Document:

Exhibit 10.1

 

PROMISSORY NOTE

 

RELATING TO

SUPERPRIORITY PRIMING
DEBTOR-IN-POSSESSION 

REVOLVING CREDIT FACILITY

 

	
  April 24, 2008

  	
   

  	
  $51,851,594.00

  

 

FOR
VALUE RECEIVED, each of the parties designated as a “Credit
Party” on the signature pages hereto (each, a “Credit Party” and,
collectively, the “Credit Parties”) hereby covenants and promises to pay
to Kimball Hill, Inc. (the “Company”) as owner of the DIP Account
(in such capacity, the “DIP Lender”) up to the aggregate amount of FIFTY  ONE MILLION, EIGHT HUNDRED AND FIFTY-ONE
THOUSAND, FIVE HUNDRED AND NINETY-FOUR AND NO/100 DOLLARS ($51,851,594.00)
pursuant to the terms of this Promissory Note (the “Note”) relating to
the Superpriority Priming Debtor-in-Possession Revolving Credit Facility.

 

Capitalized terms used but not defined herein shall
have the meanings ascribed to such terms in the Financing Orders.

 

1.             Borrowing
Mechanics.

 

(a)           Commencing
on the Closing Date, whenever a Credit Party (including the Company) desires
that the DIP Lender advance proceeds from the DIP Account (each such advance, a
“DIP Loan”), such Credit Party shall deliver a fully executed Notice of
Borrowing to the DIP Lender.  For the
avoidance of doubt, to the extent that the Company desires to access any of the
proceeds on deposit in the DIP Account, such access shall constitute a DIP Loan
and be required to be evidenced by a Notice of Borrowing as required in the
first sentence of this Section 1(a).

 

(b)           Upon
receipt of a Notice of Borrowing delivered pursuant to Section 1(a) hereof,
subject to Section 1(c) hereof, the DIP Lender shall make the
proceeds of such DIP Loans available to such Credit Party by causing an amount
of same day funds equal to the amount specified in the Notice of Borrowing to
be credited from the DIP Account to such Credit Party’s account as designated
in such notice.

 

(c)           At
no time shall the DIP Lender have an obligation to make available any DIP Loan
if, at such time, the Cash Collateral Termination Date shall have occurred or
such DIP Loan, when added to all other outstanding DIP Loans, would exceed the
Maximum Amount.

 

2.             Interest.

 

(a)           Interest
Accrual.  Interest shall accrue on a
daily basis at a rate equal to 9.50% per annum (calculated on the basis of a
year with 360 days) on the unpaid principal balance of this Note then
outstanding.

 

 

(b)           Payment
of Interest.  All accrued and unpaid
interest shall be due and payable on the first Business Day of each month and
shall be paid in immediately available funds to the DIP Account.

 

3.             Principal.

 

(a)           Maturity
Date.  On the Maturity Date, the
Credit Parties shall pay the entire unpaid principal amount of this Note then
outstanding to the DIP Account, together with all accrued and unpaid interest
thereon.

 

(b)           Prepayment
at the Credit Parties’ Election.  At
any time, the Credit Parties may without premium or penalty prepay all or any
portion of the unpaid principal amount of this Note without any reduction of
the Maximum Amount.

 

4.             Grant
of Security Interest; Super-Priority Nature of Obligations and Status of DIP Lender’s
Liens.

 

(a)           Subject to and as provided
in the Financing Orders, as security for the full and timely payment and
performance of all Obligations when due (whether at stated maturity, by
acceleration or otherwise), each Credit Party hereby grants, assigns, conveys,
mortgages, pledges, hypothecates and transfers to the DIP Lender, a first
priority lien (subject only to the Carve-Out) on all of such Credit Party’s
right, title and interest in, to and under all Collateral.

