Document:

Exhibit
10.30

ESCROW AGREEMENT

THIS ESCROW AGREEMENT
(this “Agreement”) is made as of November 30,
2005, by and among Geokinetics, Inc., a corporation incorporated under the
laws of Delaware (the “Company”), the
purchasers signatory hereto (each a “Purchaser” and
together the “Purchasers”), and Feldman
Weinstein LLP, with an address at 420 Lexington Avenue, Suite 2620, New
York, New York 10170 (the “Escrow Agent”).
Capitalized terms used but not defined herein
shall have the meanings set forth in the Securities Purchase Agreement referred
to in the first recital.

W I T N E S S E T
H:

WHEREAS, the Purchasers will be purchasing from the
Company shares of its Common Stock (the “Common Stock”)  and Warrants (the “Warrants”)
as set forth in the Securities Purchase Agreement dated the date hereof between
the Purchasers and the Company (the “Purchase Agreement”),
which will be issued as per the terms contained herein and in the Purchase
Agreement; and

WHEREAS, it is intended that the purchase of the
securities be consummated in accordance with the requirements set forth by
Sections 4(2) and/or 4(6) and/or Regulation D promulgated under the
Securities Act of 1933, as amended; and

WHEREAS, the Company and the Purchasers have requested
that the Escrow Agent hold the Subscription Amounts with respect to each
Closing in escrow until the Escrow Agent has received the Release Notice in the
form attached hereto from the Company and each Purchaser;

NOW, THEREFORE, in
consideration of the covenants and mutual promises contained herein and other
good and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged and intending to be legally bound hereby, the parties agree
as follows:

ARTICLE 1

TERMS OF THE ESCROW

1.1.  The parties
hereby agree to establish an escrow account (“Escrow Account”) with the Escrow
Agent whereby the Escrow Agent shall hold the funds for the purchase of the
Common Stock and the Warrants at each Closing as contemplated by the Purchase
Agreement. The Escrow Account shall be
non-interest-bearing.

1.2.  Upon the
Escrow Agent’s receipt of the aggregate Subscription Amounts for the first
Closing (not less than $25,000,000) into the Escrow Account, together with the
executed counterparts of this Agreement, the Purchase Agreement and the
Registration Rights Agreement from each Purchaser, it shall telephonically
advise the Company, or the Company’s designated attorney or agent, of the
amount of funds it has received into its Escrow Account.

1.3.  Wire
transfers to the Escrow Agent shall be made as follows:

	
   

  	
   

  	
  STERLING NATIONAL BANK

  
	
   

  	
   

  	
  622 3RD AVENUE

  
	
   

  	
   

  	
  NEW YORK, NY
  10017

  
	
   

  	
   

  	
  ACCOUNT NAME:
  FELDMAN WEINSTEIN LLP MASTER ESCROW

  
	
   

  	
   

  	
  ABA ROUTING NO:
  026007773

  
	
   

  	
   

  	
  ACCT NO:
  0814180101

  
	
   

  	
   

  	
  REMARK:
  GOKN/[FUND NAME]

  

 

 1
 

1.4.  The
Company, promptly following being advised by the Escrow Agent that the Escrow
Agent has received the Subscription Amounts for the first Closing along with
facsimile copies of counterpart signature pages of the Purchase Agreement,
Registration Rights Agreement and this Agreement from each Purchaser, shall
deliver to the Escrow Agent:

(a)    the
Company’s executed counterpart of the Purchase Agreement;

(b)   the Company’s
executed counterpart of the Registration Rights Agreement;

(c)    the
executed opinion of Company Counsel, in the form of Exhibit D
to the Purchase Agreement;

(d)   a copy of
the Company’s instructions to its transfer agent authorizing the issuance and
delivery of the Common Stock to the Purchasers in the first Closing; and

(e)    the
Company’s original executed counterpart of this Escrow Agreement.

1.5.  In the
event that the foregoing items are not in the Escrow Agent’s possession on or
before December 1, 2005, then each Purchaser shall have the right to
demand the return of their Subscription Amounts.

1.6.  Once the
Escrow Agent receives a Release Notice, in the form attached hereto as Exhibit X, (the “Release Notice”)
executed by the Company and each Purchaser, it shall wire funds to the
stockholder of Trace Energy Services, Ltd. per the written instructions of the
Company, and the remaining funds from the first Closing per the written
instructions of the Company net of 6.5% of the aggregate Subscription Amounts
less $7,500,000, per the written instructions of RBC Capital Markets as its fee
in the transaction.

1.7.  Upon the
Escrow Agent’s receipt of the aggregate Subscription Amounts for the second
Closing (when aggregated with the Subscription Amounts from the first Closing,
not to exceed $32,000,000) into the Escrow Account, together with the executed
counterparts of this Agreement, the Purchase Agreement and the Registration
Rights Agreement from each Purchaser in the second Closing, it shall
telephonically advise the Company, or the Company’s designated attorney or
agent, of the amount of funds it has received into its Escrow Account. Wire
transfers to the Escrow Agent shall be made as set forth in Section 1.3
above.

1.8.  The
Company, promptly following being advised by the Escrow Agent that the Escrow
Agent has received the Subscription Amounts for the second Closing along with
facsimile copies of counterpart signature pages of the Purchase Agreement,
Registration Rights Agreement and this Agreement from each Purchaser, shall
deliver to the Escrow Agent:

(a)    the
executed opinion of Company Counsel, in the form of Exhibit D
to the Purchase Agreement; and

(b)   a copy of
the Company’s instructions to its transfer agent authorizing the issuance and
delivery of the Common Stock to the Purchasers in the second Closing.

1.9.  In the
event that the foregoing items are not in the Escrow Agent’s possession on or
before December 9, 2005, then each Purchaser in the second Closing shall
have the right to demand the return of their Subscription Amounts.

1.10.  Once the Escrow Agent receives a Release
Notice, in the form attached hereto as Exhibit X,
(the “Release Notice”) executed by the Company
and each Purchaser in the second Closing, it shall wire the funds from the
second Closing per the written instructions of the Company net of [     %]
of the aggregate second Closing Subscription Amounts per the written
instructions of RBC Capital Markets as its fee in the transaction.

 2
 

1.11.  Wire transfers to the Company shall be made
pursuant to written instructions from the Company provided to the Escrow Agent
on or before each Closing Date.

1.12.  Once the funds (as set forth above) for each
applicable Closing have been sent per the Company’s instructions, the Escrow
Agent shall then arrange to have the Purchase Agreement, the Registration
Rights Agreement, the Escrow Agreement, and the opinion of counsel delivered to
the appropriate parties.

ARTICLE 2

MISCELLANEOUS

2.1.  No waiver
or any breach of any covenant or provision herein contained shall be deemed a
waiver of any preceding or succeeding breach thereof, or of any other covenant
or provision herein contained. No extension of time for performance of any
obligation or act shall be deemed an extension of the time for performance of
any other obligation or act.

2.2.  All notices
or other communications required or permitted hereunder shall be in writing,
and shall be sent as set forth in the Purchase Agreement.

2.3.  This Escrow
Agreement shall be binding upon and shall inure to the benefit of the permitted
successors and permitted assigns of the parties hereto.

2.4.  This Escrow
Agreement is the final expression of, and contains the entire agreement
between, the parties with respect to the subject matter hereof and supersedes
all prior understandings with respect thereto. This Escrow Agreement may not be
modified, changed, supplemented or terminated, nor may any obligations
hereunder be waived, except by written instrument signed by the parties to be
charged or by its agent duly authorized in writing or as otherwise expressly
permitted herein.

2.5.  Whenever
required by the context of this Escrow Agreement, the singular shall include
the plural and masculine shall include the feminine. This Escrow Agreement
shall not be construed as if it had been prepared by one of the parties, but
rather as if both parties had prepared the same. Unless otherwise indicated,
all references to Articles are to this Escrow Agreement.

2.6.  The parties
hereto expressly agree that this Escrow Agreement shall be governed by,
interpreted under and construed and enforced in accordance with the laws of the
State of New York. Any action to enforce, arising out of, or relating in any
way to, any provisions of this Escrow Agreement shall only be brought in a
state or Federal court sitting in New York City.

2.7.  The Escrow
Agent’s duties hereunder may be altered, amended, modified or revoked only by a
writing signed by the Company, each Purchaser and the Escrow Agent.

2.8.  The Escrow
Agent shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by the Escrow
Agent to be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall not be personally liable for any act the Escrow
Agent may do or omit to do hereunder as the Escrow Agent while acting in good
faith and in the absence of gross negligence, fraud and willful misconduct, and
any act done or omitted by the Escrow Agent pursuant to the advice of the
Escrow Agent’s attorneys-at-law shall be conclusive evidence of such good
faith, in the absence of gross negligence, fraud and willful misconduct.

2.9.  The Escrow
Agent is hereby expressly authorized to disregard any and all warnings given by
any of the parties hereto or by any other person or corporation, excepting only
orders or process of courts of law and is hereby expressly authorized to comply
with and obey orders, judgments or decrees of any court. In case the Escrow
Agent obeys or complies with any such order, judgment or decree, the Escrow
Agent shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such 

 3
 

decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.

2.10.  The Escrow Agent shall not be liable in any
respect on account of the identity, authorization or rights of the parties
executing or delivering or purporting to execute or deliver the Purchase
Agreement or any documents or papers deposited or called for thereunder in the
absence of gross negligence, fraud and willful misconduct.

2.11.  The Escrow Agent shall be entitled to employ
such legal counsel and other experts as the Escrow Agent may deem necessary
properly to advise the Escrow Agent in connection with the Escrow Agent’s
duties hereunder, may rely upon the advice of such counsel, and may pay such
counsel reasonable compensation therefor which shall be paid by the Escrow
Agreement unless otherwise provided for in Section 2.14. The Escrow Agent has acted as legal counsel for RBC Capital Markets (“RBC Capital Markets”), and may continue to act as legal
counsel for RBC Capital Markets from time to time, notwithstanding its duties
as the Escrow Agent hereunder. The Company and the Purchasers consent to the
Escrow Agent in such capacity as legal counsel for RBC Capital Markets and
waives any claim that such representation represents a conflict of interest on
the part of the Escrow Agent. The Company and the Purchasers understand that
RBC Capital Markets and the Escrow Agent are relying explicitly on the
foregoing provision in entering into this Escrow Agreement.

2.12.  The Escrow Agent’s responsibilities as escrow
agent hereunder shall terminate if the Escrow Agent shall resign by giving
written notice to the Company and the Purchasers. In the event of any such
resignation, the Purchasers and the Company shall appoint a successor Escrow
Agent and the Escrow Agent shall deliver to such successor Escrow Agent any
escrow funds and other documents held by the Escrow Agent.

2.13.  If the Escrow Agent reasonably requires other
or further instruments in connection with this Escrow Agreement or obligations
in respect hereto, the necessary parties hereto shall join in furnishing such
instruments.

2.14.  It is understood and agreed that should any
dispute arise with respect to the delivery and/or ownership or right of
possession of the documents or the escrow funds held by the Escrow Agent
hereunder, the Escrow Agent is authorized and directed in the Escrow Agent’s
sole discretion (1) to retain in the Escrow Agent’s possession without
liability to anyone all or any part of said documents or the escrow funds until
such disputes shall have been settled either by mutual written agreement of the
parties concerned by a final order, decree or judgment or a court of competent
jurisdiction after the time for appeal has expired and no appeal has been
perfected, but the Escrow Agent shall be under no duty whatsoever to institute
or defend any such proceedings or (2) to deliver the escrow funds and any
other property and documents held by the Escrow Agent hereunder to a state or
Federal court having competent subject matter jurisdiction and located in the
City of New York in accordance with the applicable procedure therefor.

2.15.  The Company and each Purchaser agree jointly
and severally to indemnify and hold harmless the Escrow Agent and its partners,
employees, agents and representatives from any and all claims, liabilities,
costs or expenses in any way arising from or relating to the duties or
performance of the Escrow Agent hereunder or the transactions contemplated
hereby or by the Purchase Agreement other than any such claim, liability, cost
or expense to the extent the same shall have been determined by final,
unappealable judgment of a court of competent jurisdiction to have resulted
from the gross negligence, fraud or willful misconduct of the Escrow Agent.

[SIGNATURE
PAGE FOLLOWS]

 4
 

[SIGNATURE PAGE TO GOKN ESCROW AGREEMENT]

IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of this 30th day of November,
2005.

	
  GEOKINETICS, INC.

  
	
  By: 

  	
  /s/ THOMAS
  J. CONCANNON

  	
   

  
	
   

  	
  Name: Thomas J. Concannon

  
	
   

  	
  Title: Vice President

  
	
  With a copy to (which
  shall not constitute notice):

  
	
  ESCROW AGENT:

  
	
  FELDMAN WEINSTEIN LLP

  
	
  By: 

  	
  /s/ JOSEPH
  SMITH

  	
   

  
	
   

  	
  Name: Joseph Smith

  
	
   

  	
  Title: Partner

  

 

[PURCHASERS’ SIGNATURE PAGE FOLLOWS]

 5
 

[PURCHASER’S
SIGNATURE PAGE TO GOKN ESCROW]

	
  Name of Investing Entity:

  	
   

  
	
  Signature of Authorized
  Signatory of Investing Entity:

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  
					

 

[SIGNATURE PAGES CONTINUE]

 6
 

Exhibit X to

Escrow Agreement

RELEASE
NOTICE

The UNDERSIGNED,
pursuant to the Escrow Agreement, dated as of November 30, 2005 among
Geokinetics, Inc., the Purchasers signatory thereto and Feldman Weinstein
LLP, as Escrow Agent (the “Escrow Agreement”;
capitalized terms used herein and not defined shall have the meaning ascribed
to such terms in the Escrow Agreement), hereby notify the Escrow Agent that
each of the conditions precedent to the purchase and sale of the Common Stock
and Warrants set forth in the Securities Purchase Agreement have been satisfied.
The Company and the undersigned Purchaser hereby confirm that all of their
respective representations and warranties contained in the Purchase Agreement
remain true and correct and authorize the release by the Escrow Agent of the
funds and documents to be released at the Closing as described in the Escrow Agreement.
This Release Notice shall not be effective until executed by the Company and
the Purchaser.

This Release Notice
may be signed in one or more counterparts, each of which shall be deemed an
original.

IN WITNESS WHEREOF, the undersigned have caused this
Release Notice to be duly executed and delivered as of this 30 day of November ,
2005.

	
  GEOKINETICS, INC.

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

[PURCHASERS SIGNATURE PAGES FOLLOW]

 7
 

[PURCHASER’S SIGNATURE PAGE TO GOKN ESCROW
RELEASE]

	
  Name of Investing Entity:

  	
   

  
	
  Signature of Authorized
  Signatory of Investing Entity:

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  
					

 

[SIGNATURE PAGES CONTINUE]

 8Exhibit 10.1

 

CONSTRUCTION LOAN
AGREEMENT

for a loan in the
aggregate amount of up to

$370,000,000

 

MADE BY AND BETWEEN

 

KAPALUA BAY, LLC,

a Delaware limited liability company, 

as Borrower

and

LEHMAN BROTHERS HOLDINGS INC.,

a Delaware corporation,

as Lender

 

 

 

Dated as of July 14, 2006

 

 

“Residences at Kapalua Bay”

 

TABLE OF CONTENTS

	
  

  	
   

  	
  Page

  
	
  ARTICLE I INCORPORATION OF RECITALS AND EXHIBITS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1
  Incorporation of Recitals.

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.2
  Incorporation of Exhibits.

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II DEFINITIONS

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.1
  Defined Terms.

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE III REPRESENTATIONS AND WARRANTIES

  	
   

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 3.1
  Representations and Warranties.

  	
   

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 3.2
  Survival of Representations and Warranties.

  	
   

  	
  23

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV LOAN AND LOAN DOCUMENTS

  	
   

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 4.1
  Agreement to Borrow and Lend; Lender’s Obligation to Disburse.

  	
   

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 4.2 Loan
  Documents.

  	
   

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 4.3 Term
  of the Loan.

  	
   

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 4.4
  Prepayments.

  	
   

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 4.5
  Required Principal Payments.

  	
   

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE V INTEREST

  	
   

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 5.1
  Interest Rate.

  	
   

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI COSTS OF MAINTAINING LOAN

  	
   

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 6.1
  Increased Costs and Capital Adequacy.

  	
   

  	
  30

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII LOAN EXPENSE AND ADVANCES

  	
   

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 7.1 Loan
  and Administration Expenses.

  	
   

  	
  31

  

 i
 

 

 

	
  Section 7.2 Brokerage Fees.

  	
   

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 7.3
  Right of Lender to Make Advances to Cure Borrower’s Defaults.

  	
   

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII CONDITIONS PRECEDENT TO THE MAKING OF
  THE LOAN

  	
   

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 8.1
  Non-Construction Conditions Precedent.

  	
   

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX
  CONDITIONS PRECEDENT FOR SUBSEQUENT ADVANCES UNDER THE LOAN

  	
   

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 9.1
  Pre-Development Conditions Precedent.

  	
   

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 9.2
  Building Permit

  	
   

  	
  37

  
	
   

  	
   

  	
   

  
	
  Section 9.3
  Pre-Sales Requirement

  	
   

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE X
  CONSTRUCTION CONDITIONS PRECEDENT FOR SUBSEQUENT ADVANCES UNDER THE LOAN

  	
   

  	
  37

  
	
   

  	
   

  	
   

  
	
  Section 10.1
  Required Construction Documents.

  	
   

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI CONSTRUCTION BUDGET; RESERVES; OPERATING
  BUDGET

  	
   

  	
  39

  
	
   

  	
   

  	
   

  
	
  Section 11.1
  Construction Budget.

  	
   

  	
  39

  
	
   

  	
   

  	
   

  
	
  Section 11.2
  Budget Line Items.

  	
   

  	
  39

  
	
   

  	
   

  	
   

  
	
  Section 11.3
  Contingency Reserve.

  	
   

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 11.4
  Interest Reserve.

  	
   

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 11.5 Tax
  and Insurance Reserve.

  	
   

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 11.6
  [Intentionally Deleted].

  	
   

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 11.7
  [Intentionally Deleted].

  	
   

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 11.8
  [Intentionally Deleted].

  	
   

  	
  41

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII SUFFICIENCY OF LOAN

  	
   

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 12.1
  Loan In Balance.

  	
   

  	
  41

  

 ii
 

 

 

	
  ARTICLE XIII CONSTRUCTION PAYOUT REQUIREMENTS

  	
   

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 13.1
  Documents to be Furnished for Each Disbursement.

  	
   

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 13.2
  Retainage.

  	
   

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 13.3
  Disbursements for Stored Materials.

  	
   

  	
  43

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIV FINAL DISBURSEMENT FOR CONSTRUCTION
  COSTS

  	
   

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 14.1
  Final Disbursement for Construction Costs.

  	
   

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 14.2
  Retainage.

  	
   

  	
  44

  
	
   

  	
   

  	
   

  
	
  ARTICLE XV CONDOMINIUM COVENANTS

  	
   

  	
  45

  
	
   

  	
   

  	
   

  
	
  Section 15.1
  Contracts of Sale.

  	
   

  	
  45

  
	
   

  	
   

  	
   

  
	
  Section 15.2
  Residential Condominium.

  	
   

  	
  46

  
	
   

  	
   

  	
   

  
	
  Section 15.3
  Fractional Ownership Units.

  	
   

  	
  47

  
	
   

  	
   

  	
   

  
	
  Section 15.4
  Releases of Units.

  	
   

  	
  48

  
	
   

  	
   

  	
   

  
	
  Section 15.5
  Releases of Facilities.

  	
   

  	
  49

  
	
   

  	
   

  	
   

  
	
  Section 15.6
  Breakage Costs.

  	
   

  	
  51

  
	
   

  	
   

  	
   

  
	
  Section 15.7
  Indemnification.

  	
   

  	
  51

  
	
   

  	
   

  	
   

  
	
  Section 15.8
  Expenses.

  	
   

  	
  51

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVI COVENANTS

  	
   

  	
  51

  
	
   

  	
   

  	
   

  
	
  Section 16.1
  Certain Covenants.

  	
   

  	
  51

  
	
   

  	
   

  	
   

  
	
  Section 16.2
  Insurance.

  	
   

  	
  58

  
	
   

  	
   

  	
   

  
	
  Section 16.3
  Special Purpose Covenants.

  	
   

  	
  61

  
	
   

  	
   

  	
   

  
	
  ARTICLE XVII CASUALTY AND CONDEMNATION

  	
   

  	
  63

  
	
   

  	
   

  	
   

  
	
  Section 17.1
  Lender’s Election to Apply Proceeds to the Debt.

  	
   

  	
  63

  
	
   

  	
   

  	
   

  
	
  Section 17.2
  Borrower’s Obligation to Rebuild.

  	
   

  	
  64

  
	
   

  	
   

  	
   

  

 iii
 

 

 

	
  ARTICLE
  XVIII TRANSFERS

  	
   

  	
  65

  
	
   

  	
   

  	
   

  
	
  Section 18.1
  Prohibition of Assignments and Transfers by Borrower.

  	
   

  	
  65

  
	
   

  	
   

  	
   

  
	
  Section 18.2
  Prohibition of Transfers in Violation of ERISA.

  	
   

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 18.3
  Successors and Assigns.

  	
   

  	
  66

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIX SERVICER

  	
   

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 19.1
  Servicer.

  	
   

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 19.2
  Servicer Fees.

  	
   

  	
  67

  
	
   

  	
   

  	
   

  
	
  ARTICLE XX
  EVENTS OF DEFAULT

  	
   

  	
  67

  
	
   

  	
   

  	
   

  
	
  Section 20.1
  Events of Default.

  	
   

  	
  67

  
	
   

  	
   

  	
   

  
	
  ARTICLE XXI LENDER’S REMEDIES IN EVENT OF DEFAULT

  	
   

  	
  69

  
	
   

  	
   

  	
   

  
	
  Section 21.1
  Remedies Conferred Upon Lender.

  	
   

  	
  69

  
	
   

  	
   

  	
   

  
	
  ARTICLE XXII GENERAL PROVISIONS

  	
   

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 22.1
  Captions.

  	
   

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 22.2
  Modification; Waiver.

  	
   

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 22.3
  Governing Law.

  	
   

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 22.4
  Acquiescence Not to Constitute Waiver of Lender’s Requirements.

  	
   

  	
  71

  
	
   

  	
   

  	
   

  
	
  Section 22.5
  Disclaimer by Lender.

  	
   

  	
  71

  
	
   

  	
   

  	
   

  
	
  Section 22.6
  Partial Invalidity; Severability.

  	
   

  	
  72

  
	
   

  	
   

  	
   

  
	
  Section 22.7
  Definitions Include Amendments.

  	
   

  	
  72

  
	
   

  	
   

  	
   

  
	
  Section 22.8
  Execution in Counterparts.

  	
   

  	
  72

  
	
   

  	
   

  	
   

  
	
  Section 22.9
  Entire Agreement.

  	
   

  	
  72

  
	
   

  	
   

  	
   

  
	
  Section 22.10 Waiver
  of Damages.

  	
   

  	
  72

  
	
   

  	
   

  	
   

  
	
  Section 22.11
  Jurisdiction.

  	
   

  	
  73

  
	
   

  	
   

  	
   

  

 iv
 

 

 

	
  Section 22.12 Set-Offs.

  	
   

  	
  73

  
	
   

  	
   

  	
   

  
	
  Section 22.13
  Authorized Representative.

