**Exhibit 10.1**

 

LIMITEDDURATION WAIVER AGREEMENT AND AMENDMENT

 

This LIMITED DURATION WAIVERAGREEMENT AND AMENDMENT (this **“Limited Duration WaiverAgreement”**) is dated as of January 25, 2008, and is enteredinto by and among KIMBALL HILL, INC., an Illinois corporation (the **“Borrower”**), the Guarantors (defined below), the Lenders(defined below) signatory hereto, and HARRIS N.A., as administrative agent (insuch capacity, the **“Administrative Agent”**)for the Lenders.

 

RECITALS:

 

WHEREAS, the Borrower, theGuarantors party thereto from time to time (the **“Guarantors”**),the Lenders party thereto from time to time (the **“Lenders”**),the Administrative Agent, Bank of America, N.A., as the Syndication Agent,KeyBank National Association and Wachovia Bank, National Association, as theCo-Documentation Agents, and BMO Capital Markets and Banc of AmericaSecurities, LLC, as the Co-Lead Arrangers and the Joint Book Runners, haveentered into that certain Amended and Restated Credit Agreement dated as of August 10,2007 (as amended, restated, supplemented or otherwise modified from time totime, the **“Credit Agreement”**; each capitalizedterm used herein and not otherwise defined shall have the meanings ascribed tosuch term in the Credit Agreement); and

 

WHEREAS, attached hereto (i) asSchedule 1 is a list of Defaults and Events of Default under the CreditAgreement of which senior management of the Borrower has knowledge as of thedate hereof (the **“Credit Agreement Defaults”**), (ii) asSchedule 2 is a list of all breaches and defaults of the Borrower or anyof the Guarantors that have occurred and are continuing under agreementsevidencing or securing Indebtedness for Borrowed Money (other than under the CreditAgreement) and of which the senior management of the Borrower has knowledge(the **“Borrowed Money Defaults”**), and (iii) asSchedule 3 is a list of all written notices received by senior managementof the Borrower of breaches and defaults that have occurred and are continuingof obligations of the Borrower or any of the Guarantors under materialagreements (other than agreements covered by clauses (i) and (ii) of thisparagraph) which, if not performed in accordance with the terms thereof, couldreasonably be expected to result in a Material Adverse Effect (the **“Material Agreement Defaults”**); and

 

WHEREAS, the Borrower hasasked the Lenders to temporarily waive their rights, remedies and options underthe Credit Agreement as a consequence of the Credit Agreement Defaults and toamend certain provisions of the Credit Agreement, as set forth in this Limited DurationWaiver Agreement; and

 

WHEREAS, the Lenders arewilling to temporarily waive the Credit Agreement Defaults, subject to the termsand conditions set forth in this Limited Duration Waiver Agreement.

 

NOW, THEREFORE, for good andvaluable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereto agree as follows:

 

----

 

SECTION I.DEFINITIONS

 

1.1. The following termsused in this Limited Duration Waiver Agreement shall have the meanings setforth below:

 

**“Borrowed****Money****Defaults”** is defined in the recitals.

 

**“Credit Agreement Defaults”** is defined inthe recitals.

 

**“Effective Date”** is defined in Section 6.3hereof.

 

**“Event of Termination”** shall mean theearlier of (i) 5:00 p.m. (Chicago, Illinois time) on March 14,2008 or (ii) if prior thereto, any of the following has occurred and iscontinuing and the Administrative Agent, acting at the direction of theRequired Lenders, terminates the Limited Duration Waiver Agreement by givingnotice to the Borrower and the Guarantors:

 

(a)          the occurrence of anyDefault or Event of Default other than (i) the Credit Agreement Defaults, (ii) theBorrowed Money Defaults or (iii) the Material Agreement Defaults (unless,except in the case of the First Bank and Trust revolving credit loan dated asof February 28,2007 for the reasons set forth in Schedule 2), theagreement under which a Borrowed Money Defaults or a Material AgreementDefaults exists has been accelerated or remedies to enforce (through judicialprocess) the performance thereof have been commenced against the Borrower orone or more of the Guarantors);

 

(b)         the failure of the Borroweror any of the Guarantors to comply with any term, condition or covenant setforth in this Limited Duration Waiver Agreement;

 

(c)          any representation orwarranty made by the Borrower or any of the Guarantors under this LimitedDuration Waiver Agreement shall be false or materially misleading as of the datemade or deemed remade; or

 

(d)         the date on which the Borrower,the Guarantors, the Administrative Agent and the Lenders enter into amodification of the Credit Agreement which expressly provides for a terminationof this Limited Duration Waiver Agreement.

 

**“Loan Party”** means theBorrower and the Guarantors.

 

**“Material Agreement Defaults”** is defined inthe recitals.

 

**“Termination Date”** means 5:00 p.m.(Chicago, Illinois time) on the date upon which an Event of Termination firstoccurs. 

 

1.2. Unless the context ofthis Limited Duration Waiver Agreement requires otherwise, references to theplural include the singular, references to the singular include the plural andthe term “including” is not limiting. The words “hereof,” “herein,” “hereby,” “hereunder,”and similar terms in this Limited Duration Waiver Agreement refer to thisLimited Duration Waiver Agreement

 

2

----

 

as a whole and not to anyparticular provision hereof. Section, subsection and clause references hereinare to this Limited Duration Waiver Agreement unless otherwise specified.

 

SECTION2.DEFAULTS; AND AGREEMENT TO LIMITED WAIVER AND AUTHORIZATION

 

2.1. The Borrower and eachof the Guarantors acknowledge and agree that the Credit Agreement Defaults haveoccurred and are continuing, and as a result thereof, the Lenders are entitledto exercise their rights, remedies and options against the Borrower, theGuarantors and the Collateral. The Borrower and each of the Guarantorsacknowledge and agree that the exercise of such rights,remedies and options by the Lenders or the Administrative Agent on their behalfis not subject to any offsets or defenses by the Borrower or the Guarantors totheir obligations under the Loan Documents, and that neither the Borrower northe Guarantors have any claims or counterclaims against the Lenders or theAdministrative Agent; provided, however, that if permitted underapplicable law, the foregoing shall not affect the rights of third parties thatare not Affiliates of the Borrower or the Guarantors from making derivative orindependent claims against the Lenders or the Administrative Agent on behalf ofthe Borrower or the Guarantors or otherwise.

 

2.2. From and after theEffective Date until the existence of an Event of Termination, the AdministrativeAgent and the Lenders hereby agree to temporarily waive the Credit Agreement Defaults,subject to the terms of this Limited Duration Waiver Agreement. Upon theoccurrence of an Event of Termination, the limited duration waivers set forthherein and the amendments set forth in Section 3.2 shall be void abinitio and the Credit Agreement Defaults shall be deemed to exist from andafter January *5,*2008.

 

2.3. Except as expresslyprovided herein, the execution and delivery of this Limited Duration WaiverAgreement shall not: (a) constitute an extension or modification of theCredit Agreement or the other Loan Documents; (b) extend the terms of theCredit Agreement or the due date of any of the Obligations; or (c) giverise to any obligation on the part of the Administrative Agent or the Lendersto extend or modify any term or condition of the Credit Agreement or any of theother Loan Documents.

 

SECTION 3.AMENDMENTSAND MODIFICATIONS TO THE LOAN DOCUMENTS

 

Notwithstanding anything tothe contrary set forth in the Credit Agreement or the other Loan Documents, thefollowing provisions shall apply:

 

3.1. From and after theEffective Date:

 

(a)          The Revolving Credit Commitmentsare reduced to $400.0 million.

 

(b)         The Borrower shall have noright to require any Facility Increase.

 

3.2. From and after theEffective Date until the Termination Date:

 

3

----

 

(a)                                  All rights ofthe Borrower and the Guarantors under the Loan Documents that are restricted orprohibited during such time as a Default or Event of Default has occurred andis continuing shall, except as expressly set forth in this Section 3,be restricted or prohibited as if an Event of Default has occurred and iscontinuing from and after January 5, 2008.

 

(b)                                 Except as setforth in clause (h) below, Net Cash Proceeds of all Dispositions shallbe deposited by the Borrower into a cash collateral account to be designated bythe Administrative Agent and under the dominion and control of theAdministrative Agent and such proceeds (or portions thereof) shall be, in theAdministrative Agent’s sole discretion, (x) made available to the Borrowerfor general corporate purposes or (y) applied against outstanding Obligationsin accordance with Section 3.1 of the Credit Agreement.

