Document:

Exhibit 10.2

 

	
  LAND COURT SYSTEM

  	
   

  	
  REGULAR SYSTEM

  
	
   

  	
   

  	
   

  
	
  Return by Mail (XX) Pickup (   )

  	
   

  	
  To:

  
	
   

  	
   

  	
   

  
	
  Herrick, Feinstein LLP

  2 Park Avenue

  New York, New York  10016

  Attention:  Paul Shapses, Esq.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Tax Map Key Nos.:  (2) 4-2-4-27, 28 & 29

  	
   

  	
  Total pages:

  	
   

  

 

FEE
AND LEASEHOLD MORTGAGE, SECURITY

AGREEMENT AND FIXTURE FILING

THIS FEE AND LEASEHOLD MORTGAGE, SECURITY AGREEMENT
AND FIXTURE FILING (this “Security Instrument”) is made as of this 14th day of July, 2006, by KAPALUA BAY, LLC, a Delaware limited
liability company, having an address at c/o Maui Land & Pineapple Company,
Inc., 120 Kane Street, Kapalua, Maui, Hawaii 96732, as mortgagor (“Borrower”) to LEHMAN
BROTHERS HOLDINGS INC., a Delaware corporation, having an address at
399 Park Avenue, New York, New York 
10022, as mortgagee (“Lender”).

W  I
T  N  E  S  S  E  T  H:

 

WHEREAS, this Security Instrument is given to secure a
loan (the “Loan”) in the principal sum of
THREE HUNDRED SEVENTY MILLION and 00/100 DOLLARS ($370,000,000.00) or so much
thereof as may be advanced pursuant to that certain Construction

 

 

Loan Agreement dated as
of the date hereof between Borrower and Lender (as the same may be amended,
restated, replaced, supplemented, renewed, extended or otherwise modified from
time to time, the “Loan
Agreement”) and evidenced by that certain Promissory Note dated
the date hereof made by Borrower to Lender (such Note, together with all
extensions, renewals, replacements, restatements or modifications thereof being
hereinafter referred to as the “Note”);

WHEREAS, Borrower desires to secure the payment of the
Debt and the performance of all of its obligations under the Note, the Loan
Agreement and the other Loan Documents (as hereinafter defined); and

WHEREAS, this Security Instrument is given pursuant to
the Loan Agreement, and payment, fulfillment, and performance by Borrower of
its obligations thereunder and under the other Loan Documents are secured
hereby, and each and every term and provision of the Loan Agreement and the
Note, including the rights, remedies, obligations, covenants, conditions,
agreements, indemnities, representations and warranties of the parties therein,
are hereby incorporated by reference herein as though set forth in full and
shall be considered a part of this Security Instrument (the Loan Agreement, the
Note, this Security Instrument, that certain Assignment of Leases and Rents of
even date herewith made by Borrower in favor of Lender (the “Assignment of
Leases”, together with all other documents evidencing or securing
the Debt or delivered in connection with the making of the Loan executed by
Borrower, any Guarantor, or any Principal, collectively, the “Loan Documents”;
a copy of the Loan Documents may be provided upon written request to Borrower
at the address provided above).

NOW THEREFORE, in consideration of the making of the
Loan by Lender and the covenants, agreements, representations and warranties
set forth in this Security Instrument:

Article 1 - GRANTS OF
SECURITY

Section 1.1             PROPERTY MORTGAGED.  Borrower does hereby irrevocably mortgage,
grant, pledge, and assign to Lender and its successors and assigns the
following property, rights, interests and estates now owned, or hereafter
acquired by Borrower (collectively, the “Property”):

(a)                   Land.  The real property described in Exhibits
A-1 and A-2 attached hereto and made a part hereof (collectively, the “Fee Land”)

(b)           Ground Lease.  All of the leasehold estate and all of the
Borrower’s right, title, interest, privileges and options created by that
certain lease described on Exhibit B attached hereto (as such lease may
be amended, modified, extended or supplemented from time to time, collectively,
the “Ground Lease”) in the
real property described in Exhibit A-2 attached hereto and made
a part hereof (the “Leasehold Land”;
and together with the Fee Land, the “Land”);

(c)           Condominium Project.  All right, title and interest of the
Borrower, including rights as the “Developer”, in, to and under that certain
Declaration of Condominium Property Regime of Kapalua Bay Condominium (the “Condominium Project”), more
particularly described in Exhibit A-1 attached hereto, and all other
documents relating to the Condominium Project, and all right, title and
interest of the Borrower in and to all condominium

 2
 

 

 

apartments or units in the
Condominium Project, together with the appurtenant easements, limited common
elements and undivided percentage interests in the common elements, which
common elements include the Fee Land (collectively, the “Units”);

(d)                   Additional
Land.  All additional lands, estates
and development rights hereafter acquired by Borrower for use in connection
with the Land, the development of the Land, Condominium Project, and all
additional lands and estates therein which may, from time to time, by
supplemental mortgage or otherwise be expressly made subject to the lien of
this Security Instrument;

(e)                   Improvements.  The buildings, structures, fixtures,
additions, enlargements, extensions, modifications, repairs, replacements and
improvements now or hereafter erected or located on the Land, Condominium
Project and/or the Units (collectively, the “Improvements”);

(f)                    Easements.  All easements, rights-of-way or use, rights,
strips and gores of land, streets, ways, alleys, passages, sewer rights, water,
water courses, water rights and powers, air rights and development rights, and
all estates, rights, titles, interests, privileges, liberties, servitudes,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
now or hereafter belonging, relating or pertaining to the Land, the Condominium
Project, the Units and the Improvements and the reversion and reversions,
remainder and remainders, and all land lying in the bed of any street, road or
avenue, opened or proposed, in front of or adjoining the Land, to the center
line thereof and all the estates, rights, titles, interests, dower and rights
of dower, curtesy and rights of curtesy, property, possession, claim and demand
whatsoever, both at law and in equity, of Borrower of, in and to the Land, the
Condominium Project, the Units and the Improvements and every part and parcel
thereof, with the appurtenances thereto;

(g)                   Equipment.  All “equipment,” as such term is defined in
Article 9 of the Uniform Commercial Code (as hereinafter defined), now owned or
hereafter acquired by Borrower, which is used at or in connection with the
Improvements, the Condominium Project, the Units or the Land or is located
thereon or therein (including, but not limited to, all machinery, equipment,
furnishings, and electronic data-processing and other office equipment now
owned or hereafter acquired by Borrower and any and all additions,
substitutions and replacements of any of the foregoing), together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto (collectively, the “Equipment”).  Notwithstanding the foregoing, Equipment
shall not include any property belonging to tenants under leases or covered by
equipment leases except to the extent that Borrower shall have any right or
interest therein;

(h)                   Fixtures.  All Equipment now owned, or the ownership of
which is hereafter acquired, by Borrower which is so related to the Land, the
Condominium Project, the Units and Improvements forming part of the Property
that it is deemed fixtures or real property under the law of the particular
state in which the Equipment is located, including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on the Property, construction
equipment, appliances, machinery, plant equipment, fittings, apparatuses,
fixtures and other items now or hereafter attached to, installed in or used in
connection with (temporarily or permanently) any of the

 3
 

 

 

Improvements or the Land, the Condominium Project and the Units,
including, but not limited to, engines, devices for the operation of pumps,
pipes, plumbing, cleaning, call and sprinkler systems, fire extinguishing
apparatuses and equipment, heating, ventilating, plumbing, laundry,
incinerating, electrical, air conditioning and air cooling equipment and
systems, gas and electric machinery, appurtenances and equipment, pollution
control equipment, security systems, disposals, dishwashers, refrigerators and
ranges, recreational equipment and facilities of all kinds, and water, gas,
electrical, storm and sanitary sewer facilities, utility lines and equipment
(whether owned individually or jointly with others, and, if owned jointly, to
the extent of Borrower’s interest therein) and all other utilities whether or
not situated in easements, all water tanks, water supply, water power sites,
fuel stations, fuel tanks, fuel supply, and all other structures, together with
all accessions, appurtenances, additions, replacements, betterments and
substitutions for any of the foregoing and the proceeds thereof (collectively,
the “Fixtures”).  Notwithstanding the foregoing, “Fixtures”
shall not include any property which are covered by equipment leases or which
tenants are entitled to remove pursuant to leases except to the extent that
Borrower shall have any right or interest therein;

(i)                    Personal
Property.  All furniture,
furnishings, objects of art, machinery, goods, tools, supplies, appliances,
general intangibles, contract rights, accounts, accounts receivable, franchises
(to the extent permitted under applicable law), licenses(to the extent
permitted under applicable law), certificates and permits(to the extent
permitted under applicable law), inventory and articles of personal property and
accessions thereof and renewals and replacements thereof and substitutions
therefor, if any (including, but not limited to, beds, bureaus, chiffoniers,
chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting,
drapes, draperies, curtains, shades, venetian blinds, screens, paintings,
hangings, pictures, divans, couches, luggage carts, luggage racks, stools,
sofas, chinaware, linens, pillows, blankets, glassware, foodcarts, cookware,
dry cleaning facilities, dining room wagons, keys or other entry systems,
liquor and other drink dispensers, icemakers, radios, television sets, intercom
and paging equipment, electric and electronic equipment, dictating equipment,
private telephone systems, medical equipment, potted plants, fire prevention
and extinguishing apparatus, fittings, plants, apparatus, stoves, ranges,
refrigerators, laundry machines, tools, machinery, engines, dynamos, motors,
switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning,
waxing and polishing equipment, call systems, brackets, electrical signs,
bulbs, bells, ash and fuel, conveyors, cabinets, lockers, shelving,
spotlighting equipment, dishwashers, garbage disposals, washers and dryers),
other customary hotel equipment and all other personal property of any kind or
character whatsoever as defined in and subject to the provisions of the Uniform
Commercial Code, whether tangible or intangible (other than Fixtures),
including, without limitation, “Inventories of Merchandise” and “Inventories of
Supplies” as defined in the Uniform Commercial Code, which are now or hereafter
owned by Borrower and which are located within or about the Land, the
Condominium Project, the Units and the Improvements, together with all
accessories, replacements and substitutions thereto or therefor and the
proceeds thereof (collectively, the “Personal Property”), and
the right, title and interest of Borrower in and to any of the Personal
Property which may be subject to any security interests, as defined in the
Uniform Commercial Code, as adopted and enacted by the state or states where
any of the Property is located (the “Uniform Commercial Code”),
superior in lien to the lien of this Security Instrument and all proceeds and
products of the above;

 4
 

 

 

(j)                    Leases
and Rents.  All leases, subleases or
subsubleases, lettings, licenses, concessions or other agreements (whether
written or oral) pursuant to which any Person is granted a possessory interest
in, or right to use or occupy all or any portion of the Land, the Condominium
Project, the Units and the Improvements, and every modification, amendment or
other agreement relating to such leases, subleases, subsubleases, or other
agreements entered into in connection with such leases, subleases,
subsubleases, or other agreements and every guarantee of the performance and
observance of the covenants, conditions and agreements to be performed and
observed by the other party thereto, heretofore or hereafter entered into
(collectively, the “Leases”), whether before or after the filing by or
against Borrower of any petition for relief under the Bankruptcy Code and all
right, title and interest of Borrower, its successors and assigns therein and
thereunder, including, without limitation, cash or securities deposited
thereunder to secure the performance by the lessees of their obligations
thereunder and all rents, additional rents, revenues, issues and profits
(including all oil and gas or other mineral royalties and bonuses), all
revenues and credit card receipts collected from the rental of guest rooms
(whether to individuals, groups or transients), restaurants, room service,
bars, honor bars, meeting rooms, banquet rooms and recreational facilities, all
receivables, customer obligations, installment payment obligations and other
obligations now existing or hereafter arising or created out of the sale,
lease, sublease, license, concession or other grant of the right of the use and
occupancy of property or rendering of services by Borrower or any operator or
manager of the hotel or the commercial space located in the Improvements or
acquired from others (including, without limitation, from the rental of any
office space, retail space, guest rooms or other space, halls, stores, and
offices, and deposits securing reservations of such space), license, lease, sublease
and concession fees and rentals, health club membership fees, food and beverage
wholesale and retail sales, service charges, vending machine sales, movie
rentals, telephone service and proceeds, if any, from business interruption or
other loss of income insurance from the Land, the Condominium Project, the
Units and the Improvements whether paid or accruing before or after the filing
by or against Borrower of any petition for relief under the Bankruptcy Code
(collectively, the “Rents”) and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Debt;