  	
   

  	
  73

  
	
   

  	
   

  	
   

  
	
  Section 22.14
  Non-Recourse Provisions.

  	
   

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 22.15
  Time is of the Essence.

  	
   

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 22.16
  Sole Discretion of Lender and Deemed Consent.

  	
   

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 22.17
  Conflict; Construction of Documents; Reliance.

  	
   

  	
  74

  
	
   

  	
   

  	
   

  
	
  ARTICLE XXIII NOTICES

  	
   

  	
  75

  
	
   

  	
   

  	
   

  
	
  ARTICLE XXIV WAIVER OF JURY TRIAL

  	
   

  	
  76

  
	
   

  	
   

  	
   

  
	
  ARTICLE XXV SALE OF NOTE AND SECURITIZATION.

  	
   

  	
  76

  
	
   

  	
   

  	
   

  
	
  Section 25.1
  Cooperation.

  	
   

  	
  76

  
	
   

  	
   

  	
   

  
	
  Section 25.2
  Non-Consolidation Opinion; Independent Director.

  	
   

  	
  77

  
	
   

  	
   

  	
   

  
	
  Section 25.3
  Loan Components.

  	
   

  	
  77

  
	
   

  	
   

  	
   

  
	
  Section 25.4
  Intentionally Deleted.

  	
   

  	
  77

  
	
   

  	
   

  	
   

  
	
  Section 25.5
  Conversion of Loan and Creation of Subordinate Debt.

  	
   

  	
  77

  
	
   

  	
   

  	
   

  
	
  Section 25.6
  Securitization Indemnification.

  	
   

  	
  78

  
	
   

  	
   

  	
   

  
	
  Section 25.7
  Rating Surveillance.

  	
   

  	
  80

  
	
   

  	
   

  	
   

  

 v
 

 

 

EXHIBITS AND
SCHEDULES TO LOAN AGREEMENT

	
  Exhibit A-1

  	
  Legal Description of Development Land

  	
   

  
	
  Exhibit A-2

  	
  Legal Description of Spa Land

  	
   

  
	
  Exhibit B

  	
  Entitlements

  	
   

  
	
  Exhibit C

  	
  Permitted Exceptions

  	
   

  
	
  Exhibit D

  	
  Form of Requisitions

  	
   

  
	
  Exhibit E

  	
  Existing Plans and Specifications

  	
   

  
	
  Exhibit F

  	
  Borrower Ownership Structure Chart

  	
   

  
	
  Exhibit G

  	
  Construction Budget

  	
   

  
	
  Exhibit H

  	
  Construction Schedule

  	
   

  
	
  Exhibit I

  	
  Form of Architect’s Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule A

  	
  Release Prices

  	
   

  
	
  Schedule B

  	
  Agreements with Affiliates

  	
   

  
	
  Schedule C

  	
  Leases

  	
   

  
	
  Schedule D

  	
  Equity Contribution as of the Effective Date

  	
   

  

 

 vi

 

 

CONSTRUCTION LOAN AGREEMENT

Project
commonly known as

“Residences at
Kapalua Bay”

THIS CONSTRUCTION
LOAN AGREEMENT (this “Agreement”) is made as of July 14, 2006, by and
between KAPALUA BAY, LLC, a Delaware limited liability company, (“Borrower”),
and LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation (together with its
successors and/or assigns, “Lender”).

RECITALS

A.            Borrower is the fee owner of that certain tract of land
located in Lahaina, Maui, Hawaii, and being more fully described in Exhibit
A-1 attached hereto (the “Development Land”).

B.            Borrower is the owner of a leasehold interest in that
certain tract of land located in Lahaina, Maui, Hawaii, and being more fully
described in Exhibit A-2 attached hereto (the “Spa Land”; and
collectively with the Development Land, the “Land”).

C.            Borrower intends to develop a residential development on
the Development Land and has submitted the Development Land to a condominium
property regime which includes for-sale Residential Condominium Units and
Fractional Ownership Units.  The Spa Land
will be developed as a Spa for the benefit of the guests and residents of the
Project.  The Land, the Spa, the
Improvements and Personal Property (each as hereinafter defined) located
thereon are collectively sometimes referred to as the “Project”.

D.            Borrower has applied to Lender for a construction loan in
an aggregate principal amount of up to Three Hundred Seventy Million and 00/100
Dollars ($370,000,000.00) (the “Loan”). 
The Loan shall be used to fund costs of Construction and such other
costs as are set forth in the Construction Budget (each as hereinafter
defined).

NOW, THEREFORE, in
consideration of the mutual covenants and agreements herein contained, the
parties hereto agree as follows:

ARTICLE I

INCORPORATION OF RECITALS AND EXHIBITS

Section 1.1             Incorporation
of Recitals.

The foregoing
preambles and all other recitals set forth herein are made a part hereof by
this reference.

Section 1.2             Incorporation
of Exhibits.

The Exhibits to
this Agreement are incorporated in this Agreement and expressly made a part
hereof by this reference.

 1
 

 

 

ARTICLE
II

DEFINITIONS

Section 2.1             Defined
Terms.

The following
terms as used herein shall have the following meanings:

Adjusted LIBOR
Rate:  A rate per annum
equal to the LIBOR Rate (determined as herein set forth) plus two hundred
twenty (220) basis points (2.2%).

Adjusted Prime
Rate:  A rate per annum
equal to the sum of (a) the Prime Rate Margin and (b) the greater of (i) the
Prime Rate and (ii) one percent (1%) in excess of the Federal Funds Effective
Rate.  Any change in the Adjusted Prime
Rate shall be effective immediately from and after a change in the Prime Rate
(or the Federal Funds Effective Rate, as applicable).

Affiliate:  With respect to a specified Person, any
Person which, directly or indirectly, through one or more intermediaries,
Controls or is Controlled by or is under common Control with such Person,
including, without limitation, any limited liability company in which such
Person is a member.

Agreement:  This Construction Loan Agreement.

Applicable Rate:  A rate per annum equal to either the Adjusted
LIBOR Rate or the Adjusted Prime Rate, as determined in accordance with the
provisions of Article V hereof.

Appraisal:  An MAI-certified appraisal of the Project,
performed, at Borrower’s expense, in accordance with FIRREA and Lender’s
appraisal requirements by an appraiser selected and retained by Lender.

Architect:  WCIT Architecture, or such other licensed,
reputable architect as Borrower selects and Lender, acting reasonably,
approves.  In making the determination as
to whether to approve an architect other than WCIT Architecture, Lender may
take into account any prior dealings it or its co-lenders may have had with the
proposed architect.

Architect’s
Agreement:  That certain
Agreement dated December 10, 2004, by and between Borrower and Architect, for
the design of the Improvements, as same may be amended from time to time,
subject to Lender’s reasonable prior approval.

Architect’s
Certificate:  A
certificate by Architect, substantially in the form attached hereto as Exhibit
I, in favor of Lender to the effect that the Project complies with Laws,
and as to such other matters as Lender shall reasonably require.

Assignment of
Leases and Rents:  The
Assignment of Leases and Rents, dated as of the date hereof, by Borrower in
favor of Lender.

Assignment of
Purchase Contracts: The Assignment of Purchase Contracts,
dated as of the date hereof, by Borrower in favor of Lender, assigning all of
Borrower’s rights under

 2
 

 

 

Contracts
of Sale and Contract Deposits in connection with a sale of any Unit or any
portion of the Project, in existence as of the Effective Date, and subsequent
thereto.

Authorized
Representative:  Ryan
Churchill and/or Adele Sumida.

Available Contract
Deposit:  A Contract
Deposit that is permitted and available to be applied to Hard Costs and Soft
Costs in accordance with applicable Laws, the applicable Contract of Sale, and
against which there are no pending or threatened claims, actions, proceedings.

Bankruptcy Code:  Title 11 of the United States Code, entitled “Bankruptcy”,
as now or hereafter in effect, or any successor thereto or any other present or
future bankruptcy or insolvency statute.

Beach Club CA:  As defined in the Condominium Documents.

Bond:  A payment and performance bond, in a form
approved by Lender, with the General Contractor or Subcontractor (as
applicable), as principal, and a surety company acceptable to Lender and
licensed to do business in the State, as surety, with a dual obligee rider in
favor of Lender.

Borrower:  As defined in the opening paragraph of this
Agreement.

Breakage Costs:  As defined in Section 5.1(g).

Budget Line
Item(s):  As defined in
Section 11.2(a).

Business Day:  Any day other than a Saturday, Sunday or day
on which banks are required or authorized to be closed in New York, New York,
or Honolulu, Hawaii.

Certificate of
Occupancy:  A temporary
or permanent certificate issued by the appropriate Governmental Authority
certifying that a Unit or Units, as constructed, may be legally occupied.

Change Order:  Any change in the Plans and Specifications
(other than minor field changes involving no extra cost).

Completion Date:
                The Initial Maturity Date.

Completion
Guaranty:  The
Completion Guaranty, dated as of the date hereof, by Guarantor in favor of
Lender.

Condominium Act:  Means Chapter 514A, Hawaii Revised Statutes,
as amended.

Condominium
Declaration:  The
condominium declaration creating the Residential Condominium.

Condominium
Documents:  All
documents, as required by the Condominium Act and otherwise, relating to the
submission of the Condominium Project and the Units to be located on the two
fee simple parcels, Tax map Key Nos. (2) 4-2-4-28 and 29 to the provisions of
said 

 3
 

 

 

Condominium
Act or to the regulation, operation, administration or sale thereof after such
submission, including, but not limited to, a declaration of condominium,
offering circular, articles of incorporation, if applicable, by-laws and rules
and regulations of a condominium association, management agreement, plats and
the contracts of sale and deed forms to be used in connection with the sale of
Units.

Condominium
Opinion:  As defined in
Section 14.1(l).

Condominium
Deposit Account:  A
deposit account opened and maintained by Borrower with First American Title
Insurance Company, to be utilized in the manner set forth in Section 15.1(b)
hereof.

Condominium
Project: Means the “Kapalua Bay Condominium” project, created
by the Declaration of Condominium Property Regime dated April 18, 2006,
recorded in the Bureau of Conveyances of the State of Hawaii as Document No.
2006-083256.

Condominium
Release Payment Account: 
A deposit account opened and maintained by Borrower with Depositary
Bank, on behalf of Lender, to be utilized in the manner set forth in Section
15.4(h) hereof.

Construction:  The construction of the Improvements in
accordance with the Plans and Specifications.

Construction
Budget:  A budget for
the Project, satisfactory to Lender, specifying the categories of all costs and
expenses to be incurred by Borrower in connection with the Project prior to the
completion of the Construction, including Hard Costs and Soft Costs, together
with the changes or modifications thereto hereafter made by Borrower with
Lender’s prior written approval.  The
Construction Budget in effect as of the date hereof, which has been reviewed
and approved by Lender, is annexed hereto as Exhibit G.

Construction
Commencement Date: 
Means October 31, 2006.

Construction
Contracts:  All
contracts between General Contractor and third parties for the design,
engineering and construction of the Project.

Construction
Contracts Effectiveness Schedule:

·                  Construction
Contracts representing 55% of all costs anticipated in the General Contract
shall be binding and in effect by no later than the Construction Commencement
Date, inclusive of all Construction Contracts for steel/reinforcing, site work,
mechanical work, framing and drywall, electrical, formwork, tile and flooring,
finished carpentry, and elevators.

·                  Construction
Contracts representing 85% of all costs anticipated in the General Contract
shall be binding and in effect by no later than December 31, 2006.

 4
 

 

 

·                  Construction
Contracts representing 100% of all costs anticipated in the General Contract
shall be in effect by no later than February 28, 2007.

The foregoing
schedule shall not include those Construction Contracts related to the Spa
Improvements.  Construction Contracts for
the Spa Improvements shall be in effect by no later than August 1, 2007.

Construction
Schedule:  A schedule, reasonably
satisfactory to Lender, establishing a timetable for completion of the
Construction, showing, on a monthly basis, the anticipated progress of the
Construction, and confirming that the Improvements can be completed on or
before the Completion Date, as same may be amended from time to time, subject
to Lender’s approval.   The initial
approved Construction Schedule is attached hereto as Exhibit H.

Contingency
Reserve:  As defined in
Section 11.3.

Contract Deposit:  A deposit (including a reservation deposit)
or down payment under a Contract of Sale.

Contract of Sale:  An executed contract of purchase and sale
pursuant to which Borrower agrees to sell any Unit (or any part thereof,
including interval, fractional ownership interests) (collectively, “Contracts
of Sale”).

Control:  As such term is used with respect to any
Person, including the correlative meanings of the terms “controlled by” and “under
common control with”, the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.

Debt:  The outstanding principal balance of the Note
from time to time, together with all accrued and unpaid interest thereon, and
all other sums now or hereafter due under the Loan Documents.

Default or default:  Any event, circumstance or condition, which,
if it were to continue uncured, would, with notice or lapse of time or both,
constitute an Event of Default.

Default Rate:  A rate per annum equal to five hundred (500)
basis points in excess of the Applicable Rate, but not at any time in excess of
the highest rate permitted by law.

Deficiency Deposit:  As such term is defined in Section 12.1.

Depositary Bank:  Bank of Hawaii or another bank reasonably
acceptable to Lender.

Determination Date:  With respect to any Interest Period, the day
which is two (2) LIBOR Business Days prior to the Business Day on which such
Interest Period commences.

Development
Documents: As defined in Section 8.1

Development Items:
As defined in Section 8.1.

 5
 

 

 

Development Land:  As defined in the Recitals.

Development
Obligations:  As
defined in Section 8.1.

Development
Property: 
Collectively, the Development Land and the Improvements thereon.

Disclosure Document:  As defined in Section 25.6(a).

Effective Date:  The date hereof.

Engineers:  Any electrical, civil, structural,
mechanical, plumbing and other engineers engaged by Borrower to perform
material engineering services for the Project.

Entitlements:
A discretionary approval by a Governmental Authority that provides the right
for the Project to proceed with the permitting and construction process.  The Entitlements for the project are: the
Special Management Area Use Permit, Shoreline Setback Variance and Planned
Development Approval.  Entitlements
provide evidence that Project is in substantial compliance with zoning and
land-use law, and that Borrower has a legal right to construct the Project
subject to applicable law and the conditions of the Entitlements.

Environmental
Indemnity:  The
Environmental Indemnity dated as of the date hereof by Borrower and Guarantors
in favor of Lender.

Environmental
Proceedings: Any environmental proceedings, whether civil
(including actions by private parties), criminal, or administrative
proceedings, relating to the Project.

Environmental
Report:  An
environmental report prepared at Borrower’s expense by an environmental
consultant approved by Lender, dated not more than six (6) months prior to the
Effective Date and addressed to Lender (or subject to a separate “reliance
letter”).

Equity Requirement:  The requirement that Borrower contribute One Hundred Thirty
One Million Two Hundred Sixty Thousand and 00/100 Dollars ($131,260,000.00)
of equity to the Project, which shall be contributed pursuant to Sections 9.1
and 13.1.  The Equity Requirement shall
not include equity provided by Borrower to keep the Loan In Balance, the
Contingency Reserve, or sums provided by any Guarantor under the Completion
Guaranty.  The Equity Requirement
calculation does, however, include certain contributions made by Borrower prior
to the Effective Date and more particularly set forth on Schedule D hereto.

ER Purchase
Agreement:  As defined
in Section 8.1.

ERISA:  The Employee Retirement Income Security Act
of 1974, as amended, and the regulations promulgated thereunder from time to
time.

Event of Default:  As such term is defined in Article XX.

Exchange Act:  As defined in Section 25.6(a).

 6
 

 

 

Exclusive Resorts:  Shall mean Exclusive Resorts, LLC, a Delaware
limited liability company.

Extension Notice:  As defined in Section 4.3(b)(i).

Extension Period:  As defined in Section 4.3(b).

Facility:  Shall mean each of (i) the Spa and Borrower’s
leasehold interest in the Spa Land; (ii) the Beach Club CA; and (iii) the
Kapalua General Store (collectively, the “Facilities”).

Federal Funds
Effective Rate:  Shall
mean, for any day, the rate per annum (rounded upward to the nearest one
one-hundredth of one percent (1/100 of 1%)) announced by the Federal Reserve
Bank of New York on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank in
substantially the same manner as such Federal Reserve Bank computes and
announces the weighted average it refers to as the “Federal Funds Effective
Rate.”

FIRREA:  The Financial Institutions Reform, Recovery
And Enforcement Act of 1989, as amended from time to time.

Fitch:  Fitch, Inc.

Force Majeure
Delays:  Delays due to
strike, governmental restrictions, unavailability or shortage of labor and/or
materials, enemy or terrorist action, hurricane, civil commotion, fire or other
causes beyond the control of Borrower, provided, however, that (i) the
aggregate of all such time periods shall not exceed one hundred fifty (150)
days, and an additional one hundred twenty (120) days permitted with respect to
a tropical storm or hurricane and (ii) neither the failure of Borrower to qualify
for an advance hereunder nor the lack of Borrower’s own funds shall constitute
a Force Majeure Delay.  In no event shall
Force Majeure Delays be deemed to extend the Completion Date beyond the Initial
Maturity Date of the Loan.

Fractional
Interest:  Means a
fraction of ownership interest in a Fractional Ownership Unit and the
corresponding use rights associated therewith.

Fractional
Ownership Act:  Means
Chapter 514E, Hawaii Revised Statutes, as amended.

Fractional
Ownership Declaration: 
Means The Kapalua Bay Vacation Ownership Project Declaration of
Covenants, Conditions and Restrictions creating the Fractional Ownership Units.

Fractional
Ownership Documents: 
Means all documents, as required by the Fractional Ownership Act
relating to the registration of the Fractional Ownership Units and to the
regulations, operation and administration or sale thereof after such
registration, including, but not limited to, a disclosure statement,
declaration of covenants, conditions and restrictions, contract with the plan
manager, articles of incorporation and by-laws of the fractional
ownership association, rules and regulations for the fractional ownership plan,
and form of sales contract and apartment deed to be used in connection with the
sale of the Fractional Ownership Units.

 7
 

 

 

Fractional
Ownership Units:  Means
the 62 fractional ownership units operated as a “Ritz-Carlton Club” to be sold
in 1/12 intervals identified in the Condominium Documents as “Club Units” which
have been submitted to a timeshare plan pursuant to the Fractional Ownership
Act, together with the undivided percentage ownership interests in the common
elements of the condominium project.

General Contract:  A guaranteed maximum price general contract,
between Borrower and General Contractor, for the construction of the
Improvements, in such form as Lender shall approve in its sole discretion, as
same may be amended from time to time. 
Such general contract shall require completion of the Improvements prior
to the Completion Date.

General Contractor:  Nordic/PCL Construction or such other
licensed, reputable general contractor as Borrower selects and Lender, acting
reasonably, approves.  In making the
determination as to whether to approve a general contractor other than
Nordic/PCL Construction, Lender may take into account any prior dealings it or
its co-lenders may have had with such proposed general contractor.

Governmental
Approvals:  All
consents, licenses, permits, and other authorizations or approvals required
from any Governmental Authority for the Construction, including, without
limitation, the Entitlements and Permits.

Governmental
Authority:  Any
federal, state, county or municipal governmental authority, agency, department,
commission, board, bureau or instrumentality having jurisdiction over the
Project.

Gross Sales Price:  The purchase price for
each Unit, as well as special assessments (including any items contained in the
Construction Budget referenced as “Hospitality Start-Up Recovery”), amounts
allocable to personal property, and  all amounts
paid for extras and the like.

Ground Lease:  Means that certain Ground Lease dated August
31, 2004, by and between Maui Land & Pineapple Company, Inc., a Hawaii
corporation, as ground lessor, and Borrower, as ground lessee, as amended by
the Ground Lessor Consent, Estoppel Certificate and Amendment.

Ground Lessor
Consent, Estoppel Certificate and Amendment: Means that
certain Ground Lessor Consent, Estoppel Certificate and Amendment dated as of
the date hereof by and among Maui Land & Pineapple Company, Inc, as ground
lessor under the Ground Lease, Borrower, as ground lessee, and Lender.

Guarantor:  Each of Maui Land & Pineapple Company,
Inc., a Hawaii corporation; The Ritz-Carlton Development Company, Inc., a
Delaware corporation; and Exclusive Resorts Development Company, LLC, a
Delaware limited liability company, severally.

Hard Costs:  All costs for labor, materials or equipment
supplied to or incorporated in the Project.

Hazardous Material:  Any hazardous or toxic material, substance or
waste (including, without limitation, gasoline, petroleum, asbestos-containing
materials and radioactive materials)

 8
 

 

 

which
is regulated under any Law of any Governmental Authority, including: (i) any “hazardous
substance” as defined in the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C.A. § 9601(14), or any so called “superfund” or “superlien”
Law, including the judicial interpretation thereof; (ii) any “pollutant or
contaminant” as defined in 42 U.S.C.A. § 9601(33); (iii) any material now
defined as “hazardous waste” pursuant to 40 C.F.R. Part 260; (iv) any
petroleum, including crude oil or any fraction thereof; (v) natural gas,
natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel;
(vi) any “hazardous chemical” as defined pursuant to 29 C.F.R. Part 1910;
and  (vii) any other toxic substance or
contaminant that is subject to any other Law or other past or present
requirement of any Governmental Authority.

Improvements:  Improvements for the Project as more particularly
described in the Plans and Specifications, which consist generally of a mixed
use condominium development consisting of (i) 84 (unbranded) whole ownership
Residential Condominium Units (28 of which shall be purchased by Exclusive
Resorts, its Affiliates and their permitted assigns), (ii) 62 fractional
ownership units operated as a “Ritz-Carlton Club” to be sold in 1/12 intervals
under a fractional ownership plan in accordance with the Fractional Ownership
Act, (iii) the Facilities and improvements and amenities contemplated to be
located thereon, and (iv) certain additional common facilities, amenities,
appurtenances, fixtures, equipment, entry and exit areas, parking areas and
other areas for the benefit of the Condominium Project, including the Fractional
Ownership Units.

In Balance:  As defined in Section 12.1.

Indemnified Party:  As defined in Section 16.1(v).

Independent
Director:  As defined
in Section 16.3(p).

Initial Advance:  Forty Million One Hundred Twenty-Nine
Thousand One Hundred Forty-Five and 76/100 Dollars ($40,129,145.76).

Initial Equity
Requirement:  The
requirement, as a condition to the disbursement of the Initial Advance, that
Borrower contribute $54,194,781 of
equity to the Project.

Initial Maturity
Date:  August 1, 2009,
or such earlier date on which the final payment of the principal of the Note
becomes due and payable as therein or herein provided, whether at such stated
maturity date, by acceleration or otherwise.