 

(c)                                  The Borrower ispermitted to obtain a Borrowing in the form of advanced Loans only from theEffective Date and prior to an Event of Termination in the aggregate principal amountof $10.0 million. Additional advances of Loans in excess of $10.0 million, notto exceed an incremental $5.0 million in the aggregate shall be permitted if onor before January 3 I, 2008 the Borrower providesto the Administrative Agent a 13-week cash flow forecast in form reasonably satisfactoryto the Administrative Agent and such forecast demonstrates that the Borrowerhas or thereafter will have additional liquidity needs, in which case, suchadditional advances of Loans will be made available to the Borrower, not toexceed an incremental $5.0 million in the aggregate (i.e.from theEffective Date and prior to an Event of Termination, $15.0 million in theaggregate) (it being understood that any portion of the Net Cash Proceedsdeposited by the Borrower in the cash collateral account referred to above thatare made available to the Borrower for the purpose set forth in clause (x) ofSection 3.2 shall not reduce such $15.0 million aggregate amount).

 

(d)                                 No Letters ofCredit in excess of $1.0 million shall be issued or extended and no Swing Loansshall be made (it being understood that advances of the $15.0 million aggregateamount set forth in Section 3.4 shall be reduced by the face amountof any Letters of Credit that are issued or extended and outstanding from andafter the Effective Date and prior to an Event of Termination, as the case maybe).

 

(e)                                  Notwithstandingthe Credit Agreement Defaults, releases under the fourth sentence of clause (b) ofSection 4.8 of the Credit Agreement may be made by the Administrative Agentin its reasonable discretion so long as no Default or Event of Default (otherthan the Credit Agreement Defaults) have occurred and are continuing.

 

(f)                                    Clause (b) ofSection 7.1 of the Credit Agreement shall be amended to provide that “noDefault or Event of Default (other than the Credit Agreement Defaults) shallhave occurred and be continuing or would occur as a result of such CreditEvent.”

 

(g)                                 No otherIndebtedness shall be incurred by the Borrower or any of the Guarantors underclause (b), clause (d) (unless such Indebtedness is evidenced by one ormore notes that have have been pledged to the Administrative Agent for thebenefit of the Lenders and such notes have been delivered to the AdministrativeAgent), clause (g) or clause (h) of Section 8.7 of the CreditAgreement, and no Liens shall be granted by the Borrower with respect thereto.

 

4

----

 

(h)                                 Notwithstandingthe Credit Agreement Defaults, the restrictions in Section 8.10 shall not applyto or operate to prevent the sales, conveyances, transfers or Dispositions permittedby clauses (a), (c) (but only if such Subsidiary is a Wholly-ownedSubsidiary), (e), (f) (but only as to model Housing Units), or (h) ofsaid Section or the mergers permitted by clause (b) of said Section (butonly if such Subsidiary is a Wholly-owned Subsidiary and it being understoodthat such merger shall not extinguish the Borrower’s and Guarantor’sobligations under the Loan Documents); provided, however, thatnotwithstanding the foregoing, all Net Proceeds received by the Borrower under Section 1.8(b) ofthe Credit Agreement (other than amounts received in connection with sales andconveyances permitted under clause (a) of Section 8.10 of the Credit Agreement)shall be deposited by the Borrower into the account designated by theAdministrative Agent pursuant to clause (b) of this Section 3.2and held and applied as set forth in said clause (b). 

 

(i)                                     The proviso in Section 8.20of the Credit Agreement shall be amended to add “(other than the CreditAgreement Defaults)” after the word “exists” in such proviso. 

 

(j)                                     For the fiscalquarters ending September 30, 2007 and December 31, 2007, thecovenant levels in clauses (a), (b), (c), (e) and (f)*** ***of Section 8.22 of theCredit Agreement shall be amended to be the levels for such covenants set forthon Schedule 4. Clause (g) of Section 8.22 of the CreditAgreement shall be amended to provide that the Borrower shall not, at any time,permit Liquidity to be less than $1.0 million.

 

(k)                                  From and afterthe Effective Date through, but not including, the date on which an Event of Terminationoccurs, all Loans (other than existing Eurodollar Loans until the expiration ofthe relevant Interest Period) shall bear interest at the Base Rate.

 

(1)                                  Until theexpiration of the relevant interest period, the Applicable Margin with respectto existing Eurodollar Loans shall be Level IV.

 

(m)                               From and after January 5,2008, the Applicable Margin with respect to the Commitment Fee shall be LevelIV.

 

(n)                                 The Borrowershall have no option to request that any Loans bear interest at a rate based uponthe LIBOR Index Rate, and upon the expiration of the relevant Interest Period,all outstanding Eurodollar Loans shall automatically be converted to Base RateLoans (and for purposes of Section 1.5 of the Credit Agreement,this Limited Duration Waiver Agreement shall constitute a notice by theBorrower that all outstanding Eurodollar Loans shall be so converted and thatthis notice is acceptable to the Administrative Agent).

 

(o)                                 Notwithstandinganything to the contrary set forth in Footnote I of the Form of Borrowing BaseCertificate attached as Exhibit E to the Credit Agreement, if an Appraisalhas not yet been completed under clause (b) of Section 4.7 of the CreditAgreement with respect to a Borrowing Base Property, the valuation of suchBorrowing Base Property shall be that set forth in the most recent BorrowingBase Certificate delivered by the Borrower until the Appraised Value for suchBorrowing Base Property is established under clause (a) of Section 5.1of this Limited Duration Waiver Agreement.

 

5

----

 

 

 

 

SECTION 4.REPRESENTATIONSAND WARRANTIES

 

In consideration of thelimited agreement of Administrative Agent and the Lenders to temporarily waivethe Credit Agreement Defaults as expressly set forth herein and to continue to fundthe Revolving Loans and issue and participate in Letters of Credit as set forthin this Credit Agreement, each Loan Party hereby represents and warrants toAdministrative Agent and the Lenders as follows:

 

4.1. The execution, deliveryand performance of this Limited Duration Waiver Agreement by such Loan Partyare within its power and have been duly authorized by all necessary action, andthis Limited Duration Waiver Agreement constitutes a valid and legally binding agreement,enforceable against such Loan Party in accordance with its terms.

 

4.2. All Loan Documents towhich such Loan Party is a party, including the Credit Agreement, constitutevalid and legally binding obligations of such Loan Party, enforceable against suchLoan Party in accordance with the terms thereof and each Loan Party herebyratifies and reaffirms its obligations under each Loan Document which isapplicable to or binding on such Loan Party.

 

4.3. Except as contemplatedby this Limited Duration Waiver Agreement, neither any Loan Party nor anySubsidiary of any Loan Party is in violation in any respect of (a) anyterm of its charter, bylaws or other constitutive documents or (b) any termin any material agreement or other material instrument to which it is a partyor by which it or any of its property may be bound, in each case where suchviolation, individually or in the aggregate, could reasonably be expected tohave a Material Adverse Effect.

 

4.4. After giving effect tothe provisions of this Limited Duration Waiver Agreement, the representationsand warranties of the Borrower contained in Section 6 of the CreditAgreement are true and correct as though made on and as of such date (except tothe extent that such representations and warranties relate to an earlier date,in which case they are true and correct as of such date, and disregarding anybreaches or adverse effects arising out of the Credit Agreement Defaults, BorrowedMoney Defaults or Material Agreement Defaults or any of the other matters expresslyset forth in this Limited Duration Waiver Agreement); provided, however,that no Default or Event of Default exists other than the Credit AgreementDefaults.

 

4.5. Attached hereto (i) asSchedule 1 is a list of the Credit Agreement Defaults of which seniormanagement of the Borrower has knowledge as of the date hereof, (ii) as Schedule2 is a list of the Borrowed Money Defaults of which the senior managementof the Borrower has knowledge as of the date hereof, and (iii) as Schedule3is a list of all Material Agreement Defaults.

