Document:

Exhibit 10.2

 

EMPLOYMENT
AGREEMENT

 

THIS AGREEMENT (“Agreement”), dated as
of March 3, 2005 (“Agreement Date”), is made between Kimball Hill, Inc., an
Illinois corporation having its principal place of business in Rolling Meadows,
Illinois, and C. Kenneth Love, an individual resident of Illinois.

 

ARTICLE I

PURPOSES

 

The Company has determined that it is in the
best interests of the Company and its stockholders to retain the services of
the Executive on the terms and conditions set forth herein.

 

ARTICLE II

POSITION, DUTIES, COMPENSATION AND BENEFITS

 

2.1           Agreement
Term. The employment term of this Agreement (“Agreement Term”) means
the period beginning on June 1, 2005 (the “Employment Date”) and ending
on the fifth anniversary of the Employment Date or, if later, the date to which
the Agreement Term is extended under the following sentence. Beginning on the
fifth anniversary of the Employment Date, and on each subsequent anniversary of
the Employment Date (unless sooner terminated) the Agreement Term shall automatically
be extended on such date by one year unless, not less than ninety (90) days
prior to such anniversary, the Company delivers a written notice to Executive
or Executive delivers written notice to the Company (either such notice a “Nonrenewal
Notice”) that the Agreement Term shall expire on such anniversary.

 

2.2           Position
and Duties; Board Service.

 

(a)           Initial
Position. During the Agreement Term, the Executive shall be employed as
Vice Chairman of the Company in the Office of the Chief Executive of the
Company with duties, responsibilities, powers and authorities commensurate with
that position assigned to him by the Chairman and Chief Executive Officer of
the Company (the “Chairman”) or the Board of Directors of the Company
(the “Board”). The Office of the Chief Executive shall comprise the
Chairman , the Vice-Chairman, President and Chief Operating Officer of the
Company, Executive and the other Vice Chairman of the Company. The Executive
shall report exclusively to the Chairman.

 

(b)           Chief
Executive Officer. Not later than October 1, 2008, unless such date is
extended as provided in subsection (c) below, the Executive shall be elected
to, and thereafter during the Agreement Term shall serve as, the Chief
Executive Officer of the Company (“CEO”). As CEO, Executive shall have
such duties, powers and responsibilities as are customary for a chief executive
officer and are assigned by the Chairman or the Board, and Executive shall
report exclusively to the Board.

 

 

(c)           Deferral
of CEO Promotion. Notwithstanding subsection (b) above, the Company may
defer Executive’s election to the position of CEO to a date not later than
October 1, 2009; provided that on or before
October 1, 2009, the Executive is elected to the position of CEO, and further provided that on or before October 1, 2008, the
Company delivers to Executive a firm written commitment executed by the
Chairman of the Company to the election of Executive as CEO not later than
October 1, 2009.

 

(d)           Duties.
During the Agreement Term (other than any periods of vacation or sick leave to
which the Executive is entitled), the Executive shall devote substantially all
of his attention and time to the business and affairs of the Company to
discharge the duties assigned to him in accordance with this Agreement, and to
use his best efforts to perform such duties faithfully and efficiently. Executive’s
services shall be performed principally at the Company’s corporate offices in
Rolling Meadows, Illinois. During the Agreement Term, the Executive may (1)
serve on corporate, civic or charitable boards or committees, (2) deliver
lectures, fulfill speaking engagements or teach at educational institutions,
(3) manage personal investments, and (4) cooperate with his former employer in
the transition of his duties respecting clients or other business affairs of
his former employer, so long as (i) Executive’s activities described in clause
(4) do not require his services for more than two days per calendar month or
extend beyond October 1, 2005 and Executive’s remaining activities, either
individually or in the aggregate, do not materially interfere or conflict with
the performance of the Executive’s duties under this Agreement, and (ii)
Executive’s activities described in clause (1), (2), (3) and (4) do not cause
Executive to act in competition with, or to have a conflict of interest with,
the Company.

 

(e)           Board
Service. Not later than the first meeting of the Board following the
Agreement Date, the Executive will be appointed as a member of the Board,
effective on the Employment Date. The Executive will be nominated for election
and elected as a member of the Board at the first annual meeting of the Company’s
stockholders following the Agreement Date, and shall thereafter throughout the
Agreement Term be renominated for election and elected to successive terms as a
member of the Board.

 

2.3           Salary
and Bonus.

 

(a)           Salary.
During the Agreement Term and prior to October 1, 2005, the Executive shall
earn a base salary (“Salary”) at the rate of $650,000 per annum. Effective
October 1, 2005, Salary shall be increased to the rate of $700,000 per annum. Effective
upon the promotion of Executive to the position of CEO pursuant to
Section 2.2(b) or (c) above Salary shall be increased to an amount
commensurate with his position as CEO in light of the salaries of other senior
executive officers of the Company (other than the Chairman). Executive’s Salary
shall be payable in accordance with the Company’s executive payroll policy. Such
Salary shall be subject to review and increase (but not decrease) by the
Company not less frequently than annually. In no event shall the amount of
Executive’s Salary (as may be increased from time to time) be reduced during
the Agreement Term.

 

2

 

(b)           Bonus.
During the Agreement Term, the Executive shall also earn an annual bonus (“Bonus”)
for each fiscal year of the Company in accordance with this subsection (b):

 

(1)           Amount. Subject
to paragraph (2) below, the Bonus shall be equal to:  (i) if the Company and Executive achieve
target performance goals for such fiscal year, not less than 120% of the annual
amount of Salary in effect on the last day of such fiscal year (“Target Bonus”);
(ii) if the Company and Executive achieve maximum performance goals, an
amount equal to 160% of the annual amount of Salary in effect on the last day
of such fiscal year; and (iii) if the Company and Executive exceed more than
target performance but less than maximum performance, an amount determined by
linear interpolation between the amounts determined under clauses (i) and (ii)
of this sentence based on the percentage of performance achieved. The Bonus for
each fiscal year shall be paid to Executive by the Company in cash not later
than three and one-half months following the end of such fiscal year. The Bonus
will be pro-rated for partial years of employment.

 

(2)           Guaranteed Bonus.
For the periods beginning on the Employment Date and ending September 30, 2005
and beginning October 1, 2005 and ending September 30, 2006, the Bonus shall
not be less than 120% of the respective amounts of Salary paid to Executive
during such periods.

 

(3)           Performance Goals.
Bonus will be awarded based on the achievement of reasonable and objective
performance goals for the Company and Executive as established by the Chairman
in consultation with the Executive. Performance goals shall be set within the
first ninety (90) days of the Company’s fiscal year starting with the fiscal
year beginning October 1, 2005.

 

2.4           Other
Benefits.

 

(a)           Other Incentive Plans. During the Agreement Term, the Executive
shall participate in all other incentive plans or arrangements (not including
annual bonus) applicable generally to senior executives of the Company, with
award opportunities commensurate with the most senior executive position (other
than the Chairman), taking into account incentives provided for under this
Agreement.

 

(b)           Savings
and Retirement Plans. During the Agreement Term, the Executive shall be
entitled to participate in all savings and retirement plans provided by the
Company from time to time applicable to senior executives of the Company
generally, in accordance with the terms of such plans.

 

(c)           Welfare
Benefit Plans. During the Agreement Term, the Executive and the Executive’s
spouse and children shall be eligible to participate in, and receive all
benefits under, welfare benefit plans provided from time to time by the Company
(including, without limitation, medical, prescription, dental, disability,
salary

 

3

 

continuance, individual life, group life,
dependent life, accidental death and travel accident insurance plans)
applicable to senior executives of the Company and their spouses and children
generally and in accordance with the terms of such plans.

 

(d)           Other
Fringe Benefits. During the Agreement Term, the Executive shall be entitled
to fringe benefits provided by the Company from time to time in accordance with
the fringe benefit plans applicable to senior executives of the Company (other
than the Chairman) generally, in accordance with the terms of such plans.

 

(e)           Expenses.
During the Agreement Term, the Executive shall be entitled to reimbursement of
all reasonable employment-related expenses incurred by the Executive upon the
Company’s receipt of accountings in accordance with the terms of the policies
applicable to senior executives of the Company (other than the Chairman)
generally.

 

(f)            Office
and Support Staff. During the Agreement Term, the Executive shall be
entitled to an office or offices of a size and with furnishings and other
appointments and to secretarial and other assistance, provided by the Company
from time to time, in each case in accordance with the policies applicable to
senior executives of the Company generally.

 

(g)           Vacation.
During the Agreement Term, the Executive shall be entitled to paid vacation
provided by the Company from time to time in accordance with the policies
applicable to senior executives of the Company (other than the Chairman)
generally, but in no event less than five (5) weeks per year.

 

2.5           Equity
Compensation.

 

(a)           Initial
Grant of Deferred Stock Units. On the Employment Date the Company shall
grant to the Executive (the “Initial Grant”) deferred stock units on the
terms and conditions set forth in this Section 2.5 (“Deferred Stock Units”)
representing a right to receive in the future at a designated date 37,500
shares (“Shares”) of the common stock of the Company (“Common Stock”).

 

(b)           Interim
Grants of Deferred Stock Units, and Options. During the Agreement Term the
Company shall grant to the Executive such additional Deferred Stock Units (“Additional
Grants”) and/or options to purchase Shares (“Stock Options”, and,
together with Deferred Stock Units or other ownership of Shares or rights to
Shares of the Company Executive’s “Equity”) at such times and in such
amounts as the Board determines in its sole discretion, on terms not less
favorable to Executive than grants to other senior executives of the Company
generally.

 

(c)           Promotion
Grant of Deferred Stock Units. On the date Executive becomes CEO the
Company shall grant to Executive Deferred Stock Units and/or Stock Options in
such amounts appropriate at that time, but no commitment for further grants is
being undertaken in this Agreement.

 

4

 

(d)           Vesting
and Payment of Deferred Stock Units.

 

(1)           Time Vesting of
Initial Grant. Subject to acceleration as provided in subsection (e) below,
thirty three and one-third percent (33-1/3%) of Restricted Stock Units granted
pursuant to subsection (a) above shall be fully vested and nonforfeitable on
October 1, 2005, thirty three and one-third percent (33-1/3%) of Restricted
Stock Units shall become fully vested and nonforfeitable on October 1, 2006,
and the remaining thirty three and one-third percent (33-1/3%) of Restricted
Stock Units shall become fully vested and nonforfeitable on October 1, 2007; provided that the Executive remains employed by the Company
on such vesting dates.

 

(2)           Vesting of
Additional and Promotion Grants. Restricted Stock Units and/or Stock
Options granted pursuant to subsections (b) and (c) shall vest (including any
acceleration of vesting) in accordance with the terms of the grants, as
determined by the Board.

 

(3)           Payment. Vested
Deferred Stock Units will be distributed to Executive by the Company on the
first to occur of (1) the fifth anniversary of the date of grant, (2) Executive’s
separation from service (within the meaning of Section 409A(a)(2)(B)(i) of the
Code) or, if at the time of the separation from service the Company is publicly
traded, six months after the separation from service, (3) Executive’s death or
Disability (as defined in Section 3.1), and (4) a Change of Control (as defined
in subsection (f) below) of the Company. Except as provided in paragraph (4)
below, distribution will be made in the form of fully paid and nonassessable
Shares freely transferrable by Executive except for restrictions imposed by
Article V of this Agreement or by generally applicable securities laws.

 

(4)           Withholding Election.
If on the date of distribution of any Deferred Stock Units pursuant to
paragraph (3) above the Shares are not publicly tradable on an established
securities market, Executive may elect, by written notice to the Company on or
before the date of distribution, in lieu of providing the Company with cash
equal to applicable withholding and other taxes required to be withheld from
such compensation under any applicable tax law, to have the Company withhold
Shares equal to the minimum applicable withholding of federal, state and local
income and other taxes, or at the Executive’s election the incremental amount
by which Executive’s federal, state and local income and other taxes are
increased by reason of Executive’s receipt of the Shares, and have the Company
remit such applicable withholding to the applicable taxing authorities.

 

(e)           Accelerated
Vesting. The Initial Grant of Deferred Stock Units shall become fully
vested and nonforfeitable upon the first to occur of the following events: (1)
termination of Executive’s employment by the Company without Cause, (2)
termination of Executive’s employment by Executive for Good Reason, (3)
Executive’s

 

5

 

death or Disability, (4) Change of Control of
the Company, or (5) the effective date of a registration statement under the
Securities Act of 1933 (the “‘33 Act”) for an initial public offering of Shares
of the Company (an “IPO”). Upon any of the foregoing events all outstanding
Stock Options shall remain exercisable for the remainder of their full
unexpired term, except as otherwise provided in Article IV.

 

(f)            For
purposes of this Agreement a “Change of Control” means

 

(1)           any person, or group of
persons acting in concert, directly or indirectly becoming the owner of a
greater portion of the value of the Company or a greater portion of the right
to vote for the election of directors of the Company than the collective
ownership of (i) David K. Hill (“Hill”), (ii) Hill’s spouse, ancestors,
siblings, and descendants of Hill or his siblings, or the spouses of any of
them (“Hill Family”), or (iii) entities in which at least eighty percent
(80%) of the value and voting power or (in the case of a trust) the beneficial
interest are owned directly or indirectly (through other such entities) by Hill
or Hill Family, or in the case of a private foundation that is tax exempt under
Section 501(c)(3) of the Code, a majority of the directors are members of, or
appointed by, the Hill Family (such entities, “Hill Entities,” and
together with Hill and Hill Family, the “Hill Group” or individually a “Hill
Group Member”); or

 

(2)           stockholders of the
Company approve any of (i) a merger, reorganization, consolidation or similar
transaction (any of the foregoing, a “Merger”) as a result of which the
Hill Group is not expected to beneficially own, immediately after such Merger,
directly or indirectly, more than 50% of, respectively, the common stock and
the combined voting power of the voting securities of the corporation resulting
from such Merger; (ii) a plan or agreement for the sale or other disposition of
all or substantially all of the assets of the Company to a corporation or other
entity in which the Hill Group does not beneficially own, directly or
indirectly, more than 50% of, respectively, the common stock and the combined
voting power of the voting securities of that corporation or other entity; or
(iii) a plan of liquidation of the Company.

 

ARTICLE III

TERMINATION OF EMPLOYMENT

 

3.1           Disability.
The Executive’s employment shall terminate automatically upon the Executive’s
Disability during the Agreement Term. For purposes of this Agreement “Disability”
means that Executive (i) is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months, or (ii) is, by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or can be expected to last for a continuous period of not
less than twelve (12) months, receiving income replacement benefits for a
period of not less than three (3) months under an accident and health plan
covering employees of the Company, in either case as certified

 

6

 

by a physician jointly selected by the
Company or its insurers and the Executive or the Executive’s legal
representative. The date of termination (“Termination Date”) for Disability
shall be the date on which such Disability is certified to by such jointly
selected physician.

 

3.2           Death.
The Executive’s employment shall terminate automatically upon the Executive’s
death during the Agreement Term. The Termination Date for death shall be the
date of Executive’s death.

 

3.3           Cause.
During the Agreement Term, the Company may terminate the Executive’s employment
for Cause. For purposes of this Agreement “Cause” means any of the
following:

 

(a)           Executive’s
conviction of a felony, or conviction of a misdemeanor involving fraud,
dishonesty or moral turpitude, which conviction is non-appealable or for which
the period for filing an appeal has expired; or

 

(b)           Executive’s
willful or intentional material breach of this Agreement, or

 

(c)           Willful
or intentional material misconduct by Executive in the performance of his
duties under the Agreement;

 

provided,
however,  that
Cause shall not include any one or more of the following:  (i) bad judgment or negligence of the
Executive; (ii) any act or omission believed by the Executive in good faith to
have been in and not opposed to the interests of the Company; or (iii) any act
or omission of which the Chairman, the Board, or a majority of the members of
the Board who are not parties to such act or omission, has or have had actual
knowledge for at least six (6) months. Any termination of employment by the
Company for Cause shall be communicated to the Executive by a written notice (“Notice
of Termination”) given in accordance with Section 11.8 and which sets forth
(a) the specific termination provision in this Agreement relied upon by the
party giving such notice, (b) in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive’s employment under
such termination provision, and (c) if the Termination Date is other than the
date of receipt of such Notice of Termination, a Termination Date which shall
not be more than fifteen (15) days after the giving of such Notice of
Termination.

 

3.4           Good
Reason. During the Agreement Term, the Executive may terminate his
employment for Good Reason. For purposes of this Agreement “Good Reason” means
any of the following:

 

(a)           any
material breach of the Agreement by the Company;

 

(b)           any
material adverse change in the  status,
position, responsibilities or compensation of Executive;

 

7

 

(c)           any
failure to nominate or elect Executive as a member and as Vice-Chairman of the
Board;

 

(d)           any
reduction in Executive’s Salary or Target Bonus;

 

(e)           failure
of the Executive to be elected or reelected to membership on the Board;

 

(f)            any
failure to either: (1) nominate and 
elect Executive as CEO of the Company on or before October 1, 2008, or
in the alternative (2) both deliver to Executive on or before October 1, 2008,
a firm written commitment executed by the Chairman to the election of Executive
as CEO not later than October 1, 2009, and subsequently elect Executive as CEO
of the Company on or before October 1, 2009;

 

(g)           any
failure, after Executive is initially elected as CEO of the Company, to retain
Executive as CEO during the Agreement Term;

 

(h)           causing
or requiring Executive to report to anyone other than the Chairman or the
Board;

 

(i)            the
assignment of duties to Executive materially inconsistent with Executive’s
position and responsibilities described in Section 2.2.