 

(b)           On
and after the Closing Date, the provisions of the Loan Documents (including,
without limitation, the Financing Orders) shall be effective to create in favor
of the DIP Lender legal, valid and perfected liens on and security interests in
all right, title and interest of the Credit Parties in the Collateral,
enforceable against each Credit Party that holds or owns any right, title or
interest in such Collateral, as follows:

 

(i)            pursuant
to Section 364(c)(2) of the Bankruptcy Code, all Obligations shall be
secured by a perfected first priority lien on all Collateral that is
unencumbered as of the commencement of the Cases, and the proceeds therefrom,
subject only to the Carve-Out; and

 

(ii)           pursuant
to Section 364(c)(3) of the Bankruptcy Code, all Obligations shall be
secured by a perfected lien on all Collateral (other than the Collateral
referred to in the following clause (iii)), junior only to the valid, perfected
and non-avoidable liens on such assets as of the commencement of the Cases and
to valid liens in existence at the time of such commencement that are perfected
subsequent to such commencement as permitted by Section 546(b) of the
Bankruptcy Code, subject only to the Carve-Out; and

 

(iii)          pursuant to Section 364(d)(1) of
the Bankruptcy Code, all Obligations shall be secured by a perfected senior
priming lien on all of the Collateral other than the Rolling Meadows Collateral
and Zurich Collateral, subject only to the Carve-Out.

 

Subject to the Financing Orders, no filings, recordings or other
actions shall be necessary to perfect and maintain the perfection, status or
priority of any of the foregoing liens.

 

2

 

(c)           Pursuant
to Section 364(c)(1) of the Bankruptcy Code, all Obligations at all
times shall constitute allowed super-priority administrative expenses and
claims in each of the Cases having priority over all administrative expenses
and claims specified in any other section of the Bankruptcy Code including,
without limitation, Section 105, 503(b) and 507(b) of the Bankruptcy
Code, subject only to the Carve-Out.

 

5.             Guaranty.  Each Credit Party jointly and severally
hereby irrevocably and unconditionally guaranties (the “Guaranty”) to
the DIP Lender  the due and punctual
payment in full in cash of all Obligations when the same shall become due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (collectively, the “Guaranteed Obligations”).

 

(a)           Each
Credit Party hereby jointly and severally agrees, in furtherance of the foregoing
and not in limitation of any other right which the DIP Lender may have at law
or in equity against any Credit Party by virtue hereof, that upon the failure
of any Credit Party  to pay any of the
Guaranteed Obligations when and as the same shall become due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or
otherwise, the Credit Parties will upon demand pay, or cause to be paid, in
cash, to the DIP Lender for credit to the DIP Account, an amount equal to the
sum of the unpaid principal amount of all Guaranteed Obligations then due as
aforesaid, accrued and unpaid interest on such Guaranteed Obligations and all
other Guaranteed Obligations then owed to the DIP Lender as aforesaid.

 

(b)           Each
Credit Party agrees that its obligations hereunder are irrevocable, absolute,
independent and unconditional and shall not be affected by any circumstance
which constitutes a legal or equitable discharge of a guarantor or surety other
than payment in full of the Guaranteed Obligations.  In furtherance of the foregoing and without
limiting the generality thereof, each Credit Party agrees as follows:

 

(i)            this
Guaranty is a guaranty of payment when due and not of collectability, and is a
primary obligation of each Credit Party and not merely a contract of surety;

 

(ii)           the
obligations of each Credit Party hereunder are independent of the obligations
of each other Credit Party;

 

(iii)          payment by any Credit Party of a portion, but
not all, of the Guaranteed Obligations shall in no way limit, affect, modify or
abridge any Credit Party’s liability for any portion of the Guaranteed
Obligations which has not been paid; and

 

(iv)          this
Guaranty and the obligations of Credit Parties hereunder shall be valid and
enforceable and shall not be subject to any reduction, limitation, impairment,
discharge or termination for any reason (other than payment in full of the
Guaranteed Obligations).