Institutional Lender: 
Shall mean any one or more of the following other entities, provided
that for any such other entity to qualify as an Institutional Lender hereunder,
such other entity, together with its affiliates, must have total assets of at
least One Billion and 00/100 Dollars ($1,000,000,000.00) and stockholders’
equity or net worth of at least Two Hundred Fifty Million and 00/100 Dollars
($250,000,000.00) (or, in either case, the equivalent thereof in a foreign
currency) as of the date the loan is made: a savings bank, a savings and loan
association, a commercial bank or trust company, an insurance company subject
to regulation by any governmental authority or body, a real estate investment
trust, a union, a governmental or secular employees’ welfare, benefit, pension
or retirement fund, a pension fund property unit trust (whether authorized or
unauthorized), an investment company or trust, a merchant or investment

 9
 

 

 

bank or
any other entity generally viewed as an institutional lender.  In each of the foregoing cases, such
affiliate or other entity shall constitute an Institutional Lender whether (1)
acting for itself or (2) as trustee, as a general partner of a partnership, in
a fiduciary, management or advisory capacity or, in the case of a bank, as
agent bank, for any number of lenders, so long as in the case of clause (2)
the day-to-day management decisions relating to the loan are either exercised
by or recommended by such Institutional Lender and, during the life of the
loan, such Institutional Lender shall only be removed from its clause (2).  Notwithstanding the first sentence of this
paragraph, a real estate investment trust that invests primarily in mortgage
loans and investment securities, is taxed as a real estate investment trust
and, if unaffiliated, has total assets of at least  Six Hundred Fifty Million and 00/100 Dollars
($650,000,000.00) and a net worth of at least One Hundred Million and 00/100
Dollars ($100,000,000.00), shall qualify as an Institutional Lender despite its
failure to meet the total asset and net worth tests set forth in such first
sentence.

Insurance Escrow
Fund:  As defined in Section
16.1(m).

Insurance Premiums:  As defined in Section 16.2(b).

Interest Period:  A period of 30, 60, 90 or 180 days, to the
extent deposits with such maturities are available to Lender, commencing on a
LIBOR Business Day as selected by Borrower in accordance with Section 5.1(c);
provided, however, that (i) any Interest Period that would otherwise end on a
day that is not a LIBOR Business Day shall continue to and end on the next
succeeding LIBOR Business Day, unless the result would be that such LIBOR Rate
Interest Period would be extended to the next succeeding calendar month, in
which case such LIBOR Rate Interest Period shall end on the next preceding
LIBOR Business Day, and (ii) no Interest Period may extend beyond the Maturity
Date.  The initial Interest Period shall
commence on the date hereof and end on July 31, 2006, and the last Interest
Period shall commence on the day following the expiration of the last full
calendar month occurring during the term of the Loan and end on the Maturity
Date.

Interest Reserve:  As defined in Section 11.4.

Internal Revenue
Code:  The Internal
Revenue Code of 1986, as amended from time to time.

Issued
Entitlements:  Shall be
defined as the Special Management Area Use Permit, Shoreline Setback Variance
and Planned Development Approval which provide the right to construct the
Project.

Kapalua General
Store:  As defined in
the Condominium Documents.

Keep Whole Letters:
Those certain “Keep Whole Letters” by each of ML&P, Exclusive Resorts and
MII, respectively, each dated the date hereof concerning the funding of their
respective Affiliates in order to meet their funding requirements under the
Guaranties contemplated hereunder and to enable such Affiliates to comply with
their equity obligations under the Limited Liability Operating Agreement of
Member.

Land:  As such term is defined in the Recitals to
this Agreement.

 10
 

 

 

Laws:  All federal, state and local laws, statutes,
codes, ordinances, orders, rules and regulations.

Leases:  All leases, licenses and occupancy agreements
(including any licenses for parking spaces or storage spaces) affecting the
Project or any part thereof now or hereafter existing.

Lehman:  As defined in Section 25.6(b).

Lehman Group:  As defined in Section 25.6(b).

Lender:  As defined in the opening paragraph of this
Agreement.

Lender’s
Consultant:  An
independent consulting architect, inspector, and/or engineer designated by
Lender in Lender’s sole discretion.

Liabilities:  As defined in Section 25.6(b).

LIBOR Business Day:  A Business Day on which dealings in U.S.
dollars are conducted in the London interbank market.

LIBOR Rate:  For any Interest Period, the rate (expressed
as a percentage per annum and rounded upward, if necessary, to the next nearest
1/1000 of 1%) for deposits in U.S. dollars, for a one-month period, that
appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m.,
London time, on the related Determination Date. 
If such rate does not appear on Telerate Page 3750 as of 11:00 a.m.,
London time, on such Determination Date, LIBOR shall be the arithmetic mean of
the offered rates (expressed as a percentage per annum) for deposits in U.S.
dollars for the number of days of the applicable Interest Period that appear on
the Reuters Screen Libor Page as of 11:00 a.m., London time, on such
Determination Date, if at least two such offered rates so appear.  If fewer than two such offered rates appear
on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such
Determination Date, Lender shall request the principal London office of any
four major reference banks in the London interbank market selected by Lender to
provide such bank’s offered quotation (expressed as a percentage per annum) to
prime banks in the London interbank market for deposits in U.S. dollars for the
number of days of the applicable Interest Period as of 11:00 a.m., London time,
on such Determination Date for the amounts of not less than U.S.
$1,000,000.00.  If at least two such
offered quotations are so provided, LIBOR shall be the arithmetic mean of such
quotations.  If fewer than two such
quotations are so provided, Lender shall request any three major banks in New
York City selected by Lender to provide such bank’s rate (expressed as a
percentage per annum) for loans in U.S. dollars to leading European banks for
the number of days of the applicable Interest Period as of approximately 11:00
a.m., New York City time on the applicable Determination Date for amounts of
not less than U.S. $1,000,000.00.  If at
least two such rates are so provided, LIBOR shall be the arithmetic mean of
such rates.  LIBOR shall be determined by
Lender, which determination shall be binding and conclusive absent manifest
error.

Lien:  shall mean any mortgage, deed of trust, lien,
pledge, hypothecation, assignment, security interest, or any other encumbrance,
charge or transfer of, on or affecting the Property, or any portion thereof, or
Borrower, including, without limitation, any conditional sale or other title

 11
 

 

 

retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, the filing of any financing statement, and mechanic’s,
materialmen’s and other similar liens and encumbrances against the Project or
any portion thereof or Borrower.

Loan:  As defined in the Recitals to this Agreement.

Loan Fee:  As defined in Section 4.1(f).

Loan Documents:  Collectively, this Agreement, the documents
and instruments listed in Section 4.2 and all other documents and
instruments entered into by Borrower and/or Guarantor from time to time which
evidence or secure the Debt.

Loan-to-Value
Ratio:  The ratio obtained by dividing the outstanding principal balance due on
the Loan by the fair market value of the Project, as determined by an
Appraisal.

Major Contract:  A Construction Contract which provides for a
contract price equal to or greater than Two Million Five Hundred Thousand and
00/100 Dollars ($2,500,000.00).

Marketing
Agreements: 
Collectively, (i) Marketing and Sales Services Agreement, dated August
31, 2004, between Borrower and Ritz-Carlton; (ii) Marketing and Sales Services
Agreement, dated June 19, 2006, by and between Borrower, Ritz-Carlton and
ML&P; and (iii) Marketing and Sales Services Agreement, dated June 19,
2006, by and between Borrower and Kapalua Realty Company, Ltd., a Hawaii
corporation.

Material Adverse
Change or material adverse change:  If, in Lender’s reasonable determination, the
business prospects, operations or financial condition of a Person or property
has changed in a manner which actually impairs the value of Lender’s security
for the Loan, prevent timely repayment of the Loan or otherwise prevent the
applicable Person from timely performing any of its obligations under the Loan
Documents.

Maturity Date:  The Initial Maturity Date; provided, however,
that if Borrower exercises its right to extend the term of the Loan for the
Extension Period and, in accordance with the terms of this Agreement, the term
of the Loan is so extended, from and after such extension of the term of the
Loan “Maturity Date” shall mean the first day of the twelfth (12th) month following the Initial Maturity
Date (the “First Extension Maturity Date”), the first day of the twelfth
(12th) month
following the First Extension Maturity Date (the “Second Extension Maturity
Date”), as the case may be, or such earlier date on which the final payment
of principal of the Note becomes due and payable as therein or herein provided,
whether at such stated maturity date, by acceleration, or otherwise.

Member:  Kapalua Bay Holdings, LLC, a Delaware limited
liability company.

MII:  Marriot International, Inc., a Delaware
corporation.

ML&P:  Maui Land & Pineapple Company, Inc., a
Hawaii corporation.

ML&P
Agreements: 
Collectively, that certain: (i) Agreement of Purchase and Sale dated as
of June 19, 2006, between Borrower and ML&P (the “Spa Agreement”)
for the purchase by

 12
 

 

 

ML&P
of the Spa Land and Spa; (ii) Agreement of Purchase and Sale dated as of June
19, 2006, between Borrower and ML&P (the “Beach Club Agreement”) for
the purchase by ML&P of the Beach Club CA (as defined in the Condominium
Documents); and (iii) Agreement of Purchase and Sale dated as of June 19, 2006,
between Borrower and ML&P (the “General Store Agreement”) for the
purchase by ML&P of the Kapalua General Store (as defined in the
Condominium Documents).

ML&P Consent
Agreement:  That
certain Consent to Assignment of Agreements dated as of the date hereof, by ML&P.

Moody’s:  Moody’s Investors Service, Inc.

Mortgage:  The Fee and Leasehold Mortgage, Security
Agreement and Fixture Filing, dated as of the date hereof, by Borrower in favor
of Lender securing the payment of the Debt and constituting a first priority
mortgage lien against the Project.

Net Sale Proceeds:  In
respect of the sale of a Unit, the Gross Sales Price, less Transaction Costs
and any portion of the Contract Deposit related to a particular Unit that
was  utilized in accordance with
applicable Laws and the Loan Documents to develop the Unit, as determined by
Lender acting reasonably.

Non-Consolidation Opinion: 
An opinion letter by DLA Piper Rudnick Gray Cary US LLP, dated as of the
Effective Date, in form and substance satisfactory to Lender.

Note:  a promissory note, dated as of the date
hereof, by Borrower to the order of Lender, in the principal amount of Three
Hundred Seventy Million and 00/100 Dollars ($370,000,000.00) as may be amended
from time to time.

OFAC:  Office of Foreign Asset Control of the
Department of the Treasury of the United States of America.

Office:  Department of Commerce and Consumer Affairs
in Hawaii and the Bureau of Conveyances of the State of Hawaii, as the case may
be.

Operating Account:  A deposit account opened and maintained by
Borrower with Depositary Bank, on behalf of Lender, to be utilized in the
manner set forth in Section 4.1(g).

Outstanding
Entitlements:  As
defined in Section 16.1(a).

Payment Date:  The first (1st) day of each calendar month
(or such other day of a calendar month selected by Lender to collect debt
service payments under loans which it makes and securitizes) or, if such day is
not a Business Day, the immediately preceding Business Day.

PDP:  As defined in Section 8.1(i).

Permits:  An administrative approval by a government
agency that the Project complies with law and Entitlements, which allow the
Project to proceed with certain specific scopes of

 13
 

 

 

work; which includes any
building permit, excavation permit, foundation permit, environmental permit,
utility permit, or other permit required in respect of the Construction or the
Project.

Permitted
Exceptions:  The
matters listed on Exhibit C annexed hereto.

Permitted
Transfers:  The
following transfers shall be deemed “Permitted Transfers” and Borrower shall
not be required to obtain Lender’s prior written consent to such transfers: (i)
a transfer made in accordance with the buy-sell provisions of the Member’s
Limited Liability Company Agreement approved by Lender; (ii) a transfer of
direct or indirect interests in Member or in any entity owning a direct or
indirect interest in Member; provided the transferee shall be a MII/MLP
Affiliate; (iii) a transfer of direct or indirect interests in Member or
in any entity owning a direct or indirect interest in Member in connection with
a public offering or a “privatization,” including, without limitation,
interests in ML&P or MII in connection with a publicly traded stock or any
public offering of equity ownership interests; and (iv) a one-time transfer of
the managing member interest in Borrower to an entity that is a MII/MLP
Affiliate or to another Person provided that the other Person  has
financial capability and creditworthiness comparable to the financial
capability and creditworthiness of Member, as reasonably determined by Lender
and each Rating Agency (if applicable). 
For purposes hereof, the term “MII/MPL Affiliate” shall mean an entity
in which MII and/or ML&P manages, directly or indirectly, the affairs and
decisions of the MII/MLP Affiliate, including, without limitation, the
day-to-day and major management and operations decisions.

Person:
Any individual, corporation, partnership, joint venture, limited liability
company, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.

Personal Property:  All personal property, fixtures and equipment
required or beneficial for the operation of the Land or the Improvements.

Plans and
Specifications:  The
sets of design plans and specifications for the Project prepared by the
Architect and its consultants that have been reviewed and approved by Lender in
connection with making the Initial Advance, and if and when in effect on which
the Construction Contract is based.  The
term also includes (a) any material modification of any of those plans, maps,
sketches, diagrams, surveys, drawings, specifications or lists of materials
that Lender has previously reviewed and approved if the modification is in
writing and is initialed by the Lender and the Borrower or the Architect, and
(b) any plans, maps, sketches, diagrams, surveys, drawings, specifications or
lists of materials to be utilized for development of the Project that are
created subsequent to the Initial Advance that have been reviewed and approved
by Lender.

Pledge of
Accounts, Security Agreement and Rights to Payment:  Means that certain Pledge of Accounts,
Security Agreement and Rights to Payment dated as of the date hereof by and
between Borrower, as debtor, and Lender.

Policy:  As defined in Section 15.2(b).

 14
 

 

 

Pre-Development
Costs:  The pay off of
existing debt which is secured by the Development Land, pre-development Soft
Costs, Pre-Development Hard Costs, interest expenses, and closing costs
associated with the Loan.

Pre-Development
Hard Costs:  Hard Costs
that Lender agrees may be funded as a Pre-Development Cost and with respect to
which Borrower has delivered a fully executed copy of the General Contract and
fully executed copies all Construction Contracts required in connection with
such Hard Cost.

Prime Rate:  The interest rate per annum publicly
announced by Citibank, N.A. in New York City as its base rate, as such rate
shall change from time to time.  If
Citibank, N.A. ceases to announce a base rate, “Prime Rate” shall mean the
interest rate per annum published in the Wall Street Journal
from time to time as the “Prime Rate”. 
If more than one “Prime Rate” is published in the Wall Street
Journal for a day, the average of such “Prime Rates” shall be used,
and such average shall be rounded up to 
the nearest one-eighth of one percent (0.125%).  If the Wall Street Journal
ceases to publish a “Prime Rate”, Lender shall select an equivalent publication
that publishes a “Prime Rate”, and if a “Prime Rate” is no longer generally
published or are limited, regulated or administered by a governmental or
quasi-governmental body, then Lender shall select a comparable interest rate
index.

Prime Rate Margin:  In respect of each portion of the Loan
bearing interest at an Adjusted Prime Rate, the difference (expressed as the
number of basis points) between (a) the Adjusted LIBOR Rate on the date the
Adjusted LIBOR Rate was last applicable to such portion of the Loan and (b) the
Prime Rate on the date that the Adjusted LIBOR Rate was last applicable to the Loan.

Proceeding:  As defined in Section 22.11.

Proceeds:  As defined in Section 17.1.

Project:  The collective reference to (i) the Land,
(ii) the Facilities, (iii) the Improvements and (iv) the Personal Property,
excluding such portion of the Project that has been released pursuant to the
terms of this Agreement.

Provided
Information:  As
defined in Section 25.1.

Public
Report:  Condominium
Public Report of Kapalua Bay Condominium prepared by Borrower and designated
Registration No. 5900.

PUD:  As defined in Section 8.1(i).

Qualifying
Contract of Sale:  A
legally enforceable Contract of Sale between Borrower and an unaffiliated
third-party purchaser for the sale and purchase of an individual Unit.  Each Qualifying Contract of Sale must (i)
require the payment upon execution of a Contract  Deposit equal to no less than ten percent
(10%) of the Purchase Price, (ii) require the payment of a Gross Sales Price
which will yield Net Sale Proceeds not less the applicable Release Price, (iii)
be expressly subordinate to the lien of the Mortgage, (iv) comply with the
requirements of Section 15.1(a) hereof, (v) comply with all Laws and
(vi) be subject to no contingencies, so that, other

 15
 

 

 

than by
reason of a default by Borrower thereunder, the purchaser thereunder may not
rescind the same without forfeiting its Contract Deposit.  A Qualifying Contract of Sale may be assigned
by such a purchaser to a third-party purchaser who is not an Affiliate of
Borrower, Guarantor, Member, ML&P, MII , an MLP/MII Affiliate or otherwise
under the Control of any such entity.

Rating Agencies:  Each of S&P, Moody’s and Fitch or any
other nationally recognized statistical rating agency which has been approved
by Lender.

Recourse Guaranty:  The Guaranty, dated as of the date hereof, by
Guarantor in favor of Lender, pursuant to which Guarantor guarantees to Lender
the payment of the Recourse Obligations.

Recourse
Obligations:  As
defined in the Note.

Registration
Statement:  As defined
in Section 25.6(b).

Related Parties:  As defined in Section 16.3(d).

Release Payment:  Any payment required to be made under Section
15.4(h) or Section 15.5(e) (such payments shall collectively be
referred to as “Release Payments”).

Release Price:  In respect of each Unit and each Facility,
the amount set forth on Schedule A attached hereto.

Requisition:  A requisition, in the form of Exhibit D
annexed hereto, for disbursement of a portion of the Loan.

Reserve Percentage:  For any Interest Period, that percentage
which is specified on the Determination Date by the Board of Governors of the
Federal Reserve System (or any successor) or any other governmental authority
with jurisdiction over Lender for determining the maximum reserve requirement
(including, but not limited to, any marginal reserve requirement) for the
holder of the Note with respect to liabilities constituting or including
Eurocurrency liabilities in an amount equal to that portion of the Loan
affected by such Interest Period and with a maturity equal to such Interest
Period.

Residential
Condominium:  As
defined in Section 15.2(a).

Residential
Condominium Unit:  Each
individual condominium unit (including, but not limited to, any appurtenant
interest in the common elements) in the Residential  Property created by the submission thereof to
the provisions of the Condominium Act (all such condominium units shall be
referred to collectively as the “Residential Condominium Units”).

Residential
Property:  That portion
of the Development Land designated in the 
Plans and Specifications for the Residential Condominium and the
Improvements to be constructed thereon.

Ritz-Carlton:  The Ritz-Carlton Development Company, Inc., a
Delaware corporation.

 16

 

 

Ritz-Carlton Consent Agreement:  That certain Consent to Assignment of
Agreements dated as of the date hereof, by Ritz-Carlton.

S&P: 
Standard & Poor’s Ratings Group, a division of McGraw-Hill, Inc.

Securities:  As defined in Section 25.1.

Securities Act:  As defined in Section 25.6(a).

Securitization:  As defined in Section 25.1.

Servicer:  As defined in Section 19.1.

Servicing Agreement:  As defined in Section 19.1.

Servicing Fees:  As defined in Section 19.1.

Soft Costs:  All costs, other than Hard Costs, to be
incurred in respect of the Project prior to completion of Construction,
including, without limitation, sales and marketing costs and expenses,
architects’ fees, engineers’ fees, interest on the Note, real estate taxes,
insurance premiums and bond fees.

Spa:  The improvements and amenities intended to be
constructed on the Spa Land.

Spa Land:  As such term is defined in the Recitals to
this Agreement.

SPC Party:  As defined in Section 16.3(o).

Standard Consent:  means a consent that Borrower is required to
receive from Lender in the Loan Documents but that relate strictly to de
minimis matters that are operational in nature and not material to the Project
(examples of matters that would be too material for application of a “deemed
consent” include among, among other things, 
matters that would effect: the Budget, completion by the Completion
Date, insurance coverage or settlement, eminent domain, the Ground Lease, the
Development Documents, environmental matters, zoning or other land use
entitlement, or rights of purchasers under Contracts of Sale that could lead to
a right of rescission or other action concerning same).

State:  The State of Hawaii.

Subordinate Loan:  As defined in Section 25.5.

Subcontractor:  Any party furnishing labor, services or materials
to the Project under a Construction Contract.

Tax Escrow Fund:  As defined in Section 16.1(m).

Tax and Insurance Escrow Fund:  As defined in Section 16.1(m).

Tax and Insurance Reserve:  As defined in Section 11.5.

 17
 

 

 

Title Insurer:  First American Title Insurance Company and
Fidelity Title Insurance Company.

Title Policy:  An ALTA Mortgagee’s Loan Title Insurance
Policy, issued by Title Insurer, insuring the first lien priority of the
Mortgage, subject only to the Permitted Exceptions, and otherwise in form
satisfactory to Lender.

Transaction
Costs:  Out-of-pocket
costs payable by Borrower in respect of a sale of a Unit or Fractional
Interest, including brokerage fees, sales commissions, royalty fees, any fees
payable to Ritz-Carlton (excluding if payable to Ritz-Carlton any items
contained in the Construction Budget referenced as “Hospitality Start-Up
Recovery”), any fees payable to Kapalua Realty Company, Ltd., membership
deposits for the Kapalua Club payable to Kapalua Land Company, Ltd. (all such fees
paid to Affiliates as expressly provided in the Affiliate Agreements referenced
in Schedule B and as in effect as of the date hereof), and customary closing
costs (whether customarily payable by either seller or purchaser) not to exceed
in the aggregate two percent of the Gross Sales Price of the Unit or Fractional
Interest, and other costs approved by Lender.

Transfer:  Any sale, transfer, lease, conveyance,
alienation, pledge, assignment, mortgage, encumbrance, hypothecation or other
disposition of (i) all or any portion of the Project, (ii) all or any portion
of Borrower’s right, title and interest (legal or equitable) in and to the
Project or (iii) any interest in Borrower or any Controlling interest in any
member in Borrower and which is not a Permitted Transfer.  Notwithstanding the foregoing, the sale of
any Unit or Facility in accordance with the terms of Article XV hereof
shall not constitute Transfers hereunder.

Underwriter Group:  As defined in Section 25.6(b).

Unit:  Any individual condominium unit created at
the Project, including, without limitation, Residential Condominium Unit or
Fractional Ownership Unit (all such condominium units shall collectively be
referred to as the “Units”).

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1             Representations and Warranties.

To induce Lender to execute this Agreement and perform
its obligations hereunder, Borrower hereby represents and warrants to Lender as
of the Effective Date (and as of each date of a Requisition and disbursement,
with updates of such facts and circumstances that are reasonably necessary to
include in such Requisition to render the representations set forth therein
true and correct in all material respects) as follows:

(a)      Borrower has good and
marketable fee simple title to the Development Land free and clear of all
liens, encumbrances and charges whatsoever, except for the Permitted
Exceptions.  Borrower has the right to
mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey
the Development Land.

 18
 

 

 

(b)      Borrower has good and
marketable leasehold title to the Spa Land, pursuant to the Ground Lease, free
and clear of all liens, encumbrances and changes whatsoever, except for the
Permitted Exceptions. Borrower has the right to mortgage its leasehold estate
in the Spa Land.  The certified copy of
the Ground Lease provided to Lender by Borrower is true, correct and complete
in all respects.  The Ground Lease is in
full force and effect and has not been amended, except as amended by the Ground
Lessor Consent, Estoppel Certificate and Amendment.  All rents, additional rents and other sums
due and payable under the Ground Lease have been paid in full.  Neither Borrower, as ground lessee under the
Ground Lease, nor ground lessor under the Ground Lease has received or given
any notice of a default under the Ground Lease which has not been cured.

(c)      Except as otherwise
disclosed in writing by Borrower to Lender, no material litigation or
proceedings are pending, or, to the best of Borrower’s knowledge, threatened,
against Borrower, Guarantor, Member or the Project or any portion thereof.  There are no pending, or, to Borrower’s
knowledge, threatened, Environmental Proceedings in respect of the Project or
any portion thereof.  Neither Borrower
nor Member has ever been party to any lawsuit, arbitration, summons or legal
proceeding.