 

(j)            the
failure of the Company to assign the Agreement to a successor to the Company or
the failure of a successor to the Company to explicitly assume and agree to be
bound by the Agreement; or

 

(k)           requiring
Executive without his consent to be principally based at any office or location
outside the Chicago metropolitan area.

 

Any
termination of employment by the Executive for Good Reason shall be communicated
to the Company by Notice of Termination, and the Termination Date shall be the
date of delivery of the Notice of Termination unless the Notice of Termination
specifies a later Termination Date which shall not be later than fifteen (15)
days after delivery of the Notice of Termination. Prior to resigning for Good
Reason, the Executive shall give written notice of the facts and circumstances
claimed to provide a basis for such resignation not more than sixty (60) days
after he has actual knowledge of such facts and circumstances, and if the
Company has cured such facts and circumstances within thirty (30) days after
receipt of such notice, Executive shall not be entitled to resign for Good
Reason.

 

ARTICLE IV

OBLIGATIONS OF THE COMPANY UPON TERMINATION OF EMPLOYMENT

 

4.1           If
by the Executive for Good Reason or by the Company Other Than for Cause or
Disability or Death. If, during the Agreement Term, the Company shall
terminate Executive’s employment (including, without limitation, by means of
the

 

8

 

Company delivering to Executive a Nonrenewal
Notice) other than for Cause, Disability or death, or if the Executive shall
terminate employment for Good Reason, the Company’s obligations to the
Executive shall be as follows:

 

(a)           The
Company shall immediately pay the Executive, in addition to all vested rights
arising from the Executive’s employment as specified in Section 2.5, a cash
amount equal to the sum of the following amounts:

 

(1)           all unpaid amounts of
Salary and Bonus and all unpaid vacation previously accrued to the benefit of
the Executive and any rights Executive may have under the terms of applicable
welfare and fringe benefit plans and applicable law (“Accrued Obligations”);

 

(2)           an amount equal to the
product of Executive’s Target Bonus (determined as of the Termination Date)
multiplied by a fraction, the numerator of which is the number of days from and
including the first day of the fiscal year in which the Termination Date occurs
through and including the Termination Date, and the denominator of which is 365
(“Pro-Rata Bonus”); and

 

(b)

 

(1)           If such termination
occurs either in anticipation of a Change of Control or within one (1) year
after a Change of Control, then the Company shall pay Executive, in a single
lump sum as soon as practicable after the Termination Date, a cash amount equal
to the sum of (A) Executive’s Salary in effect on the Termination Date
multiplied by the number of years in the applicable Severance Period specified
in paragraph (b)(3), plus (B) Target Bonus equal to one hundred twenty percent
(120%) of Executive’s Salary in effect on the Termination Date multiplied by
the number of years in the applicable Severance Period specified in paragraph
(b)(3).

 

(2)           If such termination does
not occur either in anticipation of a Change of Control or within one (1) year
after a Change of Control, then during the applicable Severance Period
specified in paragraph (b)(3) below, the Company shall pay Executive, on each
normal payroll date (not less frequently than monthly), an amount equal to the
sum of Executive’s Salary in effect on the Termination Date plus Target Bonus
in an amount equal to one hundred twenty percent (120%) of Executive’s Salary,
divided by the number of payroll periods in each respective 12-month period
within the applicable Severance Period. Notwithstanding the foregoing, if such
termination occurs more than one (1) year after a Change in Control but prior
to the fifth anniversary of the Employment Date, then in lieu of the aforesaid
payments during the applicable Severance Period, the Company shall pay
Executive, in a single lump sum as soon as practicable after the Termination
Date, a cash amount equal to the sum of (A) Executive’s Salary in effect on the
Termination Date multiplied by the number of years in the applicable Severance
Period specified in paragraph (b)(3), plus (B)

 

9

 

Target Bonus
equal to one hundred twenty percent (120%) of Executive’s Salary in effect on
the Termination Date multiplied by the number of years in the applicable
Severance Period specified in paragraph (b)(3).

 

(3)           For purposes of this
Agreement, the “Severance Period” shall be:

 

(A)          Except as otherwise
provided below, two (2) years after the Termination Date;

 

(B)           If such termination
occurs either in anticipation of a Change of Control or within one (1) year
after a Change of Control, three (3) years after the Termination Date;

 

(C)           If, and only if, the
Executive is terminated by the Company prior to the fifth anniversary of the
Employment Date, other than for Cause, Disability or death, the period from the
Termination Date through the fifth anniversary of the Employment Date, plus an
additional two (2) years after such fifth anniversary (or three (3) years after
such fifth anniversary if the termination occurs in anticipation of a Change of
Control or within one (1) year after a Change of Control). For avoidance of
doubt, this subparagraph (C) shall not apply to any resignation by the
Executive, including a resignation for Good Reason. If this subparagraph (C)
applies and Executive is to receive payment in a lump sum, then the number of
years in the Severance Period shall include a fraction of a year for the period
from the Termination Date through the next anniversary of the Employment Date,
plus the number of whole years in the period from the next anniversary of the
Employment Date through the end of the Severance Period.

 

(c)           On
the Termination Date, the Executive shall become fully vested in the Initial
Grant of Deferred Stock Units. Any Stock Options held by Executive that are
vested on the Termination Date may be exercised until three (3) months after
the Termination Date, or the date upon which they would otherwise have expired,
if earlier.

 

(d)           For
a period equal to the Severance Period the Company shall continue to provide to
the Executive and the Executive’s spouse and children welfare benefits
(including, without limitation, medical, prescription, dental, disability,
salary continuance, individual life, group life, accidental death and travel accident
insurance

 

10

 

plans and programs and fringe benefits),
which are at least as favorable as the plans provided from time to time by the
Company applicable to senior executives and their spouses and children
generally and in accordance with the terms of such plans. The Executive’s
rights under this Section 4.1(d) shall be in satisfaction of any
post-termination continuation coverage or conversion rights the Executive may
have pursuant to applicable law, including without limitation, continuation
coverage required by Section 4980 of the Internal Revenue Code of 1986, as
amended  (the “Code”).

 

(e)           The
Executive’s right to receive any of the payments and benefits pursuant to this
Section 4.l (other than the Accrued Obligations) shall be expressly conditioned
upon Executive (i) executing a waiver and release in substantially the form
attached as Exhibit A (the “Release”), and (ii) not having committed either
a willful and material breach of the provisions of Article X, or a breach of
Article X that the Executive fails to reasonably cure within thirty (30) days
after receipt of a written notice of such breach from the Company to Executive.
No payment shall be required until the time for revoking such Release shall
have expired.

 

4.2           If
by the Company for Cause. If, during the Agreement Term, the Company shall
terminate the Executive’s employment for Cause, the Company’s obligations to
the Executive, in addition to all vested rights arising from the Executive’s
employment as specified in Section 2.5, shall consist of (a) the obligation
immediately to pay Executive in cash all Accrued Obligations, and (b) the
obligations of the Company with respect to Executive’s Equity that has vested
as of the Termination Date, except that any Stock Options that have not been
exercised by the date of the Notice of Termination shall be forfeited, and any
purported exercise after the Notice of Termination is given shall be void.

 

4.3           If
by the Executive Other Than for Good Reason. If, during the Agreement Term,
the Executive shall terminate employment other than for Good Reason, Disability
or death, the Company’s obligations to the Executive, in addition to all vested
rights arising from the Executive’s employment as specified in Section 2.5,
shall consist of (a) the obligation immediately to pay the Executive in cash
all Accrued Obligations, (b) the obligations of the Company with respect to
Executive’s Equity that has vested as of the Termination Date, except that any
Stock Options that have not been exercised by the date the Executive notifies
the Company of his resignation shall be forfeited, and any purported exercise
after such date shall be void.

 

4.4           If
upon Death or Disability. If the Executive’s employment is terminated by
reason of the Executive’s death or Disability during the Agreement Term, the
Company’s obligations to the Executive, in addition to all vested rights
arising from the Executive’s employment as specified in Section 2.5, shall
consist of (a) the obligation immediately to pay the Executive or his legal
representative (or his beneficiaries’) in cash all Accrued Obligations and
Pro-Rata Bonus, (b) the Executive’s (or his beneficiaries’) right after the
date of Executive’s death or Disability to receive disability and other
benefits under the respective provisions of any employee benefit plan or
perquisite program in which Executive participates, and (c) the Executive’s (or
his beneficiaries’)

 

11

 

right to exercise the put right pursuant to
Section 5.2(b) respecting Executive’s Equity. Any Stock Options held by
Executive on the Termination Date may be exercised until three (3) months after
the Termination Date, or the date upon which they would otherwise have expired,
if earlier.

 

ARTICLE V

EQUITY OWNERSHIP PROVISIONS

 

5.1           Restrictions
on Transfer.

 

(a)           Prohibition
Against Transfer of Stock Prior to IPO. Prior to the effective date of an
IPO the Executive may not sell, transfer, assign, donate, contribute, pledge,
hypothecate, encumber or otherwise dispose of (any of the foregoing, a “Transfer”) any Stock, or any interest therein, except
in accordance with this Section 5.1 or with the prior written consent of the
Company.

 

(b)           Company
Right of First Refusal. If the Executive desires to Transfer all or part of
his Stock to a third party for cash consideration, other than in a transfer
that is prohibited by paragraph (d), the Executive shall, at least thirty (30)
days prior to such Transfer, deliver an Offer Notice to the Company. The Offer
Notice shall be deemed to be an offer of the subject Stock to the Company on
the same terms and conditions as proposed by such Third Party. The Company
shall first have the right, but not the obligation, to purchase all (but not
less than all) of the Stock specified in the Offer Notice at the price and on
the terms specified therein by delivering written notice of such election to
the Executive within thirty (30) days after the delivery of the Offer Notice
(the “Company Election Period”). The
Company may choose to have a designee purchase any Stock elected by it to be
purchased hereunder so long as the Company shall bear any reasonable costs and
expenses of the Executive in connection with the sale to such designee that
such Executive would not have otherwise incurred in connection with a sale to
the Company. All references to the Company in this 5.1 shall refer to such
designee as the context requires.

 

(c)           Procedures
for Acquiring Stock. If the Company has elected to purchase Stock from the
Executive, the Transfer of the shares shall be consummated as soon as
practicable after the delivery of the election notice, but in any event within
the later of (i) fifteen (15) days after the expiration of the Company Election
Period or (ii) ten (10) days after the receipt of all necessary regulatory
approvals. At the closing of the purchase of such Stock, the Executive shall
provide representations and warranties customary for transactions of this type,
including those as to title to such securities and that there are no liens or
other encumbrances on such securities (other than pursuant to this Agreement)
and shall sign such stock powers and other documents as may reasonably be
requested by the Company for the sole purpose of consummating such Transfer. The
Company shall only be required to pay cash for the Stock being Transferred by
the Executive. If the Company has not elected to purchase the Stock being
offered, the Executive may, within ninety (90) days after the expiration of the
Company Election Period, Transfer all (but not less than all) of the Stock
specified in the

 

12

 

Offer Notice to the Third Parties identified
in the Offer Notice at a price no less than the price per share specified in
the Offer Notice and on other terms no more favorable to such Third Parties
than those specified in the Offer Notice, and such purchases shall be
conditioned upon all such Third Parties executing a counterpart of this
Agreement and such other documents as may be reasonably requested by the
Company. In the event that such Transfer is not consummated within such time
period for any reason or if the price per share or other terms of such Transfer
become more favorable to such third parties identified in the Offer Notice,
then the restrictions provided for herein shall again be effective, and no
Transfer of such Stock may be made thereafter without again offering the same
to the Company in accordance with this Section 5.1.

 

(d)           Prohibited
Transfers. Notwithstanding paragraphs (b) and (c), the Executive may not
Transfer any portion of his Stock (regardless of whether he gives the Company
an Offer Notice) to

 

(1)           Any person if the
Company determines, in its sole discretion, that such transfer would violate
any applicable laws or regulations or constitute a breach by the Company of any
loan agreement or other contract or commitment to which the Company or any of
its Subsidiaries is a party or by which it or its assets are bound;

 

(2)           Any convicted felon,
person determined by the Company in its sole discretion to be of poor financial
or moral character or reputation, or person engaged in a Competitive Activity
as defined in Section 10.5; or

 

(3)           Any person if the
Company determines in its sole discretion that the transfer could materially
jeopardize the Company’s business or operations.

 

5.2           Purchase
of Equity on Termination of Employment Prior to IPO. Upon the termination
of the Executive’s employment prior to an IPO for any reason, including giving
of a Nonrenewal Notice, the provisions of this Section 5.2 shall apply. The
provisions of this Section 5.2 shall cease to apply upon the conclusion of an
IPO.

 

(a)           If
the employment of Executive terminates by reason of his death, Disability, or
retirement after either attaining the age of 60 or completing at least twenty
(20) full years of employment by the Company (“Retirement”), the
Executive (or in the event of his death, the executor of his estate) shall have
the right to put all, but not less than all, of Executive’s Equity in the
Company to the Company and the Company shall purchase such Equity for the
greater of its ESOP Value (determined in accordance with paragraph (d) below)
or the Equity’s pro rata share, on a fully diluted basis, of five times the
Company’s average annual pre-tax net income for the three fiscal years
immediately preceding the date of his death, Disability, or Retirement. Any put
by the Executive (or his executor) pursuant to this paragraph (a)

 

13

 

shall be by written notice to the Company
pursuant to Section 11.8 given by the Executive (or his executor) not later
than one (1) year after termination of employment. Payment by the Company under
this paragraph (a) shall be made in a single cash payment, without interest,
not more than six (6) months after the put notice.

 

(b)           If
the Executive resigns for Good Reason, or the Company terminates the Executive’s
employment other than for Cause, the Executive shall be required to sell all of
Executive’s Equity in the Company to the Company, and the Company shall be
required to purchase such Equity, for its ESOP Value (determined in accordance
with paragraph (d) below). Payment by the Company under this paragraph (b)
shall be made in a single cash payment, without interest, not more than six (6)
months after the Termination Date.

 

(c)           If
the Executive’s employment is terminated for any reason other than death,
Disability, Retirement, resignation for Good Reason or termination by the
Company other than for Cause, the Company shall have the right but not the
obligation to call all (but not less than all) of Executive’s Equity in the
Company for a cash payment of ESOP Value (determined in accordance with
paragraph (d) below) on the Termination Date. Any call by the Company pursuant
to this paragraph (c) shall be by written notice to Executive pursuant to
Section 11.8 given by the Company not later than one (1) year after the
Termination Date, and the purchase price shall be paid, in cash, not more than
six (6) months after the notice is given, without interest.

 

(d)           For
all purposes of this Agreement, the ESOP Value of the Executive’s Equity shall
be the per share value as determined by the most recent annual valuation of the
Shares held by the Company’s employee stock ownership plan (the “ESOP”) as
determined by an independent appraiser pursuant to Section 409(e) or 4975 of
the Code. If the Company does not maintain an ESOP or does not have an annual
valuation of the Shares held by the ESOP, the ESOP Value shall be determined in
good faith by the Board; in either case as communicated by written notice from
the Company to the Executive. If, and only if, the ESOP Value is determined by
the Board, the Executive may request an appraisal within 30 days after receipt
of notice of such proposed ESOP Value. If Executive requests an appraisal, the
ESOP Value of Executive’s Equity shall be determined by an independent
appraiser (defined below) mutually selected by Executive and the Company; or if
they cannot agree on a mutually acceptable appraiser, a qualified appraiser
selected by arbitration pursuant to the Illinois Arbitration Act. If the
qualified appraiser determines only a range of values the ESOP Value determined
by such appraiser shall be deemed to be the midpoint of that range. The Company
shall disclose to the qualified appraiser in connection with such appraisal
such information on its business and financial condition as the qualified
appraiser reasonably deems relevant. The Company shall pay the costs of the
appraisal if the ESOP Value determined by such appraisal is 110% or more of the
initial ESOP Value determined by the Board. If the ESOP Value determined by
such appraisal is less than 110% of the initial ESOP Value determined by the
Board, Executive shall pay the costs of the appraisal. For purposes of this
Section 5.2, “qualified appraiser” has the meaning defined for that term in 26
C.F.R. §1.170A-13(c)(5) (other than subparagraph (c)(5)(i)(D) thereof).

 

14

 

5.3           Tag-Along
Rights. If, at any time or from time to time before an IPO, while the Hill
Group owns stock of the Company giving it either a majority of the value of the
Company or a majority of the right to vote for the election or directors of the
Company, any Hill Group Member that is a shareholder of the Company (a “Hill
Shareholder”) receives an offer for their, his or her Shares from any
person (excluding securities sold on the Nasdaq Stock Market or other
established national securities exchanges) upon terms such Hill Shareholder (or
group of Hill Shareholders) is willing to accept, the Company shall require
such Hill Shareholder(s) to give ten (10) calendar days’ prior written notice (“Tag-Along
Notice”) to Executive of such the intent of such Hill Shareholder(s) to
transfer their, his or her Shares. The Tag-Along Notice shall specify the terms
and conditions of the transfer. Executive shall have the right, upon written
notice given to the Company and the intended transferee within seven (7)
calendar days of receipt of the Tag-Along Notice, to participate in such
transfer. If Executive gives notice of his election to participate, the number
of Shares transferred by Executive shall be the prorata portion of the Shares to
the number of Shares owned by the original transferring Hill Shareholder(s).

