Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT (“ Agreement ”), dated as of August 10, 2007 (“ Agreement Date ”), is made between Kimball Hill, Inc., an Illinois corporation having its principal place of business in Rolling Meadows, Illinois (“ Company ”), and David K. Hill, an individual resident of Illinois (“ Executive ”).

RECITALS

A.            For many years Executive has served the Company in various capacities, including service as Chairman, Chief Executive Officer and President, and as of the Agreement Date Executive is the Chairman and Chief Executive Officer of the Company.

B.            Executive has had primary responsibility for the growth and success of the Company since its founding and has done so without any employment contract.

C.            During many of his years of service to the Company, Executive’s total compensation (including his salary and bonus) has been lower than the compensation earned by chief executive officers of other comparable homebuilding companies, and at times Executive’s total compensation has been lower than the compensation earned by officers of the Company serving under the Executive.

D.            In December 2005, the Company issued $203 million in principal amount of 10½% senior subordinated notes due 2012 that subsequently were registered with the Securities and Exchange Commission (the “ Senior Subordinated Notes ”), and the Company successfully completed the negotiation of a $500 million revolving credit facility (the “ Credit Facility ”).  Subsequently, in September 2006, the Company sold 952,380 newly-issued shares of common stock to Equity Investments III, LLC, representing approximately 21% of the then issued and outstanding shares of common stock of the Company, for $110 million.

E.             Executive’s stature and reputation in the homebuilding industry and his active involvement in management of the Company as its Chairman and Chief Executive Officer were significant factors in the Company’s successful completion of the above-described financings and equity issuance.

F.             The Company wishes to enter into this Agreement with Executive in order to continue to enjoy the benefits of Executive’s reputation, management skills and abilities, experience and contacts in the homebuilding industry.  The Company also desires to provide Executive with compensation commensurate with his position and responsibilities in light of the size and complexity of the Company’s business operations, with due recognition of Executive’s many contributions to the growth and success of the Company and appropriate consideration of providing equity to Executive for his willingness in past years to accept compensation that was lower than what would have been equitable at the time.

G.            This Agreement has been submitted to and approved by the Company’s Board of Directors.

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

ARTICLE I
POSITION, DUTIES, COMPENSATION AND BENEFITS

1.1.                  Agreement Term . The employment term of this Agreement (“ Agreement Term ”) shall be the period beginning on October 1, 2006 (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 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; provided that the Company’s Nonrenewal Notice has been specifically authorized by a resolution duly adopted by the Board of Directors (the “ Board ”) of the Company.

1.2.                  Positions and Duties .

(a)                   Initial Position .  During the first year of the Agreement Term, ending on September 30, 2007, Executive shall be employed by the Company and shall be elected to and serve as the Chairman and Chief Executive Officer (“ CEO ”) of the Company.  Executive shall report exclusively to the Board.

(b)                   Subsequent Positions .   Commencing October 1, 2007 and during the balance of the Agreement Term, the Executive shall be employed by the Company and shall be elected to and serve as the Executive Chairman (“ Executive Chairman ”) and Chairman of the Executive Committee of the Company (“ Chairman of the Executive Committee ”).  Executive shall report exclusively to the Board.

(c)                   Duties, Powers and Responsibilities .  As CEO, Executive shall have such duties, powers and responsibilities as are customary for a chief executive officer and such other duties as may be assigned to him from time to time by the Board.  As Executive Chairman, Executive shall have such duties, powers and responsibilities as are customary for a chairman of the board of directors who is actively involved in the business of the Company and such other duties and responsibilities as may be assigned to him from time to time by the Board.  As Chairman of the Executive Committee, Executive shall have such duties, powers and responsibility as are customary for a chairman of an executive committee of a board of directors.  During the Agreement Term (other than any periods of vacation or sick leave to which the Executive is entitled), Executive shall devote sufficient time and attention to the business and affairs of the Company to discharge the duties assigned to him under this Agreement.  Executive’s services shall be performed principally at the Company’s corporate offices in Rolling Meadows, Illinois, but also may be performed, at Executive’s discretion, from his residence (whether principal or secondary). 

2

Notwithstanding the foregoing provisions, during the Agreement Term:  (1) Executive may serve on corporate, civic, educational and charitable boards or committees, deliver lectures, fulfill speaking engagements, teach at educational institutions, and manage his personal investments and business affairs, so long as the aforesaid activities do not materially interfere or conflict with the performance of his duties under this Agreement; and (2) Executive may continue to remain active in real estate ventures and companies, including without limitation Kimball Hill Development Company and its subsidiaries and affiliates, and Executive may devote such time and attention to such activities as is not materially inconsistent with his past practices.

