Exhibit 10.5


 


KIMBALL HILL HOMES


FORM
OF STOCK OPTION AGREEMENT


 


This Kimball Hill Homes Stock Option Agreement (‘Agreement”) dated
effective as of December 31, 2001 by and between Kimball Hill, Inc., an
Illinois corporation (“Company”) and                                                             
(“Optionee”).


 


R E C I T A L S


 


A.            The Company originally adopted,
effective as of October 31, 1995, the Kimball Hill Homes Incentive Stock Option
Plan for the purpose of giving the Company the opportunity to designate certain
key employees of the Company or of any subsidiary of the Company to have the
opportunity to acquire common stock of the Company through incentive stock
options (“Options”) which are intended to qualify under Section 422 of the
Internal Revenue Code, as amended (“Code”).


 


B.            The Company modified the Kimball
Hill Homes Incentive Stock Option Plan by a First Amendment effective as of
October 31, 1996, a Second Amendment effective as of December 31, 1997, a Third
Amendment effective as of December 31, 1998, a Fourth Amendment effective as of
December 31, 1999, a Fifth Amendment effective as of December 31, 2000 and a
Sixth Amendment effective as of December 31, 2001 (the Kimball Hill Homes
Incentive Stock Option Plan and all such amendments collectively referred to as
the “Plan”), which among other things makes additional Options available to
certain key employees.


 


C.            The Company has pursuant to the
intent and provisions of the Plan designated the Optionee as such a key
employee to be eligible for such Option rights.


 


D.            The Company and the Optionee entered
into previous Kimball Hill Homes Stock Option Agreements under which Options
were granted to the Optionee.


 


E.             The Company desires to make
available to the Optionee additional Options for a specified number of shares
of stock of the Company in addition to those already offered to the Optionee in
previous Stock Option Agreements.


 


F.             Optionee does not own ten percent
(10%) or more of the voting stock of the Company at the effective date of this Agreement.


 


G.            The Company and the Optionee desire
to provide in this Agreement, which includes the Plan, for all of the terms and
conditions of the additional Options granted to the Optionee.


 

















 


NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement, the parties agree as follows:


 


1.                                      Grant
of Option.


 


(a)           The Optionee is granted by the
Company an Option to acquire stock of the Company, commencing as of the
effective date of this Agreement, as follows:


 


(i)                                     Number
of shares subject to Option:                     


 


(ii)                                  Option
exercise price per share: $17.00


 


(iii)                               Expiration
of Option: December 31, 2005


 


(b)           This Option is intended to be treated
as an incentive stock option under Section 422 of the Code.


 


2.                                      Date When
Option Is Exercisable.


 


This Option
may be exercised in the manner provided in this Agreement at any time from the
date of this Agreement but not after the expiration date indicated in paragraph
1 above.


 


3.                                      Exercise of
Option in Installments.


 


This Option
may be exercised in installments but in not less than 1,000 share increments.
Accordingly, the Optionee may at any time exercise the Option for less than all
of the Option shares as long as no single exercise is for less than 1,000
shares or for any amounts other than in 1,000 share increments. In any event
the total shares acquired by exercise of the Option cannot exceed the amount
indicated in paragraph 1 above.


 


4.                                      Termination of
Option Rights.


 


The right to
exercise this Option is subject to additional restrictions, limitations and
clarifications as follows:


 


(a)           If the Optionee’s employment by the
Company or any of its subsidiaries is terminated for cause or by reason of
Optionee’s resignation, then all Option rights granted under this Agreement
shall immediately terminate. Termination of employment for cause as used in
this Agreement shall be determined in the sole


 


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discretion of
the Company. Without limiting acts or omissions which can or may constitute cause,
termination for cause includes (i) the commission of a criminal or other act
that causes or probably will cause substantial economic damage to the Company
or a subsidiary or affiliated company or substantial injury to the business
reputation of the Company or a subsidiary or affiliated company; (ii) the
commission by the Optionee of an act of fraud in the performance of such
Optionee’s duties or a breach of any fiduciary duties of the Optionee to the
Company; (iii) the continuing failure of Optionee to perform the duties of the
Optionee that are assigned to him; (iv) a material violation of Company
personnel manuals or similar or other directives or a continuing pattern of
violations after warnings or requests to cease and desist from such violations;
(v) a material breach by Optionee of any obligation of him under any contract
with or other commitment to the Company or any of its subsidiaries or
affiliates; (vi) any act or failure to act of or by the Optionee which is or
could be materially injurious to or not in the best interests of the Company or
a subsidiary or affiliated company; or (vii) failure to meet goals and targets
established by the Company for the Optionee which causes material loss to the
Company or which otherwise materially and adversely affects the Company.