 

5.4           Piggy-Back
Registration Rights. If at any time or from time to time, the Company shall
propose to file a registration statement with the Securities and Exchange
Commission (“SEC”) under the ‘33 Act, in connection with a secondary offering
of its Stock (other than pursuant to Form S-4, Form S-8 or any successor Form
of the SEC), the Company shall:

 

(1)           at least thirty (30)
calendar days before the filing of such registration statement give Executive
notice of Executive’s opportunity to include in such registration statement any
or all of the Shares included in Executive’s Equity; provided, that Executive
shall agree to execute the underwriting agreement, if any, in customary form to
be used in connection with such public offering (it being understood that
Executive shall not be required to join in, or indemnify the underwriters in
connection with the Company’s representations and warranties to the
underwriters);

 

(2)           use all reasonable
efforts to cause such Shares to be included in any such public offering,
subject to cutback at the request of the managing underwriters, but only on a
prorata basis according to the number of Shares proposed to be sold by all
selling shareholders who propose to participate in any such public offering;
and

 

(3)           pay all of the legal,
accounting, printing, filing and other fees and expenses relating to such
registration statement; provided that,
for the avoidance of doubt, the Executive shall bear his pro rata portion of
any discounts and commissions with respect to shares of Stock he sells in
connection with the piggyback registration.

 

5.5           Drag-along
Limitations. If, at any time or from time to time before an IPO, while the
Hill Group owns stock of the Company giving it either a majority of the

 

15

 

value of the Company or a majority of the
right to vote for the election or directors of the Company, any Hill
Shareholder (or group of Hill Shareholders) of the Company whether pursuant to
an offer or otherwise, enters into an agreement to transfer their, his or her
Shares that constitute in aggregate at least fifty percent (50%) of the Shares
of the Company owned by the Hill Group, then such Hill Shareholder(s) may
require Executive to participate in such transfer or transaction (the “Transfer”)
on the same terms and conditions as the shareholders participating in the
Transfer, except that the price paid for the Stock of the Hill Shareholders and for the Stock of
the Executive shall be determined without regard to any amount negotiated and
paid by the purchaser of the Stock in good faith for services to be actually
rendered (including a covenant not to compete) by the selling shareholder.  Notwithstanding any provision herein to the
contrary, if the Transfer is made to any party that is related to any Hill
Shareholder (whether or not Hill Group Members), then the price paid to
Executive shall not be less than the ESOP Value of Executive’s Equity subject
to the Transfer.  For purposes of the
preceding sentence, a party shall be considered related to a Hill Shareholder
if, and only if, the party is related by blood or marriage to, or is an entity
controlled by, such Hill Shareholder.

 

5.6           Anti-Dilution
Adjustment of Equity.  If at any time
during the Agreement Term, the Company issues Shares or other equity pursuant
to a stock split, stock dividend, or similar transaction for less than full
consideration, the Company shall, as of the date the additional Shares or other
equity actually is issued, grant to the Executive additional Equity (which may
be unrestricted Shares or Deferred Stock Units) such that, when aggregated with
Executive’s then-outstanding Equity, Executive’s total Equity remains at the
same percentage of the Company’s total equity on a fully diluted basis.  If at any time during the Agreement Term
there is a merger or reorganization of the Company or similar transaction,
Executive’s Equity shall be equitably adjusted as of the date of such event to
preserve equivalent rights and value. 

 

ARTICLE VI

CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY

 

6.1           Gross-up
for Certain Taxes.  If it is
determined that any benefit received or deemed received by the Executive from
the Company pursuant to this Agreement or otherwise (collectively, “Payments”)
is or will become subject to any excise tax under Section 4999 of the Code or
any similar tax payable under any United States federal, state, local or other
law, but not including any tax payable under Section 409A of the Code (such
excise tax and all such similar taxes collectively, “Excise Taxes”), then the
amount of such Payments shall be reduced to the extent necessary to avoid the
imposition of Excise Taxes (the amount to which the Payments are reduced is
hereinafter called the “Reduced Amount”), unless the portion of the Reduced
Amount that the Executive would retain after the application of all applicable
income and other taxes exclusive of Excise Taxes (hereinafter called the
“Applicable Taxes”), would be less than the portion of the unreduced amount of
the Payments that the Executive would retain after application of Excise Taxes
and all Applicable Taxes. 
Notwithstanding the foregoing, if the Change of Control occurs prior to the effective date of an IPO,
then the Company shall pay the Executive an amount (“Gross-up Payment”) equal
to the product of:

 

16

 

(a)           the amount of such Excise Taxes
multiplied by

 

(b)           the Gross-up Multiple (as defined in
Section 6.2).

 

The Gross-up
Payment is intended to compensate the Executive for the Excise Taxes and any
federal, state, local or other income or excise taxes or other taxes payable by
the Executive with respect to the Gross-up Payment.  For all purposes of this Article VI,
Executive shall be deemed to be subject to the highest effective marginal rates
of federal, state, local or other income or other taxes.   

 

6.2           Gross-up
Multiple.  The Gross-up Multiple
shall equal a fraction, the numerator of which is one (1.0), and the
denominator of which is one (1.0) minus the sum, expressed as a decimal
fraction, of the effective rates of all Applicable Taxes and any Excise Taxes
applicable to the Gross-up Payment.  (If
different rates of tax are applicable to various portions of a Gross-up
Payment, the weighted average of such rates shall be used.)

 

ARTICLE VII

EXPENSES AND INTEREST

 

7.1           Legal
Fees.  The Company will pay the
Executive the Executive’s legal fees and expenses in negotiating this
Agreement, to a maximum of thirty-five thousand dollars ($35,000).

 

7.2           Interest.  If the Company does not pay any amount due to
the Executive under this Agreement within thirty (30) days after such amount
became due and owing, interest shall accrue on such amount from the date it
became due and owing until the date of payment at an annual rate equal to the
Company’s revolving credit borrowing rate as in effect from time to time during
the period of such nonpayment, but not in excess of the maximum interest rate
permitted by applicable law.

 

ARTICLE VIII

SET-OFF AND MITIGATION

 

8.1           Limit
on Set-off by Company.  Except as
otherwise provided in this Section 8.1, the Executive’s right to receive when
due the payments and other benefits provided for under and in accordance with
the terms of this Agreement is absolute, unconditional and shall not be subject
to set-off, counterclaim or legal or equitable defense.  Time is of the essence in performance by the
Company of its obligations under this Agreement.  Any claim which the Company may have against
the Executive, whether for a breach of this Agreement or otherwise, shall be
brought in a separate action or proceeding and not as part of any action or
proceeding brought by the Executive to enforce any rights against the Company
under this Agreement.  Notwithstanding
the foregoing, if the Company commences an action against Executive based upon
Executive’s willful and material breach of the provisions of Article X, or a
breach of Article X that the Executive failed to reasonably cure within thirty
(30) days after receipt

 

17

 

of a written notice of such breach from the
Company to Executive, any amounts that would otherwise be payable by or on
behalf of the Company to the Executive (other than payments from any retirement
plan qualified under Section 401(a) of the Code) shall be suspended while such
action is pending; and if the Company prevails in such action any damages
awarded to the Company shall be set off against such amount; but if the Company
does not prevail in such action such payments shall be made with interest as
provided in Section 7.2 for the period of suspension.

 

8.2           No
Mitigation.  The Executive shall not
have any duty to mitigate the amounts payable by the Company under this
Agreement upon any termination of employment by seeking new employment
following termination.  Except as
specifically otherwise provided in this Agreement, all amounts payable pursuant
to this Agreement shall be paid without reduction regardless of any amounts of
salary, compensation or other amounts which may be paid or payable to the
Executive as the result of the Executive’s employment by another employer or
self-employment.

 

ARTICLE IX

INDEMNIFICATION; NON-EXCLUSIVITY OF RIGHTS

 

9.1           Indemnification.  The Executive shall be indemnified and held
harmless by the Company if Executive was, is, or is threatened to be made, a
party to any pending, completed or threatened action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing
or any other proceeding whether civil, criminal, administrative or
investigative, and whether formal or informal (“Proceeding”), by reason
of the fact that Executive is or was, or had agreed to become, a director,
officer, employee, agent, or fiduciary of, or otherwise to provide advice or
services to, the Company or any corporation, business, person, trust or other
entity which Executive is or was serving at the request of the Company
(including, without limitation, any Hill Group Member), against all expenses (including
without limitation, all reasonable attorneys’ fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
and all other reasonable disbursements or expenses customarily required in
connection with asserting or defending claims) (“Expenses”) and all claims,
damages, liabilities and losses (including, without limitation, judgments;
fines; liabilities under the Code or the Employee Retirement Income Security
Act of 1974, as amended, for damages, excise taxes or penalties; damages, fines
or penalties arising out of violation of any law related to the protection of
the public health, welfare or the environment; and amounts paid or to be paid
in settlement) incurred or suffered by the Executive or to which the Executive
may become subject for any reason, provided that the Executive acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

 

18

 

9.2           Payment
of Expenses and Costs; Defense of Proceedings.  

 

(a)           Any indemnification under Section 9.1
(unless ordered by the court) shall be made by the Company only as authorized
in the specific case upon a determination that indemnification of the Executive
is proper in the circumstances because he has met the applicable standard of
conduct set forth therein.  Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of directors who were not parties to such Proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the shareholders. 
Notwithstanding the foregoing, to the extent that the Executive has been
successful on the merits or otherwise in defense of any Proceeding, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys’ fees) actually and reasonably incurred by him in
connection therewith.

 

(b)           Expenses (including attorneys’ fees)
actually and reasonably incurred by the Executive in connection with the
defense or disposition of any Proceeding may be paid from time to time by the
Company in advance of the final disposition thereof upon receipt of (a) an
affidavit by such person of his good faith belief that he has met the standard
of conduct necessary for indemnification under Section 9.1, and (b) an
undertaking by such person to repay to the Company the amounts so paid if it is
ultimately determined that he is not entitled to indemnification as authorized
in Section 9.1, which undertaking may be accepted by the Company without
reference to the financial ability of such person to make repayment.  Any payment of expenses under this Section
9.2(b) shall be made in the sole discretion of the Company and on such terms
and conditions as the Company, in its sole discretion, deems appropriate.

 

(c)           As soon as possible after the
commencement of a Proceeding with respect to which the Executive may assert the
right to be indemnified pursuant to Section 9.1, the Executive shall notify the
Company, in writing, of such Proceeding. 
The Company shall have the right to assume the defense of the
Proceeding, in which event the Company shall select counsel, in its sole discretion,
to defend the Proceeding and shall pay all expenses of defending the
Proceeding, provided that the Company may defend the Proceeding under a
reservation of rights.  The Company shall
have the right to make all decisions with respect to the defense of the
Proceeding, including the decision to settle or compromise, provided that the
Company shall not agree to any settlement that requires a please of guilty or nolo
contendere, or an acknowledgement of responsibility, by Executive, or
payment of any amount by the Executive without indemnification, without the
Executive’s prior written consent.  The
Executive will cooperate fully in the defense of the Proceeding, at the
Company’s expense, and may retain separate counsel to participate in the
Proceeding, provided that the payment of such separate counsel shall not be an
indemnified expense.  If both the Company
and the Executive are parties to a Proceeding, legal counsel representing the
Company therein may, at the request of the Executive, also represent the
Executive (unless such dual representation would involve such legal counsel in
a conflict of interest in violation of applicable law or principles of
professional ethics), and the Company shall pay all fees and expenses of such
legal

 

19

 

counsel incurred during the period of dual
representation other than those, if any, that would not have been incurred if
legal counsel were representing only the Company.  Any allocation of fees and expenses between
the Company and the Executive made by legal counsel shall be final and binding
upon the Company and the Executive.

 

9.3           Effect
of Certain Proceedings.  The
termination of any Proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, except, in each case, to the
extent that the terms thereof expressly so provide, shall not, of itself (a)
adversely affect the rights of the Executive to indemnification, or (b) create
a presumption that the Executive did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification or contribution is not permitted by applicable law.

 

9.4           Other
Rights to Indemnification.  The
Executive’s rights of indemnification and advancement of Expenses provided by
this Article IX shall not be deemed exclusive of any other rights to which the
Executive may now or in the future be entitled under applicable law, the
certificate of incorporation, by-laws, agreement, vote of stockholders, or
resolution of the Board of the Company, or other provisions of this Agreement
or any other agreement, or otherwise.  In
the event the Company provides more favorable rights of indemnification and
advancement of Expenses to other officers and directors (other than the
Chairman) than the rights of indemnification and advancement of Expenses for
Executive under this Article IX, then the rights of Executive under this
Article IX shall be enlarged to correspond to the terms of such more favorable
rights of indemnification and advancement of Expenses.

 

9.5           Representations.  The Company represents and warrants that this
Article IX does not conflict with or violate its certificate of
incorporation or by-laws, and agrees that it will not amend its certificate of
incorporation or by-laws in a manner that would limit the rights of the
Executive hereunder.  The Company
represents that the execution, delivery and performance of this Agreement by
the Company has been duly and validly authorized by its Board.

 

9.6           Survival
of Indemnity.  This Article IX shall
survive any termination of the relationship of the Executive with the Company,
and shall be binding on, and inure to the benefit of the successors and assigns
of the Company and the successors, assigns, heirs and personal representatives
of the Executive.

 

ARTICLE X

CONFIDENTIALITY AND NONCOMPETE

 

10.1         Confidentiality.  Executive acknowledges that the continued
success of the Company and its Subsidiaries and Affiliates, depends upon the
use and protection of a large body of confidential and proprietary information.  For all purposes of this Article X, the term
“Subsidiary” means any business entity of which the Company owns at least fifty
percent (50%) of the equity, and the term “Affiliate” means any business entity
that is controlled by, or under common control with, the Company, or with which
the

 

20

 

Company is engaged in a joint venture or
common enterprise.  All of such
confidential and proprietary information now existing or to be developed in the
future will be referred to in this Agreement as “Confidential Information.”  Confidential Information will be interpreted
as broadly as possible to include all information of any sort (whether merely
remembered or embodied in a tangible or intangible form) that is (i) related to
the Company’s or its Subsidiaries’ or Affiliates’ current or potential business
and (ii) is not generally or publicly known. 
Confidential Information includes, without specific limitation, the information,
observations and data obtained by him during the course of his performance
under this Agreement concerning the business and affairs of the Company and its
Subsidiaries and Affiliates, information concerning acquisition opportunities
in or reasonably related to the Company’s or its Subsidiaries’ or Affiliates’
business or industry of which Executive becomes aware during the Agreement
Term, the persons or entities that are current, former or prospective suppliers
or customers of any one or more of them during Executive’s course of performance
under this Agreement, as well as development, transition and transformation
plans, methodologies and methods of doing business, strategic, marketing and
expansion plans, including plans regarding planned and potential sales,
financial and business plans, employee lists and telephone numbers, locations
of sales representatives, new and existing programs and services, prices and
terms, customer service, integration processes, requirements and costs of
providing service, support and equipment. 
Therefore, Executive agrees that he shall not disclose to any
unauthorized person other than when Executive reasonably and in good faith
believes that such disclosure is in furtherance of the business and affairs of
the Company and in connection with his duties to the Company, or use for his
own account, any of such Confidential Information without the Board’s prior
written consent, unless and to the extent that any Confidential Information (i)
becomes generally known to and available for use by the public other than as a
result of Executive’s acts or omissions to act or (ii) is required to be
disclosed pursuant to any applicable law or court order.  Executive agrees to deliver to the Company at
the end of the Agreement Term, or at any other time the Company may request in
writing, all memoranda, notes, plans, records, reports and other documents (and
copies thereof) relating to the business of the Company or its Subsidiaries or
Affiliates (including, without limitation, all Confidential Information) that
he may then possess or have under his control.

 

10.2         Use
and Disclosure of Confidential Information. 
During the Agreement Term, Executive shall not, other than when
Executive reasonably and in good faith believes that such disclosure is in
furtherance of the business and affairs of the Company and in connection with
his duties to the Company, use or disclose any confidential information or
trade secrets, if any, of any former employers or any other person to whom
Executive has an obligation of confidentiality, and shall not bring onto the
premises of the Company or its Subsidiaries or Affiliates any unpublished
documents or any property belonging to any former employer or any other person
to whom Executive has an obligation of confidentiality unless consented to in writing
by the former employer or person. 
Executive shall use in the performance of his duties only information
that is (a) generally known and used by persons with training and experience
comparable to Executive’s and that is (i) common knowledge in the industry or
(ii) is otherwise legally

 

21

 

in the public domain, (b) otherwise provided
or developed by the Company or its Subsidiaries or Affiliates or (c) in the
case of materials, property or information belonging to any former employer or
other person to whom Executive has an obligation of confidentiality, approved
for such use in writing by such former employer or person.  If at any time during his employment with the
Company or any Subsidiary, Executive believes he is being asked to engage in
work that will, or will be likely to, jeopardize any confidentiality or other
obligations Executive may have to former employers, Executive shall immediately
advise the Board so that Executive’s duties can be modified appropriately.

 

10.3         Third
Party Information.  Executive
understands that the Company and its Subsidiaries and Affiliates will receive
from third parties confidential or proprietary information (“Third Party
Information”) subject to a duty on the Company’s and its Subsidiaries’ and
Affiliates’ part to maintain the confidentiality of such information and to use
it only for certain limited purposes. 
During the Agreement Term and thereafter, and without in any way limiting
the provisions of paragraph 5(a) above, Executive will hold Third Party
Information in the strictest confidence and will not disclose to anyone (other
than personnel of the Company or its Subsidiaries and Affiliates who need to
know such information in connection with their work for the Company or such
Subsidiaries and Affiliates) or use, except in connection with his work for the
Company or its Subsidiaries and Affiliates, Third Party Information unless
expressly authorized by a member of the Board in writing.