(d)      Borrower, Guarantor and
Member have or will upon request provide Lender and S&P with complete
financial statements that reflect a fair and accurate view of their respective
financial conditions.  Borrower has no
contingent liabilities, other than those related to its ownership of the Land
and its preparation for the development of the Project.  Member has no contingent obligations other
than capital funding obligations to Borrower.

(e)      Borrower and Member
complied and will comply in all material respects with the assumptions made
with respect thereto in the Non-Consolidation Opinion;

(f)       Borrower is and always
has been a duly organized and validly existing limited liability company, duly
organized under the laws of the State of Delaware.  Member is and always has been a duly
organized and validly existing limited liability company, duly organized under
the laws of the State of Delaware. 
Borrower has full power and authority to execute, deliver and perform
all Loan Documents to which it is a party, and such execution, delivery and
performance have been duly authorized by all requisite action on the part of
Borrower.

(g)      The Property is not
encumbered or subject to any capital leases, liens or judgments, other than,
with respect to Borrower, liens for real estate taxes which are not yet due.

(h)      To the best knowledge of
the Borrower and Member, each of Borrower and Member is in compliance with all
Laws applicable to it and has obtained all permits required for it to operate
as a limited liability company.

(i)       Neither Borrower nor
Member is involved in any dispute with any taxing authority.  Neither Borrower nor Member is in default of
any obligation to pay taxes to any taxing authority.

 19
 

 

 

(j)       Borrower has never owned
any property, other than the Land, and has never engaged in any business, other
than the ownership of the Land, operation of the hotel previously located on
the Land, and preparation for the development of the Project.  Member has never owned any property, other
than its interest in Borrower, and has never engaged in any business, other
than business incidental to its ownership of an interest in, and as member of,
Borrower.

(k)      To the knowledge of
Borrower, no consent, approval or authorization of or declaration, registration
or filing with any Governmental Authority or nongovernmental Person, including
any creditor, partner, or member of Borrower or Guarantor, is required in
connection with the execution, delivery and performance of this Agreement or
any of the Loan Documents, other than such consents, approvals or
authorizations which have been obtained, and the recordation of the Mortgage
and the Assignment of Leases and Rents and the filing of UCC financing
statements.

(l)       The execution, delivery
and performance of this Agreement, the execution and payment of the Note and
the granting of the Mortgage and other security interests under the other Loan
Documents will not constitute a breach or default under any other agreement to
which Borrower, Member or any Guarantor is a party or may be bound, or a
violation of any law or court order which may affect the Project.

(m)     To the knowledge of
Borrower, there is no default under this Agreement, any of the other Loan
Documents, or any other document or instrument to which Borrower is bound, nor
any condition which, after notice or the passage of time or both, would
constitute a default or an Event of Default under said documents.

(n)      [Intentionally Deleted].

(o)      Borrower has no knowledge
of and has not received written notice of any pending or threatened,
condemnation or eminent domain proceedings in respect of the Land or any part
thereof.

(p)      As of the date hereof,
the amounts set forth in the Construction Budget represent a full and complete
itemization by category of all costs, expenses and fees which Borrower
reasonably expects to pay or reasonably anticipates becoming obligated to pay
to complete the Construction.

(q)      To the knowledge of
Borrower, neither the construction of the Improvements nor the use of the
Project when completed will violate (i) any Laws (including, without
limitation, zoning ordinances, building codes, land use and environmental laws
and laws relating to the disabled) or (ii) any restrictions, covenants or
conditions of record or agreements affecting the Project.  Neither the zoning authorizations, approvals
or variances nor any other right to construct or to use the Project is to any
extent dependent upon or related to any real estate other than the Land.  All Governmental Approvals required for the
Construction in accordance with the Plans and Specifications have been obtained
or will be obtained prior to the commencement of Construction, and, to the
knowledge of Borrower, all Laws relating to the Construction and operation of
the Improvements have been complied

 20
 

 

 

with.  To the extent such Governmental Approvals
have been issued or obtained, as the date hereof, Borrower has delivered true,
complete and correct copies of same to Lender.

(r)       Except for retainage
amounts, all costs and expenses incurred for any and all labor, materials,
supplies and equipment used in the development of the Project or the
construction or demolition of any improvement on the Land have been paid in
full as of the date hereof or will be paid in full from proceeds of the Loan
following the closing of the Loan.

(s)      The Project will have
adequate water, gas and electrical supply, storm and sanitary sewerage
facilities, other required public utilities, fire and police protection, and
means of access between the Project and public streets.

(t)       Except as shown on the
Survey submitted to Lender in connection with the Loan, no portion of the
Project and no building or any other portion of the Improvements is located in
an area identified by the Secretary of Housing and Urban Development or any
successor thereto as an area having special flood hazards pursuant to the
National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of
1973, as amended, or any successor law, or, if located within any such area,
Borrower has obtained and will maintain the insurance prescribed in Section
16.2 hereof.

(u)      Borrower has dealt with
no broker or finder in connection with this Agreement or the Loan.

(v)      All financial statements
and other information previously furnished by both Borrower and Guarantor in
connection with the Loan are true, complete and correct in all material
respects and fairly present the financial conditions of the subjects thereof as
of the respective dates thereof and do not fail to state any material fact
necessary to make such statements or information not misleading, and no
Material Adverse Change with respect to Borrower or Guarantor has occurred
since the respective dates of such statements and information.  Neither Borrower nor Guarantor has any
material liability, contingent or otherwise, not disclosed in such financial
statements.

(w)     Borrower and Guarantor are
solvent, and no bankruptcy, reorganization, insolvency or similar proceeding
under any state or federal law with respect to Borrower or Guarantor or any
Affiliate thereof has been initiated.

(x)      Except as disclosed in
the Environmental Report: (i) the Project is free of Hazardous Material and is
in compliance with all Laws; (ii) neither Borrower nor, to the best knowledge
of Borrower, any other Person, has ever caused or permitted any Hazardous
Material to be placed, held, located or disposed of on, under, at or in a
manner to affect the Project and the Project has never been used (whether by
Borrower or, to the best knowledge of Borrower, by any other Person) for any
activities involving, directly or indirectly, the use, generation, treatment,
storage, transportation, or disposal of any Hazardous Material; and (iii) there
are no underground tanks, vessels, or similar facilities for the storage or
containment of Hazardous Materials of any sort on, under or affecting the
Project.

 21
 

 

 

(y)      The Development Land and
Spa Land are each taxed separately without regard to any other property and for
all purposes the Development Land and Spa Land may be mortgaged, conveyed and
otherwise dealt with as an independent parcel.

(z)      There are no Leases,
subleases or other arrangements for occupancy of space within the Project, and
no person or entity has any possessory interest in, or right to occupy, the
Project or any portion thereof, except for the leases and month-to-month rental
agreements listed on Schedule C attached hereto and pursuant to
Qualifying Contracts of Sale entered into after the date hereof.

(aa)    Except pursuant to the
ML&P Agreements, the ER Purchase Agreement,
and Qualifying Contracts of Sale that will be entered into after the date
hereof, neither the Project nor any portion thereof is subject to any purchase
option, buy-sell right (except as provided in the limited liability company agreement
of Member), right of first refusal, right of first offer or other similar right
to acquire same.

(bb)   Upon completion of the
Construction, no building or other improvement will encroach upon any property
line, building line, setback line, side yard line or any recorded or visible
easement.

(cc)    The Loan is not being made
for the purpose of purchasing or carrying “margin stock” within the meaning of
Regulation G, T, U or X issued by the Board of Governors of the Federal Reserve
System, and Borrower agrees to execute all instruments necessary to comply with
all the requirements of Regulation U of the Federal Reserve System.

(dd)   The Loan evidenced by the
Note is solely for the business purpose of Borrower, and is not for personal,
family, household or agricultural purposes.

(ee)    No portion of the Project
has been or, to the knowledge of Borrower, will be purchased with proceeds of
any illegal activity.

(ff)     Borrower is not a party
in interest to any plan defined or regulated under ERISA, and the assets of
Borrower are not “plan assets” of any employee benefit plan covered by ERISA or
Section 4975 of the Internal Revenue Code.

(gg)   Borrower is not a “foreign
person” within the meaning of Section 1445 or 7701 of the Internal Revenue
Code.

(hh)   Neither Borrower, Member,
Guarantor nor any Person holding a direct or indirect interest in Borrower is
(or will be) a person with whom Lender is restricted from doing business under
OFAC (including Persons named on OFAC’s Specially Designated and Blocked
Persons list) or under any statute, executive order (including the September
24, 2001, Executive Order Blocking Property and Prohibiting Transactions With
Persons Who Commit, Threaten to Commit, or Support Terrorism), or other
governmental action and is not intentionally or with knowledge, and shall not
intentionally or with knowledge engage in any dealings or transactions or
otherwise be associated with such Persons. 
In addition, Borrower hereby agrees to provide Lender with any
additional information that Lender deems

 22
 

 

 

reasonably necessary from time to time in order to ensure compliance
with all Laws concerning money laundering and similar activities.

(ii)      Borrower has disclosed
to Lender all material facts regarding the Project and Borrower and has not
failed to disclose any material fact that could cause any representation or
warranty made herein to be materially misleading.

(jj)      Each of the
representations and warranties made by Guarantor herein or in any of the other
Loan Documents is true, complete and correct in all material respects.

(kk)    Borrower possesses or will
possess prior to construction all franchises, patents, copyrights, trademarks,
trade names, servicemarks, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of Borrower’s businesses substantially as
now conducted and to be conducted at the Project without conflict with any
rights of others.

(ll)      A true and correct
organizational chart outlining the percentage of ownership and capital
structure of Borrower and the direct and indirect owners of Borrower is
attached hereto as Exhibit F.

(mm)  Borrower has delivered to
Lender true, correct and complete copies of the ER Purchase Agreement and the
ML&P Agreements.  Each such agreement
is in full force and effect and has not been amended.  Borrower, Exclusive Resorts and ML&P have
not received or given any notice of a default under such agreements which has
not been cured.  Attached hereto as Schedule
B is a complete list of all agreements entered into by, between or among Borrower
and any Affiliate of ML&P, Exclusive Resorts, LLC, a Delaware limited
liability company, MII and MLP/MII Affiliate. 
Amendments to the ER Purchase Agreement and any individual purchase
agreements entered into pursuant thereto may be amended as permitted by Section
16.1(m).

(nn)   Borrower has satisfied the
Initial Equity Requirement or the Equity Requirement, as the case may be.

(oo)   Borrower represents that to
the best of its knowledge, it is in compliance with all of the requirements of
state, local and municipal requirements for the construction of the Project,
including but not limited to, the requirements of the State of Hawaii
Department of Land and Natural Resources (Historical Preservation Division).

Section 3.2             Survival of Representations and Warranties.

Borrower agrees that all of the representations and
warranties set forth in Section 3.1 and elsewhere in this Agreement are
true as of the Effective Date and, except for matters which have been disclosed
by Borrower in writing, will be true at all times thereafter.  Each request for a disbursement under the
Loan Documents shall constitute a reaffirmation of such representations and
warranties, as deemed modified in accordance with the disclosures made and approved
as aforesaid, as of the date of such request. 
It shall be a condition precedent to the making of the Initial Advance
and each subsequent disbursement of the Loan that each of said representations
and warranties is true and correct as of the date of such requested
disbursement, except as aforesaid.  In
addition, at Lender’s request, Borrower shall reaffirm such representations and

 23
 

 

 

warranties in writing
prior to each disbursement hereunder; subject to updating same to include those
facts and circumstances that are reasonably necessary to include to render the
representations true and correct in all material respects.  In the event that a representation and/or
warranty given to Lender on the Effective Date is updated such that a material
adverse fact is disclosed to Lender then Lender shall be permitted to withhold
disbursement of an advance under the Loan until the fact or circumstance no
longer exists or Lender otherwise waives same.

ARTICLE IV

LOAN AND LOAN DOCUMENTS

Section 4.1             Agreement to Borrow and Lend;
Lender’s Obligation to Disburse.

Subject to the terms, provisions and conditions of
this Agreement and the other Loan Documents, Borrower agrees to borrow from
Lender and Lender agrees to lend to Borrower the Loan, for the purposes and
subject to all of the terms, provisions and conditions contained in this
Agreement.

(a)      The Loan shall be made to
Borrower on the terms and conditions hereinafter set forth.  The Loan will bear interest at the rate or
rates, and will be repaid, as set forth in this Agreement and in the Note.  Borrower shall use the proceeds of the Loan
solely for the purposes specified herein.

(b)      The aggregate amount of
the Loan shall not exceed the lesser of (i) Three Hundred Seventy Million and
00/100 Dollars ($370,000,000.00) and (ii) 61.6% of the total cost of the Project
as set forth in the Construction Budget. 
The Loan is not revolving in nature, and amounts repaid may not be
subsequently readvanced.

(c)      Provided that Borrower
satisfies the conditions to the making of the Loan set forth in Article VIII
hereof, Lender shall disburse the Initial Advance to Borrower on the Effective
Date.  Borrower shall use the Initial
Advance to pay Pre-Development Costs 
encumbering the Land and for such other purposes as the parties shall
agree upon.

(d)      After the disbursement of
the Initial Advance, Lender shall make successive disbursements of the Loan to
Borrower, but not more than once per calendar month, provided that (i) there
shall then exist no Default or Event of Default, (ii) no Material Adverse
Change shall have occurred with respect to Borrower, Guarantor or the Project,
(iii) the Loan remains In Balance, (iv) all required Governmental Approvals are
in full force and effect as needed for the then-current stage of Construction,
and (iv) Borrower satisfies the conditions to the disbursement of the Loan set
forth in Articles VIII, IX, X, XIII and XIV hereof, as
applicable.

(e)      To the extent that Lender
may have acquiesced in noncompliance with any requirements precedent to the
disbursement of any portion of the Loan, such acquiescence shall not constitute
a waiver by Lender, and Lender may at any time after such acquiescence require
Borrower to comply with all such requirements.

 24
 

 

 

(f)       On or before the
Effective Date, Borrower shall pay to Lender a loan fee in the amount of Three
Million Seven Hundred Thousand and 00/100 ($3,700,000.00) (the “Loan Fee”)
payable from the Initial Advance.  The
Loan Fee has been fully earned by Lender and is non-refundable to Borrower,
regardless of when the Loan is repaid or whether any further advances of the
Loan are made;

(g)      Borrower shall, prior to
the Effective Date, open the Operating Account. 
Borrower authorizes Lender to disburse the Loan proceeds by crediting
the Operating Account; provided, however, that Lender shall not
be obligated to use such method.  Lender
may pay interest due on the Note when and as the same shall become due by
debiting funds on deposit in the Operating Account and charging the interest
line item of the Construction Budget.

Section 4.2             Loan Documents.

On the Effective Date, Borrower shall execute and
deliver (and cause any party thereto other than Borrower or Lender to execute
and deliver) to Lender the following:

(a)      The Note;

(b)      The Mortgage;

(c)      The Assignment of Leases
and Rents;

(d)      The Assignment of
Contracts;

(e)      The Recourse Guaranty;

(f)       The Completion Guaranty;

(g)      The Environmental
Indemnity;

(h)      The Assignment of
Membership Interests and Security agreement dated the date hereof, made by
Member for the benefit of Lender;

(i)       The Ritz-Carlton Consent
Agreement;

(j)       The ML&P Consent
Agreement;

(k)      The Assignment of
Purchase Contracts;

(l)       Ground Lessor Consent,
Estoppel Certificate and Amendment;

(m)     Pledge of Accounts,
Security Agreement and Rights to Payment;

(n)      Assignment of Contracts,
Licenses, Permits, Agreements, Warranties and Approvals;

(o)      The Keep Whole Letters;

 25
 

 

 

(p)      Such UCC financing
statements as Lender determines are advisable or necessary to perfect or notify
third parties of the security interests intended to be created by the Loan
Documents; and

(q)      Such other documents,
instruments or certificates as Lender or its counsel may reasonably require,
including such documents as Lender in its sole discretion deems necessary or
appropriate to effectuate the terms and conditions of this Agreement and the
Loan Documents and to comply with Laws.

Section 4.3             Term of the Loan.

(a)      All principal, interest
and other sums due under the Loan Documents shall be due and payable in full on
the Maturity Date.

(b)      Borrower may elect to
extend the Maturity Date for two (2) additional terms of twelve (12) months
each (each, an “Extension Period”; respectively, the “First Extension
Period” and the “Second Extension Period”; and collectively, the “Extension
Periods”), subject to the satisfaction of each of the following conditions
prior to the Initial Maturity Date and First Extension Period Maturity Date, as
the case may be:

(i)            Borrower
furnishes Lender with not less than thirty (30), but not more than ninety (90),
days’ advance written notice of its election to extend the Maturity Date (the “Extension
Notice”), which Extension Notice may be rescinded or withdrawn by Borrower;
provided that such rescission notice is deliver to Lender at least five (5)
days prior to the Initial Maturity Date and First Extension Period Maturity
Date, as the case may be.  In the event
that Borrower elects to rescind its Extension Notice, Borrower shall pay by all
of Lender’s actual costs and expenses (including reasonable attorneys’ fees and
expenses) incurred in connection with such rescission;

(ii)           There
shall be no uncured Default of which notice has been previously given to
Borrower or Event of Default that exists under this Agreement or any of the
other Loan Documents either at the time the Extension Notice is given or on the
Initial Maturity Date or First Extension Maturity Date, as applicable;

(iii)          Borrower
shall have established with Lender sufficient reserves for the payment of such
Taxes, Insurance Premiums, interest due on the Loan during the Extension Period
and other expenses as Lender reasonably anticipates will be incurred by
Borrower in excess of any unexpended amounts remaining in Budget Line Items for
the payment of such Taxes, Insurance Premiums, interest and other expenses
during the Extension Period pursuant to this Agreement;

(iv)          Borrower
shall have theretofore substantially completed the Improvements in accordance
with the Plans and Specifications;

(v)           Borrower
shall have theretofore obtained the approval of the Office to the Condominium
Documents, Residential Condominium and made all filings requisite to the
creation of the Residential Condominium;

 26
 

 

 

Borrower shall have delivered a certificate to Lender
that (A) there exists no Event of Default at the time the Extension Notice is
given and on the Initial Maturity Date or First Extension Period Maturity Date,
as the case may be, and (B) the representations and warranties contained herein
are true and correct in all material respects at the time the Extension Notice
is given and on the Initial Maturity Date or First Extension Period Maturity
Date, as the case may be; but subject to update to include those facts and
circumstances that are reasonably necessary to include to render the
representations true and correct in all material respects.  In the event that a representation and
warranty given to Lender is updated such that a material adverse fact is
disclosed to Lender then Lender shall not be obligated to extend the term of
the Loan;

(vi)          Guarantor
executes and delivers to Lender a reaffirmation of the Recourse Guaranty;

(vii)         Borrower
shall have delivered to Lender a reaffirmation of each existing Contract of
Sale that such Contract of Sale is in full force and effect.  The reaffirmations shall be dated not earlier
than sixty (60) days prior to the Initial Maturity Date or First Extension
Period Maturity Date, as the case may be;

(viii)        Borrower
causes Title Insurer to deliver to Lender an endorsement to the Title Policy,
insuring the priority of the lien of the Mortgage; and

(ix)           Borrower
shall have paid all costs and expenses actually incurred by Lender in
connection with such extension, including, without limitation, underwriting,
title and reasonable legal fees and costs.

(c)      Borrower shall not be
entitled to any further disbursements of Loan proceeds during the Extension
Period except to the extent there are unexpended amounts of the Loan remaining
in Budget Line Items for the payment of Taxes, Insurance Premiums, interest and
other unapplied Budget Line Items.

Section 4.4             Prepayments.

Except as required by Sections 15.4(h), 15.5(e),
and 17.1(a) hereof, Borrower may not prepay the Loan at any time prior
to the second anniversary of the Effective Date (the “Lockout Date”).  Thereafter, except as provided in Section
4.5, Borrower may prepay the Loan in whole only upon not less than thirty
(30) days’ written notice to Lender.  No
such prepayment of the Loan shall be permitted unless the same is accompanied
by (i) all interest accrued on the Loan through the date of prepayment, (ii)
Breakage Costs incurred by Lender as a result of the prepayment, and (iii)
reasonable attorneys’ fees incurred by Lender as a result of the
prepayment.  A prepayment notice may be
rescinded or withdrawn by Borrower provided that such rescission notice is
deliver to Lender at least five (5) days prior to the prepayment date and
Borrower shall pay by all of Lender’s actual costs and expenses (including
reasonable attorneys’ fees and expenses) incurred in connection with such
rescission.

 27
 

 

 

Section 4.5             Required Principal Payments.

(a)      Borrower shall make
payments on account of the principal amount of the Loan upon the release of the
lien of the Mortgage in respect of a Unit, as provided in Section 15.4(h)
hereof; and

(b)      On the Maturity Date,
Borrower shall pay the entire amount of the Debt.

ARTICLE V

INTEREST

Section 5.1             Interest Rate.

(a)      Interest shall accrue on
the Loan at the Applicable Rate.  Subject
to the provisions hereinafter set forth, the Applicable Rate shall be the
Adjusted LIBOR Rate.

(b)      Interest in arrears at
the Applicable Rate shall be payable on each Payment Date.

(c)      As long as no Event of
Default has occurred and is continuing, Borrower may elect from time to time
(each, a “LIBOR Rate Election”), but no more frequently than once in any
calendar month, to have the Adjusted LIBOR Rate apply to any portion of the
principal amount of the Loan (including any disbursement of Loan proceeds about
to be made) by giving Lender irrevocable written notice of such election
designating the Interest Period for which such LIBOR Rate Election is to
apply.  Such written notice shall be
given to Lender at its New York office by no later than 11:00 A.M. New York
time at least three (3) LIBOR Business Days prior to the date on which the
applicable Interest Period will commence. 
If a LIBOR Rate Election is then in effect with respect to any portion
of the Loan, then no Interest Period for such portion (or any part thereof) of
the Loan may be designated which commences prior to the last day of the then
current and applicable Interest Period for such portion of the Loan.  In no event may Borrower elect an Interest
Period which extends beyond the Maturity Date. 
Notwithstanding anything to the contrary, (i) the LIBOR Rate Election may
be exercised from time to time only as to a minimum amount of $53,000,000, and
(ii) in no event shall more than seven (7) Interest Periods be in effect at any
time for the Loan.  If Borrower does not
select an Interest Period at least three (3) LIBOR Business Days prior to the
last day of the applicable Interest Period, then the Applicable Rate for such
amount following the end of such Interest Period shall be based on a thirty
(30) day Interest Period.

(d)      All payments (whether of
principal or interest) shall be deemed credited to Borrower’s account only if
received by 3:00 p.m. (New York time) on a Business Day; otherwise, such
payment shall be deemed received on the next Business Day.

(e)      If Lender determines
(which determination shall be conclusive and binding upon Borrower, absent
manifest error) (i) that dollar deposits in respect of any portion of the Loan
bearing interest at the Adjusted LIBOR Rate are not generally available at such
time in the London Interbank market, (ii) that the rate at which such deposits
are being offered will not adequately and fairly reflect the cost to Lender of
maintaining a LIBOR Rate on such portion of the Loan or of funding the same due
to circumstances affecting the London

 28
 

 

 

interbank market generally, (iii) that reasonable means do not exist
for ascertaining a LIBOR Rate or (iv) that an Adjusted LIBOR Rate would be in
excess of the maximum interest rate which Borrower may by law pay, then, in any
such event, Lender shall so notify Borrower and all portions of the Loan
bearing interest at the Adjusted LIBOR Rate that are so affected shall, as of
the date of such notification with respect to an event described in clauses
(ii) or (iv) above, or as of the expiration of the Applicable Rate Interest
Period with respect to an event described in clauses (i) or (iii) above, bear
interest at the Adjusted Prime Rate until such time as the situations described
above are no longer in effect.

