SECOND MODIFIED AND RESTATED LOAN AGREEMENT

SECOND MODIFIED AND RESTATED
LOAN AGREEMENT

Among

NEIGHBORHOODS CAPITAL, LLC
and certain affiliated limited liability companies
(collectively, the “ Obligors ”),

The Lenders Who Are or May Become a Party To This Agreement
(collectively, the “ Lenders ”),

WACHOVIA CAPITAL MARKETS, LLC,
as Arranger
(the “ Arranger ”),

WACHOVIA BANK, NATIONAL ASSOCIATION,
as Agent for the Lenders and Issuing Lender
(the “ Agent ”),

and

BRANCH BANKING AND TRUST COMPANY, and
FIRST HORIZON HOME LOANS, A DIVISION OF FIRST TENNESSEE BANK

NATIONAL ASSOCIATION and
as Co-Documentation Agents
(the “ Co-Documentation Agents ”)

$127,500,000 CREDIT FACILITY

Dated as of October 12, 2007

TABLE OF CONTENTS

FIRST MODIFIED AND RESTATED LOAN AGREEMENT			1
ARTICLE I DEFINITIONS			1
Section 1.1 Definitions			3
Section 1.2 General			23
Section 1.3 Other Definitions and Provisions			23
ARTICLE II REVOLVING CREDIT FACILITY			23
Section 2.1 Revolving Loans			23
Section 2.2 Procedures for Advances of Revolving Credit			24
Section 2.3 Addition of Borrowing Base Assets			27
Section 2.4 Conditions to Revolving Loans for Land Under Development and Construction of Units			30
Section 2.5 Repayment of Revolving Loans			30
Section 2.6 Revolving Credit Notes			32
Section 2.7 Revolving Credit Maturity Date Extension			32
Section 2.8 Title Insurance			33
Section 2.9 Increase in Commitments			33
ARTICLE III L/C FACILITY			35
Section 3.1 L/C Commitment			35
Section 3.2 Procedure for Issuance of Letters of Credit			35
Section 3.3 L/C Fees			36
Section 3.4 L/C Participations			36
Section 3.5 Reimbursement Obligation of the Borrowers			37
Section 3.6 Obligations Absolute			37
Section 3.7 Effect of Application and Letter of Credit Agreement			38
Section 3.8 Resignation of the Issuing Lender, Successor Issuing Lender			38
ARTICLE IV GENERAL LOAN PROVISIONS			39
Section 4.1 Obligors’ Representatives			39
Section 4.2 Guaranty			41
Section 4.3 Interest			43
Section 4.4 Loan Fees			45
Section 4.5 Manner of Payment			46
Section 4.6 Crediting of Payments and Proceeds			47
Section 4.7 Adjustments			47
Section 4.8 Nature of Obligations of Lenders Regarding Extensions of Credit, Assumption by the Agent.			47
Section 4.9 Changed Circumstances			48
Section 4.10 Indemnity			49
Section 4.11 Capital Requirements			50
Section 4.12 Taxes			50
Section 4.13 Security			52

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ARTICLE V CONDITIONS OF CLOSING AND BORROWING			52
Section 5.1 Conditions to Closing and Initial Extensions of Credit			52
Section 5.2 Conditions to All Extensions of Credit			55
ARTICLE VI REPRESENTATIONS AND WARRANTIES			56
Section 6.1 Existence, Etc.			56
Section 6.2 Financial Condition			57
Section 6.3 Litigation			57
Section 6.4 No Breach			57
Section 6.5 Authority			57
Section 6.6 Approval			58
Section 6.7 Employee Benefit Plans			58
Section 6.8 Taxes, Etc.			58
Section 6.9 Ownership of Collateral			58
Section 6.10 Bridge Loan Documents			58
Section 6.11 Existing Loan Documents			58
Section 6.12 Survival			59
ARTICLE VII COVENANTS OF THE OBLIGORS			59
Section 7.1 Borrowing Base Reports, Financial Statements, Etc.			59
Section 7.2 Disposition of Assets			60
Section 7.3 Existence, Etc.			61
Section 7.4 Liens			61
Section 7.5 Use of the Credit Facility			61
Section 7.6 Access			61
Section 7.7 Leases			62
Section 7.8 Quality of Work: Changes; Etc.			62
Section 7.9 Delivery of Original Recorded Documents			62
Section 7.10 Insurance			62
Section 7.11 Other Documents			64
Section 7.12 Notice of Changes in Registration Statements			65
Section 7.13 Amendments to Charters			65
Section 7.14 Hedge Agreements			65
Section 7.15 Additional Debt			65
ARTICLE VIII FINANCIAL COVENANTS			65
Section 8.1 Liquidity			65
Section 8.2 Adjusted EBITDA to Debt Service			66
Section 8.3 Tangible Net Worth			66
Section 8.4 Total Liabilities to Tangible Net Worth Ratio			66
Section 8.5 Residential Units			66
Section 8.6 Land to Tangible Net Worth Covenant			66
Section 8.7 Appraisals			66
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES			68
Section 9.1 Events of Default			68
Section 9.2 Remedies			69

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Section 9.3 Rights and Remedies Cumulative; Non-Waiver; Etc.			70
Section 9.4 Defaults Affecting Borrowing Base Assets			71
ARTICLE X THE AGENT			71
Section 10.1 Appointment			71
Section 10.2 Delegation of Duties			71
Section 10.3 Exculpatory Provisions			72
Section 10.4 Reliance by the Agent			72
Section 10.5 Notice of Default			72
Section 10.6 Non-Reliance on the Agent and Other Lenders			73
Section 10.7 Indemnification			73
Section 10.8 The Agent in Its Individual Capacity			74
Section 10.9 Resignation of the Agent, Successor Agent			74
Section 10.10 Effect of Article on Obligors			74
ARTICLE XI MISCELLANEOUS			75
Section 11.1 Notices			75
Section 11.2 Expenses, Indemnity			76
Section 11.3 Set-off			76
Section 11.4 Governing Law			77
Section 11.5 Consent to Jurisdiction			77
Section 11.6 Binding Arbitration			77
Section 11.7 Reversal of Payments; Continuing Enforcement			78
Section 11.8 Injunctive Relief; Punitive Damages			78
Section 11.9 Accounting Matters			79
Section 11.10 Successors and Assigns; Participations			79
Section 11.11 Amendments, Waivers and Consents			82
Section 11.12 Performance of Duties			82
Section 11.13 All Powers Coupled with Interest			82
Section 11.14 Survival of Indemnities			83
Section 11.15 Titles and Captions			83
Section 11.16 Severability of Provisions			83
Section 11.17 Counterparts			83
Section 11.18 Term of Agreement			83
Section 11.19 Time is of the Essence			83
Section 11.20 Brokerage			84
Section 11.21 Public Notice			84
Section 11.22 Entire Agreement			84
Section 11.23 Inconsistencies with Other Documents; Covenants			84
Section 11.24 Joint and Several Liability			84
Section 11.25 Joinder of New Lenders			84
Section 11.26 Joinder of Bridge Loan Additional Borrowers			84
Section 11.27 Modified and Restated Agreement			84
TABLE OF EXHIBITS			I
TABLE OF CONTENTS			I

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Second Modified and Restated Loan Agreement

SECOND MODIFIED AND RESTATED LOAN AGREEMENT

     THIS SECOND MODIFIED AND RESTATED LOAN AGREEMENT (this “ Agreement ”) is dated as of October 12, 2007, by and among NEIGHBORHOODS CAPITAL, LLC, a Virginia limited liability company (“ Capital ”), BRAM NEIGHBORHOODS, LLC, a Virginia limited liability company, GLENKIRK NEIGHBORHOODS, LLC, a Virginia limited liability company, GLYNN TARRA ESTATES, LLC, a Virginia limited liability company, NEIGHBORHOODS I, L.L.C., a Virginia limited liability company , NEIGHBORHOODS II, LLC, a Virginia limited liability company, NEIGHBORHOODS III, LLC, a Virginia limited liability company, NEIGHBORHOODS IV, LLC, a Virginia limited liability company, COLES RUN NEIGHBORHOODS, LLC, a Virginia limited liability company, and ZION NEIGHBORHOODS, LLC, a Virginia limited liability company (Capital and each of the other entities named, individually, an “ Initial Borrower ” and Capital and each of the other entities named, collectively, the “ Initial Borrowers ”); WALL NEIGHBORHOODS, LLC, a Virginia limited liability company, MARUMSCO NEIGHBORHOODS, LLC, a Virginia limited liability company, NEIGHBORHOODS VI, LLC, a Virginia limited liability company, LANDMARK NEIGHBORHOODS, LLC, a Virginia limited liability company, BRAM III NEIGHBORHOODS, LLC, a Virginia limited liability company, OLD DOMINION NEIGHBORHOODS, LLC, a Virginia limited liability company, SPRING PARK NEIGHBORHOODS, LLC, a Virginia limited liability company, FAIR OAKS NEIGHBORHOODS, LLC, a Virginia limited liability company, SHIRLINGTON NEIGHBORHOODS, LLC, a Virginia limited liability company, POWELL’S NEIGHBORHOODS II, LLC, a Virginia limited liability company, WOODLANDS NEIGHBORHOODS, LLC, a Virginia limited liability company, FALLS GATE NEIGHBORHOODS, LLC, a Virginia limited liability company, and HERNDON NEIGHBORHOODS, LLC, a Virginia limited liability company (each of such entities named, individually, an “ Initial Additional Borrower ” and each of such entities named, collectively, the “ Initial Additional Borrowers ”); BEECH GROVE NEIGHBORHOODS, LLC, a Virginia limited liability company, and NEIGHBORHOODS V, LLC, a Virginia limited liability company (each of such entities named, individually, a “ Bridge Loan Additional Borrower ” and each of such entities named, collectively, the “ Bridge Loan Additional Borrowers ”) (each of the Initial Borrowers, the Initial Additional Borrowers and the Bridge Loan Additional Borrowers, individually, a “ Borrower ”, each of the Initial Borrowers, the Initial Additional Borrowers and the Bridge Loan Additional Borrowers, collectively, the “ Borrowers ”) jointly and severally; KF NEIGHBORHOODS, L.L.C., a Maryland limited liability company and KF II NEIGHBORHOODS, LLC, a Maryland limited liability company, STANLEY-MARTIN COMMUNITIES, LLC, a Delaware limited liability company, STANLEY-MARTIN FINANCING CORP., a Delaware corporation, WILDEWOOD NEIGHBORHOODS, LLC, a Maryland limited liability company, WILDEWOOD RESIDENTIAL, LLC, a Maryland limited liability company, and AVALON WEST NEIGHBORHOODS, LLC, a Maryland limited liability company (each of such entities named, individually, a “ Guarantor ” and each of such entities named, collectively, the “ Guarantors ”) jointly and severally (the Borrowers and Guarantors are hereinafter sometimes referred to, individually, as an “ Obligor ” and, collectively, as the “ Obligors ”); the Lenders who are or may become a party to this Agreement (each of such entities, individually, a “ Lender ” and each of such entities, collectively, the “ Lenders ”); and

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WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association (sometimes referred to as “ Wachovia ”), as a Lender, as Agent for the Lenders and as Issuing Lender.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, such parties hereby agree as follows:

ARTICLE I
DEFINITIONS

     Section 1.1 Definitions.

     The following terms shall have the meanings assigned to them below when used in this Agreement.

     “ Actual Costs Incurred ” with respect to any Project that is or is to become a Borrowing Base Asset means the applicable Obligor’s actual costs which are included in the Land Cost, Budgeted Lot Cost, Finished Lot Acquisition Cost or Appraised Value of the Model Unit, Spec Unit or Sold Unit applicable to that Project and which the Obligor has incurred as of the applicable time of determination.