 

10.4         Intellectual
Property, Inventions and Patents. 
Executive acknowledges that all discoveries, concepts, ideas,
inventions, innovations, improvements, developments, methods, designs,
analyses, drawings, reports, patent applications, copyrightable work and mask
work (whether or not including any confidential information) and all
registrations or applications related thereto, all other proprietary
information and all similar or related information (whether or not patentable)
which relate to the Company’s or any of its Subsidiaries’ actual or anticipated
business, research and development or existing or future products or services
and which are conceived, developed or made by Executive (whether above or
jointly with others) while employed by the Company and its Subsidiaries,
whether before or after the date of this Agreement (“Work Product”),
belong to the Company or such Subsidiary. 
Executive shall promptly disclose such Work Product to the Board and, at
the Company’s expense, perform all actions reasonably requested by the Board
(whether during or after the Agreement Term) to establish and confirm such
ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).

 

10.5         Non-Compete,
Non-Solicitation.

 

(a)           In further consideration of the
compensation to be paid to Executive hereunder, Executive acknowledges that
during the course of his employment with the Company and its Subsidiaries
Executive shall become familiar with the Company’s trade secrets and with other
Confidential Information concerning the Company and its Subsidiaries and
Affiliates and that his services have been and shall be

 

22

 

of special, unique and extraordinary value to
the Company and its Subsidiaries and Affiliates, and, therefore, Executive
agrees that, during the Agreement Term and for the longer of any Severance
Period or two (2) years after the Termination Date (the “Noncompete Period”),
Executive shall not directly or indirectly, either for himself or for any other
person, partnership, corporation, company or other entity, own any interest in,
manage, control, participate in, consult with, render services for, or in any
other manner engage in any business or enterprise which manufactures homes or
any otherwise competes with any other products or services of the Company or
any of its Subsidiaries (or any products or services the Company or any of its
Subsidiaries are in the process of developing), as of the Termination Date,
within the United States. For purposes of this Agreement, “participate”
includes any direct or indirect interest in any enterprise, whether as an
officer, director, employee, partner, sole proprietor, agent, representative,
independent contractor, executive, franchisor, franchisee, creditor, owner or
otherwise; provided that the foregoing activities shall not include the passive
ownership (i.e., Executive does not directly or indirectly participate in the
business or management of the applicable entity) of less than 2% of the stock
of a publicly-held corporation whose stock is traded on a national securities
exchange , as of the Termination Date, anywhere within the United States (any
of the foregoing, a “Competitive Activity”). Executive agrees that the
aforementioned covenant is reasonable with respect to its duration,
geographical area and scope. In particular, Executive acknowledges and agrees
that the geographic scope of this restriction is necessary to protect the
goodwill and Confidential Information of the Company and its Subsidiaries.

 

(b)           During the Noncompete Period,
Executive shall not directly or indirectly through another person or entity (i)
induce or attempt to induce any employee of the Company or any Subsidiary to
leave the employ of the Company or such Subsidiary, or in any way interfere with
the relationship between the Company or any Subsidiary and any employee
thereof, (ii) hire any person who was an employee of the Company or any
Subsidiary at any time during the twelve (12) months preceding such hiring,
(iii) induce or attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any Subsidiary to cease
doing business with the Company or such Subsidiary, or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and the Company or any Subsidiary (including, without limitation,
making any negative or disparaging statements or communications about the
Company or its Subsidiaries) or (iv) service, engage in business with or
provide products or services to any customer of the Company or any Subsidiary
with respect to any product or service provided or rendered by the Company or
any of its Subsidiaries or which the Company or any of its Subsidiaries is in
the process of developing, as of the expiration date or earlier termination of
the Agreement Term.

 

(c)           If, at the time of enforcement of any
of the provisions of this Section 10.5, a court shall hold that the duration,
scope or area restrictions stated herein are unreasonable under circumstances
then existing, the parties agree that the maximum duration, scope or area
reasonable under such circumstances shall be substituted for the

 

23

 

stated duration, scope or area and that the
court shall be allowed to revise the restrictions contained herein to cover the
maximum period, scope and area permitted by law.  Executive acknowledges that the restrictions
contained in this Section 10.5 are reasonable and that he has reviewed the
provisions of this Agreement with his legal counsel.

 

(d)           In the event of the breach or a
threatened breach by Executive of any of the provisions of this Section 10.5,
the Company would suffer irreparable harm, and in addition and supplementary to
other rights and remedies existing in its favor, the Company shall be entitled
to specific performance and/or injunctive or other equitable relief from a
court of competent jurisdiction in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security).  In addition, in the event of a breach or
violation by Executive of this Section 10.5, the Noncompete Period shall be
tolled until such breach or violation has been duly cured.

 

10.6         Executive’s
Representations.  Executive hereby
represents and warrants to the Company that (a) the execution, delivery and
performance of this Agreement by Executive do not and shall not conflict with,
breach, violate or cause a default under any contract, agreement, instrument,
order, judgment or decree to which Executive is a party or by which he is
bound, (b) Executive is not a party to or bound by any employment agreement,
noncompete agreement or confidentiality agreement with any other person or
entity except as disclosed to the Company prior to the date hereof, and (c)
upon the execution and delivery of this Agreement by the Company, this
Agreement shall be the valid and binding obligation of Executive, enforceable
in accordance with its terms.  Executive
hereby acknowledges and represents that he has consulted with independent legal
counsel regarding his rights and obligations under this Agreement and that he
fully understands the terms and conditions contained herein.

 

10.7         Survival.  The provisions of this Article X shall
survive and continue in full force in accordance with their terms
notwithstanding the termination of the Agreement Term.

 

ARTICLE XI

MISCELLANEOUS

 

11.1         Submission
to Jurisdiction.  Executive and the
Company agree that any and all claims and disputes arising out of, or relating
to, this Agreement or any breach hereof, shall be resolved solely and
exclusively by lawsuit or other action filed in the federal or state courts
sitting in Chicago, Illinois.  Each party
waives any objection to personal jurisdiction (provided that process is properly
served) or venue in such courts, and any defense of forum non conveniens or any similar doctrine.  The commencement of any such action in any
other court shall constitute a breach of this Agreement, and the party against
whom such action is brought shall be entitled to its costs, including
reasonable attorneys fees, incurred in obtaining a dismissal or transfer of
such suit.

 

11.2         No
Assignability.  This Agreement is
personal to the Executive and without the prior written consent of the Company
shall not be assignable by the

 

24

 

Executive otherwise than by will or the laws
of descent and distribution.  This
Agreement shall inure to the benefit of and be enforceable by the Executive’s
legal representatives.

 

11.3         Successors.  This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.  The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place.  Any successor
to the business and/or assets of the Company which assumes or agrees to perform
this Agreement by operation of law, contract, or otherwise shall be jointly and
severally liable with the Company under this Agreement as if such successor
were the Company.

 

11.4         Payments
to Beneficiary.  If the Executive
dies before receiving amounts to which the Executive is entitled under this
Agreement, such amounts shall be paid in a lump sum to the beneficiary
designated in writing by the Executive, or if none is so designated, to the
Executive’s estate.

 

11.5         Non-alienation
of Benefits.  Benefits payable under
this Agreement shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution
or levy of any kind, either voluntary or involuntary, before actually being
received by the Executive, and any such attempt to dispose of any right to
benefits payable under this Agreement shall be void, other than as provided by
any applicable law.

 

11.6         Severability.  If any one or more Articles, Sections or
other portions of this Agreement are declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall not
serve to invalidate any Article, Section or other portion not so declared to be
unlawful or invalid.  Any Article,
Section or other portion so declared to be unlawful or invalid shall be
construed so as to effectuate the terms of such Article, Section or other
portion to the fullest extent possible while remaining lawful and valid.

 

11.7         Amendments.  This Agreement shall not be altered, amended
or modified except by written instrument executed by the Company and Executive.

 

11.8         Notices.  All notices and other communications under
this Agreement shall be in writing and delivered by hand, by nationally
recognized  delivery service that
promises overnight delivery, or by first class registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:

 

If to the Executive:

 

C. Kenneth Love

445 East North Water Street

25

 

Unit 2101

Chicago, IL 60611

 

with a copy to:

 

Sonnenschein, Nath & Rosenthal LLP

8000 Sears Tower

Chicago, Illinois 60606

Attention:  Roger C. Siske, Esq.

 

If to the Company:

 

Kimball Hill, Inc.

5900 New Wilke Road

Suite 504

Rolling Meadows, Illinois  60035

Attention:  Chairman

 

with a copy to:

 

Kimball Hill, Inc.

5900 New Wilke Road

Suite 504

Rolling Meadows, Illinois  60035

Attention:  General Counsel

 

or to such other
address as either party shall have furnished to the other in writing.  Notice and communications shall be effective
when actually received by the addressee.

 

11.9         Liability
Insurance Coverage.  During the
Agreement Term, and for a period of not less than six years after the
Termination Date, the Executive shall be covered by any directors and officers,
errors and omissions or other suitable insurance maintained by the Company on a
basis not less favorable than such insurance protection, if any, provided from
time to time to any other senior executive officer or member of the Board of
the Company, in connection with claims arising in connection with Executive’s
services to the Company or any corporation, business, person, trust or other
entity which Executive is or was serving at the request of the Company.

 

11.10       Survival
of Executive’s Rights.   Except as
provided in Article IV respecting rights terminated under that Article and
except for claims to be released pursuant to the Release, all of Executive’s
rights hereunder, including without limitation his rights to compensation,
benefits, equity interests, reimbursement of fees and expenses and
indemnification, shall survive any termination of the relationship of the
Executive with the Company, including termination or expiration of the
Agreement Term or termination of this Agreement, and shall be binding on the
successors and assigns of the

 

26

 

Company and shall inure to the benefit of the
successors, assigns, heirs and personal representatives of the Executive.

 

11.11       Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.

 

11.12       Governing
Law.  This Agreement shall be
interpreted and construed in accordance with the laws of the State of Illinois,
without regard to its conflict of laws principles.

 

11.13       Captions.  The captions of this Agreement are not a part
of the provisions hereof and shall have no force or effect.

 

11.14       Tax
Withholding.  The Company may
withhold from any amounts payable under this Agreement any federal, state or
local taxes that are required to be withheld pursuant to any applicable law or
regulation.

 

11.15       No
Waiver.  The Company’s or the
Executive’s failure to insist upon strict compliance with any provision of this
Agreement shall not be deemed a waiver of such provision or any other provision
of this Agreement.  A waiver of any
provision of this Agreement shall not be deemed a waiver of any other
provision, and any waiver of any default in any such provision shall not be
deemed a waiver of any later default thereof or of any other provision.

 

11.16       Non-Exclusivity
of Rights.  This Agreement shall not
prevent or limit the Executive’s continuing or future participation in any
benefit, bonus, incentive or other plans provided by the Company and for which
the Executive may qualify, nor shall this Agreement limit or otherwise affect
such rights as the Executive may have under any other agreements with the
Company or any of its Subsidiaries. 
Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan of the Company or any of its Subsidiaries
and any other payment or benefit required by law at or after the Termination
Date shall be payable in accordance with such plan or applicable law except as
expressly modified by this Agreement.

 

11.17       Entire
Agreement.  This Agreement contains
the entire understanding of the Company and the Executive with respect to its
subject matter.

 

27

 

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

 

	
   

  	
  KIMBALL HILL, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ David K. Hill

  	
   

  
	
   

  	
   

  	
  David K. HillChairman and Chief

  
	
   

  	
   

  	
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ C. Kenneth Love

  	
   

  
	
   

  	
  C. KENNETH LOVE

  

 

28

 

EXHIBIT A

 

WAIVER AND
RELEASE

 

THIS WAIVER AND RELEASE (this “Waiver and
Release”) is made by C. Kenneth Love (the “Executive”) pursuant to that certain
Employment Agreement executed by and between the Company and the Executive on
the 3d day of March, 2005 (the “Employment Agreement”).  The Executive hereby agrees knowingly and
voluntarily as follows:

 

1.             In
consideration of the payments and benefits pursuant to Section 4.1 of the
Employment Agreement (the “Benefits”), which Executive acknowledges are
consideration for this Waiver and Release to which the Executive would not
otherwise be entitled and are in lieu of any rights or claims that the
Executive may have with respect to separation or severance benefits or other
remuneration from the Company or its affiliates; and after the opportunity to
consult legal counsel; the Executive hereby for himself, and his heirs, agents,
executors, successors, assigns and administrators (collectively, “Related
Parties”), forever releases, remises, and discharges, in all their capacities,
the Company and all of its affiliates or subsidiaries, and any of their present
or former directors, employees, fiduciaries, representatives, officers and
agents, successors and assigns (collectively, the “Releasees”) individually and
in their official capacities, of and from all covenants, obligations,
liabilities and agreements, and forever waives all claims, rights and causes of
action whatsoever, in law or in equity, whether known or unknown, asserted or
unasserted, suspected or unsuspected, that the Executive or any Related Parties
ever had, may have in the future or have now in connection with or arising from
the Executive’s employment relationship with the Company or termination of the
Executive’s employment relationship with the Company; including, without
limitation, any claims, rights and causes of action under United States
federal, state or local law, regulation or decision, and the national or local
law (statutory or decisional) of any foreign country, including, without
limitation, those under the Age Discrimination in Employment Act, as amended
29 U.S.C. §§621 et. seq., the Older Workers Benefit
Protection Act, 29 U.S.C. §626 (f)(1), Title VII of the Civil Rights Act
of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, 42
U.S.C. §§12101-12213, the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), the Family and Medical Leave Act of 1993, the Fair Labor
Standards Act, and any other similar or related law, regulation or decision
relating to or dealing with discrimination including, without limitation, any
claims, rights or causes of action for punitive damages, attorney’s fees,
expenses and costs of litigation. 
Notwithstanding the foregoing, the Executive and Related Parties do not
release or waive any right or claim (i) the Executive and Related Parties may
have to obtain post-employment payments and benefits and exercise any rights
pursuant to or referred to in the Employment Agreement or pursuant to any award
thereunder (including, but not limited to, rights to exercise options,
post-termination rights under Article V of the Employment Agreement, and
post-termination rights as a stockholder of the Company, respecting deferred
stock units and options granted pursuant to Section 2.5 of the Employment
Agreement), (ii) under ERISA to obtain post-

 

29

 

employment payments and benefits under any employee benefit plan (as
defined in ERISA); (iii) for indemnification under any agreement with or policy
of the Company or its affiliates relating to indemnification of directors or
officers or under any provision of the Company’s articles or by-laws relating
to indemnification of directors or officers or Article IX of the Employment
Agreement; (iv) under any policy of directors’ or officers’ liability
insurance; (v) that arises against the Company after the date of this Waiver
and Release; and (vi) to obtain contribution as permitted by law in the event
of entry of judgment against the Executive and the Company as a result of any
act or failure to act for which the Executive and the Company are jointly
liable.

 

2.             The
Executive represents that he has not filed, and will not hereafter file, any
claim against the Company relating to his employment and/or cessation of
employment with the Company, or otherwise involving facts that occurred on or
prior to the date that Executive has signed this Waiver and Release except as
permitted under paragraph 1 hereof.

 

3.             The
Executive understands and agrees that the payments by the Company to the
Executive and the signing of this Waiver and Release by the Executive and the
Company do not in any way indicate that the Executive has any viable claims
against the Company or that the Company admits any liability whatsoever to
Executive under such claims.

 

4.             The
Executive affirms that, prior to the execution of this Waiver and Release, the
Executive was advised by an attorney of the Executive’s choice concerning the
terms and conditions set forth herein, and that the Executive was given up to
twenty-one (21) days to consider (notwithstanding the time lapsed, if any,
during such twenty-one day period to review and revise) this Waiver and Release
and its consequences.  The Executive has
seven (7) days following the Executive’s signing of this Waiver and
Release to revoke and cancel the terms and conditions contained herein, and the
terms and conditions of this Waiver and Release shall not become effective or
enforceable until such revocation period has expired.  The Executive acknowledges that the Benefits
will not be paid or provided if he revokes this Waiver and Release.

 

IN WITNESS WHEREOF, the Executive has executed this Waiver and Release
this          day of                   .

 

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  C. Kenneth Love

  

 

30

 

AMENDMENT TO EMPLOYMENT AGREEMENT

 

This AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is made as of
September 30, 2005 between KIMBALL HILL, INC. (the “Company”), an Illinois
corporation having its principal place of business in Rolling Meadows,
Illinois, and C. KENNETH LOVE (“Executive”), an individual resident of
Illinois.

 

WHEREAS, the Company and Executive are parties to the Employment
Agreement (the “Employment Agreement”) dated as of March 3, 2005; and

 

WHEREAS, at the present time, the Company is pursuing a capital
restructuring that the parties believe will provide significant benefits to the
Company, its shareholders and its officers and employees, including Executive;
and

 

WHEREAS, pursuant to current accounting rules, there are certain
provisions of the Employment Agreement that could cause adverse accounting
consequences to the Company that could be detrimental to the mutual interests
of both parties, and accordingly the Company and Executive wish to amend
certain provisions of the Employment Agreement in order to avoid those
consequences.

 

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

 

1.             Effective as of
September 30, 2005, Section 2.5(d)(4) of the Employment Agreement shall be
amended in its entirety to read as follows:

 

“(4)         Withholding
Election.  If on the date of
distribution of any Deferred Stock Units pursuant to paragraph (3) above the
Shares are not publicly tradable on an established securities market, Executive
may elect, by written notice to the Company on or before the date of
distribution, in lieu of providing the Company with cash equal to applicable
withholding and other taxes required to be withheld from such compensation
under any applicable tax law, to have the Company withhold Shares equal to the minimum
applicable withholding of federal, state and local income and other taxes, and
have the Company remit such applicable withholding to the applicable taxing
authorities.  In addition, at any time
within seven months after the date of the aforesaid distribution of Deferred
Stock Units Executive may elect, by written notice to the Company, to require
the Company to purchase, at the Fair Market Value of the Shares determined in
accordance with Section 5.2(d) of the Employment Agreement, such number of Shares
that have been owned by Executive for more than six months equal to the
incremental amount by which Executive’s federal, state and local income and
other taxes actually resulting by reason of Executive’s receipt of the Shares
exceeds the aforesaid minimum applicable withholding.”

