         No Violation.  Neither any Borrower nor Guarantor has engaged in any conduct or taken or omitted any act in violation of RICO or of any Prescribed Law.

5.17         Accurate and Complete Disclosure.  No representation or warranty made by Borrowers under this Agreement or any other Loan Document is false or misleading in any material respect (including by omission of material information necessary to make such representation, warranty of statement not misleading).  Borrowers or the Guarantor have disclosed to Agent in writing every fact which would have a Material Adverse Effect, or which so far as Borrowers can now foresee is reasonably possible in the future and would have a Material Adverse Effect, on the business, operations or financial condition of Borrowers or the Guarantor or the ability of Borrowers or the Guarantor to perform their respective obligations under this Agreement or any other Loan Document.

5.18         Compliance with Covenants.  As of the date this representation is made or deemed made, Borrowers are in compliance with applicable covenants contained in Article VIII hereof.

The delivery to Agent of each Notice of Borrowing and request for the issuance of a Letter of Credit or Tri-Party Agreement shall constitute the representation and warranty of Borrowers that the conditions contained in Sections 4.1 and 4.2 are satisfied as of such date, except for those that relate to a specific date or those which cannot be made due to changes in circumstances of which Borrowers have given notice to Agent and which would not, but for delivery of notice or passage of time, or both, constitute an Event of Default, each of the representations and warranties contained in this Article V is true and correct as if made on such date.

ARTICLE VI.
AFFIRMATIVE COVENANTS

In addition to the covenants contained in the Loan Documents, Borrowers hereby covenant and agree that, so long as Lenders have any obligation to make Loans or issue Letters of Credit or Tri-Party Agreements hereunder, or any Loan, Letter of Credit Advance or Swing Line Loan is outstanding, except as the Agent may otherwise advise Master Borrower in writing with the consent of Lenders in accordance with Section 11.10:

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6.1Reporting Requirements.  Borrowers and Guarantor shall furnish, or cause to be furnished, to Agent and either Agent or Master Borrower shall furnish to Lenders:

6.1.1        For the Fiscal Year ended June 30, 2008, not later than October 15, 2008, and for each Fiscal Year thereafter, as soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, audited Financial Statements of Guarantor (which shall include a consolidated balance sheet and a consolidated statement of operations) through the end of such Fiscal Year, and a consolidated statement of cash flow for such Fiscal Year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior Fiscal Year and all prepared in accordance with GAAP consistently applied and accompanied by an unqualified opinion thereon, on a basis acceptable to Agent, by PricewaterhouseCoopers LLP or by another national firm of independent certified public accountants selected by Guarantor and acceptable to Agent in good faith.  In the event Guarantor files its Annual Report on Form 10-K on the ninetieth (90th) day, the audited Financial Statements of Guarantor shall be delivered on the day after filing the final Annual Report on Form 10-K with the SEC.

6.1.2        As soon as available, and in any event within forty five (45) days after the close of each of the first three Fiscal Quarters and eighty (80) days after the close of each fourth Fiscal Quarter (or within five (5) Business Days after Guarantor files its Annual Report on Form 10-K for such Fiscal Year, if earlier), unaudited management-prepared quarterly Financial Statements of Guarantor (which shall include a Consolidated Balance Sheet and a Consolidated Statement of Operations) as of the end of each Fiscal Quarter, all in reasonable detail and prepared in conformity with GAAP, applied on a basis consistent with that of the preceding Fiscal Year. Such statements shall be certified as to their correctness by the chief financial officer of Guarantor.  With respect to the first three Fiscal Quarters in any Fiscal Year, in the event Guarantor files a Quarterly Report on Form 10-Q on the forty-fifth (45th) day, the unaudited management-prepared quarterly Financial Statements of Guarantor shall be delivered on the day after filing the final Quarterly Report on Form 10-Q with the SEC for such Fiscal Quarter.

6.1.3        As soon as available, and in any event within forty (40) days after the close of each month, unaudited management-prepared monthly and year-to-date consolidated financial statements of Guarantor (which shall include a consolidated balance sheet and a consolidated statement of operations) as of the end of each month, all in reasonable detail and prepared in conformity with the Guarantor’s prior internal monthly reporting practices, all of which shall be provided for informational purposes only and not for determining compliance with any covenants in this Agreement.

6.1.4        On each Tuesday after the Closing Date, a report reflecting the balances of Cash and Cash Equivalents in all accounts of the Borrowers and Guarantor for each day of the previous week.

6.1.5        Within sixty (60) days after the end of each Fiscal Year, a management-prepared business plan and budget of Guarantor, Borrowers, and Guarantor’s other subsidiaries for the then-current Fiscal Year.

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6.1.6        Within sixty (60) days after the end of each Fiscal Year, a comparison of the Borrowers’ and Guarantor’s actual results during the preceding Fiscal Year with the budgeted results for such period.

6.1.7        Within ten (10) days of the end of each month, a detailed sales activity report prepared by Borrowers for each Project.

6.1.8        Within twenty (20) days of the last day of each month, a 13-week cash flow statement (reflecting the 13-week cash flow from the date of delivery of such statement) and reconciliation of variances from the previous month’s 13-week cash flow statement.

6.1.9        Within fifteen (15) days after the end of each Fiscal Quarter, an aging report of all Lots owned by any Borrower.

6.1.10      Prompt notification of (i) the institution of any material litigation or the commencement of any material administrative proceedings against a Borrower or Guarantor, (ii) the entry of any judgment against any Borrower or Guarantor in an amount in excess of $250,000, (iii) the occurrence of any default with respect to any OHI Financing Subordinated Debt or Subordinated Debt or (iv) the happening of any other event which would have a Material Adverse Effect upon Borrowers or Guarantor.

6.1.11      Upon the occurrence of an Event of Default, a written notice setting forth the details of such Event of Default and the action which is proposed to be taken by Borrowers with respect thereto.

6.1.12      As soon as possible and in any event within five (5) days after any Borrower or Guarantor knows or has reason to know that any Reportable Event or Prohibited Transaction has occurred with respect to any Plan or that the PBGC, any Borrower or Guarantor has instituted or will institute proceedings under Title IV of ERISA to terminate any Plan, Borrowers will deliver to Agent a certificate of the chief financial officer of Guarantor setting forth details as to such Reportable Event or Prohibited Transaction or Plan termination and the action such Borrower or Guarantor proposes to take with respect thereto.

6.1.13      Such other information respecting the condition or operations, financial or otherwise, of Borrowers or Guarantor as the Agent (or any Lender acting through Agent) may from time to time reasonably request.

6.2Payment of Taxes.  Borrowers and Guarantor shall each duly pay and discharge all taxes, assessments and governmental charges levied upon or assessed against it, its properties, or its income prior to the date on which penalties are attached thereto and, within thirty (30) days after any request therefor by Agent (if Agent reasonably believes any such taxes, etc., have not been paid when due), deliver to Agent a receipt from the applicable governmental authority evidencing said payment, unless and except to the extent only that such taxes, assessments and charges shall be contested in good faith by appropriate proceedings diligently conducted by Borrowers (unless and until foreclosure, distraint, sale or other similar proceedings shall have been commenced) or the Guarantor and provided that such reserves as shall be required by GAAP shall have been made and maintained therefor.

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6.3Access to Properties, Books and Records.  Borrowers shall, and shall cause Guarantor to, (i) permit any of the officers, employees or representatives of Agent or (if accompanied by an officer, employee or representative of Agent) of any Lender to visit and inspect any of the Real Estate of Borrowers and (ii) permit any officers, employees or representatives of Agent to examine Borrowers’ and Guarantor’s books and records and make extracts therefrom and discuss the affairs, finances, and accounts of Borrowers and Guarantor with representatives thereof, during normal business hours, and as often as Agent may reasonably request upon prior telephone notice.

6.4Maintenance of Records.  Borrowers shall, and shall cause Guarantor to, keep adequate records and books of account, in which complete entries were made in accordance with generally accepted accounting principals consistently applied, reflecting all financial transactions of Borrowers and Guarantor.

6.5Maintenance of Existence.  Each Borrower (except for a Borrower that ceases to maintain its existence solely as a result of an Internal Reorganization) shall, and shall cause Guarantor to, preserve and maintain its existence and good standing in the jurisdiction of its formation, and qualify and remain qualified as a foreign entity in each jurisdiction in which such qualification is required.

6.6Insurance.  Borrowers shall (and with respect to the insurance described in Section 6.6.7 shall cause Guarantor to) take out, maintain and keep in force, throughout the term of the Facility, policies of insurance on the following terms:

6.6.1Insurance against loss to each Project on a “Special Perils” policy form, covering insurance risks no less broad than those covered under a Standard Multi Peril (SMP) policy form, which contains the most recent Commercial ISO “Causes of Loss-Special Form,” in commercially reasonable amounts and with endorsements as heretofore customarily maintained by subsidiaries of Guarantor, issued by insurers licensed in the jurisdiction in which each Project is located and that satisfy Agent’s then-current standards for property insurers and complying with the requirements of the Mortgages.

6.6.2Commercial general liability insurance against death, bodily injury and property damage arising on, about or in connection with each Project, with limits not less than those heretofore maintained by subsidiaries of Guarantor and written on the most recent Standard “ISO” occurrence basis form or equivalent form, excess umbrella liability coverage with limits not less than those heretofore maintained by subsidiaries of Guarantor and completed operations coverage for a period of one year after construction of Units, issued by insurers licensed in the jurisdiction in which each Project is located and that satisfy Agent’s then-current standards for liability insurers.

6.6.3Worker’s compensation insurance in an amount not less than those that are statutorily required in each jurisdiction in which Borrowers operate.

6.6.4During the making of any alterations or improvements to any Project, insurance covering claims based on the owner’s or employer’s contingent liability not covered by the insurance provided in Section 6.6.2 above.

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6.6.5        Insurance against loss or damage by flood or mud slide in compliance with the Flood Disaster Protection Act of 1973, as amended from time to time, covering each Project that is now, or at any time while the Indebtedness remains outstanding shall be, situated in any area which an appropriate governmental authority designates as a special flood hazard area, in amounts equal to the full replacement value of all above grade structures located or to be constructed in such special flood hazard area.

6.6.6        Such other insurance relating to the Projects and the uses and operation thereof as Agent may, from time to time, reasonably require, including, but not limited to products liability and workers’ compensation insurance.

6.6.7        Directors’ and officers’ liability insurance in the forms, and in amounts not less than that which is now carried by Borrowers and Guarantor.

6.6.8        All insurance shall:  (i) be carried in companies with a Rating of A- or better and a Financial Size Category of Class IX or higher, as set forth in the most recently published Best’s Key Rating Guide, or otherwise acceptable to Agent; (ii) in form and content acceptable to Agent; and (iii) provide thirty (30) days’ (ten (10) days’ for non-payment of any premium) advance written notice to Agent before any cancellation, material modification or notice of non-renewal.  All physical damage policies and renewals shall contain a mortgage clause acceptable to Agent, naming Agent as mortgagee, which clause shall expressly state that any breach of any condition or warranty by any Borrower shall not prejudice the rights of Agent under such insurance, and a loss payable clause in favor of Agent for personal property, contents, inventory, equipment, loss of rents and business interruption.  All liability policies and renewals shall name Agent and each Lender as an additional insured.  No additional parties shall appear in the mortgage or loss payable clause without Agent’s prior written consent.  All deductibles shall be in amounts acceptable to Agent.  In the event of the foreclosure of any Mortgage or any other transfer of title to any Borrower in full or partial satisfaction of the Indebtedness, all right, title and interest of each Borrower in and to all insurance policies and renewals thereof then in force shall pass to such purchaser or grantee.  If the insurance, or any part thereof, shall expire, or be withdrawn, or become void or unsafe by reason of any Borrower’s breach of any condition thereof, or become void or unsafe by reason of the value or impairment of the capital of any company in which the insurance may then be carried, or if for any reason whatever the insurance shall be unsatisfactory to Agent, Borrowers shall place new insurance that satisfies the requirements of this Section 6.6.

6.6.9        Any notice pertaining to insurance and required pursuant to this Section 6.6 shall be given in the manner provided in this Agreement at the address from time to time directed by Agent by notice to Master Borrower.  The insurance shall be evidenced by the original policy or a true and certified copy of the original policy, or in the case of liability insurance, a Certificate of Liability Insurance.  Borrowers shall use their best efforts to deliver originals of all policies and renewals (or certificates evidencing the same), marked “paid,” to Agent at least thirty (30) days before the expiration of existing policies and, in any event, Borrowers shall deliver originals of such policies or certificates to Agent at least fifteen (15) days before the expiration of existing policies.  If Agent has not received satisfactory evidence of such renewal or substitute insurance in the time frame specified herein, Agent shall have the right, but not the obligation, to purchase such insurance for Lender’s interest only.  Any amounts so disbursed pursuant to this Section 6.6.9 shall be paid by Borrowers.  Nothing contained in this

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Section 6.6 shall require Agent or any Lender to incur any expense or take any action hereunder, and inaction by Agent and Lenders shall never be considered a waiver of any right accruing to Mortgagee on account of this Section 6.6.

6.6.10      No Borrower shall carry any separate insurance on any Project concurrent in kind or form with any insurance required hereunder or contributing in the event of loss without Agent’s prior written consent and any such policy shall have attached a standard non-contributing mortgagee clause, with loss payable to Agent, and shall meet all other requirements set forth herein.

6.7ERISA.  Borrowers shall, and shall cause Guarantor to, comply in all material respects with the requirements of ERISA applicable to any employee pension benefit plan (within the meaning of Section 3(2) of ERISA), sponsored by any Borrower or Guarantor.

6.8Accounts.  Borrowers and Guarantor shall maintain one or more demand deposit accounts with Agent into which the proceeds of each Loan and Swing Line Loan shall be deposited.

6.9Compliance with Laws.  Borrowers shall, and shall cause Guarantor to, comply with all applicable laws (including but not limited to any applicable tax law, product safety law, occupational safety or health law, environmental protection or pollution control law, hazardous waste or toxic substances management, handling or disposal law and Prescribed Laws) in all respects; provided that Borrowers shall not be deemed to be in violation of this Section as a result of any failures to comply which would not result in fines, penalties, injunctive relief or other civil or criminal liabilities which, in the aggregate, would have a Material Adverse Effect.

6.10Payment of Debt.  Borrowers shall, and shall cause Guarantor to, promptly pay and discharge (i) all of its Debt in accordance with the terms thereof; (ii) all taxes, assessments, and governmental charges or levies imposed upon it or upon its income and profits, upon any of its property, real, personal or mixed, or upon any part thereof, before the same shall become in default; (iii) all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might become a lien or charge upon any Real Estate or, if the same would have a Material Adverse Effect, against any other property or any part thereof; provided that so long as Borrowers notify Agent in writing of their intention to do so, Borrowers and Guarantor shall not be required to pay and discharge any such Debt, tax, assessment, charge, levy or claim so long as the failure to so pay or discharge does not constitute or result in an Event of Default and so long as the validity thereof shall be contested in good faith by appropriate proceedings diligently pursued and it shall have set aside on its books adequate reserves with respect thereto.

6.11[Intentionally Omitted].

6.12Further Assurances.  Borrowers agree to, and to cause Guarantor to, do such further acts and things and to execute and deliver to Agent such additional assignments, agreements, powers and instruments, as Agent may reasonably require or reasonably deem advisable to carry into effect the purposes of this Agreement or to better assure and confirm unto Agent and the Lenders their respective rights, powers and remedies hereunder.

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ARTICLE VII.
NEGATIVE COVENANTS

In addition to the covenants contained in the Loan Documents, Borrowers hereby covenant and agree that, so long as the Lenders have any obligation to make Loans or issue Letters of Credit hereunder, or any Loan, Letter of Credit Advance or Swing Line Loan is outstanding, Borrowers shall not, except as Agent may otherwise advise Master Borrower in writing with the consent of Lenders in accordance with Section 11.10:

7.1Creation of Debt.  Create, incur, assume or suffer to exist, or permit Guarantor to create, incur, assume or suffer to exist, any Debt except Permitted Debt.