 


(b)           If the Optionee’s employment by the
Company or any of its subsidiaries terminates for any reason other than for
cause or by reason of Optionee’s resignation, then the Optionee’s Option rights
under this Agreement shall continue but shall terminate on the earlier of (i)
three (3) months after the Optionee’s termination of employment or (ii) the
expiration date indicated in paragraph 1 above.


 


(c)           All Option rights of the Optionee
under this Agreement shall immediately terminate if the Optionee attempts to or
does transfer any Option rights granted in violation of the Plan or if the
Optionee is otherwise in breach of any of the terms and conditions of the Plan
including this Agreement or if the Optionee has for any reason sold stock of
the Company previously acquired pursuant to the Plan in violation of applicable
securities laws or this Agreement.


 


(d)           Optionee’s right to exercise the
Option rights shall not be terminated solely because the Company has made a
public offering of any of its voting stock subject, however, in all cases to
all restrictions and limitations which may be applicable to the public offering
and to the Option rights granted under this Agreement by all applicable
securities laws.


 


5.             Exercise of Option.


 


This Option
shall be exercised by the Optionee by giving written notice of exercise to the
Company. Such notice shall be directed to the Chairman of the Company with a
copy to the Chief Financial Officer of the Company and shall specify the number
of shares to be purchased. Such notice shall either include Optionee’s check
payable to the Company representing payment in full for all of the shares being
acquired pursuant to the exercise of such Option or, if Optionee is still
employed by the Company, with a check payable to the Company for fifty percent
(50%) of the total cost


 


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of the number
of shares so being acquired by such exercise with an acknowledgment that
Optionee shall pay the balance pursuant to the terms of the following paragraph
6. All notices of exercise of Options must be given by the expiration date
provided for in paragraph 1 above.


 


6.             Installment Payments.


 


(a)           If in Optionee’s notice of exercise
of Optionee’s right to acquire stock of the Company the Optionee requests
installment payment privileges for such stock, and if Optionee is still
employed by the Company, then the Optionee shall pay for all such stock subject
to such exercise as follows:


 


(i)            50% of the total cost
of such stock to be paid by check of the Optionee payable to the Company and
which shall be sent with Optionee’s notice of exercise of such Option shares.


 


(ii)           25% of the total cost
of such shares shall be payable not later than six (6) months from the date of
exercise of such Option.


 


(iii)          The remaining balance of
25% shall be payable not later than twelve (12) months from such date of
exercise of such Option.


 


(b)           There shall be simple interest on the
unpaid balance of the cost of such stock payable by the Optionee for such
extended payment terms. Interest shall be at the prime rate from time-to-time
as published by The Wall Street Journal and shall be payable when
installments of the purchase price are payable as provided for in subparagraph
(a) above.


 


(c)           If the Optionee fails to timely pay
to the Company all of the installments, including interest, due under the
installment payment privileges outlined above, then upon written demand of the
Company the Optionee shall promptly retransfer all stock acquired as a result
of such Option exercise to the Company. Upon receipt of such stock, the Company
shall, to the extent Optionee has already paid for such stock, compensate the
Optionee for such stock at a price equal to the lesser of (i) the per share
price paid by the Optionee as provided for in paragraph 1 above or (ii) the
then Fair Market Value of the stock of the Company as determined and provided
for most recently in the Plan.


 


(d)           The Optionee may not sell or offer to
sell any stock of the Company while Optionee has any outstanding debt to the
Company for the purchase of stock as permitted under subparagraph (a) above.