(k)                   Condemnation
Awards.  To the extent permitted
under applicable law, all awards or payments, including interest thereon, which
may heretofore and hereafter be made with respect to the Property, whether from
the exercise of the right of eminent domain (including but not limited to any
transfer made in lieu of or in anticipation of the exercise of the right), or
for a change of grade, or for any other injury to or decrease in the value of
the Property;

(l)                    Insurance
Proceeds.  All proceeds in respect of
the Property under any insurance policies covering the Property, including,
without limitation, the right to receive and apply the proceeds of any
insurance, judgments, or settlements made in lieu thereof, for damage to the
Property;

(m)                  Tax
Certiorari.  To the extent permitted
under applicable law, all refunds, rebates or credits in connection with
reduction in real estate taxes and assessments charged against the Property as
a result of tax certiorari or any applications or proceedings for reduction;

 5
 

 

 

(n)                   Rights.  The right, in the name and on behalf of
Borrower, to appear in and defend any action or proceeding brought with respect
to the Property and to commence any action or proceeding to protect the
interest of Lender in the Property;

(o)                   Agreements.  All agreements, contracts, certificates,
instruments, franchises, permits, licenses (to the extent permitted under law),
plans, specifications and other documents, now or hereafter entered into, and
all rights therein and thereto, respecting or pertaining to the use,
occupation, construction, management or operation of the Land, the Condominium
Project, the Units and any part thereof and any Improvements or respecting any
business or activity conducted on the Land and any part thereof and all right,
title and interest of Borrower therein and thereunder, including, (i) the
ML&P Agreements, (ii) the ER Purchase Agreement, (iii) the Marketing
Agreements, and (iv) upon the occurrence and continuation of an Event of
Default, to receive and collect any sums payable to Borrower thereunder;

(p)                   Trademarks.  All tradenames, trademarks, servicemarks,
logos, copyrights, goodwill, books and records and all other general
intangibles relating to or used in connection with the operation of the
Property, excluding, however, the Proprietary Marks.  The “Proprietary Marks” means all trademarks,
trade names, symbols, the “lion and crown device,” logos, slogans, designs,
insignia, emblems, devices, service marks, and distinctive designs of buildings
and signs, architectural plans, drawings, specifications, computer files, or
combinations thereof, which are used to identify (i) The Ritz-Carlton
Development Company, LLC (“Ritz-Carlton”), a Delaware limited liability
company, (ii) Kapalua Bay, LLC, a Delaware limited liability company (“Kapalua
Bay”) or any of their affiliates.  All works in which copyright rests
in the Ritz-Carlton, Kapalua Bay or any of their affiliates, or any other and
all patents registered or applied for in the name of Ritz-Carlton, Kapalua Bay
or any of their affiliates shall also be “Proprietary Marks.”  The term “Proprietary
Marks” shall include all present and future Proprietary Marks, whether
they are now or hereafter owned by Ritz-Carlton, Kapalua Bay or any of their
affiliates, and whether or not they are registered under the laws of the United
States or of any other country.  The names “The Ritz-Carlton Club,” “Kapalua
Bay” and “Kapalua” alone and as used in conjunction with other words or names,
are examples of Proprietary Marks.  Proprietary Marks shall remain the
exclusive property of Ritz-Carlton, Kapalua Bay and their affiliates as
applicable.  Lender has no right to use the Proprietary Marks;

(q)                   Accounts.  All reserves, escrows and deposit accounts
maintained by Borrower with respect to the Property, including, without
limitation, all accounts established or maintained pursuant to the Loan
Documents, together with all deposits or wire transfers made to such accounts
and all cash, checks, drafts, certificates, securities, investment property,
financial assets, instruments and other property held therein from time to time
and all proceeds, products, distributions or dividends or substitutions thereon
and thereof;

(r)                    Proceeds.  All proceeds of any of the foregoing,
including, without limitation, proceeds of insurance and condemnation awards,
whether cash, liquidation or other claims or otherwise; and

(s)                   Other
Rights.  Any and all other rights of
Borrower in and to the items set forth in Subsections (a) through (q) above.

 6
 

 

 

AND without limiting any of the other provisions of
this Security Instrument, to the extent permitted by applicable law, Borrower
expressly grants to Lender, as secured party, a security interest in the
portion of the Property which is or may be subject to the provisions of the
Uniform Commercial Code which are applicable to secured transactions; it being
understood and agreed that the Improvements and Fixtures are part and parcel of
the Land, the Condominium Project and the Units (the Land, the Condominium
Project, the Units, the Improvements and the Fixtures collectively referred to
as the “Real Property”)
appropriated to the use thereof and, whether affixed or annexed to the Real
Property or not, shall for the purposes of this Security Instrument be deemed
conclusively to be real estate and conveyed hereby.

Section 1.2             ASSIGNMENT OF RENTS.  Borrower hereby absolutely and
unconditionally assigns to Lender all of Borrower’s right, title and interest
in and to all current and future Leases and Rents; it being intended by
Borrower that this assignment constitutes a present, absolute assignment and
not an assignment for additional security only. 
Nevertheless, subject to the terms of the Assignment of Leases and Section
7.1(h) of this Security Instrument, Lender grants to Borrower a revocable
license to collect, receive, use and enjoy the Rents.  Borrower shall hold the Rents, or a portion
thereof sufficient to discharge all current sums due on the Debt, for use in
the payment of such sums.

Section 1.3             SECURITY AGREEMENT.  This Security Instrument is both a real
property mortgage and a “security agreement” within the meaning of the Uniform
Commercial Code.  The Property includes
both real and personal property and all other rights and interests, whether
tangible or intangible in nature, of Borrower in the Property.  By executing and delivering this Security
Instrument, Borrower hereby grants to Lender, as security for the Obligations
(hereinafter defined), a security interest in the Fixtures, the Equipment, the
Personal Property and other property constituting the Property to the full
extent that the Fixtures, the Equipment, the Personal Property and such other
property may be subject to the Uniform Commercial Code (said portion of the
Property so subject to the Uniform Commercial Code being called the “Collateral”).  If an Event of Default shall occur and be
continuing, Lender, in addition to any other rights and remedies which it may
have, shall have and may exercise immediately and without demand, any and all
rights and remedies granted to a secured party upon default under the Uniform
Commercial Code, including, without limiting the generality of the foregoing,
the right to take possession of the Collateral or any part thereof, and to take
such other measures as Lender may deem necessary for the care, protection and
preservation of the Collateral.  Upon
request or demand of Lender after the occurrence and during the continuance of
an Event of Default, Borrower shall, at its expense, assemble the Collateral
and make it available to Lender at a convenient place (at the Land if tangible
property) reasonably acceptable to Lender. 
Borrower shall pay to Lender on demand any and all expenses, including
reasonable legal expenses and attorneys’ fees, incurred or paid by Lender in
protecting its interest in the Collateral and in enforcing its rights hereunder
with respect to the Collateral after the occurrence and during the continuance
of an Event of Default.  Any notice of
sale, disposition or other intended action by Lender with respect to the
Collateral sent to Borrower in accordance with the provisions hereof at least
fifteen (15) Business Days prior to such action, shall, except as otherwise
provided by applicable law, constitute reasonable notice to Borrower.  The proceeds of any disposition of the
Collateral, or any part thereof, may, except as otherwise required by
applicable law, be applied by Lender to the payment of the Debt in such
priority and proportions

 7
 

 

 

as Lender in its discretion shall deem proper.  The principal place of business of Borrower
(debtor) is as set forth on page one hereof and the address of Lender (secured
party) is as set forth on page one hereof.

Section 1.4             FIXTURE FILING.  Certain of the Property is or will become “fixtures”
(as that term is defined in the Uniform Commercial Code) on the Land, the
Condominium Project or the Units, described or referred to in this Security
Instrument, and this Security Instrument, upon being filed for record in the
real estate records of the State of Hawaii, shall operate also as a financing
statement naming Borrower as the debtor and Lender as the secured party filed
as a fixture filing in accordance with the applicable provisions of said
Uniform Commercial Code upon such of the Property that is or may become
fixtures.

Section 1.5             PLEDGES OF MONIES HELD.  Borrower hereby pledges to Lender any and all
monies now or hereafter held by Lender or on behalf of Lender in connection
with the Loan, including, without limitation, any sums deposited in the
Accounts (as defined in the Distributable Cash Control Agreement) and Net Sale
Proceeds, as additional security for the Obligations until expended or applied
as provided in this Security Instrument or the Loan Agreement.

CONDITIONS TO
GRANT

TO HAVE AND TO
HOLD the above granted and described Property unto and to the use and benefit
of Lender and its successors and assigns, forever to secure payment to Lender
of the Obligations at the time and in the manner provided for its payment in
the Note, the Loan Agreement and in this Security Instrument;

PROVIDED, HOWEVER,
these presents are upon the express condition that, if Borrower shall well and
truly pay to Lender the Debt at the time and in the manner provided in the
Note, the Loan Agreement and this Security Instrument, shall well and truly
perform the Other Obligations as set forth in this Security Instrument and
shall well and truly abide by and comply with each and every covenant and
condition set forth herein and in the Note, the Loan Agreement and the other
Loan Documents, these presents shall cease, terminate and be void.

Article 2 - DEBT AND
OBLIGATIONS SECURED

Section 2.1             DEBT.  This Security Instrument and the grants,
assignments and transfers made in Article 1 are given for the purpose of
securing the Debt which by its definition (as set forth in Loan Agreement)
includes, but is not limited to, the obligations of Borrower to pay to Lender
the principal and interest owing pursuant to the terms and conditions of the
Note.

Section 2.2             OTHER OBLIGATIONS.  This Security Instrument and the grants,
assignments and transfers made in Article 1 are also given for the
purpose of securing the following (the “Other Obligations”):

(a)                   the
performance of all other obligations of Borrower contained herein;

 8
 

 

 

(b)                   the
performance of each obligation of Borrower contained in the Loan Agreement and
any other Loan Document; and

(c)                   the
performance of each obligation of Borrower contained in any renewal, extension,
amendment, modification, consolidation, change of, or substitution or
replacement for, all or any part of the Note, the Loan Agreement or any other
Loan Document.

Section 2.3             DEBT AND OTHER OBLIGATIONS.  Borrower’s obligations for the payment of the
Debt and the performance of the Other Obligations may sometimes be referred to
collectively herein as the “Obligations.”

Section 2.4             FUTURE
ADVANCES.  This Security Instrument
secures moneys to be advanced from time to time on or subsequent to the date of
this Security Instrument.  Portions of
said future advances are to be advanced for the purpose of paying, in whole or
in part, for the construction of improvements on the Land described in Exhibits
A-1 and A-2 attached hereto.  The
maximum aggregate principal amount of the future advances, including advances
for said construction, is THREE HUNDRED SEVENTY MILLION and 00/100 DOLLARS
($370,000,000.00).

Article 3 - BORROWER
COVENANTS

Borrower covenants
and agrees that:

Section 3.1             PAYMENT OF DEBT.  Borrower will pay the Debt at the time and in
the manner provided in the Loan Agreement, the Note and this Security
Instrument.

Section 3.2             INCORPORATION BY REFERENCE.  All the covenants, conditions and agreements
contained in (a) the Loan Agreement, (b) the Note and (c) all and any of the
other Loan Documents, are hereby made a part of this Security Instrument to the
same extent and with the same force as if fully set forth herein.

Section 3.3             INSURANCE.  Borrower shall obtain and maintain, or cause
to be maintained, in full force and effect at all times insurance with respect
to Borrower and the Property as required pursuant to the Loan Agreement.

Section 3.4             MAINTENANCE OF PROPERTY.  Borrower shall cause the Property to be
maintained in a good and safe condition and repair.  Borrower shall promptly repair, replace or
rebuild any part of the Property which may be destroyed by any Casualty, or
become damaged, worn or dilapidated or which may be affected by any Condemnation,
and shall complete and pay for any structure at any time in the process of
construction or repair on the Land, all to the extent required by the Loan
Agreement.  Notwithstanding the
provisions of this Section 3.4, Lender hereby consents to the demolition of the
existing hotel located on the Fee Land on the date hereof and the sale or other
disposition of the Personal Property located therein on the date hereof.