(f)       If the introduction of
(or any change in) any Law, regulation or treaty, or in the interpretation
thereof by any Governmental Authority charged with the administration or
interpretation thereof, shall make it unlawful for Lender to maintain the
Applicable Rate at an Adjusted LIBOR Rate with respect to the Loan or any
portion thereof, or to fund the Loan or any portion thereof in dollars in the
London interbank market, then (i) Lender shall notify Borrower that Lender is
no longer able to maintain the Applicable Rate at an Adjusted LIBOR Rate, (ii)
the Applicable Rate shall automatically be converted to the Adjusted Prime Rate
and (iii) Borrower shall pay to Lender the amount of Breakage Costs (if any)
incurred by Lender in connection with such conversion.  Lender shall use reasonable efforts to avoid
incurring any Breakage Costs but shall have no liability if any Breakage Costs
are incurred.  Thereafter, interest shall
accrue on the Loan or the applicable portion thereof at the Adjusted Prime Rate
until such time as the situation described herein is no longer in effect.

(g)      Interest on the
outstanding principal balance of the Loan shall be calculated by multiplying
(i) the actual number of days elapsed in the period for which the calculation
is being made by (ii) a daily rate based on a three hundred sixty (360) day
year by (iii) the outstanding principal balance of the Loan.

(h)      Borrower shall indemnify
Lender and hold Lender harmless from any loss or expense which Lender sustains
or incurs as a consequence of (i) any default by Borrower in payment of the
principal of or interest on any portion of the Loan bearing interest at an
Adjusted LIBOR Rate, including, without limitation, any such loss or expense
arising from interest or fees payable by Lender to lenders of funds obtained by
it in order to maintain such portion of the Loan at an Adjusted LIBOR Rate,
(ii) any prepayment (whether voluntary or mandatory) of any portion of the Loan
bearing interest at an Adjusted LIBOR Rate on a day that (A) is not the Payment
Date immediately following the last day of an Interest Period with respect
thereto or (B) is the Payment Date immediately following the last day of an
Interest Period with respect thereto if Borrower did not give the prior written
notice of such prepayment required pursuant to the terms of this Agreement,
including, without limitation, such loss or expense arising from interest or
fees payable by Lender to lenders of funds obtained by it in order to maintain
such portion of the Loan at an Adjusted LIBOR Rate and (iii) the conversion
(for any reason whatsoever, whether voluntary or involuntary) of the Applicable
Rate from an Adjusted LIBOR Rate to the Adjusted Prime Rate with respect to any
portion of the Loan on a date other than the Payment Date immediately following
the last day of an Interest Period, including, without limitation, such loss or
expenses arising from interest or fees payable by Lender to lenders of funds
obtained by it in order to maintain such portion of the Loan at an Adjusted
LIBOR Rate (the amounts referred to in clauses (i), (ii) and (iii) are herein
referred to collectively as the “Breakage Costs”).  This provision shall survive payment

 29
 

 

 

of the Note in full and the satisfaction of all other obligations of
Borrower under this Agreement and the other Loan  Documents. 
Lender shall make reasonable efforts to avoid incurring any Breakage
Costs in connection with the application of the Release Prices in reduction of
the Debt.

(i)       The outstanding
principal balance of the Loan shall bear interest at the Default Rate at any
time during which an Event of Default exists.

ARTICLE VI

COSTS OF MAINTAINING LOAN

Section 6.1             Increased Costs and Capital
Adequacy.

(a)      Borrower recognizes that
the cost to Lender of maintaining the Loan or any portion thereof may fluctuate
and Borrower agrees to pay Lender additional amounts to compensate Lender for
any increase in costs incurred in maintaining the Loan or any portion thereof
or for the reduction of any amounts received or receivable from Borrower as a
result of:

(i)            any
change after the date hereof in any Law, regulation or treaty, or in the
interpretation or administration thereof, or by any domestic or foreign court,
(x) changing the basis of taxation of payments under this Agreement to Lender
(other than taxes imposed on all or any portion of the overall net income or
receipts of Lender), (y) imposing, modifying or applying any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, credit extended by, or any other acquisition of funds for loans by
Lender or (z) imposing on Lender, or the London interbank market generally, any
other condition affecting the Loan, provided that the result of the foregoing
is to increase the cost to Lender of maintaining the Loan or any portion
thereof or to reduce the amount of any sum received or receivable from Borrower
by Lender under the Loan Documents; or

(ii)           the
maintenance by Lender of reserves in accordance with reserve requirements
promulgated by the Board of Governors of the Federal Reserve System of the
United States with respect to “Eurocurrency Liabilities” of a similar term to
that of the Loan (without duplication for reserves already accounted for in the
calculation of a LIBOR Rate pursuant to the terms hereof).

(b)      If the application of any
Law, rule, regulation or guideline adopted or arising out of the report of the
Basle Committee on Banking Regulations and Supervisory Practices entitled “International
Convergence of Capital Measurement and Capital Standards”, or the adoption
after the date hereof of any other Law, rule, regulation or guideline regarding
capital adequacy, or any change after the date hereof in any of the foregoing,
or in the interpretation or administration thereof by any domestic or foreign
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such Governmental Authority, central bank or comparable
agency, has the effect of reducing the rate of return on Lender’s capital to a
level below that which Lender would have achieved but for such application,
adoption, change or compliance

 30
 

 

 

(taking into consideration the policies of Lender with respect to
capital adequacy), then, from time to time Borrower shall pay to Lender such
additional amounts as will compensate Lender for such reduction with respect to
any portion of the Loan outstanding.

(c)      Any amount payable by
Borrower under subsection (a) or subsection (b) of this Section 6.1 shall be
paid within five (5) days of receipt by Borrower of a certificate signed by an
authorized officer of Lender setting forth the amount due and the basis for the
determination of such amount, which statement shall be conclusive and binding
upon Borrower, absent manifest error.

ARTICLE VII

LOAN EXPENSE AND ADVANCES

Section 7.1             Loan and Administration Expenses.

Borrower shall reimburse Lender, from time to time
upon five (5) days’ demand therefor, for reasonable, out-of-pocket expenses
incurred by Lender in connection with the administration of the Loan (excluding
Lender’s general overhead expenses), including all amounts payable pursuant to Sections
7.2 and 7.3 hereof and any and all other fees owing to Lender
pursuant to the Loan Documents, and also including, without limitation, all
recording, filing and registration fees and charges, mortgage or documentary
taxes, insurance premiums, title insurance premiums and other charges of the
Title Insurer, survey fees and charges, cost of certified copies of
instruments, cost of premiums on surety company bonds and the Title Policy,
charges of Title Insurer or other escrowee for administering disbursements, all
fees and disbursements of Lender’s Consultant, all fees and disbursements of
servicer, appraisal fees, syndication fees, insurance consultant’s fees,
environmental consultant’s fees, travel related expenses and all costs and
expenses incurred by Lender or Servicer in connection with the determination of
whether or not Borrower has performed the obligations undertaken by Borrower
hereunder or has satisfied any conditions precedent to the obligations of
Lender hereunder.  Further, if  any Default or Event of Default occurs or if
the Loan is not paid in full when and as due, Borrower shall pay to Lender upon
five (5) days’ demand therefor, all costs and expenses of Lender (including,
without limitation, reasonable attorneys’ fees and court costs) incurred in
attempting to enforce payment of the Loan or to realize upon the security
therefor.  Borrower agrees to pay Lender’s
fees and disbursements incurred in connection with title updates and title endorsements
ordered by the Lender (a) in connection with each disbursement of Loan
proceeds, (b) to be ordered every six (6) months if construction ceases and (c)
after completion of construction every six (6) months thereafter throughout the
term of the Loan, or more often if an Event of Default has occurred or if
required by examiners.

Section 7.2             Brokerage Fees.

Borrower shall pay all brokerage, finder or similar
fees or commissions payable in connection with the transactions contemplated
hereby and shall indemnify and hold Lender harmless against all claims,
liabilities, costs and expenses (including attorneys’ fees and expenses)
incurred in relation to any claim by any broker, finder or similar person
claiming that they represented Borrower; provided  however, that
as an inducement to Borrower to make the

 31
 

 

 

foregoing undertaking,
Lender represents and warrants to Borrower that Lender has not dealt with any
broker, finder or similar person in connection with this Loan.

Section 7.3             Right of Lender to Make Advances
to Cure Borrower’s Defaults.

If Borrower fails to perform any of Borrower’s
covenants, agreements or obligations contained in this Agreement or any of the
other Loan Documents (after the expiration of applicable grace periods, except
in the event of an emergency or other exigent circumstances), Lender may (but
shall not be required to), after written notice to Borrower and the expiration
of any applicable cure periods, perform any of such covenants, agreements and
obligations, and any amounts expended by Lender in so doing shall be added to
the Debt and bear interest at the Default Rate.

ARTICLE VIII

CONDITIONS PRECEDENT

TO THE MAKING OF THE LOAN

Section 8.1             Non-Construction Conditions
Precedent.

Lender’s obligation to fund the Initial Advance and thereafter
to make any further disbursements of the Loan is conditioned upon Borrower’s
delivery, performance and satisfaction of the following conditions precedent in
form and substance satisfactory to Lender.

(a)      Borrower shall have
furnished duly executed copies of the documents listed in Section 4.2;

(b)      There shall exist no
Default of which Borrower has received notice from Lender or Event of Default;

(c)      Borrower has paid the
Loan Fee to Lender;

(d)      Borrower shall have
satisfied the Initial Equity Requirement;

(e)      Borrower shall have
furnished Lender with evidence (also satisfactory to the Title Insurer) that
all pre-closing development costs on the Project have been paid or will be paid
as of Closing;

(f)       Borrower shall have
furnished Lender with evidence that all taxes then due and payable, including
without limitation, real estate taxes, with respect to the Property have been
paid or will be paid as of Closing;

(g)      Borrower shall have
furnished to Lender the Title Policy, together with legible copies of all title
exception documents cited in the Title Policy and all other legal documents
affecting the Project or the use thereof;

(h)      Borrower shall have
furnished to Lender an ALTA/ACSM Land Title Survey of the Project and any and
all existing plats regarding the Project;

 32
 

 

 

(i)       Borrower shall have
furnished Lender with evidence of zoning or a copy of the final approved
Planned Unit Development (“PUD”) map, preliminary development plan (“PDP”)
or other development plan for the Project permitting the construction of the
Improvements and containing all use or building conditions or restrictions
affecting the Project and approved by the appropriate Governmental Authority;

(j)       Borrower shall have
furnished to Lender certified copies of the Issued Entitlements and all other
Governmental Approvals and Permits then required for the Project;

(k)      Borrower shall have
furnished Lender with policies or binders evidencing that Borrower has obtained
and maintains insurance coverage in respect of Borrower and the Project in
accordance with the provisions of Section 16.2 below, and paid all
Insurance Premiums in respect thereof;

(l)       All of the
representations of Borrower and Guarantor set forth in the Loan Documents shall
be true and correct in all material respects;

(m)     Borrower shall have
furnished Lender with an opinion(s) from counsel to Borrower, Member and
Guarantor as to due formation, valid existence and good standing of Borrower,
Member and Guarantor, authorization, due execution and delivery of the Loan
Documents, enforceability and perfection of the Loan Documents, and security
interests, usury, zoning and land use entitlements, marketing and sale of Units
in accordance with applicable law, and such other matters as Lender may
reasonably request.

(n)      Borrower shall have
furnished Lender with the Non-Consolidation Opinion;

(o)      Borrower shall have
furnished Lender with an zoning report from PBR Hawaii as to violations and
zoning, and use of property and other non-zoning land use permits.

(p)      Borrower shall have
furnished Lender with current bankruptcy, federal tax lien, litigation,
judgment and UCC searches in respect of Borrower, Member and Guarantor;

(q)      Borrower shall have
furnished Lender with current annual financial statements of Member and
Guarantor, each in form satisfactory to Lender and each certified as being
true, complete and correct by the party to which it relates;

(r)       Borrower shall have
furnished Lender with proof satisfactory to Lender of its authority, formation
and good standing in the state of its formation and qualification in the State
of Hawaii;

(s)      Borrower shall have
furnished Lender with (i) certified copies of all action taken by Borrower,
Member and any other principal of Borrower to authorize the execution, delivery
and performance, in accordance with its terms, of this Agreement, the Mortgage,
the Note, each of the other Loan Documents and any other documents required or
contemplated hereunder or thereunder to which it is a party; (ii) a certificate
of incumbency with respect to the representatives of each Borrower, Member and
any other principal of Borrower authorized and directed to execute and deliver
each of the Loan Documents to which it is a party; 

 33
 

 

 

(iii) certificates of good standing for Borrower, Member and any other
principal of Borrower from the appropriate authority in their jurisdictions of
formation, and (iv) certified copies of all organizational documents,
including, without limitation, formation and corporate governance documents,
for Borrower, Member and any other principal of Borrower;

(t)       Guarantor shall have
furnished Lender with (i) certified copies of all action taken by Guarantor to
authorize the execution, delivery and performance, in accordance with its
terms, of the Recourse Guaranty, the Completion Guaranty, the Environmental
Indemnity and any other documents required or contemplated hereunder or
thereunder to which it is a party (the “Guarantor Documents”); (ii) a
certificate of incumbency with respect to the representatives of each Guarantor
authorized and directed to execute and deliver each of the Guarantor Documents
to which it is a party; and (iii) certificates of good standing for Guarantor
from the appropriate authority in their jurisdictions of formation;

(u)      Borrower shall have
furnished Lender with evidence of the availability to the Improvements of all
utilities utilized or to be utilized at the Project in compliance with the
requirements of the Plans and Specifications. 
Such evidence may be in the form of letters from utility companies or
local authorities, that (a) telephone service, cable, telecommunications,
electric power, natural gas, storm sewer, sanitary sewer and water facilities
are available to the Project; (b) such utilities are adequate to serve the
Project and exist at the boundary of the Project; and (c) no conditions exist
to affect Borrower’s right to connect into and have unlimited use of such
utilities except for the payment of a normal connection charge and except for
the payment of subsequent charges for such services to the utility supplier;

(v)      Lender shall have
reviewed and approved the Appraisal;

(w)     Lender shall have reviewed
and approved the Environmental Report;

(x)      Borrower shall have
furnished Lender with copies of all engineering reports, land planning maps, or
plats, soils tests, environmental reports, surveys prepared for the orderly
planning of the Improvements, marketing materials and brochures, building
permits or licenses, utility taps or supply agreements, governmental or private
agreements, indemnities, waivers, rights to reimbursements, abatements or
benefits of whatsoever nature regarding the Property, to the extent assignable,
and other documents prepared and existing for the construction of the
Improvements, available on the Effective Date, with subsequent submissions to
Lender of reports and studies not required to be available on the Effective
Date, if requested by Lender (collectively, the “Development Items”).

(y)      Borrower shall have
furnished Lender with copies of any agreements, existing or proposed, with any
Governmental Authority, in the nature of a subdivider’s agreement, public
improvements agreement, or annexation agreement affecting the development of
the Project or requiring cash equivalent collateral, or imposing building
restrictions in lieu of collateral, as a condition to development of the
Project (collectively, the “Development Documents”).

 

 34

 

 

(z)      Borrower shall have
furnished Lender with evidence that any obligations regarding development in
connection with the Project arising under the Development Documents or
agreements with providers of utility services or governmental regulations which
could become a lien against the Property or a restriction against the issuance
of building permits or certificates of occupancy for the Improvements
(collectively, the “Development Obligations”) have been or will be
satisfied or performance of the Development Obligations has been or will be
secured by adequate financial security such as bonds, letters of credit or
certificates of deposit pursuant to the agreements creating the Development
Obligations or the requirements of the utility provider.

(aa)    Borrower shall have
furnished to Lender a fully executed Ground Lessor Consent, Estoppel
Certificate and Amendment;

(bb)   Borrower shall have
furnished to Lender fully executed copies of the Marketing Agreements;

(cc)    Borrower shall have
furnished Lender with copies of the Condominium Documents and Fractional
Ownership Documents;

(dd)   Borrower shall have
furnished Lender with fully executed copies of all Contracts of Sale existing
as of the Effective Date;

(ee)    Borrower shall have
furnished Lender with a fully-executed copy of that certain ER Residences
Agreement (the “ER Purchase Agreement”) dated August 31, 2004, by and
between Borrower and Exclusive Resorts, as amended by that certain First
Amendment dated June 28, 2006, for the purchase of 28 Residential Condominium
Units by Exclusive Resorts.  The actual
purchase of each such Residential Condominium Unit shall be effected by the due
execution of a Contract of Sale by Borrower and Exclusive Resorts (or its
permitted assigns);

(ff)     Borrower shall have
furnished Lender with fully-executed copies of the ML&P Agreements;

(gg)   Lender shall have received
evidence satisfactory to it that the Operating Account has been established.

(hh)   The Lender shall have
received a true and correct copy of the pay off letter from the holder or any
existing debt encumbering the Project, and the terms thereof shall be
reasonably satisfactory to the Lender;

(ii)      Borrower shall have
paid, or will pay at closing, all brokerage fees or commissions arising from
the making of the Loan, if any, its own expenses and fees incurred in
connection with the Loan, and all of Lender’s fees and charges incurred in
connection with the making of the Loan, including but not limited to attorneys’
fees and charges, title fees and charges, construction, environmental and
engineering consultant’s fees and charges, appraisal costs, surveys, recording
and filing fees and taxes; and

 35
 

 

 

(jj)      All documents and legal
matters in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to the Lender.

ARTICLE IX

CONDITIONS PRECEDENT FOR SUBSEQUENT ADVANCES UNDER THE LOAN

Section 9.1             Pre-Development Conditions
Precedent.

Subject to Section 9.2, Lender’s obligation to
disburse loan proceeds for Pre-Development Costs up to a maximum amount of
Eighty-Five Million and 00/100 Dollars ($85,000,000.00), which amount shall be
inclusive of the Initial Advance, is conditioned upon Borrower’s delivery,
performance and satisfaction of the following conditions:

(a)      Borrower has made its request
for disbursement and has satisfied all of the conditions in this Section 9.1;

(b)      Borrower delivers to
Lender a Requisition, duly executed by the Authorized Representative;

(c)      Borrower delivers to
Lender such invoices, contracts or other information as Lender may reasonably
require to evidence that Borrower has incurred all costs covered by the request
for disbursement;

(d)      Borrower delivers to
Lender an executed, acknowledged lien waiver from each Subcontractor in respect
of all Hard Costs covered by the prior disbursement of the Loan;

(e)      Borrower delivers to
Lender paid receipts or other proof of payment of all Soft Costs covered by the
prior disbursement of the Loan;

(f)       Borrower delivers to
Lender an endorsement to the Title Policy though the date of the disbursement,
confirming the first priority lien position of the Mortgage, subject only to
the Permitted Exceptions;

(g)      Borrower delivers to
Lender such other instruments, documents and information as Lender or Title
Insurer may reasonably request;

(h)      Consent from the
Architect to the collateral assignment by Borrower to Lender of the Architect’s
Agreement and the Plans and Specifications in respect of the Project;

(i)       Borrower shall have made
or shall simultaneously make an equity contribution that complies with the
Equity Requirement conditions, for payment of expenses included in the
Construction Budget in an amount equal to forty percent (40%) of the total Hard
Costs and Soft Costs incurred through the date of the requested disbursement;  and

(j)       Borrower shall have
utilized all Available Contract Deposits.

 36
 

 

 

Each disbursement shall be made approximately ten (10)
days after Borrower’s satisfaction of all of the foregoing conditions to the
making of such disbursement, except for the Initial Advance which shall be made
at Closing.

Section 9.2             Building Permit.  Notwithstanding Section 9.1 or any other
provision to the contrary in this Agreement, including, without limitation,
Article X, Lender shall not be obligated to make any further disbursements of
Loan proceeds subsequent to the Initial Advance unless and until the building
permits for the Residential Condominium Units and Fractional Ownership Units
have been issued.  Upon issuance of the
building permit for the Residential Condominium Units and Fractional Ownership
Units, Lender shall make additional disbursements to Borrower of Loan proceeds
subject to the satisfaction of the other conditions set forth in this
Agreement; provided, however, that notwithstanding Section 9.1(i) and Section
13.1(l), Borrower shall not be obligated to make any additional equity
contributions until such time as Lender has determined that a disbursement by
Lender would otherwise result in the ratio of the amount of equity contributed
to the Project by Borrower (excluding by application of Contract Deposits) for
payment of Hard Costs and Soft Costs provided in the Construction Budget to the
total Loan proceeds advanced by Lender being less than 40% of equity to 60% of
Loan proceeds.

Section 9.3             Pre-Sales Requirement.  Lender’s obligation to disburse loan proceeds
in excess of $85,000,000 shall be conditioned on Lender’s receipt of executed,
enforceable Qualifying Contracts of Sale with an aggregate sales price equal to
or exceeding Two Hundred Eighty-Five Million and 00/100 Dollars
($285,000,000.00) (including those Units to be sold to Exclusive Resorts
pursuant to the ER Purchase Agreement, which is deemed to be a Qualifying
Contract of Sale for this purpose).

ARTICLE X

CONSTRUCTION CONDITIONS PRECEDENT FOR SUBSEQUENT ADVANCES UNDER THE LOAN

Section 10.1           Required Construction Documents.