 


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(e)           The Optionee may not request or pay
for any of such stock on the installment basis if Optionee is not still employed
by the Company. If the Optionee’s employment with the Company terminates after
Optionee has requested installment payment and while any such installment
payments are still due to the Company, all such installment obligations and
accrued and unpaid interest shall immediately upon written demand of the
Company be due and payable in full.


 


7.                                      Restrictions
and Other Provisions Regarding Transfer of Stock.


 


Upon receipt
of the stock from the Company after exercise by Optionee of the Option, such
stock shall be subject to limitations on transfer and related provisions as
follows:


 


(a)           Under no circumstances,
notwithstanding anything in this Agreement to the contrary, may an Optionee
transfer any stock, even if such transfer is otherwise permitted under this
Agreement, if in the opinion of the Company such transfer would be in violation
of or cause the Company to incur any liability under any federal, state or
other securities law, or any other requirement of law or of any regulatory body
within jurisdiction over the Company, or if doing same would constitute a
breach by the Company of any loan agreement or similar contract or commitment
of the Company.


 


(b)           No sale, transfer, pledge, gift,
assignment, encumbrance, disposition or other such acts, either voluntary or
involuntary, by express action or operation of law or otherwise, of any stock
may be made by any Optionee at any time unless expressly permitted under the
terms of this Agreement or consented to in writing by the Company.


 


(c)           No transfer which is otherwise
expressly permitted under the terms of this Agreement may nevertheless be made
if (i) such transfer is a sham or device to evade the provisions and intent of
this Agreement or if (ii) the Company reasonably determines that such transfer
is to a transferee who is a convicted felon or of poor financial or moral
character or reputation or is a competitor, directly or indirectly, of the
Company or any of its subsidiaries, or if such transfer or transferee
reasonably could otherwise materially jeopardize the business or operations of
the Company or if (iii) Optionee’s employment with the Company has terminated
and the Company is required to or has the right to purchase the Optionee’s
stock under any of the circumstances required or permitted in any of the
following provisions of this paragraph 7.


 


(d)           Any stock otherwise transferable
pursuant to the express provisions of this Agreement shall, notwithstanding
anything in this Agreement to the contrary, nevertheless be subject to the
Company’s right of first refusal. If the Optionee has obtained an offer to
purchase his stock of the Company, the Optionee shall notify the Company of
such offer with a copy of such offer including the price, terms and


 


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conditions of
the offer. The Optionee shall also submit to the Company reasonable information
regarding the prospective purchaser. The Company may, but is not required to,
accept such offer of sale. The Company shall, within thirty (30) days after
receipt of such written offer and all other required information, notify the
Optionee as to whether or not it shall exercise its right of first refusal by
accepting such offer. If the offer is accepted by the Company, then the Company
and the Optionee shall close the sale of such stock in accordance with the
terms and conditions of such offer from such third party. If such offer is not
accepted by the Company, then the Optionee may sell such stock to the bona fide
purchaser but strictly and only in accordance with the offer that was made to
the Company except that, notwithstanding anything in such offer to the
contrary, the closing of the transfer of title to the stock and payment in full
by such bona fide purchaser must be completed within 45 days of the original
receipt by the Company of such offer from the Optionee even if such offer
provides for a longer time for such closing and payment. No such transfer may
be made unless the Optionee has first paid all advances, debt and other
obligations to the Company whether due then or at a later date. In that event,
subject to the other terms of this Agreement, such purchaser shall be a
stockholder of the Company subject to all of the terms and conditions of this
Agreement. However, if the Optionee and such bona fide purchaser make any
material modification to the terms of that original offer, then the Optionee
must proceed again with offering the revised terms and conditions for the stock
to the Company in the same manner as provided above. The Optionee may only
offer to sell and so sell all of the Optionee’s stock of the Company; no sale
by the Optionee may be made at any time without the written consent of the
Company which constitutes a sale of less than all of the stock owned by the
Optionee. Upon such sale of stock, Optionee’s rights to acquire any additional
stock of the Company shall thereupon terminate without further action and
notwithstanding any other provision of this Agreement to the contrary. If the
Optionee has, pursuant to the foregoing provisions, sold his stock of the
Company, then any advances and other debts and obligations of the Optionee to
the Company shall immediately be due and payable by acceleration.