Section 3.5             WASTE.  Borrower shall not commit or suffer any waste
of the Property or make any change in the use of the Property, except as
provided for in the Loan Documents, which will in any way materially increase
the risk of fire or other hazard arising out

 9
 

 

 

of the operation of the Property, or take any action that might
invalidate or allow the cancellation of any Policy, or do or permit to be done
thereon anything that may in any way materially impair the value of the
Property or the security of this Security Instrument.  Borrower will not, without the prior written
consent of Lender, permit any drilling or exploration for or extraction,
removal, or production of any minerals from the surface or the subsurface of
the Land, regardless of the depth thereof or the method of mining or extraction
thereof.

Section 3.6             PAYMENT FOR LABOR AND MATERIALS.  (a) Subject to clause (b) below, Borrower
will promptly pay when due all bills and costs for labor, materials, and
specifically fabricated materials (“Labor and Material Costs”)
incurred in connection with the Property and not permit to exist beyond the due
date thereof in respect of the Property or any part thereof any lien or
security interest, even though inferior to the liens and the security interests
hereof, and in any event not permit to be created or exist in respect of the
Property or any part thereof any other or additional lien or security interest
other than the liens or security interests hereof except for the Permitted
Encumbrances and except for Liens expressly permitted by the Loan Agreement.

(b)                   After
prior written notice to Lender, Borrower, at its own expense, may withhold payment
of labor and material costs and contest by appropriate legal proceeding,
promptly initiated and conducted in good faith and with due diligence, the
amount or validity or application in whole or in part of any of the Labor and
Material Costs, provided that (i) no Event of Default has occurred and is
continuing under the Loan Agreement, the Note, this Security Instrument or any
of the other Loan Documents, (ii) such proceeding shall suspend the collection
of the Labor and Material Costs from Borrower and from the Property or Borrower
shall have paid all of the Labor and Material Costs under protest, (iii)
neither the Property nor any part thereof or interest therein will be in danger
of being sold, forfeited, terminated, canceled or lost, and (vi) Borrower shall
have furnished the security as may be required in the proceeding, or as may be
reasonably requested by Lender to insure the payment of any contested Labor and
Material Costs, together with all interest and penalties thereon.

Section 3.7             PERFORMANCE OF OTHER AGREEMENTS.  Borrower shall observe and perform each and
every term, covenant and provision to be observed or performed by Borrower
pursuant to the Loan Agreement, any other Loan Document and any amendments,
modifications or changes thereto.

Article 4 - OBLIGATIONS
AND RELIANCES

Section 4.1             RELATIONSHIP OF BORROWER AND LENDER.  The relationship between Borrower and Lender
is solely that of debtor and creditor, and Lender has no fiduciary or other
special relationship with Borrower, and no term or condition of any of the Loan
Agreement, the Note, this Security Instrument and the other Loan Documents
shall be construed so as to deem the relationship between Borrower and Lender
to be other than that of debtor and creditor.

Section 4.2             NO RELIANCE ON LENDER.  The general partners, members, principals and
(if Borrower is a trust) beneficial owners of Borrower are experienced in the
ownership and operation of properties similar to the Property, and Borrower and
Lender are

 10
 

 

 

relying solely upon such expertise and business plan in connection with
the ownership and operation of the Property. 
Borrower is not relying on Lender’s expertise, business acumen or advice
in connection with the Property.

Section 4.3             NO LENDER OBLIGATIONS.  (a) Notwithstanding the provisions of Subsections
1.1(j) and (p) or Section 1.2, prior to foreclosure, Lender is not
undertaking the performance of (i) any obligations under the Leases; or (ii)
any obligations with respect to such agreements, contracts, certificates,
instruments, franchises, permits, trademarks, licenses and other documents.

(b)                   By
accepting or approving anything required to be observed, performed or fulfilled
or to be given to Lender pursuant to this Security Instrument, the Loan
Agreement, the Note or the other Loan Documents, including, without limitation,
any officer’s certificate, balance sheet, statement of profit and loss or other
financial statement, survey, appraisal, or insurance policy, Lender shall not
be deemed to have warranted or affirmed the sufficiency, the legality or
effectiveness of same, and such acceptance or approval thereof shall not
constitute any warranty or affirmation with respect thereto by Lender.

Section 4.4             RELIANCE.  Borrower recognizes and acknowledges that in
accepting the Loan Agreement, the Note, this Security Instrument and the other
Loan Documents, Lender is expressly and primarily relying on the truth and
accuracy of the warranties and representations set forth in Section 3.1 of the
Loan Agreement without any obligation to investigate the Property and
notwithstanding any investigation of the Property by Lender; that such reliance
existed on the part of Lender prior to the date hereof, that the warranties and
representations are a material inducement to Lender in making the Loan; and
that Lender would not be willing to make the Loan and accept this Security
Instrument in the absence of the warranties and representations as set forth in
Section 3.1 of the Loan Agreement.

Article 5 - FURTHER
ASSURANCES

Section 5.1             RECORDING OF SECURITY INSTRUMENT, ETC.  Borrower forthwith upon the execution and
delivery of this Security Instrument and thereafter, from time to time upon the
reasonable request of Lender, will permit this Security Instrument and any of
the other Loan Documents creating a lien or security interest or evidencing the
lien hereof upon the Property and each reasonable instrument of further
assurance to be filed, registered or recorded by Lender in such manner and in
such places as may be reasonably required by any present or future law in order
to publish notice of and fully to protect and perfect the lien or security
interest hereof upon, and the interest of Lender in, the Property.  Borrower will pay all taxes, filing,
registration or recording fees, and all reasonable expenses incident to the
preparation, execution, acknowledgment and/or recording of the Note, this
Security Instrument, the other Loan Documents, any note, deed of trust or
mortgage supplemental hereto, any security instrument with respect to the
Property and any reasonable instrument of further assurance, and any
modification or amendment of the foregoing documents, and all federal, state,
county and municipal taxes, duties, imposts, assessments and charges arising
out of or in connection with the execution and delivery of this Security
Instrument, any deed of trust or mortgage supplemental hereto, any security
instrument with respect to the Property or any instrument of further

 11
 

 

 

assurance, and any modification or amendment of the foregoing
documents, except where prohibited by law so to do.

Section 5.2             FURTHER ACTS, ETC.  Borrower
will, at the cost of Borrower, and without expense to Lender, do, execute,
acknowledge and deliver all and every such reasonable further acts, deeds,
conveyances, deeds of trust, assignments, notices of assignments, transfers and
assurances as Lender shall, from time to time, reasonably require, for the
better assuring, conveying, assigning, transferring, and confirming unto Lender
the Property and rights hereby deeded, granted, bargained, sold, conveyed,
confirmed, pledged, assigned, warranted and transferred or intended now or
hereafter so to be, or which Borrower may be or may hereafter become bound to
convey or assign to Lender, or for carrying out the intention or facilitating
the performance of the terms of this Security Instrument or for filing,
registering or recording this Security Instrument, or for complying with all
Legal Requirements.  Borrower, on demand,
will permit Lender to execute in the name of Borrower or without the signature
of Borrower to the extent Lender may lawfully do so, one or more financing
statements (including, without limitation, initial financing statements and
amendments thereto and continuation statements) with or without the signature
of Borrower as authorized by applicable law, to evidence more effectively the
security interest of Lender in the Property. 
Borrower also ratifies its authorization for Lender to have filed any
like initial financing statements, amendments thereto and continuation
statements, if filed prior to the date of this Security Instrument.  Borrower grants to Lender an irrevocable
power of attorney coupled with an interest for the purpose of exercising and
perfecting upon an Event of Default and during the continuance thereof any and all
rights and remedies available to Lender at law and in equity, including without
limitation such rights and remedies available to Lender pursuant to this Section
5.2.  To the extent not prohibited by
applicable law, Borrower hereby ratifies all acts Lender has lawfully done in
the past or shall lawfully do or cause to be done in the future by virtue of
such power of attorney.

Section 5.3             CHANGES IN TAX, DEBT, CREDIT AND DOCUMENTARY
STAMP LAWS.

(a)                   If
any law is enacted or adopted or amended after the date of this Security
Instrument which imposes a tax, either directly or indirectly, on the Debt or
Lender’s interest in the Property (other than income taxes), Borrower will pay
the tax, with interest and penalties thereon, if any.  If Lender is advised by counsel chosen by it
that the payment of tax by Borrower would be unlawful or taxable to Lender or
unenforceable or provide the basis for a defense of usury then Lender shall
have the option by written notice of not less than two hundred seventy (270)
days to declare the Debt immediately due and payable.

(b)                   If
at any time the United States of America, any State thereof or any subdivision
of any such State shall require revenue or other stamps to be affixed to the
Note, this Security Instrument, or any of the other Loan Documents or impose
any other tax or charge on the same, Borrower will pay for the same, with
interest and penalties thereon, if any.

Section 5.4             SPLITTING OF MORTGAGE.  Subject to the terms and conditions in the
Loan Agreement, this Security Instrument and the Note shall, at any time until
the same shall be fully paid and satisfied, at the sole election and expense of
Lender (Borrower’s attorney’s fees and expenses being hereby limited to
[$2,500.00] [reasonable, actual out-of-pocket expenses

 12
 

 

 

incurred by Borrower] in connection with such election by Lender), be
split or divided into two or more notes and two or more security instruments,
each of which shall cover all or a portion of the Property to be more
particularly described therein.  To that
end, Borrower, upon written request of Lender, subject to the terms and
conditions in the Loan Agreement shall execute, acknowledge and deliver to
Lender and/or its designee or designees substitute notes and security
instruments in such principal amounts, aggregating not more than the then
unpaid principal amount of the Note, and containing, in the aggregate, the same
terms, provisions and clauses to those contained herein and in the Note, and
such other documents and instruments as may be reasonably requested by Lender.

Section 5.5             REPLACEMENT DOCUMENTS.  Upon receipt of an affidavit of an officer of
Lender and an indemnity from Lender reasonably acceptable to Borrower as to the
loss, theft, destruction or mutilation of the Note or any other Loan Document
which is not of public record, and, in the case of any such mutilation, upon
surrender and cancellation of such Note or other Loan Document, Borrower will
issue, in lieu thereof, a replacement Note or other Loan Document, dated the
date of such lost, stolen, destroyed or mutilated Note or other Loan Document
in the same principal amount thereof.

Article 6 - DUE ON
SALE/ENCUMBRANCE

Section 6.1             LENDER RELIANCE.  Borrower acknowledges that Lender has
examined and relied on the experience of Borrower and its general partners,
members, principals and (if Borrower is a trust) beneficial owners in owning
and operating properties such as the Property in agreeing to make the Loan, and
will continue to rely on Borrower’s ownership of the Property as a means of maintaining
the value of the Property as security for repayment of the Debt and the
performance of the Other Obligations. 
Borrower acknowledges that Lender has a valid interest in maintaining
the value of the Property so as to ensure that, should Borrower default in the
repayment of the Debt or the performance of the Other Obligations, Lender can
recover the Debt by a sale of the Property.

Section 6.2             NO TRANSFER.  Borrower shall not permit or suffer any
Transfer to occur, unless specifically permitted by Section 18.1 of the Loan
Agreement or unless Lender shall consent thereto in writing.

Section 6.3             TRANSFER DEFINED.  As used in this Article 6, “Transfer”
shall mean any sale, transfer, lease, conveyance, alienation, pledge,
assignment, mortgage, encumbrance, hypothecation or other disposition of (i)
all or any portion of the Property, (ii) all or any portion of Borrower’s
right, title and interest (legal or equitable) in and to the Property or (iii)
any Transfer, as such term is defined in the Loan Agreement.  Notwithstanding the foregoing, the sale of
any Units or Facilities in accordance with the terms of Article XV of
the Loan Agreement shall not constitute Transfers hereunder.

Section 6.4             LENDER’S RIGHTS.  Lender shall not be required to demonstrate
any actual impairment of its security or any increased risk of default
hereunder in order to declare the Debt immediately due and payable upon a
Transfer without Lender’s consent in violation of the terms and provisions of
the Loan Agreement.  This provision shall
apply to every

 13
 

 

 

Transfer, other than any Transfer permitted pursuant to the Loan
Agreement, regardless of whether voluntary or not, or whether or not Lender has
consented to any previous Transfer.