 

SECTION 5.COVENANTSAND AGREEMENTS

 

5.1. In order to induceAdministrative Agent and the Lenders to enter into this Limited Duration WaiverAgreement, the Borrower and each of the Guarantors covenant and agree as follows:

 

6

----

 

(a)          UpdatedAppraisals are being obtained for each of the Borrowing Base Properties, and tothe extent that the methodology set forth in an updated Appraisal has been approvedby the Borrower and the Administrative Agent, the Appraised Value set forththerein shall be that which is used for the Borrowing Base Property coveredthereby in the Borrowing Base Certificate that is to be delivered from time totime after the Effective Date by the Borrower pursuant to clause (a) of Section 8.5of the Credit Agreement.

 

(b)         On or before January 31,2008, the Borrower shall deliver a 13-week cash flow forecast in formreasonably acceptable to the Administrative Agent.

 

(c)          On or before February 8,2008, certain members of the Borrower’s senior management and the Borrower’s advisorsshall be available for a telephone conference call to update the AdministrativeAgent and the Lenders on the Borrower’s cash flows and discuss generallythe Borrower’s financial advisor’s business plan review process.

 

(d)         On or before February 29,2008, the Borrower shall deliver to the Administrative Agent a report on theBorrower’s business plan in form and substance satisfactory to theAdministrative Agent.

 

(e)          On or about March 7,2008, certain members of the Borrower’s senior management and the Borrower’sfinancial and legal advisors shall be available for an in-person meeting withthe Lenders and the Administrative Agent at a location designated by the AdministrativeAgent in Chicago, Illinois, at which meeting the Borrower and such advisorsshall discuss the Borrower’s business plan and other issues as theAdministrative Agent and the Lenders may reasonably request.

 

(f)            The Borrowershall continue to have engaged a financial consultant approved by the Lenderspursuant to terms reasonably acceptable to the Administrative Agent (it being understoodthat Alvarez &Marsal North America, LLC is acceptable tothe Lenders) from and after the Effective Date through and including the dateupon which an Event of Termination has occurred.

 

(g)         The Borrowershall cooperate with the Administrative Agent in its review of the Liens on theCollateral.

 

(h)         The running ofany time period of statute of limitations shall be tolled during the period commencingon the Effective Date of this Limited Duration Waiver Agreement and ending onthe Termination Date.

 

7

----

 

(i)             The acceptanceby the Administrative Agent or any of the Lenders of any payments made by or onbehalf of any Loan Party prior to or on or after the Termination Date, and theapplication of such payments by the Administrative Agent or the Lenders, shallnot in any way be considered to be a cure of any Default or Event of Default(including the Credit Agreement Defaults), a discharge by any of the Loan Partiesthereunder or with respect thereto, or an estoppel, acceptance of course ofconduct or further waiver thereunder by the Lenders or the Administrative Agenton their behalf.

 

SECTION 6.MISCELLANEOUS

 

6.1. ACKNOWLEDGMENT OFOBLIGATIONS AND VALIDITY AND ENFORCEABILITY OF LOAN DOCUMENTS. Except as expresslyset forth herein, the Credit Agreement and other Loan Documents shall remain infull force and effect. Each Loan Party expressly acknowledges and agrees that:

 

(a)          as of January 14,2008, the total aggregate outstanding amount of principal under the CreditAgreement with respect to the Revolving Loans, the Swing Loans and the Letters ofCredit is $321,988,242.07 (the **“Prior Loans PrincipalAmount”**), and the Prior Loans Principal Amount has accrued, and continuesto accrue, interest at the rates provided in the Credit Agreement;

 

(b)         the CreditAgreement, the other Loan Documents and the Obligations under the LoanDocuments, including the Prior Loans Principal Amount, are valid andenforceable by Administrative Agent, the L/C Issuer and the Lenders, and eachLoan Party expressly ratifies and reaffirms its obligations under the CreditAgreement and other Loan Documents to which it is a party, free and clear ofall defenses, offsets, counterclaims and adjustments of any kind or nature; provided,however, that if permitted under applicable law, the foregoing shall notaffect the rights of third parties that are not Affiliates of the Borrower orthe Guarantors from making derivative or independentclaims against the Lenders or the Administrative Agent on behalf of theBorrower or the Guarantors or otherwise; and

 

(c)          Each Loan Partyagrees that it shall not dispute the validity or enforceability of the CreditAgreement and other Loan Documents or any of its obligations thereunder, or thevalidity, perfection, priority, enforceability or extent of Administrative Agent’sLien against any item of Collateral. No Loan Party has any knowledge of anychallenge to Administrative Agent’s or any Lender’s claims arising under theLoan Documents, or to the effectiveness of the Loan Documents.

 

6.2. EXPENSES. Allreasonable fees and expenses of the Administrative Agent in connection with theDefaults, Events of Default, preparation of outlines of proposed terms and the executionand delivery of this Limited Duration Waiver Agreement shall be paid in fullpromptly after submission by the Administrative Agent of invoices (withreasonable back-up documentation), including, without limitation, the fees,costs and expenses of appraisers and counsel to the Administrative Agent.

 

6.3. CONDITIONS PRECEDENT.This Limited Duration Waiver Agreement shall become effective and be deemedeffective as of January 5, 2008until the existence of an Event of

 

8

----

 

Termination (the **“Effective Date”**), upon the occurrence of each of thefollowing, to the satisfaction of Administrative Agent (or waived by theAdministrative Agent in its sole discretion) on or before 5:00 pm (Chicago,Illinois time) on January 18, 2008:

 

(a)          TheAdministrative Agent shall have received counterparts of this Limited DurationWaiver Agreement, duly executed and delivered by the required parties hereto;and

 

(b)         TheAdministrative Agent shall have received, for the benefit of the Lenders thathave delivered their executed counterpart to this Limited Duration WaiverAgreement on or before 5:00 pm (Chicago, Illinois time) on January 24,2008, in accordance with their respective prorata shares of theRevolving Credit Commitment (after giving effect to the reduction thereto onthe Effective Date), a fee in the amount of twenty-five basis points times theprincipal amount of such Lender’s Revolving Credit Commitment, which fee shallbe earned and due and payable on the date hereof, and after payment, such feeshall be non-refundable; and

 

(c)          TheAdministrative Agent shall have received such other information and documentsas Administrative Agent may request, in form and substance reasonablysatisfactory to Administrative Agent.

 

6.4. AMENDMENTS. Noamendment or modification of any of the Loan Documents or the provisions ofthis Limited Duration Waiver Agreement shall be effective without the written agreementof Administrative Agent and, as applicable under Section 13.13 ofthe Credit Agreement, the Lenders or the Required Lenders, and no terminationor waiver of any provision of this Limited Duration Waiver Agreement, orconsent to any departure by any Loan Party therefrom, shall in any event beeffective without the written concurrence of Administrative Agent and, asapplicable under Section 13.13 of the Credit Agreement, the Lendersor the Required Lenders. Any waiver or consent shall be effective only in thespecific instance and for the specific purpose for which it was given.

 

6.5. DEFAULT WAIVER.The Administrative Agent’s and the Lenders’ failure, at any time or timeshereafter, to require strict performance by Loan Parties with any provision orterm of this Limited Duration Waiver Agreement shall not affect or diminish anyright of Administrative Agent or the Lenders thereafter to demand strictcompliance and performance therewith. Any suspension or waiver byAdministrative Agent and the Lenders of the Credit Agreement Defaults or anyother Default or Event of Default shall not, except as expressly set forthherein, suspend, waive or affect the Credit Agreement Defaults or any otherDefault or Event of Default, whether the same is prior or subsequent theretoand whether of the same or of a different kind or character. None of the undertakings,agreements, warranties, covenants and representations of any Loan Party containedin the Credit Agreement or any of the other Loan Documents, and no Default orEvent of Default, shall be deemed to have been suspended or waived byAdministrative Agent and the Lenders unless such suspension or waiver is inwriting and signed by Administrative Agent and, as applicableunder Section 13.13 of the Credit Agreement, the Lenders or theRequired Lenders.

 

6.6. SOLE BENEFIT OFPARTIES. This Limited Duration Waiver Agreement is solely for the benefitof the parties hereto and their respective successors and assigns, and no otherPerson

 

9

----

 

shall have any right,benefit or interest under or because of the existence of this Limited Duration WaiverAgreement.

 

6.7. TIME OF THE ESSENCE.Time shall be of the essence with respect to the performance by the Borrowerand the Guarantors of all of their respective obligations under this LimitedDuration Waiver Agreement.