Borrower shall obtain prior to the Construction
Commencement Date, and as a condition for any advances to be made subsequent to
the Construction Commencement Date, Lender’s approval of each of the following
items:

(a)      Confirmation that Issued
Entitlements are still in place and in effect. 
Confirmation shall amount to an affidavit by Borrower that no action has
been undertaken which jeopardizes Entitlements;

(b)      Fully executed copies of:
(i) the General Contract (except that the General Contract pertaining to the
Spa shall not be required until August 1, 2007) ; (ii) those Construction
Contracts then required to comply with the Construction Contracts Effectiveness
Schedule or with respect to which any Construction is then being performed;
(iii) the Architect’s Agreement and (iv) all contracts with Engineers;

 37
 

 

 

(c)      A current annual
financial statement of General Contractor, satisfactory to Lender and certified
as being true, complete and correct by General Contractor;

(d)      A schedule of values,
including a trade payment breakdown, setting forth a description of all
Construction Contracts;

(e)      All Permits then required
for that portion of the Construction for which funds will be disbursed; as funds
are requested for additional portions of the Construction Borrower shall
provide Permits for same;

(f)       The Plans and
Specifications;

(g)      Fully paid Bonds in favor
of Lender, guaranteeing the obligations of General Contractor under the General
Contract and the Subcontractors under the Major Contracts;

(h)      A report from Lender’s
Consultant which contains an analysis of the Plans and Specifications, the
Construction Budget, the Construction Schedule, the General Contract and all
Construction Contracts. Such report shall contain (i) an analysis demonstrating
the adequacy of the Construction Budget to complete the Project and (ii) a
confirmation that the Construction Schedule is realistic.  Lender’s Consultant shall monitor
construction of the Project and shall visit the Project at least one (1) time
in connection with each disbursement request, and shall certify as to amount of
construction costs for all requested advances;

(i)       The Architect’s
Certificate, executed by the Architect;

(j)       Consents from the General
Contractor, the Architect, and other Persons reasonably specified by Lender to
the collateral assignment by Borrower to Lender of construction documents,
including, without limitation, the General Contract, the Architect’s Agreement,
contracts with Engineers, Plans and Specifications, all permits, licenses and
approvals (to the extent assignable under applicable law) in respect of the
Project, any other Development Item and any Development Document;

(k)      Borrower’s certification
that all Contract Deposits utilized to date for Hard Costs and Soft Costs
constitute Available Contract Deposits and have been utilized or will be
utilized in conjunction with the requested advance;

(l)       [Intentionally Deleted];

(m)     [Intentionally Deleted];

(n)      An engineer’s report prepared
and certified by a qualified engineer acceptable to Lender, showing locations
and results of all borings, together with recommendations for the design of the
foundations of the Improvements and certifying in a manner satisfactory to
Lender the adequacy of the existing soils condition, indicating that the Plans
and Specifications for construction of the Improvements are satisfactory in
view of the condition of the soil;

 38
 

 

 

(o)      Copies of marketing
brochures or materials regarding the Project;

(p)      An opinion in form and
substance reasonably satisfactory to Lender from Borrower’s independent counsel
that the Fractional Ownership Documents recorded in the Office with respect to
the Fractional Ownership Units are sufficient to subject the Fractional Ownership
Units to a fractional ownership regime in compliance with the laws of the State
of Hawaii (“Fractional Ownership Opinion”), which Fractional Ownership
Opinion shall be delivered prior to the initial partial release of any Unit;
and

(q)      The form of Purchase
Contract to be used by Borrower in the sale of the Fractional Ownership Units
and the Residential Condominium Units; and

(r)       Such other materials and
documents as Lender may reasonably require with respect to the Construction.

ARTICLE XI

CONSTRUCTION BUDGET; RESERVES; OPERATING BUDGET

Section 11.1           Construction Budget.

Disbursements of the Loan shall be governed by the
Construction Budget.  The Construction
Budget shall include, in addition to the Budget Line Items described in Section
11.2 below, the Contingency Reserve and the Interest Reserve.  Borrower shall not modify  the Construction Budget without first
obtaining Lender’s prior written consent thereto.  Borrower may reallocate funds among Budget
Line Items in the Construction Budget as are reasonably necessary for the
Construction of the Improvements in Borrower’s judgment, provided that (a)
funds may only be moved to or from any particular Budget Line Item once per
Budget Line Item without Lender’s prior consent and (b) any individual Budget
Line Item shall not be reduced by more than five percent (5%).  Borrower shall not otherwise modify the
Construction Budget without first obtaining Lender’s prior written consent
thereto

Section 11.2           Budget Line Items.

(a)      The Construction Budget
shall include as line items (“Budget Line Items”) all Hard Costs and
Soft Costs.  All Loan proceeds disbursed
by Lender shall be used only for the Budget Line Items for which such proceeds
were disbursed.

(b)      Lender shall not be
obligated to disburse any amount for any category of costs set forth as a
Budget Line Item which is greater than the amount set forth for such category
in the applicable Budget Line Item. 
Borrower shall pay as they become due all amounts set forth in the Construction
Budget with respect to costs to be paid for by Borrower.  If any Budget Line Item shall be (i)
completed without the expenditure of all amounts in the Construction Budget
allocated to such Budget Line Item or (ii) with regard to unfinished Budget
Line Items, to the extent Borrower can demonstrate to the satisfaction of
Lender that savings in the particular Budget Line Item exist that do not result
from either the Interest Reserve or the Contingency Reserve and such potential
savings do not result in an increase to

 39
 

 

 

the Construction Budget, then Borrower may reallocate savings, provided
that: (x) Borrower shall have submitted to Lender a revised Construction Budget
reflecting the reallocation of Budget Line Items; and (y) no Budget Line Item
for Hard Costs shall be reallocated to pay any Budget Line Item for Soft Costs
until Borrower has paid all Hard Costs and completed the Improvements.

Section 11.3           Contingency Reserve.

The Construction Budget shall contain a Budget Line
Item for additional, unforeseen costs and expenses (the “Contingency Reserve”).  Borrower may from time to time request that
Lender permit the reallocation of portions of the Contingency Reserve to pay
costs of the Project for which amounts remaining in any Budget Line Item are
insufficient.  Borrower agrees that the decision
with respect to utilizing portions of the Contingency Reserve in order to keep
the Loan “In Balance” shall be made by Lender in its reasonable discretion, and
that Lender may require Borrower to make a Deficiency Deposit even if funds
remain in the Contingency Reserve.  
Notwithstanding the foregoing, Lender hereby agrees that a proportion of
the Contingency Reserve equal to the completed percentage of the Project, up to
50% of sums then in the Contingency Reserve (and not utilized, reallocated or used
to keep the Loan In Balance), may be reallocated to pay costs of the Project
without Lender’s consent, provided that Borrower delivers to Lender a
certificate from the Architect confirming the completed percentage of the
Project prior to any such reallocation.

Section 11.4           Interest Reserve.

The Construction Budget shall contain a Budget Line
Item for payment of interest due in respect of the Loan (the “Interest
Reserve”).  Borrower hereby
authorizes Lender from time to time, for the mutual convenience of Lender and
Borrower, to disburse Loan proceeds to pay all accrued interest on the Note, to
the extent then due and payable, regardless of whether Borrower shall have
specifically requested disbursement of such amount.  Any such disbursement, if made, shall be
added to the outstanding principal balance of the Note and shall, when
disbursed, bear interest at the Applicable Rate.  The authorization hereby granted, however,
shall not obligate Lender to make disbursements of the Loan for interest
payments, unless Borrower requests, and qualifies for, disbursement of the
portion of the Construction Budget allocated therefor.

Section 11.5           Tax and Insurance Reserve.

The Construction Budget shall contain Budget Line
Items for payment of real estate taxes and Insurance Premiums (the “Tax and
Insurance Reserve”).  Borrower hereby
authorizes Lender from time to time, for the mutual convenience of Lender and
Borrower, to disburse Loan proceeds to pay real estate taxes and Insurance
Premiums, to the extent then due and payable, regardless of whether Borrower
shall have specifically requested disbursement of such amount.  Any such disbursement, if made, shall be
added to the outstanding principal balance of the Note and shall, when disbursed,
bear interest at the Applicable Rate. 
The authorization hereby granted, however, shall not obligate Lender to
make disbursements of the Loan for real estate taxes and Insurance Premiums,
unless Borrower requests, and qualifies for, disbursement of the portion of the
Construction Budget allocated therefor.

 40
 

 

 

Section 11.6           [Intentionally Deleted].

Section 11.7           [Intentionally Deleted].

Section 11.8           [Intentionally Deleted].

ARTICLE XII

SUFFICIENCY OF LOAN

Section 12.1           Loan In Balance.

Anything contained in this Agreement to the contrary
notwithstanding, the Loan shall at all times be “In Balance”, on a Budget Line
Item basis and in the aggregate.  A
Budget Line Item shall be deemed to be “In Balance” only if Lender, in its
reasonable discretion, determines that the amount of such Budget Line Item is
sufficient for its intended purpose.  The
Loan shall be deemed to be “In Balance” in the aggregate only when the
total of the undisbursed portion of the Loan plus the undisbursed balance of
Available Contract Deposits, less the Contingency Reserve (such total being the
“Available Funds”), equals or exceeds the aggregate of: (i) the costs
required to complete the Construction in accordance with the Plans and
Specifications and the Construction Budget; (ii) the amounts to be paid as
retainages to persons who have supplied labor or materials to the Project;
(iii) the amount required to pay interest on the Loan through the Maturity
Date; (iv) amounts required to be refunded or otherwise paid to any contract
vendee under a Contract of Sale; and (v) all other Hard Costs and Soft Costs
not yet paid for in connection with the Project, as such costs and amounts
described in clauses (i) through (v) above may be estimated and/or approved in
writing by Lender from time to time (such costs and amounts in (i) through (v)
being the “Outstanding Loan Costs”). 
If, in Lender’s reasonable determination, either any Budget Line Item is
insufficient for such purpose or the aggregate amount of the Available Funds is
less than Outstanding Loan Costs, then Borrower shall, within fifteen (15) days
after written request by Lender, (with simultaneous copies of such written
request sent to Guarantors), deposit the deficiency with Lender (a “Deficiency Deposit”).  The Deficiency Deposit shall first be
exhausted before any further disbursement of the applicable Loan proceeds shall
be made.  Any Deficiency Deposit
remaining after a particular Budget Line Item or the Loan, as the case may be,
is back “In Balance” shall be returned to Borrower.  Lender shall not be obligated to make any
Loan disbursements if and for as long as the Loan is not “In Balance”.    Notwithstanding anything contained herein
to the contrary, Lender will forbear from requiring collection of any
Deficiency Deposit until the earlier of (a) February 11, 2007 or (b) the date
the Public Report is filed and one or more Contract Deposits become Available
Contract Deposits.

ARTICLE XIII

CONSTRUCTION PAYOUT REQUIREMENTS

Section 13.1           Documents to be Furnished for Each
Disbursement.

As a condition precedent to each disbursement of Loan
proceeds (other than the Initial Advance and disbursements for Pre-Development
Costs (but excluding Pre-Development Hard 

 41
 

 

 

Costs) in accordance with
Article IX), Borrower shall furnish or cause to be furnished to Lender
the following documents covering such disbursement, in form and substance
satisfactory to Lender:

(a)      A Requisition, duly
executed by an Authorized Representative;

(b)      An AIA form of cost
certification, executed by the General Contractor, as to all Hard Costs
included within the request for disbursement;

(c)      An Architect’s
Certificate with respect to the Improvements completed included within the
request for disbursement;

(d)      Such invoices, contracts
or other information as Lender may require to evidence that Borrower has incurred
all costs covered by the request for disbursement;

(e)      An executed, acknowledged
lien waiver from General Contractor in respect of all Hard Costs covered by the
prior disbursement of the Loan;

(f)       Paid receipts or other
proof of payment of all Soft Costs covered by the prior disbursement of the
Loan;

(g)      An endorsement to the
Title Policy though the date of the disbursement, confirming the first priority
lien position of the Mortgage, subject only to the Permitted Exceptions;

(h)      Copies of any Change Orders
executed since the date of the last disbursement;

(i)       Copies of all
Construction Contracts which have been executed since the last disbursement;

(j)       All Permits and all
other Governmental Approvals then required in respect of the Construction, all
of which must be assigned to Lender (to the extent permitted under applicable
law) as security for the Debt;

(k)      Copies of Contracts of
Sale which have been executed since the last disbursement, all of which must be
assigned to Lender as security for the Debt;

(l)       Evidence that Borrower
has made or shall simultaneously make an equity contribution for payment of
expenses included in the Construction Budget in an amount of forty percent
(40%) of the total construction costs incurred through the date of the requested
disbursement up to the aggregate amount of the Equity Requirement; and

(m)     Such other instruments,
documents and information as Lender or Title Insurer may reasonably request.

Each disbursement shall be made approximately ten (10)
days after Borrower’s satisfaction of the foregoing conditions to the making of
such disbursement.

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Section 13.2           Retainage.

Disbursement of Loan
proceeds for payment to the General Contractor will be consistent with the
retainage provisions to be included in the General Contract. The retainage
provisions of the General Contract may be written to allow reduction of
retainage at fifty percent (50%) completion of the entire work covered by the
General Contract so long as at no point during the course of construction is
the retainage less than five percent (5%) of the value of the work completed,
except in the case of those components of the work which are one hundred
percent (100%) complete, in which case retainage related to such fully
completed work can be released.

Section 13.3           Disbursements for Stored Materials.

Any requests for
disbursements which in whole or in part relate to materials, equipment or
furnishings which Borrower owns and which are not incorporated into the
Improvements as of the date of the request for disbursement, but are to be
temporarily stored at the Project or off-site, shall be made in an aggregate
amount not to exceed $5,000,000.00 at any time, unless Lender consents, in its
sole discretion, to a greater amount.  Any
such request must be accompanied by evidence satisfactory to Lender that (i)
such stored materials and the storage facility are included within the coverage
of the Policies, (ii) the ownership of such materials is vested in Borrower
free of any liens and claims of third parties, (iii) such materials are
properly insured and protected against theft or damage, (iv) unless Lender has
waived such requirement in writing, Lender’s Consultant has viewed and
inspected the stored materials, and (v) in the opinion of Lender’s Consultant,
the stored materials are physically secured and can be incorporated into the
Project within three hundred sixty (360) days. 
Lender may require separate Uniform Commercial Code financing statements
to cover any such stored materials.

ARTICLE XIV

FINAL DISBURSEMENT FOR CONSTRUCTION COSTS

Section 14.1           Final Disbursement for
Construction Costs.

Lender will advance to Borrower the final disbursement
for costs of Construction (including retainages) when the following conditions
have been satisfied, provided that all other conditions in this Agreement for
disbursements have also been satisfied:

(a)      There shall exist no
Default or Event of Default.

(b)      The Improvements have
been completed in substantial accordance with the Plans and Specifications,
free and clear of Liens, and are ready for occupancy;

(c)      Borrower shall have
furnished Lender with copies of all licenses and permits required by
Governmental Authorities for the occupancy of the Improvements, including,
without limitation, Certificates of Occupancy in respect of all of the Units;

(d)      Borrower shall have
furnished Lender with final conditional or unconditional lien waivers, executed
and acknowledged by General Contractor, Architect and all Subcontractors;

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(e)      Lender shall have
received an affidavit, on AIA Form G706 or equivalent, of payment of debts and
claims executed by the General Contractor;

(f)       Borrower shall have
furnished Lender with a certificate from the Architect stating that (i) the
Improvements have been substantially completed in accordance with the Plans and
Specifications, and (ii) the Improvements, as so substantially, completed
comply with all Laws;

(g)      Lender shall have
received a written certification on AIA Form G706A or equivalent from Borrower’s
Architect that each final punchlist item for the Improvements has been
completed and same have been reviewed and approved by Lender’s Consultant;

(h)      Lender shall have
received a certificate from Lender’s Consultant for the sole benefit of Lender
that the Improvements have been completed substantially in accordance with the
Plans and Specifications;

(i)       Lender shall have
received and approved an ALTA Endorsement 100 and such other title insurance
endorsements as it may require to the Title Policy insuring that the
Improvements have been completed free of mechanics’ liens encumbering all or
any portion of the Project;

(j)       At the request of
Lender, Borrower will make available to Lender a complete set of red-lined “as
built” plans for the Improvements, as completed;

(k)      There shall be no
statutory Liens filed of record or notice of intent to file such a Lien
delivered to Borrower or Lender for labor or material arising out of the
construction of the Improvements; unless, if there are any such Liens, Borrower
shall have made arrangements reasonably satisfactory to Lender for the
disposition or bonding thereof pursuant to Section 16.1(g);

(l)       At Lender’s request,
Lender shall have received the final list of personal property pursuant to Section
16.1(p); and

(m)     Lender shall have
received, at Borrower’s expense, a current, certified ALTA “as-built”
improvement survey, locating all property lines, building set back lines,
easements and the Improvements, parking spaces, and such other matters as shall
be required by Lender.

If Borrower fails to comply with and satisfy any of
the final disbursement conditions contained in this Section 14.1 on or
before the Completion Date, such failure shall constitute an Event of Default
hereunder.

Section 14.2           Retainage.

Notwithstanding the provisions of Section 14.1
above, the disbursement of the retainage that has not been released pursuant to
Section 13.2 shall be subject to the retention of such sums as Lender’s
Consultant shall determine are necessary to assure full completion of
punch-list

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items.  Upon the completion of such punch-list items,
Lender shall disburse any remaining retainage to Borrower.

ARTICLE XV

CONDOMINIUM COVENANTS

Section 15.1           Contracts of Sale.

(a)      Borrower shall not enter into any
Contracts of Sale, other than Qualifying Contracts of Sale.  Unless Borrower has theretofore obtained
Lender’s prior written consent thereto, Borrower may not enter into Contracts
of Sale with Guarantor, or Affiliates of Borrower or Guarantor.  Notwithstanding the previous sentence, Lender
hereby consents to the sale of Units pursuant to the ER Purchase Agreement and
Lender’s consent shall not be required with respect to immaterial amendments to
the form Contract of Sale previously approved by Lender for sale of each
individual Unit to be sold under the ER Purchase Agreement, to conform to the
ER Purchase Agreement, provided that no amendment shall be made to the sale
price set forth in the ER Purchase Agreement in effect on the date hereof.  Lender shall not unreasonably withhold such
consent, provided that the applicable Contract of Sale (i) satisfies the
requirements of the definition of “Qualifying Contract of Sale” contained
herein and (ii) is otherwise on an arm’s length, commercially reasonable
basis.  All Contracts of Sale entered
into by Borrower after the Effective Date shall be covered by the Assignment of
Purchase Contracts and, in each case, if required by Lender, by a separate
assignment in form and substance similar to the Assignment of Purchase
Contracts.  Notwithstanding anything to
the contrary in this Agreement, Lender hereby consents to the sale of Units
pursuant to the ER Purchase Agreement and any individual purchase agreements
entered into pursuant to the ER Purchase Agreement so long as the purchaser
under each such individual agreement is Exclusive Resorts or any of its
Affiliates.

(b)      All Contract Deposits
shall be deposited and held in the Condominium Deposit Account until such time
as (i) a purchaser becomes entitled to the refund thereof in accordance with
the terms of its Contract of Sale or (ii) the closing occurs under a Contract
of Sale, whereupon the Contract Deposit shall be applied on account of the
payment required under Section 15.4(h) below.  If (x) a purchaser defaults under a Contract
of Sale and (y) the Contract Deposit is paid to Borrower, Borrower shall pay
such Contract Deposit to Lender, for application to the Debt in such order of
priority as Lender shall elect in its sole discretion.  Notwithstanding the above, Borrower shall
first apply the Available Contract Deposits towards funding the Construction
pursuant to the Construction Budget, provided that: (i) Borrower has duly
complied with all applicable laws pertaining to the use of such Contract
Deposits for construction costs and delivers to Lender Borrower’s certification
as to such compliance in accordance with Section 10.1(k), (ii) Borrower
delivers to Lender documentation that complies with Sections 9.1(b) and (c) of
this Agreement, (iii) Borrower has duly complied with Article X of this
Agreement, and (iv) no Event of Default has occurred and is continuing.

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Section 15.2           Residential Condominium.

(a)      Borrower has submitted
the Development Property to the provisions of the Condominium Act and will
satisfy all of the requirements thereof and of any other applicable law or
restriction necessary to create a valid residential condominium regime in
respect of the Residential Property (the “Residential Condominium”),
provided that the form and substance of the Condominium Documents including,
without limitation, the Residential Condominium Unit designations,
descriptions, floor plans, sale prices and proposed form of Contract of Sale
for the Residential Condominium Units, as well as the description of common
elements and breakdown of common interests appurtenant to each Residential
Condominium Unit, shall be subject to the written approval of Lender prior to
such submission;

(b)      From and after the
creation of the Residential Condominium, Borrower shall observe and perform the
following covenants:

(i)            Borrower
shall pay all common charges and  other
assessments as required by the Condominium Documents in respect of unsold
Residential Condominium Units and shall promptly upon demand exhibit to Lender
receipts for all such payments;

(ii)           Borrower
shall not, without first obtaining Lender’s prior written consent (which
consent, except for item (4), shall not be unreasonably withheld): (1) vote for
or consent to any modification of, amendment to or relaxation in the
enforcement of any provision of the Condominium Documents; (2) in the event of
damage to or destruction of the Residential Property, vote in opposition to a
motion to repair, restore or rebuild; (3) partition or subdivide any
Residential Condominium Unit; or (4) consent to the termination of the
Residential Condominium;

(iii)          Borrower
shall fully and faithfully observe, keep and perform, in all material respects,
each and every requirement, condition, covenant, agreement and provisions under
the Condominium Act and the Condominium Documents on the part of Borrower to be
observed, kept and performed.  Borrower
shall promptly deliver to Lender a copy of any notice of default received by
Borrower with respect to any obligation of Borrower under the provisions of the
Condominium Documents or the Condominium Act;

(iv)          Borrower
shall promptly submit to Lender copies of executed Contracts of Sale, notices
of cancellation of Contracts of Sale, and monthly reports in writing specifying
the number and type of Residential Condominium Units sold, Residential
Condominium Unit designation, purchase price for each Residential Condominium
Unit, name and address of the purchasers, number of Residential Condominium
Units closed during the preceding month, and any other information relevant to
the sales program reasonably requested by Lender from time to time; and

(v)           not
rent or lease any Residential Condominium Unit or other portions of the
Residential Property, without Lender’s prior written consent.

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Section 15.3           Fractional Ownership Units.

(a)      Prior to the Construction
Commencement Date, Borrower shall submit the Fractional Ownership Units to the
provisions of the Fractional Ownership Act and will satisfy all of the
requirements thereof and of any other applicable law or restriction necessary
to create a valid fractional ownership regime in respect of the Fractional Ownership
Units, provided that the form and substance of the Fractional Ownership
Documents including, without limitation, the Fractional Ownership Unit
designations, sale prices and proposed form of Contract of Sale for the
Fractional Ownership Units, and breakdown of common interests appurtenant to
each Fractional Ownership Unit, shall be subject to the written approval of
Lender prior to such submission;

(b)      Provided that no Event of
Default exists, Lender shall (i) consent to the execution and recording of the
Fractional Ownership Declaration, (ii) take such other actions as shall be
reasonably necessary to effectively transfer the lien of the Mortgage from the
Project to the Fractional Ownership Units created and covered by the Fractional
Ownership Declaration, together with their respective proportionate shares of
common elements, and (iii) execute and deliver such reasonable instrument as
shall be required to subordinate the lien of the Mortgage to the Fractional
Ownership Declaration; provided that Borrower satisfies the following
conditions:

(i)            Borrower
shall have verified that the Fractional Ownership Documents have been approved
by any Governmental Authority from whom approval is required, and Borrower
shall have furnished Lender with executed counterparts of the Fractional
Ownership Documents;

(ii)           Borrower
shall deliver to Lender the Fractional Ownership Opinion with respect to the
Fractional Ownership;

(iii)          Title
Insurer shall have agreed, in writing, to insure that, upon the creation of the
Fractional Ownership Units, the Mortgage shall constitute a first priority
mortgage lien in respect of each of the condominium units created thereby;

(iv)          Borrower
shall deliver to Lender an assignment of Special Declarant’s Rights under the
Fractional Ownership Documents in the form approved by Lender; and

(v)           Borrower
shall have furnished Lender with the form of Contract of Sale for the
Fractional Ownership Units and a summary of any material changes made to
executed Contracts of Sale, and a written report specifying the number of
Fractional Ownership Units sold, the Fractional Ownership Unit designation,
purchase price for each Fractional Ownership Interest and Fractional Ownership
Unit, name and address of the purchasers, number of Fractional Ownership Units
and Fractional Ownership Interests closed during the preceding reporting period
(it being acknowledged that Borrower utilizes a 13-period reporting cycle
annually), and any other information relevant to the sales program reasonably
requested by Lender from time to time (the “Fractional Sales Report”);
and

 47
 

 

 

(c)      Borrower shall record
and/or file the Fractional Ownership Documents in the Office.