Article 7 - RIGHTS AND
REMEDIES UPON DEFAULT

Section 7.1             REMEDIES.  Upon the occurrence and during the
continuance of any Event of Default, Borrower agrees that Lender may take such
action, without notice or demand, as it deems advisable to protect and enforce
its rights against Borrower and in and to the Property, including, but not
limited to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Lender may determine, in its sole
discretion, without impairing or otherwise affecting the other rights and
remedies of Lender:

(a)                   declare
the entire unpaid Debt to be immediately due and payable;

(b)                   institute
proceedings, judicial or otherwise, for the complete foreclosure of this
Security Instrument under any applicable provision of law, in which case the Property
or any interest therein may be sold for cash or upon credit in one or more
parcels or in several interests or portions and in any order or manner;

(c)                   with
or without entry, to the extent permitted and pursuant to the procedures
provided by applicable law, institute proceedings for the partial foreclosure
of this Security Instrument for the portion of the Debt then due and payable,
subject to the continuing lien and security interest of this Security
Instrument for the balance of the Debt not then due, unimpaired and without
loss of priority;

(d)                   sell
for cash or upon credit the Property or any part thereof and all estate, claim,
demand, right, title and interest of Borrower therein and rights of redemption
thereof, pursuant to power of sale or otherwise, at one or more sales, as an
entirety or in parcels, at such time and place, upon such terms and after such
notice thereof, all as may be required or permitted by law; and, without
limiting the foregoing:

(i)            In connection with any sale or sales
hereunder, Lender shall be entitled to elect to treat any of the Property which
consists of a right in action or which is property that can be severed from the
Real Property covered hereby or any Improvements without causing structural
damage thereto as if the same were personal property, and dispose of the same
in accordance with applicable law, separate and apart from the sale of Real
Property.  Where the Property consists of
Real Property, Personal Property, Equipment or Fixtures, whether or not such
Personal Property or Equipment is located on or within the Real Property,
Lender shall be entitled to elect to exercise its rights and remedies against
any or all of the Real Property, Personal Property, Equipment and Fixtures in
such order and manner as is now or hereafter permitted by applicable law;

(ii)           Lender shall be entitled to elect to
proceed against any or all of the Real Property, Personal Property, Equipment
and Fixtures in any manner permitted under applicable law; and if Lender so
elects pursuant to applicable law, the power of sale herein granted shall be
exercisable with respect to all or any of the Real Property, Personal Property,
Equipment and Fixtures covered

 14
 

 

 

hereby, as designated by Lender and Lender is
hereby authorized and empowered to conduct any such sale of any Real Property,
Personal Property, Equipment and Fixtures in accordance with the procedures
applicable to Real Property;

(iii)          Should Lender elect to sell any
portion of the Property which is Real Property or which is Personal Property,
Equipment or Fixtures that the Lender has elected under applicable law to sell
together with Real Property in accordance with the laws governing a sale of
Real Property, Lender shall give such notice of Event of Default, if any, and
election to sell as may then be required by law.  Thereafter, upon the expiration of such time
and the giving of such notice of sale as may then be required by law, and
without the necessity of any demand on Borrower, Lender at the time and place
specified in the notice of sale, shall sell such Real Property or part thereof
at public auction to the highest bidder for cash in lawful money of the United
States.  Lender may from time to time
postpone any sale hereunder by public announcement thereof at the time and
place noticed therefor;

(iv)          If the Property consists of several
lots, parcels or items of property, Lender shall, subject to applicable law,
(A) designate the order in which such lots, parcels or items shall be offered
for sale or sold, or (B) elect to sell such lots, parcels or items through a
single sale, or through two or more successive sales, or in any other manner
Lender designates.  Any Person, including
Borrower or Lender, may purchase at any sale hereunder.  Should Lender desire that more than one sale
or other disposition of the Property be conducted, Lender shall, subject to
applicable law, cause such sales or dispositions to be conducted
simultaneously, or successively, on the same day, or at such different days or
times and in such order as Lender may designate, and no such sale shall
terminate or otherwise affect the lien of this Security Instrument on any part
of the Property not sold until all the Debt has been paid in full.  In the event Lender elects to dispose of the
Property through more than one sale, except as otherwise provided by applicable
law, Borrower agrees to pay the costs and expenses of each such sale and of any
judicial proceedings wherein such sale may be made;

(e)                   institute
an action, suit or proceeding in equity for the specific performance of any
covenant, condition or agreement contained herein, in the Note, the Loan
Agreement or in the other Loan Documents;

(f)                    recover
judgment on the Note either before, during or after any proceedings for the
enforcement of this Security Instrument or the other Loan Documents;

(g)                   apply
for the appointment of a receiver, trustee, liquidator or conservator of the
Property, without notice and without regard for the adequacy of the security
for the Debt and without regard for the solvency of Borrower, any guarantor,
indemnitor with respect to the Loan or of any Person, liable for the payment of
the Debt;

(h)                   the
license granted to Borrower under Section 1.2 hereof shall be revoked and
Lender may upon written notice enter into or upon the Property, either personally
or

 15
 

 

 

by its agents, nominees or attorneys and dispossess Borrower and its
agents and servants therefrom, without liability for trespass, damages or
otherwise and exclude Borrower and its agents or servants wholly therefrom, and
take possession of all books, records and accounts relating thereto and
Borrower agrees to surrender possession of the Property and of such books,
records and accounts to Lender upon demand, and thereupon Lender may (i) use,
operate, manage, control, insure, maintain, repair, restore and otherwise deal
with all and every part of the Property and conduct the business thereat; (ii)
complete any construction on the Property in such manner and form as Lender
deems advisable; (iii) make alterations, additions, renewals, replacements and
improvements to or on the Property; (iv) exercise all rights and powers of
Borrower with respect to the Property, whether in the name of Borrower or
otherwise, including, without limitation, the right to make, cancel, enforce or
modify Leases, obtain and evict tenants, and demand, sue for, collect and
receive all Rents of the Property and every part thereof; (v) require Borrower
to pay monthly in advance to Lender, or any receiver appointed to collect the
Rents, the fair and reasonable rental value for the use and occupation of such
part of the Property as may be occupied by Borrower; (vi) require Borrower to
vacate and surrender possession of the Property to Lender or to such receiver
and, in default thereof, Borrower may be evicted by summary proceedings or
otherwise; and (vii) apply the receipts from the Property to the payment of the
Debt, in such order, priority and proportions as Lender shall deem appropriate
in its sole discretion after deducting therefrom all expenses (including
reasonable attorneys’ fees) incurred in connection with the aforesaid
operations and all amounts necessary to pay the Taxes, Other Charges, insurance
and other expenses in connection with the Property, as well as just and
reasonable compensation for the services of Lender, its counsel, agents and
employees;

(i)                    exercise
any and all rights and remedies granted to a secured party upon default under
the Uniform Commercial Code, including, without limiting the generality of the
foregoing:  (i) the right to take
possession of the Fixtures, the Equipment and the Personal Property, or any
part thereof, and to take such other measures as Lender may deem necessary for
the care, protection and preservation of the Fixtures, the Equipment and the
Personal Property, and (ii) request Borrower at its expense to assemble the
Fixtures, the Equipment and the Personal Property and make it available to
Lender at a convenient place acceptable to Lender.  Any notice of sale, disposition or other
intended action by Lender with respect to the Fixtures, the Equipment and/or
the Personal Property sent to Borrower in accordance with the provisions hereof
at least five (5) days prior to such action, shall constitute commercially
reasonable notice to Borrower;

(j)                    apply
any sums then deposited or held in escrow or otherwise by or on behalf of
Lender in accordance with the terms of the Loan Agreement, this Security
Instrument or any other Loan Document to the payment of the following items in
any order in its uncontrolled discretion:

(i)            Interest on the unpaid principal
balance of the Note;

(ii)           Amortization of the unpaid principal
balance of the Note;

(iii)          Taxes and Other Charges;

(iv)          Insurance Premiums;

 16
 

 

 

(v)           All other sums payable pursuant to
the Note, the Loan Agreement, this Security Instrument and the other Loan
Documents, including without limitation advances made by Lender pursuant to the
terms of this Security Instrument;

(k)                   pursue
such other remedies as Lender may have under applicable law; or

(l)                    apply
the undisbursed balance of any Net Sale Proceeds to the Deficiency Deposit,
together with interest thereon, to the payment of the Debt in such order,
priority and proportions as Lender shall deem to be appropriate in its
discretion.

In the event of a sale,
by foreclosure, power of sale or otherwise, of less than all of Property, this
Security Instrument shall continue as a lien and security interest on the
remaining portion of the Property unimpaired and without loss of priority.

Section 7.2             APPLICATION OF PROCEEDS.  The purchase money, proceeds and avails of
any disposition of the Property, or any part thereof, or any other sums
collected by Lender pursuant to the Note, this Security Instrument or the other
Loan Documents, shall be applied by Lender to the payment of the Debt in such
order of priority and proportions as Lender in its discretion shall deem
proper, to the extent consistent with law and the other Loan Documents.

Section 7.3             RIGHT TO CURE DEFAULTS.  Upon the occurrence and during the
continuance of any Event of Default, Lender may remedy such Event of Default in
such manner and to such extent as Lender may deem necessary to protect the
security hereof, but without any obligation to do so and without notice to or
demand on Borrower, and without releasing Borrower from any obligation hereunder.  Lender is authorized to enter upon the
Property for such purposes, or appear in, defend, or bring any action or
proceeding to protect its interest in the Property or to foreclose this
Security Instrument or collect the Debt, and the cost and expense thereof
(including reasonable attorneys’ fees to the extent permitted by law), with
interest as provided in this Section 7.3, shall constitute a portion of
the Debt and shall be due and payable to Lender upon demand.  All such costs and expenses incurred by
Lender in remedying such Event of Default or such failed payment or act or in
appearing in, defending, or bringing any such action or proceeding shall bear
interest at the Default Rate, for the period after notice from Lender that such
cost or expense was incurred to the date of payment to Lender.  All such costs and expenses incurred by
Lender together with interest thereon calculated at the Default Rate shall be
deemed to constitute a portion of the Debt and be secured by this Security
Instrument and the other Loan Documents and shall be immediately due and
payable upon demand by Lender therefor.

Section 7.4             ACTIONS AND PROCEEDINGS.  Lender has the right to appear in and defend
any action or proceeding brought with respect to the Property and to bring any
action or proceeding, in the name and on behalf of Borrower, which Lender, in
its discretion, decides should be brought to protect its interest in the
Property.

 17

 

 

Section 7.5             RECOVERY OF SUMS REQUIRED TO BE PAID.  Lender shall have the right from time to time
to take action to recover any sum or sums which constitute a part of the Debt
as the same become due, without regard to whether or not the balance of the
Debt shall be due, and without prejudice to the right of Lender thereafter to
bring an action of foreclosure, or any other action, for a default or defaults
by Borrower existing at the time such earlier action was commenced.

Section 7.6             EXAMINATION OF BOOKS AND RECORDS.  At reasonable times and upon reasonable
notice, Lender, its agents, accountants and attorneys shall have the right to
examine the records, books, management and other papers of Borrower which
reflect upon its financial condition, at the Property or at any office
regularly maintained by Borrower where the books and records are located.  Lender and its agents shall have the right to
make copies and extracts from the foregoing records and other papers.  In addition, at reasonable times and upon reasonable
prior notice, Lender, its agents, accountants and attorneys shall have the
right to examine and audit the books and records of Borrower pertaining to the
income, expenses and operation of the Property during reasonable business hours
at any office of Borrower where the books and records are located.  This Section 7.6 shall apply
throughout the term of the Note and without regard to whether an Event of
Default has occurred or is continuing.

Section 7.7             OTHER RIGHTS, ETC.

(a)                   The
failure of Lender to insist upon strict performance of any term hereof shall
not be deemed to be a waiver of any term of this Security Instrument.  Borrower shall not be relieved of Borrower’s
obligations hereunder by reason of (i) the failure of Lender to comply with any
request of Borrower or any guarantor or indemnitor with respect to the Loan to
take any action to foreclose this Security Instrument or otherwise enforce any
of the provisions hereof or of the Note or the other Loan Documents, (ii) the
release, regardless of consideration, of the whole or any part of the Property,
or of any person liable for the Debt or any portion thereof, or (iii) any
agreement or stipulation by Lender extending the time of payment or otherwise
modifying or supplementing the terms of the Note, this Security Instrument or
the other Loan Documents.

