referred to as the “Oesterle Real Estate Sale Contract”) and (b), at the discretion of the General Partner, the vacant land in Palatine, Illinois which is the subject of the Real Estate Sale Contract between Kimball Hill, Inc. as purchaser and Nick Grillo and Marsha Grillo as seller, a copy of which is attached to and made a part of this Agreement as Exhibit C (sometimes referred to as the “Grillo Real Estate Sale Contract”).

ARTICLE IV

Term

The term of the Partnership shall commence effective as of September 1, 1985 and shall terminate 30 years thereafter, provided, however, that the Partnership shall be dissolved prior to such date upon the earlier of (a) the disposition by the Partnership of its entire interest in all of the Property, (b) as elsewhere expressly provided in this Agreement, (c) by agreement of the parties hereto, or (d) upon the dissolution, insolvency or bankruptcy of the General Partner unless the Limited Partners shall substitute a new general partner, in which event the Partnership shall not be dissolved.

ARTICLE V

Principal Place of Business

The principal place of the business shall be as follows:

c/o Kimball Hill, Inc.
5005 Newport Drive
Rolling Meadows, Illinois 60008

The General Partner may from time to time change the principal place of business, and in such event, the General Partner shall notify the Limited Partners in writing 10 days prior to of the effective date of such change.

ARTICLE VI

Capital Contributions

Section 6.1                                       Capital Contributions, Allocations of Profits and Losses Partnership Percentage Interest of General Partner .

(a)                                   The General Partner shall contribute $25,000.00 to the Partnership upon execution of this Agreement. The General Partner shall as the sole general partner of the Partnership be responsible for development of all improvements on

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the Property and shall otherwise be responsible for carrying out the purposes of this Agreement.

(b)                                  The Partnership shall allocate 25% of its profits and losses and Partnership percentage interests to the General Partner.

Section 6.2                                       Identity, Capital Contributions, Allocations of Profits and Losses and Partner Percentage Interests of and to the Limited Partners .

(a)                                   The identity of the Limited Partners and their respective capital contributions, percentages of profits and losses and Partnership percentage interests are as follows:

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(b)                                  All cash capital contributions of the Partners shall be paid at the time of execution by them of this Agreement.

(c)                                   No further capital contributions shall be required of any Limited Partner and no Limited Partner shall be required to make any loans to the Partnership or guarantee any Partnership obligations.

ARTICLE VII

Additional Partners

Additional Partners, either General or Limited, may be admitted to the Partnership only upon prior written approval and consent of both the General Partner and Limited Partners holding in the aggregate no less than 75% of the Partnership percentage interests.

ARTICLE VIII

Management Powers, Duties and Restrictions

Section 8.1                                       Authority of General Partner .

The General Partner shall have exclusive authority to manage the operations and affairs of the Partnership and to make all decisions regarding the business of the Partnership and shall devote such time to the Partnership as shall be reasonably required for its welfare and success. To accomplish the purposes of the Partnership and for the protection and benefit of the Partnership, the General Partner, without limitation on any power that may be conferred upon it by law, and except as may be provided to the contrary elsewhere in this Agreement, shall have full power, right and authority:

(a)                                   To borrow money on behalf of the Partnership and to deal with, sell, mortgage, transfer, assign or otherwise dispose of any and all of the assets of the Partnership for partnership purposes, and further provided that the net proceeds resulting from any new or refinanced loan, lien or encumbrance shall be used in the operation, management or improvement of the Property owned by the Partnership and in furtherance of the Partnership’s interest, or shall be distributed to the Partners in accordance with the distribution provisions hereinafter set forth;

(b)                                  To repay in whole or in part, refinance, recast, increase, modify or extend any loan which may affect any of the Property owned by the Partnership;

(c)                                   To execute or cause to be executed for and on behalf of the Partnership any mortgage, note, assignment of

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rents, assignment of beneficial interest for collateral purposes, and other documents, and any renewals, extensions or modifications thereof; provided that with respect to any financing of any property the sole security for such financing shall be Partnership property only and none of the Partners except the General Partner shall have any personal liability thereon beyond their interest in the Partnership;

(d)                                  To enter into a Bond Purchase Agreement, Loan Agreement, Note, Mortgage, Assignment of Leases, Remarketing Agreement, Reimbursement Agreement, and all other agreements, documents, certifications and approvals including, without limitation, a preliminary official statement and official statement, all in connection with collateralized multifamily housing revenue bonds which are intended by the Partnership to be used to finance improvements on the Property;

(e)                                   To make expenditures and incur obligations in the ordinary course of business;

(f)                                     To acquire and enter into any contract of insurance which it deems necessary and proper for the protection of the Partnership, for conservation of its assets, or for any purpose convenient or beneficial to the Partnership;

(g)                                  To employ, retain or contract, from time to time, with persons, firms or corporations, which may be the General Partner or its affiliates, for the improvement of the Property and the operation and management of the Partnership business and to carry out all of its purposes, including but not limited to supervisory and managing agents, building management agents, contractors and subcontractors, insurance brokers, real estate brokers, loan brokers, consultants in management and finance, attorneys and accountants, on such terms and for such compensation as the General Partner shall determine;

(h)                                  To enter into real estate sale agreements with Kimball Hill, Inc. to purchase that portion of the Property which is the subject of the Oesterle Real Estate Sale Contract for a purchase price of $525,000 and to purchase that portion of the Property which is the subject of the Grillo Real Estate Sale Contract for a purchase price to be determined by the parties. Title to the Property shall be placed in an Illinois land trust (the “Land Trust”) under which the Partnership is the sole beneficiary thereunder. The General Partner shall direct the trustee under the terms of the trust agreement;

(i)                                      To compromise, arbitrate or otherwise adjust claims in favor of or against the Partnership and to commence or defend litigation with respect to the Partnership or any assets of the Partnership as the General Partner may deem advisable, all or any of the above matters being at the expense of the Partnership;

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(j)                                      To retain and maintain out of capital contributions a working capital reserve beginning on the day following the date of the closing and acquisition of that portion of the Property described in the Oesterle Real Estate Sale Contract. If capital contributions alone are not sufficient to maintain the working capital reserve, then other Cash Receipts, as defined in Section 15.1(a) of this Agreement, to the extent necessary, shall be used to maintain said reserve to the extent available. The amounts of said reserves shall he determined as set forth in Section 15.1(b) of this Agreement.