     “ Additional Borrower ” means each Person that has executed and delivered an Additional Borrower Joinder Supplement on or after the Closing Date that has been accepted and approved by the Agent.

     “ Additional Borrower Joinder Supplement ” means an Additional Borrower Joinder Supplement in substantially the form attached hereto as Exhibit “A-1” , with the blanks appropriately completed and executed and delivered by the Additional Borrower, accepted by Capital on behalf of the Obligors and, if the proposed Borrowing Base Assets owned by such Additional Borrower satisfy the criteria in Section 2.3 hereof, executed by Agent on behalf of itself and the other Lenders, or if the proposed Borrowing Base Assets owned by such Additional Borrower do not satisfy the criteria in Section 2.3 hereof, executed by Agent and each other Lender.

     “ Additional Guarantor ” means each limited liability company which shall have Capital as its sole member that has executed and delivered an Additional Guarantor Joinder Supplement on or after the Closing Date that has been accepted and approved by the Agent.

     “ Additional Guarantor Joinder Supplement ” means an Additional Guarantor Joinder Supplement in substantially the form attached hereto as Exhibit “A-2” , with the blanks appropriately completed and executed and delivered by the Additional Guarantor, accepted by Capital on behalf of the Obligors and, if the proposed Borrowing Base Assets owned by such Additional Guarantor satisfy the criteria in Section 2.3 hereof, executed by Agent on behalf of itself and the other Lenders, or if the proposed Borrowing Base Assets owned by such Additional Guarantor do not satisfy the criteria in Section 2.3 hereof, executed by Agent and each other Lender.

     “ Adjusted EBITDA ” means, as of the last day of any Fiscal Quarter, the sum of (i) net income plus (ii) state and federal income taxes plus (iii) amortization and depreciation expense

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plus (iv) interest expense in cost of goods sold plus (v) interest expense from operations plus (vi) write-off of impairment charges and other non-cash charges and expenses, determined in each case for Capital and its Subsidiaries on a consolidated basis for the four (4) Fiscal Quarters then ended.

     “ Adjusted Tangible Net Worth ” means Tangible Net Worth plus the lesser of (a) fifty percent (50%) of Subordinated Debt or (b) thirty-five percent (35%) of Adjusted Tangible Net Worth, such that Tangible Net Worth shall never be less than sixty-five percent of Adjusted Tangible Net Worth.

     “ Affiliate ” means, with respect to any Person, any individual, corporation, partnership, association, trust, or other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person.

     “ Agent ” means Wachovia in its capacity as Agent hereunder, and any successor thereto appointed pursuant to Section 10.9 .

     “ Agent’s Office ” means the office of the Agent specified in or determined in accordance with the provisions of Section 11.1(c) .

     “ Agreement ” has the meaning given to it in the preamble of this Agreement and shall include all future amendments, modifications, substitutions and/or renewals of this Agreement from time to time.

     “ Aggregate Commitment ” means the aggregate amount of the Lenders’ Commitments hereunder as such amount may be reduced, increased or modified at any time or from time to time pursuant to the terms of this Agreement. On the Closing Date, the Aggregate Commitment shall be One Hundred Twenty-Seven Million Five Hundred Thousand and No/100 Dollars ($127,500,000.00).

     “ Applicable Interest Rate ” means (a) the Base Rate or (b) the LIBOR Rate.

     “ Applicable Law ” means all applicable provisions of the constitutions, statutes, laws, rules, treaties, regulations and orders of all Governmental Authorities and all orders and decrees of all courts and arbitrators.

     “ Applicable Margin ” means the applicable rate per annum added, as set forth below, to the LIBOR Base Rate or LIBOR Market Index Rate. The Applicable Margin (expressed as basis points) shall vary depending upon the Senior Leverage Ratio, as follows:

Senior Leverage Ratio		Applicable Margin
less than 1.5		175
1.5 but not greater than 2.0		200
2.0 but not greater than 2.5		212.5
2.5 or greater		225

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     The Applicable Margin effective on the Closing Date will be 212.5 basis points. Thereafter the Applicable Margin shall be adjusted on a quarterly basis based on the Senior Leverage Ratio, determined by the Agent in the exercise of its sole and absolute discretion based on the most recent quarterly reports required by Section 7.1(c) that the Agent has received, with any change to be effective as of the first day of the first month following receipt by the Agent of such statement.

     “ Application ” means an application, in the form specified by the Issuing Lender from time to time, requesting the Issuing Lender to issue a Letter of Credit.

     “ Appraisal ” means an appraisal meeting the requirements of Section 8.7 ordered by the Agent, on behalf of the Lenders, performed by an appraiser approved by the Agent and prepared in accordance with policies and procedures for real estate appraisals supporting extensions of credit by banking institutions subject to regulation by the Comptroller of the Currency, the Board of Governors of the Federal Reserve System or the Federal Deposit Insurance Corporation and reviewed and approved by the appraisal department of the Agent.

     “ Appraised Value ” means for Raw Land, the “as is” appraised value and for Land Under Development, Finished Lots, Model Units (including, without limitation, Options) and Spec Units (including, without limitation, Options), the gross retail value of the applicable Lot or Unit on an “as-completed” basis without discount to reflect the time value of money.

     “ Approved Contract” means a bona-fide agreement of sale that (a) is with an unrelated third-party purchaser for fair market value, (b) provides for a cash deposit of at least five percent (5%) of the purchase price (or, in the case of Units in Prince William County, Virginia, at least three percent (3%) of the purchase price) which is held either (i) by First Excel Title, LLC, or an independent third party (i.e., a real estate broker) or (ii) in an escrow account of an Obligor placed with a Lender, or (iii) by an Obligor, (c) is not subject to, or conditioned upon, the sale or lease by the purchaser of any existing real property owned by the purchaser, and (d) contains no contingency other than for a mortgage commitment that is in an amount not in excess of ninety-five percent (95%) of the gross sales price of the Unit (but any mortgage contingency for a loan in excess of ninety-five percent (95%) of the sales price, if permitted by Agent, shall require certification of pre-approval from an acceptable mortgage lender), and which is not contingent upon the sale or lease of any other real estate (although if the financing commitment does include such sale or lease contingency, such contingency must be specifically excluded in the agreement of sale).

      " Approved Subdivision(s) ” means those single-family residential developments that are subject to a recorded subdivision plat approved by the appropriate Governmental Authorities in the jurisdiction in which they are located, and either (a) contain Lots for which advances have been made under the Existing Loans, or (b) have been approved in accordance with Section 2.3(c) . The Approved Subdivisions as of the Closing Date are listed on Exhibit “B” .

     “ Arranger ” means Wachovia Capital Markets, LLC.

     “ As Is Value ” or “ As Is Appraised Value ” of a Lot or Unit means the value as determined by the most recent Appraisal pertaining to such Lot or Unit.

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     “ Assignment and Acceptance ” shall have the meaning assigned thereto in Section 11.10(b) .

     “ Assignment of Contracts ” means the Assignment of Contracts, Plans and Permits dated November 15, 2004 with the Prior Agreement by the Obligors in favor of the Agent.

     “ Base Rate ” means the sum of (a) the Applicable Margin plus (b) the LIBOR Market Index Rate.

     “ Benefited Lender ” has the meaning given to it in Section 4.7 .

     “ Borrower ” means each Person defined as a “Borrower” in the preamble of this Agreement and each Additional Borrower; “ Borrowers ” means the collective reference to all Persons defined as “Borrowers” in the preamble to this Agreement and all Additional Borrowers.

     “ Borrowing Base ” At the time of determination, the amount by which (1) the sum of the following amounts ((a) through (f), inclusive) for Projects which are Borrowing Base Assets as shown in the most recent Borrowing Base Report that has been received by the Agent exceeds (2) the principal amount of Subordinated Debt, if any, that has a maturity of one year or less:

     (a) Raw Land . With respect to Raw Land, the lesser of (i) fifty percent (50%) of the Land Cost of the Raw Land and (ii) fifty percent (50%) of the Appraised Value of the Raw Land;

     (b) Land Under Development . With respect to each Project which is Land Under Development, the lesser of (i) the sum of (A) seventy-five percent (75%) of the Obligor’s actual cost incurred to purchase the Land component of the Project, plus (B) (1) seventy-five percent (75%) of the Budgeted Lot Cost for the Project (less the Obligor’s actual cost incurred to purchase the subject Land), multiplied by (2) the Completion Percentage for the Project, and (ii) the sum of (A) sixty-five percent (65%) of the Appraised Value of the Land component of the Project, plus (B) (1) sixty-five percent (65%) of the Appraised Value of the Project (less the Appraised Value of the subject Land), multiplied by (2) the Completion Percentage for the Project; provided, however, that during any period in which the aggregate Appraised Value of Raw Land and Land Under Development exceeds 125% of Tangible Net Worth, 75% shall be reduced to 70% and 65% shall be reduced to 60% in the foregoing formulas with respect to the portion of Land Under Development in the Borrowing Base in excess of the amount of Land Under Development that would cause the aggregate Appraised Value of Raw Land and Land Under Development to equal 125% of Tangible Net Worth;

     (c) Finished Lots . With respect to Finished Lots, the lesser of (i) eighty percent (80%) of Finished Lot Acquisition Cost for the Finished Lot and (ii) seventy-five percent (75%) of the Appraised Value of the Finished Lot;

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     (d) Model Units . With respect each Model Unit, the sum of (i) seventy-five percent (75%) of the Finished Lot Acquisition Cost for the subject Lot, plus (ii)(A) seventy-five percent (75%) of the Appraised Value of the Model Unit (less (i) noted above), multiplied by (B) the Completion Percentage for the Model Unit;

     (e) Spec Units . With respect to each Spec Unit, the sum of (i) seventy-five percent (75%) of the Finished Lot Acquisition Cost for the subject Lot plus (ii) (A) seventy-five percent (75%) of the Appraised Value of the Spec Unit (less (i) noted above), multiplied by (B) the Completion Percentage for the Spec Unit; and

     (f) Sold Units . With respect to Sold Units, the sum of (i) eighty percent (80%) of the Finished Lot Acquisition Cost for the subject Lot plus (ii) (A) eighty percent (80%) of the applicable Contract Price (less the Finished Lot Acquisition Cost), multiplied by (B) the Completion Percentage for the Sold Unit;

      provided , however , that the Borrowing Base shall be subject to the following limitations measured in each case as of the time of determination:

     Unsold Units (Spec Units and Model Units) shall not constitute more than 30% of the portion of the Borrowing Base created by all Units (Spec Units, Model Units and Sold Units).

     The portion of the Borrowing Base supported by Raw Land shall not constitute more than 10% of the aggregate Borrowing Base; and

     The portion of the Borrowing Base supported by Raw Land, Land Under Development and Finished Lots shall not constitute more than 65% of the aggregate Borrowing Base.

     “ Borrowing Base Assets ” means those real estate assets of the Obligors designated as “Borrowing Base Assets” on the most recent Borrowing Base Report received by the Agent which are Raw Land, Land Under Development, Finished Lots or Units, eligible for inclusion in the Borrowing Base pursuant to the requirements of this Agreement and upon which the Agent has a recorded first priority Mortgage for the benefit of the Lenders.

     “ Borrowing Base Deficiency ” has the meaning described in Section 2.5(c) .

     “ Borrowing Base Report” means the report provided by the Obligors to the Agent pursuant to Section 7.1(a) containing the information shown on Exhibit “C” and such other information concerning the Borrowing Base Assets as the Agent shall request.