(b)                   It
is agreed that the risk of loss or damage to the Property is on Borrower, and
Lender shall have no liability whatsoever for decline in value of the Property,
for failure to maintain the Policies, or for failure to determine whether
insurance in force is adequate as to the amount of risks insured.  Possession by Lender shall not be deemed an
election of judicial relief, if any such possession is requested or obtained,
with respect to any Property or collateral not in Lender’s possession.

(c)                   Upon
an Event of Default and during the continuance thereof, Lender may resort for
the payment of the Debt to any other security held by Lender in such order and
manner as Lender, in its discretion, may elect. 
Upon an Event of Default and during the continuance thereof, Lender may
take action to recover the Debt, or any portion thereof, or to enforce any
covenant hereof without prejudice to the right of Lender thereafter to
foreclose this Security Instrument.  The
rights of Lender under this Security Instrument shall be separate, distinct and
cumulative and none shall be given effect to the exclusion of the others.  No act of Lender shall be construed as an
election to proceed under any one provision herein to the

 18
 

 

 

exclusion of any other provision. 
Lender shall not be limited exclusively to the rights and remedies
herein stated but shall be entitled to every right and remedy now or hereafter
afforded at law or in equity.

Section 7.8             RIGHT TO RELEASE ANY PORTION OF THE PROPERTY.  Lender may release any portion of the
Property for such consideration as Lender may require without, as to the
remainder of the Property, in any way impairing or affecting the lien or
priority of this Security Instrument, or improving the position of any
subordinate lienholder with respect thereto, except to the extent that the
obligations hereunder shall have been reduced by the actual monetary
consideration, if any, received by Lender for such release, and may accept by
assignment, pledge or otherwise any other property in place thereof as Lender
may require without being accountable for so doing to any other
lienholder.  The provisions of Sections
15.4 (Release of Units) and 15.5 (Release of Facilities) of the Loan Agreement
are hereby incorporated in this Security Agreement.  This Security Instrument shall continue as a
lien and security interest in the remaining portion of the Property.

Section 7.9             RECOURSE AND CHOICE OF REMEDIES.  Notwithstanding any other provision of this
Security Instrument or the Loan Agreement, including, without limitation,
Section 21.1 of the Loan Agreement, Lender and other Indemnified Parties (as
hereinafter defined) are entitled to enforce the obligations of Borrower, any
guarantor and indemnitor contained in the Loan Agreement without first
resorting to or exhausting any security or collateral and without first having
recourse to the Note or any of the Property, through foreclosure, exercise of a
power of sale or acceptance of a deed in lieu of foreclosure or otherwise.  Notwithstanding the foregoing, nothing herein
shall inhibit or prevent Lender from foreclosing or exercising a power of sale
pursuant to this Security Instrument or exercising any other rights and remedies
pursuant to the Loan Agreement, the Note, this Security Instrument and the
other Loan Documents, whether simultaneously with foreclosure proceedings or in
any other sequence.

Section 7.10           RIGHT OF ENTRY.  Upon reasonable prior notice to Borrower,
Lender and its agents shall have the right to enter and inspect the Property at
all reasonable times.  Upon such entry,
Lender and its agents shall not unreasonably interfere with the operation,
construction and safety  of the Property.

Article 8 -
[INTENTIONALLY OMITTED]

Article 9 -
INDEMNIFICATION

Section 9.1             GENERAL INDEMNIFICATION.  Borrower shall, at its sole cost and expense,
protect, defend, indemnify, release and hold harmless the Indemnified Parties
from and against any and all claims, suits, liabilities (including, without
limitation, strict liabilities), actions, proceedings, obligations, debts,
damages, losses, reasonable costs, expenses, fines, penalties, charges, fees,
judgments, awards, amounts paid in settlement, punitive damages, of whatever
kind or nature (including but not limited to reasonable attorneys’ fees and
other costs of defense) (collectively, the “Losses”) imposed upon or incurred by or asserted against
any Indemnified Parties and directly or indirectly arising out of or in any way
relating to any one or more of the following: 
(a) ownership of this Security Instrument, the Property or any interest 

 19
 

 

 

therein or receipt of any Rents; (b) any amendment to, or restructuring
of, the Debt, and the Note, the Loan Agreement, this Security Instrument, or
any other Loan Documents; (c) any and all lawful action that may be taken by
Lender in connection with the enforcement of the provisions of this Security
Instrument or the Loan Agreement or the Note or any of the other Loan
Documents, whether or not suit is filed in connection with same, or in
connection with Borrower, any guarantor or indemnitor and/or any partner, joint
venturer or shareholder thereof becoming a party to a voluntary or involuntary
federal or state bankruptcy, insolvency or similar proceeding; (d) any
accident, injury to or death of persons or loss of or damage to property
occurring in, on or about the Property or any part thereof or on the adjoining
sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways;
(e) any use, nonuse or condition in, on or about the Property or any part
thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (f) any failure on the part of Borrower to
perform or be in compliance with any of the terms of this Security Instrument;
(g) performance of any labor or services or the furnishing of any materials or
other property in respect of the Property or any part thereof; (h) the failure
of any person to file timely with the Internal Revenue Service an accurate Form
1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and
Barter Exchange Transactions, which may be required in connection with this
Security Instrument, or to supply a copy thereof in a timely fashion to the
recipient of the proceeds of the transaction in connection with which this
Security Instrument is made; (i) any failure of the Property to be in
compliance with any Legal Requirements; (j) the enforcement by any Indemnified
Party of the provisions of this Article 9; (k) any and all claims and demands
whatsoever which may be asserted against Lender by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants, or agreements contained in any Lease; (1) the payment of any
commission, charge or brokerage fee to anyone claiming through Borrower which
may be payable in connection with the funding of the Loan; or (m) any material
misrepresentation made by Borrower in this Security Instrument or any other
Loan Document; provided, however, Borrower shall
not indemnify any Indemnified Party from any loss or expense arising from such
Indemnified Party’s willful misconduct, illegal acts, fraud or gross
negligence.  Any amounts payable to
Lender by reason of the application of this Section 9.1 shall become due and
payable upon ten (10) Business Days written notice and shall bear interest at
the Default Rate from the date of such notice from Lender until paid.  For purposes of this Article 9, the term “Indemnified Parties” means Lender and
any Person who is or will have been involved in the origination of the Loan,
any Person who is or will have been involved in the servicing of the Loan
secured hereby, any Person in whose name the encumbrance created by this
Security Instrument is or will have been recorded, persons and entities who may
hold or acquire or will have held a full or partial interest in the Loan
secured hereby (including, but not limited to, investors or prospective
investors in the Securities, as well as custodians, trustees and other fiduciaries
who hold or have held a full or partial interest in the Loan secured hereby for
the benefit of third parties) as well as the respective directors, officers,
shareholders, partners, employees, agents, servants, representatives,
contractors, subcontractors, affiliates, subsidiaries, participants, successors
and assigns of any and all of the foregoing (including but not limited to any
other Person who holds or acquires or will have held a participation or other
full or partial interest in the Loan, whether during the term of the Loan or as
a part of or following a foreclosure of the Loan and including, but not limited
to, any successors by merger, consolidation or acquisition of all or a
substantial portion of Lender’s assets and business).

 20
 

 

 

Section 9.2             MORTGAGE AND/OR INTANGIBLE TAX.  Borrower shall, at its sole cost and expense,
protect, defend, indemnify, release and hold harmless the Indemnified Parties
from and against any and all Losses imposed upon or incurred by or asserted
against any Indemnified Parties and directly or indirectly arising out of or in
any way relating to any tax on the making and/or recording of this Security
Instrument, the Note or any of the other Loan Documents, but excluding any
income, franchise or other similar taxes.

Section 9.3             ERISA INDEMNIFICATION.  Borrower shall, at its sole cost and expense,
protect, defend, indemnify, release and hold harmless the Indemnified Parties
from and against any and all Losses (including, without limitation, reasonable
attorneys’ fees and costs incurred in the investigation, defense, and
settlement of Losses incurred in correcting any prohibited transaction or in
the sale of a prohibited loan, and in obtaining any individual prohibited
transaction exemption under ERISA that may be required in connection with the
Loan, in Lender’s sole discretion) that Lender may incur, directly or
indirectly, as a result of a default under Section 18.2 of the Loan Agreement.

Section 9.4             DUTY TO DEFEND; ATTORNEYS’ FEES AND OTHER FEES
AND EXPENSES.  If any of the
Indemnified Parties claims indemnification hereunder, such Indemnified Party
shall promptly notify Borrower of the nature and basis of the claim or legal or
administrative proceeding giving rise to such claim or indemnification (each,
an “Indemnified Claim”).  After
notice by the Indemnified Party, Borrower shall defend such Indemnified Party
(if requested by any Indemnified Party, in the name of the Indemnified Party)
by attorneys and other professionals reasonably approved by the Indemnified
Party and shall have the right to negotiate and enter into and/or consent to
any settlement, subject to the prior approval of the Indemnified Party (which
approval shall not be unreasonably withheld), provided that (x) such approval
shall not be required in connection with any settlement which includes any
unconditional release of the Indemnified Party and all related actions for all
liability for which the Indemnified Party is seeking indemnification and (y)
there is no admission of wrongdoing on the part of the Indemnified Party.  If Borrower has assumed the defense of any
action brought against the Indemnified Parties, then the Indemnified Parties
shall not settle such action without the consent of Borrower.  Notwithstanding the foregoing, the
Indemnified Parties may engage their own attorneys and other professionals to
defend or assist them in the event the defense as conducted by Borrower is not
proceeding or being conducted in a satisfactory manner or that a conflict of
interest exists between any of the parties represented by Borrower’s counsel in
such action or proceeding; provided,  however, (x) that so long as
no Event of Default exists, the Indemnified Parties shall provide Borrower with
fifteen (15) days prior written notice of any determination pursuant to this Section
9.4 (unless the Indemnified Parties determine, in their sole discretion,
that their interest may be adversely affected prior to the expiration of such
notice period, in which case, the Indemnified Parties may take immediate action
and send written notice to Borrower thereafter); and (y) shall not enter into
any settlement of such a proceeding without the consent of Borrower, which
consent shall not be unreasonably withheld, conditioned or delayed.  Borrower shall not be liable for the expenses
of more than one such separate counsel unless an Indemnified Party shall have
reasonably concluded that there may be legal defenses available to it that are
different from or additional to those available to another Indemnified Party.  Upon demand, Borrower shall pay or, in the
sole and absolute discretion of the Indemnified Parties, reimburse, the
Indemnified Parties for the payment of reasonable fees and 

 21
 

 

 

disbursements of attorneys, engineers, environmental consultants,
laboratories and other professionals in connection therewith.

Article 10 - WAIVERS

Section 10.1           WAIVER OF COUNTERCLAIM.  To the extent permitted by applicable law,
Borrower hereby waives the right to assert a counterclaim, other than a
mandatory or compulsory counterclaim, in any action or proceeding brought
against it by Lender arising out of or in any way connected with this Security
Instrument, the Loan Agreement, the Note, any of the other Loan Documents, or
the Obligations.

Section 10.2           MARSHALLING AND OTHER MATTERS.  To the extent permitted by applicable law,
Borrower hereby waives the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein. 
Further, Borrower hereby expressly waives any and all rights of
redemption from sale under any order or decree of foreclosure of this Security
Instrument on behalf of Borrower, and on behalf of each and every person acquiring
any interest in or title to the Property subsequent to the date of this
Security Instrument and on behalf of all persons to the extent permitted by
applicable law.

Section 10.3           WAIVER OF NOTICE.  To the extent permitted by applicable law and
except as provided in the Loan Agreement, Borrower shall not be entitled to any
notices of any nature whatsoever from Lender except with respect to matters for
which this Security Instrument or the Loan Documents specifically and expressly
provide for the giving of notice by Lender to Borrower and except with respect
to matters for which Lender is required by applicable law to give notice, and
Borrower hereby expressly waives the right to receive any notice from Lender
with respect to any matter for which this Security Instrument or the Loan
Agreement does not specifically and expressly provide for the giving of notice
by Lender to Borrower.

Section 10.4           WAIVER OF STATUTE OF LIMITATIONS.  To the extent permitted by applicable law,
Borrower hereby expressly waives and releases to the fullest extent permitted
by law, the pleading of any statute of limitations as a defense to payment of
the Debt or performance of its Other Obligations.