 


(e)           Upon termination of Optionee’s
employment with the Company or any subsidiary of the Company for any reason
other than as provided for in subparagraph (f) or (g) below, the Optionee shall
sell, and the Company shall purchase, all of the stock of the Company owned by
the Optionee. The purchase price shall be the Fair Market Value of the stock as
of the termination of employment and as determined under the Plan as then in
force and effect. The Company shall pay for all such stock within six (6)
months of such termination of employment.


 


(f)            Upon termination of Optionee’s
employment with the Company or any subsidiary of the Company by resignation of
the Optionee or by retirement from the Company prior to age 60 or before
completion of 20 years of service with the Company, the Company may, but shall
not be required to, purchase all of the stock of the Optionee at the Fair
Market Value of the stock as of the termination of employment and as determined
under the Plan as then in force and effect. Such option shall be exercised by
the Company within one (1) year of such termination of employment by the
Optionee, and payment by the Company for such stock shall occur within six (6)
months of such


 


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notice by the
Company of its exercise of its option to reacquire such stock. If the Company
does not exercise its right within such time to acquire all of the stock of the
Optionee, all of the provisions of this Agreement shall continue to bind such
Optionee including the Company’s right of first refusal to acquire the stock of
the Optionee as provided for in paragraph 7(d) above.


 


(g)           Upon
termination of Optionee’s employment with the Company by reason of the Optionee’s
death or permanent and total disability, then the Optionee shall sell to the
Company, and the Company shall purchase, all of the stock of the Optionee. Upon
termination of Optionee’s employment with the Company by reason of the Optionee’s
retirement from the Company at or after age 60 or after completion of 20 years
of service of the Company, then the Optionee may elect by notice to the Company
within six (6) months of such retirement to retain such Optionee’s stock, and
if such Optionee fails to give such notice within such six (6) months then the
Optionee shall sell to the Company, and the Company shall purchase, all of the
stock of such Optionee. The price of such stock under any of the foregoing
provisions shall be the higher of (i) the stock’s Fair Market Value as of the
termination of employment and as determined under the Plan as then in force and
effect or (ii) the stock’s prorata share of five times the Company’s average
annual net income before tax for the Company’s three fiscal years immediately
preceding termination of employment. The Company shall make payment in full for
such stock within nine (9) months of Optionee’s such termination of employment.


 


(h)           Within ten (10) days of any event
described in subparagraphs (e), (f) or (g) above which requires the sale of the
Optionee’s stock to the Company, all certificates representing such stock shall
be delivered by Optionee to the Company with appropriate executed stock
transfers conveying, representing and warranting good title to the Company for
all such stock in compliance with the terms of this Agreement and free and
clear of all liens, encumbrances or claims of any third party. No payments made
by the Company for Optionee’s stock as provided for in subparagraphs (e), (f)
and (g) above shall require payment by the Company of any interest on the
unpaid purchase price. Notwithstanding anything in this Agreement to the
contrary, all repurchases of stock by the Company from the Optionee shall be
subject to any applicable restrictions contained from time-to-time in the
Company’s debt and equity financing agreements. If any such restrictions
prohibit the repurchase of such stock which the Company is otherwise entitled
or required to make, then the time periods provided for in this Agreement for
such repurchase shall be suspended at the election of the Company, and the
Company may make such repurchases as soon as it is permitted to do so under
such restrictions.


 


(i)            Any
purchase price otherwise payable by the Company to the Optionee upon the
purchase of stock by the Company which is owned by the Optionee under any of
the circumstances provided for in this paragraph 7 shall be subject to set off
and deduction for any advances, debt or other obligations of the Optionee to
the Company by acceleration and notwithstanding any other arrangements which
Optionee


 


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may have made with the Company previously in connection with repayment
of any such obligation.


 


(j)            If at any time the Company sells any
stock of the same class of stock owned by the Optionee which constitutes a
public offering and which is registered under the Securities Act of 1933 or any
other applicable law, then, as long as any such stock is issued and
outstanding, and even if the Optionee’s stock is not so registered, all of the
foregoing definitions and references to Fair Market Value or any other formula
or determination of the stock’s value shall be considered deleted and there
shall be substituted for such provisions the market price, at the applicable
time, of the Company’s stock subject to such public offering and registration.