 

6.8. SECTION TITLES.The section titles contained in this Limited Duration Waiver Agreement areincluded for the sake of convenience only, shall be without substantive meaningor content of any kind whatsoever, and are not a part of the agreement betweenthe parties.

 

6.9. NO WAIVER; REMEDIES.No course of dealing between the Borrower or any Guarantor and AdministrativeAgent or any Lender and no delay or omission by Administrative Agent or theLenders in exercising any right or remedy under this Limited Duration Waiver Agreementor the other Loan Documents or with respect to any Obligations shall operate asa waiver thereof or of any other right or remedy, and no single or partialexercise thereof shall preclude any other or further exercise thereof or the exerciseof any other right or remedy. All rights and remedies of Administrative Agentand the Lenders are cumulative.

 

6.10. SUCCESSORS ANDASSIGNS. The Administrative Agent, the Lenders and the Loan Parties, asused herein, shall include the successors or assigns of those parties, exceptthat no Loan Party shall have the right to assign its rights hereunder or anyinterest herein.

 

6.11. FURTHER ASSURANCES.From time to time, each Loan Party shall take such action and execute anddeliver to Administrative Agent such additional documents, instruments, certificatesand agreements as Administrative Agent may reasonably request to effectuate thepurposes of this Limited Duration Waiver Agreement and the other LoanDocuments.

 

6.12. SEVERABILITY.The provisions of this Limited Duration Waiver Agreement are independent of andseparable from each other, and no such provision shall be affected or rendered invalidor unenforceable by virtue of the fact that for any reason any other suchprovision may be invalid or unenforceable in whole or in part. If any provisionof this Limited Duration Waiver Agreement is prohibited or unenforceable in anyjurisdiction, such provision shall be ineffective in such jurisdiction only tothe extent of such provision or unenforceability, and such prohibition or unenforceabilityshall not invalidate the balance of such provision to the extent it is notprohibited or unenforceable nor render prohibited or unenforceable suchprovision in any other jurisdiction.

 

6.13. ENTIRE AGREEMENT.This Limited Duration Waiver Agreement and the other Loan Documents constitutethe entire agreement and understanding between the parties hereto with respectto the Credit Agreement Defaults and supersede all prior negotiations, understandingsand agreements between such parties with respect thereto.

 

6.14. RESOLUTION OFDRAFTING AMBIGUITIES. Each Loan Party acknowledges and agrees that it wasrepresented by counsel in connection with the execution and delivery of this LimitedDuration Waiver Agreement, that it and its counsel reviewed and participated inthe preparation and negotiation hereof and thereof and that any rule ofconstruction to the effect that

 

10

----

 

ambiguities are to beresolved against the drafting party shall not be employed in the interpretationhereof or thereof.

 

6.15. APPLICABLE LAW.THIS LIMITED WAIVER AGREEMENT, AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO,SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF THESTATE OF ILLINOIS.

 

6.16. WAIVER OF BOND.EACH LOAN PARTY WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OFADMINISTRATIVE AGENT OR ANY LENDER IN CONNECTION WITH ANY JUDICIAL PROCESS ORPROCEEDING OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED 1N FAVOR OFADMINISTRATIVE AGENT OR ANY LENDER OR TO ENFORCE BY SPECIFIC PERFORMANCE, ANY TEMPORARYRESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, OR THIS LIMITED WAIVERAGREEMENT.

 

6.17. CONSULTATION WITHCOUNSEL. EACH LOAN PARTY ACKNOWLEDGES THAT IT HAS BEENREPRESENTED BY ITS OWN LEGAL COUNSEL IN CONNECTION ITS EXECUTION OF THISLIMITED WAIVER AGREEMENT AND THE OTHER LOAN DOCUMENTS, THAT IT HAS EXERCISEDINDEPENDENT JUDGMENT WITH RESPECT TO THIS LIMITED WAIVER AGREEMENT AND THEOTHER LOAN DOCUMENTS, AND THAT IT HAS NOT RELIED ON ADMINISTRATIVE AGENT OR ANYLENDER OR ON ADMINISTRATIVE AGENT’S OR ANY LENDER’S COUNSEL FOR ANY ADVICE WITH RESPECTTO THIS LIMITED WAIVER AGREEMENT OR THE OTHER LOAN DOCUMENTS.

 

6.18. COUNTERPARTS.This Limited Duration Waiver Agreement may be executed in multiplecounterparts, each of which shall be deemed to be an original and all of which,taken together, shall constitute one and the same agreement. In proving thisLimited Duration Waiver Agreement in any judicial proceedings, it shall not benecessary to produce or account for more than one such counterpart signed bythe party against whom such enforcement is sought. Any signatures delivered bya party by facsimile transmission or by electronic mail transmission shall bedeemed an original signature hereto.

 

6.19. LOAN DOCUMENT.This Limited Duration Waiver Agreement shall be deemed a Loan Documentfor all purposes.

 

[Remainderof page intentionally left blank.]

 

11

----

 

IN WITNESSWHEREOF, the parties hereto have caused this Limited Duration Waiver Agreementto be executed as of the date first set forth above, by their respective dulyauthorized officers.

 
| ** ** | **“BORROWER”**                        |
|------------|-------------------------------------------------|
|       |                                            |
|       | **KIMBALL  HILL, INC.,**an Illinois corporation |
|       |                                            |
|       | By:                                             | /s/ C. Kenneth Love |
|       |                                            | C. Kenneth Love |
|       |                                            | President and Chief  Executive Officer |

 

----

 
|   | **“GUARANTORS”**                               |
|--------|----------------------------------------------------------|
|   | ** **                                               |
|   | **CACTUS HILLS, LLC**                                    |
|   | **KIMBALL HILL HOMES****TEXAS**                          |
|   | **INVESTMENTS, L.L.C.**                                  |
|   | **KIMBALL HILL HOMES TEXAS**                             |
|   | **OPERATIONS, L.L.C.**                                   |
|   | **KIMBALL HILL TEXAS INVESTMENT**                        |
|   | **COMPANY, L.L.C.**                                      |
|   | **KIMBALL HILL FAR EAST DETROIT,  LLC**                  |
|   | **KH FINANCIAL HOLDING COMPANY**                         |
|   | **KHH TEXAS TRADING COMPANY L.P.**                       |
|   | **KIMBALL HILL HOMES AUSTIN, L.P.**                      |
|   | **KIMBALL HILL HOMES  CALIFORNIA, INC.**            |
|   | **KIMBALL HILL HOMES DALLAS, L.P.**                      |
|   | **KIMBALL HILL HOMES FLORIDA,  INC.**                    |
|   | **KIMBALL HILL HOMES HOUSTON,  L.P.**                    |
|   | **KIMBALL HILL HOMES ILLINOIS,  LLC**                    |
|   | **KIMBALL HILL HOMES NEVADA, INC.**                      |
|   | **KIMBALL HILL HOMES OHIO, INC.**                        |
|   | **KIMBALL HILL HOMES OREGON, INC.**                      |
|   | **KIMBALL HILL HOMES REALTY FLORIDA,  INC.**             |
|   | **KIMBALL HILL HOMES SAN ANTONIO,****L.P.**              |
|   | **KIMBALL HILL HOMES TEXAS, INC.**                       |
|   | **KIMBALL HILL HOMES WASHINGTON,****INC.**               |
|   | **KIMBALL HILL HOMES WISCONSIN,  INC.**                  |
|   | **NATIONAL CREDIT AND GUARANTY**                         |
|   | **CORPORATION**                                          |
|   | **RIVER OAKS REALTY, L.P.**                              |
|   | **18TH AND PEORIA, LLC**                                 |
|   | **KIMBALL HILL URBAN CENTERS,  L.L.C.**                  |
|   | **KIMBALL HILL URBAN CENTERS CHICAGO****ONE,****L.L.C.** |
|   | **KIMBALL HILL URBAN CENTERS CHICAGO  TWO, L.L.C.**      |
|   | **KIMBALL HILL STATEWAY, INC.**                          |
|   | **KIMBALL HILL BELLEVUE RANCH,  LLC**                    |
|   | **KIMBALL HILL SHELDON LAKES, LLC**                      |
|   | **KIMBALL HILL VILLAGES, LLC**                           |
|   | **KH INGHAM PARK SOUTH, LLC**                            |
|   | **KH SRAV II, LLC**                                      |
|   | **RIVER OAKS HOMES, LLP**                                |
|   | **PARKVIEW LIMITED PARTNERSHIP**                         |