Section 10.5           SURVIVAL.  The indemnifications made pursuant to Section
9.3 herein shall in no way be impaired by: (i) any satisfaction, release or
other termination of this Security Instrument, any assignment or other transfer
of all or any portion of this Security Instrument or Lender’s interest in the
Property (but, in such case, shall benefit both Indemnified Parties and any
assignee or transferee), (ii) any exercise of Lender’s rights and remedies
pursuant hereto including but not limited to foreclosure or acceptance of a
deed or assignment of lease in lieu of foreclosure, (iii) any exercise of any
rights and remedies pursuant to the Loan Agreement, the Note or any of the
other Loan Documents, (iv) any transfer of all or any portion of the Property
(whether by Borrower or by Lender following foreclosure or acceptance of a deed
or assignment of lease in lieu of foreclosure or at any other time), (v) any
amendment to this Security Instrument, the Loan Agreement, the Note or the other
Loan Documents, and (vi) any

 22
 

 

 

act or omission that might otherwise be construed as a release or
discharge of Borrower from the obligations pursuant hereto.

Article 11 - EXCULPATION

The provisions of Section
22.14 of the Loan Agreement are hereby incorporated by reference into this
Security Instrument to the same extent and with the same force as if fully set
forth herein.

Article 12 - NOTICES

All notices or other written communications hereunder
shall be delivered in accordance with Article XXIII of the Loan Agreement.

Article 13 - APPLICABLE
LAW

Section 13.1           GOVERNING
LAW.  (A)  THIS SECURITY INSTRUMENT WAS NEGOTIATED IN THE STATE
OF NEW YORK, AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW
YORK, AND THE PROCEEDS OF THE NOTE SECURED HEREBY WERE DISBURSED FROM THE STATE
OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE
PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS,
INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY INSTRUMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW
OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES (I) THE PROVISIONS
FOR THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIENS AND
SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN
DOCUMENTS WITH RESPECT TO THE PROPERTY (OTHER THAN THAT DESCRIBED IN SUBPARAGRAPH
II BELOW) SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE
IN WHICH THE PROPERTY AND FIXTURES ARE LOCATED AND (II) WITH RESPECT TO THE
PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS
CREATED BY THIS SECURITY INSTRUMENT AND THE OTHER LOAN DOCUMENTS IN PROPERTY
WHOSE PERFECTION AND PRIORITY IS COVERED BY ARTICLE 9 OF THE UCC (INCLUDING,
WITHOUT LIMITATION, THE ACCOUNTS), THE LAW OF THE JURISDICTION APPLICABLE IN
ACCORDANCE WITH SECTIONS 9-301 THROUGH 9-307 OF THE UCC AS IN EFFECT IN THE
STATE OF HAWAII SHALL GOVERN.

(B)          ANY
LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR
RELATING TO THIS SECURITY INSTRUMENT MAY AT LENDER’S OPTION BE INSTITUTED IN
ANY FEDERAL

 23
 

 

 

OR
STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION
5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND BORROWER AND LENDER EACH
WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR
FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER AND
LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN
ANY SUIT, ACTION OR PROCEEDING.

Section 13.2           USURY LAWS.  Notwithstanding anything to the contrary, (a)
all agreements and communications between Borrower and Lender are hereby and
shall automatically be limited so that, after taking into account all amounts
deemed interest, the interest contracted for, charged or received by Lender
shall never exceed the maximum lawful rate or amount, (b) in calculating
whether any interest exceeds the lawful maximum, all such interest shall be
amortized, prorated, allocated and spread over the full amount and term of all
principal indebtedness of Borrower to Lender, and (c) if through any
contingency or event, Lender receives or is deemed to receive interest in
excess of the lawful maximum, any such excess shall be deemed to have been
applied toward payment of the principal of any and all then outstanding
indebtedness of Borrower to Lender, or if there is no such indebtedness, shall
immediately be returned to Borrower.

Section 13.3           PROVISIONS SUBJECT TO APPLICABLE LAW.  All rights, powers and remedies provided in
this Security Instrument may be exercised only to the extent that the exercise
thereof does not violate any applicable provisions of law and are intended to
be limited to the extent necessary so that they will not render this Security
Instrument invalid, unenforceable or not entitled to be recorded, registered or
filed under the provisions of any applicable law.  If any term of this Security Instrument or
any application thereof shall be invalid or unenforceable, the remainder of
this Security Instrument and any other application of the term shall not be
affected thereby.

Article 14 - DEFINITIONS

All capitalized terms not
defined herein shall have the respective meanings set forth in the Loan
Agreement.  Unless the context clearly
indicates a contrary intent or unless otherwise specifically provided herein,
words used in this Security Instrument may be used interchangeably in singular
or plural form and the word “Borrower” shall mean “each Borrower and any
subsequent owner or owners of the Property or any part thereof or any interest
therein,” the word “Lender” shall mean “Lender and any subsequent holder
of the Note,” the word “Note” shall mean “the Note and any other evidence of
indebtedness secured by this Security Instrument,” the word “Property”
shall include any portion of the Property and any interest therein, and the
phrases “attorneys’
fees”, “legal fees”
and “counsel
fees” shall include any and all reasonable attorneys’, paralegal
and law clerk fees and disbursements, including, but not limited to, fees and
disbursements at the pre-trial, trial and appellate levels incurred or paid by
Lender in protecting its interest in the Property, the Leases and the Rents and
enforcing its rights hereunder.

 24
 

 

 

Article 15 -
MISCELLANEOUS PROVISIONS

Section 15.1           NO ORAL CHANGE.  This Security Instrument, and any provisions
hereof, may not be modified, amended, waived, extended, changed, discharged or
terminated orally or by any act or failure to act on the part of Borrower or
Lender, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change,
discharge or termination is sought.

Section 15.2           SUCCESSORS AND ASSIGNS.  This Security Instrument shall be binding
upon and inure to the benefit of Borrower and Lender and their respective
successors and assigns forever.

Section 15.3           INAPPLICABLE PROVISIONS.  If any term, covenant or condition of the
Loan Agreement, the Note or this Security Instrument is held to be invalid,
illegal or unenforceable in any respect, the Loan Agreement, the Note and this
Security Instrument shall be construed without such provision.

Section 15.4           HEADINGS, ETC.  The headings and captions of various Sections
of this Security Instrument are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.

Section 15.5           NUMBER AND GENDER.  Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.

Section 15.6           ENTIRE AGREEMENT.  The Note, the Loan Agreement, this Security
Instrument and the other Loan Documents constitute the entire understanding and
agreement between Borrower and Lender with respect to the transactions arising
in connection with the Debt and supersede all prior written or oral
understandings and agreements between Borrower and Lender with respect
thereto.  Borrower hereby acknowledges
that, except as incorporated in writing in the Note, the Loan Agreement, this
Security Instrument and the other Loan Documents, there are not, and were not,
and no persons are or were authorized by Lender to make, any representations,
understandings, stipulations, agreements or promises, oral or written, with
respect to the transaction which is the subject of the Note, the Loan
Agreement, this Security Instrument and the other Loan Documents.

Section 15.7           LIMITATION ON LENDER’S RESPONSIBILITY.  No provision of this Security Instrument
shall operate to place any obligation or liability for the control, care,
management or repair of the Property upon Lender, nor shall it operate to make
Lender responsible or liable for any waste committed on the Property by the
tenants or any other Person, or for any dangerous or defective condition of the
Property, or for any negligence in the management, upkeep, repair or control of
the Property resulting in loss or injury or death to any tenant, licensee,
employee or stranger.  Nothing herein
contained shall be construed as constituting Lender a “mortgagee in possession.”

Section 15.8           JOINT AND SEVERAL.  If more than one Person has executed this
Security Instrument as “Borrower,” the representations, covenants, warranties
and obligations of all such Persons hereunder shall be joint and several.

 25
 

 

 

Article 16 - ADDITIONAL LEASEHOLD MORTGAGE
PROVISIONS

Section 16.1           In addition to the representations
set forth herein, Borrower hereby represents that: no term, covenant or
provision of the Ground Lease prohibits or imposes a limitation upon the grant
and demise of the Mortgage, nor precludes, limits, conflicts with or interferes
with the powers, rights and remedies granted to Lender hereunder or thereunder.

Section 16.2           In addition to the covenants set
forth herein, Borrower hereby covenants:

(i)            to
promptly pay, without any allowance for grace periods, all rent, additional
rent and other sums or charges required to be paid by the lessee under the
Ground Lease;

(ii)           to
promptly and faithfully observe, perform and comply with all the terms,
covenants and provisions of the Ground Lease on its part to be observed,
performed and complied with, at the times set forth therein, without allowance
for grace periods, if any;

(iii)          to
not do, permit, suffer or refrain from doing anything as a result of which
there could be a default under or breach of any of the terms of the Ground
Lease; and

(iv)          not
to cancel or terminate the Ground Lease.

Section 16.3           The lien of the Mortgage shall extend
to cover all of Borrower’s respective rights and remedies under or pursuant to
11 U.S.C. § 365(h) including, without limitation, all of Borrower’s rights to
remain in possession of the leasehold interest granted under the Ground Lease.

Section 16.4           Borrower shall not, without Lender’s
prior written consent, elect to treat the leasehold encumbered by the Mortgage
as terminated under 11 U.S.C. § 365(h)(1). 
Any such election made without Lender’s prior written consent shall be
null and void and, at Lender’s election, shall constitute a substantial and
material default hereunder.

Section 16.5           Borrower hereby unconditionally
assigns, transfers and sets over to Lender all of Borrower’s respective right,
title and interest in and to any claim for the payment of damages arising from
any rejection of the Ground Lease under the Bankruptcy Code (11 U.S.C. § 101 et
seq.) (the “Bankruptcy Code”). 
Lender shall have the right to proceed in its own name or in the name of
Borrower (for which purpose Borrower hereby appoints Lender as its
attorney-in-fact, which appointment shall be coupled with an interest and
irrevocable) in respect of any claim, suit, action or proceeding relating to
the rejection of such leasehold including, without limitation, the right to
file and prosecute, to the exclusion of Borrower, any proofs of claim,
complaints, motions, applications, notices and other documents in any case
concerning the lessor of such leasehold under the Bankruptcy Code.  This assignment constitutes a present,
irrevocable and unconditional assignment and shall continue in effect until all
of the indebtedness and obligations secured hereby shall have been satisfied
and discharged in full.  Any amounts
received by Lender as damages arising out of the rejection of such leasehold
shall be applied first

 26
 

 

 

to all costs
and expenses of Lender (including, without limitation, actual out-of-pocket
attorneys’ fees (including on appeal)) incurred in connection with the exercise
of any of its rights or remedies under this subsection, and then in accordance
with Section 2(c) hereof.

Section 16.6           If pursuant to 11 U.S.C. § 365(h)(1)
Borrower seeks to offset against rent reserved under the Ground Lease, the
amount of any damages caused by the non-performance by the lessor of the Ground
Lease of any of such lessor’s obligations under the Ground Lease after the
rejection by such lessor of such leasehold under the Bankruptcy Code, Borrower
shall, prior to effecting such offset, notify Lender of its intent so to do,
setting forth the amounts proposed to be so offset and the basis therefor.  Lender shall have the right to object to all
or any part of such offset, and in the event of such objection Borrower shall
not effect any offset of the amounts so objected to by Lender.  Neither Lender’s failure to object as
aforesaid nor any objection or other communication between Lender and Borrower
relating to such offset shall constitute an approval of any such offset by
Lender.  Borrower shall indemnify and
save Lender harmless from and against any and all claims, demands, actions,
suits, proceedings, damages, losses, costs and expenses of every nature
whatsoever (including, without limitation, actual out-of-pocket attorneys’ fees
(including on appeal)) arising from or relating to any offset by Borrower
against the rent reserved in the Ground Lease.