 


(k)           Notwithstanding anything to the
contrary, none of the provisions of this paragraph 7 shall be applicable, and
all such restrictions and other provisions shall be considered null and void,
as to any and all stock of the Company owned by the Optionee, which is
registered under the Securities Act of 1933 or any other applicable law and a
sale or other transfer of such stock may then be lawfully made without cost,
breach of contract or liability to the Company as determined by it.


 


(l)            If at the time Optionee exercises
his Option the Company has elected under the Code to be taxed as a Subchapter S
corporation, then Optionee shall promptly execute any consent as a shareholder
of the Company to maintain such Subchapter S tax status which the Company may
request and shall not at any time, voluntarily or involuntarily, make or permit
any transfer of stock of the Company owned by the Optionee which causes or
permits such stock to be owned by any entity which is not a permitted
Subchapter S shareholder under the Code.


 


(m)          The
Optionee may transfer title to any stock in the Company owned by him to a
grantor-type, revocable trust as a part of Optionee’s estate planning provided
that, during Optionee’s life and while he is legally competent, Optionee is the
sole trustee of such trust. Upon the death or incompetence of Optionee, the
successor trustee of such trust shall, in the same manner as the Optionee, be
bound by all of the terms and conditions of this Agreement. In all such cases,
any permitted or required rights and obligations of the Optionee and the
Company under this Agreement shall continue to apply, and the Optionee shall
for such purposes nevertheless be considered the owner of such stock
notwithstanding such transfer of such stock to such trust. No such transfer to
or ownership by a trust, whether before or after Optionee’s life, shall deny or
restrict any right of the Company with respect to such stock of the Optionee. Notwithstanding
anything in this Agreement to the contrary, such trust shall at all times
constitute an eligible and qualified Subchapter S trust under the Code. No transfer
by Optionee to such trust, and no amendment to any such trust, shall be
effective under this Agreement unless and until the Optionee , at his or her
option, either (i) submits to the Company a true and complete copy of the trust
agreement as amended and the Company determines that the trust is an eligible
and qualified Subchapter S trust and so notifies the Optionee or (ii) obtains
and delivers to the Company, at the Optionee’s cost, an unconditional and
unqualified opinion of competent legal counsel that such trust, as


 


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amended, constitutes an eligible Subchapter S trust. Selection of such
counsel and the content of such opinion shall be subject to the approval of the
Company exercised in its sole discretion. If at any time such trust for any
reason does not so qualify as an eligible Subchapter S trust, then the Company
may disregard such trust for all purposes as an owner of the stock.


 


(n)           If and to the extent of any
inconsistency between the restrictions and other provisions regarding transfer
of stock contained in paragraph 7 of this Agreement with any such provision in
any prior Stock Option Agreement entered into between the Company and the
Optionee for previous Options, the terms of paragraph 7 of this Agreement shall
control and shall be applicable to all stock of the Company acquired by the
Optionee whether acquired pursuant to the terms of this Agreement or any such
previous Stock Option Agreement but only if and to the extent that these provisions
of this subparagraph (I) do not, in the sole discretion and opinion of the
Company, jeopardize the qualification of the Options as incentive stock options
under Section 422 of the Code. All of the provisions of this paragraph 7 shall
apply to all stock owned by the Optionee whether acquired pursuant to any Stock
Option Agreement or otherwise unless and to the extent there is a written
contract signed by the Optionee and the Company which specifically states that
it supercedes this Agreement or exempts the stock subject to such contract from
this Agreement.


 


8.             Stock Option Plan.


 


(a)           This Agreement has been entered into
between the Company and the Optionee subject to all of the terms and conditions
of the Plan. Optionee expressly acknowledges that the Optionee has received and
had an opportunity to review and consider both the Plan and this Agreement. All
provisions of the Plan, as it may be


 


amended, are
at all times considered to be adopted by reference as a part of this Agreement.