7.2Grant of Liens.  Grant, or permit to exist, any lien on any Project or on any other asset (whether real or personal) of a Borrower or Guarantor, other than Permitted Liens.

7.3Mergers and Acquisitions.

7.3.1Merge or consolidate with, or acquire all or substantially all of the assets or the business of, any Person (or permit Guarantor so to merge, consolidate or acquire), unless (a) such merger or consolidation is an Internal Reorganization, or (b) (i), if such merger or consolidation is a stock acquisition, those Persons who are shareholders of Guarantor immediately prior to such transaction directly or indirectly have, immediately after the consummation of the transaction, at least 51% of the voting control of the surviving entity, (ii) Borrowers remain in compliance with all covenants in this Agreement upon such merger, consolidation or acquisition, and (iii) Master Borrower delivers to Agent, at least ten (10) days before the consummation of the proposed transaction, a certificate signed by Guarantor’s chief financial officer certifying such continued compliance.

7.3.2Sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person or permit Guarantor to do any of the foregoing, except (a) for (i) the sale or other disposition of Land, Lots and/or Units in the ordinary course of business; (2) the sale or other disposition of assets no longer used or useful in the conduct of its business; and (3) the sale and/or sale and leaseback of model Units; and (b) sales, leases, assignments or other dispositions made solely pursuant to an Internal Reorganization.

7.4Transaction With Affiliates.  Enter into any transaction, or cause Guarantor to enter into any transaction including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate which is not a Borrower, Guarantor, or a subsidiary of either, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, except (a) in the ordinary course of or pursuant to the reasonable requirements of Borrowers’ Business on terms that are no less favorable to Borrower or Guarantor, as the case may be, than those that might be obtained at the time from persons who are not such an Affiliate, and (b) after giving effect to such transaction, Borrowers remain in compliance with all covenants in this Agreement.

7.5Use of Proceeds.  Directly or indirectly, use any part of such proceeds for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to any person for the

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purpose of purchasing or carrying any such margin stock, or for any purpose which violates, or is inconsistent with, Regulation X of the Board of Governors of the Federal Reserve System.

7.6Restricted Payments.  Permit Guarantor or any Borrower to, directly or indirectly, declare, order, pay, make or set apart any sum for (w) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of any Borrower or Guarantor now or hereafter outstanding, (x) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of any Borrower or Guarantor now or hereafter outstanding, (y) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of any Borrower or Guarantor now or hereafter outstanding and (z) providing the funds for or the making of any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any purchase money mortgages, Subordinated Debt or the OHI Financing Subordinated Debt, except for:

(i)         dividends payable solely in shares, or rights to acquire shares, of a class of Capital Stock of any Borrower or Guarantor to the holders of such class;

(ii)        scheduled payments of interest on the OHI Financing Subordinated Debt;

(iii)       payments, distributions, purchases, acquisitions, providing of funds, pre-payments, redemptions, retirements, sinking fund or similar payments or any other actions to the extent taking place between or among one or more Borrowers or among one or more Borrowers and Guarantor or pursuant to an Internal Reorganization;

(iv)       the acquisition of securities pursuant to any cashless or net exercise of options held by any present or former employee, officer or director of Guarantor or any subsidiary of Guarantor, provided that such options were acquired pursuant to an employee benefit plan; and

(v)        any extension, refinancing, renewal, repayment, replacement, defeasance or refund with respect to the OHI Financing Subordinated Debt to the extent approved by Agent in accordance with Section 7.7.

7.7Amendments of Documents Relating to Subordinated Debt.  Borrowers shall not, and shall not permit Guarantor to, amend or otherwise change, or consent to any amendment or change to, the terms of the OHI Financing Subordinated Debt or any Subordinated Debt, or any extension, refinancing, renewal, repayment, replacement, defeasance or refund of the OHI Financing Subordinated Debt or any Subordinated Debt, or make any payment consistent with such an amendment thereof or change thereto, or any extension, refinancing, renewal, repayment, replacement, defeasance or refund thereof, without the consent of the Agent.  The Agent may provide its consent hereunder to a proposed amendment or change, to the terms of the OHI Financing Subordinated Debt (including any such amendment or change proposed in connection with an extension, refinancing, renewal, repayment, replacement, defeasance or refund thereof), if:

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(i)            A summary of all of the material terms of the proposed amendment or change is submitted to the Agent for its review and approval at least thirty (30) days prior to issuance of the Debt;

(ii)           The maturity of such debt is no earlier than 179 days after the then-current Maturity Date at the time of issuance;

(iii)          The OHI Financing Subordinated Debt, after such amendment or change, contains subordination provisions (including without limitation provisions with respect to payment blockages during the continuance of an Event of Default) as are satisfactory to Agent in its sole discretion;

(iv)          Agent shall have determined in its sole discretion that the covenants, restrictions, representations and warranties contained in or associated with such debt are no more burdensome, onerous or restrictive than those contained in the existing OHI Financing Subordinated Debt or the Loan Documents;

(v)           The aggregate outstanding principal amount of the OHI Financing Subordinated Debt does not exceed $108,248,000 (plus, in the event of a refinancing described below, all accrued and unpaid interest thereon and such reasonable expenses incurred in connection therewith).

For purposes of this Section 7.7, any proposed amendment or refinancing of the OHI Financing Subordinated Debt that has the effect of (a) increasing the principal balance, (b) increasing the interest rate, (c) shortening the maturity date, (d) increasing the cash payments under, (e) purporting to modify the terms imposed by this Section 7.7 or (f) imposing more restrictive or onerous terms upon any Borrower or Guarantor, in each case, as compared to the existing OHI Financing Subordinated Debt and the Loan Documents shall be deemed to be an amendment or refinancing of such Debt and must satisfy the conditions contained in this Section 7.7.

By its approval of any change or amendment to the OHI Financing Subordinated Debt, Agent makes no representation or warranty to Borrowers or Lenders that the terms thereof are not, or may not be construed as being, more onerous, burdensome or restrictive than the terms of the existing OHI Financing Subordinated Debt or the Loan Documents, or that the subordination provisions may not be construed to have been “customary” at the time the subject Debt was issued, and Agent shall have no liability or obligation to Borrowers or the Lenders in any such event.  To the extent any term of any Debt so approved by Agent as is in fact interpreted or construed to be more onerous, burdensome or restrictive than the terms of the Loan Documents, then in such event, and notwithstanding the provisions of Section 13.1 hereof, the Loan Documents, in the discretion of Agent or at the request of the Requisite Lenders, shall be deemed to incorporate and include such more onerous, burdensome or restrictive terms, without the necessity of any written amendment or modification to the Loan Documents, and Agent may enforce such terms as though originally written and contained in the Loan Documents..

7.8           Second Lien Indebtedness.  Permission for second lien indebtedness will be considered by Agent and subject to approval by the Requisite Lenders and upon such approval shall be deemed to be Permitted Debt.  Any second Lien facility will be subject to an Intercreditor Agreement which shall include, but not be limited to, payment and lien priority

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provisions, procedures governing enforcement which will permit Lenders to exercise remedies with respect to the Collateral and other reasonable usual and customary terms included in intercreditor arrangements between senior debt and second lien debt holders.  One hundred percent (100%) of the net proceeds of any permitted second lien facility must be paid to the Lenders and applied as a permanent reduction against the Loans and Commitments.,

7.9Investments.  Guarantor and Borrowers shall not directly or indirectly, make or own any Investment in any Person, including any Joint Venture, except:

(i)In addition to any amounts that may be invested pursuant to Section 7.9(ii), Borrowers and Guarantor may make new Investments in Joint Ventures that are non-recourse to the Guarantor and any Affiliates in an amount not to exceed $5,000,000.

(ii)In addition to any amounts that may be invested pursuant to Section 7.9(i), Borrowers and Guarantor may make Investments in Joint Ventures that are non-recourse to the Guarantor and any Affiliates in amounts equal to 50% of any Net Securities Proceeds raised by Guarantor after March 31, 2008, with the remaining 50% of any net equity proceeds being used to permanently reduce Indebtedness pursuant to Section 2.3.1.5;

(iii)Guarantor and Borrowers may maintain its current Investments in cost-sharing arrangements or partnerships already in existence in the amounts set forth on Schedule 7.9, and make further Investments in such cost-sharing arrangements or partnerships identified on Schedule 7.9 consistent with the current activities of such cost-sharing arrangement;

(iv)Guarantor may make Investments in Alambry Funding, Inc., A.P. Orleans, Incorporated and Community Management Services Group of up to an aggregate of $600,000, in each case, consistent with the current activities of such entities;

(v)Borrowers and Guarantor may make Investments in Real Estate, Lots or Units and improvements thereon owned by a Borrower or Guarantor, subject to the limitations in Section 8.5;

(vi)Borrowers and Guarantor may make Investments in equipment or other assets reasonably necessary for the ordinary conduct of the Business;

(vii)Borrowers and Guarantor may make lease, utility and other similar deposits in the ordinary course of business;

(viii)Borrowers and Guarantor may make Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers or customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business;

(ix)Borrowers and Guarantor may make Investments in securities acquired in connection with the satisfaction or enforcement of indebtedness or claims due or owing or as security for any such indebtedness or claim;

(x)Borrowers and Guarantor may make Investments in interest rate hedging arrangements entered into with respect to Permitted Debt,

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(xi)Borrowers may make advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits;

(xii)Borrowers and Guarantor may make commission, payroll, Business-related expenses and similar advances to officers and employees;

(xiii)Borrowers and Guarantor may make Investments in securities acquired pursuant to any cashless or net exercise of options held by any present or former employee, officer or director of Guarantor or any subsidiary of Guarantor, provided that such options were acquired pursuant to an employee benefit plan; and

(xiv)Borrowers and Guarantor may continue to own existing Investments in the entities identified on Schedule 5.1, in the amount of such Investment as of the Closing Date.

7.10Limitation on Holdings of Cash and Cash Equivalents..  Guarantor may hold and/or own Cash and Cash Equivalents determined on a consolidated basis in an amount not to exceed $32,500,000 with respect to unrestricted Cash and Cash Equivalents; provided that Guarantor may hold and/or own Cash and Cash Equivalents in excess of $32,500,000 on a consolidated basis for no longer than consecutive five (5) Business Days so long as Borrowers reduce such amount during such period by repaying the Loans or otherwise reducing such amount in a manner permitted by this Agreement.

ARTICLE VIII.
FINANCIAL COVENANTS

So long as the Indebtedness shall remain unpaid or Lenders have any obligation to make Loans or issue Letters of Credit hereunder, Borrowers shall comply with the following covenants.  For purposes of all calculations made for purposes of determining compliance with the financial covenants contained in this Article VIII and the interpretation of any defined terms used in this Article VIII, assets and liabilities associated with (i) any Option Agreement or (ii) option or land bank arrangements of any Borrower or Affiliate of Guarantor that are required to be included in the balance sheet of Guarantor, solely due to Interpretation Number 46, as issued by the Financial Accounting Standards Board in January 2003 (as revised), shall not be included within the calculation performed to determine compliance with the covenants contained in Sections 8.2, 8.7 or 8.8 hereof.  Compliance with the covenants contained in this Article VIII shall, as appropriate, be determined on the combined Financial Statements of Guarantor (which shall include all Borrowers, Guarantor and all consolidated subsidiaries of any Borrower or Guarantor).

8.1[Intentionally Omitted].

8.2Consolidated Tangible Net Worth.  As of the last day of any Fiscal Quarter, Guarantor shall maintain a minimum Consolidated Tangible Net Worth that is equal to an amount that is not less than $75,000,000; provided that such covenant amount will be (I) reduced by the sum of, without duplication (a) inventory impairments under GAAP on assets in the Borrowing Base taken by the Guarantor and recorded after March 31, 2008 plus (b) the amount of any interest expense incurred less the amount of interest capitalized under Statement of

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Financial Accounting Standard No. 34   and recorded after March 31, 2008  plus (c) any additional deferred tax asset valuation reserves recorded after March 31, 2008 (provided that clauses (a) and (c) shall be limited to an aggregate amount not to exceed $30,000,000) plus (d) any impairments or write-offs relating to tangible assets or pre-acquisition costs not contained in the Borrowing Base recorded after March 31, 2008, and (II) increased by the sum of, without duplication, (x) any favorable adjustment recorded after March 31, 2008 to the Deferred Tax Asset valuation allowance as reported in Footnote 1 of the Guarantor’s filed 10-Q Statement on March 31, 2008 plus (y) of 50% of positive quarterly net income after March 31, 2008 plus (c) of 50% of any Net Securities Proceeds received by the Borrowers and Guarantor after March 31, 2008.  Notwithstanding the foregoing, at no time shall Consolidated Tangible Net Worth, after taking into account the reductions and increases above, be less than $35,000,000.

8.3           [Intentionally Omitted].

8.4           [Intentionally Omitted.].

8.5           Real Estate Acquisitions.  No Borrower or Guarantor shall purchase any Real Estate, Lots or Units after the Closing Date, except for (a) up to $8,000,000 of Real Estate, Lots or Units (whether purchase money or otherwise) purchased by the Borrower in the normal course of business, consistent with the projections provided to the Lenders and (b) Improved Land (i.e., finished Lot takedowns and/or controlled rolling Lot options) purchased by the Borrower in the normal course of business, consistent with the projections provided to the Lenders.

8.6           [Intentionally Omitted].

8.7           Cash Flow From Operations.  Commencing on September 30, 2008, as of the last day of each of the following Fiscal Quarters, the Cash Flow Coverage Ratio shall be greater than or equal to:

Fiscal Quarter Ending	Applicable Ratio
September 30, 2008	1.25:1.00
December 31, 2008	1.25:1.00
March 31, 2009	0.40:1.00
June 30, 2009	1.00:1.00
September 30, 2009 and thereafter	1.25:1.00

8.8           Liquidity.  The Liquidity at all times shall be not less than $15,000,000.

8.9           Reports Regarding Financial Covenants.  Together with each delivery of Financial Statements (or within five (5) Business Days after Guarantor files its Annual Report on Form 10-K for such Fiscal Year, if earlier), Borrowers shall submit to Agent a Covenant Compliance Certificate, in the form attached hereto as Exhibit 8.7 and executed by the chief financial officer of Guarantor, confirming that the Borrower is in compliance with the financial covenants of this Article VIII as of the dates provided herein for compliance.

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ARTICLE IX.
EVENTS OF DEFAULT

The occurrence of any of the following shall constitute an Event of Default hereunder:

9.1           The failure of Agent to receive from Borrowers payment of any sum as required pursuant to this Agreement or any other Loan Document within five (5) days after the same is payable; provided that the failure of Borrowers to pay the entire Indebtedness to Agent on the Maturity Date shall be an immediate Event of Default, without notice.

9.2           The failure of Borrowers to observe or perform any promise, covenant, warranty, obligation, representation or agreement in this Agreement or in any other Loan Document, or in any other document evidencing or securing any of the Indebtedness or the repayment thereof (and not specifically addressed in the other Sections of this Article IX), within fifteen (15) days after written notice from Agent; provided that the notice and cure period contained in this Section 9.2 shall not apply to the breach of any covenant or obligation contained in Sections 3.4, 6.5, 7.1, 7.2, 7.3, 7.6, 7.9 or 7.10 or in Article VIII, or to any other failure that, by its nature, is not susceptible to being cured by Borrowers or Guarantor.

9.3           Any assignment for the benefit of the creditors of Borrower, the filing of any other proceedings by Borrower or by any other person or entity rendering Borrower or any of the Real Estate subject to a proceeding in insolvency or in bankruptcy, either for liquidation or for reorganization (and in the case of an involuntary proceeding under the Bankruptcy Code, the failure to have same dismissed prior to the entry of an Order for Relief), or if Borrower shall become insolvent or unable to pay debts as they mature.