(k)                                   To execute, acknowledge and deliver any and all instruments to effectuate any of the foregoing management responsibilities.

Section 8.2                                       General .

(a)                                   Management . The General Partner shall manage and control the business of the Partnership in accordance with generally accepted business standards and its fiduciary obligation to the Partners and shall devote such time to the Partnership business as in its judgment shall be reasonably required, but nothing herein shall be deemed to require the General Partner to devote its full time to Partnership affairs.

(b)                                  Partnership Tax Status . The General Partner shall at all times have substantial net worth, in an amount sufficient to permit the Partnership to continue to qualify as a partnership for federal income tax purposes. If any event comes to the attention of the General Partner which may jeopardize such tax status, the General Partner shall immediately so notify the Limited Partners and undertake such acts as may be necessary to assure that the Partnership will continue to be treated as a partnership for tax purposes. The General Partner will not voluntarily act in any manner which will cause the termination of the Partnership for federal income tax purposes or cause the Partnership to be treated for federal income tax purposes as an association taxable as a corporation.

(c)                                   Tax Returns . The General Partner shall supervise the preparation and filing of all Partnership tax returns and shall make such tax elections and determinations on behalf of the Partnership as appear to be appropriate and in the best interest of all partners, and in so doing the General Partner shall cause such returns to be reviewed by, and shall rely upon the advice of such accountants and/or attorneys who shall be retained for such purposes.

Section 8.3                                       Builder and Developer Fees .

In addition to any other provision in this Agreement with respect to sharing of profits and reimbursement and payment of expenses, the General Partner shall receive a Builder’s fee for Overhead and Profit equal to eight percent (8%)

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of the costs of construction of the land and structures improvements to be built on the Property, but in no event shall said Builder fee exceed $290,000.00. In addition, the General Partner shall be paid that portion of the $100,000 Developer Fee and Contingency which has not been expended for project contingencies by the end of the construction period. Said fees shall be paid to the General Partner from each construction draw payment relating to such improvements and from the final such draw.

Section 8.4                                       Limited Partners’ Liability .

The Limited Partners shall not take part in the management of the business or transact any business for the Partnership or have the power to sign for or to bind the Partnership to any agreement or document. Except as and to the extent expressly set forth in this Agreement, the Limited Partners shall not be subject to assessment nor shall the Limited Partners be personally liable as Limited Partners or otherwise for any of the debts, liabilities, contracts or obligations of the Partnership or for any of the losses thereof beyond their respective interests in the Partnership. However, the Limited Partners shall be personally liable to the General Partner with respect to the capital contributions required of the Limited Partners pursuant to the terms of this Agreement.

Section 8.5                                       Access to and Requests for Information .

(a)                                   Any Partner shall be entitled upon request, provided such request is made in good faith and for proper purpose, to (a) review and copy the books and records of the Partnership at reasonable times and at the location where the records are kept, (b) obtain the list of the names and addresses of all of the Partners, and (c) have an accounting of all Partnership affairs and finances.

(b)                                  Within 120 days after the end of each fiscal year, the Partnership shall furnish to each Limited Partner audited statements described in Section 10.2 hereof and a cash flow statement, for such year, all of which except the cash flow statement, shall be prepared in accordance with generally accepted accounting principles, with a reconciliation with respect to information furnished to the Limited Partners for income tax purposes.

Section 8.6                                       Access to the Property .

The Limited Partners or their respective agents shall have the right to enter upon the Property and inspect the project work, improvements, and construction sites so long as such entry and inspection does not impair the project construction schedule. The Limited Partners and their agents shall enter and inspect at their own risk; the General Partner shall be liable to the Limited Partners and their employees and

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agents only for injuries or death sustained as a result of the gross negligence or willful acts of the General Partner.

Section 8.7                                       Restrictions on Authority .

Except as and to the extent expressly provided in this Agreement, the General Partner shall not have authority to do any act prohibited by the Illinois Uniform Partnership Act.

Section 8.8                                       Additional Duties and Obligations of General Partner .

(a)                                   General Duties . In addition to such other duties or obligations which may be imposed herein or imposed pursuant to the Illinois Limited Partnership Act, the General Partner shall have fiduciary responsibility for the safekeeping and use of all funds and assets of the Partnership whether or not in its immediate possession or control, and it shall not employ, or permit another to employ, assets in any manner except for the exclusive benefit of the Partnership or the project. Partnership funds shall not be commingled with the funds of any General Partner or affiliate.

(b)                                  Insurance . The General Partner shall use its best efforts to obtain and keep in force during the term of the Partnership fire and extended coverage, workmen’s compensation and public liability insurance in favor of the Partnership with such companies and in such amounts as are determined by the General Partner to be appropriate and as may be required by any lender.

ARTICLE IX

Banking

All funds o