KENNEDY-WILSON, INC.

1992

INCENTIVE

AND

NONSTATUTORY STOCK OPTION PLAN

1.                                        NAME, EFFECTIVE DATE AND PURPOSE .

(a)                                   This Plan document is intended to implement and govern two separate stock option plans of KENNEDY-WILSON, INC., a Delaware corporation (the “Company”):  the Incentive Stock Option Plan (“Plan A”) and the Nonstatutory Stock Option Plan (“Plan B”).  Plan A provides for the granting of options that are intended to qualify as incentive stock options (“Incentive Stock Options”) within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”).  Plan B provides for the granting of options that are not intended to so qualify.  Unless specified otherwise, all the provisions of this Plan relate equally to both Plan A and Plan B and are condensed for convenience into one Plan document.

(b)                                  Plan A and Plan B are each established effective as of May 11, 1992:  The purpose of Plan A and Plan B (sometimes together referred to as the “Plan” or this “Plan”) is to promote the growth and general prosperity of the Company and its Affiliated Companies.  This Plan will permit the Company to grant options (“Options”) to purchase shares of its common stock (“Common Stock”).  The granting of Options will help the Company attract and retain the best available persons for positions of substantial responsibility and will provide certain key employees with an additional incentive to contribute to the success of the Company and its Affiliated Companies.  For purposes of this Plan, the term “Affiliated Companies” shall mean any component member of a controlled group of corporations, as defined under Code Section 1563, in which the Company is also a component member.

2.                                        ADMINISTRATION .

(a)                                   The Plan shall be administered by a Committee of the Board of Directors of the Company (the “Committee”) appointed by the Board of Directors of the Company (the “Board”).

(b)                                  The Committee shall have sole authority, in its absolute discretion, to determine which of the eligible persons of the Company and its Affiliated Companies shall receive Options (“Optionees”), and, subject to the express provisions and restrictions of this Plan, shall have sole authority, in its absolute discretion, .to determine the time when Options shall be granted, the terms and conditions of an Option other than those terms an& conditions fixed under this Plan, the number of shares which may be issued upon exercise of an Option and the means of payment for shares, and shall have authority to do everything necessary or

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appropriate to administer the Plan.  All decisions, determinations and interpretations of the Committee shall be final and binding on all Optionees.

(c)                                   The Committee appointed by the Board shall consist of not less than two (2) members of the Board, all of whom shall be directors who are not employees of the Company (“Outside Directors”) and each of whom shall be a “disinterested person” (as such term is defined in Rule 16b-3 promulgated under the Securities Exchange Act of:  1934, as amended, as such rule may be amended from time to time).  The Board may from time to time remove members from, or add members to, the Committee (provided such members added are Outside Directors), and vacancies on the Committee shall be filled by the Board.  Any Outside Director may be eligible to become a member of the Committee provided such person has not received a discretionary grant or award under any Company stock plan during the twelve-month period preceding the transaction that constituted such person’s initial action as a member of the Committee.

(d)                                  Definitions:

(i)                                      Restricted Shareholder:  An individual who, at the time an Option is granted under either Plan A or Plan B, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the employer corporation or of its Parent Corporation or Subsidiary Corporation, with stock ownership to be determined in light of the attribution rules set forth in Section 424(d) of the Code.

(ii)                                   Parent Corporation:  A corporation as defined in Section 424(e) of the Code.

(iii)                                Subsidiary Corporation:  A corporation as defined in Section 424(f) of the Code.

(iv)                               Officer:  The president, secretary, chief financial officer, any managing director, any vice president in charge of a principal business function (such as sales, administration, or finance) and any other person who performs similar policy-making functions for the Company.

3.                                        ELIGIBILITY .

(a)                                   Plan A:  The Committee may, in its discretion, grant one or more Options under Plan A to any key management employee of the Company or its Affiliated Companies, including any employee who is a director of the Company or of any of its.  Affiliated Companies presently existing or hereinafter organized or acquired.  Such Options may be granted to one or more such employees without being granted to other eligible employees, as the Committee may deem fit.

(b)                                  Plan B:  The Committee may, in its discretion, grant one or more Options under Plan B to any key management employee, any employee who is a director of the Company or its Affiliated Companies presently existing or hereinafter organized or acquired or any person who performs consulting or other services for the Company or its Affiliated Companies and who is designated by the Board as eligible to participate in Plan B.  Such Options may be granted to

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one or more such persons without being granted to other eligible persons, as the Board may deem fit.

(c)                                   Notwithstanding anything to the contrary herein said, Outside Directors shall not be eligible to receive a grant of Options under this Plan.

4.                                        STOCK TO BE OPTIONED .

(a)                                   The maximum aggregate number of shares which may be optioned and sold under Plan A and Plan B is 750,000 shares of authorized Common Stock of the Company.  The foregoing constitutes an absolute cumulative limitation on the total number of shares that may be optioned under both Plan A and B.  Therefore, at any particular date the maximum aggregate number of shares which may be optioned under Plan A is equal to 750,000 minus the number of shares previously optioned under both Plan A and Plan B and the maximum aggregate number of shares which may be optioned under Plan B is equal to 750,000 minus the number of shares which have been previously optioned under both Plan A and Plan B.  All shares to be optioned and sold under either Plan A or Plan B may be either authorized but unissued shares or shares held in the treasury.

(b)                                  Shares of Common Stock that:  (i) are repurchased by the Company after issuance hereunder pursuant to the exercise of an Option, or (ii) are not purchased by the Optionee prior to the expiration or termination of the applicable Option, shall again become available to be covered by Options to be issued hereunder and shall not, as of the effective date of such repurchase or expiration, be counted as covered by an outstanding Option for purposes of the above-described maximum number of shares which may be optioned ‘hereunder.