9.4           The dissolution or reorganization of a Borrower, other than a dissolution or reorganization of a Borrower solely as a result of an Internal Reorganization.

9.5           The (i) entry of a judgment or judgments against Borrower at any time (a) in an aggregate amount that is at least $500,000 in excess of insurance proceeds available to Borrower with respect to such judgment or judgments, if such judgment or judgments are not dismissed or bonded within thirty (30) days or (b) that prevents Borrower from conveying Lots and Units in the ordinary course of business if such judgment or judgments are not dismissed or bonded within thirty (30) days, or (ii) issuance of any writs of attachment, execution or garnishment against Borrower.

9.6           The furnishing to Agent or any Lender, heretofore or hereafter, by or on behalf of Borrower of materially false information, or the refusal by Borrower to hereafter provide material information to Agent upon request.

9.7           If any signature, certificate, opinion, financial statement or other information heretofore or hereafter furnished or made by Borrower to Agent or the Lenders shall prove to be false, incorrect, incomplete or misleading in any material respect on or as of the date furnished, made or deemed made.

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9.8Any material adverse change in the financial condition of Borrower which causes Requisite Lenders, in good faith, to believe that performance of any of the Indebtedness herein is impaired or doubtful for any reason whatsoever.

9.9Any warranty or representation by Borrower contained in this Agreement or in any other Loan Document is now or hereafter materially false or incorrect when made or deemed made.

9.10Subject to any applicable grace or cure period therein contained, the occurrence of any “Event of Default” as defined in or occurring under any Loan Document.

9.11The occurrence of any default under the terms of any note or other instrument that evidences Debt of Guarantor or any Borrower, or OHI Financing Subordinated Debt, which default continues beyond any applicable cure period contained therein.

9.12At any time after the execution and delivery thereof, (i) any Loan Document or any provision thereof, for any reason other than the satisfaction in full of all Indebtedness, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, (ii) Agent or any Lender shall not have or shall cease to have a valid and perfected first priority Lien in any Collateral to the extent such Lien is required under this Agreement, in each case for any reason other than the failure of Agent or any Lender to take any action within its control, or (iii) any Borrower or Guarantor shall contest the validity or enforceability of any Loan Document or any provision thereof in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Loan Document or any provision thereof to which it is a party.

For purposes of this Article IX, the term “Borrower” shall include (i) each Person that is then included in the definition of “Borrower” contained in this Agreement and (ii) for purposes of Sections 9.2 through 9.9, inclusive, also Guarantor.

ARTICLE X.
REMEDIES

10.1Remedies of Lenders.  Upon the occurrence of an Event of Default hereunder and the completion of any applicable grace or cure period, and during continuance of such Event of Default, (i) with the consent of Requisite Lenders Agent may and (ii) upon the request of Requisite Lenders Agent shall, by notice to Master Borrower on behalf of the Lenders, and with respect to Section 10.1.3 each individual Lender may, exercise all or any of the following remedies, all of which rights and remedies shall be cumulative:

10.1.1      Demand immediate payment in full of all Indebtedness, whereupon the same shall be immediately due and payable.

10.1.2      Immediately terminate Lenders’ obligations to make any Loans or to issue any Letters of Credit or Tri-Party Agreements hereunder and Swing Line Lender’s obligation to make Swing Line Loans.

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10.1.3      Set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by any Lender to or for the credit or the account of any Borrower, irrespective of whether Agent or Lenders shall have made any demand under this Agreement, the Line of Credit Notes, the Swing Line Note or any other Loan Document and although such obligations may be unmatured (which rights of the Lenders are in addition to other rights and remedies, including, without limitation, other rights of setoff, which the Lenders may have).  All net funds recovered under the rights provided in this Section 10.1.3 shall be recovered by Lenders as agent for the other Lenders and shall be distributed among Lenders according to their Pro Rata Share.  Each Lender shall be an agent of all other Lenders for purposes of rights of set-off.

10.1.4      Exercise its rights or remedies granted herein, or under applicable law, or which it may otherwise have under any other Loan Document, against Borrowers or against Guarantor.

10.1.5      Notwithstanding anything to the contrary contained in this Section 10.1, upon the occurrence with respect to Guarantor of any event describe in Section 9.3, the entire Indebtedness shall be immediately due and payable and Lenders’ obligations to make Loans or to issue Letters of Credit or Tri-Party Agreements and Swing Line Lender’s obligation to make Swing Line Loans, shall automatically and immediately terminate, without notice from Agent or any Lender.

10.2Effect of Delay.  Neither failure nor delay on the part of Agent or the Lenders to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

10.3Acceptance of Partial Payment.  The acceptance by the Lenders of any partial payments of Loans, Letter of Credit Advances or Swing Line Loans made by any Borrower after the occurrence of an Event of Default hereunder, or the advance of any additional funds or the issuance of a Letter of Credit or execution of a Tri-Party Agreement at any such time, shall not be deemed a waiver by the Lenders of such Event of Default unless expressly agreed in writing by the Agent.

10.4Other Available Remedies.  The enumeration of the rights and remedies of the Agent and the Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by the Agent and the Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder or under any other Loan Documents or that may now or hereafter exist in law or in equity or by suit or otherwise.

10.5Waiver of Marshalling of Assets.  To the fullest extent permitted by law, each Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrowers and others with interests in any Borrower, and of the Projects, or to a sale in inverse order of alienation in the event of foreclosure of all or any of the Mortgages, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Agent or Lenders under the Loan

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Documents to a sale of the Projects for the collection of the Indebtedness without any prior or different resort for collection or of the right of Lenders to the payment of the Indebtedness out of the net proceeds of the Projects in preference to every other claimant whatsoever.  In addition (but subject to any applicable statute or law governing deficiencies remaining after the sale of any collateral), each Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Mortgages, any equitable right otherwise available to any Borrower which would require the separate sale of the Projects or require Agent to exhaust its remedies against any individual or any combination of the Projects before proceeding against any other Project or combination of Projects; and further in the event of such foreclosure each Borrower hereby expressly consents to and authorizes, at the option of Agent, the foreclosure and sale either separately or together of any combination of the Projects, to the extent permitted by any applicable statute or law.

10.6         Waiver of Counterclaim.  Each Borrower hereby waives the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against it by Agent or Lenders.

ARTICLE XI.
THE AGENT

11.1         Appointment.  Each of the Lenders hereby irrevocably designates and appoints Agent as agent of such Lender under this Agreement and the other Loan Documents for the term hereof and each such Lender irrevocably authorizes Agent, as agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto.  Notwithstanding any provision to the contrary elsewhere in this Agreement or such other Loan Documents, the Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents or otherwise exist against the Agent.  Any reference to the Agent in this Article XI shall be deemed to refer to the Agent solely in its capacity as Agent and not in its capacity as a Lender.

11.2         Delegation of Duties.  Agent may execute any of its respective duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to rely on advice of counsel concerning all matters pertaining to such duties.  Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by Agent with reasonable care.

11.3         Exculpatory Provisions.  Neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact, subsidiaries or affiliates shall be (i) liable for any action taken or omitted to be taken by it or such Person under or in connection with this Agreement or the other Loan Documents (except for actions occasioned solely by its or such Person’s own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for (a) any recitals, statements, representations or warranties made by Borrowers or any officer thereof contained in this Agreement or the other Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in

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connection with, this Agreement or the other Loan Documents or, (b) the satisfaction of any condition specified herein, other than receipt of items required to be delivered to Agent, or (c) for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the other Loan Documents, or (d) for any failure of Borrowers or Guarantor to perform their obligations hereunder or thereunder.  Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of Borrowers or Guarantor.  Agent shall have no duty to disclose to Lenders information that is not required to be furnished by Borrowers or Guarantor to Agent at such time, but is voluntarily furnished by any Borrower or Guarantor to Agent in its individual capacity.

11.4         Reliance by Agent.  Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrowers), independent accountants and other experts selected by Agent.  Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless such Note shall have been transferred in accordance with Section 13.9 hereof.  Agent shall be fully justified in failing or refusing to take any action under this Agreement and the other Loan Documents unless it shall first receive such advice or concurrence of the Requisite Lenders (or, when expressly required hereby or by the relevant other Loan Document, all the Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action except for its own gross negligence or willful misconduct.  Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes in accordance with a request of the Requisite Lenders (or, when expressly required hereby, all the Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes.

11.5         Non-Reliance on Agent and Other Lenders.  Each Lender expressly acknowledges that neither Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact, subsidiaries or affiliates has made any representations or warranties to it and that no act by Agent hereinafter taken, including any review of the affairs of the Borrowers, Guarantor or any of their respective Affiliates, shall be deemed to constitute any representation or warranty by Agent to any Lender.  Each Lender represents to Agent that it has, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of Borrowers, Guarantor and their respective Affiliates and made its own decision to make Loans and Line of Credit Advances, to participate in Swing Line Loans and to enter into this Agreement.  Each Lender also represents that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of Borrowers, Guarantor and their respective Affiliates.  Except for notices, reports and other

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documents expressly required to be furnished to the Lenders by Agent hereunder or by the other Loan Documents, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Borrowers, Guarantor or any of their respective Affiliates which may come into the possession of Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact, subsidiaries or affiliates.

11.6         Indemnification.  Lenders agree to reimburse and indemnify Agent (in its capacity as Agent but not as a Lender) ratably in proportion to their respective Commitments (i) for any amounts (but excluding syndication expenses) not reimbursed by Borrowers for which Agent is entitled to reimbursement by Borrowers under the Loan Documents (and without limiting the obligation of Borrowers to pay such reimbursement), including reasonable out-of-pocket expenses in connection with the preparation, execution, delivery of the Loan Documents, (ii) for any other reasonable out-of-pocket expenses incurred by Agent, on behalf of Lenders, in connection with the administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement or the other Loan Documents, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for any of the foregoing to the extent they arise from (a) the gross negligence or willful misconduct of Agent or (b) a dispute which is solely between Agent and one or more Lenders in which the other Lender prevails, or (c) an action taken or not taken by Agent contrary to the express requirements contained herein pertaining to the requisite number of Lenders required to approve or direct certain actions or contrary to the instructions received from such Lenders.  The obligations of Lenders under this Section 11.6 shall survive payment of the Indebtedness and termination of this Agreement.  Each Lender shall, within ten (10) Business Days after a written demand therefor accompanied with a description of the amounts payable, contribute its respective Pro-Rata Share of the out-of-pocket costs and expenses incurred by Agent in accordance with the terms of this Agreement, including, but not limited to, fees of receivers or trustees, court costs, title company charges, filing and recording fees, appraisers’ fees and reasonable fees and expenses of attorneys.

11.7         Consequential Damages.  NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN OR IN ANY OF THE LOAN DOCUMENTS, NEITHER AGENT NOR ANY LENDER SHALL BE RESPONSIBLE OR LIABLE TO ANY LENDER OR TO AGENT FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

11.8         Agent in Its Individual Capacity.  Agent and its respective subsidiaries and affiliates may make loans to, accept deposits from and generally engage in any kind of business with Borrowers as though Agent were not an Agent hereunder.  With respect to any Loans, Letter of Credit Advances and Swing Line Loans made or renewed by it and any Line of Credit Note or Swing Line Note issued to it, the Agent shall have the same rights and powers under this

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Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms “Lender” and “Lenders” shall include Agent in its individual capacity.

11.9         Resignation or Removal of Agent as Administrative Agent.  Subject to the appointment and acceptance of a successor administrative agent as provided below, (i) Agent may resign at any time by giving sixty (60) days’ written notice thereof to Lenders and Master Borrower, and (ii) Agent may be removed at any time by Requisite Lenders with cause, if it is reasonably determined by Requisite Lenders that Agent has failed, and continues to fail, in the administration of the Facility in accordance with customary practices for similar credit facilities.  Upon any such resignation or removal, Requisite Lenders shall have the right to appoint a successor Agent, subject to the approval of Borrowers, which approval shall not be unreasonably withheld or delayed; provided, however, that no such approval of Borrowers shall be required if an Event of Default is in existence.  If no successor administrative agent shall have been so appointed by Requisite Lenders and shall have accepted such appointment within sixty (60) days after the retiring Agent’s notice of resignation or the Requisite Lenders’ removal of the retiring Agent, then the retiring Agent may, on behalf of Lenders, appoint a successor administrative agent, subject to the approval of Borrowers, which approval shall not be unreasonably withheld or delayed; provided, however, that no such approval of Borrowers shall be required if an Event of Default is in existence.  Any successor administrative agent shall be a Lender which has a combined capital and surplus of at least $250,000,000.00.  Upon the acceptance of any appointment as Agent hereunder by a successor administrative agent, such successor administrative agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder.  After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of this Article XI shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent hereunder.

11.10       Amendments, Waivers and Consents.  Except as set forth below, any term, covenant, agreement or condition of this Agreement or any of the other Loan Documents may be amended or waived by the Lenders, and any consent given by the Lenders, if, but only if, such amendment, waiver or consent is in writing signed by the Requisite Lenders (or by Agent with the consent of the Requisite Lenders) and delivered to Agent and, in the case of an amendment, signed by the Borrowers; provided, that without the prior written consent of each Lender no amendment, waiver or consent shall: (i) increase the Facility Amount, the Revolving Sublimit or the Letter of Credit Sublimit, (ii) postpone the Maturity Date or change the date on which any monthly payment of interest is due; (iii) reduce the Interest Rate payable on any Loan or Letter of Credit Advance, or any Loan Fee; (iv) amend the “Advance Rate” percentage set forth in the chart that is part of Section 3.3; (v) permit any assignment (other than as specifically permitted or contemplated in this Agreement) of any of the Borrowers’ rights and obligations hereunder; (vi) release Guarantor; (vii) release any Collateral or consent to the transfer, pledge, mortgage or assignment of any Collateral, other than as specifically provided in this Agreement; or (viii) amend the provisions of this Section 11.10, the definition of Requisite Lenders or any other provision of this Agreement specifying the number or percentage of Lenders required to (a) amend, waive or otherwise modify any rights of Lenders hereunder, (b) make any determination that is to be made by Lenders or (c) grant any consent that is required to be obtained from Lenders.  In addition, no amendment or waiver of the provisions of this Article XI shall be made

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without the written consent of Agent and no Lender’s Commitment may be increased without such Lender’s consent.

11.11Authority.

11.11.1    Agent, as described herein, shall have all rights with respect to collection and administration of the Indebtedness, the security therefor and the exercise of remedies with respect thereto, except, to the extent otherwise expressly set forth herein.  Lenders agree that Agent shall make all determinations as to whether to grant or withhold approvals or consents under the Loan Documents and as to compliance with the terms and conditions of the Loan Documents, except to the extent otherwise expressly set forth therein or herein.  Agent will simultaneously deliver to Lenders copies of any default notice sent to Borrowers under the terms of the Loan Documents and will promptly provide to Lenders copies of any other material notices.

11.11.2    As to any matters which are subject to the consent of any or all of Lenders, as set forth in this Agreement, Agent shall not be permitted or required to exercise any discretion or to take any action except upon the receipt of the written consent to such action by Lenders holding the required Pro Rata Shares, which written instructions shall be binding upon Lenders.  Notwithstanding anything contained herein to the contrary, it is understood and agreed that Lenders’ right to consent to or disapprove any particular matter shall be limited to the extent that Lenders’ or Agent’s rights to consent to or disapprove of such matter are limited in the Loan Documents.  Subject to the foregoing limitations, each Lender hereby appoints and constitutes Agent as its agent with full power and authority to exercise on behalf of such Lender any and all rights and remedies which such Lender may have with respect to, and to the extent necessary under applicable law for, the enforcement of the Loan Documents, including the right to exercise, or to refrain from exercising, any and all remedies afforded to such Lender by the Loan Documents or which such Lender may have as a matter of law.