Section 16.7           If any action, proceeding, motion or
notice shall be commenced or filed in respect of Borrower or the Mortgaged
Property in connection with any case under the Bankruptcy Code (other than
those actions or proceedings under the Bankruptcy Code commenced or filed with
respect to the fee estate of the Premises so long as Borrower’s leasehold
interest in the Mortgaged Premises is not negatively impacted by such actions
or proceedings), Lender shall have the option, to the exclusion of Borrower,
exercisable upon notice from Lender to Borrower, to conduct and control any
such litigation with counsel of Lender’s choice.  Lender may proceed in its own name or in the
name of Borrower in connection with any such litigation (for which purpose
Borrower hereby appoints Lender as its attorney-in-fact, which appointment shall
be coupled with an interest and irrevocable), and Borrower agrees to execute
any and all powers, authorizations, consents and other documents required by
Lender in connection therewith.  Borrower
shall, upon demand, pay to Lender all costs and expenses (including actual
out-of-pocket attorneys’ fees) paid or incurred by Lender in connection with
the prosecution or conduct of any such proceedings.  Any such costs or expenses not paid by
Borrower as aforesaid shall be secured by the lien of the Mortgage and shall be
added to the principal amount of the indebtedness secured hereby.  Without the prior written consent of Lender,
Borrower shall not in any such case under the Bankruptcy Code commence any
action, suit, proceeding or case, or file any application or make any motion,
in respect of the leasehold encumbered by the Mortgage.

Section 16.8           Borrower shall promptly after
obtaining knowledge thereof notify Lender of any filing by or against the
lessor of the leasehold encumbered by the Mortgage of a petition under the
Bankruptcy Code.  Borrower shall
thereafter forthwith deliver to Lender copies of any notices, summonses,
pleadings or other papers in connection with any such petition and any
proceedings relating thereto.

Section 16.9           If there shall be filed by or against
Borrower a petition under the Bankruptcy Code, and Borrower shall determine to
reject its leasehold interest pursuant to

 27
 

 

 

Section 365(a)
of the Bankruptcy Code, Borrower shall give Lender not less than ten (10) days’
prior notice of the date on which Borrower shall apply to the bankruptcy court
for authority to reject such leasehold. 
Lender shall have the right, but not the obligation, to serve upon
Borrower within such ten-day period a notice stating that: (i) Lender demands
that Borrower assume and assign such leasehold and the Ground Lease to Lender
pursuant to Section 365 of the Bankruptcy Code; and (ii) Lender covenants to
cure or provide adequate assurance of prompt cure of all defaults and provide
adequate assurance of future performance under the Ground Lease.  If Lender serves upon Borrower the notice
described in the preceding sentence, Borrower shall not seek to reject the
leasehold and shall comply with the demand provided for in clause (i) of the
preceding sentence within thirty (30) days after the notice shall have been
given, subject to the performance by Lender of the covenant provided for in
clause (ii) of the preceding sentence.

Section 16.10         IF AT ANY TIME THAT ANY PORTION OF THE LOAN IS OUTSTANDING AND IS
SECURED BY THE MORTGAGE, BORROWER ACQUIRES FEE TITLE TO ALL OR ANY PORTION OF
THE LEASEHOLD ENCUMBERED BY THIS MORTGAGE OR IF BORROWER ACQUIRES ALL OR ANY
PORTION OF ANY OF THE LESSOR’S INTERESTS UNDER THE GROUND LEASE: (A) NO PORTION
OF THE LEASEHOLD SHALL BE MERGED INTO THE FEE INTERESTS OR THE INTERESTS IN THE
GROUND LEASE SO ACQUIRED BY BORROWER, AND THE GROUND LEASE AND THE LEASEHOLD
SHALL BE PRESERVED AND SHALL MAINTAIN THEIR CHARACTER AND IDENTITY AS SEPARATE,
DISTINCT AND DISCRETE FROM THE FEE INTERESTS RELATIVE TO THE PROPERTY; (B) TO
THE EXTENT NECESSARY TO CREATE A FIRST PRIORITY SECURITY INTEREST IN THE FEE
PROPERTY, THE LIEN OF THIS MORTGAGE SHALL BE EXTENDED, SPREAD AND ATTACH TO AND
ENCUMBER SUCH FEE INTEREST, ON THE TERMS AND CONDITIONS HEREIN SET FORTH WITH RESPECT
TO OTHER, SIMILAR INTERESTS ENCUMBERED HEREBY, WITH THE SAME RIGHTS AND
OBLIGATIONS ATTENDANT THERETO AND (C) BORROWER SHALL HAVE EXECUTED AND
DELIVERED TO LENDER SUCH DOCUMENTATION AS REQUESTED BY LENDER TO CONFIRM THE
LIEN OF THIS SECURITY INSTRUMENT ON SUCH FEE INTEREST.

Article 17 -
STATE-SPECIFIC PROVISIONS

Section 17.1           PRINCIPALS OF CONSTRUCTION.  In the event of any inconsistencies between
the terms and conditions of this Article 17 and the other terms and
conditions of this Security Instrument, the terms and conditions of this Article
17 shall control and be binding.

Section 17.2           FIXTURE FILING
PROVISION.  Upon recording
this Security Instrument in the real property records, this Security Instrument
shall be effective as a financing statement filed as a fixture filing.  In addition, a carbon, photographic or other
reproduction of this Security Instrument and/or any financing statement
relating thereto shall be sufficient for filing and/or recording as a financing
statement.  The filing of any other
financing statement relating to any personal property rights or interests
described herein shall not be construed to diminish any right or priority
hereunder.

 28
 

 

 

Section 17.3           INTEREST RATE.  Borrower agrees to pay an effective rate of
interest equal to (i) the Applicable Interest Rate, and (ii) the additional
rate, if any, resulting from any charge or fee in the nature of interest paid
or to be paid by Borrower in connection with the Note, this Security Instrument
or any Loan Document or other document executed and delivered by Borrower to
Lender in connection with the indebtedness evidenced by the Note.  The total liability of Borrower for the
payment of interest under the Note and this Security Instrument shall not
exceed the applicable limit imposed by the usury laws of the State of New
York.  If Lender receives interest in an
amount which exceeds such limit, such excess amount shall be applied instead to
the reduction of the unpaid principal balance and not to the payment of
principal and lawful interest, the surplus shall be remitted to Borrower by
Lender, and Borrower hereby agrees to accept such remittance.

Section 17.4           Lender’s
Remedies.  Lender shall have all of
the remedies provided under Chapter 667 and Article 9 of Chapter 490, Hawaii
Revised Statutes, as amended.

[NO FURTHER TEXT ON THIS PAGE]

 29

 

 

IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by
Borrower as of the day and year first above written.

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  KAPALUA BAY, LLC,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  Kapalua Bay Holdings, LLC,

  
	
   

  	
   

  	
   

  	
  a Delaware limited liability company,

  
	
   

  	
   

  	
   

  	
  Its Managing Member

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  MLP KB Partner LLC,

  
	
   

  	
   

  	
   

  	
   

  	
  a Hawaii limited liability company,

  
	
   

  	
   

  	
   

  	
   

  	
  Its Managing Member

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  Maui Land & Pineapple Company,

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Inc., a Hawaii corporation,

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Managing Member

  
	
   

  
	
   

  
	
   

  	
  By:

  	
   

  	
  /S/ ROBERT WEBBER

  
	
   

  	
  Name:

  	
   

  	
  R. WEBBER

  
	
   

  	
  Title:

  	
   

  	
  CFO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /S/ RYAN CHURCHILL

  
	
   

  	
  Name:

  	
   

  	
      RYAN
  CHURCHILL

  
	
   

  	
  Title:

  	
   

  	
  VICE PRESIDENT/COMMUNITY

  
	
   

  	
   

  	
   

  	
      DEVELOPMENTExhibit 10.3

PROMISSORY NOTE

	
  $370,000,000.00

  	
  New York, New York

  July 14, 2006

  

 

FOR VALUE RECEIVED, KAPALUA BAY,
LLC, a Delaware limited liability company, having an address at c/o Maui
Land & Pineapple Company, Inc., 120 Kane Street, Kapalua, Maui, Hawaii
96732 (“Borrower”),
hereby unconditionally promises to pay to the order of LEHMAN
BROTHERS HOLDINGS INC.,  a
Delaware corporation, having an address at 399 Park Avenue, New York, New York
10022 (“Lender”),
as payee, at its office set forth above or at such other place as the holder
hereof may from time to time designate in writing, the principal sum of THREE
HUNDRED SEVENTY MILLION and 00/100 DOLLARS ($370,000,000.00), or so much
thereof as is advanced pursuant to the Loan Agreement (hereinafter defined) in
lawful money of the United States of America with interest thereon to be
computed on the unpaid principal balance from time to time outstanding at the
Applicable Rate or, if applicable, the Default Rate, and to be paid in accordance
with the terms of this Note and that certain Construction Loan Agreement dated
the date hereof between Borrower and Lender (the “Loan
Agreement”).  All capitalized
terms not defined herein shall have the respective meanings set forth in the
Loan Agreement.

ARTICLE I

PAYMENT
TERMS

Borrower agrees to pay the principal sum of
this Note and interest on the outstanding principal balance of this Note in
accordance with this Note and the Loan Agreement.  The outstanding principal balance of this Note
may only be prepaid in accordance with the Loan Agreement.  The outstanding principal balance of this
Note, all accrued and unpaid interest thereon and all other amounts due
hereunder and under the Mortgage and the other Loan Documents shall be due and
payable on the Maturity Date or such other date on which by acceleration or
otherwise the principal sum of this Note becomes due and payable in accordance
with the Loan Agreement.

Interest on the outstanding principal balance
of this Note shall accrue at the Applicable Rate and shall be calculated as
provided in Section 5.1(f) of the Loan Agreement.

On or before 3:00 PM (New York time) on each
Payment Date, Borrower shall make payments of interest due and payable
hereunder by deposit of immediately available funds to such account as Lender
may designate from time to time.

ARTICLE II

DEFAULT
AND ACCELERATION

The Debt shall without notice become immediately due
and payable at the option of Lender if any payment required in this Note is not
paid on or prior to the date when due or if

 

 

not paid on the Maturity
Date or on the happening of any other Event of Default which continues beyond
applicable notice and grace periods.

ARTICLE III

DEFAULT
INTEREST

Borrower hereby agrees that upon the occurrence and
during the continuance of an Event of Default, Lender shall be entitled to
receive and Borrower shall pay interest on the entire unpaid principal sum at
the Default Rate.  The Default Rate shall
be computed from the occurrence of the Event of Default until the earlier of
the date upon which the Event of Default is cured or waived or the date upon
which the Debt is paid in full.  Interest
calculated at the Default Rate shall be added to the Debt, and shall be deemed
secured by the Mortgage and the other Loan Documents.  This clause, however, shall not be construed
as an agreement or privilege to extend the date of the payment of the Debt, nor
as a waiver of any other right or remedy accruing to Lender by reason of the
occurrence and continuance of any Event of Default.

ARTICLE IV

LOAN
DOCUMENTS

This Note is secured by the Mortgage and the other
Loan Documents.  All of the terms,
covenants and conditions contained in the Loan Agreement, the Mortgage and the
other Loan Documents are hereby made part of this Note to the same extent and
with the same force as if they were fully set forth herein.  In the event of a conflict or inconsistency
between the terms of this Note and the Loan Agreement, the terms and provisions
of the Loan Agreement shall govern.

ARTICLE V

SAVINGS
CLAUSE

Notwithstanding anything to the contrary, (a) all
agreements and communications between Borrower and Lender are hereby and shall
automatically be limited so that, after taking into account all amounts deemed
interest, the interest contracted for, charged or received by Lender shall
never exceed the maximum legal rate, (b) in calculating whether any
interest exceeds the maximum legal rate, all such interest shall be amortized,
prorated, allocated and spread over the full amount and term of all outstanding
principal indebtedness with respect to the Loan to Borrower by Lender, and
(c) if through any contingency or event, Lender receives or is deemed to
receive interest in excess of the maximum legal rate, any such excess shall be
deemed to have been applied to the outstanding principal amount of the Loan,
with any excess refunded to Borrower.

 2
 

 

 

ARTICLE VI

NO ORAL
CHANGE

This Note may not be modified, amended, waived,
extended, changed, discharged or terminated orally or by any act or failure to
act on the part of Borrower or Lender, but only by an agreement in writing
signed by the party against whom enforcement of any modification, amendment,
waiver, extension, change, discharge or termination is sought.