 


(b)           The Plan is intended to be consistent
with all of the provisions of this Agreement, but to the extent of any conflict
between the provisions of this Agreement and the provisions of the Plan, the
provisions of the Plan shall be deemed to be controlling.


 


9.             Acknowledgments by Optionee.


 


The Optionee
acknowledges to the Company, as a material inducement to the Company to enter
into this Agreement, the following:


 


(a)           No guaranty or other assurances of
any kind have at any time been made to the Optionee by the Company or any
officer, director, or other representative of the Company regarding the present
or possible future value of any stock of the Company or of the business
prospects of the Company or of possible terms and


 


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conditions of
any subsequent option rights or of the number of shares of common stock or of
other classes of stock which may be outstanding from time-to-time. There are no
preemptive rights of the Optionee. Neither this Agreement nor the Options gives
the Optionee any rights whatsoever with respect to any operations of the
Company or any acquisitions, divestitures, corporate reorganizations, asset
transfers, liability assumptions or other activities of the Company.


 


(b)           The
Optionee, by reason of such Optionee’s business and financial experience, has
the capacity to protect the Optionee’s own interests in connection with this
Agreement. The Optionee has been encouraged to consult with his own attorney,
accountant, tax and financial advisor in connection with this Agreement prior
to its execution. No guaranty or other assurances of any particular income or
other tax incidence, consequences, or amount or category is or has ever been
made by the Company. The Optionee acknowledges that the Company reserves the right
at any time to elect be taxed as a Subchapter S corporation under and subject
to the requirements of the Code. All taxable consequences to the Optionee of
the grant and exercise of any Option and the ownership and sale of any stock so
acquired shall be determined by Optionee and not the Company. This and other
Options granted to the Optionee are intended to be incentive stock options
qualified under the Code, but the Company does not guaranty or assure the
Optionee that the grant or exercise of this or any other Options shall so
qualify.


 


(c)           The Optionee has substantial other
net assets and has adequate means of providing for his current needs and
possible personal contingencies and has no need for liquidity of any investment
in stock of the Company. The Optionee can bear the economic risk of exercising
any Option and owning stock of the Company.


 


(d)           The Optionee can bear the economic
risk of losing his entire investment in the Company and has, alone or together
with a competent professional advisor, such knowledge and experience in
financial matters that such Optionee is capable of evaluating the relative
risks and merits of an investment in the stock of the Company and had an
adequate opportunity to ask questions of and receive answers from the Company
and its directors and officers concerning the terms and conditions of such an
investment. Stock of the Company is highly speculative and involves a high
degree of financial risk.


 


(e)           Any stock obtained upon exercise of
the Option would be acquired by the Optionee solely for the Optionee’s account,
for investment purposes only, and would not being purchased with a view to or
for the resale, distribution, subdivision or fractionization of it. The
Optionee has no present plans or commitments to enter into any such contract,
undertaking, agreement or arrangement.


 


(f)            The Optionee acknowledges that any
stock obtained under this Agreement and which would be issued to the Optionee
would be issued without registration under the Securities Act of 1933 or any
other law, and no transfer or sale of such stock or of any interest in it may
be made except under an effective registration


 


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statement
under such act or unless made pursuant to an exemption from such registration,
including any exemption which may be required under any applicable state laws
including, without limitation, those of the State of Illinois. No assurances of
any future registration of the stock have been made to the Optionee. The
Optionee understands and acknowledges that no offering literature, prospectus
or investment memorandum or similar other document has been or will be
furnished in connection with any stock of the Company.


 


(g)           The Optionee acknowledges that no
governmental agency has made any finding or determination relating to the
appropriateness of the Fair Market Value of any stock of the Company, and that
no governmental agency has recommended or will recommend such stock.


 


(h)           The Optionee acknowledges that he is
an “at-will” employee of the Company or a subsidiary of the Company and is
entering into this Agreement voluntarily and not under duress of any kind. No
employment rights whatsoever are provided for, promised or implicit in this
Agreement.


 


(i)            The Optionee acknowledges that this
Agreement and the Plan were discussed, executed and delivered in the State of
Illinois, and that no action in connection with any of these transactions
occurred outside of the State of Illinois.