     “ Bridge Loan ” means the loan from Prior Lender to the Bridge Loan Additional Borrowers in the principal amount of up to $14,999,000.

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     “ Bridge Loan Additional Borrower ” means each Person defined as a “Bridge Loan Additional Borrower” in the preamble of this Agreement; “ Bridge Loan Additional Borrowers ” means the collective reference to all Persons defined as “Bridge Loan Additional Borrowers” in the preamble to this Agreement.

     “ Budgeted Lot Cost ” means, with respect to each Project which is Land Under Development, the sum of (a) the applicable Obligor’s actual cost incurred to purchase the Land, plus (b) the applicable Obligor’s actual cost to obtain all required Governmental Approvals, plus (c) the total budgeted hard costs of labor, materials, land improvements, utility installation and other work to be performed, plus (d) soft costs (survey cost, permit fees, insurance, impact fees, real estate taxes, recording charges, loan fees, marketing costs, interest and overhead) to be incurred, in connection with the construction and completion of the improvements comprising such Project in substantial compliance with the Plans and Specifications, all as reasonably approved by the Agent; provided, however, that upon Completion of a Project which is Land Under Development for an aggregate actual cost which is less than the foregoing amount, the Budgeted Lot Cost for that Project shall be reduced to such aggregate actual cost.

     “ Budgeted Unit Cost ” means, with respect to each Unit, the sum of (a) the Finished Lot Acquisition Cost for the Lot comprising the subject Unit, plus (b) the total budgeted hard costs of labor, materials, land improvements, utility installation and hook-up and other work to be performed, plus (c) soft costs (survey cost, permit fees, insurance, interest, real estate taxes, recording charges, loan fees, marketing costs and overhead) to be incurred, in connection with the construction and completion of the subject Unit in substantial compliance with the Plans and Specifications, all as reasonably approved by the Agent; provided, however, that upon Completion of a Unit for an aggregate actual cost which is less than the foregoing amount, the Budgeted Unit Cost for that Unit shall be reduced to such aggregate actual cost.

     “ Business Day ” means any day other than a Saturday, Sunday or legal holiday on which banks in Charlotte, North Carolina, Tysons Corner, Virginia, New York, New York, and each jurisdiction where a Lender has its Lending Office are open for the conduct of their commercial banking business.

     “ Capital ” has the meaning given to it in the preamble to this Agreement.

     “ Closing Date ” means the date of this Agreement or if no Revolving Loans are made on such date, such later Business Day upon which each condition described in Section 5.1 shall be satisfied or waived in all respects in a manner acceptable to the Agent, in its sole discretion and the initial Revolving Loans are made.

     “ Collateral ” means all property of the Obligors including Borrowing Base Assets, which is encumbered by a Mortgage or otherwise granted by the Obligors as security for the Credit Facility under any of the Loan Documents.

     “ Commitment ” means, as to any Lender, such Lender’s Revolving Credit Commitment or L/C Commitment.

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     “ Commitment Percentage ” means, as to any Lender at any time, the ratio, stated as a percentage, of (a) the amount of the Commitment of such Lender to (b) the Aggregate Commitment.

     “ Completion ” means as to each Project that is a Borrowing Base Asset, the date as of which the first Borrowing Base Report was prepared upon which the Completion Percentage for the Project equals or exceeds 95% of the Budgeted Lot Cost or Budgeted Unit Cost applicable to that Project.

     “ Completion Percentage ” means, as of the time of determination, (a) for each Project that is Land Under Development and is not Completed, the quotient, stated as a percentage, of (i) Actual Costs Incurred (less, as applicable, Obligor’s actual cost incurred to purchase the Land or the Appraised Value of the Land) divided by (ii) the Budgeted Lot Cost (less, as applicable, Obligor’s actual cost incurred to purchase the Land or the Appraised Value of the Land), and (b) for each Project that is a Unit and is not Completed, the quotient, stated as a percentage, of (1) Actual Costs Incurred (less the Lot Acquisition Cost for the subject Unit) divided by (2) the Budgeted Unit Cost (less the Lot Acquisition Cost of the subject Unit).

     “ Compliance Inspector ” means an independent architect or engineer selected and retained by the Agent at the Obligors’ expense, in order from time to time as required by Agent, (i) to conduct inspections of the Borrowing Base Assets in connection with requests for Revolving Loans, to determine (a) whether construction is proceeding on schedule in substantial accordance with the Plans and Specifications and (b) whether the necessary work has been completed in order to justify the advance requested, and (ii) to consult on such other matters as provided for herein or that the Agent may request in its sole discretion.

     “ Consolidated ” means, when used with reference to financial statements or financial statement items of the Obligors, such statements or items on a consolidated basis in accordance with applicable principles of consolidation under GAAP.

     “ Consolidated Subsidiary(ies) ” means any Person whose accounts would be consolidated with those of the Obligors in their consolidated financial statements in accordance with GAAP.

     “ Contract Price ” means the sales price for a Unit which is payable to an Obligor pursuant to an Approved Contract.

     “ Control ” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract.

     “ Covenant Compliance Certificate ” means a certificate signed by the chief executive officer, chief financial officer, chief accounting officer, treasurer or other Responsible Officer of Capital certifying that the Obligors are in compliance with all covenants under the Loan Documents including the financial covenants and with all financial covenants under all other debt facilities, demonstrating such compliance with specific computations, all in reasonable detail and otherwise satisfactory to the Agent. The form of the Covenant Compliance Certificate is attached to this Agreement as Exhibit “D” .

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     “ Credit Facility ” means the Revolving Credit Facility, including the L/C Facility.

     “ Debt Service ” means, as to the last day of any Fiscal Quarter the sum of (a) interest paid (whether expensed or capitalized) plus (b) required principal payments on any Indebtedness, determined in each case for the four (4) Fiscal Quarters then ended.

     “ Debt ” means with respect to any Person (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, (iv) all obligations of such Person under capital leases, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all obligations of others secured by a lien on any asset of such Person, whether or not any such obligation is assumed by such Person, and (vii) all obligations of others guarantied by such Person.

     “ Default ” means the occurrence of any condition, event, act or omission that, with the giving of notice or passage of time, or both, would constitute an Event of Default.

     “ Eligible Assignee ” means, with respect to any assignment of the rights, interests and obligations of a Lender hereunder, a Person that is at the time of such assignment (a) a commercial bank organized under the laws of the United States or any state thereof, having combined capital and surplus in excess of $500,000,000, (b) a finance company, insurance company or other financial institution which in the ordinary course of business extends credit of the type extended hereunder and that has total assets in excess of $1,000,000,000, (c) already a Lender hereunder (whether as an original party to this Agreement or as the assignee of another Lender), (d) the successor (whether by transfer of assets, merger or otherwise) to all or substantially all of the commercial lending business of the assigning Lender, or (e) any other Person that has been approved in writing as an Eligible Assignee by the Agent and, so long as no Default or Event of Default has occurred and is continuing, Capital, which consents shall not be unreasonably withheld.

     “ Environmental Laws ” means any and all federal, state and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, interpretations, and orders of courts or Governmental Authorities, relating to the protection of human health or the environment, including, but not limited to, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Materials.

     “ Event of Default ” means any event or condition specified as an Event of Default in Section 9.1 .

     “ Existing Lenders ” means, separately and collectively, Wachovia, Branch Banking and Trust Company and First Horizon Home Loans, a division of First Tennessee Bank National Association, as Lenders under the Prior Agreement.

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     “ Existing Letters of Credit ” means those letters of credit issued and outstanding under the L/C Facility as of the Closing Date and identified on Exhibit “E-2” not taking into account any Letter of Credit issued or cancelled on the Closing Date.

     “ Existing Loans ” means the Revolving Loans outstanding as of the Closing Date and identified on Exhibit “E-1” not taking into account any advance of the Revolving Credit Facility made by the Lenders pursuant to Article III hereof on the Closing Date or any payment of amounts outstanding under the Revolving Credit Facility made by the Obligors on the Closing Date.

     “ Extensions of Credit ” means (a) with respect to all Lenders, the aggregate principal amount of all outstanding Revolving Loans and L/C Obligations and (b) with respect to each Lender, an amount equal to the sum of (a) the aggregate unpaid principal amount of all Revolving Loans made by such Lender then outstanding and (b) such Lender’s Commitment Percentage of the L/C Obligations then outstanding.

     “ Extension Fee ” and “ Extension Fees ” have the meaning described in Section 4.4(c) .

     “ Federal Funds Rate ” means a rate per day equal to the weighted average of rates on overnight federal funds transactions with members of the Federal Reserve System only, arranged by federal funds brokers, as published as of such day by The Federal Reserve Bank of New York.

     “ Fee Letter ” means the letter agreement dated of even date herewith between the Capital and the Agent concerning the payment of certain fees in connection with the Credit Facility, as the Fee Letter may be amended from time to time.

     “ Financial Covenants ” has the meaning given to it in ARTICLE VIII.

     “ Finished Lot ” means any Lot with respect to which all off-site and on-site infrastructure improvements (other than final paving) have been completed including, without limitation (i) all utilities being installed to the Lot, and (ii) all conditions to subdivision approval imposed by the applicable Governmental Authorities being satisfied so that a building permit for a Unit can be obtained, which Lot has not been converted to a Unit. To the extent that one or more of the requirements have not been completed, such requirement shall be deemed to have been completed if such requirement is fully bonded.

     “ Finished Lot Acquisition Cost ” means (a) for Finished Lots acquired from third parties, the applicable Obligor’s actual cost incurred to purchase the Finished Lots or (b) for Finished Lots developed by the Obligor from Land Under Development, the Budgeted Lot Cost.

     “ Fiscal Quarter ” means each of the four calendar periods of three months ending on March 31, June 30, September 30 and December 31 of each year.

     “ Fiscal Year ” means the calendar period beginning January 1 and ending December 31 of each year.

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     “ GAAP ” means generally accepted accounting principles as promulgated by the Financial Accounting Standards Board from time to time.

     “ Governmental Approvals ” means all authorizations, consents, approvals, or licenses issued by Governmental Authorities.

     “ Governmental Authority ” means any nation, province, state or political subdivision thereof, and any government or any Person exercising executive, legislative, regulatory or administrative functions of or pertaining to government.

     “ Guarantor ” means S-M Communities, S-M Financing, KF Neighborhoods, L.L.C., KF II Neighborhoods, LLC, Wildewood Neighborhoods, LLC and each Additional Guarantor; “ Guarantors ” means the collective reference to all such Persons.

     “ Guaranty ” means the Guaranty of Payment Agreement dated November 15, 2004 executed and delivered by the Guarantors, as amended, modified, substituted, extended, renewed and supplemented from time to time.

     “ Hazardous Materials ” means any substances or materials (a) which are or become defined as hazardous wastes, hazardous substances, pollutants, contaminants, chemical substances or mixtures or toxic substances under any Environmental Law, (b) which are toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human health or the environment and are or become regulated by any Governmental Authority, (c) the presence of which require investigation or remediation under any Environmental Law or common law, (d) the discharge or emission or release of which requires a permit or license under any Environmental Law or other Governmental Approval, (e) which are deemed to pose a health or safety hazard to persons or neighboring properties, (f) which are materials consisting of underground or aboveground storage tanks, whether empty, filled or partially filled with any substance, or (g) which contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.

     “ Hedge Agreement ” means any agreement executed by Capital with Wachovia or any other Lender or any other financial institution approved by the Agent in writing, and with respect to an interest rate swap, collar, cap, floor or a forward rate agreement or other agreement regarding the hedging of interest rate risk exposure executed in connection with hedging the interest rate exposure of the Borrowers under this Agreement, and any confirming letter executed pursuant to such Hedge Agreement, all as amended, restated or otherwise modified.