(d)      From and after the
creation of the Fractional Ownership Units, Borrower shall observe and perform
the following covenants:

(i)            Borrower
shall pay all common charges and  other
assessments as required by the Fractional Ownership Documents in respect of
unsold Fractional Ownership Units and shall promptly upon demand exhibit to
Lender receipts for all such payments;

(ii)           Borrower
shall not, without first obtaining Lender’s prior written consent, (1) vote for
or consent to any modification of, amendment to or relaxation in the
enforcement of any provision of the Fractional Ownership Documents; (2) in the
event of damage to or destruction of the Residential Property, vote in
opposition to a motion to repair, restore or rebuild; (3) partition or
subdivide any Fractional Ownership Unit or Fractional Ownership Interest in
intervals less than one-twelfth (1/12th); or (4) consent to the termination of
the Fractional Ownership Interests;

(iii)          Borrower
shall fully and faithfully observe, keep and perform, in all material respects,
each and every requirement, condition, covenant, agreement and provisions under
the Fractional Ownership Act and the Fractional Ownership Documents on the part
of Borrower to be observed, kept and performed. 
Borrower shall promptly deliver to Lender a copy of any notice of
default received by Borrower with respect to any obligation of Borrower under
the provisions of the Fractional Ownership Documents or the Fractional
Ownership Act;

(iv)          Borrower
shall promptly submit to Lender a Fractional Sales Report monthly; and

(v)           not
rent or lease any Fractional Ownership Unit or other portions of the Residential
Property, without Lender’s prior written consent.

Section 15.4           Releases of Units.

Provided no Event of Default has occurred and is then
continuing, Lender agrees to release individual Units from the lien of the
Mortgage in accordance with and subject to all of the following terms,
provisions and conditions applicable to such Unit concurrently with the
satisfaction of the following:

(a)      The applicable
condominium declaration, and all amendments thereto required by Laws, has been
filed in the Office;

(b)      The Unit to be released
is a separate tax lot and is not required to be included within the Project,
for purposes of any governmental rule or necessary or appropriate to satisfy or
facilitate the requirements or terms of any agreement;

 48
 

 

 

(c)      Construction of the Unit
to be released shall be complete and a Certificate of Occupancy shall have been
issued by the appropriate Governmental Authority for such Unit;

(d)      The Unit and the
remaining portion of the Project and the 
release of Unit and the conveyance shall be in compliance with all
applicable zoning, land use and other governmental rules and regulations of all
governmental authorities;

(e)      The condominium
association governing the applicable Unit has been properly formed and
established;

(f)       The applicable
condominium association shall have furnished to Lender at no cost or expense to
Lender, the insurance policy or policies which comply in all respects with the
requirements set forth in Section 16.2 of this Agreement naming Lender,
said condominium association, and purchasers of each Unit, as their respective
interests may appear, as the insureds;

(g)      The Unit to be released
is being sold pursuant to a Qualifying Contract of Sale or a Contract of Sale
entered into pursuant to the ER Purchase Agreement;

(h)      Borrower shall have
deposited in the Condominium Release Payment Account, concurrently with the
delivery of the release, immediately available funds in an amount equal to the
greater of (i) the Net Sale Proceeds in respect of the Unit and (ii)  the amount which is 100% of the Release Price
of such Unit, for application to the Debt in such order of priority as Lender
shall elect in its sole discretion;

(i)       Borrower shall have
furnished Lender with a written request for a partial release, accompanied by
(i) a release document prepared by Borrower at Borrower’s expense, in form and
content satisfactory to Lender, (ii) a schedule containing a list of those
Units previously released by Lender and those Units remaining to be released
and (iii) a photocopy of the final signed closing statement with respect to the
sale of the applicable Unit;

(j)       Borrower pays all
recording charges and out-of-pocket costs and expenses of Lender, including,
without limitation, reasonable, out-of-pocket attorneys’ fees, in connection
with any release (Lender’s out-of-pocket costs and expenses not to exceed
$300.00 per each release that is requested and further provided that Lender
will endeavor to cause the Servicer to include such costs and expenses within
its Servicing Fees); and

(k)      Releases of Units shall
not affect or impair the lien of the Mortgage and Lender’s lien and security
interests created by the other Loan Documents as to Units not theretofore
released or the remaining portion of the Project, and said liens and security interests
shall continue in full force and effect as to the unreleased Units.

Section 15.5           Releases of Facilities.

Provided no Event of Default has occurred and is then
continuing, Lender agrees to release a Facility from the lien of the Mortgage
in accordance with and subject to all of the following terms, provisions and
conditions applicable to such Facility:

 49
 

 

 

(a)      The Facility to be
released is a separate tax lot and is not required to be included within the
Project, for purposes of any governmental rule or necessary or appropriate to
satisfy or facilitate the requirements or terms of any agreement.  Borrower shall have submitted to Lender proof reasonably satisfactory to
Lender that following the release of a Facility, the Project shall continue to
have available to it all necessary utility and other services for the use,
occupancy and operation of the Project and same shall continue to have
adequate, unimpeded and unencumbered access for pedestrian and vehicular
ingress and egress onto adjacent public roads, including, without limitation,
any necessary cross-easements for access, parking, and utilities;

(b)      Construction of the
Facility to be released shall be substantially complete;

(c)      Each Facility and the
remaining portion of the Project and the 
release of Facility and the conveyance shall be in compliance with all
applicable zoning, land use and other governmental rules and regulations of all
governmental authorities;

(d)      The Facility to be
released is being sold pursuant to the ML&P Agreements;

(e)      Borrower shall have
deposited to an account designated by Lender, prior to the delivery of the
release, immediately available funds in an amount equal to the greater of (i)
the Net Sale Proceeds in respect of the Facility and (ii)  the amount which is 100% of the Release Price
of such Facility, for application to the Debt in such order of priority as
Lender shall elect in its sole discretion;

(f)       Borrower shall have
furnished Lender with a written request for a partial release, accompanied by
(i) a release document prepared by Borrower at Borrower’s expense, in form and
content reasonably satisfactory to Lender, (ii) a schedule containing a list of
those Facilities previously released by Lender and those Facilities remaining
to be released and (iii) a photocopy of the final signed closing statement with
respect to the sale of the applicable Facility;

(g)      Borrower pays all
reasonable out-of-pocket costs and expenses of Lender, including, without
limitation, reasonable, out-of-pocket attorneys’ fees, in connection with any
release; and

(h)      The Release of the
Facility shall not affect or impair the lien of the Mortgage and Lender’s lien
and security interests created by the other Loan Documents as to Units and
Facilities not theretofore released or the remaining portion of the Project,
and said liens and security interests shall continue in full force and effect
as to the unreleased Units and Facilities.

(i)       Borrower and ML&P shall have executed a “Facilities
Operations and Standards Agreement” (pursuant to Section 8.3(a)(5) of the Spa
Agreement) reasonably acceptable to Lender and shall have delivered a true and
correct copy of same to Lender.

 50

 

 

Section 15.6           Breakage Costs.

Borrower may, in its written request for a partial
release of the lien of the Mortgage, request that Lender apply all or any
portion of a Release Price to the Debt in such a manner as to avoid the
imposition of Breakage Costs on Borrower. 
In such event, (i) Lender shall apply Release Prices to the Debt as
Interest Periods expire, in such a manner as to avoid the imposition of
Breakage Costs and (ii) interest shall accrue on such amounts at the Adjusted
LIBOR Rate until such time as amounts are applied to the Debt as aforesaid.

Section 15.7           Indemnification.

Borrower hereby agrees to indemnify, defend, and hold
Lender harmless against and from (a) any and all liability, loss, damage and
expense (including, without limitation, reasonable attorneys’ fees) which it
may incur or which may be asserted under or in connection with this Agreement
or the Condominium Documents, except to the extent due to Lender’s gross
negligence or willful misconduct, and (b) any and all claims and demands
whatsoever which may be incurred by or asserted against Lender by reason of any
alleged obligations or undertakings on its part to perform or discharge any of
the terms, covenants and conditions contained therein, except to the extent due
to Lender’s gross negligence or willful misconduct.  The foregoing indemnification shall survive
the payment of the Debt.

Section 15.8           Expenses.

Borrower shall pay promptly upon demand all expenses,
including, without limitation, reasonable attorneys’ fees and expenses, incurred
by the Lender in connection with (i) its review of, and consent to, any of the
Condominium Documents, (ii) its subordination of  the lien of the Mortgage to any of the
Condominium Documents, (iii) the delivery of partial releases and (iv) any other
matter contemplated by this Article XV.

ARTICLE XVI

COVENANTS

Section 16.1           Certain Covenants.

(a)      Zoning/Entitlements.  Borrower represents, warrants and covenants
to Lender that (1) the Project is duly and 
validly zoned for all of its intended uses, (2) except as specifically
set forth on Exhibit B attached hereto and made a part hereof (the “Outstanding
Entitlements”), all necessary permits, certificates, licenses, approvals,
authorizations, variances and other land use, zoning and subdivision entitlements
in order to complete the Project (the “Issued Entitlements”, together
with the Outstanding Entitlements, sometimes collectively referred to herein as
the “Entitlements”) exist as of the Effective Date, are in full force
and effect, and are not subject to revocation, suspension, forfeiture or
modification; (3) Borrower is in full compliance with all requirements of the
Issued Entitlements and is entitled to all rights and privileges thereunder;
(4) Borrower shall obtain all Outstanding Entitlements within the specified
time periods set forth in Exhibit B and shall deliver to Lender true and
complete copies of all Outstanding Entitlements within five (5) Business Days
following the issuance of any such Outstanding Entitlements; (5) Borrower shall
at all times, maintain the Entitlements in full force and effect throughout the
entire term of the Loan; (6) Borrower shall

 51
 

 

 

not agree to any modification or to any termination of the Entitlements
without the express prior written consent of Lender, which consent shall be
deemed given by Lender if Lender fails to object within ten (10) Business Days
of a written request by Borrower for such consent and receipt by Lender of all
information reasonably necessary for Lender to make an informed decision; and
(7) Borrower has delivered to Lender true and complete copies, including all
filed or executed amendments thereto, of the Issued Entitlements.  Borrower hereby assigns to Lender as
additional security for the payment in full of the Debt and the observance and
performance by Borrower of the terms, covenants and provisions of the Loan
Documents all right, title and interest which Borrower may have or may
hereafter acquire in and to the Entitlements.

(b)      Governmental Approvals.  Borrower shall maintain the Governmental Approvals
in connection with the Plans and Specifications and for the Project in full
force and effect throughout the terms of the Loan and to the extent such
Governmental Approvals have not been issued or obtained, Borrower shall (i)
take all steps necessary to have such Governmental Approvals issued by or
obtained from the appropriate Governmental Authorities within time periods
consistent with a construction project of this nature and satisfactory to
Lender in the exercise of Lender’s reasonable discretion, and (ii) deliver
copies of such Governmental Approvals to Lender and maintain such Governmental
Approvals in full force and effect throughout the entire term of the Loan.

(c)      Plans and
Specifications.  Borrower has
submitted a true and complete copy of the Existing Plans and Specifications to
Lender and Lender has approved the Plans and Specifications.   A description of the Plans and
Specifications approved by Lender is attached here to as Exhibit E.  Lender shall, without additional cost or
expense, have the use of the Plans and Specifications upon the occurrence
beyond any applicable notice and cure period of an Event of Default under the
Loan Documents.  Upon notice to Borrower,
Lender, Lender’s Consultant and their respective agents and employees, shall
have the right of entry and access to the entire Project in connection with
their review of the Plans and Specifications or any other aspect of the
Project.

(d)      Construction of the
Improvements.  Borrower shall
commence Construction on or before the Construction Commencement Date.  Borrower shall be deemed to have commenced
Construction upon Borrower’s commencement of the excavation of the foundation
of the Improvements and the performance of continuous and substantial site
development work.  Borrower shall perform
the Construction in a good and workmanlike manner with materials of high
quality and in substantial accordance with the Plans and Specifications.  Borrower shall prosecute the Construction
with due diligence and continuity in accordance with the Construction Schedule
and shall substantially complete the Construction before the Completion
Date.  All work performed in connection
with the Property shall comply with all Laws and all Governmental Approvals.

(e)      Change Orders.  No changes will be made in the Plans and
Specifications without the prior written approval of Lender, which shall not be
unreasonably withheld after Lender’s initial approval of the final Plans and
Specifications; provided, however, that Borrower may make changes
to the Plans and Specifications without Lender’s consent if (i) Borrower
notifies Lender in writing of such change within five (5) Business Days
thereafter;

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(ii) Borrower obtains the approval of all parties whose approval is
required, including sureties and Governmental Authorities; (iii) the structural
integrity of the Improvements is not impaired; (iv) no material change in
architectural appearance is effected; (v) the performance of the mechanical,
electrical, and life safety systems of the Improvements is not adversely
affected; and (vi) the cost of or reduction resulting from such change (x) does
not exceed $250,000.00 and (y) when added to all other changes which have not
been approved by Lender in writing, the resulting aggregate cost or reduction
does not exceed $5,000,000.00.  Changes
in the scope of Construction or to any Construction Contract shall be
documented with a Change Order on the AIA Form G701.

(f)       Inspections.  Borrower will cooperate with Lender in
arranging for inspections by Lender and/or Lender’s Consultant of the progress
of the Construction from time to time including an examination of (i) the
Improvements, (ii) all materials to be used in the Construction, (iii) all
plans and shop drawings which are or may be kept at the Construction site, (iv)
any contracts, bills of sale, statements, receipts or vouchers in connection
with the Improvements, (v) all work done, labor performed or materials
furnished in and about the Improvements, (vi) all books, contracts and records
with respect to the Improvements and (vii) any other documents relating to the
Improvements or the Construction. Borrower shall cooperate with Lender’s
Consultant to enable it to perform its functions.  Borrower shall, upon Lender or Lender’s
Consultant’s request, correct any defect in the Construction or any failure of
the Construction to comply with the Plans and Specifications.

(g)      Liens.  Borrower will not suffer or permit any
construction lien claims to be filed or otherwise asserted against the Project
or any funds due to the General Contractor, and will promptly discharge the
same in case of the filing of any claims for lien or proceedings for the
enforcement thereof, provided, however, that Borrower may contest
in good faith and with reasonable diligence the validity of any such lien or
claim, provided that Borrower posts a statutory lien bond which removes such
lien from title to the Project within thirty (30) days after Borrower’s receipt
of written notice thereof.  Lender will
not be required to make any further disbursements of the proceeds of the Loan
until any construction lien claims have been removed (by payment or by posting
a bond) and Lender may, at its option, restrict disbursements to reserve
sufficient sums to pay 150% of the lien. 
If Borrower shall fail timely to (i) discharge any such lien or (ii)
post a statutory lien bond, Lender may, at its election (but shall not be
required to), procure the release and discharge of such lien and any judgment
or decree thereon and, further, may in its sole discretion, settle or
compromise the same, or may furnish such security or indemnity as Title Insurer
shall require to insure Lender against the enforcement thereof, and any amounts
so expended by Lender shall be added to the Debt.  In settling, compromising or discharging any
claims for lien, Lender shall not be required to inquire into the validity or
amount of any such claim.

(h)      Construction Contracts.  Borrower shall promptly comply in all
material respects with all provisions of the Construction Contracts which
require approval or action by Borrower in a timely manner to insure completion
of the Improvements within the Construction Schedule and in all events by the
Completion Date.  Borrower shall not
materially modify or terminate the General Contract or any of the Major
Contracts without the prior written approval of Lender, which approval shall
not be unreasonably withheld.

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Promptly following its execution or modification thereof, Borrower
shall furnish Lender with a copy of each Construction Contract or modification
thereof.  Promptly following its receipt
thereof, Borrower shall furnish Lender with a copy of any material notice
received or delivered by Borrower in respect of the Construction Contracts,
including, without limitation, any notice of default.

(i)       Subsequent
Development Matters.  Borrower shall
not, subsequent to the Effective Date, enter into easements, covenants or
agreements regarding or affecting title to the Land or the Project or the
zoning, subdivision or land use classification of the Land without the prior
written consent of Lender, which consent shall not be unreasonably withheld
with respect to easements, covenants and agreements reasonably required to
effect the development of the Project for the uses intended by this Agreement.

(j)       Certificate of
Occupancy.  Borrower shall obtain a
Certificate of Occupancy for all of the Units by no later than the third (3rd) anniversary of the Effective
Date.

(k)      [Intentionally Deleted].

(l)       Payment of Taxes.  Borrower shall pay all real estate taxes and
assessments and charges of every kind upon the Project before the same become
delinquent, provided, however, that Borrower may pay such tax under protest or
to otherwise contest any such tax or assessment, but only if (i) such contest
has the effect of preventing the collection of such taxes so contested and also
of preventing the sale or forfeiture of the Project or any part thereof or any
interest therein, (ii) Borrower has notified Lender of Borrower’s intent to
contest such taxes, and (iii) Borrower has deposited security for the payment
of contested taxes in form and amount satisfactory to Lender.  If Borrower fails to commence such contest
or, having commenced to contest the same, thereafter fails to prosecute such contest
in good faith or with due diligence, or, upon adverse conclusion of any such
contest, shall fail to pay such tax, assessment or charge, Lender may, at its
election (but shall not be required to), pay and discharge any such tax,
assessment or charge, and any interest or penalty thereon, and any amounts so
expended in excess of any security posted by Borrower shall be added to the
Debt.  Borrower shall furnish Lender with
evidence that taxes are paid at least ten (10) days prior to the last date for
payment of such taxes and before imposition of any penalty or accrual of
interest.  Notwithstanding the foregoing,
Lender shall not assert a default for failure to pay real estate taxes,
provided that (x) there exists no Event of Default and (y) adequate funds for
the payment of real estate taxes exist in the Tax Escrow Fund.

(m)     Tax and Insurance
Escrow Fund.  From and after
substantial completion of the Improvements, in the event the unadvanced portion
of the Loan is insufficient for payment of real estate taxes and Insurance
Premiums, then upon request by Lender Borrower shall pay to Lender on each
Payment Date (i) one-twelfth (1/12) of an amount which would be sufficient to
pay the real estate taxes payable, or estimated by Lender to be payable, during
the ensuing twelve (12) months (the “Tax Escrow Fund”) and (ii)
one-twelfth (1/12) of the Insurance Premiums payable, or estimated by Lender to
be payable, during the ensuring twelve months (the “Insurance Escrow Fund”,
and, together with the Tax Escrow Fund, the “Tax and Insurance Escrow Fund”).  Notwithstanding the foregoing, Lender shall
advance such amounts from the undisbursed balance of the Tax and Insurance
Reserve in accordance

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with the provisions of Section 11.5 hereof, provided that (i) no
Event of Default exists, (ii) no dispute exists in respect of amounts to be
disbursed for the payment of real estate taxes or Insurance Premiums and (iii)
the line items in respect of real estate taxes and Insurance Premiums set forth
in the Construction Budget are in balance. 
The Tax and Insurance Escrow Fund, the Servicing Fees and the monthly
installments of principal and interest payable under the Note shall be added
together and shall be paid as an aggregate sum by Borrower to Lender.  Borrower hereby pledges to Lender any and all
monies now or hereafter deposited in the Tax and Insurance Escrow Fund as
additional security for the payment of the Debt.  Lender will apply (i) the Insurance Escrow
Fund to insurance premiums required to be paid by Borrower pursuant to Section
16.2 hereof and (ii) the Tax Escrow Fund to real estate taxes required to
be paid by Borrower under Section 16.1(l) hereof.  If at any time the Tax and Insurance Escrow
Fund is not sufficient to pay real estate taxes or insurance premiums, Borrower
shall  pay to Lender, within ten (10)
days after written demand, Lender’s estimate of the amount required to remedy
the deficiency.  Upon the occurrence of
an Event of Default, Lender may apply any sums then comprising the Tax and
Insurance Escrow Fund to the payment of the Debt in such order of priority as
Lender elects in its sole discretion. 
Until expended or applied as above provided, any amounts in the Tax and
Insurance Escrow Fund shall constitute additional security for the Debt.  To the extent permitted by applicable law,
the Tax and Insurance Escrow Fund shall not constitute a trust fund and may be
commingled with other monies held by Lender. 
No earnings or interest on the Tax and Insurance Escrow Fund shall be
payable to Borrower.

(n)      [Intentionally Deleted].

(o)      Management Agreements.  Borrower shall not retain any property
manager or enter into any management agreement with respect to the management
or operation on any portion of the Project without the Lender’s prior written
consent.

(p)      Personal Property.  Except as hereinafter provided, Borrower
shall keep all Personal Property incorporated in the Project free of all liens,
encumbrances and security interests, other than the liens, encumbrances and
security interests in favor of Lender created by the Loan Documents.  Prior to completion of the Improvements,
Borrower shall provide to Lender, when requested but no more frequently than
quarterly, an inventory of the Personal Property and shall execute such
financing statements as may be reasonably required by Lender to perfect Lender’s
security interest on the same.  No
Personal Property shall be purchased or installed in the Improvements by
Borrower under any security agreement, conditional sales contract or other
agreement wherein the seller reserves a security interest in, or the right to
remove or to repossess, such items or to consider them personal property after
their incorporation into the Improvements, except for capital leases approved
by Lender.

(q)      Leases.  Without the prior written consent of Lender,
which consent shall be deemed given by Lender if Lender fails to object within
ten (10) Business Days of a written request by Borrower for such consent and
receipt by Lender of all information reasonably necessary for Lender to make an
informed decision, Borrower shall not (i) enter into any lease of all or any
portion of the Project, (ii) materially modify any lease of any portion of the
Project or (iii) accept any rental payment in advance of one month of its due
date.  Borrower shall provide Lender with
a copy of the fully executed original of all leases promptly

 55
 

 

 

following their execution. 
Borrower shall deposit all security deposits under leases in a
segregated account with a financial institution reasonably acceptable to
Lender.  At Lender’s request, Borrower
shall cause tenants to execute subordination, non-disturbance and attornment
agreements reasonably satisfactory to Lender. 
Lender reserves the right to subordinate the lien of the Mortgage to any
lease.

(r)       Certain Agreements.  Without the prior written consent of Lender,
Borrower shall not modify or terminate (i) any of the ML&P Agreements, (ii)
any of the Marketing Agreements, (iii) the Ground Lease, (iv) the ER Purchase
Agreement, (v) the Ritz-Carlton Consent Agreement, (vi) the ML&P Consent
Agreement, (vii) any of the Development Documents, or (viii) the Condominium
Documents.  Borrower shall timely observe
and perform all of its obligations under the foregoing agreements.  Promptly after receipt thereof, Borrower
shall furnish Lender with a copy of any material notice received or delivered
by Borrower under any of the foregoing agreements, including, without
limitation, any notice of default.  The
execution of a Contract of Sale for an individual Unit to be purchased by Exclusive
Resorts under the ER Purchase Agreement shall not be deemed such a modification
or termination as contemplated under this Section 16.1(r); provided that the
purchase price for such Unit is the same as set forth in the ER Purchase
Agreement. Notwithstanding anything to the contrary in this Agreement, Lender
acknowledges that (x) the Borrower and Exclusive Resorts have the right to
modify the ER Purchase Agreement and individual purchase agreements entered
into pursuant thereto prior to the initial execution of the individual purchase
agreements without Lender consent provided that such changes are not
inconsistent with the First Amendment to the ER Purchase Agreement between the
parties dated June __, 2006, that the purchase prices identified therein are
not modified and further provided that this section shall not be deemed to
waive Lender’s consent rights to any amendment negotiated after the individual
agreements are signed, and (y) Borrower may make modifications or amendments to
the aforementioned agreements without Lender consent provided that such
amendments or modifications will solely affect portions of the Property that
are to be released by Lender pursuant to this Agreement from and after the
effective date of such release.