 

----

 
|   | **RIVER POINTE LIMITED PARTNERSHIP**                     |
|--------|----------------------------------------------------------|
|   | **KIMBALL HILL CHADWICK FARMS**                          |
|   | **LIMITED PARTNERSHIP**                                  |
|   | **KIMBALL HILL MARBELLA ESTATES**                        |
|   | **LIMITED PARTNERSHIP**                                  |
|   | **INDIAN TRAILS LIMITED PARTNERSHIP**                    |
|   | **EDGEWATER LIMITED PARTNERSHIP**                        |
|   | **HUNTINGTON CHASE LIMITED**                             |
|   | **PARTNERSHIP**                                          |
|   | **LEGEND LAKES LIMITED PARTNERSHIP**                     |
|   | **WATERFORD LIMITED PARTNERSHIP**                        |
|   | **WHISPERING MEADOW LIMITED**                            |
|   | **PARTNERSHIP**                                          |
|   | **WHITE OAK LIMITED PARTNERSHIP**                        |
|   | **KIMBALL MOUNTAIN FIRST LIMITED**                       |
|   | **PARTNERSHIP**                                          |
|   | **GABLES AT HIDDENBROOK LIMITED**                        |
|   | **PARTNERSHIP**                                          |
|   | **PARK SHORE, L.L.C.**                                   |
|   | **KIMBALL HILL URBAN CENTERS SPECIAL  PURPOSES, L.L.C.** |
|   | **TERRAMINA, LLC**                                       |

 
|   | By:                      | /s/ C. Kenneth Love |
|--------|--------------------------|---------------------|
|   |                     | C. Kenneth Love     |
|   |                     | Vice Chairman       |
|   |                     |
|   | **EAST LAKE PARK, INC.** |
|   |                     |
|   | By:                      | /s/ David K. Hill   |
|   |                     | David K. Hill       |
|   |                     | President           |

 

----

 
| ** ** | **KIMBALL HILL TX PROPERTIES, LLC** |
|------------|-------------------------------------|
|       |                                |
|       | By:                                 | Kimball Hill Homes  Houston, L.P., its manager |
|       |                                |   |
|       |                                | By: | /s/ C. Kenneth Love |
|       |                                |   | C. Kenneth Love |
|       |                                |   | Vice Chairman |
|       |                                |
|       | **THE  HAMILTON PLACE PARTNERSHIP** |
|       |                                |
|       | By:                                 | Kimball Hill Homes  Illinois, LLC, its general partner |
|       |                                |   |
|       |                                | By: | /s/ C. Kenneth Love |
|       |                                |   | C. Kenneth Love |
|       |                                |   | Vice Chairman |

 

----

 

 

 
|   | **“ADMINISTRATIVE AGENT”**                                          |
|--------|-------------------------------------------------------------------------------|
|   |                                                                          |
|   | **HARRIS  N.A.,**in its capacity as the  Administrative Agent for the Lenders |
|   |                                                                          |   |
|   | By:                                                                           | /s/ James A. Jerz |
|   | Name:                                                                         | James A. Jerz |
|   | Title:                                                                        | Vice President |

 

----

 

 
|   | Associated Bank National  Association, as a Lender |
|--------|----------------------------------------------------|
|   |                                               |   |
|   | By:                                                | /s/ Robert J. Burda |
|   | Name:                                              | Robert J. Burda |
|   | Title:                                             | Vice  President |

 

----

 
|   | Bank of America, N.A. and  LaSalle Bank, N.A., as a Lender |
|--------|------------------------------------------------------------|
|   |                                                       |   |
|   | By:                                                        | /s/ Patricia A. Provrazno |
|   | Name:                                                      | Patricia A. Provrazno |
|   | Title:                                                     | Senior Vice President |

 

----

 
|   | BANK OF THE WEST, as a Lender |
|--------|-------------------------------|
|   |                          |   |
|   | By:                           | /s/ William C. Weatherby |
|   | Name:                         | WILLIAM C. WEATHERBY |
|   | Title:                        | Vice  President |

 

----

 
|   | CITIBANK, N.A. formerly known as  |
|--------|-----------------------------------|
|   | CITIBANK TEXAS, N.A., as a Lender |
|   |                              |   |
|   | By:                               | /s/ William L. Kinard |
|   | Name:                             | William L. Kinard |
|   | Title:                            | Vice President |

 

----

 
|   | Comerica Bank, as a Lender |
|--------|----------------------------|
|   |                       |   |
|   | By:                        | /s/ Charles Weddell |
|   | Name:                      | Charles Weddell |
|   | Title:                     | Vice President |

 

----

 
|   | Compass Bank, as a Lender |
|--------|---------------------------|
|   |                      |   |
|   | By:                       | /s/ Johanna Duke Paley |
|   | Name:                     | Johanna Duke Paley |
|   | Title:                    | Senior Vice President |

 

----

 
|   | Fifth Third Bank, as a  Lender |
|--------|--------------------------------|
|   |                           |   |
|   | By:                            | /s/ Thomas W. O’Connell |
|   | Name:                          | Thomas W. O’Connell |
|   | Title:                         | Vice President |

 

----

 

 
|   | **FRANKLIN****BANK, SSB,**as a Lender |
|--------|---------------------------------------|
|   |                                  |   |
|   | By:                                   | /s/ Sherry K. Day |
|   | Name:                                 | Sherry K. Day |
|   | Title:                                | Senior Vice President |

 
|   | Address:                  |            |
|--------|---------------------------|-----------------|
|   | 9800 Richmond Ave, *#*680 |
|   | Houston, TX 77042         |
|   | Attention:                | Sherry K. Day   |
|   | Telecopy:                 | (713) 343-8160  |
|   | Telephone:                | (713)**339-8943 |

 

----

 
|   | Harris N.A., as a Lender |
|--------|--------------------------|
|   |                     |   |
|   | By:                      | /s/ James A. Jerz |
|   | Name:                    | James A. Jerz |
|   | Title:                   | Vice President |

 

----

 
|   | JP Morgan Chase, as a  Lender |
|--------|-------------------------------|
|   |                          |   |
|   | By:                           | /s/ Randall B. Durant |
|   | Name:                         | RANDALL B. DURANT |
|   | Title:                        | SENIOR VICE PRESIDENT |

 

----

 
|   | Key Bank NA, as a Lender |
|--------|--------------------------|
|   |                     |   |
|   | By:                      | /s/ Nathan Weyen |
|   | Name:                    | Nathan Weyen |
|   | Title:                   | VP |

 

----

 
|   | MB FINANCIAL BANK, as a  Lender |
|--------|---------------------------------|
|   |                            |   |
|   | By:                             | /s/ Gary Pleickhardt |
|   | Name:                           | GARY PLEICKHARDT |
|   | Title:                          | VICE PRESIDENT |

 

----

 
|   | National City, as a Lender |
|--------|----------------------------|
|   |                       |   |
|   | By:                        | /s/ Todd R. Olsen |
|   | Name:                      | TODD R. OLSEN |
|   | Title:                     | VP |

 

----

 
|   | RBS Citizens NA, successor  by merger to Charter |
|--------|--------------------------------------------------|
|   | One Bank NA as a Lender                          |
|   |                                             |   |
|   | By:                                              | /s/ Christopher G. Daniel |
|   | Name:                                            | Christopher G. Daniel |
|   | Title:                                           | Vice President |

 

----

 
|   | Wachovia Bank, National  Association, as a Lender |
|--------|---------------------------------------------------|
|   |                                              |   |
|   | By:                                               | /s/ Maurice M. Ryan |
|   | Name:                                             | Maurice M. Ryan |
|   | Title:                                            | Senior Vice President |

 

----

 

 

SCHEDULE 1

 

CREDIT AGREEMENT DEFAULTS

 

1.               The Borrower has not provided theAdministrative Agent and the Lenders with the certificate of the Borrowing Baseas of December 31, 2007 as required by Section 8.5(a) of theCredit Agreement(with notice thereof to the Borrower either not being requiredunder clause (c) of Section 9.1 of the Credit Agreement or, ifrequired thereunder, such notice having been received by the Borrower or suchrequirement of such notice having been waived by the Borrower), and as a consequencethereof, an Event of Default has occurred and is continuing under clause (c) ofSection 9.1 of the Credit Agreement.