     “ Hedge Termination Value ” means, in respect of any one or more Hedge Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Hedge Agreements, (a) for any date on or after the date such Hedge Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Hedge Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedge Agreements (which may include a Lender or any Affiliate of a Lender).

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     “ Horizontal Improvements ” means utilities, including water and sewer, curbs, gutters, stormwater detention structures and dedicated roadways built in material compliance with and permitted under applicable laws and regulations all constructed within easements or rights-of-way dedicated or granted to the applicable Governmental Authority, utility company or created or reserved pursuant to a declaration of easements or similar instrument.

     “ Indemnified Loss or Expense ” means Lenders’ loss or expense in employing deposits as a consequence of (a) the Borrowers’ failure to make any payment when due under the Revolving Loans, or (b) any prepayment of the Revolving Loans bearing interest at the LIBOR Rate on a date other than the last day of an Interest Period.

     “ Initial Additional Borrower ” means each Person defined as an “Initial Additional Borrower” in the preamble of this Agreement; “ Initial Additional Borrowers ” refers to all Persons defined as “Initial Additional Borrowers” in the preamble to this Agreement.

     “ Initial Borrower ” means each Person defined as an “Initial Borrower” in the preamble of this Agreement; “ Initial Borrowers ” refers to all Persons defined as “Initial Borrowers” in the preamble to this Agreement.

     “ Interest Period ” means the period beginning on the first London Business Day of each month and ending on the first London Business Day of the following month.

     “ Interest Rate Election Notice ” means a notice substantially in the form of Exhibit “L” attached to this Agreement and as more particularly described in Section 4.3(e) .

     “ Issuing Lender ” means Wachovia, in its capacity as issuer of any Letter of Credit, or any successor thereto.

     “ Land Cost ” means the Obligors’ actual cost incurred to purchase the Raw Land.

     “ Land Under Development ” means land acquired by an Obligor which is zoned for its intended use, has a preliminary plan approved by the appropriate Governmental Authorities in the jurisdiction in which the land is located, and is intended to be under development within nine (9) months of inclusion in the Borrowing Base, as determined by the Agent.

     “ Land Under Development Approval Submissions ” has the meaning given to it in Section 2.3(b) .

     “ L/C Commitment ” means Thirty-Five Million and No/100 Dollars ($35,000,000).

     “ L/C Facility ” means the letter of credit facility established pursuant to ARTICLE III hereof.

     “ L/C Fee ” and “ L/C Fees ” shall have the meanings assigned thereto in Section 3.3(a) .

     “ L/C Maximum Availability ” means, for any given Letter of Credit, the lowest of:

          (a) the L/C Commitment minus the L/C Obligations; or

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          (b) the then applicable Revolving Credit Commitment minus the sum of ((i) all outstanding Revolving Loans and (ii) the L/C Obligations).

     “ L/C Obligations ” means at any time, an amount equal to the sum of (a) the aggregate undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit that have not then been reimbursed pursuant to Section 3.5 or converted to Revolving Loans.

     “ L/C Participants ” means the collective reference to all the Lenders other than the Issuing Lender.

     “ L/C Participation ” means, as to any Lender at any time, with respect to all Letters of Credit, the product of the L/C Obligations and such Lender’s Commitment Percentage and, with respect to any particular Letter of Credit, the product of the L/C Obligations applicable solely to that particular Letter of Credit and such Lender’s Commitment Percentage.

     “ Lender ” means each Person executing this Agreement as a Lender set forth on the signature pages hereto and each Person that hereafter becomes a party to this Agreement as a Lender pursuant to Section 11.10(b) .

     “ Lending Office ” means, with respect to any Lender, the office of such Lender administering such Lender’s Commitment.

     “ Letter of Credit Agreement ” means the Letter of Credit Agreement in the Issuing Lender’s standard form, as such form may be revised from time to time, entered into by and between a Borrower and the Issuing Lender in connection with the issuance of each Letter of Credit; provided, however , each Letter of Credit Agreement shall be modified to include a provision that in the event of any inconsistency between the terms of the Issuing Lender’s standard form Letter of Credit Agreement and the terms of this Agreement, this Agreement shall control. The Issuing Lender’s current standard form of Letter of Credit Agreement is attached to this Agreement as Exhibit “F” .

     “ Letters of Credit ” shall have the meaning assigned thereto in Section 3.1(a) .

     “ LIBOR Base Rate ” means, with respect to each Interest Period, the rate for U.S. dollar deposits with a maturity equal to one (1) month, as reported on Telerate page 3750 as of 11:00 a.m., London time, on the second London business day before such Interest Period begins (or if not so reported, then as determined by the Agent from another recognized source or interbank quotation).

     “ LIBOR Market Index Rate ” for any day, is the rate for 1-month U.S. dollar deposits as reported on Telerate page 3750 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).

     “ LIBOR Rate ” means the sum of (a) the Applicable Margin plus (b) the LIBOR Base Rate.

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     “ Lien ” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and the filing of or agreement to give any financing statement or other similar form of public notice regarding encumbrances under the laws of any jurisdiction).

     “ Loan Documents ” means this Agreement and each other document executed and delivered by the Obligors to the Lenders and/or the Agent to evidence and/or secure the Revolving Loans, the obligation of the Obligors with respect to each Letter of Credit and the obligation of the Obligors under each Hedge Agreement entered into with a Lender in connection with the Obligations, all as amended, modified, substituted, extended, and renewed from time to time.

     “ Loan Fees ” means the fees provided for in Section 4.4 .

     “ London Business Day ” means any Business Day on which dealings in United States Dollar deposits are carried out on the London interbank market and on which commercial banks are open for domestic and international business (including dealings in Dollar deposits) in London, England.

     “ Lot ” means any lot (i) created pursuant to a duly recorded record plat in the jurisdiction in which such lot is located or (ii) within an Approved Subdivision.

     “ Mandate Letter ” means the letter agreement dated of even date herewith between Capital and the Agent concerning, among other things, the payment of certain expenses in connection with the Credit Facility, as the Mandate Letter may be amended from time to time.

     “ Material Adverse Change ” means any change in the properties, business, operation or condition (financial or otherwise) of the Obligors or any of their Subsidiaries that results in a material adverse change in the properties, business, operation or condition (financial or otherwise) of the Obligors and their Subsidiaries on a consolidated basis or a material adverse change in the ability of the Obligors to perform their obligations under the Loan Documents. For the purpose of determining whether a Material Adverse Change has occurred that will permit the Agent to require new Appraisals of all or any portion of the Borrowing Base Assets of a particular Approved Subdivision, Material Adverse Change shall mean the decline in the sales prices for any Units in such Approved Subdivision by an amount equal to fifteen percent (15%) or more or the reduction in pace of sales for such Approved Subdivision by twenty five percent (25%) or more below the Obligors’ pro-forma projections, determined on a calendar quarter basis.

     “ Maximum Time ” means, with respect to each Borrowing Base Asset other than Model Units, the period of time which commences on the applicable Time Period Commencement Date and continues through and including the date which is as follows:

     (a) for Raw Land, the date which is 24 months after the applicable Time Period Commencement Date;

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     (b) for Land Under Development, (i) the date which is thirty-six (36) months after the applicable Time Period Commencement Date for Land Under Development to be developed into or comprising all or a portion of a single-family residential development containing less than fifty (50) Lots and/or Units, (ii) the date which is forty-eight (48) months after the applicable Time Period Commencement Date for Land Under Development to be developed into or existing in a single-family residential development containing at least fifty (50) but less than one hundred (100) Lots and/or Units, and (iii) the date which is forty-eight (48) months after the applicable Time Period Commencement Date for Land Under Development to be developed into or existing in a single-family residential development containing greater than one hundred (100) Lots and/or Units;

     (c) for Finished Lots, (i) the date which is eighteen (18) months after the applicable Time Period Commencement Date for Finished Lots in Approved Subdivisions containing less than fifty (50) Lots and/or Units, (ii) the date which is thirty-six (36) months after the applicable Time Period Commencement Date for Finished Lots in Approved Subdivisions containing at least fifty (50) but less than one hundred (100) Lots and/or Units, and (iii) the date which is forty-eight (48) months after the applicable Time Period Commencement Date for Finished Lots in Approved Subdivisions containing greater than one hundred (100) Lots and/or Units. Notwithstanding the foregoing, Borrowing Base Assets that are converted from Land Under Development to Finished Lots shall not be included in the Borrowing Base for greater than seventy-two (72) months in the aggregate in those categories;

     (d) for Spec Units, the date which is 15 months after the applicable Time Period Commencement Date; and

     (e) for Sold Units, the date which is 15 months after the Applicable Time Period Commencement Date.

     “ Model Unit ” means any Unit which is not a Sold Unit and which is intended to be used as a model or sales office to conduct the business of marketing and selling homes.

     “ Mortgage ” means collectively (a) each mortgage, deed of trust, trust deed, or deed to secure debt, supplemental mortgage or deed of trust, as the same may be modified or amended from time to time (by spreader agreement or otherwise), granted and delivered to the Agent by the Borrowers for the benefit of the Lenders to secure the indebtedness under the Credit Facility and may include Mortgages that secure the Bridge Loan provided the same are modified and amended to secure the Obligations to the Agent’s satisfaction and (b) each indemnity deed of trust or supplemental indemnity deed of trust, as the same may be modified or amended from time to time (by spreader agreement or otherwise), granted and delivered to the Agent by the Guarantors for the benefit of the Lenders to secure the Guaranty.

     “ New Lenders ” means, separately and collectively, the Lenders added as such in this Agreement.

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     “ Note ” shall mean a Revolving Credit Note; “ Notes ” shall mean all Revolving Credit Notes.

     “ Notice of Account Designation ” means a notice, substantially in the form of Exhibit “G” attached to this Agreement, which identifies the deposit account of the Borrowers to which the Agent is authorized to disburse the proceeds of each borrowing under this Agreement.

     “ Notice of Borrowing ” means a notice, substantially in the form of Exhibit “H” attached to this Agreement, which must be submitted to the Agent in connection with a borrowing pursuant to ARTICLE II with respect to Revolving Loans specifying the information required by Section 2.2(a) .

     “ Notice of Prepayment ” means a notice, substantially in the form of Exhibit “I” attached to this Agreement, which shall be submitted to the Agent in connection with a prepayment pursuant to ARTICLE II with respect to Revolving Loans.

     “ Obligations ” means any and all obligations (now existing or hereafter arising) of the Obligors under the Loan Documents.

     “ Obligor ” means each Person defined as a “Obligor” in the preamble to this Modification, including, without limitation, each Borrower, each Guarantor and each Additional Borrower and Additional Guarantor; “ Obligors ” means the collective reference to all Persons defined as “Obligors” in the preamble to this Modification, including, without limitation, all Borrowers, all Guarantors and all Additional Borrowers and Additional Guarantors.

     “ Operational Area ” means the District of Columbia and those portions of the Commonwealth of Virginia and the State of Maryland within 100 miles of the Obligors’ offices located at 11111 Sunset Hills Road, Suite 200, Reston, Virginia 20190.

     “ Options ” means shall mean options and upgrades to Units which (a) are not included in the standard Plans and Specifications for the Unit and (c) are paid for by the purchaser through an addition to the purchase price for the Unit.

     “ Other Taxes ” has the meaning given to it in Section 4.12(b) .

