ARTICLE IV

TERM

The term of the Partnership shall commence on the date of filing by the General Partner of the Certificate of Limited Partnership with the Secretary of State of Washington, which date shall be subsequent to the date of this Agreement, and shall terminate 20 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, or (b) dissolution, insolvency or bankruptcy of the General Partner as provided herein, (c) as elsewhere expressly provided in this Agreement, or (d) as required under the Washington Limited Partnership Act notwithstanding the other provisions of this Agreement.

ARTICLE V

OFFICES

Section 5.1                                    Principal Place of Business

(a)           The principal place of the business shall be as follows:

Kimball Hill Homes Washington, Inc.
6014 NE 124 ^th Court
Vancouver, Washington 98682

(b)           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 Partner in writing within 20 days of the effective date of such change.

Section 5.2                                    Registered Agent and Office

(a)           The registered agent of the Partnership is CT Corporation System and the registered office of the Partnership is as follows:

520 Pike Street
Seattle, Washington 98101

(b)           The General Partner may from time-to-time change the registered agent and the registered office of the Partnership, and in such event the General Partner shall notify the Limited Partners in writing 20 days prior to the effective date of such change and shall file with the Secretary of State of Washington an

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amendment to the certificate of limited partnership of the Partnership reflecting any such changes.

ARTICLE VI

CAPITAL CONTRIBUTIONS AND SALE TO PARTNERSHIP

Section 6.1                                    Capital Contribution of General Partner and Sale of Property to Partnership

(a)           The General Partner shall contribute $50,000.00 to the Partnership upon execution of this Agreement.

(b)           The General Partner hereby confirms its assignment of interest to the Partnership, as an additional capital contribution, of all of its rights to and obligations of the Property. The Partnership hereby confirms its consent to and acceptance of such assignment of interest and agrees to reimburse the General Partner for all expenses in connection with or incidental to the purchase, development and sale of the Property and the other Partnership purposes as set forth in Article III of this Agreement, whether said expenses are incurred or paid before or after the date of this Agreement, provided, however, that all such expense must be incurred by the General Partner directly and solely for such Partnership purposes. Accordingly, the general Office and executive salaries and similar expenses of the General Partner shall not be paid or reimbursed by the Partnership.

Section 6.2                                    Capital Contributions of Limited Partner

(a)           Upon execution of this Agreement, the Limited Partner shall contribute $10,000 as its initial capital contribution to the Partnership.

(b)           No further capital contributions shall be required of the Limited Partner, and the Limited Partner shall not be required to make any loans to the Partnership. At the written request of the General Partner and the consent of the Limited Partner, the Limited Partner may make an additional capital contribution.

(c)           The Limited Partner understands that time is of the essence with respect to such capital contribution. In addition to any other appropriate remedies available to the General Partner, the Limited Partner shall not at any time be entitled to any distributions from the Partnership if it fails to make any capital contributions to the Partnership when same are due under the terms of this Agreement.

Section 6.3                                    Capital Accounts

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A capital account shall be established for each Partner and shall be maintained in accordance with the capital accounting rules set forth in Treasury Regulations, Section 1.704-1 (b)(2)(iv), as such rules may be amended. In general, a Partner’s capital account shall be credited with the cash and the fair market value of property contributed by such Partner to the Partnership net of liabilities secured by such contributed property that the Partnership is considered to assume or take subject to under Section 752 of the Internal Revenue Code of 1986, as amended (the “Code”), and such Partner’s distributive share of net income (including for this purpose income exempt from tax) and gain from capital transactions, and shall be debited with the cash and the fair market value of property distributed to such Partner (net of liabilities secured by such distributed property and that such Partner is considered to assume or take subject to under Code Section 752), such Partner’s distributive share of net loss and losses from capital transactions, and such Partner’s distributive share of expenditures of the Partnership described in Code Section 705(a)(2)(B). No interest shall be paid or accrued at any time on a Partner’s capital account or on any capital contribution. Each Partner shall have a single capital account regardless of the time or times and the manner in which such interest was acquired.

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 the Limited Partner.

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. 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 deal with, purchase, sell, mortgage, transfer, assign or otherwise dispose of any and all of the assets of the Partnership; to borrow money on

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behalf of the Partnership. The Limited Partner specifically approves and consents to the execution and delivery by the General Partner of: (i) such documents as are necessary to cause the Partnership to become a borrower under a Revolving Loan Agreement with Washington Mutual Bank, FA, as agent and any other banks which are a party to such Revolving Loan Agreement providing for a $100,000,000.00 construction loan to the Partnership and to other borrowers who are parties to such Revolving Loan Agreement and (ii) the mortgage and other collateral security documents that will encumber the Partnership’s assets for all borrowers’ obligations under such Revolving Loan Agreement. The Limited Partner also expressly acknowledges that a default by any other borrower, even if not the Partnership, under such Revolving Loan Agreement could jeopardize or cause the loss of some or all assets of the Partnership, including without limitation all of the Property, even though the Partnership was not itself under default under any of the terms of the Revolving Loan Agreement and associated mortgage and other collateral security documents;

(b)           to borrow money on behalf of the Partnership;

(c)           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;

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

(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 or include the General Partner, for the right to acquire and for the improvement of the Property and for 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 obtain such zoning, planned unit development and/or other approvals as are necessary and desirable to allow the Partnership to develop on the

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Property the residential dwelling units as generally described in Article III of this 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;

(j)            to hold title for the partnership to the Property;

(k)           to perform and carry out all other powers, rights and authority authorized under the Limited Partnership Act of the State of Washington; and

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

Section 8.2                                    General Partner Home Builder Expense Reimbursement

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 general contractor and nonsite-specific cost reimbursement fee (“General Partner Home Builder Expense Reimbursement”) from the Partnership payable at the closing of the sale of each dwelling unit on the Property in the amount of five percent (5%) of the total, gross sales price for such unit. This and any other reference in this Agreement to the total, gross sales price for each unit shall in all cases mean the amount actually paid by the purchaser of such unit and does not include any upgrades or other similar items which are supplied to such purchaser at no additional cost to be paid by such purchaser. The General Partner Home Builder Reimbursement shall constitute a Partnership expense for all purposes and not a profit or tier distribution to the General Partner. The General Partner Home Builder Expense Reimbursement may commence at any time during the term of the Partnership. If and while payments of First Tier Distributions or Second Tier Distributions as defined and provided for in Section 15.2 below are not current, then payments of the General Partner Home Builder Expense Reimbursement shall be deferred until such First and Second Tier Distributions are current. Under all circumstances and for all purposes, the General Partner Home Builder Expense Reimbursement shall be subordinate to the First and Second Tier Distributions.

Section 8.3                                    Limited Partner’s Liability

The Limited Partner 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 Partner shall not be subject to

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assessment nor shall the Limited Partner be personally liable as a Limited Partner for any of the debts of the Partnership or for any of the losses thereof beyond the amount contributed by it as capital to the Partnership and its share of the undistributed profits of the Partnership, provided, however, that, the Limited Partners shall be personally liable to the General Partner with respect to the capital contributions required of the Limited Partner pursuant to the terms of this Agreement.

Section 8.4                                    Requests for Information and Meetings

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

(b)           The General Partner shall have a designated employee available to meet monthly with a designated employee of the Limited Partner to discuss Partnership matters and to provide to the Limited Partners monthly financial statements and sales and construction status reports.

Section 8.5                                    No Guaranty of Investment

The Limited Partner acknowledges that its capital contributions are being made without any guaranty or representation by the General Partner of any particular return on investment or of a return of his capital contribution and that such investment involves a high degree of risk whic