 

2.               The Borrower has not provided theAdministrative Agent and the Lenders with the information regarding Liquidityforecasts as required by Section 8.5(b) of the Credit Agreement and,as a consequence thereof, an Event of Default has occurred and is continuingunder clause (c) of Section 9.1 of the Credit Agreement (with noticethereof to the Borrower not being required under clause (c) of Section 9.1of the Credit Agreement or, if required thereunder, such notice having beenreceived by the Borrower or such requirement of such notice being waived by theBorrower).

 

3.               The Borrower has not provided theAdministrative Agent and the Lenders with certifications regarding theinformation required by Section 8.5(c) of the Credit Agreement (withnotice thereof to the Borrower either not being required under clause (c) ofSection 9.1 of the Credit Agreement or, if required thereunder, suchnotice having been received by the Borrower or such requirement of such noticehaving been waived by the Borrower), and, as a consequence thereof, an Event ofDefault has occurred and is continuing under clause (c) of Section 9.1of the Credit Agreement.

 

4.               The Borrower has not provided theAdministrative Agent and the Lenders with unaudited quarterly financialinformation for its historical fiscal quarters ended September 30 (withnotice thereof to the Borrower either not being required under clause (c) ofSection 9.1 of the Credit Agreement or, if required thereunder, suchnotice having been received by the Borrower or such requirement of such noticehaving been waived by the Borrower) and, as a consequence thereof, an Event ofDefault has occurred and is continuing under clause (c) of Section 9.1of the Credit Agreement.

 

5.               The Borrower has not provided theAdministrative Agent and the Lenders with the written statements required by Section 8.5(f) ofthe Credit Agreement (with notice thereof to the Borrower either not beingrequired under clause (c) of Section 9.1 of the Credit Agreement or,if required thereunder, such notice having been received by the Borrower orsuch requirement of such notice having been waived by the Borrower) and, as aconsequence thereof, an Event of Default has occurred and is continuing underclause (c) of Section 9.1 of the Credit Agreement.

 

6.               The Borrower has not provided theAdministrative Agent and the Lenders with the written statements required by Section 8.5(h) (withnotice thereof to the Borrower either not being required under clause (c) ofSection 9.1 of the Credit Agreement or, if required thereunder, suchnotice having been received by the Borrower or such requirement of 

 

 

----

 

such notice havingbeen waived by the Borrower) and, as a consequence thereof, an Event of Defaulthas occurred and is continuing under clause (c) of Section 9.1 of theCredit Agreement.

 

7.               The Borrower has not provided theAdministrative Agent and the Lenders with the information required by Section 8.5(i) ofthe Credit Agreement for its fiscal year ending September 30, 2008 (withnotice thereof to the Borrower either not being required under clause (c) ofSection 9.1 of the Credit Agreement or, if required thereunder, suchnotice having been received by the Borrower or such requirement of such noticehaving been waived by the Borrower) and, as a consequence thereof, an Event ofDefault has occurred and is continuing under clause (c) of Section 9.1of the Credit Agreement.

 

8.               The Borrower has not provided theAdministrative Agent and the Lenders with the information required by Section 8.5(n) ofthe Credit Agreement (with notice thereof to the Borrower either not beingrequired under clause (c) of Section 9.1 of the Credit Agreement or,if required thereunder, such notice having been received by the Borrower orsuch requirement of such notice having been waived by the Borrower) and, as aconsequence thereof, an Event of Default has occurred and is continuing underclause (c) of Section 9.1 of the Credit Agreement.

 

9.               The Borrower has failed to timely notifythe Administrative Agent and the Lenders of some or all of the Credit AgreementDefaults pursuant to Section 8.5(k) or otherwise (with notice thereofto the Borrower either not being required under clause (c) of Section 9.1of the Credit Agreement or, if required thereunder, such notice having beenreceived by the Borrower or such requirement of such notice having been waivedby the Borrower) and, as a consequence thereof, an Event of Default hasoccurred and is continuing under clause (b) of Section 9.1 of theCredit Agreement.

 

10.         The Borrower has not provided theAdministrative Agent and the Lenders with the certificate required by Section 8.5(m) inrespect of its September 30, 2007 financial statements (with noticethereof to the Borrower either not being required under clause (c) of Section 9.1of the Credit Agreement or, if required thereunder, such notice having beenreceived by the Borrower or such requirement of such notice having been waivedby the Borrower) and, as a consequence thereof, an Event of Default hasoccurred and is continuing under clause (c) of Section 9.1 of theCredit Agreement.

 

11.         TheBorrower has entered into agreements in the ordinary course of business withproviders of surety bonds that may have resulted or may in the future result inthe creation of a Lien on Property of the Borrower and the related filing ofUCC financing statements in violation of Section 8.8 of the Credit Agreement, and, as a consequence thereof,(x) if such a Lien has been created on the Property of the Borrower (withnotice thereof to the Borrower either not being required under clause (d) ofSection 9.1 of the Credit Agreement or, if required thereunder, suchnotice having been received by the Borrower or such requirement of such noticehaving been waived by the Borrower) an Event of Default has occurred and iscontinuing and (y) if a Lien may in the future result in the creation of aLien on the Property of the Borrower, a Default may have occurred and may becontinuing under clause (d) of Section 9.1 of the Credit Agreement.

 

 

----

 

12.         Dueto the existence of some or all of the Credit Agreement Defaults and the othermatters expressly contemplated by this Waiver Agreement, the Borrower may havebreached certain representations in connection with previous advances,continuations and conversions of Loans and, if such breach has occurred, anEvent of Default has occurred and is continuing under clause (e) of Section 9.1of the Credit Agreement.

 

13.         The Borrowerhas (i) breached one of more of the covenants in Section 8.22 of theCredit Agreement for the fiscal quarter ending September 30, 2007, (ii) breachedone of more of the covenants in Section 8.22 of the Credit Agreement forthe fiscal quarter ending December 31, 2007 and (iii) breached clause(g) of Section 8.22, and will continue to fail to satisfy such clause(iii) until the Termination Date, and as a consequence thereof, an Eventof Default has occurred and is continuing under clause (b) of Section 9.1of the Credit Agreement.

 

14.         TheBorrower has not complied with Section 8.7(d) with respect to SpecialProject Subsidiaries of the Credit Agreement and, as a consequence thereof, anEvent of Default has occurred and is continuing under clause (b) of Section 9.1of the Credit Agreement.

 

15.         The Borrowerhas not complied with Section 8.7(h) or Section 8.9(j) ofthe Credit Agreement, and will continue to fail to satisfy Section 8.7(h) andSection 8.9(j) until the Termination Date, due to recent reductionsin Tangible Net Worth and, as a consequence thereof, an Event of Default hasoccurred and is continuing under clause (b) of Section 9.1 of theCredit Agreement.

 

16.         The Borrower is a Guarantor under theCredit Agreement (the “Kyle Canyon Credit Agreement”), dated as of July 20,2005, by and among Kyle Acquisition Group, LLC (“Kyle Canyon”), a Nevadalimited liability company, Wachovia Bank, National Association, asAdministrative Agent (the “Kyle Canyon Administrative Agent”), LaSalle Bank NationalAssociation, National City Bank and The Royal Bank of Scotland PLC, asDocumentation Agents, and Wachovia Capital Markets, LLC, as Sole Bookrunner andSole Lead Arranger (as amended, “Kyle Canyon Credit Agreement”).  In connection with the Kyle Canyon CreditAgreement, the Borrower provided a pro rata Repayment Guaranty and certainrelated performance and limited guarantees (the “Kyle Canyon Guaranty”) infavor of the Kyle Canyon Administrative Agent. It constitutes an “Event of Default” under Section 9.01(m) ofthe Kyle Canyon Credit Agreement if the Borrower, as a Guarantor thereunder,does not meet its Parent Guarantor Financial Covenants (as defined in the KyleCanyon Credit Agreement), which currently are the same covenants set forth in Section 8.22of the Credit Agreement.  The Kyle CanyonAdministrative Agent has not provided Kyle Canyon or the Borrower with noticeof this “Event of Default” under Section 9.01(m) of the Kyle CanyonCredit Agreement; however, such “Event of Default,” if not cured as set forthin the Kyle Canyon Credit Agreement, could result in the acceleration ofobligations under the Kyle Canyon Credit Agreement and the related Kyle CanyonGuaranty and, as a consequence of such acceleration, if the AdministrativeAgent, acting at the direction of the Required Lenders, terminates the LimitedDuration Waiver Agreement by giving notice to the Borrower and the Guarantors,an Event of Termination shall exist.