     “ Permitted Liabilities ” means (a) the Obligations, (b) Subordinated Debt, (c) liabilities arising in the ordinary course of business, such as trade accounts payable, taxes payable, operating lease obligations and customer deposits, (d) reimbursement obligations under surety bonds, (e) monies owed pursuant to the terms of any Hedge Agreements that are contracted by the Borrowers with respect to the Obligations, and (f) Permitted Other Liabilities not exceeding the sum of (i) $25,000,000 and (ii) the potential liability for “breakage” under the terms of any Hedge Agreement entered into with respect to Permitted Other Liabilities; provided, however , the foregoing limit on Permitted Other Liabilities shall not apply from and after any date that the Lenders elect not to extend the Maturity Date.

     “ Permitted Liens ” means (i) Liens imposed by law, such as mechanics’ liens that (a) arise in the ordinary course of business and that secure amounts not yet due and payable, (b) secure amounts due and payable that are in good faith disputed by the Obligors, or (c) arise out of

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judgments or awards against the Obligors with respect to which the Obligors at the time shall currently be prosecuting an appeal or proceedings for review; provided, however in the case of (b) and (c) above involving amounts in excess of $250,000 individually or in the aggregate, the Obligors shall have obtained a bond or stay of execution satisfactory to the Agent, within ten (10) days after item (b) or (c) becomes a Lien on all or any portion of the Borrowing Base Assets, for the full amount of the Lien; (ii) Liens for taxes or assessments or other governmental charges not yet due and payable; (iii) the UCC-1 financing statements contemplated by each Mortgage; (iv) each Mortgage; (v) any Spreader Agreement; (vi) Liens or other encumbrances set forth on the relevant schedules of the title insurance policies provided to the Agent pursuant to Section 2.8 hereof and approved by the Agent in its sole discretion, and (vii) Liens to secure Permitted Other Liabilities.

     “ Permitted Other Liabilities ” means liabilities incurred for the acquisition, development, improvement and construction of for-sale residential housing developments not financed by the Credit Facility and not included in the Borrowing Base Assets or liabilities necessary to the operation of the Obligors’ home building business.

     “ Person ” means an individual, corporation, partnership, association, trust, business trust, joint venture, joint stock company, pool, syndicate, sole proprietorship, unincorporated organization, Governmental Authority or any other form of entity or group thereof.

     “ Plans and Specifications ” means the plans and specifications (including the engineer’s and/or architect’s final drawings) describing any Project or other improvements to be constructed within the Borrowing Base Assets.

     “ Post-Default Rate ” means, in respect of any principal of the Revolving Loans or any other amount payable by the Obligors under this Agreement, the Notes or any other Loan Document, if an Event of Default has occurred and is continuing, or if the Note is not paid in full when due (whether on demand or at stated maturity, by acceleration or otherwise), a rate per annum during the period commencing on the date of the Event of Default or due date, as applicable, until such amount is paid in full, equal to four percent (4%) above any interest rate or rates then in effect in respect of the principal of the Revolving Loan or any portion thereof.

     “ Prior Agreement ” means that certain First Modified and Restated Loan Agreement dated as of November 15, 2004, by and among Capital and certain affiliated limited liability companies, as Obligors, certain Lenders named therein, Wachovia Capital Markets, LLC, as Arranger, and Wachovia, as a Lender, as Agent for the Lenders and as Issuing Lender, as previously amended, modified, substituted, extended and/or renewed from time to time.

     “ Prior Lender ” means Wachovia in its capacity as lender under the Bridge Loan.

     “ Project ” means, as of the applicable time of determination, separately and collectively, each of the following categories of Borrowing Base Assets, and each Borrowing Base Asset within each such category: Raw Land; Land Under Development, Finished Lots, Model Units, Spec Units and Sold Units, which are included in the Borrowing Base.

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     “ Raw Land ” means Land acquired for future development that does not meet the definitions of Land Under Development or Finished Lots.

     “ Raw Land Approval Submissions ” has the meaning given to it in Section 2.3(a) .

     “ Register ” has the meaning given to it in Section 11.10(d) .

     “ Reimbursement Obligation ” means the obligation of the Borrowers to reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit.

     “ Required Lenders ” means any combination of Lenders holding not less than sixty-six and two-thirds percent (66 2/3%) of the Extensions of Credit or, if there are no outstanding Revolving Loans and Letters of Credit, any combination of Lenders whose aggregate Commitments are not less than sixty-six and two-thirds percent (66 2/3%) of the Aggregate Commitment; provided, however, so long as there are only three (3) Lenders, “Required Lenders” shall mean any two (2) Lenders.

     “ Responsible Officer ” means any of the following: the chief executive officer, chief accounting officer, treasurer, or chief financial officer of the Obligors or any other officer of the Obligors reasonably acceptable to the Agent.

     “ Revolving Credit Commitment ” means (a) as to any Lender, the obligation of such Lender to make Revolving Loans to and to issue or participate in Letters of Credit issued for the account of the Borrowers hereunder in an aggregate principal amount or face amount at any time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule I hereto as such amount may be reduced, increased or modified at any time and from time to time pursuant to the terms hereof and (b) as to all Lenders, the Aggregate Commitment.

     “ Revolving Credit Commitment Percentage ” means, as to the respective Revolving Credit Commitment of any Lender at any time, the ratio of (a) the amount of the Revolving Credit Commitment of such Lender to (b) the Revolving Credit Commitments of all Lenders.

     “ Revolving Credit Facility ” means the revolving credit facility established pursuant to ARTICLE II , including the L/C Facility established pursuant to ARTICLE III .

     “ Revolving Credit Maturity Date ” means December 1, 2010 or such later date to which the Revolving Credit Maturity Date may be extended under Section 2.7 hereof (but, if any such date shall not be a Business Day, the next Business Day thereafter), which date shall constitute the last day of the Revolving Credit Term.

     “ Revolving Credit Notes ” means the collective reference to the Revolving Credit Notes made by the Borrowers payable to the order of each Lender, substantially in the form of Exhibit “J” hereto, evidencing the Revolving Credit Facility, and any amendments and modifications thereto, any substitutes therefor, and any replacements, restatements, renewals or extensions thereof, in whole or in part; “ Revolving Credit Note ” means any of such Revolving Credit Notes.

     “ Revolving Credit Term ” means the period ending on the Revolving Credit Maturity Date, unless such term is extended from time to time by the Lenders, pursuant to the terms

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hereof, in which case the “Revolving Credit Term” for the Revolving Credit Facility shall be the period ending on the date to which such Revolving Credit Maturity Date was extended.

     “ Revolving Loan ” means any advance of the Revolving Credit Facility made by the Lenders on or after the Closing Date pursuant to ARTICLE II hereof.

     “ Revolving Loan Borrowing Limit ” means the lesser of (a) the Revolving Credit Commitment (including the L/C Commitment, if any) or (b) the Borrowing Base.

     “ Revolving Loan Fee ” and “ Revolving Loan Fees ” have the meanings given to them in Section 4.4(a) .

     “ Revolving Loan Maximum Availability” means the maximum aggregate amount that is available to be advanced for any given Revolving Loan. The Revolving Loan Maximum Availability for any given Revolving Loan is the Revolving Loan Borrowing Limit minus the sum of all outstanding Revolving Loans and all L/C Obligations which have not been converted to Revolving Loans.

     “ Senior Leverage Ratio ” means the ratio of (a) notes and loans payable to financial institutions to (b) Tangible Net Worth, determined in each case for the Obligors and their Subsidiaries on a consolidated basis.

     “ S-M Communities ” means Stanley-Martin Communities, LLC, a Delaware limited liability company.

     “ S-M Financing ” means Stanley-Martin Financing Corp., a Delaware corporation.

     “ Spec Unit ” means any Unit on which vertical construction has commenced that is not a Sold Unit or a Model Unit.

     “ Sold Unit ” means a Unit that is subject to an Approved Contract.

     “ Spreader Agreement ” means a spreader agreement or supplemental Mortgage, duly executed by the Obligors, in substantially the form attached as Exhibit “K” and in content acceptable to the Agent in its sole discretion, which spreads the lien of the applicable Mortgage to additional property to be included as Borrowing Base Assets.

     “ Subdivision Approval Submissions ” has the meaning given to it in Section 2.3(c) .

     “ Subordinated Debt ” means any indebtedness for borrowed money issued by S-M Communities and S-M Financing which is not secured directly or indirectly by a lien on any assets of any Obligor and contains the terms attached hereto as Exhibit O or other terms that are acceptable to the Agent; provided that any other Person who or which is directly or indirectly obligated on the Subordinated Debt is also an Obligor.

     “ Subsidiary ” means as to any Person, any corporation, partnership, limited liability company or other entity of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of

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directors or other managers of such corporation, partnership, limited liability company or other entity is at the time, directly or indirectly, owned by or the management is otherwise controlled by such Person (irrespective of whether, at the time, capital stock or other ownership interests of any other class or classes of such corporation, partnership, limited liability company or other entity shall have or might have voting power by reason of the happening of any contingency).

     “ Survey ” means a plat which clearly designates at least (i) the location of the perimeter of the land by courses and distances; (ii) the location of all easements, rights-of-way, alleys, streams, waters, paths and encroachments; (iii) the location of all building restriction lines and set-backs, however established; (iv) the location of any streets or roadways abutting the land; and (v) the then “as-built” location of any improvements and the relation of the improvements by courses and distances to the perimeter of the land, building restriction lines and set-backs, all in conformity with the Minimum Standard Detail Requirements for Land Title Surveys adopted by the American Congress on Surveying and Mapping (1999 Edition).

     “ Tangible Net Worth ” means the amount by which (a) the Total Tangible Assets exceed (b) total consolidated liabilities, determined in each case for Capital and its Subsidiaries on a consolidated basis.

     “ Taxes ” has the meaning given to it in Section 4.12(a) .

     “ Time Period Commencement Date ” means the following for each Project:

          (a) for Raw Land, the date as of which the Raw Land is first included in the Borrowing Base;

          (b) for Land Under Development that is acquired from third parties, the date included in the calculation of the Borrowing Base and for Land Under Development that is developed from Raw Land, the date as of which the Land Under Development is reclassified from Raw Land in calculation of the Borrowing Base;

          (c) for Finished Lots that are acquired from third parties, the date included in the calculation of the Borrowing Base; and for Finished Lots that are developed from Land Under Development, the date as of which Finished Lots are reclassified from Land Under Development in calculation of the Borrowing Base; and

          (d) for Spec Units, the date upon which each of the following have occurred: (i) the issuance by the Governmental Authority of a building permit for such Spec Unit (ii) the applicable Obligor has completed the foundation of such Spec Unit, and (iii) the applicable Obligor has commenced vertical construction of such Spec Unit.

          (e) for Sold Units, the date upon which each of the following have occurred: (i) the applicable Obligor has obtained an Approved Contract for such Sold Unit and (ii) either (A) 15 days after the issuance by the Governmental Authority of a building permit for such Sold Unit or (B) the date upon which the applicable Obligor has commenced construction of such Sold Unit.

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     “ Title Confirmation Letter ” means a letter from a Title Insurance Company or attorney handling title matters for the Obligors which confirms (a) the ownership of the Borrowing Base Asset or Assets that are the subject of the letter, (b) the recordation of the Mortgage or Spreader Agreement that encumbers the applicable Borrowing Base Asset or Assets, and (c) the first priority of such Mortgage or Spreader Agreement. Such letter shall include or have as attachments the information listed in Exhibit “K .”

     “ Title Insurance Company ” means the title insurance company or companies selected by the Obligors and approved by the Agent, which approval shall not be unreasonably withheld, to provide title services and insurance, when required, in connection with the Credit Facility.