 

2.             Effective as of
September 30, 2005, Section 5.2 of the Employment Agreement shall be amended in
its entirety to read as follows:

 

 

“5.2         Purchase of Equity
on Termination of Employment Prior to IPO. 
Upon the termination of the Executive’s employment prior to an IPO for
any reason, including giving of a Nonrenewal Notice, the provisions of this
Section 5.2 shall apply.  The provisions
of this Section 5.2 shall cease to apply upon the conclusion of an IPO.

 

(a)           If
the employment of Executive terminates by reason of his death, Disability, or
retirement after either attaining the age of 60 or completing at least twenty
(20) full years of employment by the Company (“Retirement”), the
Executive (or in the event of his death, the executor of his estate) shall have
the right to put all, but not less than all, of Executive’s Equity in the
Company to the Company and the Company shall purchase such Equity for its Fair
Market Value determined in accordance with paragraph (d) below.  Any put by the Executive (or his executor)
pursuant to this paragraph (a) shall be by written notice to the Company
pursuant to Section 11.8 given by the Executive (or his executor) not later
than one (1) year after termination of employment.  Payment by the Company under this paragraph
(a) shall be made in a single cash payment, without interest, not more than six
(6) months after the put notice.”

 

(b)           If the Executive
resigns for Good Reason, or the Company terminates the Executive’s employment
other than for Cause, the Executive shall be required to sell all of
Executive’s Equity in the Company to the Company, and the Company shall be
required to purchase such Equity, for its Fair Market Value determined in
accordance with paragraph (d) below. 
Payment by the Company under this paragraph (b) shall be made in a
single cash payment, without interest, not more than six (6) months after the
Termination Date.

 

(c)           If the Executive’s
employment is terminated for any reason other than death, Disability,
Retirement, resignation for Good Reason or termination by the Company other
than for Cause, the Company shall have the right but not the obligation to call
all (but not less than all) of Executive’s Equity in the Company for a cash
payment of Fair Market Value determined in accordance with paragraph (d) below
on the Termination Date.  Any call by the
Company pursuant to this paragraph (c) shall be by written notice to Executive
pursuant to Section 11.8 given by the Company not later than one (1) year after
the Termination Date, and the purchase price shall be paid, in cash, not more
than six (6) months after the notice is given, without interest.

 

(d)           For
all purposes of this Agreement, the Fair Market Value of the Executive’s Equity
shall be the per share value as determined by an independent appraiser (defined
below) mutually selected by the Stock Option Committee established in
accordance with the Company’s Incentive Stock Option Plan and Executive.  If the qualified appraiser determines only a
range of values, Fair Market Value shall be deemed to be the midpoint of that
range.  The Company shall disclose to the
qualified appraiser in connection with such appraisal such information on its
business and financial condition as the qualified appraiser reasonably deems
relevant.  The Company shall pay the
costs of the appraisal.  Notwithstanding
the foregoing, the Company and Executive may accept as Fair Market Value the
most recent annual valuation of the Shares held by the Company’s employee stock
ownership plan as determined by an independent appraiser pursuant to Section
409(e) or 4975 of the Code.”

 

32

 

3.             Effective as of
September 30, 2005, the penultimate sentence of Section 5.5 of the Employment
Agreement shall be amended by deleting the phrase “ESOP Value” and adding the
phrase “Fair Market Value (determined in accordance with Section 5.2(d) of the
Employment Agreement)” in lieu thereof.

 

4.             Notwithstanding any
provision of the Employment Agreement to the contrary, Executive shall not
exercise any right or option to require the Company to purchase and shall not
be obligated to sell to the Company, and the Company shall not exercise any
right or option to require Executive to sell and shall not be obligated to
purchase, any of Executive’s Equity in the Company, regardless how or when
acquired, unless and until Executive has owned such Equity for a period of no
less than six months.  Accordingly, the
Employment Agreement shall be amended and modified in any and all respects in
order to reflect the following agreements:

 

(a)           Any and all time
periods provided in the Employment Agreement for the exercise of rights or
options and the performance of obligations with respect to Executive’s Equity
in the Company that Executive has owned for less than six months shall be
extended for such period of time as may be necessary in order for the aforesaid
six-month holding period to become effective; and

 

(b)           The date of
determination, pursuant to Sections 2.5(d)(4) and 5.2 of the Employment
Agreement, of the Fair Market Value of Executive’s Equity in the Company that
Executive has owned for less than six months (if any) shall be the last day of
the month in which the aforesaid six-month holding period is completed (the
“Adjusted Valuation Date”); and

 

(c)           The time periods
provided in Sections 5.2(a), (b) and (c) of the Employment Agreement for the
exercise of rights and options by Executive or the Company, for the giving of
notice, and for payment by the Company for any of Executive’s Equity purchased
from Executive shall commence as of the Adjusted Valuation Date.

 

5.             Except as amended
pursuant to the above and foregoing provisions, the Employment Agreement shall
remain in full force and effect.

 

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

 

	
   

  	
  KIMBALL HILL, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/

  	
   David K. Hill

  	
   

  
	
   

  	
   

  	
  David K. Hill

  
	
   

  	
   

  	
  Chairman and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/

  	
   C. Kenneth Love

  	
   

  
	
   

  	
   

  	
  C. KENNETH LOVE

  
							

 

33Exhibit 10.3

 

10-27-95

 

KIMBALL HILL HOMES

INCENTIVE STOCK OPTION PLAN

 

This Kimball
Hill Homes Incentive Stock Option Plan (“Plan”) of Kimball Hill, Inc., an
Illinois corporation, adopted this 28th day of October, 1995 and effective as
of October 31, 1995.

 

1.             Purpose
of the Plan.

 

Under this
Plan adopted by Kimball Hill, Inc. (“Company”), options may be granted to
eligible employees to purchase shares of the Company stock. The Plan is
designed to enable the Company and its subsidiaries to afford certain designated
key employees who are responsible for the continued growth of the Company and
its subsidiaries an opportunity to acquire a proprietary interest in the
Company and thereby enable the Company and its subsidiaries to attract, retain
and motivate such key employees. The Plan provides for options which are
intended to qualify as incentive stock options (“Options”) under Section 422 of
the Internal Revenue Code, as amended (“Code”).

 

2.             Stock
Subject to Plan.

 

(a)           The
maximum number of shares of stock subject to this Plan and for which Options
granted under this Plan may be exercised shall initially be 65,000 shares of
the Company’s common stock subject to adjustments as elsewhere provided for in
this Plan. As of the effective date of this Plan, the Company has no other
class of stock other than such common stock. Shares of stock subject to the
unexercised portions of any Options granted under this Plan which expire or
terminate or are cancelled may again be subject to Options under the Plan.

 

(b)           The
Company expects to modify this Plan to offer additional Options in subsequent
years, but no commitment to do so has been made or is intended.

 

3.             Eligible
Employees.

 

(a)           The
employees eligible to be considered for the grant of Options under this Plan
are persons regularly employed by the Company or by any of its subsidiaries in
a managerial capacity on a full-time, salaried basis (“Optionee”).

 

(b)           The
initial Optionees designated by the Company under this Plan, and the number of
shares of stock of the Company to be made available to them through the Options
to be granted to them under this Plan, are as follows:

 

 

	
  Optionee

  	
   

  	
  Number of Shares Available by Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Hal H. Barber

  	
   

  	
  10,000

  	
   

  
	
  Kirk T. Breitenwischer

  	
   

  	
  7,500

  	
   

  
	
  Bruce I. McPhee

  	
   

  	
  10,000

  	
   

  
	
  Eugene K. Rowehl

  	
   

  	
  7,500

  	
   

  
	
  Thomas F. Tylutki

  	
   

  	
  10,000

  	
   

  
	
  Gregory A. Yakim

  	
   

  	
  20,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  65,000

  	
   

  

 

(c)           If
all of the Optionees exercise all of their Options to acquire all such stock
available to them for purchase under this Plan, and if no other stock of the
Company was sold or reacquired, the stock of the Company would then be held as
follows:

 

	
  Shareholder

  	
   

  	
  Number of Shares Held

  	
   

  	
  % of Issued Shares Held

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  David K. Hill

  	
   

  	
  2,703,955

  	
   

  	
  82.82

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Diane G. Hill

  	
   

  	
  236,836

  	
   

  	
  7.25

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Diane G. Hill as Trustee for David K. Hill
  III

  	
   

  	
  59,209

  	
   

  	
  1.81

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bruce I. McPhee

  	
   

  	
  210,000

  	
   

  	
  6.43

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gregory A. Yakim

  	
   

  	
  20,000

  	
   

  	
  .61

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Thomas F. Tylutki

  	
   

  	
  10,000

  	
   

  	
  .31

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hal H. Barber

  	
   

  	
  10,000

  	
   

  	
  .31

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eugene K. Rowehl

  	
   

  	
  7,500

  	
   

  	
  .23

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kirk T. Breitenwischer

  	
   

  	
  7,500

  	
   

  	
  .23

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  3,265,000

  	
   

  	
  100

  	
  %

  

 

2

 

4.             Minimum
Exercise Price.

 

The exercise
price for each Option granted under this Plan shall be not less than 100% of
the Fair Market Value, as defined in paragraph 15 of this Plan, of the stock
being optioned. Fair Market Value shall be determined at the time of the grant
of the Option.

 

5.             Non-transferability.

 

Any option
granted under this Plan shall by its terms be non-transferable by the Optionee
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee’s lifetime only by the Optionee or by the
Optionee’s guardian or legal representative.

 

6.             Adjustment
of Shares by Reason of Certain Transactions.

 

(a)           In
the event of any change in the outstanding shares of the Company through
additional options, sales of stock, merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, split-up, split-off, spin-off,
combination or exchange of shares, or other like change in capital structure of
the Company, an equitable adjustment may be made to each outstanding Option
such that each such Option shall thereafter be exercisable for such securities,
cash and/or other property as would have been received in respect to the shares
subject to such Option had such Option been exercised in full immediately prior
to such change. Such adjustment shall be made successively each time any such
change shall occur.

 

(b)           In
addition or instead, in the event of any such change, the Committee, as
established and otherwise provided for pursuant to the provisions of paragraph
10(a) below, may make any further adjustment as may be appropriate to the
maximum number of shares subject to the Plan and the number of shares and price
per share subject to outstanding Options as shall be equitable to prevent
dilution or enlargement of rights under such Option. The determination of the
Committee as to any such actions and matters shall be conclusive.

 

(c)           Notwithstanding
the foregoing provisions, each such adjustment with respect to an Option shall
comply with applicable rules of the Code, and in no event shall any adjustment
be made which would render any Option granted hereunder other than an “incentive
stock option” for purposes of Section 422 of the Code.

 

3

 

7.             Maximum
Option Term.

 

No Option
granted under this Plan may be exercised in whole or in part more than ten (10)
years after its date of grant. The initial Options to be granted under this
Plan must be exercised within four (4) years of the grant of each such Option.

 

8.             Plan
Duration.

 

Options may
not be granted under this Plan after October 31, 2005.

 

9.             Payment.

 

Payment for
stock purchased upon any exercise of an Option granted under this Plan will be
made in full in cash or check with currently available funds concurrently with
such exercise, provided, however, that the contract between the Company and any
Optionee (“Stock Option Agreement”) which grants a specific Option to a
specific Optionee may, at the discretion of the Company, provide for payment
terms.

 

10.          Administration.

 

(a)           The
Plan shall be administered by a committee (“Committee”) of not less than two (2)
members of the Board of Directors (“Board”) selected by the Board. Any member
of the Committee may be removed at any time either with or without cause by
resolution adopted by the Board, and any vacancy on the Committee may at any
time be filled by resolutions adopted by the Board. The initial Committee under
this Plan shall consist of David K. Hill and James A. Moehling.

 

(b)           Subject
to the express provisions of this Plan, the Committee shall have the authority
in its discretion to carry out and do the following:

 

(i)            To determine the
employees to whom Options shall be granted, the time when such Option shall be
granted, the number of shares which shall be subject to each Option, the
purchase price of each share will be subject to each Option, the period during
which such Option shall be exercised, and the other terms and provisions of the
respective Options, which need not be identical;

 

(ii)           To prepare and modify
individual Stock Option Agreements for each Optionee;

 

4

 

(iii)          To construe the Plan and
each Stock Option Agreement on behalf of the Company;

 

(iv)          To prescribe, amend and
rescind rules and regulations relating to the Plan; and

 

(v)           To otherwise administer
and make all other determinations necessary or advisable on behalf of the
Company under or in connection with the Plan and the Stock Option Agreements
with each Optionee.

 

(c)           The
interpretation and construction by the Committee of any term or provision of
the Plan or of any Stock Transfer Agreement shall be conclusive.

 

11.          Stock
Option Agreements.

 

(a)           The
Stock Option Agreements to be entered into by the Company and each individual
Optionee under this Plan shall contain such other terms and provisions which
are not inconsistent with this Plan as the Committee may authorize, including,
without limitation, provisions for possible forfeiture of Option rights and
restrictions on transfers of stock of the Company acquired by Optionees upon
exercise of their Option rights under this Plan.

 

(b)           Any
Stock Option Agreement entered into with an Optionee shall at all times be
considered to adopt by reference all of the provisions of this Plan as it may
be amended or terminated.

 

(c)           All
Stock Option Agreements are intended to be consistent with all of the provisions
of this Plan, but to the extent of any conflict between the provisions of this
Plan and the provisions of the Stock Option Agreement, the provisions of this
Plan shall be deemed to be controlling.

 

12.          Corporate
Reorganizations.

 

Upon the
dissolution or liquidation of the Company, or upon a reorganization, merger or
consolidation of the Company as a result of which the outstanding stock of the
Company then subject to Options under this Plan are changed into or exchanged
for property, including cash, rights or securities not issued by the Company,
or any combination thereof, or upon a sale of substantially all of the assets
of the Company to, or the acquisition of stock representing more than 80% of
the voting power of the stock of the Company then outstanding by, another
corporation or person, this Plan shall terminate. Upon such termination of this
Plan,

 

5

 

all Options granted under this
Plan prior to such occurrence shall terminate unless provision is made in
writing in connection with such transaction for the continuance of the Plan
and/or for the assumption of Options granted prior to such occurrence, or the
substitution for such Options of Options covering the stock of a successor
employer corporation, or a parent or subsidiary of the successor, with
appropriate adjustments in accordance with paragraph 6 of this Plan as to the
number and kind of shares optioned and their exercise prices, in which event
the Plan and Options granted prior to such event shall continue in the manner
and under the terms so provided. The instrument evidencing any Option may also
provide for the acceleration of otherwise unexercisable portions of the Option.

 

13.          Limitation
of Rights of Optionees.

 

(a)           Optionees
shall have no interest in the Option shares or in any dividend paid on such
shares, and shall have right to vote any such shares or have any other rights
or privileges of a stockholder of the Company with respect to such shares,
until the Option has been properly exercised and the certificates for such
shares have been issued and delivered to the Optionee consistent with the
requirements of this Plan and the applicable Stock Option Agreements.

 

(b)           No
shares of stock issuable under the Plan shall be issued and no certificate for
such shares shall be delivered if such security causes the Company to be in
violation of or to incur any liability under any federal, state or other
securities law, or any other requirement of law or of any regulatory body
having jurisdiction over the Company, or if doing same would constitute a
breach by the Company of any loan agreement or similar contract or commitment
of the Company.

 

(c)           The
receipt of an Option, the exercise of it, the receipt of stock by reason of
such exercise, and the fact of a Stock Option Agreement with the Company, and
none of the foregoing alone, shall give any Optionee any right to continued
employment by the Company or any subsidiary of the Company for any period or
for any level of compensation or other benefit or the right to receive any
further Options. Likewise, neither the receipt of an Option nor the exercise of
it and the receipt of any stock shall give the Company or any subsidiary any
right to the continued services of the Optionee for any period or at any particular
compensation or other benefit level.

 

(d)           Nothing
contained in this Plan shall constitute the granting of an Option or grant any
employee of the Company or any subsidiary of the Company any rights whatsoever
to any Option or any stock of the Company. An Option can be granted only when
expressly authorized by the Committee and upon execution and delivery of a
Stock Option Agreement executed by the Company and by the Optionee.

 

6

 

14.          Limitation
on Exercise of Options.

 

Except as
otherwise provided and permitted under the Code, and notwithstanding anything
in this Plan to the contrary, to the extent that the aggregate Fair Market
Value of stock with respect to which Options are exercisable for the first time
by any one (1) employee during any calendar year under all stock option plans
of the Company and any parent corporation or subsidiary corporation of the
Company exceeds $100,000.00, such Option shall be treated as a non-qualified
Option under the Code. For purposes of this limitation, (i) the Fair Market
Value of shares is determined as of the time the Option is granted and (ii) the
limitation will be applied by taking into account Options in the order in which
they were granted.

 

15.          Option
Price.

 

(a)           There
shall be no cost or consideration paid by any Optionee for the grant of an
Option itself.

 

(b)           The
purchase price for each share purchasable under any Option granted under the
Plan shall be such amount as the Committee shall, in its best judgment and in
good faith, determine to be not less than 100% of the fair market value (“Fair
Market Value”) per share on the date the Option is granted. Notwithstanding the
foregoing, in the case of an Option granted to a Optionee who at the time such
Option is granted owns stock of the Company or any subsidiary corporation or
parent corporation of the Company possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any
subsidiary corporation or parent corporation of the Company, the purchase price
for each share shall be such amount as the Committee shall, in its best
judgment, determine to be not less than 110% of the Fair Market Value per share
at the date the Option is granted.