ARTICLE VII

WAIVERS

Except as otherwise provided in the Loan Agreement,
Borrower and all others who may become liable for the payment of all or any
part of the Debt do hereby severally waive presentment and demand for payment,
notice of dishonor, notice of intention to accelerate, notice of acceleration,
protest and notice of protest and non-payment and all other notices of any
kind.  No release of any security for the
Debt or extension of time for payment of this Note or any installment hereof,
and no alteration, amendment or waiver of any provision of this Note, the Loan
Agreement or the other Loan Documents made by agreement between Lender or any
other Person shall release, modify, amend, waive, extend, change, discharge,
terminate or affect the liability of Borrower, and any other Person who may
become liable for the payment of all or any part of the Debt.  No notice to or demand on Borrower shall be
deemed to be a waiver of the obligation of Borrower or of the right of Lender
to take further action without further notice or demand as provided for in this
Note.  If Borrower is a partnership, the
agreements herein contained shall remain in force and applicable,
notwithstanding any changes in the individuals comprising the partnership, and
the term “Borrower,” as used herein, shall include any alternate or successor
partnership, but any predecessor partnership shall not thereby be released from
any liability.  If Borrower is a
corporation, the agreements contained herein shall remain in full force and
applicable notwithstanding any changes in the shareholders comprising, or the
officers and directors relating to, the corporation, and the term “Borrower” as
used herein, shall include any alternative or successor corporation, but any
predecessor corporation shall not be relieved of liability hereunder.  If Borrower is a limited liability company,
the agreements herein contained shall remain in force and applicable,
notwithstanding any changes in the individuals comprising the members thereof,
and the term “Borrower,” as used herein, shall include any alternate or
successor limited liability company, but any predecessor limited liability
company shall not thereby be released from any liability hereunder.  Nothing in this Article VII shall be
construed as a consent to, or a waiver of, any prohibition or restriction on
transfers of interests in such partnership, limited liability company or
corporation, which may be set forth in the Loan Agreement or any of the other
Loan Documents.

 3
 

 

 

ARTICLE VIII

TRANSFER

Subject to and in accordance with the Loan Agreement,
upon the transfer of this Note, Borrower hereby waiving notice of any such
transfer, Lender may deliver all the collateral mortgaged, granted, pledged or
assigned pursuant to the Loan Documents, or any part thereof, to the transferee
who shall thereupon become vested with all the rights herein or under
applicable Laws given to Lender with respect thereto, and Lender shall
thereafter forever be relieved and fully discharged from any liability or
responsibility in the matter arising after the date of transfer, provided that
Lender shall retain all rights hereby given to it and obligations hereunder
with respect to any liabilities and the collateral not so transferred.

ARTICLE IX

EXCULPATION

The Loan shall be non-recourse to Borrower and its
respective officers, directors, employees, members, partners and Affiliates
(collectively, the “Exculpated Parties”), and accordingly, Lender shall
not enforce the liability and obligation of Borrower to perform and observe the
obligations contained in this Note and the other Loan Documents by an action or
proceeding wherein a money judgment shall be sought against Borrower or any of
the other Exculpated Parties, except that Lender may bring a foreclosure
action, an action for specific performance or any other appropriate action or
proceeding to enable Lender to enforce and realize upon this Note and the other
Loan Documents, and the interests in the Project and any other collateral given
to Lender pursuant to the Mortgage or any of the other Loan Documents; provided,
however, that, except as specifically provided in this Article IX,
any judgment in any such action or proceeding shall be enforceable against
Borrower only to the extent of Borrower’s interest in the Project and in any
other collateral given to Lender pursuant to the Mortgage or any of the other
Loan Documents.  Lender, by accepting
this Note and the other Loan Documents, agrees that it shall not sue for, seek
or demand any deficiency judgment against Borrower or the Exculpated Parties in
any such action or proceeding, under, by reason of or in connection with this
Note or the other Loan Documents.  The
provisions of this Article IX shall not, however: (i) constitute a
waiver, release or impairment of any obligation evidenced or secured by this
Note or the other Loan Documents; (ii) impair the right of Lender to name
Borrower as a party defendant in any action or suit for foreclosure and sale
under the Mortgage; (iii) affect the validity or enforceability of any guaranty
or indemnity made in connection with this Note or the other Loan Documents
against the party having made the same; (iv) impair the right of Lender to
obtain the appointment of a receiver; (v) impair the enforcement of the
assignment of leases and rents in favor of Lender; (vi) impair the right of
Lender to bring suit with respect to fraud or intentional misrepresentation by
Borrower or any other person or entity in connection with this Note or the
other Loan Documents; or (vii) affect the validity or enforceability of the
Environmental Indemnity or limit the liability of Borrower or any other party
thereunder.

Nothing in this Article IX shall be deemed to
be a waiver of any right which Lender may have under Section 506(a), 506(b),
1111(b) or any other provisions of the Bankruptcy Code to file a claim for the
full amount of the Debt or to require that all
collateral

 4
 

 

 

shall continue to secure
all of the Debt in accordance with this Note and the other Loan Documents.

Notwithstanding the foregoing provisions of this Article
IX or any other provision in the Loan Documents, Borrower shall be fully
liable for, and shall indemnify and defend Lender from and against any actual
loss, cost, liability, judgment, claim, damage or expense sustained, suffered
or incurred by Lender
(including, without limitation, reasonable attorneys’ fees and expenses)
arising out of or attributable or relating to:

(i)            fraud or intentional
misrepresentation by Borrower, Borrower Principals or any of the Exculpated
Parties in connection with the Loan;

(ii)           the gross negligence or willful
misconduct of Borrower, Borrower Principals or any Guarantor;

(iii)          the physical waste or willful
destruction of the Project or any part thereof which is attributable to the
acts or omissions of Borrower, Borrower Principals or any of the Exculpated
Parties;

(iv)          the breach of provisions in the Loan
Agreement concerning Environmental Laws and Hazardous Material, including any
obligation to indemnify Lender with respect to such Environmental Laws or
Hazardous Material;

(v)           the removal of any portion of the
Personal Property in violation of the Loan Documents (other than fixtures,
furniture and equipment in the ordinary course of business, or as otherwise
permitted under the Loan Documents);

(vi)          the misapplication, misappropriation
or conversion by Borrower in violation of the Loan Documents of (A) any
insurance proceeds paid by reason of any loss, damage or destruction to the
Project; (B) any awards or other amounts received in connection with the
condemnation of all or a portion of the Project; or (C) rents, issues, profits,
proceeds, security deposits, or Contract Deposits (as defined in the Loan
Agreement);

(vii)         any financial information concerning
Borrower, Borrower Principals or any of the Exculpated Parties delivered to
Lender by Borrower, Borrower Principals or any of the Exculpated Parties
proving to be fraudulent in any material respect of the financial condition of
Borrower, Borrower Principals or any of the Exculpated Parties;

(viii)        any unapplied security deposits
collected with respect to the Project which are not delivered to Lender upon a
foreclosure of the Project or action in lieu thereof in accordance with the
terms of the Loan Documents;

(ix)           Borrower’s failure to permit on-site
inspections of the Project  in accordance
with the Loan Documents or to provide financial statements pertaining to the
Project as required by the Loan Agreement, unless, in either case, such failure
is cured within five (5) days after a second notice therefor is delivered to
Borrower;

(x)            Borrower’s failure to comply with
the single-purpose entity provisions of the Loan Documents;

(xi)           the Project or any part thereof
becoming an asset in (A) a voluntary bankruptcy or insolvency proceeding or (B)
an involuntary bankruptcy or insolvency

 5
 

 

 

proceeding
(unless such proceeding is dismissed within ninety (90) days after the
commencement thereof) where Lender reasonably determines that Borrower
(including Borrower’s employees, partners, directors, Affiliates, Member,
Guarantor, Guarantor’s members or Borrower Principals) has colluded with any
Persons to cause the filing of the same (other than an involuntary bankruptcy
or insolvency proceeding commenced or approved in writing by Lender);

(xii)          mechanic’s, materialmen’s and other
similar liens and encumbrances against the Project or any portion thereof to
the extent that Borrower had sufficient funds to discharge same or the work
being the subject matter of such liens was not approved of by Lender or
otherwise permitted by the Loan Documents;

(xiii)         Borrower’s failure to timely pay taxes
to the extent sufficient funds were available to Borrower to pay same from the
operating revenue of the Project;

(xiv)        Intentionally Deleted

(xv)         Borrower’s failure to deliver an
estoppel certificate to Lender pursuant to the Loan Agreement unless such
failure is cured within five (5) days after a second notice therefor is
delivered to Borrower;

(xvi)        any amendment or modification to the
organizational documents of Borrower or Borrower Principals, as the case may
be, without obtaining Lender’s prior written consent therefor or as is
otherwise permitted under the Loan Documents;

(xvii)       any amendment, modification or
termination of the Ground Lease without obtaining Lender’s prior written
consent therefor or as is otherwise permitted under the Loan Documents;

(xviii)      any breach of Article XVIII of the Loan
Agreement;

(xix)         any breach of Section 7.2 of the Loan
Agreement; and

(xx)          Intentionally Deleted;

(xxi)         failure to comply (to the extent
sufficient cash was available from the operating revenue of the Property to
effect compliance) with known and material legal requirements.

The liabilities listed in
clauses (i) through (xxi) of this Paragraph are collectively known as the “Recourse
Obligations”.

For purposes of this Note,
the term “Borrower Principal(s)” shall mean each of  Guarantor, Member, MLP KB Partner LLC, a
Hawaii limited liability company, ER Kapalua Investors Fund, LLC, a Delaware
limited liability company, and MH Kapalua Venture, LLC, a Delaware limited
liability company.

 6
 

 

 

ARTICLE X

GOVERNING
LAW; SUBMISSION TO JURISDICTION

THIS NOTE WAS NEGOTIATED IN THE STATE OF NEW YORK,
AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE
PROCEEDS OF THIS NOTE WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE
THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE
UNDERLYING TRANSACTION EMBODIED HEREBY. 
IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS NOTE AND THE OBLIGATIONS ARISING HEREUNDER SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES
OF AMERICA.  TO THE FULLEST EXTENT
PERMITTED BY LAW, BORROWER AND, BY ITS ACCEPTANCE HEREOF, LENDER HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS NOTE AND THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

TO THE
EXTENT PERMITTED BY APPLICABLE LAW, ANY LEGAL SUIT, ACTION OR PROCEEDING
AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS NOTE MAY, AT THE
OPTION OF LENDER, BE INSTITUTED IN ANY FEDERAL COURT SITTING IN THE STATE OF
HAWII OR STATE COURT SITTING IN THE ISLAND AND COUNTY OF MAUI, HAWAII, OR NEW
YORK COUNTY, NEW YORK, AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR
HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT,
ACTION OR PROCEEDING.

ARTICLE XI

NOTICES

All notices or other written communications hereunder
shall be delivered in accordance with Article XXIII of the Loan Agreement.

ARTICLE XII

TRIAL BY
JURY

BORROWER AND, BY ITS ACCEPTANCE OF THIS NOTE,
LENDER EACH AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF

 7
 

 

 

RIGHT BY JURY, AND WAIVE ANY
RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR
HEREAFTER EXIST WITH REGARD TO THIS NOTE OR ANY CLAIM, COUNTERCLAIM OR OTHER
ACTION ARISING IN CONNECTION HEREWITH. 
THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY
BY BORROWER AND, BY ITS ACCEPTANCE OF THIS NOTE, LENDER, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. 
EITHER PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN
ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER.

[SIGNATURE
PAGE TO FOLLOW]

 8

 

 

IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by
Borrower as of the day and year first above written.

	
   

  	
  BORROWER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KAPALUA BAY, LLC,

  	
   

  
	
   

  	
  a Delaware limited liability company

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Kapalua Bay Holdings, LLC,

  
	
   

  	
   

  	
  a Delaware
  limited liability company,

  
	
   

  	
   

  	
  Its Managing
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  MLP KB Partner LLC,

  
	
   

  	
   

  	
   

  	
  a Hawaii limited
  liability company,

  
	
   

  	
   

  	
   

  	
  Its Managing
  Member

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  Maui Land & Pineapple Company,

  Inc., a Hawaii corporation,

  
	
   

  	
   

  	
   

  	
   

  	
  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ ROBERT WEBBER

  
	
   

  	
   

  	
  Name:

  	
    R. WEBBER

  
	
   

  	
   

  	
  Title:

  	
            CFO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /S/ RYAN CHURCHILL

  
	
   

  	
   

  	
  Name:

  	
       RYAN CHURCHILL

  
	
   

  	
   

  	
  Title:

  	
  VICE PRESIDENT/COMMUNITY

  
	
   

  	
   

  	
   

  	
  DEVELOPMENT

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}]]