     “ Total Liabilities ” means (a) all liabilities as shown on the consolidated balance sheet of Capital and its Subsidiaries in accordance with GAAP and Fin 46, (b) all outstanding loan balances associated with recourse obligations of Capital and its Subsidiaries not shown on the consolidated balance sheet of Capital and its Subsidiaries, (c) the principal amount of all surety bonds, letters of credit and/or tri-party agreements whether presented for payment or not but excluding municipal performance bonds, letters of credit and other performance related liabilities for which payment has not been demanded by the beneficiary and for which reimbursement by Capital or the applicable Subsidiary has not been made, (d) net liabilities of Capital and its Subsidiaries under Hedge Agreements, (e) any liabilities of partnerships or joint ventures that should be included in the consolidated financial statements of Capital and its Subsidiaries in accordance with Fin 46, and (f) any non-option related purchase agreements for which Capital or any of its Subsidiaries is obligated to pay at a future date.

     “ Total Liabilities to Adjusted Tangible Net Worth Ratio ” has the meaning given to it in Section 8.4 .

     “ Total Tangible Assets ” means the amount by which total consolidated assets of Capital and its Subsidiaries exceed the value of any non-compete agreement, software rights, acquired customer relationships, order backlog, goodwill, the amount by which the cost of any acquisition exceeds the book value thereof and other items customarily treated as intangibles under GAAP.

     “ UCC ” means the Uniform Commercial Code as adopted by and in effect from time to time in the Commonwealth of Virginia,

     “ Unencumbered and Unrestricted Liquid Assets ” means (a) unrestricted cash plus (b) Revolving Loan Maximum Availability nearest to, but not later than, the test date minus (c) trade payables.

     “ Uniform Customs ” means the Uniform Customs and Practice for Documentary Credits (1994 Revision), International Chamber of Commerce Publication No. 500.

     “ Unit ” means any single-family residential unit including all appurtenances and other structures constructed therewith, constructed or to be constructed on a Lot in an Approved Subdivision in accordance with the Plans and Specifications.

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     “ Wachovia ” means Wachovia Bank, National Association, a national banking association, and its successors.

     Section 1.2 General.

     Unless otherwise specified, a reference in this Agreement to a particular section, subsection, Schedule or Exhibit is a reference to that section, subsection, Schedule or Exhibit of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter.

     Section 1.3 Other Definitions and Provisions.

          (a) Use of Capitalized Terms. Unless otherwise defined therein, all capitalized terms defined in this Agreement shall have the defined meanings when used in this Agreement, the Revolving Credit Notes and the other Loan Documents or any certificate, report or other document made or delivered pursuant to this Agreement.

          (b) Miscellaneous. The word “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

ARTICLE II
REVOLVING CREDIT FACILITY

     Section 2.1 Revolving Loans.

          (a) Advances. Subject to the terms and conditions hereof, each Lender severally agrees to make Revolving Loans to the Borrowers from time to time from the Closing Date until the Revolving Credit Maturity Date as requested by Borrowers in accordance with the terms of Section 2.2 ; provided, however , (i) no Lender’s Revolving Credit Commitment Percentage of the sum of the aggregate amount of all outstanding Revolving Loans and L/C Obligations shall at any time exceed such Lender’s Revolving Credit Commitment and (ii) no borrowing of Revolving Loans shall be made if the requested Revolving Loan would exceed the Revolving Loan Maximum Availability.

          (b) Use of Proceeds. Each Revolving Loan made by a Lender shall be in a principal amount equal to such Lender’s Revolving Credit Commitment Percentage of the aggregate principal amount of Revolving Loans requested on such occasion. Within such limit and the other limits set forth herein, the Borrowers may borrow, repay and reborrow Revolving Loans pursuant to this Agreement until the Revolving Credit Maturity Date. Revolving Loans shall be made only for the purposes of (i) repaying the outstanding balance of the Existing Loans and the Bridge Loan; (ii) if approved by the Agent in accordance with this Agreement, funding the acquisition of Raw Land and Land Under Development to be simultaneously added to the Borrowing Base Assets; (iii) funding other Actual Costs Incurred with respect to the Borrowing Base Assets; (iv) making advances to reimburse the Issuing

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Lender for L/C Obligations that have been drawn upon; and (v) general working capital and other home building activities.

     Section 2.2 Procedures for Advances of Revolving Credit.

          (a) Borrowing Base Report and Notice of Borrowing.

               (1) The Lenders shall not be required to fund any Revolving Loan to the Borrowers during any calendar month until five (5) Business Days after the Agent’s receipt of the Borrowing Base Report for the prior month. Any Borrowing Base Report delivered after 11:00 a.m. (Virginia time) shall be deemed to have been delivered on the next Business Day. The Lenders shall not be required to fund Revolving Loans more than once during any calendar week.

               (2) Each Notice of Borrowing shall (i) be delivered to Agent with a sufficient number of copies for Agent to deliver a copy to each Lender, which Agent hereby undertakes to do, not later than 11:00 a.m. (Virginia time), at least five (5) Business Days before the date upon which a Revolving Loan is desired; (ii) be irrevocable and constitute a representation by the Borrowers, to the best of their knowledge, that the conditions applicable to the extension of credit requested as set forth in ARTICLE V have been satisfied by the Borrowers in all material respects; and (iii) constitute the Borrowers’ certification that the representations and warranties set forth in ARTICLE VI are true and correct in all material respects except as may be otherwise disclosed to the Agent in writing (it being understood that such disclosure is not intended to constitute a waiver or approval by the Agent or Lenders of any matter so disclosed), that the Obligors are in compliance with all covenants contained in ARTICLE VII , and that no Event of Default has occurred and no Default has occurred and is continuing on the date of the Notice of Borrowing or will have occurred on the date any Revolving Loan is made pursuant to such Notice of Borrowing after giving effect thereto. Notices of Borrowing received after 11:00 a.m. (Virginia time) shall be deemed received on the next Business Day. The Agent shall deliver a copy to the Lenders of each Notice of Borrowing not later than 2:00 p.m. (Virginia time) on the day a Notice of Borrowing is received prior to 11:00 a.m. (Virginia time) and not later than 10:00 a.m. on the day following receipt of a Notice of Borrowing received after 11:00 a.m. (Virginia time).

               (3) Each Notice of Borrowing shall include the following information:

               (A) the amount of the Revolving Loan requested;

               (B) the date the requested borrowing is to be made, which shall be a Business Day;

               (C) the Borrowers’ certification that all representations contained in the Loan Documents, including the most recently submitted Borrowing Base Report and Covenant Compliance Certificate, (i) are true and correct in all material respects as of the date of the Notice of Borrowing except as may be otherwise disclosed to the Agent in writing (it being understood that such disclosure is not intended to constitute a waiver or approval by the Agent or

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Lenders of any matter so disclosed), and, (ii) unless the Borrowers notify the Agent to the contrary in writing before a Revolving Loan is made, will continue to be true and correct in all material respects from the date of the Notice of Borrowing to the date of the Revolving Loan requested in the Notice of Borrowing; and

               (D) The Borrowers’ certification that all applicable conditions to a Revolving Loan set forth in ARTICLE V have been satisfied, including a certification that the requested Revolving Loan does not exceed the then applicable Revolving Loan Maximum Availability.

               (4) If the Obligors fail to deliver a Borrowing Base Report as required by Section 7.1(a) , the Obligors shall have fifteen (15) days from the date the Borrowing Base Report was due to deliver a new Borrowing Base Report. This section shall not be subject to any provision of this Agreement which requires the Agent to provide the Obligors notice of non-compliance or additional time periods to perform. For so long as the Agent has not received a current Borrowing Base Report no advance of the Revolving Credit Facility shall be made, no Letter of Credit will be issued and no Collateral will be released from the lien of the Mortgage.

          (b) Adjustments in Borrowing Base. The Borrowing Base Report is subject to adjustment as follows, or as may be determined by the Required Lenders, in the exercise of their reasonable discretion:

               (1) If the Obligors fail to provide any information required in its Notice of Borrowing, or fails to provide the supporting documentation that the Obligors are required to provide in order to determine the collateral category and the amount to be included in the Borrowing Base with respect to each Project in the Borrowing Base Assets, the Agent shall advise the Obligors of the omission and exclude each such Lot or Unit from the calculation of the Borrowing Base unless and until the information or documentation, as applicable, is provided.

               (2) The Agent shall exclude from the calculation of the Borrowing Base any Project that has been a Borrowing Base Asset more than fifteen (15) months and for which the Agent does not have a policy of title insurance as required under Section 2.8 .

               (3) Borrowing Base Assets that exceed the Maximum Time in the Borrowing Base will not be included in the Borrowing Base. Upon the request of the Borrower, the Agent will release such Borrowing Base Assets from the lien of the Mortgage provided no Event of Default has occurred and no Default has occurred and is continuing and no Borrowing Base Deficiency will exist upon the release of such Borrowing Base Assets.

               (4) With respect to the aging of a completed Sold Unit that becomes a Spec Unit upon cancellation of an Approved Contract, such Spec Unit may be included as a Borrowing Base Asset for a period of fifteen (15) months from the date of cancellation of an Approved Contract, regardless of the number of days that such Unit was properly categorized as a Sold Unit. For the purposes of the preceding sentence, the date of contract cancellation shall

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be the date as of which the Borrowing Base Report first submitted after such contract cancellation was prepared.

               (5) If the then existing Revolving Credit Maturity Date is not extended, the Revolving Loan Maximum Availability will be limited as follows:

               (A) Approved Subdivisions may not be added to the Mortgage or as Borrowing Base Assets less than twelve (12) months prior to the Revolving Credit Maturity Date as it may be extended pursuant to Section 2.7 ;

               (B) Raw Land and Land Under Development may not be added to the Borrowing Base other than as Land and Land Under Development less than twelve (12) months prior to the Revolving Credit Maturity Date as it may be extended pursuant to Section 2.7 ;

               (C) Model Units and/or Spec Units may not be commenced within fifteen (15) months prior to the Revolving Credit Maturity Date; and

               (D) Finished Lots may not be changed to Sold Units if the anticipated delivery date of the applicable Approved Contract is beyond the Revolving Credit Maturity Date.

          (c) Funding Procedure. Not more frequently than once in any calendar week, upon receipt of a Notice of Borrowing, the Agent will verify and recompute, as necessary, the calculations in the Notice of Borrowing and the most recent Borrowing Base Report until the Agent is satisfied, in its sole discretion that the Notice of Borrowing and Borrowing Base Report comply with the terms of this Agreement. On the basis of the Notice of Borrowing and the most recent Borrowing Base Report, as so modified if necessary, the Agent will determine the Revolving Loan amount to be advanced. Not later than 2:00 p.m. (Virginia time) on the proposed borrowing date, each Lender will make available to the Agent, for the account of the Borrowers, at the Agent’s Office in funds immediately available to the Agent, such Lender’s Revolving Credit Commitment Percentage of the Revolving Loans to be made on such borrowing date. The failure or refusal of any Lender to make available to the Agent at the aforesaid time and place on any borrowing date the amount of its Revolving Credit Commitment Percentage of the requested Revolving Loan shall not relieve any other Lender from its several obligation hereunder to make available to the Agent the amount of such other Lender’s Revolving Credit Commitment Percentage of the requested Revolving Loan. Upon receipt from the Lenders of such amount, and upon the Borrowers’ satisfaction of the conditions to funding set forth in this Agreement, the Agent will make available to the Borrowers the aggregate amount of such Revolving Loan made available to the Agent by the Lenders. The Borrowers hereby irrevocably authorize the Agent to disburse the proceeds of each borrowing requested pursuant to this Section 2.2 in immediately available funds by crediting or wiring such proceeds to the deposit account of the Borrowers identified in the most recent Notice of Account Designation delivered by the Borrowers to the Agent or as may be otherwise agreed upon by the Borrowers and the Agent from time to time. Subject to Section 4.8 hereof, the Agent shall not be obligated to disburse the portion of the proceeds of

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any Revolving Loan requested pursuant to this Section 2.2 to the extent that any Lender has not made available to the Agent its Revolving Credit Commitment Percentage of such Revolving Loan.