11.12Borrower Default.  Agent shall not be deemed to have knowledge of the occurrence of a default or an Event of Default (other than the nonpayment of principal of or interest on the Loans, Letter of Credit Advances or Swing Line Loans) unless Agent has received notice from a Lender, a Borrower or Guarantor specifying such default or Event of Default and stating that such notice is a “Notice of Default”.  In the event that Agent receives such a notice of the occurrence of a default or an Event of Default, Agent shall give prompt notice thereof to Lenders.  Agent shall give each Lender prompt notice of each nonpayment of principal of or interest on the Loans, Letter of Credit Advances or Swing Line Loans, whether or not Agent has received any notice of the occurrence of such nonpayment.  Agent shall (subject to Section 11.10) take such action hereunder with respect to such default or Event of Default as shall be directed by Requisite Lenders, provided that, unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such default or Event of Default as it shall deem advisable in the best interests of Lenders, including, without limitation, continuing to make Loans.

11.13Lender Default.  If any Lender (a “Defaulting Lender”) (i) fails to fund its Pro Rata Share of any Loan or Letter of Credit Advance on or before the time required pursuant to this Agreement, (ii) fails to pay Agent, within twenty (20) days of demand (which demand shall be accompanied by invoices or other reasonable back up information demonstrating the amount

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owed) for such Lender’s Pro Rata Share of any out-of-pocket costs, expenses or disbursements incurred or made by Agent pursuant to the terms of this Agreement (the aggregate amount described in the foregoing clauses (i) and (ii) which the Defaulting Lender fails to pay or fund is referred to as the “Defaulted Amount”), (iii) has given notice to Agent or any Borrower that it will not make, or that it has disaffirmed or repudiated any obligation to make, any Loan hereunder (unless such notice is given by all Lenders), or (iv) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding, then, in addition to the rights and remedies that may be available to the other Lenders (the “Non-Defaulting Lenders”) at law and in equity:

11.13.1    The Defaulting Lender’s right to participate in the administration of the Loan and the Loan Documents, including without limitation, any rights to vote upon, consent to or direct any action of Agent or Lenders shall be suspended and such rights shall not be reinstated unless and until such default is cured (and all decisions, except the decision to remove Agent, which are subject to receiving a vote of a required percentage of Lenders shall be approved if voted in favor of by the required percentage of the Non-Defaulting Lenders); that if Agent is a Defaulting Lender, Agent shall continue to have all rights provided for in this Agreement with respect to the administration of the Loan, unless Requisite Lenders vote to remove and replace such Agent as provided in Section 11.9.

11.13.2    Any or all of the Non-Defaulting Lenders shall be entitled (but shall not be obligated) to fund the Defaulted Amount, and collect interest at the Default Rate on the Defaulted Amount from the Defaulting Lender (after crediting all interest actually paid by Borrower on the Defaulted Amount from time to time) from amounts otherwise payable to the Defaulting Lender for the period from the date on which the payment was due until the date on which payment is made.

11.13.3    In the event the Defaulted Amount is funded by any Non-Defaulting Lenders pursuant to Section 11.13.2, the Defaulting Lender’s interest in the Loans and Letter of Credit Advances and the Loan Documents and proceeds thereof shall be subordinated to any Defaulted Amount funded by any Non-Defaulting Lenders pursuant to Section 11.13.2 plus interest which may be due in accordance with Section 11.13.2, to be applied pari passu among the Non-Defaulting Lenders funding the Defaulted Amount), without necessity for executing any further documents, provided that such Defaulting Lender’s interest in the Loans and the Loan Documents and the proceeds thereof shall no longer be so subordinated if the Defaulted Amount funded by the Non-Defaulting Lenders (and all interest which has accrued pursuant to Section 11.13.2) shall be repaid in full.

11.13.4    To achieve such subordination, (i) Agent shall deduct from the interest due to the Defaulting Lender on its subordinated interest in the Loans and Letter of Credit Advances the excess of interest on the Defaulted Amount at the rate specified in Section 11.13.2 over the interest actually received from Borrower by the Non-Defaulting Lenders which funded the Defaulted Amount on account of their portion of the Defaulted Amount for the same time period and (ii) all amounts received by Agent on account of principal (or reimbursement for amounts otherwise advanced) which would otherwise be payable to the Defaulting Lender shall be paid pari passu to the Non-Defaulting Lenders until the Defaulted Amount and all interest thereon has been repaid in full.

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11.13.5    Agent or any Lender shall have the right, with Agent’s consent and in Agent’s sole discretion (but shall have no obligation) to purchase from any Defaulting Lender, and such Defaulting Lender agrees that it shall, upon Agent’s request, sell and assign to Agent or such Lender or Lenders, all of the Commitment of such Defaulting Lender for an amount equal to the principal balance of the Note held by the Defaulting Lender and all accrued interest and fees, less any amounts due from the Defaulting Lender with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment and Assumption Agreement.

Nothing contained in this Section 11.13 shall be deemed or construed to waive, diminish or limit, or prevent or stop any Lender from exercising or enforcing, any rights or remedies which may be available at law or in equity as a result of or in connection with any default under this Agreement by a Lender.  In addition, no Lender shall be deemed to be a Defaulting Lender if such Lender refuses to fund its Pro Rata Share of any Loan or Letter of Credit Advance being made after any bankruptcy related Event of Default hereof due to the lack of bankruptcy court approval for such Advance.

11.14Ratable Sharing.  The Lenders, by acceptance of a Note, agree among themselves that with respect to all amounts received by them which are applicable to the payment of or reduction of a proportion of the aggregate amount of principal and interest due with respect to the Notes held by any Lender (whether as a result of the enforcement of any Loan Document or on foreclosure of any banker’s or other lien or any setoff or other claim on or against any deposit or other balance of any Borrower or Guarantor held by any Lender) which is greater than the proportion received by any other holder of a Note in respect to the aggregate amount of principal and interest due with respect to the Notes held by it, or any other amount payable hereunder, such Lender or such holder of a Note receiving such proportionately greater payments shall notify each other Lender and Agent of such receipt and remit to them such amounts as are necessary so that all such recoveries of principal and interest with respect to the Notes shall be proportionate to the Lenders’ respective Pro Rata Shares.  If any Lender or holder of a Note receiving such proportionately greater payments is required to return such proportionately greater payment to any trustee, receiver or other representative of or for any Borrower upon or by reason of the bankruptcy, insolvency, reorganization or dissolution of such Borrower, then such other Lender(s) which received its or their Pro Rata Share of such proportionately greater payment must also return such amounts to the appropriate Borrower as if such payment or payments from the Lender receiving such proportionately greater payments had not been made.  If at the time that the provisions of this Section 11.14 are applied there is any Swing Line Loan outstanding, each Lender’s Pro Rata Share shall be appropriately adjusted to reflect the existence of such Swing Line Loan and shall be based on such Lender’s proportionate share of all then-outstanding Indebtedness.

11.15Documentation.  Agent shall deliver to any Lender, in addition to the information required to be delivered by Agent to Lenders pursuant to this Agreement, copies of such Loan Documents now or hereafter executed by Borrowers or Guarantor and other documents delivered by Borrowers to Agent, promptly after receipt of a written request therefor.

ARTICLE XII.
INTENTIONALLY OMITTED.

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ARTICLE XIII.
MISCELLANEOUS

13.1         Modifications.  Modifications, waivers or amendments of or to the provisions of this Agreement or any other Loan Document shall be effective only if set forth in a written instrument signed by each of the parties to the subject document.

13.2         Binding Nature.  The rights and privileges of Agent and Lenders contained in this Agreement shall inure to the benefit of their respective successors and permitted assigns, and the duties of the Borrowers shall bind all successors and permitted assigns.  All agreements, representations, warranties and covenants made by the Borrowers herein or in any of the other Loan Documents shall survive the execution and delivery of this Agreement and all other documents referred to herein and shall be continuing as long as any portion of any Indebtedness owed to Lenders hereunder shall remain outstanding and unpaid.

13.3         Governing Law.  This Agreement shall in all respects be governed by the laws of the Commonwealth of Pennsylvania.  This Agreement and all of the other Loan Documents shall be construed as if drafted equally by all parties hereto.

13.4         Time of Performance.  Time of performance hereunder is of the essence of this Agreement.

13.5         Severability.  If any provision hereof shall for any reason be held invalid or unenforceable, no other provision shall be affected thereby, and this Agreement shall be construed as if the invalid or unenforceable provision had never been a part of it.

13.6         Captions.  The descriptive headings hereof are for convenience only and shall not in any way affect the meaning or construction of any provision hereof.

13.7         Computations.  Except as otherwise expressly stated herein, all computations required herein shall be made by the application of generally accepted accounting principles and practices applied on a consistent basis.

13.8         Continuing Obligation.  If any claim is ever made upon any Lender for the repayment or return of any money or property received by such Lender from any Borrower in payment of the Loan or any other Obligation and such Lender repays or returns all or part of said money or property by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such Lender or any of its property or (ii) any settlement or compromise of any such claim accomplished by such Lender with such claimant, then in such event Borrowers agree that any such judgment, decree, settlement or compromise shall be binding upon Borrowers, notwithstanding any termination hereof or the cancellation of any note or other instrument evidencing any liability to such Lender, and the Borrowers shall be and shall remain liable to such Lender hereunder for the amount so repaid or the value of the property returned to the same extent as if such had never originally been received by such Lender.  Borrowers agree that no Lender shall have any duty or affirmative obligation to defend against such claim and may object to or pay such claim in its sole discretion without impairing or relinquishing the obligations of Borrowers hereunder.  This Section 13.8 shall survive the termination of this Agreement.

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13.9Assignment and Participation.

13.9.1Successors and Assigns Generally.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Borrower or Guarantor may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of Section 13.9.2, (ii) by way of participation in accordance with the provisions of paragraph (d) of Section 13.9.4 or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 13.9.6 (and any other attempted assignment or transfer by any party hereto shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 13.9.4 and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

13.9.2Assignments by Lenders.  Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:

13.9.2.1Minimum Amounts.

(i)in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans and Letter of Credit Advances at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(ii)in any case not described in Section 13.9.2.1(i), the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans or Letter of Credit Advances of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $10,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).

13.9.2.2Proportionate Amounts.  Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loan, Letter of Credit Advances or the Commitment assigned.

13.9.2.3Required Consents.  No consent shall be required for any assignment except to the extent required by Section 13.9.2.1 or this Section 13.9.2.3 and, in addition:

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(i)        the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund;

(ii)       the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of a Loan, Letter of Credit Advance or Commitment if such assignment is to a Person that is not a Lender with a Commitment, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and

(iii)      the consent of the Issuer (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding).

13.9.2.4Assignment and Assumption.  The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500, and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

13.9.2.5No Assignment to Borrower.  No such assignment shall be made to any Borrower or Guarantor or any of the Borrowers’ or Guarantor’s Affiliates.

13.9.2.6No Assignment to Natural Persons.  No such assignment shall be made to a natural person.

Subject to acceptance and recording thereof by Agent pursuant to Section 13.9.1, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.16, 2.17 and 13.15 hereof with respect to facts and circumstances occurring prior to the effective date of such assignment.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 13.9.4.

13.9.3Register.  Agent, acting solely for this purpose as an agent of Borrowers, shall maintain at its office in Charlotte, North Carolina, a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and Letter of Credit Advances owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive, and Borrowers, Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender

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hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.  The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

13.9.4      Participations.  Any Lender may at any time, without the consent of, or notice to, Borrowers or Agent, sell participations to any Person (other than a natural person or Guarantor, a Borrower or any of Guarantor’s Affiliates) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans and Letter of Credit Advances owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) Borrowers, Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of Participant, agree to any amendment, modification or waiver described in Section 11.10 that requires the consent of all Lenders, that affects such Participant.  Subject to Section 13.9.5, Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.16, 2.17 and 13.15 hereof to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 13.9.1.  To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.14 as though it were a Lender, provided such Participant agrees to be subject to Section 11.14 as though it were a Lender.

13.9.5      A Participant shall not be entitled to receive any greater payment under Sections 2.16 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with Master Borrower’s prior written consent.  A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless Master Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of Borrowers, to comply with Section 2.16 as though it were a Lender.

13.9.6      Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto.

13.10Notices.

13.10.1    Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in Section 13.10.4), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier to the addresses set forth below:

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If to Master Borrower, any other Borrower or Guarantor:	c/o Orleans Homebuilders, Inc.
	3333 Street Road
	Bensalem, Pennsylvania 19020
	Attention: Garry P. Herdler
	Fax: (215) 633-2352
	E-mail: gherdler@orleanshomes.com
with copies to:	Lawrence J. Dugan, Esquire
	c/o Orleans Homebuilders, Inc.
	3333 Street Road
	Bensalem, Pennsylvania 19020
	Fax: 215-633-3019
	E-mail: ldugan@orleanshomes.com
	and
	William M. Hartnett, Esquire
	Cahill Gordon & Reindel LLP
	Eighty Pine Street
	New York, NY 10005-1702
	Fax: 212-278-2198
	E-mail: whartnett@cahill.com
	and
	Michael E. Plunkett, Esquire
	WolfBlock LLP
	1650 Arch Street, 22nd Floor
	Philadelphia, PA 19103
	Fax: 215-405-2583
	E-Mail: mplunkett@wolfblock.com
If to Agent (other than regarding fundings):	Wachovia Bank, National Association
	123 S. Broad Street
	Philadelphia, Pennsylvania 19109
	Attention: Julie Pasceri-Young, VP
	Fax: 215-670-6530
	E-mail: Julie.Pasceri-Young@wachovia.com
with copies to:	Wachovia Bank, National Association
	Mail Code VA 7391
	P.O. Box 13327
	Roanoke, VA 24040
	or

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	10 South Jefferson Street
	Roanoke, VA 24011
	and
	Peter S. Clark, Esquire
	Reed Smith LLP
	2500 One Liberty Place
	Philadelphia, PA 19103
	Fax: 215-851-1420
	E-mail: pclark@reedsmith.com
If to Agent regarding fundings:	To Agent as provided in Section 2.12.2
If to Lenders:	At the address provided on the
	Signature Page of such Lender

13.10.2    Notices given to Master Borrower shall be deemed to have been given to all of the Borrowers, notwithstanding that any such notice is addressed only to Master Borrower.

13.10.3    Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient).  Notices delivered through electronic communications to the extent provided in Section 13.10.4, shall be effective as provided in Section 13.10.4.

13.10.4    Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e mail and Internet or intranet websites) pursuant to procedures approved by Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified Agent that it is incapable of receiving notices under such Article by electronic communication.  Agent or Borrowers may, in its or their discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.  Unless Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

13.10.5    Any party hereto may change its address or telecopier number for notices and other communications hereunder by notice to the other parties hereto.

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13.10.6    Notice given to any party by the attorney for another party shall constitute notice from such party (and the attorneys for each party are hereby permitted to give such notice to each other party on behalf of their client).  Failure to provide copies of any notice to counsel as provided above shall not invalidate or limit the effect of such notice.

13.11Cumulative Remedies.  The rights and remedies provided hereunder are cumulative and not exclusive of any rights or remedies (including without limitation, the right of specific performance) which Agent or Lenders would otherwise have.  Any waiver, consent or approval of any kind or character on the part of Agent or Lenders of any Event of Default or breach of this Agreement or any Loan Document or any such waiver of any provision or condition hereof or thereof must be in writing, signed by Agent, and shall be effective only to the extent in such writing specifically set forth.  Borrowers acknowledge that, with respect to this Agreement and its terms, Borrowers are neither authorized nor entitled to rely on any representations, course of dealing, modifications or assurances in any form as to any subject from any officer of Agent unless and until such representations, modifications, course of dealing, or assurances are set forth in writing and signed by such officer of Agent.

13.12Third Party Beneficiaries.  The parties do not intend the benefits of this Agreement to inure to any third party.  Notwithstanding anything contained herein or in the Notes or any other Loan Document executed in connection with this transaction, or any conduct or course of conduct by either or both of the parties hereto, or their respective Affiliates, agents, or employees, before or after the signing of this Agreement or any of the other aforesaid Loan Documents, this Agreement shall not be construed as creating any rights, claims, or causes of action against Agent or any Lender, or any of their respective officers, directors, agents, or employees, in favor of any person or entity other than Borrowers.