 

(c)           Since
no public market exists for the shares of stock of the Company as of the date
of adoption of this Plan, the Committee shall in its sole discretion, best
judgment, and in good faith determine the Fair Market Value of each share of
stock of the Company. The Committee need not obtain any appraisal of any kind
to make such determination under this Plan at any time. The determination by
the Committee of the Fair Market Value of a share at any time shall be
conclusive and binding on all parties.

 

(d)           As
of the date of adoption of this Plan, the exercise price has been set at $5.00
per share. The Company and the Committee have determined that such $5.00
exercise price is equal to or greater than the Fair Market Value of stock of
the Company as of the date of adoption of this Plan.

 

7

 

(e)           The
cash proceeds of the sale of shares received by the Company upon the exercise
of the Options are to be added to the general funds of the Company and may be
used for its general corporate purposes as the Company shall determine.

 

16.          Listing
of Shares and Related Matters.

 

If at any time
the Company shall determine in its discretion that the listing, registration or
qualification of the shares covered by the Plan upon any national securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or
in connection with, the sale or purchase of shares under the Plan, no shares
shall be issued unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained or otherwise provided
for, free of any conditions not acceptable to the Company.

 

17.          Amendment
of the Plan.

 

The Committee
may from time to time at its discretion amend this Plan. However,
notwithstanding anything to the contrary in this Plan, no amendment shall be
made without the approval of shareholders then holding a majority of the voting
stock of the Company if such amendment would (a) increase the total number of
shares reserved for Option under the Plan other than an increase resulting from
an adjustment provided for in this Plan, (b) reduce the exercise price for any
Option granted hereunder below the price required in this Plan, (c) modify the
provisions of this Plan relating to eligibility, or (d) materially increase the
benefits accruing to Optionees under the Plan. The Committee is authorized to
amend the Plan and the Stock Option Agreement to permit the Options granted to
qualify as “incentive stock options” within the meaning of Section 422 of the
Code. The rights and obligations under any Option granted before amendment of
the Plan or any unexercised portion of such Option shall not be adversely
affected by amendment of the Plan or the Stock Option Agreement without the
consent of the holder of the Option.

 

18.          Termination
or Suspension of Plan.

 

The Committee
may at any time and for any or no reason suspend or terminate the Plan. An
Option may not be granted while the Plan is suspended or after it is terminated.
Options granted while the Plan is in effect shall not be altered or impaired by
suspension or termination of the Plan, except upon the consent of the Optionee.
The power of the Committee under this Plan to construe and administer the Plan
and the Stock Option Agreements granted prior to the termination or suspension
of the Plan shall continue after such termination or during such suspension.

 

8

 

19.          Miscellaneous.

 

(a)           This
Plan and all of the Stock Option Agreements shall be governed by and construed
and enforced in accordance with the internal laws of the State of Illinois. Jurisdiction
and venue for any disputes under this Plan or the Stock Option Agreements shall
be in the Circuit Court of Cook County, in Chicago, Illinois.

 

(b)           This
Plan and the Stock Option Agreements constitute the entire Stock Option Plan
and individual Options granted.

 

(c)           The
invalidity or illegality of any provision of this Plan shall not be deemed to
effect the validity of any other provision of this Plan.

 

IN WITNESS
WHEREOF, the Company has established this Plan effective commencing as of the
date first indicated in this Plan.

 

	
   

  	
  Kimball
  Hill, Inc.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David K. Hill

  	
   

  
	
   

  	
   

  	
  David K. Hill, President

  	
   

  
						

 

9

 

10-10-96

 

FIRST AMENDMENT TO

KIMBALL HILL HOMES INCENTIVE STOCK OPTION PLAN

 

This First
Amendment to Kimball Hill Homes Incentive Stock Option Plan (“Amendment”) is
adopted by Kimball Hill, Inc., an Illinois corporation (“Company”) effective as
of October 31, 1996.

 

R E C I T A L S

 

A.            The
Company adopted, effective as of October 31, 1995, the Kimball Hill Homes
Incentive Stock Option Plan (“Plan”) under which it offered to designated key
employees the right to subscribe to an aggregate of 65,000 shares of the
Company’s common stock.

 

B.            The
Company and each of the six (6) designated eligible employees, i.e., Hal
H. Barber, Kirk T. Breitenwischer, Bruce I. McPhee, Eugene K. Rowehl, Thomas F.
Tylutki, and Gregory A. Yakim (collectively the “Optionees”) each entered into
a Stock Option Agreement with the Company under which the Optionees confirmed
the terms under which each has options to acquire designated portions of stock
of the Company under options priced at $5.00 per share and expiring on October
31, 1999. All such options are still outstanding; none have been exercised or
forfeited.

 

C.            The
Company desires to make available to these same Optionees, additional stock
option rights for various designated shares of stock of the Company at the same
price per share and for a four (4) year period commencing as of the effective
date of this Amendment.

 

D.            The
Company desires to provide in this Amendment for all appropriate modifications
to the Plan to carry out the foregoing intent.

 

NOW,
THEREFORE, the Company hereby amends the Plan, effective as of the date
indicated above, as follows:

 

1.             Additional
Stock Subject to Plan.

 

(a)           An
additional 141,000 shares of the Company’s common stock are subject to the Plan
and may be granted as incentive stock options (“Options”) under Section 422 of
the Internal Revenue Code, as amended.

 

1

 

(b)           The
141,000 shares are in addition to the aggregate 65,000 shares of the Company’s
common stock originally granted by individual Stock Option Agreements to each
of the Optionees.

 

2.             Eligible
Employees.

 

(a)           The
employees eligible for the grant of Options for the additional stock as
contemplated in this Amendment are the same Optionees who are eligible for the
initial Options provided for in the Plan. All of the Optionees are regularly
employed by the Company or by a subsidiary of the Company in a managerial
capacity on a full-time, salaried basis.

 

(b)           The
Optionees are granted Options to acquire additional stock of the Company
pursuant to the terms of this Amendment as follows:

 

	
   

  	
   

  	
  Number of Additional

  	
   

  
	
  Optionee

  	
   

  	
  Shares Available by Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Hal H. Barber

  	
   

  	
  16,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Kirk T. Breitenwischer

  	
   

  	
  12,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bruce I. McPhee

  	
   

  	
  8,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Eugene K. Rowehl

  	
   

  	
  15,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Thomas F. Tylutki

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gregory A. Yakim

  	
   

  	
  80,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  141,000

  	
   

  

 

(c)           If
all of the Optionees exercise all of their Options to acquire all such stock of
the Company available to them for purchase under the Plan, including the
aggregate initial 65,000 shares and the additional 141,000 shares to be offered
pursuant to the terms of this Amendment, and if no other stock of the Company
was sold or reacquired, the stock of the Company would then be held as follows:

 

2

 

	
  Shareholder

  	
   

  	
  Number of Shares Held

  	
   

  	
  % of Issued Shares Held

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  David K. Hill

  	
   

  	
  2,703,955

  	
   

  	
  79.39

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Diane G. Hill

  	
   

  	
  236,836

  	
   

  	
  6.95

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Diane G. Hill as Trustee for David K. Hill
  III

  	
   

  	
  59,209

  	
   

  	
  1.74

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bruce I. McPhee

  	
   

  	
  218,000

  	
   

  	
  6.40

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gregory A. Yakim

  	
   

  	
  100,000

  	
   

  	
  2.94

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hal H. Barber

  	
   

  	
  26,000

  	
   

  	
  .76

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eugene Rowehl

  	
   

  	
  22,500

  	
   

  	
  .66

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Thomas F. Tylutki

  	
   

  	
  20,000

  	
   

  	
  .59

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kirk T. Breitenwischer

  	
   

  	
  19,500

  	
   

  	
  .57

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  3,406,000

  	
   

  	
  100

  	
  %

  

 

3.             Exercise
Price.

 

The Company
has determined that the Fair Market Value as of the effective date of this
Amendment of the stock subject to the Options to be offered pursuant to the
terms of this Amendment is $5.00 per share. Accordingly, the Option exercise
price for each share of stock to be offered to each of the Optionees shall be
$5.00.

 

4.             Expiration
of Option.

 

All of the
Options to be granted pursuant to the Plan under this Amendment must be
exercised within four (4) years of the grant of each such Option. Accordingly,
the Options shall expire on October 31, 2000.

 

5.             Administration.

 

The first
sentence of paragraph 10(a) of the Plan is deleted and the following sentence
is substituted for it:

 

3

 

The Plan shall be administered by a committee (“Committee”) of not less
than two individuals selected by the Board of Directors (“Board”) of the
Company.

 

6.             No
Other Modifications.

 

(a)           Except
to the extent expressly provided for in this Amendment, the Plan shall remain
in full force and effect.

 

(b)           All
of the provisions in the Plan, except to the extent expressly modified above,
shall be fully applicable to the additional Options to be made available
pursuant the terms of this Amendment.

 

7.             Miscellaneous.

 

(a)           The
recitals at the beginning of this Amendment are an integral part of this
Amendment.

 

(b)           Except
to the extent expressly defined in this Amendment, all defined terms used in
this Amendment shall have the same meaning as provided for in the Plan.

 

IN WITNESS
WHEREOF, the Company has modified the Plan pursuant to the terms of this
Amendment effective as of the date first indicated above.

 

 

	
   

  	
  KIMBALL HILL, INC. by its Stock Option

  
	
   

  	
  Plan Committee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ David K.
  Hill

  	
   

  
	
   

  	
  David K.
  Hill

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James A.
  Moehling

  	
   

  
	
   

  	
  James A.
  Moehling

  
				

 

4

 

12-31-97(1)

 

SECOND AMENDMENT TO

KIMBALL HILL HOMES INCENTIVE STOCK OPTION PLAN

 

This Second
Amendment to Kimball Hill Homes Incentive Stock Option Plan (“Second Amendment”)
is adopted by Kimball Hill, Inc., an Illinois corporation (“Company”) effective
as of December 31, 1997.

 

R E C I T A L S

 

A.            The
Company adopted, effective as of October 31, 1995, the Kimball Hill Homes
Incentive Stock Option Plan (“Plan”) under which it offered to designated key
employees the right to subscribe to an aggregate of 65,000 shares of the
Company’s common stock.

 

B.            The
Company and each of the six (6) designated eligible employees, i.e., Hal
H. Barber, Kirk T. Breitenwischer, Bruce I. McPhee, Eugene K. Rowehl, Thomas F.
Tylutki, and Gregory A. Yakim (collectively the “Optionees”) each entered into
a Stock Option Agreement with the Company under which the Optionees confirmed
the terms under which each has options to acquire designated portions of stock
of the Company under options priced at $5.00 per share and expiring on October
31, 1999. All such options are still outstanding; none have been exercised or
forfeited.

 

C.            The
Company and the six Optionees entered into a First Amendment to Kimball Hill
Homes Incentive Stock Option Plan effective October 31, 1996 (“First Amendment”)
under which the Optionees collectively acquired additional options for an
aggregate additional 141,000 shares of stock of the Company under options
priced also at $5.00 per share and expiring on October 31, 2000. As with the
options granted in the original Plan effective as of October 31, 1995, all of
the options granted under the First Amendment are still outstanding; none have
been exercised or forfeited.

 

D.            The
Company desires to make available under the terms of this Second Amendment
additional stock option rights for an aggregate 144,000 shares of stock of the
Company at $6.00 per share and for a four (4) year term commencing as of the
effective date of this Second Amendment.

 

E.             The
Company also desires to make available these stock options pursuant to the
terms of this Second Amendment to the original six Optionees as well as to Lance
Wright (the original Optionees and Lance Wright collectively referred to
hereafter as the Optionees).

 

1

 

F.             The
Company desires to provide in this Second Amendment for all appropriate
modifications to the Plan to carry out the foregoing intent.

 

NOW,
THEREFORE, the Company hereby further amends the Plan, effective as of the date
indicated above, as follows:

 

1.             Additional
Stock Subject to Plan.

 

(a)           An
additional 144,000 shares of the Company’s common stock are subject to the Plan
and may be granted as incentive stock options (“Options”) under Section 422 of
the Internal Revenue Code, as amended.

 

(b)           The
144,000 shares are in addition to the aggregate 65,000 shares of the Company’s
common stock originally granted by individual Stock Option Agreements and the
aggregate 141,000 shares granted by the First Amendment. Accordingly, there are
now 350,000 total shares of stock of the Company subject to Options.

 

2.             Eligible
Employees.

 

(a)           The
employees eligible for the grant of Options for the additional stock as
contemplated in this Second Amendment are the Optionees as defined above. All
of the Optionees are regularly employed by the Company or by a subsidiary of
the Company in a managerial capacity on a full-time, salaried basis.

 

(b)           The
Optionees are granted Options to acquire stock of the Company pursuant to the
terms of this Second Amendment as follows:

 

	
   

  	
   

  	
  Number of Additional

  	
   

  
	
  Optionee

  	
   

  	
  Shares Available by this Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gregory A. Yakim

  	
   

  	
  60,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Hal H. Barber

  	
   

  	
  18,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Kirk T. Breitenwischer

  	
   

  	
  18,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bruce I. McPhee

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Eugene K. Rowehl

  	
   

  	
  18,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Thomas F. Tylutki

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Lance Wright

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  144,000

  	
   

  

 

2

 

(c)           If
all of the Optionees exercise all of their Options to acquire all such stock of
the Company available to them for purchase under the Plan, including the
aggregate initial 65,000 shares, the 141,000 shares granted by the First
Amendment, and the additional 144,000 shares to be offered pursuant to the
terms of this Second Amendment, and if no other stock of the Company was sold
or reacquired, the stock of the Company would then be held as shown on Exhibit
A attached to and made a part of this Second Amendment.

 

3.             Exercise
Price.

 

The Company
has determined that the Fair Market Value as of the effective date of this
Amendment of the stock subject to the Options to be offered pursuant to the
terms of this Amendment is $6.00 per share. Accordingly, the Option exercise
price for each share of stock to be offered to each of the Optionees shall be
$6.00.

 

4.             Expiration
of Option.

 

All of the
Options to be granted pursuant to the Plan under this Amendment must be
exercised within four (4) years of the grant of each such Option. Accordingly,
the Options shall expire on December 31, 2001.

 

5.             No
Other Modifications.

 

(a)           Except
to the extent expressly provided for in the First Amendment and this Second
Amendment, the Plan shall remain in full force and effect.

 

(b)           All
of the provisions in the Plan, except to the extent expressly modified in the
First Amendment and as provided for above, shall be fully applicable to the
additional Options to be made available pursuant the terms of this Second
Amendment.

 

6.             Miscellaneous.

 

(a)           The
recitals at the beginning of this Second Amendment are an integral part of this
Second Amendment.

 

(b)           Except
to the extent expressly defined in this Second Amendment, all defined terms
used in this Second Amendment shall have the same meaning as provided for in
the Plan.

 

3

 

IN WITNESS
WHEREOF, the Company has modified the Plan pursuant to the terms of this Second
Amendment effective as of the date first indicated above.

 

	
   

  	
  KIMBALL
  HILL, INC. by its Stock Option

  
	
   

  	
  Plan
  Committee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ David K.
  Hill

  	
   

  
	
   

  	
  David K.
  Hill

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James A.
  Moehling

  	
   

  
	
   

  	
  James A.
  Moehling

  
				

 

1

 

RESTATED THIRD AMENDMENT TO

KIMBALL HILL HOMES INCENTIVE STOCK OPTION PLAN

 

This Restated
Third Amendment to Kimball Hill Homes Incentive Stock Option Plan (“Third
Amendment”) is adopted by Kimball Hill, Inc., an Illinois corporation (“Company”)
effective as of December 31, 1998.

 

R E C I T A L S

 

A.            The
Company adopted, effective as of October 31, 1995, the Kimball Hill Homes
Incentive Stock Option Plan (“Plan”) under which it offered to designated key
employees the right to subscribe to an aggregate of 65,000 shares of the
Company’s common stock.

 

B.            The
Company and each of six designated eligible employees each entered into a Stock
Option Agreement with the Company under which such optionees confirmed the
terms under which each has options to acquire designated portions of stock of
the Company under options priced at $5.00 per share and expiring on October 31,
1999. All such options are still outstanding; none have been exercised or
forfeited.

 

C.            The
Company and such optionees entered into a First Amendment to Kimball Hill Homes
Incentive Stock Option Plan effective October 31, 1996 (“First Amendment”)
under which the optionees collectively acquired additional options for an
aggregate additional 141,000 shares of stock of the Company under options
priced also at $5.00 per share and expiring on October 31, 2000. As with the
options granted in the original Plan effective as of October 31, 1995, all of
the options granted under the First Amendment are still outstanding; none have
been exercised or forfeited.

 

D.            The
Company and designated optionees entered into a Second Amendment to Kimball
Hill Homes Stock Option Plan effective December 31, 1997 (“Second Amendment”)
under which such designated optionees collectively acquired additional options
for a total of 144,000 shares of stock of the Company under options priced at
$6.00 per share and expiring on December 31, 2001. As with the options granted
in the original Plan and the First Amendment, all the options granted under the
Second Amendment are still outstanding; none have been exercised or forfeited.

 

E.             The
Company also entered into the Kimball Hill Homes Nonstatutory Stock Option Plan
effective as of December 31, 1997 under which it made available to certain
non-employee members of the Board of Directors of the Company stock options
which were not intended to qualify as incentive stock options under Section 422
of the Internal Revenue Code, and all such nonstatutory stock options are for
all purposes

 

1

 

considered separate from and
not a part or modification of any incentive stock option plan of the Company.