 

 

----

 

17.         Section 21(a) of the KyleCanyon Guaranty requires that the Borrower deliver to the Kyle CanyonAdministrative Agent its audited annual financial statements without a “goingconcern” qualification.  Breach of suchcovenant constitutes an “Event of Default” under the Kyle Canyon CreditAgreement, and, if not cured as set forth in the Kyle Canyon Credit Agreement,could result in the acceleration of obligations under the Kyle Canyon CreditAgreement and the related Kyle Canyon Guaranty. As a consequence of any such acceleration, if the Administrative Agent,acting at the direction of the Required Lenders, terminates the LimitedDuration Waiver Agreement by giving notice to the Borrower and the Guarantors,an Event of Termination shall exist.

 

18.         The Kyle Canyon Administrative Agent hassent Kyle Canyon notice that defaults exist under the Kyle Canyon CreditAgreement, including as a result of non-compliance with (a) Section 5.01(“*Performance and Completion of Project*”),(b) Section 5.07 (“*Compliance WithAgreements*”), (c) Section 6.01 (“*Financial Statements and Other Information*”)and (d) Section 6.02 (“*Notice ofMaterial Events*”). In addition, the notice of default asserted thatKyle Canyon was in default of Section 9.01(m) of the Kyle CanyonCredit Agreement, due to certain cessations of the construction of Improvements(as defined therein).  The 9.01(m) defaultand breach of the Section 5.01 obligations constitute an Event of Defaultfor which no cure period exists, and which could result in the acceleration ofobligations under the Kyle Canyon Credit Agreement and the related Kyle CanyonGuaranty.  In addition, the Sections5.07, 6.01 and 6.02 defaults, if not cured as set forth in the Kyle CanyonCredit Agreement, could result in the acceleration of obligations under theKyle Canyon Credit Agreement and the related Kyle Canyon Guaranty.  As a consequence of any such acceleration, ifthe Administrative Agent, acting at the direction of the Required Lenders,terminates the Limited Duration Waiver Agreement by giving notice to the Borrowerand the Guarantors, an Event of Termination shall exist.

 

19.         The Borrower is a Guarantor under theAmended & Restated Credit Agreement (the “South Edge Credit Agreement”),dated as of March 9, 2007, by and among South Edge, LLC, a Delawarelimited liability company, JPMorgan Chase Bank, N.A., as Administrative Agent(the “South Edge Administrative Agent”), The Royal Bank of Scotland PLC, asDocumentation Agent, and J.P. Morgan Securities Inc. as Sole Bookrunner andSole Lead Arranger (as amended, the “South Edge Credit Agreement”).  In connection with the South Edge CreditAgreement, the Borrower provided a Repayment Guaranty (the “South Edge Guaranty”)in favor of the South Edge Administrative Agent.   In connection with the South Edge CreditAgreement, the Borrower provided a pro rata Repayment Guaranty and certainrelated performance and limited guarantees (the “South Edge Guaranty”) in favorof the South Edge Administrative Agent. It constitutes an “Event of Default” under Section 9.01(m) ofthe South Edge Credit Agreement if the Borrower, as a Guarantor thereunder,does not meet its Parent Guarantor Financial Covenants (as defined in the SouthEdge Credit Agreement), which currently are the same covenants set forth in Section 8.22of the Credit Agreement.  On January 22,2008, the South Edge Administrative Agent provided South Edge with notice ofthis “Event of Default” under Section 9.01(m) of the South EdgeCredit Agreement.  Such “Event ofDefault,” if not cured as set forth in the South 

 

 

----

 

Edge CreditAgreement, could result in the acceleration of obligations under the South EdgeCredit Agreement and the related South Edge Guaranty.  As a consequence thereof, if theAdministrative Agent, acting at the direction of the Required Lenders, terminatesthe Limited Duration Waiver Agreement by giving notice to the Borrower and theGuarantors, an Event of Termination shall exist.

 

20.         Section 21(a) of the South EdgeGuaranty requires that the Borrower deliver to the South Edge AdministrativeAgent its audited annual financial statements without a “going concern”qualification.  Breach of such covenantconstitutes an “Event of Default” under the South Edge Credit Agreement, and,if not cured as set forth in the South Edge Credit Agreement, could result inthe acceleration of obligations under the South Edge Credit Agreement and therelated South Edge Guaranty.  As aconsequence of any such acceleration, if the Administrative Agent, acting atthe direction of the Required Lenders, terminates the Limited Duration WaiverAgreement by giving notice to the Borrower and the Guarantors, an Event ofTermination shall exist.

 

21.         The Borrower is a Guarantor under theAmended and Restated Development Loan Agreement (the “SRAV Loan “), dated October 31,2007 between KH SRAV I, LLC and Wachovia Bank, N.A.  Pursuant to Section 5.3 and Rider A ofthe related Amended and Restated Guaranty (the “SRAV Guaranty”), the Borrower,as Guarantor, must meet the obligations set forth under Section 8.22 ofthe Credit Agreement.  Failure to meetthe obligations set forth in Section 5.3 and Rider A of the SRAV Guarantyconstitute an “Event of Default” under Section 6.1(b) and (c) ofthe SRAV Loan.  In addition, under Section 6.1(c) and(x) of the SRAV Loan, certain of the Credit Agreement Defaults (includingfailure to comply with corresponding reporting requirements under the SRAVGuaranty) and the Borrowed Money Defaults constitute an “Event of Default”under the SRAV Loan, which in turn, constitutes a Credit AgreementDefault.  As a consequence thereof, ifthe Administrative Agent, acting at the direction of the Required Lenders,terminates the Limited Duration Waiver Agreement by giving notice to theBorrower and the Guarantors, an Event of Termination shall exist.

 

22.         Therepurchase of the Borrower’s common stock from Mr. Eugene Rowehl is abreach of Section 8.9(k) and, as a consequence thereof, an Event ofDefault has occurred and is continuing under clause (b) of Section 9.1.  Such repurchase may have been a Default underSection 8.12 of the Credit Agreement to the extent that a Default existedat the time of such repurchase, in which case, an Event of Default has occurredand is continuing under clause (b) of Section 9.1 of the CreditAgreement.

 

23.         The Borrower’s retention of $5,000,000 per year ofNet Cash Proceeds from Dispositions pursuant to Section 1.9(b) mayhave been an Event of Default under the Credit Agreement to the extent that aDefault existed at the time of such Disposition or Dispositions, in which case, an Event of Default hasoccurred and is continuing under clause (b) of Section 9.1 of theCredit Agreement.

 

24.         Anyitem set forth in Schedule 2 or Schedule 3 is hereby incorporated by referenceinto this Schedule 1.

 

 

----

 

SCHEDULE 2

 

BORROWED MONEY DEFAULTS

 

1.               The Borrower is a Guarantor under theKyle Canyon Credit Agreement.  Inconnection with the Kyle Canyon Credit Agreement, the Borrower provided theKyle Canyon Guaranty in favor of the Kyle Canyon Administrative Agent.  It constitutes an “Event of Default” under Section 9.01(m) ofthe Kyle Canyon Credit Agreement if the Borrower, as a Guarantor thereunder,does not meet its Parent Guarantor Financial Covenants (as defined in the KyleCanyon Credit Agreement), which currently are the same covenants set forth in Section 8.22of the Credit Agreement.  The Kyle CanyonAdministrative Agent has not provided Kyle Canyon or the Borrower with noticeof this “Event of Default” under Section 9.01(m) of the Kyle CanyonCredit Agreement; however, such “Event of Default,” if not cured as set forthin the Kyle Canyon Credit Agreement, could result in the acceleration ofobligations under the Kyle Canyon Credit Agreement and the related Kyle CanyonGuaranty and, as a consequence of such acceleration, if the AdministrativeAgent, acting at the direction of the Required Lenders, terminates the LimitedDuration Waiver Agreement by giving notice to the Borrower and the Guarantors,an Event of Termination shall exist.