 


10.          No Commissions or Fees.


 


The parties
acknowledge and agree that no entity is entitled to or has received or will be
paid any commission or brokers or finders fee or similar payment, contingent or
otherwise, by reason of the Options granted under this Agreement or the
acquisition of stock of the Company pursuant to exercise of the Options.


 


11.          Stock Legend.


 


All of the
stock issued pursuant to this Agreement shall contain a legend on the
certificate stating, among other things, that it was issued pursuant to the
terms and conditions of this Agreement and the Plan.


 


12.          Activities by David K. Hill


 


The Optionee
acknowledges that David K. Hill and his family may continue to engage in
residential, commercial and other real estate development, sale, ownership and
other activities through companies other than the Company. Neither the Optionee
nor the Company shall have any rights or claims based on such activities
whether based on alleged lost corporate opportunity of the Company or otherwise.
The


 


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Optionee also acknowledges that the
restrictions and other provisions regarding transfer of stock contained in
paragraph 7 above shall not apply to any stock owned at any time by or for the
benefit of David K. Hill and his family whether such stock was acquired by the
exercise of Options or otherwise.


 


13.          Amendment and Complete Agreement.


 


(a)           The
parties acknowledge that subject to the provisions of the Plan, no rights or
obligations under this Agreement may be cancelled, terminated or revoked by
either party, and this Agreement may not be amended, unless both parties
execute a written modification or consent to any such action. This Agreement
with the Plan contains the entire understanding of the parties with respect to
its subject matter and supersedes any prior understandings the parties may have
made regarding its subject matter.


 


(b)           The parties acknowledge that, subject
to the provisions of paragraph 7(n) above, this Agreement does not replace any
previous Stock Option Agreements but rather is in addition to them.


 


14.          Costs and Expenses.


 


In the event a
party to this Agreement fails to perform such parties’ obligations under the
Agreement or in the event a dispute arises concerning the meaning,
interpretation or application of any provision of this Agreement, the prevailing
party in any such dispute shall be entitled to payment by the other party or
parties of all costs and expenses incurred by the prevailing party in enforcing
or establishing the prevailing parties’ rights under this Agreement, including,
without limitation, reasonable attorney’s fees, whether suit be brought or not,
and whether incurred in trial or appellate proceedings.


 


15.          Miscellaneous.


 


(a)           This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Illinois.
Jurisdiction and venue for any disputes regarding them shall be in the Circuit
Court of Cook County, in Chicago, Illinois.


 


(b)           Time is of the essence in this
Agreement. The Company may, but is not required to, extend any deadline
provided for in this Agreement.


 


(c)           The parties intend and believe that
each provision of this Agreement complies with all applicable federal, state
and local laws and judicial decisions. However, if any provision or portion of
any provision is found by a court of law to violate any applicable federal,
state or local law, judicial decision or public policy


 


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and such court
declares such provision illegal, invalid, unlawful, void or unenforceable as
written, then it is the intent of the parties that such portion shall be given
force to the fullest extent possible that it is legal, valid and enforceable,
and the remainder of this Agreement shall be construed as if such illegal,
invalid, unlawful, void or unenforceable portion were not contained in this
Agreement. In such event, the rights, obligations and interests of the parties
under the remainder of this Agreement shall continue in full force and effect.


 


(d)           This Agreement may be executed in one
or more counterparts all of which shall be taken to be one and the same
instrument and all of which shall have the force and effect as if all of the
parties have executed the same counterpart.


 


(e)           The parties shall promptly execute
and deliver all documents and provide all information as shall be reasonable,
necessary or appropriate to carry out the purpose and intent of this Agreement.


 


(f)            This Agreement shall be binding upon
and inure to the benefit of the parties and their respective and applicable
legal representatives, trustees, beneficiaries, heirs, devisees, executors,
administrators, successors and assigns.


 


(g)           The Recitals at the beginning of this
Agreement are an integral part of and incorporated in this Agreement.


 


IN WITNESS
WHEREOF, the parties have executed this Agreement as of the date first
indicated above.


 


 


	
  COMPANY:

  	
   

  	
  Kimball Hill, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  David K.
  Hill, Chairman and CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  OPTIONEE:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  



 


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