13.13Entire Agreement.  This Agreement, the other Loan Documents contain the entire agreement and understanding among Borrowers, Lenders and Agent regarding the Facility.  All prior negotiations and discussions between or among any of the parties hereto regarding the Facility and the terms and conditions thereof are superseded by this Agreement and the other Loan Documents.

13.14Counterparts.  This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and shall be binding upon all parties, their successors and assigns, and all of which taken together shall constitute one and the same agreement.

13.15Expenses and Indemnification.

13.15.1    The Borrower shall pay (i) all reasonable out of pocket expenses incurred by the Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Agent), and shall pay all fees and time charges and disbursements for attorneys who may be employees of the Agent, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out of pocket expenses incurred by the Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or

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Tri-Party Agreement or any demand for payment thereunder and (iii) all out of pocket expenses incurred by the Agent, any Lender or the Issuer (including the fees, charges and disbursements of any counsel for the Agent, any Lender or the Issuer), and shall pay all fees and time charges for attorneys who may be employees of the Agent, any Lender or the Issuer, in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit or Tri-Party Agreements issued hereunder, including all such out of pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

13.15.2    Borrowers and, by its execution of the Guaranty, Guarantor agree to indemnify and hold harmless Agent and Lenders and each of their respective affiliates and each of their respective officers, directors, employees, agents, advisors and representatives (each, an “Indemnified Party”) from and against any and all claims, damages, losses, liabilities and reasonable expenses (including, without limitation, fees and disbursements of counsel), joint or several, that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or relating to any investigation, litigation or proceeding or the preparation of any defense with respect thereto, arising out of or in connection with the Facility, any of the Loan Documents or any of the transactions contemplated hereby or thereby, or any use made or proposed to be made with the proceeds of the Facility, whether or not such investigation, litigation or proceeding is brought by a Borrower, Guarantor, any of its or their shareholders or creditors, an Indemnified Party or any other Person, or an Indemnified Party is otherwise a party thereto, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct.

No Indemnified Party shall have any liability (whether direct or indirect, in contract, tort or otherwise) to any Borrower, Guarantor or any of its or their shareholders or directors for or in connection with the transactions contemplated hereby, except to the extent such liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct.

13.15.3    Agent shall promptly give Borrowers written notice of all suits or actions instituted against Lenders with respect to which Borrowers have indemnified Lenders, and Borrowers shall timely proceed to defend any such suit or action through counsel reasonably acceptable to Lenders.  In the event that Lenders determine in good faith that the subject action, if decided adversely to Lenders’ interest, would have a material adverse effect upon any Lender, Lenders shall also have the right, at the expense of Borrowers, to participate in or, at Lenders’ election, assume the defense or prosecution of such suit, action, or proceeding, and in the latter event Borrowers may employ counsel and participate therein.  Agent shall have the right to adjust, settle, or compromise any claim, suit, or judgment after notice to Borrowers, unless Borrowers desire to litigate such claim, defend such suit, or appeal such judgment and simultaneously therewith deposit with Agent collateral security sufficient to pay any judgment rendered, with interest, costs, legal fees and expenses; and the right of Lenders to indemnification under this Agreement shall extend to any money paid by Lenders in settlement or compromise of any such claims, suits, and judgments in good faith, after notice to Borrowers.

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13.15.4    If any suit, action, or other proceeding is brought by Lenders against Borrowers for breach of Borrowers’ covenant of indemnity herein contained, separate suits may be brought as causes of action accrue, without prejudice or bar to the bringing of subsequent suits on any other cause or causes of action, whether theretofore or thereafter accruing.

13.15.5    The obligations of Borrowers and Guarantor under this Section 13.15 shall survive the repayment of the Debt and termination of this Agreement, and shall continue in full force and effect so long as the possibility of such claim, action or suit exists.  If, and to the extent that the obligations of Borrowers or Guarantor under this Section 13.15 are unenforceable for any reason, Borrowers and Guarantor hereby agree to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law.

13.16Relationship of Parties.  It is hereby acknowledged by Lenders and Borrowers that the relationship between them created hereby and by the other Loan Documents is that of creditor and debtor and is not intended to be and shall not in any way be construed to be that of a partnership, a joint venture, or principal and agent.  It is hereby further acknowledged that Agent’s disbursement of any Loan proceeds or Letter of Credit Advance to anyone other than a Borrower shall not be deemed to make Agent or Lenders a partner, joint venturer, or principal or agent of Borrowers, but rather shall be deemed to be solely for the purpose of protecting Lenders’ security for the Indebtedness.  The relationship between Agent and the Lenders is not intended by the parties to create, and shall not create, any trust, joint venture or partnership relation between or among them.

13.17Joint and Several Liability.  The liability of each Person that is, or by reason of its execution of a Joinder hereafter becomes, a Borrower for (i) the performance of this Agreement and of each of the other Loan Documents and (ii) for payment of the Indebtedness shall be joint and several.

13.18Damage Waiver.  To the extent permitted by law, no Borrower or Guarantor shall assert, and each Borrower and Guarantor hereby waives, any claim against any Indemnified Party, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with or as a result of this Agreement, any other Loan Document, any transaction contemplated by the Loan Documents, any Loan or the use of proceeds thereof.  No Indemnified Party shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with the Loan Documents or the transactions contemplated thereby.

13.19Publicity.  Agent may, at its option and in such manner as it may determine and which Master Borrower shall approve (such approval not to be unreasonably withheld, delayed or conditioned), announce and publicize the involvement of Agent and Lenders in the granting of the Facility.

13.20No Implied Waiver.  No delay or failure of Agent or the Lenders in exercising any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

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13.21       USA Patriot Act.  Each Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub.L. 107-56) (signed into law October 26, 2001) (the “Act”) hereby notifies each Borrower that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies Borrowers, which information includes the name and address of each Borrower and other information that will allow such Lender to identify Borrowers in accordance with the Act; Agent shall obtain such information on behalf of the Lenders.

13.22       Taxes.  Borrowers agree to pay or cause to be paid any and all stamp, document, transfer or recording taxes, and similar impositions payable or hereafter determined to be payable in connection with the Notes, the Mortgages or any other Loan Document, and agree to save Agent and the Lenders harmless from and against any and all present or future claims or liabilities with respect to, or resulting from, any delay in paying or omission to pay, any such taxes or similar impositions.

13.23       Conflict; Construction of Documents; Reliance.  In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control; provided that any provision of the Loan Documents which imposes additional burdens on Borrowers or further restricts the rights of Borrowers or gives the Agent or Lenders additional rights shall not be deemed to be in conflict or inconsistent with this Agreement and shall be given full force and effect.  The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that the Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted them.  Each Borrower acknowledges that it has read the entirety of this Agreement and of every other Loan Document and that Borrowers shall rely solely on their own judgment and on their legal counsel and advisors in entering into the Facility and executing the Loan Documents, without relying in any manner on any statements, representations or recommendations of Agent or any Lender or any parent, subsidiary or Affiliate of Agent or of any Lender, or of any employee, officer, agent or advisor of any of the foregoing entities.

13.24       Jurisdiction.  IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY LOAN DOCUMENT OR THE RELATIONSHIP EVIDENCED HEREBY, BORROWERS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF PHILADELPHIA OR BUCKS COUNTY, PENNSYLVANIA, AND THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA.  BORROWERS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWERS HEREBY WAIVE ANY OBJECTION WHICH BORROWERS MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS.  BORROWERS HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND ANY OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT, AND ANY OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWERS AT THE ADDRESS SET FORTH ABOVE AND THAT SERVICE SO MADE SHALL BE DEEMED

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COMPLETED UPON THE PROVIDING OF NOTICE IN ACCORDANCE WITH THE TERMS HEREOF.  NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHTS OF AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY AGENT OR LENDERS OF ANY CLAIM, JUDGMENT OR ORDER OBTAINED IN SUCH FORUM, OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT OR OTHERWISE TO ENFORCE SAME, IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.

13.25Waiver of Jury Trial.  BORROWERS, AGENT AND LENDER, AFTER CONSULTATION WITH THEIR RESPECTIVE COUNSEL, EACH HEREBY WAIVE ANY RIGHT WHICH THEY MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) COMMENCED BY OR AGAINST THEM OR ANY OF THEM IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR IN ANY WAY PERTAINING TO THE FACILITY OR THE RELATIONSHIPS EVIDENCED BY THIS AGREEMENT.

13.26Existing Credit Agreement; No Novation.  This Agreement supersedes, amends and restates in full, the Existing Credit Agreement and all prior amendments thereof.  The Indebtedness referred to herein includes all of the Indebtedness outstanding pursuant to the Existing Credit Agreement immediately prior to the execution of this Agreement, and the parties acknowledge and agree that this Agreement is not intended to, nor shall it, constitute a novation.  All Notes issued and outstanding pursuant to the Existing Credit Agreement (including all replacement Notes) constitute Notes issued pursuant to, and shall have the benefit of, this Agreement.  Borrowers acknowledge agree that all references in any Loan Document heretofore executed by any Borrower to the “Loan Agreement” mean and refer to the Existing Credit Agreement, as amended and restated by this Agreement.

13.27Releases.

13.27.1Release.

13.27.1.1         Each Borrower and Guarantor hereby acknowledges and agrees that, as of the Closing Date, no right of offset, defense, counterclaim, claim, causes of action or objection in favor of any Borrower and Guarantor against the Lenders (including all lenders prior to the Closing Date) or the Agent, any other agent or any Issuer exists arising out of or with respect to (i) the Indebtedness, this Agreement or any of the other Loan Documents; (ii) any other documents evidencing, securing or in any way relating to the foregoing, or (iii) the administration or funding of the Loans, the Commitment or the issuance of Letters of Credit or Tri-Party Agreements.

13.27.1.2         Each Borrower and Guarantor hereby expressly waives, releases and relinquishes any and all defenses, setoffs, claims, counterclaims, causes of action or objections, if any, against such Lenders, the Agent, the other agents or any Issuer, whether known or unknown, both at law and in equity, only to the extent arising out of any matter, cause or event occurring on or prior to the Closing Date.

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13.27.1.3         Each Borrower and Guarantor for itself, each other Borrower and Guarantor and their respective successors and assigns in interest and any person that may derivatively or otherwise assert a claim through or by any of the foregoing to the fullest extent permitted by applicable law (collectively, the “Releasors”) waives and releases against Agent and each Lender and each of their respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, related corporate divisions, participants and assigns (collectively, the “Releasees”), and covenants not to commence or pursue any litigation or action, claims, demands, causes of action, suits, debts, sums of money, accounts, bonds, bills, covenants, contracts, controversies, agreements, promises, setoffs, recoupments, counterclaims, defenses, expenses, damages and/or judgments, whatsoever in law or in equity (whether matured, unmatured, contingent or non-contingent) that relate in any way, either directly or indirectly, to this Agreement, any Loan Documents, the transactions contemplated thereby or any action by Agents, Lenders or any other Releasee in any way related thereto, whether known or unknown, which each of the Releasors had, now has or may have, in each case only to the extent arising out of any matter, cause or event occurring prior to the Closing Date.  Each of the Releasors hereby agrees that federal or state laws, rights, rules or legal principles of any other jurisdiction which may be applicable thereto, to the extent that they apply to the matters released hereby, are knowingly and voluntarily waived and relinquished by such Releasors, to the full extent that such rights and benefits pertaining to the matters released herein may be waived, and each of the Releasors hereby agrees and acknowledges that this waiver is an essential term of this Agreement, without Agents and Lenders would not have entered into this Agreement.  Each of the Releasors represents and warrants that it has not purported to transfer, assign, pledge or otherwise convey any of its right, title or interest in any matter released hereby to any other person.  In connection with the release in this Agreement, each of the Releasors acknowledges that it is aware it may hereafter discover claims presently unknown or unsuspected, or facts in addition to or different from those which such Loan Parties now knows or believes to be true, with respect to the matters released herein.  Nevertheless, it is each of the Releasors’ intent in executing this Agreement to fully, finally and forever release and settle such matters to the extent they arise out of any matter, cause or event occurring prior to the Closing Date.  In making this release, each of the Releasors has consulted with counsel concerning the effect thereof.

13.27.2    Limited Waiver.  Upon the satisfaction of the conditions set forth in Section 4, the Borrower and Guarantor hereby represent and warrant that no Default or Event of Default with respect to such Borrower or Guarantor has occurred and continues to exist other than any Default or Event of Default arising out of the facts and circumstances described on Schedule 13.27.2.  In reliance upon such representation and warranty, the undersigned Lenders hereby waive any Defaults or Events of Default arising under the Existing Credit Agreement and continuing to exist thereunder immediately prior to the occurrence of the Closing Date and immediately prior to giving effect to the consummation of the Transactions on the Closing Date (collectively, the “Prior Events of Default”).  Without limiting the generality of the provisions of the covenants set forth in this Agreement, the waiver set forth herein shall be limited precisely as written and relates solely to the noncompliance by the Borrowers and Guarantor with respect to the Prior Events of Default in the manner and to the extent described in this paragraph, and nothing in this paragraph shall be deemed to (a) constitute a waiver of compliance by Borrowers and Guarantor with respect to any term, provision or condition of this Agreement or any other Loan Document or any other instrument or agreement referred to herein or therein or (b) prejudice any right or

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remedy that the Agent, Issuing Lender, any Agent or any Lender may now have or may have in the future under or in connection with the Agreement or any other Loan Document or any other instrument or agreement referred to therein and after giving effect to the consummation of the transactions on the Closing Date.  The waiver with respect to any Default or Events of Default arising out of the facts and circumstances described on Schedule 13.27.2 shall be effective only if on or before October 3, 2008 the actions described in Schedule 13.27.2 are taken and, if such actions are taken, such waiver shall also be effective with respect to the period between the satisfaction of the conditions set forth in Section 4 and the effectiveness of the waiver with respect to the facts and circumstances described in Section 13.27.2.

13.28       Electronic Execution of Assignments.  The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

[Remainder of page is blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal the day and year set forth above.