(d)                   Board Service .  Executive currently serves as a member of the Board, and during the Agreement Term the Company and Executive shall take all necessary and appropriate action to continue to elect Executive as a member of the Board, Executive Chairman and Chairman of the Executive Committee.

1.3.                  Salary and Bonus .

(a)                   Salary .  During the Agreement Term Executive shall earn a base salary (“ Salary ”) at the rate of $1,500,000 per annum.  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.

(b)                   Bonus . During the Agreement Term, the Executive shall also earn an annual bonus (“ Bonus ”) for each fiscal year of the Company that shall be equal to the following: (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 or exceed 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 the target performance but less than the 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.  Reasonable and objective target performance goals shall be established by mutual agreement of the Board and Executive.  In addition, from time to time during the Agreement Term, the Board in its discretion may award an additional Bonus to Executive based upon such factors as the Board deems appropriate.

Executive’s Bonus for each fiscal year during the Agreement Term shall be payable in cash not later than three and one-half months following the end of such fiscal year.  Executive’s Bonus will be pro-rated for partial years of employment.

(c)                   Other Benefits .  During the Agreement Term:  (1) Executive shall be eligible to participate in all other incentive plans or arrangements (not including annual bonus), savings and retirement plans, welfare benefit plans (including without limitation medical, prescription, dental, disability, salary continuance, individual life, group life, dependent life, accidental death

3

and travel accident insurance plans) and fringe benefit plans provided by the Company from time to time applicable to the most senior executives of the Company generally, in accordance with the terms of such plans; (2) Executive shall be entitled to reimbursement of all reasonable employment-related expenses incurred by Executive upon the Company’s receipt of accountings in accordance with the terms of the policies applicable to the most senior executives of the Company generally; (3) 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 accordance with the policies applicable to the most senior executives of the Company generally and consistent with the Company’s past practice with respect to Executive; and (4) Executive shall be entitled to paid vacation provided by the Company from time to time in accordance with the policies applicable to the most senior executives of the Company generally, but in no event less than ten weeks per year.

ARTICLE II
TERMINATION OF EMPLOYMENT

2.1.                  Disability .  Executive’s employment shall terminate automatically upon Executive’s Disability during the Agreement Term.  For purposes of this Agreement “ Disability ” means that Executive 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 permanent inability to engage in substantial gainful activity.  Executive’s Disability shall be certified by a physician jointly selected by the Company or its insurers and Executive or Executive’s legal representatives after Executive has been unable to engage in any substantial gainful activity for twelve months.  The date of termination (“ Termination Date ”) by reason of Executive’s Disability shall be the date on which such Disability is certified to by such jointly selected physician.

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

2.3.                  Cause .  During the Agreement Term, the Company may terminate Executive’s employment for Cause.  For purposes of this Agreement “ Cause ” means Executive’s conviction of a felony, or conviction of a misdemeanor involving fraud, dishonesty or moral turpitude, or Executive’s willful or intentional material breach of this 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 or not opposed to the interests of the Company; or (iii) any act or omission of which the President, 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.  Any termination of employment by the Company for Cause shall be communicated to the Executive by a written notice (“ Notice of Termination ”‘) which sets forth (a) the specific termination provision in this Agreement relied upon by the Company, and (b) in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under such termination provision.

4

2.4.                  Good Reason . During the Agreement Term, 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 or its successors or assigns; or (b) the Company’s failure to take appropriate action to elect Executive as CEO or Executive Chairman, as the case may be.

Any termination of employment by 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 days after delivery of the Notice of Termination.  Prior to resigning for Good Reason, Executive shall give written notice of the facts and circumstances claimed to provide a basis for such resignation not more than sixty days after he has actual knowledge of such facts and circumstances, and if the Company has cured such facts and circumstances within thirty days after receipt of such notice, Executive shall not be entitled to resign for Good Reason.

ARTICLE III
OBLIGATIONS OF THE COMPANY UPON TERMINATION OF EMPLOYMENT

3.1.                  If by Executive for Good Reason, or by the Company Other Than for Cause, or upon Disability or Death .  During the Agreement Term, if Executive shall terminate employment for Good Reason, or if the Company shall terminate Executive’s employment (including termination by reason of a Nonrenewal Notice) other than for Cause, or if Executive’s employment is terminated by reason of Executive’s Disability or death, the Company’s obligations to Executive shall be as follows:

(a)                   The Company shall immediately pay Executive a cash amount equal to the sum of all unpaid amounts of Salary and Bonus and all unpaid vacation previously accrued to the benefit of Executive and any rights Executive may have under the terms of applicable welfare and fringe benefit plans and applicable law (“ Accrued Obligations ”).

(b)                   For a period ending three years after the Termination Date, the Company shall pay Executive,