5.                                        OPTION PRICE .

The Option Price for shares of.  Common Stock to be issued under either Plan A or Plan B shall the fair market value of such shares on the date on which the Option covering such shares is granted by the Committee, except that if on the date on which such Option is granted the Optionee is a Restricted Shareholder, ,than such Option Price for Options granted under Plan A shall be 110% of the fair market value of the shares of Common Stock subject to the Option on the date such Option is granted by the Committee.  The fair market value of shares of Common Stock for all purposes of this Plan is to be determined by the Committee, in its sole discretion, exercised in good faith.

6.                                        TERM OF PLAN .

Plan A and Plan B shall become effective on May 11, 1992; both Plan A and Plan B shall continue in effect until May 11, 2002, unless terminated earlier by action of the Board.  No Option may be granted hereunder after May 11, 2002.

7.                                        EXERCISE OF OPTION .

Subject to the actions, conditions and limitations set forth in this Plan document and any applicable Stock Option Agreement entered into hereunder, Options granted under this Plan shall be exercisable in accordance with the following rules:

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(a)                                   No Shares of Common Stock acquired by the Optionee pursuant to an exercise of an Option granted under the Plan may be disposed of in whole or in part until six (6) months after the date on which the Option is granted by the Committee (hereinafter the “Option Grant Date”).

(b)                                  Subject to the specific provisions of this Section 7, options shall become exercisable at such times and in such installments (which may be cumulative) as the Committee shall provide in the terms of each individual Option; provided, however, that by a resolution adopted after an Option is granted the Committee, may, on such terms and conditions as it may determine to be appropriate and subject to the specific provisions of this Section 7, accelerate the time at which such Option or installment thereof may be exercised.  For purposes of this Plan, any accrued installment of an Option granted hereunder shall be referred to as.  an “Accrued Installment.”

(c)                                   Subject to the restrictions contained in this Section 7, an Option may . be exercised when Accrued Installments accrue, as provided in the terms under which such Option was granted for a period of up to five (5) years from the Option Grant Date with respect to Options granted under Plan A and for a period of up to ten (10) years from the Option Grant Date with respect to Options granted under Plan B.  In no event shall any Option be exercised on or after the expiration of said maximum applicable period, regardless of the circumstances then existing (including but not limited to the death or termination of employment of the Optionee).

(d)                                  The Committee shall fix the expiration date of the Option (the “Option Expiration Date”) at the time the Option grant is authorized.

8.                                        RULES APPLICABLE TO CERTAIN DISPOSITIONS .

(a)                                   Notwithstanding the foregoing provisions of Section 7, in the event the Company or the shareholders of the Company enter into an agreement to dispose of all or substantially all of the assets or capital stock of the Company by means of a sale, merger, consolidation, reorganization, liquidation, or otherwise, an option shall become immediately exercisable with respect to the full number of shares subject to that Option during the period commencing as of the later of (x) date of execution of such agreement or (y) six (6) months after the Option Grant Date, and ending as of the earlier of:

(i)                                      the Option Expiration Date; or

(ii)                                   the date on which the disposition of assets or capital stock contemplated by the agreement is consummated.  The exercise of any Option that was made exercisable solely by reason of this Subsection 8(a) shall be conditioned upon the consummation of the disposition of assets or stock under the above referenced agreement.  Upon the consummation of any such disposition of assets or stock, this Plan and any unexercised Options issued hereunder (or any unexercised portion thereof) shall terminate and cease to be effective.

(b)                                  Notwithstanding the foregoing, in the event that any such agreement shall be terminated without consummating the disposition of said stock or assets:

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(i)                                      any unexercised nonvested installments that had become exercisable solely by reason of the provisions of Subsection 8(a) shall again become nonvested and unexercisable as of said termination of such agreement, and

(ii)                                   the exercise of any option that had become exercisable solely by reason of this Subsection 8(a) shall be deemed ineffective and such installments shall again become nonvested and unexercisable as of said termination of such agreement.

(c)                                   Notwithstanding the provisions set forth in Subsection 8(a), the Committee may, at its election and subject to the approval of the corporation purchasing or acquiring the stock or assets of the Company (the “Surviving Corporation”) arrange for the Optionee to receive upon surrender of Optionee’s Option a new option covering shares of the Surviving Corporation in the same proportion, at an equivalent option price and subject to the same terms and conditions as the old Option.  For purposes of the preceding sentence, the excess of the aggregate fair market value of the .  shares subject to such new option immediately after consummation of such disposition of stock or assets over the aggregate option price of such shares of the Surviving Corporation shall be no more than the excess of the aggregate fair market value of all shares subject to the old Option immediately before consummation of such disposition of stock or assets over the aggregate Option Price of such shares of the Company, and the new option shall not give the Optionee additional benefits which such Optionee did not have under the old Option or deprive the Optionee of benefits which the Optionee had under the old Option.  If such substitution of options is effectuated, the Optionee’s rights under the old Option shall thereupon terminate.

9.                                        MERGERS AND ACQUISITIONS .

If the Company at any time should succeed to the business of another corporation through a merger or consolidation, or through the acquisition of stock or assets of such corporation, Options may be granted under the Plan to option holders of such corporation or its subsidiaries, in substitution for options or rights to purchase stock of such corporation held by them at the time of succession.  The Committee shall have sole and absolute discretion to determine t