 

6.             Use
of Proceeds.  Subject to the
Financing Orders, the DIP Loans may be used for any working capital and other
general corporate purposes.

 

3

 

7.             Definitions.  For purposes of this Note, the following
capitalized terms have the following meaning:

 

“Business Day” means each day other than a
Saturday, Sunday or legal holiday in the States of Illinois.

 

“Cash Collateral Termination Date” means the
date on which Cash Collateral Usage Period shall be terminated, as designated
by the Pre-Petition Agent (in accordance with the terms of the Financing
Orders).

 

“Closing Date” means the first date on which
the initial DIP Loans are made.

 

“Collateral” means the “Collateral” as defined in the Financing Orders and including, without
limitation, each Credit Party’s real and personal property, tangible and
intangible, wherever located, including:

 

(a)           contracts for sale and other sale contracts to which such
Credit Party is or is to become a party, including:

 

(i)            all rights of such
Credit Party to receive monies due and to become due under or pursuant to such
contracts for sale or and other sale contracts;

 

(ii)           all rights of such
Credit Party under or in respect of any escrow, settlement or similar agreement
entered into by such Credit Party in connection with such contracts for sale or
and other sale contracts, including all rights of such Credit Party to receive
monies pursuant to any such escrow, settlement or similar agreement;

 

(iii)          all claims of such
Credit Party for damages arising out of or for breach of or default under such
contracts for sale or and other sale contracts; and

 

(iv)          all rights of such
Credit Party to terminate, amend, supplement, modify or waive performance under
such contracts for sale or and other sale contracts, to compel performance and
otherwise to exercise all remedies thereunder;

 

(b)           all accounts arising
from or relating to contracts for sale or and other sale contracts to which
such Credit Party is or is to become a party;

 

(c)           all general intangibles
arising from or relating to contracts for sale or and other sale contracts to
which such Credit Party is or is to become a party;

 

(d)           all equity interests;

 

(e)           all securities
accounts, deposit accounts and all other demand, time savings, cash management,
passbook and similar accounts now or hereafter maintained by such Credit Party
with any person, and all monies, securities, instruments and other investments
deposited or required to be deposited in any such account;

 

(f)            all tax refunds of
such Credit Party;

 

4

 

(g)           all general intangibles
not otherwise above, now owned or hereafter acquired by such Credit Party;

 

(h)           all chattel paper
(including without limitation, all tangible chattel paper and all electronic
chattel paper), instruments, promissory notes and other investment property of
such Credit Party;

 

(i)            all copyrights,
patents and trademarks now owned or hereafter acquired by such Credit Party
including those copyrights, patents and trademarks and licenses thereof owned
by such Credit Party as of the Closing Date;

 

(j)            all books and records
of such Credit Party, customer lists, credit files, computer files, programs,
printouts and other computer materials and records related thereto;

 

(k)           all commercial tort
claims;

 

(l)            all real property of
such Credit Party;

 

(m)          all “Collateral” as
referred to in any Loan Document;

 

(n)           documents, letters of
credit issued in favor of such Credit Party, letter-of-credit rights and all
excess proceeds returned to such Borrower from letter of credit beneficiaries;

 

(o)           all equipment,
fixtures, goods, inventory, machinery now owned or hereafter acquired by such
Credit Party;

 

(p)           all pledged deposits
now owned or hereafter acquired by such Credit Party; and

 

(q)           all cash and all
proceeds, insurance proceeds and products thereof, supporting obligations and
products of any and all of the foregoing and all other collateral security and
guarantees given by any Person with respect to the foregoing, including
proceeds of contracts for sale and land sale contracts constituting escrow
proceeds receivables and any other escrowed funds relating to contracts for
sale and land sale contracts.

 

Notwithstanding anything to the contrary herein, “Collateral” shall at
no time include any DIP Loans or any of the Obligations.

 

“DIP Account” means
account number                 
maintained at Harris N.A.