Master Borrower:	Greenwood Financial Inc., a Delaware corporation
	By:	/s/ Lawrence J. Dugan
		Name:	Lawrence J. Dugan
		Title:	Vice President
Corporate Borrowers:	OHB Homes, Inc.
	Orleans Corporation
	Orleans Corporation of New Jersey
	Orleans Construction Corp.
	Parker & Lancaster Corporation
	Parker & Orleans Homebuilders, Inc.
	Sharp Road Farms, Inc.
	By:	/s/ Lawrence J. Dugan
		Name:	Lawrence J. Dugan
		Title:	Vice President
Limited Liability Company
Borrowers:	Masterpiece Homes, LLC
	OPCNC, LLC
	Orleans at Bordentown, LLC
	Orleans at Cooks Bridge, LLC
	Orleans at Covington Manor, LLC
	Orleans at Crofton Chase, LLC
	Orleans at East Greenwich, LLC
	Orleans at Elk Township, LLC
	Orleans at Evesham, LLC
	Orleans at Hamilton, LLC
	Orleans at Harrison, LLC
	Orleans at Hidden Creek, LLC
	Orleans at Jennings Mill, LLC
	Orleans at Lambertville, LLC
	Orleans at Lyons Gate, LLC
	Orleans at Mansfield, LLC
	Orleans at Maple Glen, LLC
	Orleans at Meadow Glen, LLC
	Orleans at Millstone, LLC
	Orleans at Millstone River Preserve, LLC
	Orleans at Moorestown, LLC
	Orleans at Tabernacle, LLC

[Borrowers’ signatures continued on the following page]

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	Orleans at Upper Freehold, LLC
	Orleans at Wallkill, LLC
	Orleans at Westampton Woods, LLC
	Orleans at Woolwich, LLC
	Orleans Arizona Realty, LLC
	Orleans DK, LLC
	Parker Lancaster, Tidewater, L.L.C.
	Wheatley Meadows Associates, LLC
	By:	/s/ Lawrence J. Dugan
		Name:	Lawrence J. Dugan
		Title:	Vice President
Limited Partnership
Borrowers:	Brookshire Estates, L.P. (f/k/a Orleans at Brookshire Estates, L.P.)
	Orleans at Falls, LP
	Orleans at Limerick, LP
	Orleans at Lower Salford, LP
	Orleans at Thornbury, L.P.
	Orleans at Upper Saucon, L.P.
	Orleans at Upper Uwchlan, LP
	Orleans at West Bradford, LP
	Orleans at West Vincent, LP
	Orleans at Windsor Square, LP
	Orleans at Wrightstown, LP
	Stock Grange, LP
	By:	OHI PA GP, LLC, sole General Partner
		By:	/s/ Lawrence J. Dugan
			Name: Lawrence J. Dugan
			Title:   Vice President
	Orleans RHIL, LP
	Realen Homes, L.P.
	By:	RHGP, LLC, sole General Partner
		By:	Orleans Homebuilders, Inc.,
			Authorized Member
			By:	/s/ Garry P. Herdler
				Name:	Garry P. Herdler
				Title:	Executive Vice President and Chief Financial Officer

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Guarantor:	Orleans Homebuilders, Inc., a Delaware corporation
	By:	/s/ Garry P. Herdler
		Name:	Garry P. Herdler
		Title:	Executive Vice President and Chief Financial Officer

[Lenders’ signatures continued on the following pages]

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Agent:	Wachovia Bank, National Association
	By:	Ron Ferguson
		Name: Ron Ferguson
		Title: Managing Director

LENDER SIGNATURE PAGE TO AMENDED
AND RESTATED REVOLVING CREDIT
LOAN AGREEMENT:

WACHOVIA BANK,
NATIONAL ASSOCIATION

By:	Ron Ferguson
	Name: Ron Ferguson
	Title: Managing Director
Address:
301 South College Street
Charlotte, NC 28202
Attn:			Ron Ferguson
Fax:		704-383-6249

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
Bank of America, NA
By:	Sean Finnegan
	Name: Sean Finnegan
	Title: Senior Vice President
Notice Address:
4 Sentry Parkway, Suite 200
Blue Bell, PA 19422
Attn: Sean Finnegan, Senior Vice President
Fax: 610-825-3328

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
Sovereign Bank
By:	Ernest J. Kociban
	Name: Ernest J. Kociban
	Title: Senior Vice President
Notice Address:
Sovereign Bank
Two Aldwyn Center
Route 320 and Lancaster Ave.
Villanova, PA 19085
Fax: 610-526-6201

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
MANUFACTURERS AND TRADERS TRUST COMPANY
By:	Bernard T. Shields
	Name: Bernard T. Shields
	Title: Vice President

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
[LEGAL NAME OF BANK ENTITY WITH COMMITMENT] FIRSTRUST BANK
By:	Gary S. Kinn
	Name: Gary S. Kinn
	Title: Senior Vice President
Notice Address:
15 East Ridge Pike
Conshohocken, PA 19428
Attn: G. Kinn
Fax: 610-238-5065

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
Guaranty Bank
By:	Linda Garcia
	Name: Linda Garcia
	Title: Senior Vice President
Notice Address:
8333 Douglas Avenue
Dallas, Texas 75225
Attn: Linda Garcia
Fax: (214) 360-2624

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
CITIZENS BANK OF PENNSYLVANIA
By:	Bruce G. Shearer
	Name: Bruce G. Shearer
	Title: Senior Vice President
Notice Address:
525 William Penn Place, Suite 153-2720
Pittsburgh, PA 15219-1727
Attn: Bruce G. Shearer
Fax: 412-867-2463

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
TD Bank, N.A.
as successor to Commerce Bank, N.A.
By:	Robert E. Delany
	Name: Robert E. Delany
	Title: Vice President
Notice Address:
1701 Route 70 East
Cherry Hill, New Jersey 08034
Attn: Robert E. Delany
Fax: (856) 533-2046

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
SunTrust Bank
By:	Lauren P. Carrigan
	Name: Lauren P. Carrigan
	Title: Vice President
Notice Address:
303 Peachtree Street, NE
9th Floor
Atlanta, GA 30308
Attn: Lauren P. Carrigan
Fax: (404) 374-3875

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
Regions Bank
By:	Daniel McClurkin
	Name: Daniel McClurkin
	Title: Assistant Vice President
Notice Address:
1900 5th Avenue North, RC-15
Birmingham, Alabama
35203
Attn: Daniel McClurkin
Fax: 205-801-0138

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
COMERICA BANK
By:	Laura L. Benson
	Name: Laura L. Benson
	Title: Vice President
Notice Address:
500 Woodward Avenue, MC 3205
Detroit, MI 48226
Attn: Laura L. Benson
Fax: 313-222-5706

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
COMPASS BANK
By:	Johanna Duke Paley
	Name: Johanna Duke Paley
	Title: Senior Vice President
Notice Address:
15 South 20th Street, 15th Floor
Birmingham, AL 35223
Attn: Jo Paley
Fax: (205) 297-7212

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
J.P. Morgan Chase Bank, N.A.
By:	Randall B Durant
	Name: Randall B Durant
	Title: Senior Vice President
Notice Address:
PO Box 660197
Dallas, Texas 75266-0197
Overnite – 700 North Pearl, Suite 801,
Dallas, Texas 75201
Attn: Randall B Durant
Fax: 214-965-2087

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
LASALLE BANK NATIONAL ASSOCIATION
By:	Sean Finnegan
	Name: Sean Finnegan
	Title: Senior Vice President
Notice Address:
4 Sentry Parkway, Suite 200 Blue Bell, PA 19422
Attn: Sean Finnegan, Senior Vice President
Fax: 610-825-3328

LENDER SIGNATURE PAGE TO SECOND AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT WITH GREENWOOD FINANCIAL, INC. AS MASTER BORROWER:
DEUTSCHE BANK TRUST COMPANY
AMERICAS
By:	David J Bell	Silvia L. Spear
	Name: David J Bell	Silvia L. Spear
	Title: Managing Director	Managing Director
Notice Address:
Deutsche Bank Trust Company Americas
60 Wall Street – MS: NYC60 – 1120
New York, New York 10005
Attn: David J Bell
Fax: (212) 797-5695
E-mail: david.j.bell@db.com

EX-10.19(C)

Exhibit 10.19(c)

AMENDED AND RESTATED GUARANTY

THIS AMENDED AND RESTATED GUARANTY (this “Guaranty”) is made and entered into as of September 30, 2008, by ORLEANS HOMEBUILDERS, INC., a Delaware corporation (“Guarantor”), for the benefit of WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association (“Agent”), as agent for each of the Lenders (as defined below) that are party to the Loan Agreement referred to and defined below.

BACKGROUND

A.Pursuant to that certain Amended and Restated Revolving Credit Loan Agreement dated as of December 22, 2004 (the “Original Loan Agreement”), executed by Greenwood Financial, Inc. (“Master Borrower”), certain affiliates of Master Borrower as Borrowers, the Lenders party thereto from time to time (“Lenders”) and Agent, such Lenders agreed to provide a credit facility to Borrowers on the terms and conditions contained in the Original Loan Agreement to finance Borrowers’ acquisition of residential real estate and construction activities.

B.In connection with the Original Loan Agreement Guarantor executed and delivered to Agent that certain Guaranty dated December 22, 2004, for the benefit of Lenders (the “Original Guaranty”) guarantying the Obligations as such term is defined in the Original Guaranty);

C.Master Borrower, Borrowers, the Lenders and Agent amended and restated the Original Loan Agreement pursuant to that certain Amended and Restated Revolving Credit Loan Agreement dated January 24, 2006 (the “First Amended and Restated Loan Agreement”);

D.In connection with the Existing Loan Agreement, Guarantor executed and delivered that certain Guaranty dated January 24, 2006, for the benefit of Lenders (as amended prior to the date hereof, the “January 2006 Guaranty,” and collectively with the Original Guaranty hereafter referred to as the “Existing Guaranties”) guarantying the Obligations as such term is defined in the January 2006 Guaranty;

E.Master Borrower, Borrowers, the Lenders and Agent have since amended the First Amended and Restated Loan Agreement pursuant to that certain First Amendment dated as of November 11, 2006 (the “First Amendment”), that certain Second Amendment dated as of February 7, 2007 (the “Second Amendment”), that certain Third Amendment dated as of May 8, 2007 (the “Third Amendment”), that certain Fourth Amendment dated as of September 6, 2007 (the “Fourth Amendment”), and that certain Fifth Amendment dated as of December 21, 2007 (the “Fifth Amendment”);

F.Collectively, the First Amended and Restated Loan Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment and the Fifth Amendment are hereafter referred to as the “Existing Loan Agreement”;

G.Master Borrower, Borrowers and Lenders are amending and restating the Existing Loan Agreement on the terms and conditions set forth in that certain Second Amended and Restated Revolving Credit Loan Agreement of even date herewith (the “Second Amended and

Restated Loan Agreement,” and collectively with the Existing Loan Agreement hereafter referred to as the “Loan Agreement”);

H.As a condition to Lenders agreeing to the terms and conditions of the Second Amended and Restated Loan Agreement, Lenders are requiring Guarantor to execute and deliver this Guaranty to continue its guaranty of the Obligations (as hereafter define) and to continue to secure its guaranty thereof with a first priority lien on all of its deposit accounts held at a Lender as provided for herein, pursuant to that certain Security Agreement of even date herewith among Master Borrower, Affiliate Grantors (as defined therein) and Agent for each of the Lenders, and in the Loan Documents;

NOW, THEREFORE, intending to be legally bound and primarily liable therefore, and to induce Lenders to make or continue to make Loans to or for the benefit of Master Borrower and Borrowers or in respect of which Master Borrower or Borrower are, may be or may become liable to Lenders under any of the Loan Documents, Guarantor hereby agrees that the Existing Guaranties are hereby amended and restated as follows:

1.OBLIGORS.  The “Obligors” means Master Borrower, and each of the other Borrower entities from time to time party to the Loan Agreement.  Capitalized terms used but not defined herein shall have the respective meanings ascribed to them in the Second Amended and Restated Loan Agreement.

2.OBLIGATIONS.  The “Obligations” means all existing and hereafter incurred or arising Indebtedness, whether absolute or contingent, direct or indirect, including without limitation all interest, expenses, costs (including collection costs) and fees (including reasonable attorney’s fees and prepayment fees) incurred, arising or accruing (whether prior or subsequent to the filing of any bankruptcy petition by or against any Obligor) under or in connection with any of the foregoing.  If the term “Obligor” includes more than one person or entity, the Obligations shall include all Obligations of any one or more of such persons or entities, whether such Obligations are individual, joint, several or joint and several.

3.UNCONDITIONAL GUARANTY.  In consideration of the existing Obligations, Guarantor, intending to be legally bound, absolutely and unconditionally guaranties and is surety to Lenders for the payment, performance and satisfaction when due (whether by stated maturity, demand, acceleration or otherwise) of all Obligations.  The obligations of Guarantor hereunder shall continue in full force and effect irrespective of the validity, legality or enforceability of any agreements, notes or documents pursuant to which any of the Obligations arise, or the existence, value or condition of any collateral for any of the Obligations, or of any other guaranty of the Obligations, or any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor.

4.COST OF ENFORCEMENT.  Guarantor agrees to pay Agent and Lenders all costs and expenses (including reasonable attorney’s fees) at any time incurred by Lenders in the enforcement of this Guaranty against Guarantor.

5.PAYMENT BY GUARANTOR.  Payment by Guarantor is due upon demand by Agent and is payable in immediately available funds in lawful money of the United States of America.

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6.CONTINUING GUARANTY.  This Guaranty shall continue in full force and effect with respect to Guarantor until all Obligations have been paid, performed and satisfied in full.

7.WAIVERS AND CONSENTS BY GUARANTOR.  Guarantor unconditionally consents to, and waives as a defense to liability hereunder, each of the following:  (a) any waiver, inaction, delay or lack of diligence by Agent or Lenders in enforcing their rights against any Obligor or in any property, or the unenforceability of any such rights, including any failure to perfect, protect or preserve any lien or security interest which may be intended directly or indirectly to secure any of the Obligations, and the absence of notice thereof to Guarantor, (b) the absence of any notice of the incurrence or existence of any Obligation, (c) any action, and the absence of notice thereof to Guarantor, taken by Agent or Lenders or any Obligor with respect to any of the Obligations, including any release, subordination or substitution of any collateral or release, termination, compromise, modification or amendment of any instrument executed by or applicable to any Obligor or of any claim, right or remedy against any Obligor or any property, (d) any impairment of Guarantor’s right to reimbursement by way of subrogation, indemnification or contribution, (e) any other action taken or omitted by Agent and Lenders in good faith with respect to the Obligations, (f) the absence or inadequacy of any formalities of every kind in connection with enforcement of the Obligations, including presentment, demand, notice and protest, and (g) the waiver of any rights of Agent and Lenders under or any action taken or omitted by Agent or Lenders with respect to any other guaranty of the Obligations.

8.OTHER AGREEMENTS BY GUARANTOR.  Guarantor agrees that there shall be no requirement that Lenders document their acceptance of this Guaranty, evidence its reliance thereon, or that Lenders take any action against any person or any property prior to taking action against Guarantor.  Guarantor further agrees that Lenders’ rights and remedies hereunder shall not be impaired or subject to any stay, suspension or other delay as a result of any Obligor’s insolvency or as a result of any proceeding applicable to any Obligor or any Obligor’s property under any bankruptcy or insolvency law.  Guarantor also agrees that payments and other reductions on the Obligations may be applied to such of the Obligations and in such order as Lenders may elect.

9.SUBROGATION AND SIMILAR RIGHTS.  Guarantor will not exercise any rights with respect to Lenders or any Obligor related to or acquired in connection with or as a result of its making of this Guaranty which it may acquire by way of subrogation, indemnification or contribution, by reason of payment made by it hereunder or otherwise, until after the date on which all of the Obligations shall have been satisfied in full, and until such time any such rights against Borrowers shall be fully subordinate in lien and payment to any claim in connection with the Obligations which Lenders now or hereafter have against any Obligor.  If any amount shall be paid to Guarantor on account of such subrogation, indemnification or contribution at any time when all of the Obligations and all other expenses guaranteed pursuant hereto shall not have been paid in full, such amount shall be held in trust for the benefit of Lenders, shall be segregated from the other funds of Guarantor and shall forthwith be paid over to Agent to be applied in whole or in part by Lenders against the Obligations, whether matured or unmatured, in such order as the Lenders shall determine in their discretion pursuant to the Loan Agreement.  If Guarantor shall make payment to Agent or Lenders of all or any portion of the Obligations and all of the Obligations shall be paid in full, Guarantor’s right of subrogation

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shall be without recourse to and without any implied warranties by Agent or Lenders and shall remain fully subject and subordinate to Lenders’ right to collect any other amounts which may thereafter become due to Lenders by the Borrowers in connection with the Obligations.

10.REINSTATEMENT OF LIABILITY.  If any claim is made upon the Agent or Lenders for repayment or recovery of any amount or amounts received by Agent or Lenders in payment or on account of any Obligations and Lenders repay all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over the Lenders or any of their property, or (b) any settlement or compromise in good faith with any such claimant (including Obligor), then and in such event Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon Guarantor, notwithstanding any termination hereof or the cancellation of any note or other instrument evidencing any Obligation, and Guarantor shall remain liable to the Lenders hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by Lenders.

11.SECURITY INTEREST.  Guarantor hereby grants to each Lender a security interest in any deposit account of Guarantor and any other account of Guarantor and any balance of assets in any such account, in each case in or with such Lender whenever and so long as any of the Obligations shall be outstanding and unpaid and agrees that the security interest hereby granted shall be independent of the right of setoff, but the application of any proceeds thereof shall be governed by the Loan Agreement.