 

F.             The
Company desires to make available under the terms of this Third Amendment
additional incentive stock option rights for an aggregate 174,000 shares of
stock of the Company at $7.75 per share and for an eight (8) year term
commencing as of the effective date of this Third Amendment. For that purpose,
the Company adopted the Third Amendment to Kimball Hill Homes Incentive Stock
Option Plan effective December 31, 1998 (“Original Third Amendment”).

 

G.            The
Company desires to supercede the Original Third Amendment by providing, only
with respect to options to be granted pursuant to it to David K. Hill and to
Diane G. Hill, an increase in the option price to be paid by them by 10% to
$8.53 and a decrease in the Option term by three (3) years to a five (5) year
term.

 

H.            The
Company desires to provide in this Third Amendment for all appropriate
modifications to the Plan to carry out the foregoing intent.

 

NOW,
THEREFORE, the Company hereby further amends the Plan, effective as of the date
indicated above, as follows:

 

1.             Additional
Stock Subject to Plan.

 

(a)           An
additional 174,000 shares of the Company’s common stock are subject to the Plan
and may be granted as incentive stock options (“Options”) under Section 422 of
the Internal Revenue Code, as amended.

 

(b)           The
174,000 shares are in addition to the aggregate 65,000 shares of the Company’s
common stock originally granted by individual Stock Option Agreements, the
aggregate 141,000 shares granted by the First Amendment, and the aggregate
144,000 shares granted by the Second Amendment. Accordingly, there are now
524,000 total shares of stock of the Company subject to Options in addition to
any shares available through nonstatutory stock options.

 

2.             Eligible
Employees.

 

(a)           The
employees (“Optionees”) eligible for the grant of Options for the additional
stock as contemplated in this Third Amendment and the number of shares
available to each are as follows:

 

2

 

	
  Optionee

  	
   

  	
  Number of Additional

  Shares Available by this Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  David K. Hill

  	
   

  	
  40,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gregory A. Yakim

  	
   

  	
  40,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Hal H. Barber

  	
   

  	
  18,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Kirk T. Breitenwischer

  	
   

  	
  18,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Eugene K. Rowehl

  	
   

  	
  18,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Diane G. Hill

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bruce I. McPhee

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Thomas F. Tylutki

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Lance Wright

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  174,000

  	
   

  

 

(b)           All
of the Optionees are regularly employed by the Company or by a subsidiary of
the Company in a managerial capacity on a full-time, salaried basis.

 

(c)           If
all of the Optionees exercise all of their Options to acquire all such stock of
the Company available to them for purchase under the Plan, including the
aggregate initial 65,000 shares, the 141,000 shares granted by the First
Amendment, the 144,000 shares granted by the Second Amendment, and additional
174,000 shares to be offered pursuant to the terms of this Third Amendment, and
if no other stock of the Company was sold or reacquired other than by exercise
of nonstatutory stock options, the stock of the Company would then be held as
shown on Exhibit A attached to and made a part of this Third Amendment.

 

3.             Exercise
Price.

 

The Company
has determined that the Fair Market Value, as of the effective date of this Third
Amendment, of the stock subject to the Options to be offered pursuant to the
terms of this Third Amendment is $7.75 per share. Accordingly, the Option
exercise price for each share of stock to be offered to each of the Optionees
shall be $7.75. Notwithstanding the foregoing, the Option exercise price for
each share of stock to be offered to David K. Hill and to Diane G. Hill shall
be $8.53.

 

3

 

4.             Expiration
of Option.

 

All of the
Options to be granted pursuant to the Plan under this Third Amendment must be
exercised within eight (8) years of the grant of each such Option. Accordingly,
the Options shall expire on December 31, 2006. Notwithstanding the foregoing,
the Options to be granted to David K. Hill and to Diane G. Hill must be
exercised within five (5) years of the grant of each such Option so that, for
each of them, the Options shall expire on December 31, 2003.

 

5.             No
Other Modifications.

 

(a)           Except
to the extent expressly provided for in the First Amendment, the Second
Amendment and this Third Amendment, the Plan shall remain in full force and
effect. This Third Amendment supercedes in its entirety all of the provisions
of the Original Third Amendment.

 

(b)           All
of the provisions of the Plan, except to the extent expressly modified as
provided for above, shall be fully applicable to the additional Options to be
made available pursuant the terms of this Third Amendment.

 

6.             Miscellaneous.

 

(a)           The
Recitals at the beginning of this Third Amendment are an integral part of this
Third Amendment.

 

(b)           Except
to the extent expressly defined in this Third Amendment, all defined terms used
in this Third Amendment shall have the same meaning as provided for in the
Plan.

 

4

 

IN WITNESS
WHEREOF, the Company has modified the Plan pursuant to the terms of this Third
Amendment effective as of the date first indicated above.

 

	
   

  	
  KIMBALL
  HILL, INC. by its Stock Option

  Plan Committee:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ David K.
  Hill

  	
   

  
	
   

  	
  David K.
  Hill

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James A.
  Moehling

  	
   

  
	
   

  	
  James A.
  Moehling

  
				

 

5

 

2-16-00

 

FOURTH AMENDMENT TO

KIMBALL HILL HOMES INCENTIVE STOCK OPTION PLAN

 

This Fourth
Amendment to Kimball Hill Homes Incentive Stock Option Plan (“Fourth Amendment”)
is adopted by Kimball Hill, Inc., an Illinois corporation (“Company”) effective
as of December 31, 1999.

 

R E C I T A L S

 

A.            The
Company adopted, effective as of October 31, 1995, the Kimball Hill Homes
Incentive Stock Option Plan (“Plan”) under which it offered to designated key
employees the right to subscribe to an aggregate of 65,000 shares of the
Company’s common stock.

 

B.            The
Company and each of six designated eligible employees each entered into a Stock
Option Agreement with the Company under which such optionees confirmed the
terms under which each has options to acquire designated portions of stock of
the Company under options priced at $5.00 per share and expiring on October 31,
1999. None of such options are still outstanding; all have either been
exercised or forfeited.

 

C.            The
Company and such optionees entered into a First Amendment to Kimball Hill Homes
Incentive Stock Option Plan effective October 31, 1996 (“First Amendment”)
under which the optionees collectively acquired additional options for an
aggregate additional 141,000 shares of stock of the Company under options
priced also at $5.00 per share and expiring on October 31, 2000. All of the
options granted under the First Amendment are still outstanding; none have been
exercised or forfeited.

 

D.            The
Company and designated optionees entered into a Second Amendment to Kimball
Hill Homes Stock Option Plan effective December 31, 1997 (“Second Amendment”)
under which such designated optionees collectively acquired additional options
for a total of 144,000 shares of stock of the Company under options priced at
$6.00 per share and expiring on December 31, 2001. All of the options granted
under the Second Amendment are still outstanding; none have been exercised or
forfeited.

 

E.             The
Company also entered into the Kimball Hill Homes Nonstatutory Stock Option Plan
effective as of December 31, 1997 under which it made available to certain
non-employee members of the Board of Directors of the Company stock options
which were not intended to qualify as incentive stock options under Section 422
of the

 

1

 

Internal Revenue Code, and all
such nonstatutory stock options granted in 1997 and again in 1998 and 1999 are
for all purposes considered separate from and not a part or modification of any
incentive stock option plan of the Company.

 

F.             The
Company and designated optionees entered into a Third Amendment to Kimball Hill
Homes Incentive Stock Option Plan effective December 31, 1998 (“Third Amendment”)
under which such designated optionees collectively acquired additional options
for a total of 174,000 shares of stock of the Company. All Options, except
those granted to owners of ten percent (10%) or more of the voting power of all
classes of stock of the Company, were priced in the Third Amendment at $7.75
per share and expire on December 31, 2006. The Options granted under the Third
Amendment to David K. Hill and to Diane G. Hill, who are individually or by
attribution the owners of more than ten percent (10%) of the voting power of
all classes of stock of the Company, are priced at $8.525 per share and expire
on December 31, 2003 as required to be eligible to be considered as incentive
stock options. All of the Options granted under the Third Amendment are still
outstanding; none have been exercised or forfeited.

 

G.            The
Company desires to make available under the terms of this Fourth Amendment
additional incentive stock option rights for an aggregate 120,000 shares of
stock of the Company at $10.00 per share and for an eight (8) year term
commencing as of the effective date of this Fourth Amendment. Additional stock
option rights are not under this Fourth Amendment being granted to David K.
Hill or to Diane G. Hill.

 

H.            The
Company desires to provide in this Fourth Amendment for all appropriate
modifications to the Plan to carry out the foregoing intent.

 

NOW,
THEREFORE, the Company hereby further amends the Plan, effective as of the date
indicated above, as follows:

 

1.             Additional
Stock Subject to Plan.

 

(a)           An
additional 120,000 shares of the Company’s common stock are subject to the Plan
and may be granted as incentive stock options (“Options”) under Section 422 of
the Internal Revenue Code, as amended.

 

(b)           Inclusive
of the 120,000 shares, there are as of the effective date of this Fourth
Amendment 579,000 total shares of stock of the Company subject to unexpired
statutory Options plus 50,000 total shares subject to nonstatutory stock
options for an aggregate of 629,000 shares available from all stock options
currently outstanding.

 

(c)           If
all of the Optionees exercise all of their Options to acquire all such stock of
the Company available to them for purchase under the Plan and if no other stock
of

 

2

 

the Company was sold or
reacquired other than by exercise of nonstatutory stock options, the stock of
the Company would then be held as shown on Exhibit A attached to and made a
part of this Fourth Amendment.

 

2.             Eligible
Employees.

 

(a)           The
employees (“Optionees”) eligible for the grant of Options for the additional
stock as contemplated in this Fourth Amendment and the number of shares
available to each are as follows:

 

	
  Optionee

  	
   

  	
  Number of Additional

  Shares Available by this Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gregory A. Yakim

  	
   

  	
  50,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Hal H. Barber

  	
   

  	
  15,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Kirk T. Breitenwischer

  	
   

  	
  15,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Eugene K. Rowehl

  	
   

  	
  15,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bruce I. McPhee

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Thomas F. Tylutki

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Lance Wright

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  120,000

  	
   

  

 

(b)           All
of the Optionees are regularly employed by the Company or by a subsidiary of
the Company in a managerial capacity on a full-time, salaried basis.

 

3.             Exercise
Price.

 

The Company
has determined that the Fair Market Value, as of the effective date of this Fourth
Amendment, of the stock subject to the Options to be offered pursuant to the
terms of this Fourth Amendment is $10.00 per share. Accordingly, the Option
exercise price for each share of stock to be offered to each of the Optionees
shall be $10.00.

 

4.             Expiration
of Option.

 

All of the
Options to be granted pursuant to the Plan under this Fourth Amendment must be
exercised within eight (8) years of the grant of each such Option. Accordingly,
the Options shall expire on December 31, 2007.

 

3

 

5.             No
Other Modifications.

 

(a)           Except
to the extent expressly provided for in the First Amendment, the Second
Amendment, the Third Amendment and this Fourth Amendment, the Plan shall remain
in full force and effect.

 

(b)           All
of the provisions of the Plan, except to the extent expressly modified as
provided for above, shall be fully applicable to the additional Options to be
made available pursuant the terms of this Fourth Amendment.

 

6.             Miscellaneous.

 

(a)           The
Recitals at the beginning of this Fourth Amendment are an integral part of this
Fourth Amendment.

 

(b)           Except
to the extent expressly defined in this Fourth Amendment, all defined terms
used in this Fourth Amendment shall have the same meaning as provided for in the
Plan.

 

IN WITNESS
WHEREOF, the Company has modified the Plan pursuant to the terms of this Fourth
Amendment effective as of the date first indicated above.

 

	
   

  	
  KIMBALL
  HILL, INC. by its Stock Option

  
	
   

  	
  Plan
  Committee:

  
	
   

  	
   

  
	
   

  	
  /s/ David K.
  Hill

  	
   

  
	
   

  	
  David K. Hill

  
	
   

  	
   

  
	
   

  	
  /s/ James A.
  Moehling

  	
   

  
	
   

  	
  James A.
  Moehling

  
				

 

4

 

FIFTH AMENDMENT TO

KIMBALL HILL HOMES INCENTIVE STOCK OPTION PLAN

 

This Fifth
Amendment to Kimball Hill Homes Incentive Stock Option Plan (“Fifth Amendment”)
is adopted by Kimball Hill, Inc., an Illinois corporation (“Company”) effective
as of December 31, 2000.

 

R E C I T A L S

 

A.            The
Company adopted, effective as of October 31, 1995, the Kimball Hill Homes
Incentive Stock Option Plan (“Plan”) under which it offered to designated key
employees the right to subscribe to an aggregate of 65,000 shares of the
Company’s common stock.

 

B.            The
Company and each of its designated eligible employees each entered into a Stock
Option Agreement with the Company under which such optionees confirmed the
terms under which each has options to acquire designated portions of stock of
the Company under options priced at $5.00 per share and expiring on October 31,
1999. None of such options are still outstanding; all have either been
exercised or forfeited.

 

C.            The
Company and such optionees entered into a First Amendment to Kimball Hill Homes
Incentive Stock Option Plan effective October 31, 1996 (“First Amendment”)
under which the optionees acquired additional options for stock of the Company
under options priced also at $5.00 per share and expiring on October 31, 2000. None
of the options granted under the First Amendment are still outstanding; all
have been exercised or forfeited.

 

D.            The
Company and designated optionees entered into a Second Amendment to Kimball
Hill Homes Stock Option Plan effective December 31, 1997 (“Second Amendment”)
under which such designated optionees acquired additional options for stock of
the Company under options priced at $6.00 per share and expiring on December
31, 2001. All of the options granted under the Second Amendment are still
outstanding; none have been exercised or forfeited.

 

E.             The
Company also entered into the Kimball Hill Homes Nonstatutory Stock Option Plan
effective as of December 31, 1997, and in subsequent years, under which it made
available to certain non-employee members of the Board of Directors of the
Company stock options which were not intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code, and all such
nonstatutory stock options granted in 1997 and in subsequent years are for all
purposes considered

 

1

 

separate from and not a part or
modification of any incentive stock option plan of the Company.

 

F.             The
Company and designated optionees entered into a Third Amendment to Kimball Hill
Homes Incentive Stock Option Plan effective December 31, 1998 (“Third Amendment”)
under which such designated optionees acquired additional options for stock of
the Company. All Options, except those granted to owners of ten percent (10%)
or more of the voting power of all classes of stock of the Company, were priced
in the Third Amendment at $7.75 per share and expire on December 31, 2006. The
Options granted under the Third Amendment to David K. Hill and to Diane G.
Hill, who are individually or by attribution the owners of more than ten
percent (10%) of the voting power of all classes of stock of the Company, are
priced at $8.525 per share and expire on December 31, 2003 as required to be
eligible to be considered as incentive stock options. All of the Options
granted under the Third Amendment are still outstanding; none have been
exercised or forfeited.

 

G.            The
Company and designated eligible optionees entered into a Fourth Amendment to
Kimball Hill Homes Incentive Stock Option Plan effective December 31, 1999 (“Fourth
Amendment”) under which such designated optionees acquired additional Options
for stock of the Company under Options priced at $10.00 per share and expiring
on December 31, 2007. All of the Options granted under the Fourth Amendment are
still outstanding; none have been exercised or forfeited.

 

H.            The
Company desires to make available under the terms of this Fifth Amendment
additional incentive stock option rights for an aggregate 145,000 shares of
stock of the Company at $13.00 per share and for a four (4) year term
commencing as of the effective date of this Fifth Amendment. Additional stock
option rights are not under this Fifth Amendment being granted to David K. Hill
or to Diane G. Hill.

 

I.              The
Company desires to provide in this Fifth Amendment for all appropriate
modifications to the Plan to carry out the foregoing intent.

 

NOW,
THEREFORE, the Company hereby further amends the Plan, effective as of the date
indicated above, as follows:

 

1.             Additional
Stock Subject to Plan.

 

(a)           An
additional 145,000 shares of the Company’s common stock are subject to the Plan
and may be granted as incentive stock options (“Options”) under Section 422 of
the Internal Revenue Code, as amended.

 

(b)           Inclusive
of the 145,000 shares, there are as of the effective date of this Fifth
Amendment 583,000 total shares of stock of the Company subject to

 

2

 

unexpired incentive Options
plus 74,000 total shares subject to nonstatutory stock options for an aggregate
of 657,000 shares available from all stock options currently outstanding.

 

(c)           If all of the Optionees exercise all of their
Options to acquire all such stock of the Company available to them for purchase
under the Plan, and if no other stock of the Company was sold or reacquired
other than by exercise of nonstatutory stock options, the stock of the Company
would then be held as shown on Exhibit A attached to and made a part of this
Fourth Amendment.

 

2.             Eligible
Employees.

 

(a)           The
employees (“Optionees”) eligible for the grant of Options for the additional
stock as contemplated in this Fifth Amendment and the number of shares
available to each are as follows:

 

	
  Optionee

  	
   

  	
  Number of Additional

  Shares Available by this Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gregory A. Yakim

  	
   

  	
  50,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Hal H. Barber

  	
   

  	
  15,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Kirk T. Breitenwischer

  	
   

  	
  15,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Eugene K. Rowehl

  	
   

  	
  15,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  William E. Long

  	
   

  	
  15,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Thomas F. Tylutki

  	
   

  	
  15,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bruce I. McPhee

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Lance Wright

  	
   

  	
  10,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  145,000

  	
   

  

 

(b)           All
of the Optionees are regularly employed by the Company or by a subsidiary of
the Company in a managerial capacity on a full-time, salaried basis.