 

2.               The Kyle Canyon Administrative Agent hassent Kyle Canyon notice that defaults exist under the Kyle Canyon CreditAgreement, including as a result of non-compliance with (a) Section 5.01(“*Performance and Completion of Project*”),(b) Section 5.07 (“*Compliance WithAgreements*”), (c) Section 6.01 (“*Financial Statements and Other Information*”)and (d) Section 6.02 (“*Notice ofMaterial Events*”). In addition, the notice of default asserted thatKyle Canyon was in default of Section 9.01(m) of the Kyle CanyonCredit Agreement, due to certain cessations of the construction of Improvements(as defined therein).  The 9.01(m) defaultand breach of the Section 5.01 obligations constitute an Event of Defaultfor which no cure period exists, and which could result in the acceleration ofobligations under the Kyle Canyon Credit Agreement and the related Kyle CanyonGuaranty.  In addition, the Sections5.07, 6.01 and 6.02 defaults, if not cured as set forth in the Kyle CanyonCredit Agreement, could result in the acceleration of obligations under theKyle Canyon Credit Agreement and the related Kyle Canyon Guaranty.  As a consequence of any such acceleration, ifthe Administrative Agent, acting at the direction of the Required Lenders,terminates the Limited Duration Waiver Agreement by giving notice to theBorrower and the Guarantors, an Event of Termination shall exist.

 

3.               Section 21(a) of the KyleCanyon Guaranty requires that the Borrower deliver to the Kyle CanyonAdministrative Agent its audited annual financial statements without a “goingconcern” qualification.  Breach of suchcovenant constitutes and “Event of Default” under the Kyle Canyon CreditAgreement, and, if not cured as set forth in the Kyle Canyon Credit Agreement,could result in the acceleration of obligations under the Kyle Canyon CreditAgreement and the related Kyle Canyon Guaranty. As a consequence of any such 

 

 

----

 

acceleration, ifthe Administrative Agent, acting at the direction of the Required Lenders,terminates the Limited Duration Waiver Agreement by giving notice to theBorrower and the Guarantors, an Event of Termination shall exist.

 

4.               The Borrower is a Guarantor under theSouth Edge Credit Agreement.  Inconnection with the South Edge Credit Agreement, the Borrower provided theSouth Edge Guaranty in favor of the South Edge Administrative Agent.   In connection with the South Edge Credit Agreement,the Borrower provided the South Edge Guaranty in favor of the South EdgeAdministrative Agent.  It constitutes an “Eventof Default” under Section 9.01(m) of the South Edge Credit Agreementif the Borrower, as a Guarantor thereunder, does not meet its Parent GuarantorFinancial Covenants (as defined in the South Edge Credit Agreement), whichcurrently are the same covenants set forth in Section 8.22 of the CreditAgreement.  On January 22, 2008, theSouth Edge Administrative Agent provided South Edge with notice of this “Eventof Default” under Section 9.01(m) of the South Edge CreditAgreement.  Such “Event of Default,” ifnot cured as set forth in the South Edge Credit Agreement, could result in theacceleration of obligations under the South Edge Credit Agreement and therelated South Edge Guaranty.  As aconsequence of any such acceleration, if the Administrative Agent, acting atthe direction of the Required Lenders, terminates the Limited Duration Waiver Agreementby giving notice to the Borrower and the Guarantors, an Event of Terminationshall exist.

 

5.               Section 21(a) of the South EdgeGuaranty requires that the Borrower deliver to the South Edge AdministrativeAgent its audited annual financial statements without a “going concern”qualification.  Breach of such covenantconstitutes and “Event of Default” under the South Edge Credit Agreement.  Breach of such covenant constitutes and “Eventof Default” under the South Edge Credit Agreement, and, if not cured as setforth in the South Edge Credit Agreement, could result in the acceleration ofobligations under the South Edge Credit Agreement and the related South EdgeGuaranty.  As a consequence of any suchacceleration, if the Administrative Agent, acting at the direction of theRequired Lenders, terminates the Limited Duration Waiver Agreement by givingnotice to the Borrower and the Guarantors, an Event of Termination shall exist.

 

6.               The Borrower isa Guarantor under the SRAV Loan. Pursuant to Section 5.3 and Rider A of the SRAV Guaranty, the Borrower, as Guarantor, must meet theobligations set forth under Section 8.22 of the Credit Agreement.  Failure to meet the obligations set forth in Section 5.3and Rider A of the SRAV Guaranty constitute and “Event of Default” under Section 6.1(b) and(c) of the SRAV Loan.  In addition,under Section 6.1(c) and (x) of the SRAV Loan, certain of theCredit Agreement Defaults (including failure to comply with correspondingreporting requirements under the SRAV Guaranty) and the Borrowed Money Defaultsconstitute an “Event of Default” under the SRAV Loan, which in turn,constitutes a Credit Agreement Default. As a consequence thereof, if the Administrative Agent, acting at thedirection of the Required Lenders, terminates the Limited Duration WaiverAgreement by giving notice to the Borrower and the Guarantors, an Event ofTermination shall exist.

 

 

----

 

7.               The Borrower is a Guarantor under theLoan Agreement (the “First Bank Loan”), dated as of January 5, 2002, byand between Kimball Hill Homes Texas, Inc. and First Bank &Trust, a California state bank (“First Bank”). Under Section 6.01(B) of the First Bank Loan, the CreditAgreement Defaults and the Borrowed Money Defaults constitute an “Event ofDefault” thereunder.  As a consequence ofsuch “Event of Default,” First Bank may accelerate amounts due under the FirstBank Loan.  The total availability underthe First Bank Loan Agreement is $1,900,000. On January 15, 2008, the Company received notice from First Bank ofFirst Bank’s intention to accelerate obligations under the First Bank Loan on January 25,2008 if the pending defaults under the Credit Agreement were not cured.

 

8.               Any item set forth in Schedule 1 orSchedule 3 are hereby incorporated by reference into this Schedule 2.

 

 

----

 

SCHEDULE 3

 

MATERIAL AGREEMENT DEFAULTS

 

1.               The failure by the Borrower, as Guarantorunder the Kyle Canyon Credit Agreement, to meet Parent Guarantor FinancialCovenants set forth in the Kyle Canyon Credit Agreement constitutes an “Eventof Default” under Section 11.1.12 of Kyle Canyon’s OperatingAgreement.  If such an “Event of Default”occurs, the remedies under the Kyle Canyon Operating Agreement would constitutean Event of Default under the Credit Agreement. A potential remedy under the Kyle Canyon Operating Agreement would befor the Kyle Canyon members or Kyle Canyon to purchase Kimball Hill HomesNevada, Inc.’s (“Kimball Hill Nevada”) (the Borrower’s subsidiary and aGuarantor under the Credit Agreement) interest in Kyle Canyon at a price equalto 80% of Kimball Hill Nevada’s capital contributions, which would constitutean Event of Default under Section 8.7 of the Credit Agreement.  As a consequence thereof, if theAdministrative Agent, acting at the direction of the Required Lenders,terminates the Limited Duration Waiver Agreement by giving notice to theBorrower and the Guarantors, an Event of Termination shall exist.

 

2.               The failure by the Borrower, as Guarantorunder the South Edge Credit Agreement, to meet its Parent Guarantor FinancialCovenants set forth in the South Edge Credit Agreement constitutes an “Event ofDefault” under Section 11.1.12 of South Edge’s Operating Agreement. Ifsuch an “Event of Default” occurs, the remedies under the South Edge CanyonOperating Agreement would constitute an Event of Default under the CreditAgreement.  A potential remedy under theSouth Edge Operating Agreement would be for the South Edge members or SouthEdge to purchase Kimball Hill Nevada’s interest in South Edge at a price equalto 80% of Kimball Hill Nevada’s capital contributions, which would constitutean Event of Default under Section 8.7 of the Credit Agreement.  As a consequence thereof, acting at thedirection of the Required Lenders, terminates the Limited Duration WaiverAgreement by giving notice to the Borrower and the Guarantors, an Event ofTermination shall exist.

 

3.               Any item set forth in Schedule 1 orSchedule 2 are hereby incorporated by reference into this Schedule 3.

 

 

----