 

“DIP Loan”
means a loan made by the DIP Lender from the DIP Account to a Credit Party
pursuant to Section 1.

 

“Final DIP Order” means an order, in form and
substance substantially similar to the Interim DIP Order, entered by the
Bankruptcy Court approving this Note and the other Loan Documents.

 

5

 

“Financing Orders” means the Interim DIP Order
and/or the Final DIP Order, as applicable.

 

“Interim DIP Order” means an order entered by
the Bankruptcy Court approving this Note and the other Loan Documents.

 

“Loan Documents”
means this Note, the Financing Orders and any other agreement, document or
instrument delivered to or in favor of DIP Lender or any holder in connection
with any of the foregoing.

 

“Maturity Date” means the earlier of (x) the
effective date of a Chapter 11 plan of reorganization or liquidation confirmed
in the Cases by the Bankruptcy Court and (y) the Cash Collateral
Termination Date.

 

“Maximum Amount” means $51,851,594.00.

 

“Notice of Borrowing” means a notice
substantially in the form of Exhibit A setting forth the amount and, in
reasonable detail, use of the requested borrowing.

 

“Obligations” means all loans, advances, debts,
principal, interest, contingent reimbursement obligations with respect to
outstanding letters of credit, premiums, liabilities, obligations (including
indemnification obligations), fees, charges, costs, lease payments, guaranties,
covenants, and duties of any kind and description owing by the Credit Parties to
the DIP Lender pursuant to or evidenced by this Note and the other Loan
Documents and irrespective of whether for the payment of money, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including all interest not paid when due and all
expenses that the Borrowers is required to pay or reimburse by the Loan
Documents, by law, or otherwise, and any reference in this Note or in the Loan
Documents to the Obligations shall include all or any portion thereof and any
extensions, modifications, renewals, or alterations thereof.

 

8.             Governing
Law.  THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF ILLINOIS AND, TO THE EXTENT APPLICABLE, THE BANKRUPTCY
CODE.

 

9.             Waiver
of Presentment, Demand and Dishonor. 
Each Credit Party hereby waives presentment for payment, protest,
demand, notice of protest, notice of nonpayment and diligence with respect to
this Note, and waives and renounces all rights to the benefits of any statute
of limitations or any moratorium, appraisement, exemption, or homestead now
provided or that hereafter may be provided by any federal or applicable state
statute, including but not limited to exemptions provided by or allowed under
the Bankruptcy Code, both as to itself and as to all of its property, whether
real or personal, against the enforcement and collection of the Obligations and
any and all extensions, renewals, and modifications hereof.

 

10.           Business
Days.  If any payment is due, or any
time period for giving notice or taking action expires, on a day which is not a
Business Day, the payment shall be due and 

 

6

 

payable on, and the time period shall automatically be extended to, the
immediately following Business Day, and interest shall continue to accrue at
the required rate hereunder until any such payment is made.

 

11.           Counterparts; Facsimile or Electronic Mail Execution. 
This Note may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Note. 
Delivery of an executed counterpart of this Note by facsimile or
electronic mail shall be equally as effective as delivery of an original
executed counterpart of this Note.  Any
party delivering an executed counterpart of this Note by facsimile or
electronic mail also shall deliver an original executed counterpart of this
Note but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Note.

 

[Signature
Pages Follow]

 

7

 

IN WITNESS WHEREOF, each party below has executed and
delivered this Promissory Note on the date first above written.

 

	
   

  	
  KIMBALL HILL, INC., as a Credit Party

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ C. Kenneth Love

  
	
   

  	
   

  	
  C. Kenneth Love

  
	
   

  	
   

  	
  President and Chief Executive Officer

  

 

Promissory Note

 

 

	
   

  	
  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

  
	
   

  	
  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.