 

3.             Exercise
Price.

 

The Company
has determined that the Fair Market Value, as of the effective date of this
Fifth Amendment, of the stock subject to the Options to be offered pursuant to
the terms of this Fifth Amendment is $13.00 per share. Accordingly, the

 

3

 

Option exercise price for each
share of stock to be offered to each of the Optionees shall be $13.00.

 

4.             Expiration
of Option.

 

All of the
Options to be granted pursuant to the Plan under this Fifth Amendment must be
exercised within four (4) years of the grant of each such Option. Accordingly,
the Options shall expire on December 31, 2004.

 

5.             No
Other Modifications.

 

(a)           Except
to the extent expressly provided for in the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment and this Fifth Amendment,
the Plan shall remain in full force and effect.

 

(b)           All
of the provisions of the Plan, except to the extent expressly modified as
provided for above, shall be fully applicable to the additional Options to be
made available pursuant the terms of this Fifth Amendment.

 

(c)           To
the extent of any inconsistency or conflict between the terms of (i) the Plan
and/or any prior amendment and (ii) this Fifth Amendment, the terms of this
Fifth Amendment shall be deemed to prevail as to the options provided for under
this Fifth Amendment.

 

6.             Miscellaneous.

 

(a)           The
Recitals at the beginning of this Fifth Amendment are an integral part of this
Fifth Amendment.

 

(b)           Except
to the extent expressly defined in this Fifth Amendment, all defined terms used
in this Fifth Amendment shall have the same meaning as provided for in the
Plan.

 

4

 

IN WITNESS
WHEREOF, the Company has modified the Plan pursuant to the terms of this Fifth
Amendment effective as of the date first indicated above.

 

	
   

  	
  KIMBALL
  HILL, INC. by its Stock Option

  
	
   

  	
  Plan
  Committee:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ David K.
  Hill

  	
   

  
	
   

  	
  David K.
  Hill

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James A.
  Moehling

  	
   

  
	
   

  	
  James A.
  Moehling

  
				

 

5

 

SIXTH AMENDMENT TO

KIMBALL HILL HOMES INCENTIVE STOCK OPTION PLAN

 

This Sixth
Amendment to Kimball Hill Homes Incentive Stock Option Plan (“Sixth Amendment”)
is adopted by Kimball Hill, Inc., an Illinois corporation (“Company”) effective
as of December 31, 2001.

 

R E C I T A L S

 

A.            The
Company adopted, effective as of October 31, 1995, the Kimball Hill Homes
Incentive Stock Option Plan (“Plan”) under which it offered to designated key
employees the right to subscribe to an aggregate of 65,000 shares of the
Company’s common stock.

 

B.            The
Company and each of six designated eligible employees each entered into a Stock
Option Agreement with the Company under which such optionees confirmed the
terms under which each has options to acquire designated portions of stock of
the Company under options priced at $5.00 per share and expiring on October 31,
1999. None of such options are still outstanding; all have either been
exercised or forfeited.

 

C.            The
Company modified the Plan in various amendments to the Plan, the last of which
was the Fifth Amendment to Kimball Hill Homes Incentive Stock Option Plan
effective December 31, 2000 (“Fifth Amendment”), under which the optionees
acquired additional options for stock of the Company under options bearing
various prices.

 

D.            The
Company desires to make available under the terms of this Sixth Amendment
additional incentive stock option rights for an aggregate 120,000 shares of
stock of the Company at $17.00 per share and for a term commencing as of the
effective date of this Sixth Amendment and expiring December 31, 2005.

 

E.             The
Company desires to provide in this Sixth Amendment for all appropriate
modifications to the Plan to carry out the foregoing intent.

 

NOW,
THEREFORE, the Company hereby further amends the Plan, effective as of the date
indicated above, as follows:

 

1.             Additional
Stock Subject to Plan.

 

(a)           An
additional 120,000 shares of the Company’s common stock are subject to the Plan
and may be granted as incentive stock options (“Options”) under Section 422 of
the Internal Revenue Code, as amended.

 

1

 

(b)           Inclusive
of the 120,000 shares, there are as of the effective date of this Sixth
Amendment 559,000 total shares of stock of the Company subject to unexpired
statutory Options plus 74,000 total shares subject to nonstatutory stock
options for an aggregate of 633,000 shares available from all stock options
currently outstanding.

 

(c)           If
all of the Optionees exercise all of their Options to acquire all such stock of
the Company available to them for purchase under the Plan and if no other stock
of the Company was sold or reacquired other than by exercise of nonstatutory
stock options, the stock of the Company would then be held as shown on Exhibit
A attached to and made a part of this Sixth Amendment.

 

2.             Eligible
Employees.

 

(a)           The
employees (“Optionees”) eligible for the grant of Options for the additional
stock as contemplated in this Sixth Amendment and the number of shares
available to each are as follows:

 

	
  Optionee

  	
   

  	
  Number of Additional

  Shares Available by this Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gregory A. Yakim

  	
   

  	
  50,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Hal H. Barber

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Kirk T. Breitenwischer

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Isaac Heimbinder

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Eugene K. Rowehl

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Brian A. Loftus

  	
   

  	
  25,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  William E. Long

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Thomas F. Tylutki

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bruce I. McPhee

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Richard Lee Venable

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Lance Wright

  	
   

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  120,000

  	
   

  

 

2

 

(b)           All
of the Optionees are regularly employed by the Company or by a subsidiary of
the Company in a managerial capacity on a full-time, salaried basis.

 

3.             Exercise
Price.

 

The Company
has determined that the Fair Market Value, as of the effective date of this
Sixth Amendment, of the stock subject to the Options to be offered pursuant to
the terms of this Sixth Amendment is $17.00 per share. Accordingly, the Option
exercise price for each share of stock to be offered to each of the Optionees
shall be $17.00.

 

4.             Expiration
of Option.

 

All of the
Options to be granted pursuant to the Plan under this Sixth Amendment must be
exercised by December 31, 2005.

 

5.             No
Other Modifications.

 

(a)           Except
to the extent expressly provided for in the First through the Fifth Amendments,
the Plan shall remain in full force and effect.

 

(b)           All
of the provisions of the Plan, except to the extent expressly modified as
provided for above, shall be fully applicable to the additional Options to be
made available pursuant the terms of this Sixth Amendment.

 

(c)           To
the extent of any inconsistency or conflict between the terms of (i) the Plan
and/or any prior amendment and (ii) this Sixth Amendment, the terms of this
Sixth Amendment shall be deemed to prevail as to the options provided for under
this Sixth Amendment.

 

6.             Miscellaneous.

 

(a)           The
Recitals at the beginning of this Sixth Amendment are an integral part of this
Sixth Amendment.

 

(b)           Except
to the extent expressly defined in this Sixth Amendment, all defined terms used
in this Sixth Amendment shall have the same meaning as provided for in the
Plan.

 

3

 

IN WITNESS
WHEREOF, the Company has modified the Plan pursuant to the terms of this Sixth
Amendment effective as of the date first indicated above.

 

	
   

  	
  KIMBALL
  HILL, INC. by its Statutory Stock

  
	
   

  	
  Option
  Committee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   /s/ David K. Hill

  	
   

  
	
   

  	
  David K.
  Hill

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James A.
  Moehling

  	
   

  
	
   

  	
  James A.
  Moehling

  
				

 

4

 

SEVENTH AMENDMENT TO

KIMBALL HILL HOMES INCENTIVE STOCK OPTION PLAN

 

This Seventh
Amendment to Kimball Hill Homes Incentive Stock Option Plan (“Seventh Amendment”)
is adopted by Kimball Hill, Inc., an Illinois corporation (“Company”) effective
as of January 1, 2003.

 

R E C I T A L S

 

A.            The
Company adopted, effective as of October 31, 1995, the Kimball Hill Homes
Incentive Stock Option Plan (“Plan”) under which it offered to designated key
employees the right to subscribe to an aggregate of 65,000 shares of the
Company’s common stock.

 

B.            The
Company and each of its designated eligible employees each entered into a Stock
Option Agreement with the Company under which such optionees confirmed the
terms under which each had options to acquire designated portions of stock of
the Company under options priced at $5.00 per share and expiring on October 31,
1999.

 

C.            The
Company modified the Plan in various amendments to the Plan, the last of which
was the Sixth Amendment to Kimball Hill Homes Incentive Stock Option Plan
effective December 31, 2001, (“First Amendment”) under which the optionees
acquired additional options for stock of the Company under options bearing
various prices.

 

D.            The
Company desires to make available under the terms of this Seventh Amendment
additional incentive stock option rights for an aggregate 25,000 shares of
stock of the Company at $29.80 per share and for a three (3) year term
commencing as of the effective date of this Seventh Amendment.

 

F.             The
Company desires to provide in this Seventh Amendment for all appropriate modifications
to the Plan to carry out the foregoing intent.

 

NOW,
THEREFORE, the Company hereby further amends the Plan, effective as of the date
indicated above, as follows:

 

1.             Additional
Stock Subject to Plan.

 

(a)           An
additional 25,000 shares of the Company’s common stock are subject to the Plan
and may be granted as incentive stock options (“Options”) under Section 422 of
the Internal Revenue Code, as amended.

 

1

 

(b)           Inclusive
of the 25,000 shares, there are as of the effective date of this Seventh
Amendment 584,000 total shares of stock of the Company subject to unexpired
incentive Options plus 92,000 total shares subject to nonstatutory stock
options for an aggregate of 676,000 shares available from all stock options
currently outstanding.

 

(c)           As of the effective date of this Seventh
Amendment, there are 3,590,467 issued and outstanding shares of common stock of
the Company. Accordingly, if all of the optionees under all stock options of
the Company exercised all of their stock options, and if no other stock of the
Company was issued, sold or reacquired, there would be 4,266,467 issued and
outstanding shares of common stock of the Company.

 

2.             Eligible
Employees.

 

(a)           The
employee (“Optionee”) eligible for the grant of Options for the additional
stock as contemplated in this Seventh Amendment and the number of shares
available to him are as follows:

 

	
   

  	
   

  	
  Number of Additional

  	
   

  
	
  Optionee

  	
   

  	
  Shares Available by this Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Isaac Heimbinder

  	
   

  	
  25,000

  	
   

  

 

(b)           The
Optionee is regularly employed by the Company or by a subsidiary of the Company
in a managerial capacity on a full-time, salaried basis.

 

3.             Exercise
Price.

 

The Company
has determined that the Fair Market Value, as of the effective date of this
Seventh Amendment, of the stock subject to the Options to be offered pursuant
to the terms of this Seventh Amendment is $29.80 per share. Accordingly, the
Option exercise price for each share of stock to be offered to the Optionee
shall be $29.80.

 

4.             Expiration
of Option.

 

All of the
Options to be granted pursuant to the Plan under this Seventh Amendment must be
exercised within three (3) years of the grant of each such Option. Accordingly,
the Options shall expire on December 31, 2005.

 

2

 

5.             No
Other Modifications.

 

(a)           Except
to the extent expressly provided for in the First through the Sixth Amendments,
the Plan shall remain in full force and effect.

 

(b)           All
of the provisions of the Plan, except to the extent expressly modified as
provided for above, shall be fully applicable to the additional Options to be
made available pursuant the terms of this Seventh Amendment.

 

(c)           To
the extent of any inconsistency or conflict between the terms of (i) the Plan
and/or any prior amendment and (ii) this Seventh Amendment, the terms of this
Seventh Amendment shall be deemed to prevail as to the options provided for
under this Seventh Amendment.

 

6.             Compensation
Committee Approval.

 

The members of
the Compensation Committee of the Board of Directors have approved and
recommended the execution of this Seventh Amendment by the Company.

 

7.             Miscellaneous.

 

(a)           The
Recitals at the beginning of this Seventh Amendment are an integral part of
this Seventh Amendment.

 

(b)           Except
to the extent expressly defined in this Seventh Amendment, all defined terms
used in this Seventh Amendment shall have the same meaning as provided for in
the Plan.

 

IN WITNESS
WHEREOF, the Company has modified the Plan pursuant to the terms of this
Seventh Amendment effective as of the date first indicated above.

 

	
   

  	
  KIMBALL
  HILL, INC. by its Statutory Stock

  
	
   

  	
  Option
  Committee

  
	
   

  	
   

  
	
   

  	
  /s/ David K.
  Hill

  	
   

  
	
   

  	
  David K.
  Hill

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James A.
  Moehling

  	
   

  
	
   

  	
  James A.
  Moehling

  
				

 

3

 

EIGHTH AMENDMENT TO

KIMBALL HILL HOMES INCENTIVE STOCK OPTION PLAN

 

This Eighth
Amendment to Kimball Hill Homes Incentive Stock Option Plan (“Eighth Amendment”)
is adopted by Kimball Hill, Inc., an Illinois corporation (“Company”) effective
as of April 15, 2004.

 

R E C I T A L S

 

A.            The
Company adopted, effective as of October 31, 1995, the Kimball Hill Homes
Incentive Stock Option Plan (“Plan”) under which it offered to designated key
employees the right to subscribe to an aggregate of 65,000 shares of the
Company’s common stock.

 

B.            The
Company and each of its designated eligible employees each entered into a Stock
Option Agreement with the Company under which such optionees confirmed the
terms under which each had options to acquire designated portions of stock of
the Company under options priced at $5.00 per share and expiring on October 31,
1999.

 

C.            The
Company modified the Plan in various amendments to the Plan, the last of which
was the Seventh Amendment to Kimball Hill Homes Incentive Stock Option Plan
effective January 1, 2003, (“Seventh Amendment”) under which the optionees
acquired additional options for stock of the Company under options bearing
various prices.

 

D.            The
Company desires to make available under the terms of this Eighth Amendment additional
incentive stock option rights for an aggregate 135,000 shares of stock of the
Company at $41.80 per share and for a term commencing as of the effective date
of this Eighth Amendment and expiring December 31, 2007.

 

E.             The
Company desires to provide in this Eighth Amendment for all appropriate
modifications to the Plan to carry out the foregoing intent.

 

NOW,
THEREFORE, the Company hereby further amends the Plan, effective as of the date
indicated above, as follows:

 

1.             Additional
Stock Subject to Plan.

 

(a)           An
additional 135,000 shares of the Company’s common stock are subject to the Plan
and may be granted as incentive stock options (“Options”) under Section 422 of
the Internal Revenue Code, as amended.

 

1

 

(b)           Inclusive
of the 135,000 shares, there are as of the effective date of this Eighth
Amendment 440,000 total shares of stock of the Company subject to unexpired
incentive Options plus 89,000 total shares subject to nonstatutory stock
options for an aggregate of 529,000 shares available from all stock options
currently outstanding.

 

(c)           As of the effective date of this Eighth
Amendment, there are 3,595,370 issued and outstanding shares of common stock of
the Company. Accordingly, if all of the optionees under all stock options of
the Company exercised all of their stock options, and if no other stock of the
Company was issued, sold or reacquired, there would be 4,124,370 issued and
outstanding shares of common stock of the Company.

 

2.             Eligible
Employees.

 

(a)           The
employees (“Optionees”) eligible for the grant of Options for the additional
stock as contemplated in this Eighth Amendment and the number of shares
available to them are as follows:

 

	
   

  	
   

  	
  Number of Additional

  	
   

  
	
  Optionee

  	
   

  	
  Shares Available by this Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Isaac Heimbinder

  	
   

  	
  100,000

  	
   

  
	
  William E. Long

  	
   

  	
  20,000

  	
   

  
	
  Thomas W. Jacobs

  	
   

  	
  15,000

  	
   

  
	
  Total:

  	
   

  	
  135,000

  	
   

  

 

(b)           The
Optionees are regularly employed by the Company or by a subsidiary of the
Company in a managerial capacity on a full-time, salaried basis.

 

3.             Exercise
Price.

 

The Company
has determined that the Fair Market Value, as of the effective date of this
Eighth Amendment, of the stock subject to the Options to be offered pursuant to
the terms of this Eighth Amendment is $41.80 per share. Accordingly, the Option
exercise price for each share of stock to be offered to the Optionees shall be
$41.80.

 

4.             Expiration
of Option.

 

All of the
Options to be granted pursuant to the Plan under this Eighth Amendment must be
exercised by December 31, 2007.

 

2

 

5.             No
Other Modifications.

 

(a)           Except
to the extent expressly provided for in the First through the Seventh
Amendments, the Plan shall remain in full force and effect.

 

(b)           All
of the provisions of the Plan, except to the extent expressly modified as
provided for above, shall be fully applicable to the additional Options to be
made available pursuant the terms of this Eighth Amendment.

 

(c)           To
the extent of any inconsistency or conflict between the terms of (i) the Plan
and/or any prior amendment and (ii) this Eighth Amendment, the terms of this
Eighth Amendment shall be deemed to prevail as to the options provided for
under this Eighth Amendment.

 

6.             Compensation
Committee Approval.

 

The members of
the Compensation Committee of the Board of Directors have approved and
recommended the execution of this Eighth Amendment by the Company.

 

7.             Miscellaneous.

 

(a)           The
Recitals at the beginning of this Eighth Amendment are an integral part of this
Eighth Amendment.

 

(b)           Except
to the extent expressly defined in this Eighth Amendment, all defined terms
used in this Eighth Amendment shall have the same meaning as provided for in
the Plan.

 

IN WITNESS
WHEREOF, the Company has modified the Plan pursuant to the terms of this Eighth
Amendment effective as of the date first indicated above.

 

	
   

  	
  KIMBALL
  HILL, INC. by its Statutory Stock

  Option Committee:

  
	
   

  	
   

  
	
   

  	
  /s/ David K.
  Hill

  	
   

  
	
   

  	
  David K.
  Hill

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James A.
  Moehling

  	
   

  
	
   

  	
  James A.
  Moehling

  
				

 

3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00101-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00101-of-00352.parquet"}]]