12.EFFECT OF OTHER AGREEMENTS.  The provisions of this Guaranty are cumulative and concurrent with Agent’s and Lenders’ rights and remedies against Guarantor under any existing or future agreement pertaining to or evidencing any of the Obligations.  No such additional agreement shall be deemed a modification or waiver hereof unless expressly so agreed by Lenders in writing in accordance with the Loan Agreement.  If Agent or Lenders hold any other guaranty or surety agreement applicable to any of the Obligations, the liability of Guarantor hereunder shall be joint and several with each party obligated on such other guaranty or surety agreement, unless otherwise agreed by Lenders in writing in accordance with the Loan Agreement.

13.NOTICES.  All notices given under this Guaranty shall be given in the manner to the addresses set forth in the Loan Agreement.

14.REPRESENTATIONS, WARRANTIES AND COVENANTS.

14.1Guarantor hereby makes for the benefit of Lenders each of the representations and warranties made in the Loan Agreement by Master Borrower and Borrowers with regard to Guarantor and incorporates such representations and warranties herein by reference, including, without limitation, as to its assets, financial condition, operations, organization, legal status, and business.  Guarantor further represents and warrants that no consent, approval, order or authorization of, or registration or filing with, any third party is required in connection with the execution, delivery and carrying out of this Guaranty or, if required, has been obtained, and this Guaranty has been duly authorized, executed and delivered

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so that it constitutes the legal, valid and binding obligation of Guarantor, enforceable in accordance with its terms.

14.2Guarantor agrees that, so long as any part of the Obligations shall remain unpaid, Guarantor will, perform or observe, all of the terms, covenants and agreements in the Loan Documents that Guarantor is required or obligated to perform or observe or that Borrowers are required to cause Guarantor to perform or observe.

15.EXISTING GUARANTIES; NO NOVATION.  This Guaranty supersedes, amends and restates in full, the Existing Guaranties and all prior amendments thereof.  The Obligations referred to herein includes all of the Obligations outstanding pursuant to the Existing Guaranties immediately prior to the execution of this Guaranty, and the parties acknowledge and agree that this Guaranty is not intended to, nor shall it, constitute a novation.  Guarantor acknowledges and agrees that all references to the Guaranty in any Loan Document heretofore executed by Guarantor, Master Borrower or any Borrower shall mean and refer to the Existing Guaranties, as amended and restated by this Guaranty.

16.MISCELLANEOUS.

16.1No amendment of any provision of this Guaranty shall be effective unless it is in writing and signed by Guarantor and Agent and has been approved by Lenders in accordance with the provisions of the Loan Agreement.  No waiver of any provisions of this Guaranty, and no waiver or consent to any departure by Guarantor therefrom, shall be effective unless it is in writing and signed by Agent after receipt of Lenders’ approval in accordance with the provisions of the Loan Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

16.2Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction.

16.3The obligations of Guarantor hereunder shall not be subject to any counterclaim, setoff, deduction or defense based upon any related or unrelated claim which Guarantor may now or hereafter have against Agent or any Lender or any Obligor, except payment of the Obligations, and shall not be affected by any change in any Obligor’s legal status or ownership or by any change in corporate, partnership or other organizational structure applicable to any Obligor.

16.4This Guaranty shall (i) be binding on Guarantor and its successors and assigns, and (ii) inure, together with all rights and remedies of Agent and Lenders hereunder, to the benefit of Agent and Lenders and their respective successors, transferees and assigns.  Notwithstanding the foregoing clause (i), none of the rights or obligations of Guarantor hereunder may be assigned or otherwise transferred.

16.5This Guaranty shall be governed by and construed in accordance with the internal laws, and not the law of conflicts, of the Commonwealth of Pennsylvania.

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17.CONSENT TO JURISDICTION AND VENUE.   IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS GUARANTY OR THE RELATIONSHIP EVIDENCED HEREBY, GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN OR SERVING BUCKS OR PHILADELPHIA COUNTIES IN THE COMMONWEALTH OF PENNSYLVANIA AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY.  GUARANTOR AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO GUARANTOR.

18.WAIVER OF JURY TRIAL.  GUARANTOR HEREBY WAIVES, AND AGENT AND LENDERS BY THEIR ACCEPTANCE HEREOF HEREBY WAIVE, TRIAL BY JURY IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS GUARANTY OR THE
RELATIONSHIP EVIDENCED HEREBY.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR AGENT AND LENDERS TO ENTER INTO, ACCEPT OR RELY UPON THIS GUARANTY.

[Signature on the following page]

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IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first written above.

ORLEANS HOMEBUILDERS, INC., a
Delaware corporation
By:	Garry P. Herdler
Name:		Garry P. Herdler
Title:		Executive Vice President and
		Chief Financial Officer

EX-10.35

Exhibit 10.35

SECURITY AGREEMENT

This SECURITY AGREEMENT (this “Agreement”) is dated as of September 30, 2008 and entered into by and among ORLEANS HOMEBUILDERS, INC., a Delaware corporation (“Company”), (each of THE UNDERSIGNED AFFILIATES of Company (each of such undersigned affiliates being a “Affiliate Grantor” and collectively “Affiliate Grantors”) and each ADDITIONAL GRANTOR that may become a party hereto after the date hereof in accordance with Section 22 hereof (each of Company, each Affiliate Grantor, and each Additional Grantor being a “Grantor” and collectively the “Grantors”) and WACHOVIA BANK, NATIONAL ASSOCIATION, as Agent for and representative of (in such capacity herein called “Secured Party”) the Lenders (as hereinafter defined).

PRELIMINARY STATEMENTS

A.      Pursuant to the Second Amended and Restated Revolving Credit Loan Agreement dated as of September 30, 2008 (said Credit Agreement, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, being the “Credit Agreement”),Wachovia Bank, National Association, as Agent, and Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, continue to make loans and extend certain credit facilities to Affiliate Grantors.

B.      Company has executed and delivered the Guaranty, in favor of Secured Party for the benefit of Lenders, pursuant to which Company has guarantied the prompt payment and performance when due of all obligations of Affiliate Grantors under the Credit Agreement.

C.      It is a condition precedent to the continued extensions of credit by Lenders under the Credit Agreement that Grantor shall have granted the security interests and undertaken the obligations contemplated by this Agreement.

NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make loans and other extensions of credit under the Credit Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each Grantor hereby agrees with Secured Party as follows:

SECTION 1.Grant of Security.

Grantor hereby assigns to Secured Party, and hereby grants to Secured Party a security interest in, all of such Grantor’s right, title and interest in and to the following personal property of such Grantor, in each case whether now or hereafter existing, whether tangible or intangible, whether now owned or hereafter acquired and wherever the same may be located (the “Collateral”):

(a)      all Pledged Debt;

(b)      all federal and state income tax refunds received by, or payable to, Grantors in each case after the Closing Date (collectively, the “Refund Collateral”);

(c)      all Proceeds with respect to any of the foregoing Collateral.

Each category of Collateral set forth above shall have the meaning set forth in the UCC.

SECTION 2.Security for Obligations.

This Agreement secures, and the Collateral is collateral security for, the prompt payment in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Secured Obligations of each Grantor. “Secured Obligations” means:

(a)      with respect to Company, all obligations and liabilities of every nature of Company now or hereafter existing under or arising out of or in connection with the Guaranty, and

(b)      with respect to each Affiliate Grantor and Additional Grantor, all obligations and liabilities of every nature of such Affiliate Grantor now or hereafter existing under or arising out of or in connection with the Credit Agreement and the other Loan Documents, in each case together with all extensions or renewals thereof, whether for principal, interest, reimbursement of amounts drawn under letters of credit, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party or any Lender as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Grantors now or hereafter existing under this Agreement (including, without limitation, interest and other amounts that, but for the filing of a petition in bankruptcy with respect to Company or any other Grantor, would accrue on such obligations, whether or not a claim is allowed against Company or such Grantor for such amounts in the related bankruptcy proceeding).

SECTION 3.Representations and Warranties.

Each Grantor represents and warrants as follows:

(a)      Jurisdiction of Organization. Each Grantor’s name as it appears in official filings in the state of its organization; such Grantor’s type of organization (i.e. corporation, limited partnership, etc.), jurisdiction of organization and organization number provided by the applicable government authority of the jurisdiction of organization are set forth on Schedule 1 annexed hereto.

(b)      Names. No Grantor (or predecessor by merger or otherwise of such Grantor) has, within the four month period preceding the date hereof, or, in the case of an Additional Grantor, the date of the applicable Counterpart, had a different name from the name of such Grantor listed or the signature pages hereof.

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(c)      Due Authorization, etc. Each Grantor is duly formed, validly existing and in good standing and subsisting under the law of its jurisdiction of organization and has full entity power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary entity action. This Agreement constitutes a legally valid and binding obligation of each Grantor, enforceable against such Grantor in accordance with its terms, except as enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally or by general equitable principles.

(d)      No Conflict. The execution, delivery and performance of this Agreement by each Grantor will not violate the Organizational Documents of such Grantor, any provision of law applicable to such Grantor or any order, judgment or decree of any court or other governmental agency binding on such Grantor.

(e)      Security Interests. The security interests in the Collateral granted hereunder constitute valid security interests in the Collateral, securing payment of the Secured Obligations.

SECTION 4.Further Assurances.

(a)      Generally.  Each Grantor agrees that from time to time, at the expense of Grantors, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor will: (a) (i) execute (if necessary) and file such financing or continuation statements, or amendments thereto, (ii) subject to the provisions of Section 6(f), execute and deliver, and cause to be executed and delivered, all federal and state tax forms establishing that Secured Party or its designee has (A) a security interest in the Collateral, (B) the Secured Party or its designee has the right to directly receive payments from the federal government or any  state government with respect to such Collateral, and (C) the right to endorse any instruments of payment drawn on the United States Treasury, or any equivalent State government agency (these forms shall include, but are not limited to, IRS Form 2848, Power of Attorney and Declaration of Representative, Department of Treasury Form 234, General Power of Attorney By a Corporation For the Collection of Certain Checks Drawn on the United States Treasury and any equivalent forms issued by any state taxing agency); (iii) provide Secured Party with any documentation deemed necessary by Secured Party to allow Secured Party to receive payments with respect to the Collateral in compliance with the Federal Anti-Assignment Act (31 U.S.C. § 3727; (iv) deliver to Secured Party all Instruments representing or evidencing the Pledged Debt, accompanied by duly executed endorsements or instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party and (v) deliver such other instruments or notices, in each case, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted or purported to be granted hereby; (vi) refrain from authorizing any person other than Secured Party or its designee to directly receive payments from the federal government or any state government with respect to the Collateral or to endorse any instruments of payment drawn on the United States Treasury or any equivalent State government agency; (vii) revoke any existing powers of attorney authorizing any person other than Secured Party or its designee to directly receive payments from the federal government or

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any state government with respect to the Collateral or to endorse any instruments of payment drawn on the United States Treasury or any equivalent State government agency; (b) furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail; (c) at Secured Party’s reasonable request, appear in and defend any action or proceeding that may affect such Grantor’s title to or Secured Party’s security interest in all or any part of the Collateral; and (d) use commercially reasonable efforts to obtain any necessary consents of third parties to the creation and perfection of a security interest in favor of Secured Party with respect to any Collateral. Each Grantor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral.

(b)      Pledged Debt.  Without limiting the generality of the foregoing Section 4(a)., Grantor agrees that (i) all Instruments representing or evidencing the Pledged Debt shall be delivered to and held by or on behalf of Secured Party pursuant hereto and shall be in suitable form for transfer by delivery or, as applicable, shall be accompanied by Grantor’s endorsement, where necessary, or duly executed instruments of transfer or assignments in blank, all in form and substance reasonably satisfactory to Secured Party and (ii) it will, upon obtaining any additional Pledged Debt, promptly (and in any event within five Business Days) deliver to Secured Party a Pledge Supplement, duly executed by Grantor, in respect of such additional Pledged Debt; provided, that the failure of Grantor to execute a Pledge Supplement with respect to any additional Pledged Debt shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto.

SECTION 5.Certain Covenants of Grantors.

Each Grantor shall:

(a)      Either (i) deposit all Refund Collateral received by a Borrower or Guarantor into a deposit account in the name of Guarantor at a Lender and maintain such Collateral in a deposit account at a Lender until the Maturity Date, or (ii) make a voluntary prepayment of the Loans in the amount of such Refund Collateral when such Refund Collateral is received by a Borrower or Guarantor.

(b)      not use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral;

(c)      give Secured Party at least 30 days’ prior written notice of any change in such Grantor’s name, identity or corporate structure;

(d)      give Secured Party at least 30 days’ prior written notice of any reincorporation, reorganization or other action that results in a change of the jurisdiction of organization of such Grantor;

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(e)      permit representatives of Secured Party at any time during normal business hours to inspect and make abstracts from Records of the Collateral, and each Grantor agrees to render to Secured Party, at Grantor’s cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto.

SECTION 6.Secured Party Appointed Attorney-in-Fact

Each Grantor hereby irrevocably appoints Secured Party as such Grantor’s attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor, Secured Party or otherwise, from time to time in Secured Party’s discretion to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation:

(a)      upon the occurrence and during the continuance of an Event of Default, to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral;

(b)      upon the occurrence and during the continuance of an Event of Default, to receive, endorse and collect any drafts or other Instruments, Documents, Chattel Paper and other documents in connection with clauses (a) above;

(c)      upon the occurrence and during the continuance of an Event of Default, to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce or protect the rights of Secured Party with respect to any of the Collateral;

(d)      to pay or discharge liens (other than liens permitted under this Agreement or the Credit Agreement) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Secured Party in its sole discretion, any such payments made by Secured Party to become obligations of such Grantor to Secured Party, due and payable immediately without demand;

(e)      upon the occurrence and during the continuance of an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party’s option and Grantors’ expense, at any time or from time to time, all acts and things that Secured Party deems necessary to protect, preserve or realize upon the Collateral and Secured Party’s security interest therein in order to effect the intent of this Agreement; and

(f)      upon the occurrence and during the continuance of an Event of Default, to file with the Internal Revenue Service and the United States Department of the Treasury and any equivalent state agency executed powers of attorney provided by Grantors in accordance with Section 4 of this Agreement.

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SECTION 7.Secured Party May Perform.

If any Grantor fails to perform any agreement contained herein, Secured Party may, if such agreement is not performed by such Grantor within ten days after written notice of such failure is given by Secured Party to such Grantor, itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Grantors under Section 11(b) hereof

SECTION 8.Standard of Care.

The powers conferred on Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall rave no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property.

SECTION 9.Remedies.

If any Event of Default shall have occurred and be continuing, Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral), and also may (i) enter onto the property where any Collateral is located and take possession thereof with or without judicial process, (ii) sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party’s offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable, (iii) exercise dominion and control over and refuse to permit further withdrawals from any Deposit Account constituting part of the Collateral maintained with Secured Party or any Lender, (iv) without notice to any Grantor, transfer to or register in the name of Secured Party or any of its nominees any or all of the Collateral constituting Pledged Debt, and (v) and take all action necessary to receive payments from the federal and any state government with respect to such Collateral, and exercise any and all authority granted by Department of Treasury Form 234, General Power of Attorney By a Corporation For the Collection of Certain Checks Drawn on the United States Treasury, and any equivalent forms issued by any state taxing authority.  Secured Party or any Lender may be the purchaser of any or all of the Collateral at any such sale and Secured Party, shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by Secured Party at such sale. Each Grantor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantors shall be jointly and severally liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. Each Grantor further agrees that a breach of any of the covenants contained in this Section 9 will cause irreparable

6

injury to Secured Party, that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against such Grantor, and each Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities.

SECTION 10.Application of Proceeds.