     Section 2.3 Addition of Borrowing Base Assets.

               Any Obligor and/or its Subsidiaries may acquire additional property located in the Operational Area which shall be given as Collateral upon acquisition provided that (i) the Obligors shall execute and deliver to the Agent either (A) a Spreader Agreement, which shall be recorded among the land records in the jurisdiction in which the additional property is located, spreading the lien of the applicable Mortgage to such additional property or, (B) if the additional property is located in a jurisdiction where there are no existing Borrowing Base Assets and, therefore, no Mortgage already of record, the Obligors shall execute and record a complete Mortgage rather than a Spreader Agreement in the applicable jurisdiction; and (ii) the Obligors shall have complied with the applicable provisions of Section 2.8 regarding title matters; and provided further, that no property shall be acquired by the Obligors unless and until the following conditions precedent shall have been satisfied, each of which shall be satisfactory in form and substance to the Agent:

          (a) Approval of Additional Raw Land. Approval of the additional Raw Land shall be granted by Agent provided the following conditions are satisfied (the “ Raw Land Approval Submissions ”):

               (1) The Agent shall have commissioned, received, reviewed, and approved, at the Obligors’ expense, an Appraisal of the Raw Land intended to be included in the Borrowing Base Assets.

               (2) The Agent shall have received, reviewed, and approved a Phase I Environmental Site Assessment performed by a firm selected by Obligor and paid for by Obligors, addressed to the Agent or assigned to the Agent, in all respects acceptable to the Agent, which indicates that the Raw Land is either free from Hazardous Materials or affected only by such environmental matters as may be acceptable to the Agent in its sole discretion.

               (3) The Agent shall have received a copy of the title report received by the Obligors in connection with the acquisition of the Raw Land to be included in the Borrowing Base Assets, which must be in form and substance acceptable to the Agent, indicating that the Raw Land is not subject to any Liens that, in the Agent’s judgment, would adversely affect the applicable Obligor’s ability to develop and sell the improvements to be constructed on the Raw Land.

               (4) The Agent shall have obtained evidence that the Raw Land intended to be added to the Borrowing Base Assets (i) is not located in a flood hazard area requiring flood insurance or is insured by the necessary flood insurance coverage and (ii) is covered by all insurance described in Section 7.10 .

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               (5) The Agent shall have received, reviewed and approved the Raw Land Approval Submissions and such other documents in respect of the Raw Land as the Agent shall have reasonably requested.

               (6) The Agent shall have received a signed purchase agreement with a purchase price of less than $14,000,000.

               The Obligors shall submit all of the materials itemized above to the Agent at least thirty (30) days before the Obligors intend to submit a Notice of Borrowing with respect to the additional Raw Land. The Agent will provide written notice of approval or a statement identifying the inadequacies of Obligors’ submission not later than ten (10) Business Days after the Agent’s receipt of the information described above.

          (b) Approval of Additional Land Under Development. Approval of the additional Land Under Development shall be granted by the Agent provided the following conditions are satisfied (the “ Land Under Development Approval Submissions ”):

               (1) The Agent shall have commissioned, received, reviewed, and approved, at the Obligors’ expense, an Appraisal of the Land Under Development intended to be added to the Borrowing Base Assets, including the Appraised Value and the prospective future value to one buyer, or the market value discounted for time, in compliance with FIREA standards as applicable to any Lender.

               (2) The Agent shall have received, reviewed, and approved a Phase I Environmental Site Assessment performed by a firm selected by Obligor and paid for by Obligors, addressed to the Agent or assigned to the Agent, in all respects acceptable to the Agent, which indicates that the Raw Land is either free from Hazardous Materials or affected only by such environmental matters as may be acceptable to the Agent in its sole discretion.

               (3) The Obligors shall have delivered to the Agent a copy of the title report received by the applicable Obligor in connection with the acquisition of the Land Under Development to be added as Borrowing Base Assets, which must be in form and substance acceptable to the Agent, indicating that the Land Under Development is not subject to any Liens that, in the Agent’s judgment, would adversely affect the applicable Obligor’s ability to develop and sell the improvements to be constructed on the Land Under Development.

               (4) The Agent shall have obtained evidence that the Land Under Development intended to be added to the Borrowing Base Assets (i) is not located in a flood hazard area requiring flood insurance or is insured by the necessary flood insurance coverage and (ii) is covered by all insurance coverage required in Section 7.10 .

               (5) The Obligors shall have delivered to the Agent the approved preliminary plan or, if available, the approved final plan for development of the Land Under Development.

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               (6) The Agent shall have received, reviewed and approved the Land Under Development Approval Submissions and such other documents in respect of the Land Under Development as the Agent shall have reasonably requested.

               The Obligors shall submit all of the materials itemized above to the Agent at least thirty (30) days before the Obligors intend to submit a Notice of Borrowing with respect to the additional Land Under Development. The Agent will provide written notice of approval or a statement identifying the inadequacies of Obligor’s submissions, not later than ten (10) Business Days after the Agent’s receipt of the information described above.

          (c) Approval of Additional Lots and Subdivisions. Approval of additional Lots and Subdivisions shall be granted by Agent provided the following conditions are satisfied (the “Additional Lots Approval Submissions” ) at least thirty (30) days before the Obligors intend to submit a Notice of Borrowing with respect to the additional Lots or Units:

               (1) The proposed addition must consist of for-sale residential housing to be constructed on-site and shall not include any mobile homes or manufactured housing, and must provide for the maximum base sales price before options for the Units of less than $950,000.

               (2) The Agent shall have commissioned, received, reviewed, and approved, at the Obligors’ expense, an Appraisal of the Lots in the proposed subdivision intended to be included in the Borrowing Base Assets.

               (3) The Agent shall have received, reviewed, and approved a Phase I Environmental Site Assessment performed by a firm selected by Obligor and paid for by Obligors, addressed to the Agent or assigned to the Agent, in all respects acceptable to the Agent, which indicates that the Raw Land is either free from Hazardous Materials or affected only by such environmental matters as may be acceptable to the Agent in its sole discretion.

               (4) The Obligors shall have delivered to the Agent a copy of the title report received by the applicable Obligor in connection with the acquisition of the Lots to be added as Borrowing Base Assets, which must be in form and substance acceptable to the Agent, indicating that the land to be added to the Borrowing Base Assets within the proposed subdivision is not subject to any Liens that, in the Agent’s judgment, would adversely affect the applicable Obligor’s ability to develop and sell the improvements to be constructed on the affected property.

               (5) The Agent shall have received evidence that the Lots in the proposed subdivision intended to be included in the Borrowing Base Assets (i) are not located in a flood hazard area requiring flood insurance or are insured by the necessary flood insurance coverage and (ii) are covered by all insurance coverage described in Section 7.10 .

               (6) The Agent shall have received, reviewed and approved the Subdivision Approval Submissions and such other real estate documents in respect of the subdivision as the Agent shall have reasonably requested.

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     Section 2.4 Conditions to Revolving Loans for Land Under Development and Construction of Units.

               The obligation of the Lenders to make Revolving Loans for Land Under Development and the construction of Units is further subject to the receipt by the Agent of the following documents, each of which shall be satisfactory in form and substance to the Agent:

          (a) Certificate of Compliance Inspector. If required by the Agent, a certificate by the Compliance Inspector approving in all respects any Notice of Borrowing. The Agent will not require a certificate from the Compliance Inspector as a condition to funding unless the Compliance Inspector has identified discrepancies, unfavorable to the Lenders, between the percentage of completion represented by the Obligors and that found by the Compliance Inspector, in five percent (5%) or more of the inspected Lots or Units in two (2) consecutive quarters. Thereafter, the Agent may require in its sole discretion a certificate of Compliance Inspector as a condition to Revolving Loans.

          (b) Notice of Borrowing. A Notice of Borrowing for payment, which shall set forth each element of the Borrowing Base Report and the amount sought to be borrowed in respect of each such element. While any Default shall have occurred and be continuing, if the Agent reasonably deems the Lenders insecure that any design professional, contractor or subcontractor and other Persons who may be entitled to a Lien on any Borrowing Base Asset is not being paid when payments are due from the Obligors, the Agent may request that the Obligors provide releases and waivers for work performed and materials furnished through the date of the Notice of Borrowing simultaneously with the requested disbursement and, in such event, the Lenders shall not be required to make any advance hereunder prior to the Agent’s receipt of such releases and waivers.

          (c) Insurance. In the case of the first advance in respect of any new Borrowing Base Asset, evidence of title insurance that meets the requirements of Section 2.8 , in form and substance acceptable to the Agent and other insurance as required by Section 7.10 .

     Section 2.5 Repayment of Revolving Loans

          (a) Repayment on Revolving Credit Maturity Date. If not previously paid, the Borrowers shall repay the outstanding principal amount of all Revolving Loans in full on the Revolving Credit Maturity Date together with all accrued but unpaid interest thereon.

          (b) Certain Payments. The Borrowers shall have the obligation to prepay the Revolving Loans in accordance with Section 2.5(c) herein and shall have the right to prepay the Revolving Loans in whole or in part in accordance with Section 2.5(e) ; however, any prepayment, in whole or in part, shall not affect the Borrowers’ obligation to continue making payments in connection with any Hedge Agreement, which will remain in full force and effect in accordance with its terms notwithstanding such prepayment. Except with respect to Sold Units in connection with a settlement with a purchaser, the Obligors shall have no right to the release of any Borrowing Base Asset from the lien of the Mortgages at any time that an Event of Default has occurred or a Default has occurred and is continuing.

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          (c) Borrowing Base Deficiency. If the sum of (i) the aggregate unpaid principal amount of all Revolving Loans outstanding at any time plus (ii) the aggregate L/C Obligations outstanding at such time which have not been converted to Revolving Loans exceeds the Revolving Loan Borrowing Limit determined based on the most recent Borrowing Base Report that has been received by the Agent (a “ Borrowing Base Deficiency ”), the Obligors shall within fifteen (15) days from the date such Borrowing Base Report was delivered to the Agent, determined without regard to any provision of this Agreement which requires the Agent to provide the Obligors notice of non-compliance or additional time periods to perform any obligation, either (A) repay an amount equal to such excess by payment to the Agent for the account of the Lenders or (B) deliver a new Borrowing Base Report that demonstrates compliance with the current outstanding Obligations. Except as provided by Section 8.7 (Appraisals), so long as a Borrowing Base Deficiency exists no additional Revolving Loan shall be made, no Letter of Credit will be issued and no Collateral will be released from the lien of the Mortgage, except that liens with respect to Sold Units shall nevertheless, be released in connection with settlements with purchasers.

          (d) Releases of Units. Upon the Obligors’ request, the Agent shall release Collateral from the lien of the Mortgage without the payment of any additional consideration provided that (i) no Event of Default exists and is continuing; (ii) such release would not cause the outstanding unpaid principal balance of the Revolving Loans plus the aggregate L/C Obligations which have not been converted to Revolving Loans to exceed the Revolving Loan Borrowing Limit as determined upon delivery of the next Borrowing Base Report required pursuant to Section 7.1(a) ; and (iii) the release of assets does not exceed a value of $5,000,000. Upon the Obligors’ request, the Agent shall release Collateral from the lien of the Mortgage coincident with its receipt and approval of the Borrowing Base Report and, if such release would result in a Borrowing Base Deficiency, the payment an amount sufficient to cure the Borrowing Base Deficiency. Notwithstanding the foregoing conditions to the release of Collateral from the lien of the Mortgage, Agent shall release the lien on all Sold Units at the time of settlement with a purchaser.