  
	
   

  	
  KH INGHAM PARK SOUTH, LLC

  
	
   

  	
  KIMBALL HILL URBAN CENTERS
  SPECIAL

  
	
   

  	
  PURPOSES, L.L.C.,

  
	
   

  	
  each as a Credit Party

  

 

 

	
   

  	
   

  	
  By:

  	
  /s/ C. Kenneth Love

  
	
   

  	
   

  	
  C. Kenneth Love

  
	
   

  	
   

  	
  Vice Chairman

  

 

Promissory Note

 

 

	
   

  	
  THE
  HAMILTON PLACE PARTNERSHIP, as a

  Credit Party

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Kimball Hill Homes
  Illinois, LLC, its general

  
	
   

  	
   

  	
  partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ C. Kenneth Love

  
	
   

  	
   

  	
   

  	
  C. Kenneth Love

  
	
   

  	
   

  	
   

  	
  Vice Chairman

  

 

Promissory Note

 

 

EXHIBIT
A

 

FORM OF

 

NOTICE OF BORROWING

 

Date:                ,
2008

 

	
  To:

  	
  Kimball Hill, Inc.

  
	
   

  	
  Attn:

  	
  Chief Financial Officer and/or

  
	
   

  	
   

  	
  Chief Restructuring Officer

  

 

Ladies and Gentlemen:

 

Reference is made to that certain Promissory Note dated as of April     ,
2008 (the “Note”), relating to the Superpriority Priming Debtor-in-Possession
Revolving Credit Facility, among each of the parties designated as a “Credit
Party” on the signature pages thereto (each, a “Credit Party” and,
collectively, the “Credit Parties”) and Kimball Hill, Inc., as
owner of the DIP Account (as defined in the Note) (in such capacity, the “DIP
Lender”).

 

The undersigned hereby requests a DIP Loan:

 

	
  1.

  	
  On
                    ,
  2008 (a Business Day);

  
	
  2.

  	
  In the principal amount of $                ;
  and

  
	
  3.

  	
  Proceeds of this request shall be disbursed as follows:

  
	
   

  	
   

  
	
   

  	
  $                  to:

  
	
   

  	
   

  
	
   

  	
  Receiving Bank:

  
	
   

  	
  Account name:

  
	
   

  	
  Account number:

  
	
   

  	
  ABA Number:

  
	
   

  	
  Reference: DIP Loan

  

 

 

	
   

  	
                                ,
  as Credit Party under

  
	
   

  	
  the Promissory Note

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

Borrowing RequestExhibit 10.2

 

AMENDMENT TO EMPLOYMENT AGREEMENT

 

This
AMENDMENT TO EMPLOYMENT AGREEMENT (this “Amendment”) is made as of April 21,
2008 between KIMBALL HILL, INC. (the “Company”), an Illinois corporation having
its principal place of business in Rolling Meadows, Illinois, and DAVID K. HILL
(“Executive”), an individual resident of Illinois.

 

RECITALS

 

A.            The Company and Executive are
parties to the Employment Agreement (the “Employment Agreement”) dated as of August 10,
2007.

 

B.            In light of current circumstances,
the Company and Executive wish to amend certain provisions of the Employment
Agreement relating to Executive’s base salary.

 

NOW,
THEREFORE, in consideration of the mutual promises and agreements of the
parties, the Company and Executive agree as follows:

 

1.             Effective as of the date of this
Amendment, the base salary payable by the Company to Executive shall be reduced
to the rate of $500,000 per annum.  As
used in the Agreement, the term “Salary” shall refer to the aforesaid base
salary of $500,000 per annum.

 

2.             Except as amended pursuant to the
provisions of Section 1 of this Amendment, the Employment Agreement shall
remain in full force and effect.

 

IN WITNESS WHEREOF, Executive and the Company have signed this
Agreement as of the date first above written.

 

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  KIMBALL
  HILL, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
        /s/
  C. Kenneth Love

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
        C.
  Kenneth Love, President

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
        /s/
  David K. Hill

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
        David
  K. Hill

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