Except as expressly provided elsewhere in this Agreement, all proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied in the following order of priority:

FIRST: To the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to Secured Party and its agents and counsel, and all other expenses, liabilities and advances made or incurred by Secured Party in connection therewith, and all amounts for which Secured Party is entitled to indemnification hereunder and all advances made by Secured Party hereunder for the account of Grantors, and to the payment of all costs and expenses paid or incurred by Secured Party in connection with the exercise of any right or remedy hereunder;

SECOND: To the payment of all other Secured Obligations (for the ratable benefit of the holders thereof) and, as to obligations arising under the Credit Agreement, as provided in the Credit Agreement; and

THIRD: To the payment to or upon the order of Company, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds.

SECTION 11.Indemnity and Expenses.

(a)      Grantors jointly and severally agree to indemnify Secured Party and each Lender from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party’s or such Lender’s gross negligence or willful misconduct as finally determined by a court of competent jurisdiction and except for any breach of this Agreement by Secured Party or any Lender or any failure of any Secured Party or any Lender to comply with the requirements of the UCC imposed upon a Secured Party and under a Secured Party’s control in connection with the enforcement of this Agreement.

(b)      Grantors jointly and severally agree to pay to Secured Party upon demand the amount of any and all costs and expenses, including the fees and expenses of counsel and of any experts and agents, that Secured Party may incur in connection with the custody or preservation of the Collateral, the exercise of rights or remedies hereunder or the failure by any Grantor to perform or observe any of the provisions hereof

7

(c)      The obligations of Grantors in this Section 11 shall survive the termination of this Agreement and the discharge of Grantors’ other obligations under this Agreement, the Credit Agreement and the other Loan Documents.

SECTION 12.Amendments; Etc.

No amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by any Grantor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification or any waiver given by Grantors, by Grantors; provided this Agreement may be modified by the execution of a Counterpart by an Additional Grantor in accordance with Section 22 hereof and Grantors hereby waive any requirement of notice of or consent to any such amendment. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.

SECTION 13.Notices.

Any notice or other communication herein required or permitted to be given shall be in given and delivered in accordance with Section 13.10 of the Credit Agreement.

SECTION 14.Failure or Indulgence Not Waiver; Remedies Cumulative.

No failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

SECTION 15.Severability.

In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in ,any other jurisdiction, shall not in any way be affected or impaired thereby.

SECTION 16.Headings.

Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.

SECTION 17.Governing Law; Rules of Construction.

This Agreement shall in all respects be governed by the laws of the Commonwealth of Pennsylvania.  This Agreement and all of the other Loan Documents shall be construed as if drafted equally by all parties hereto.

8

SECTION 18.       Consent to Jurisdiction and Service of Process.

IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY LOAN DOCUMENT OR THE RELATIONSHIP EVIDENCED HEREBY, GRANTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF PHILADELPHIA OR BUCKS COUNTY, PENNSYLVANIA, AND THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA.  GRANTORS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWERS HEREBY WAIVE ANY OBJECTION WHICH GRANTORS MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS.  GRANTORS HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND ANY OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT, AND ANY OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTORS AT THE ADDRESS SET FORTH ABOVE AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE PROVIDING OF NOTICE IN ACCORDANCE WITH THE TERMS HEREOF.  NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHTS OF SECURED PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY SECURED PARTY OR LENDERS OF ANY CLAIM, JUDGMENT OR ORDER OBTAINED IN SUCH FORUM, OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT OR OTHERWISE TO ENFORCE SAME, IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.

SECTION 19.       Waiver of Jury Trial.

GRANTORS AND SECURED PARTY, AFTER CONSULTATION WITH THEIR RESPECTIVE COUNSEL, EACH HEREBY WAIVE ANY RIGHT WHICH THEY MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) COMMENCED BY OR AGAINST THEM OR ANY OF THEM IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR IN ANY WAY PERTAINING TO THE FACILITY OR THE RELATIONSHIPS EVIDENCED BY THIS AGREEMENT.

SECTION 20.       Counterparts.

This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.

9

SECTION 21.       Definitions.

(a)           Each capitalized term utilized in this Agreement that is not defined in this Agreement or the Credit Agreement, but that is defined in the UCC, including the categories of Collateral listed in Section 1 hereof shall have the meaning set forth in Articles 1, 8 or 9 of the UCC.

(b)           In addition, the following terms used in this Agreement shall have the following meanings:

“Additional Grantor” means an Eligible Affiliate of Company that becomes a party hereto after the date hereof as an additional Grantor by executing a Counterpart.

“Collateral” has the meaning set forth in Section 1 hereof.

“Counterpart” means a counterpart to this Agreement, in substantially the form set forth as Exhibit I attached hereto, entered into by an Eligible Affiliate of Company pursuant to Section 22 hereof.

“Credit Agreement” has the meaning set forth in the Preliminary Statements of this Agreement.

“Event of Default” means any Event of Default as defined in the Credit Agreement.

“Lender” has the meaning set forth in the Credit Agreement.

“Loan Documents” has the meaning set forth in the Credit Agreement. “Secured Obligations” has the meaning set forth in Section 2 hereof. “Eligible Affiliate” has the meaning set forth in the Credit Agreement.

“Pledged Debt” means the Debt from time to time owed to Grantor by Guarantor or any of its subsidiaries, the instruments and certificates evidencing such Debt and all interest, cash or other property received, receivable or otherwise distributed in respect of or exchanged therefor.

“Refund Collateral” has the meaning set forth in Section 1.

“UCC” means the Uniform Commercial Code, as it exists on the date of this Agreement or as it may hereafter be amended, in the Commonwealth of Pennsylvania.

SECTION 22.       Additional Grantors.

The initial Grantors hereunder shall be Company and such of the Eligible Affiliates of Company as are signatories hereto on the date hereof. From time to time subsequent to the date hereof, additional Eligible Affiliates of Company may become Additional Grantors, by executing a Counterpart. Upon delivery of any such Counterpart to Secured Party, notice of which is hereby waived by Grantors, each such Additional Grantor shall be a Grantor and shall be as fully a party hereto as if such Additional Grantor were an original signatory hereto. Each Grantor expressly agrees that its obligations arising hereunder shall not be affected or diminished

10

by the addition or release of any other Grantor hereunder, nor by any election of Secured Party not to cause any Eligible Affiliate of Company to become an Additional Grantor hereunder. This Agreement shall be fully effective as to any Grantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Grantor hereunder.

[Remainder of page intentionally left blank]

11

IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

Greenwood Financial Inc., a Delaware corporation
By:	Lawrence J. Dugan
	Name:	Lawrence J. Dugan
	Title:	Vice President
OHB Homes, Inc.
Orleans Corporation
Orleans Corporation of New Jersey
Orleans Construction Corp.
Parker & Lancaster Corporation
Parker & Orleans Homebuilders, Inc.
Sharp Road Farms, Inc.
By:	Lawrence J. Dugan
	Name:	Lawrence J. Dugan
	Title:	Vice President
Masterpiece Homes, LLC
OPCNC, LLC
Orleans at Bordentown, LLC
Orleans at Cooks Bridge, LLC
Orleans at Covington Manor, LLC
Orleans at Crofton Chase, LLC
Orleans at East Greenwich, LLC
Orleans at Elk Township, LLC
Orleans at Evesham, LLC
Orleans at Hamilton, LLC
Orleans at Harrison, LLC
Orleans at Hidden Creek, LLC
Orleans at Jennings Mill, LLC
Orleans at Lambertville, LLC
Orleans at Lyons Gate, LLC
Orleans at Mansfield, LLC
Orleans at Maple Glen, LLC
Orleans at Meadow Glen, LLC
Orleans at Millstone, LLC

[Grantors’ signatures continued on the following page]

12

Orleans at Millstone River Preserve, LLC
Orleans at Moorestown, LLC
Orleans at Tabernacle, LLC
Orleans at Upper Freehold, LLC
Orleans at Wallkill, LLC
Orleans at Westampton Woods, LLC
Orleans at Woolwich, LLC
Orleans Arizona Realty, LLC
Orleans DK, LLC
Parker Lancaster, Tidewater, L.L.C.
Wheatley Meadows Associates, LLC
By:	Lawrence J. Dugan
	Name:		Lawrence J. Dugan
	Title:		Vice President
Brookshire Estates, L.P. (f/k/a Orleans at Brookshire Estates, L.P.)
Orleans at Falls, LP
Orleans at Limerick, LP
Orleans at Lower Salford, LP
Orleans at Thornbury, L.P.
Orleans at Upper Saucon, L.P.
Orleans at Upper Uwchlan, LP
Orleans at West Bradford, LP
Orleans at West Vincent, LP
Orleans at Windsor Square, LP
Orleans at Wrightstown, LP
Stock Grange, LP
By:	OHI PA GP, LLC, sole General Partner
	By:	Lawrence J. Dugan
		Name:		Lawrence J. Dugan
		Title:		Vice President

[Grantors’ signatures continued on the following page]

13

Orleans RHIL, LP

Realen Homes, L.P.

By:	RHGP, LLC, sole General Partner
	By:	Orleans Homebuilders, Inc.,
		Authorized Member
		By:		Garry P. Herdler
				Name:	Garry P. Herdler
				Title:	Executive Vice President and
					Chief Financial Officer
Orleans Homebuilders, Inc., a Delaware corporation
By:	Garry P. Herdler
	Name:		Garry P. Herdler
	Title:		Executive Vice President and
			Chief Financial Officer

14

WACHOVIA BANK, NATIONAL ASSOCIATION,
As Administrative Agent, as Secured Party
	By:	Ron Ferguson
	Name:			Ron Ferguson
	Title:		Managing Director

15

EX-21

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

AS OF SEPTEMBER 29, 2008

COMPANY NAME	JURISDICTION OF INCORPORATION/FORMATION
A. P. Orleans Real Estate Co., Inc.	Pennsylvania
A. P. Orleans, Incorporated	New Jersey
A. P. Orleans, Incorporated	Pennsylvania
Alambry Funding, Inc.	Delaware
Brookshire Estates, L.P.	Pennsylvania
Community Management Services Group, Inc.	Pennsylvania
Greenwood Financial Inc.	Delaware
Greenwood Orleans Inc.	Delaware
Lucy Financial, Inc.	Delaware
Masterpiece Homes & Properties, Inc.	Florida
Masterpiece Homes, LLC	Delaware
Meadows at Hyde Park, LLC	New York
OAH Manager LLC	Pennsylvania
OHB Homes, Inc.	Delaware
OHI Financing, Inc.	Delaware
OHI NJ, LLC	Delaware
OHI PA GP, LLC	Pennsylvania
OHI PA, LLC	Delaware
OHI South Service Corp.	Delaware
OPCNC, LLC	Delaware
Orleans Abstract Member, LLC	Pennsylvania
Orleans Affordable Housing LP	Pennsylvania
Orleans Air LLC	Delaware
Orleans Arizona Construction, LLC	Arizona
Orleans Arizona, Inc.	Delaware
Orleans Arizona Realty, LLC	Arizona
Orleans at Aston, L.P.	Pennsylvania
Orleans at Bordentown, LLC	New Jersey
Orleans at Cooks Bridge, LLC	New Jersey
Orleans at Covington Manor, LLC	New Jersey
Orleans at Crofton Chase, LLC	New Jersey
Orleans at Dolington, L.P.	Pennsylvania
Orleans at East Greenwich, LLC	New Jersey

COMPANY NAME	JURISDICTION OF INCORPORATION/FORMATION
Orleans at Elk Township, LLC	New Jersey
Orleans at Evesham, LLC	New Jersey
Orleans at Falls, LP	Pennsylvania
Orleans at Florence, LLC	New Jersey
Orleans at Hamilton, LLC	New Jersey
Orleans at Harrison, LLC	New Jersey
Orleans at Hidden Creek, LLC	New Jersey
Orleans at Horsham, LP	Pennsylvania
Orleans at Illinois, LLC	Delaware
Orleans at Jennings Mill, LLC	New Jersey
Orleans at Lambertville, LLC	New Jersey
Orleans at Limerick, LP	Pennsylvania
Orleans at Lower Makefield, LP	Pennsylvania
Orleans at Lower Salford, LP	Pennsylvania
Orleans at Lyons Gate, LLC	Arizona
Orleans at Mansfield LLC	New Jersey
Orleans at Maple Glen LLC	New Jersey
Orleans at Meadow Glen, LLC	New Jersey
Orleans at Millstone River Preserve, LLC	New Jersey
Orleans at Millstone, LLC	New Jersey
Orleans at Monroe, LLC	New Jersey
Orleans at Moorestown, LLC	New Jersey
Orleans at South Brunswick, LLC	New Jersey
Orleans at Tabernacle, LLC	New Jersey
Orleans at Thornbury, L.P.	Pennsylvania
Orleans at Upper Freehold, LLC	New Jersey
Orleans at Upper Saucon, LP	Pennsylvania
Orleans at Upper Uwchlan, LP	Pennsylvania
Orleans at Wallkill, LLC	New York
Orleans at West Bradford, LP	Pennsylvania
Orleans at West Vincent, LP	Pennsylvania
Orleans at Westampton Woods, LLC	New Jersey
Orleans at Windsor Square, LP	Pennsylvania
Orleans at Woolwich, LLC	New Jersey
Orleans at Wrightstown, LP	Pennsylvania
Orleans Construction Corp.	Pennsylvania
Orleans Corporation	Pennsylvania
Orleans Corporation of New Jersey	New Jersey
Orleans DK, LLC	New York
Orleans Management, LLC	Pennsylvania
Orleans RHIL, LP	Illinois
Orleans RHPA, LLC	Pennsylvania
Orleans-Wheatley Meadows, LLC	New Jersey

2

COMPANY NAME	JURISDICTION OF INCORPORATION/FORMATION
P & L Realty, Inc.	Virginia
Parker & Lancaster Corporation	Virginia
Parker & Orleans Homebuilders, Inc.	Delaware
Parker Lancaster, Tidewater, L.L.C.	Virginia
Quaker Sewer, Inc.	Pennsylvania
Radnor Carpentry Corporation	Pennsylvania
Realen Homes, L.P.	Pennsylvania
RHGP LLC	Pennsylvania
Sharp Road Farms, Inc.	Pennsylvania
Stock Grange, LP	Pennsylvania
Wheatley Meadows Associates, LLC	New Jersey

3

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-151168, 333-143862, 33-87694, 33-87696, 333-59917, 333-59925, 333-68915, 333-119004, 333-119005, and 333-119006) of Orleans Homebuilders, Inc of our report dated September 30, 2008 relating to the financial statements, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Philadelphia, PA

September 30, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jeffrey P. Orleans, certify that:

1.I have reviewed this annual report on Form 10-K of Orleans Homebuilders, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely

affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

September 30, 2008

Signed:	/s/ Jeffrey P. Orleans
	Jeffrey P. Orleans
	Chairman of the Board and
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael T. Vesey, certify that:

1.I have reviewed this annual report on Form 10-K of Orleans Homebuilders, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

September 30, 2008

Signed:	/s/ Michael T. Vesey
	Michael T. Vesey
	President and Chief Operating Officer

EX-31.3

Exhibit 31.3

CERTIFICATION

I, Garry P. Herdler, certify that:

1.I have reviewed this annual report on Form 10-K of Orleans Homebuilders, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely

affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

September 30, 2008

Signed:	/s/ Garry P. Herdler
	Garry P. Herdler
	Executive Vice President,
	Chief Financial Officer and
	Acting Principal Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.

Date:September 30, 2008

/s/ Jeffrey P. Orleans

Jeffrey P. Orleans

Chairman of the Board and Chief
Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.

Date:September 30, 2008

/s/ Michael T. Vesey

Michael T. Vesey

President and Chief Operating Officer

EX-32.3

Exhibit 32.3

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.

Date:September 30, 2008

/s/ Garry P. Herdler

Garry P. Herdler

Executive Vice President,

Chief Financial Officer and

Acting Principal Accounting Officer