          (e) Repayments. Subject to the provisions of Section 4.10 , the Borrowers shall have the right on any Business Day to repay the amount outstanding under the Revolving Loans in whole or in a minimum amount of $250,000, provided that repayments shall not be made more frequently than once during any calendar week.

          (f) Application of Payments. Payments received by the Agent pursuant to this Section 2.3 shall be applied first to the Revolving Loans and Reimbursement Obligations that accrue interest at the Base Rate until such Revolving Loans and Reimbursement Obligations are repaid in full and thereafter to the Revolving Loans and Reimbursement Obligations accruing interest at the LIBOR Rate; provided, however, the Borrowers may request that any repayment amount which exceeds the amount which is required to repay in full the Revolving Loans and Reimbursement Obligations accruing interest at the Base Rate be held by the Agent as cash collateral for the Revolving Loans and Reimbursement Obligations accruing interest at the LIBOR Rate until such time as such Revolving Loans and Reimbursement Obligations, or portion thereof, can be paid without incurring any breakage charges.

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          (g) Prepayment Procedures.

               (1) Each prepayment shall be made pursuant to a Notice of Prepayment from the Borrowers to the Agent, which notice shall specify the principal amount to be prepaid and the date of prepayment (which shall be a Business Day), be irrevocable, and be effective only if received by the Agent not later than 1:00 p.m. (Virginia time) on the prepayment date. Upon receipt of such notice the Agent shall promptly notify each Lender. If a Notice of Prepayment is given, the amount specified in such notice shall be due and payable on the date set forth in such Notice.

               (2) If no Event of Default has occurred and no Default has occurred and is continuing, any prepayment made pursuant to the provisions of Section 2.5(c) , Section 2.5(d) or Section 2.5(e) , as applicable, shall be applied in accordance with the provisions of Section 2.5(f) . Any prepayment made after an Event of Default has occurred or while a Default has occurred and is continuing shall be applied to accrued and unpaid fees, late charges, interest, and principal due under the Credit Facility, in any order and in any manner that the Agent deems desirable in its absolute discretion.

     Section 2.6 Revolving Credit Notes.

     Each Lender’s Revolving Loans and the obligation of the Borrowers to repay such Revolving Loans shall be evidenced by a separate Revolving Credit Note executed by the Borrowers payable to the order of such Lender at the Agent’s Office representing the obligation of the Borrowers to pay the amount of such Lender’s Revolving Credit Commitment or, if less, the aggregate unpaid principal amount outstanding from time to time of all Revolving Loans made by such Lender to the Borrowers hereunder, plus interest and all other fees, charges and other amounts due thereon. Each Revolving Credit Note shall bear interest on the unpaid principal amount thereof at the applicable interest rate per annum specified in Section 4.3 .

     Section 2.7 Revolving Credit Maturity Date Extension.

     Upon receipt by the Agent of an application from the Borrowers for an extension of the Revolving Credit Maturity Date, no earlier than one hundred twenty (120) days and no later than sixty (60) days prior to any anniversary of the Closing Date, and provided that no Event of Default has occurred and no Default has occurred and is continuing, the Lenders will consider a one-year extension of the Revolving Credit Maturity Date so as to effect a three-year rolling maturity for the Revolving Credit Facility. Each Lender may grant or withhold approval of such extension in its sole and unreviewable discretion. The Agent will advise the Borrowers of the Lenders’ decision with respect to renewal no later than forty five (45) days after the Borrowers have requested an extension of the then current Revolving Credit Maturity Date. No such extension shall be made without the prior consent of the Required Lenders. In the event that the Required Lenders provide consent to an extension but one or more Lenders do not consent to such extension, (a) the Revolving Credit Maturity Date shall be extended with respect to the consenting Lenders’ Commitments, (b) Obligors shall repay the Obligations owed to the non-consenting Lenders as of and on the then-existing Revolving Credit Maturity Date, and (c) Agent shall appropriately adjust the Aggregate Commitment and remaining Lenders’ respective Commitment Percentages.

WB/Neighborhoods
Second Modified and Restated Loan Agreement

     Section 2.8 Title Insurance.

               (a) Each title policy required under this Agreement shall be issued by the Title Insurance Company on the standard ALTA form (1992) in an amount equal to the amount of the Revolving Loans allocated to such Borrowing Base Asset, as determined by the Agent in its sole discretion, without exceptions as to mechanics’ liens, with no other exceptions objectionable to the Agent, and with a “last dollar” endorsement and other endorsements as the Agent shall reasonably request. If required by the Title Insurance Company in order to delete mechanics’ lien exceptions, the Obligors must agree to provide an indemnification agreement satisfactory to the Title Insurance Company. Upon the Agent’s request (if the insured amount exceeds the limits from time to time promulgated by the Agent for the title insurer or insurers providing the title insurance), the Lenders must receive reinsurance and direct access agreements in form and substance reasonably satisfactory to the Agent in form and amount and with companies acceptable to the Agent. The Agent and its counsel must each be provided with legible record copies of all documents listed as the source of title or as exceptions in the title binder. The title policy must assure the Lenders that the roads and ways, upon which the applicable Borrowing Base Asset bounds and has access, are duly dedicated open and maintained public ways or that other reasonable vehicular access is available. No subsequent title bring-to-date reports will be required so long as the Obligors pay all payables within forty five (45) days of the date rendered and, if required by the Required Lenders and material in amount, obtains lien waivers at the time of payment from those contractors who have the right to file mechanic’s liens.

               (b) Title insurance will not be required on any Borrowing Base Asset that is subject to a Mortgage granted by a Borrower and is reasonably expected to remain a Borrowing Base Asset for less than fifteen (15) months (i.e., Sold Units, Spec Units, or Model Units) or is not eligible for inclusion in the Borrowing Base after fifteen (15) months, so long as the Obligors pay all payables within forty five (45) days of the date rendered and obtain monthly lien waivers at the time of payment from their contractors who have the right to file mechanics’ liens. Notwithstanding the foregoing, whenever new Projects are added as Borrowing Base Assets, the applicable Borrower must submit to the Agent a Title Confirmation Letter for each such Project. In addition, at the Agent’s option, the Agent may from time to time obtain, at Lenders’ expense, separate title reports for such Projects. Such title reports must indicate that the Borrowers own each Project free and clear of all liens and other encumbrances reasonably objectionable to the Agent, and that such Project is subject to a first priority recorded Mortgage. The quarterly Covenant Compliance Certificate will include a certification by the Obligors that, to the Obligors’ knowledge, no Borrowing Base Asset for which the Lenders do not have title insurance and which is subject to a Mortgage from a Borrower has been a Borrowing Base Asset for more than fifteen (15) months. The Agent will reserve the right to inspect the Obligors’ books and records upon reasonable advance notice to the Obligors during normal business hours to further monitor compliance with this requirement.

               (c) Title insurance will be required on any Borrowing Base Asset that is subject to a Mortgage granted by a Guarantor and shall include, without limitation, a creditor’s rights deletion endorsement.

WB/Neighborhoods
Second Modified and Restated Loan Agreement

     Section 2.9 Increase in Commitments.

          (a) After the Closing Date, the Agent may, from time to time upon five (5) Business Days prior notice by Capital on behalf of the Obligors of a request to increase the Aggregate Commitment, increase the Aggregate Commitment by (x) admitting additional Lenders hereunder (each a “ Subsequent Lender ”), or (y) increasing the Commitment of any Lender (each an “ Increasing Lender ”), subject to the following conditions:

     (i) each Subsequent Lender is an Eligible Assignee;

     (ii) Borrowers execute (A) a new Note payable to the order of a Subsequent Lender, if requested by such Subsequent Lender, or (B) a replacement Note payable to the order of an Increasing Lender, if requested by such Increasing Lender;

     (iii) each Subsequent Lender executes a signature page to this Agreement;

     (iv) after giving effect to the admission of any Subsequent Lender or the increase in the Commitment of any Increasing Lender, the Aggregate Commitment does not exceed $150,000,000;

     (v) each increase in the Aggregate Commitment shall be in the minimum amount of $5,000,000 or a greater integral multiple of $1,000,000;

     (vi) no admission of any Subsequent Lender shall increase the Commitment of any existing Lender without the consent of such existing Lender;

     (vii) no Lender shall be an Increasing Lender without the consent of such Lender; and

     (viii) no Default or Event of Default exists nor would occur after giving effect to such increase.

          (b) After the admission of any Subsequent Lender or the increase in the Commitment of any Increasing Lender, the Agent shall promptly provide to each Lender a new Schedule I to this Agreement. In the event that there are any Revolving Loans and/or Letters of Credit outstanding after giving effect to an increase in the Aggregate Commitment pursuant to this Section 2.9 , upon notice from the Agent to each Lender, the amount of such Revolving Loans owing to each Lender and the amount of each Lender’s L/C Participation shall be appropriately adjusted to reflect the new Commitment Percentages of the Lenders (in which case Obligors shall pay any amounts required under Section 4.10 ).

          (c) Conflicting Provisions . This Section shall supersede any provisions in Sections 4.7 or 11.11 (other than Section 11.11(a)(i) ) to the contrary.

WB/Neighborhoods
Second Modified and Restated Loan Agreement

ARTICLE III
L/C FACILITY

     Section 3.1 L/C Commitment.

          (a) Issuance. Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Lenders set forth in Section 3.4 , agrees to issue one or more standby letters of credit (“ Letters of Credit ”) for the account of the Borrowers on any Business Day from the Closing Date through but not less than the date prior to the Revolving Credit Maturity Date (as the same may be extended pursuant to Section 2.7 ) in such form as may be approved from time to time by the Issuing Lender; provided, however, the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, the L/C Obligations would exceed the L/C Maximum Availability.

          (b) Terms. Each Letter of Credit shall (i) be denominated in U.S. Dollars, (ii) be a standby letter of credit issued to support obligations of the Borrowers or any of their Subsidiaries, contingent or otherwise, incurred in the ordinary course of business in connection with the purchase or development of real estate assets and such other purposes as may be approved by the Agent, (iii) expire on a date no later than the then applicable Revolving Credit Maturity Date, and (iv) be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the Commonwealth of Virginia. The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by any Applicable Law. References herein to “issue” and derivations thereof with respect to Letters of Credit shall also include extensions or modifications of any Existing Letters of Credit or any Letter of Credit previously issued under the provisions of this Agreement, unless the context otherwise requires.

     Section 3.2 Procedure for Issuance of Letters of Credit.

     The Borrowers may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at the Agent’s Office an Application therefore, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request. Upon receipt of any Application, the Issuing Lender shall process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall, subject to Section 3.1 and ARTICLE V and to closing hereof, and to the execution by the Borrowers of a Letter of Credit Agreement, promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three (3) Business Days after its receipt of the Application therefore and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and the Borrowers. The Issuing Lender shall furnish to the Borrowers a copy of such Letter of Credit and notify each Lender of the issuance of such Letter of Credit and the amount of each Lender’s L/C Participation therein, and upon request by any Lender furnish to such Lender a copy of such Letter of Credit, all promptly following the issuance of such Letter of Credit.

WB/Neighborhoods
Second Modified and Restated Loan Agreement

     Section 3.3 L/C Fees.

          (a) In connection with each standby Letter of Credit, the Borrowers shall pay to the Agent for the ratable benefit of the Lenders a letter of credit fee (each a “L/C Fee” and collectively the “L/C Fees” ) in an amount equal to the greater of (i) $400 or (ii)