(s)      Appraisals.  Lender may obtain a new or updated Appraisal
of the Project from time to time. 
Borrower shall cooperate with Lender in this regard.  Notwithstanding the foregoing, Lender shall
not obtain a new or updated Appraisal more than once in any twelve (12) month
period, unless either (i) an Event of Default exists or (ii) such Appraisal is
then required under the terms of this Agreement.  Borrower shall reimburse Lender upon demand
for the cost of any Appraisal obtained by Lender in accordance with the terms
of this Section 16.1(s).

(t)       Furnishing Information.  Borrower shall deliver or cause to be
delivered to Lender, (1) within one hundred twenty (120) days after the end of
each calendar year, with respect to Borrower and Guarantor, an annual financial
statement, in a form satisfactory to Lender, audited by an independent,
certified public accountant (or with respect to Exclusive Resorts and Exclusive
Resorts Development Company, LLC only, certified by an authorized officer of
Exclusive Resorts and Exclusive Resorts Development Company, LLC); (2) within sixty
(60) days after the end of each calendar quarter, with respect to Borrower, a
quarterly financial statement, in a form satisfactory to Lender; (3) within
thirty (30) days after the end of

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each reporting period of Borrower (it being understood that Borrower
has a 13 period reporting cycle annually), with respect to Borrower, a monthly
financial statement, in a form satisfactory to Lender.  Within ten (10) days after request by Lender,
Borrower shall deliver to Lender the most recently filed annual Federal Income
Tax Returns with respect to Borrower and Guarantor.  Borrower and Guarantor shall provide such
additional financial information as Lender reasonably requires.  Upon reasonable advance notice from Lender,
Borrower shall permit Lender or its representatives to review all of Borrower’s
books and records regarding the development and operation of the Project.

(u)      Lost Note.  Upon Lender’s delivery to Borrower of an
affidavit to such effect, Borrower shall, if the Note is mutilated, destroyed,
lost or stolen, deliver to Lender, in substitution therefor, a new note
containing the same terms and conditions.

(v)      Indemnification.  Borrower shall indemnify Lender and any party
owning an interest in the Loan and their respective officers, directors,
employees and consultants (each, an “Indemnified Party”) and defend and
hold each Indemnified Party harmless from and against all claims, injury,
damage, loss and liability, cost and expense (including reasonable attorneys’
fees and expenses and court costs) of any and every kind to any persons or
property by reason of (i) the Construction; (ii) the operation or maintenance
of the Project; (iii) any breach of representation or warranty, default or
Event of Default; or (iv) any other matter arising in connection with the Loan
or the Project.  No Indemnified Party
shall be entitled to be indemnified against its own gross negligence or willful
misconduct.  The foregoing
indemnification shall survive repayment of the Debt.

(w)     Compliance With Laws.  Borrower shall comply with all Laws
applicable to the Project.

(x)      Furnishing Reports.  Upon Lender’s request, Borrower shall provide
Lender with copies of all inspections, reports, test results and other
information received by Borrower which in any way relate to the Project or any
part thereof.

(y)      Furnishing Notices.  Borrower shall provide Lender with copies of
all material notices pertaining to the Project received by Borrower from any
purchaser under any Contract of Sale, Governmental Authority, insurance company
or tenant within seven (7) days after such notice is received.

(z)      Correction of Defects.  Within five (5) days after Borrower acquires
knowledge of or receives notice of a defect in the Improvements or any
departure from the Plans and Specifications, or any other requirement of this
Agreement, Borrower will proceed with diligence to correct all such defects and
departures.

(aa)    Hold Disbursements in
Trust.  Borrower shall receive and
hold in trust for the sole benefit of Lender (and not for the benefit of any other
person, including, but not limited to, contractors or any subcontractors) all
advances made hereunder directly to Borrower, for the purpose of paying costs
of the Construction in accordance with the Construction Budget.  Borrower shall use the proceeds of the Loan
solely for the payment of

 57
 

 

 

costs specified in the Construction Budget.  Borrower will pay all other costs, expenses
and fees relating to the acquisition, equipping, use and operation of the
Project.

(bb)   Alterations.  Without the prior written consent of Lender,
Borrower shall not make any material alterations to the Project (other than
completion of the Construction in accordance with the Plans and
Specifications).

(cc)    Cash Distributions.  Borrower shall not make any distributions to
partners, members or shareholders of Borrower.

(dd)   Affiliate Contracts.  Borrower shall not enter into any contracts
or agreements after the date hereof with any Guarantor, Member, MII, or MLP/MII
Affiliate or any Affiliate of any of the foregoing without Lender’s prior
written consent.

Section 16.2           Insurance.

(a)      Borrower shall obtain and
maintain, or cause to be maintained, insurance for Borrower and the Project as
follows:

(i)            comprehensive
all risk insurance on the Improvements and the Personal Property, including
contingent liability from Operation of Building Laws, Demolition Costs and
Increased Cost of Construction Endorsements, in each case (A) in an amount
equal to one hundred percent (100%) of the “Full Replacement Cost,” which for
purposes of this Agreement shall mean actual replacement value (exclusive of
costs of excavations, foundations, underground utilities and footings) with a
waiver of depreciation, but the amount shall in no event be less than the
outstanding principal balance of the Loan; (B) containing an agreed amount
endorsement with respect to the Improvements and Personal Property waiving all
co-insurance provisions; (C) permitting no deductible in excess of $50,000.00;
and (D) containing an “Ordinance or Law Coverage” or “Enforcement” endorsement
if any of the Improvements or the use of the Project shall at any time
constitute legal non-conforming structures or uses.  In addition, Borrower shall obtain:  (y) if any portion of the Improvements is
currently or at any time in the future located in a federally designated “special
flood hazard area”, flood hazard insurance in an amount equal to the lesser of
(1) the outstanding principal balance of the Loan or (2) the maximum amount of
such insurance available under the National Flood Insurance Act of 1968, the
Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform
Act of 1994, as each may be amended or such greater amount as Lender shall
require; and (z) earthquake insurance in amounts and in form and substance
satisfactory to Lender in the event the Project is located in an area with a
high degree of seismic activity.

(ii)           commercial
general liability insurance against claims for personal injury, bodily injury,
death or property damage occurring upon, in or about the Project, such
insurance (A) to be on the so-called “occurrence” form with a combined limit,
of not less than $2,000,000.00, (B) to continue at not less than the aforesaid
limit until required to be changed by Lender in writing by reason of changed
economic conditions making such protection inadequate; and (C) to cover at
least the following hazards:  (1)
premises and operations; (2) products and completed operations on an “if any”
basis; (3) independent contractors; (4) blanket contractual

 58
 

 

 

liability for all legal contracts; and (5)
contractual liability covering the indemnities contained in Loan Agreement;

(iii)          intentionally
omitted;

(iv)          the insurance provided for in subsection (i) above
written in a so called builder’s risk completed value form (1) on a non-reporting
basis, (2) against all risks insured against pursuant to subsection (i) above,
(3) including all building material stored at the designated site (including on-site and off-site storage at specific locations), (4) including all Soft Costs, (5) including
permission to occupy the Improvements and (5) with an agreed amount endorsement
waiving coinsurance provisions.

(v)           workers’
compensation, subject to the statutory limits of the State, and employer’s
liability insurance with a limit of at least $1,000,000.00 per accident and per
disease per employee, and $1,000,000.00 per accident and per disease in the
aggregate in respect of any work or operations on or about the Project, or in
connection with the Project or its operation (if applicable);

(vi)          comprehensive
boiler and machinery insurance, if applicable, in amounts as shall be
reasonably required by Lender on terms consistent with the commercial property
insurance policy required under subsection (i) above;

(vii)         umbrella
liability insurance in an amount not less than $100,000,000.00, with the
primary $1,000,000.00 on an occurrence basis and the excess $100,000,000.00 on
an aggregate basis, on terms consistent with the commercial general liability
insurance policy required under subsection (ii) above;

(viii)        motor
vehicle liability coverage for all owned and non-owned vehicles, including
rented and leased vehicles containing minimum limits per occurrence, including
umbrella coverage, of $101,000,000.00;

(ix)           insurance
for loss resulting from perils and acts of terrorism on terms (including
amounts) consistent with the insurance required under subsections (i), (ii),
(iii), (iv), (vi) and (vii) above (subject to a
deductible that is satisfactory to the Lender) at all times during the term of
the Loan; and

(x)            marina operations insurance, at such time as
operations at any marina shall commence, including: (A) liability insurance
arising from loss or damage to private pleasure craft and small commercial
watercraft; and (B) bodily injury and property damage liability;

(xi)           all-risk marine cargo insurance on an annual basis
covering cargo worldwide in the event of physical loss or damage from external
causes in the amount of not less than 110% of the C.I.F. value, such insurance
to include: (A) while cargo is in the normal course of transit from the point
of origin; (B) marine business interruption insurance; (C) processing of cargo
in foreign countries; (D) on-site and off-site storage at specific locations;
and (E) exhibition coverage;

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(xii)          upon
thirty (30) days’ written notice from Lender, such other reasonable insurance,
in such reasonable amounts, as Lender from time to time may reasonably request
against such other insurable hazards which at the time are commonly insured
against for property similar to the Project located in or around Kapalua,
Hawaii.

(b)      All insurance provided
for in Section 16.2(a) hereof shall be obtained under valid and
enforceable policies (collectively, the “Policies”
or in the singular, the “Policy”), and shall be subject to the approval
of Lender as to insurance companies, amounts, deductibles, loss payees and
insureds.  The Policies shall be issued
by financially sound and responsible insurance companies authorized to do
business in the State and having a claims paying ability rating of “A” or
better by S&P or “A2” or better by Moody’s. 
The Policies described in Section 16.2(a) (other than those strictly
limited to liability protection) shall designate Lender as loss payee.  Not less than ten (10) days prior to the
expiration dates of the Policies theretofore furnished to Lender, certificates
of insurance evidencing the renewal of the Policies, accompanied by evidence
satisfactory to Lender of payment of the premiums thereunder (the “Insurance Premiums”),
shall be delivered by Borrower to Lender.

(c)      Any blanket insurance
Policy shall specifically allocate to the Project the amount of coverage from
time to time required hereunder and shall otherwise provide the same protection
as would a separate Policy insuring only the Project in compliance with the
provisions of Section 16.2(a) hereof.

(d)      All Policies of insurance
provided for by Section 16.2(a) hereof, except for the Policy referred to in
Section 16.2(a)(v) hereof, shall name Borrower as the insured and Lender as the
additional insured, as its interests may appear, and in the case of property
damage, boiler and machinery, flood and earthquake insurance, shall contain a
so-called New York standard non-contributing mortgagee clause (or its
equivalent) in favor of Lender providing that the loss thereunder shall be
payable to Lender.

(e)      All Policies of insurance
provided for in Section 16.2(a) hereof shall contain clauses or endorsements to
the effect that:

(i)            no
act or negligence of Borrower, or anyone acting for Borrower, or of any tenant
or other occupant of the Project, or failure to comply with the provisions of
any Policy, which might otherwise result in a forfeiture of the insurance or
any part thereof, shall in any way affect the validity or enforceability of the
insurance insofar as Lender is concerned;

(ii)           the
Policy shall not be materially changed (other than to increase the coverage
provided thereby) or canceled without at least thirty (30) days’ prior written
notice to Lender and any other party named therein as an additional insured;

(iii)          the
issuers thereof shall give written notice to Lender if the Policy has not been
renewed fifteen (15) days prior to its expiration; and

(iv)          Lender
shall not be liable for any Insurance Premiums thereon or subject to any
assessments thereunder.

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(f)       If at any time Lender is
not in receipt of written evidence that all insurance required hereunder is in
full force and effect, Lender shall have the right, without notice to Borrower,
to take such action as Lender deems necessary to protect its interest in the
Project, including, without limitation, the obtaining of such insurance
coverage as Lender in its sole discretion deems appropriate.  All Insurance Premiums incurred by Lender in
connection with such action or in obtaining such insurance and keeping it in
effect shall be paid by Borrower to Lender upon demand and, until paid, shall
be secured by the Mortgage and shall bear interest at the Default Rate.

(g)      The Borrower may obtain the insurance
required hereunder from any insurance company of the Borrower’s choice that is
acceptable to the Lender, which acceptance shall not be unreasonably
withheld.  The Lender’s nonacceptance of
an insurer shall not be deemed unreasonable if it is based upon reasonable
standards, uniformly applied, relating to the extent of coverage required and
the financial soundness and services of the insurer.  Such standards shall not discriminate against
any particular insurer nor shall such standards call for rejection of an insurance
contract because the contract contains coverage in addition to that required
under this Agreement.

Section 16.3           Special Purpose Covenants.

(a)      The purpose for which
Borrower is organized is and shall be limited solely to (i) owning, developing,
holding, constructing, selling, leasing, transferring, exchanging, operating
and managing the Project, (ii) entering into this Agreement and the other Loan
Documents and (iii) transacting any business that is incident, necessary and
appropriate to accomplish the foregoing.

(b)      Except for the hotel
previously operated on the Development Land, Borrower has not owned, does not
own and will not own any asset or property other than (i) the Project and (ii)
incidental personal property necessary for and used or to be used in connection
with the ownership or operation of the Project.

(c)      Borrower has not engaged
in and will not engage in any business other than the ownership, construction,
development, management and operation of the Project.

(d)      Borrower has not entered
and will not enter into any contract or agreement with any Affiliate of
Borrower, any constituent party of Borrower, any Guarantor of the obligations
of Borrower or any Affiliate of any constituent party, owner or guarantor
(collectively, the “Related Parties”), except upon terms and conditions
that are intrinsically fair, commercially reasonable and substantially similar
to those that would be available on an arms-length basis with third parties not
so affiliated with Borrower or such Related Parties and at all times subject to
the prior written consent of Lender.  The
ML&P Agreements, Marketing Agreements and ER Purchase Agreements are hereby
approved by Lender.

(e)      Except for the Loan,
Borrower shall neither incur nor guarantee any indebtedness (whether personal
or non-recourse, secured or unsecured) other than customary trade payables
contemplated by the Construction Budget, aged not in excess of sixty (60) days,
and unsecured loans from members of Borrower that are subordinate to the Loan.

 61
 

 

 

(f)       Borrower has not made
and will not make any loans or advances to any Person and shall not acquire
obligations or securities of any Related Party.

(g)      Borrower is and will
remain solvent and Borrower will pay its debts and liabilities (including, as
applicable, shared personnel and overhead expenses) from its assets as the same
shall become due.

(h)      Borrower has done or
caused to be done and will do all things necessary to observe organizational
formalities and preserve its existence, and Borrower will not, nor will
Borrower permit any Related Party to, amend, modify or otherwise change the
partnership certificate, partnership agreement, articles of incorporation and
bylaws, operating agreement, trust or other organizational documents of
Borrower or such Related Party without the prior written consent of Lender.

(i)       Borrower has maintained
and will maintain all of its books, records, financial statements and bank
accounts separate from those of any other Person and Borrower’s assets will not
be listed as assets on the financial statement of any other Person.  Borrower has filed and will file its own tax
returns and will not file a consolidated federal income tax return with any
other Person.  Borrower shall maintain
its books, records, resolutions and agreements as official records.

(j)       Borrower will be, and at
all times will hold itself out to the public as, a legal entity separate and
distinct from any other Person (including any Affiliate or other Related
Party), shall correct any known misunderstanding regarding its status as a
separate entity, shall conduct business in its own name, shall not identify
itself or any of its Affiliates as a division or part of the other and shall
maintain and utilize separate stationery, invoices and checks.

(k)      Borrower will maintain
adequate capital for the normal obligations reasonably foreseeable in a
business of its size and character and in light of its contemplated business
operations.

(l)       Neither Borrower nor any
Related Party will seek the dissolution, winding up, liquidation, consolidation
or merger in whole or in part of Borrower, or the sale of material assets of
Borrower.

(m)     Borrower has not
commingled and will not commingle its assets with those of any other Person and
will hold all of its assets in its own name;

(n)      Borrower has not
guaranteed and will not guarantee or become obligated for the debts of any
other Person and does not and will not hold itself out as being responsible for
the debts or obligations of any other Person.

(o)      If Borrower is a limited
partnership or a limited liability company, at least one (1) general partner or
member, or if Borrower is a general partnership at least one (1) general
partner (each, an “SPC Party”) shall be a corporation or limited
liability company whose sole asset is its interest in Borrower.  Each SPC Party will at all times comply, and
will cause Borrower to comply, with each of the representations, warranties,
and covenants 

 62
 

 

 

contained in this Section 16.3 as if such representation,
warranty or covenant was made directly by such SPC Party.  Upon the withdrawal or the disassociation of
the SPC Party from Borrower, Borrower shall immediately appoint a new member
whose organizational documents are substantially similar to those of the SPC
Party and deliver a new Non-Consolidation Opinion to the Rating Agency or Rating
Agencies, as applicable, with respect to the new SPC Party and its equity
owners.

(p)      Borrower shall at all
times cause there to be at least one (1) duly appointed member or manager (“Independent
Director”) of Borrower (if Borrower is a corporation or a single member
Delaware limited liability company) and, upon Lender’s request in connection
with a Securitization pursuant to Article XXV hereof, one (1) Independent
Director of each SPC Party (if Borrower is a limited partnership or a limited
liability company) reasonably satisfactory to Lender who is not at the time of
initial appointment, has not been at any time during the preceding five (5)
years and shall not be while serving as an Independent Director: (i) a
stockholder, director (other than as an Independent Director), officer,
employee, partner, attorney or counsel of Borrower or such SPC Party or any
Affiliate of either of them; (ii) a customer, supplier or other Person who
derives any of its purchases or revenues from its activities with Borrower or
such SPC Party or any Affiliate of either of them; (iii) a Person controlling
or under common control with any such stockholder, partner, customer, supplier
or other Person; or (iv) a member of the immediate family of any such
stockholder, director, officer, employee, partner, customer, supplier or other
Person.

(q)      Borrower shall not cause
or permit the SPC Party or its members and/or managers to take any action
which, under the terms of any of its organizational documents requires the vote
of any SPC Party of Borrower unless at the time of such action there shall be
at least one (1) member of the board of directors who is an Independent
Director.

(r)       Borrower shall allocate
fairly and reasonably any overhead expenses that are shared with an Affiliate,
including paying for office space and services performed by any employee of an
Affiliate or Related Party.

(s)      Borrower shall not pledge
its assets for the benefit of any other Person other than with respect to the
Loan.

(t)       Borrower shall maintain
a sufficient number of employees in light of its contemplated business
operations and pay the salaries of its own employees from its own funds.

(u)      Borrower shall conduct
its business so that the assumptions made with respect to Borrower in the
Non-Consolidation Opinion shall be true and correct in all respects.

ARTICLE XVII

CASUALTY AND CONDEMNATION

Section 17.1           Lender’s Election to Apply
Proceeds to the Debt.

(a)      Subject to the provisions
of Section 17.1(b) below, Lender may elect to apply to the Debt, in such
order of priority as Lender elects in its sole discretion, all proceeds

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of insurance or condemnation (individually and collectively referred to
as “Proceeds”), after deduction of all expenses of collection and
settlement, including attorneys’ and adjusters’ fees and charges.  Any Proceeds remaining after repayment of the
indebtedness under the Loan Documents shall be paid by Lender to Borrower.

(b)      Notwithstanding anything
in Section 17.1(a) to the contrary, in the event of any casualty to the
Improvements or any condemnation of part of the Project, Lender agrees to make
the Proceeds available for restoration of the Improvements if (i) no Event of
Default exists that will not be cured upon Borrower’s commencement of
restoration, (ii) all Proceeds are deposited with Lender, (iii) in Lender’s
reasonable judgment, the amount of Proceeds available for restoration of the
Improvements (together with undisbursed proceeds of the Loan, if any, allocated
for the cost of the Construction and any sums or other security acceptable to
Lender deposited with Lender by Borrower for such purpose) is sufficient to pay
the full and complete costs of such restoration, (iv) in Lender’s reasonable
determination, the Project can be restored to an architecturally and
economically viable project in compliance with applicable Laws, (v) Guarantor
reaffirms the Completion Guaranty in writing, (vi) in Lender’s reasonable
determination, such restoration is likely to be completed no later than the
Maturity Date, (vii) in Lender’s reasonable judgment, any operating deficits,
including all payments of interest and principal due hereunder, that shall be
incurred by reason of the casualty or condemnation shall be covered by the
Proceeds, the insurance coverage referred to in Section 16.2(a)(iii) above,
and other funds of Borrower or Loan proceeds that are available to be disbursed
for construction costs in accordance with the Construction Budget, and (viii)
in Lender’s reasonable judgment, following the restoration of the Project, the
Loan to Value Ratio shall not exceed 60%.

Section 17.2           Borrower’s Obligation to Rebuild.

(a)      If Lender does not elect
(or does not have the right) to apply the Proceeds to the Debt, as provided in Section
17.1 above, Borrower shall:

(i)            Proceed
with diligence to make settlement with insurers or Governmental Authorities and
cause the Proceeds to be deposited with Lender;

(ii)           In
the event of any delay in making settlement with insurers or Governmental
Authorities or effecting collection of the Proceeds, deposit with Lender such
amount as Lender reasonably deems appropriate to insure the timely completion
of Construction as aforesaid;

(iii)          If
the Proceeds and the undisbursed balance of the Loan are insufficient to
maintain the Loan In Balance, promptly deposit with Lender any amount necessary
to place the Loan In Balance; and

(iv)          Promptly
proceed with the resumption of Construction of the Improvements, including the
repair of all damage resulting from such fire, condemnation or other cause and
restoration to its former condition.

(b)      Any request by Borrower
for a disbursement by Lender of Proceeds and funds deposited by Borrower shall
be treated by Lender as if such request were for an advance 

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of the Loan hereunder, and the disbursement thereof shall be
conditioned upon Borrower’s compliance with and satisfaction of the same
conditions precedent as would be applicable under this Agreement for an advance
of the Loan.

(c)      Notwithstanding the
foregoing, the Borrower may, at Borrower’s option, elect to prepay the Loan
without any penalty after a Casualty or Condemnation in lieu of restoring the
Property.

ARTICLE XVIII

TRANSFERS

Section 18.1           Prohibition of Assignments and
Transfers by Borrower.

(a)      Borrower shall not assign
its rights under this Agreement and any purported assignment shall be
void.  Except as provided in Section
18.1(b) below or in connection with a Permitted Transfer, without the prior
written consent of Lender (which consent may be withheld by Lender in its sole
discretion), Borrower shall not suffer or permit (a) any change in the
management (whether direct or indirect) of the Project or of Borrower or (b)
any Transfer. Lender’s consent if given in connection with any transfer request
shall not be deemed to be a waiver of Lender’s right to require such consent in
the future.  Any sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Project made in
contravention of this Agreement shall be null and void and of no force or
effect.

(b)      In connection with any
corporate equity or debt financing made by an Institutional Lender for the
benefit of any of Maui Land & Pineapple Company, Inc., Exclusive Resorts
and Marriot International, Inc. (each, a “Principal”), Principal shall
have the right to pledge its respective limited liability company interests in
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, as security for such financing; provided,
however, that in each such instance, (A) there shall then exist no
Default or Event of Default under this Agreement or any of the other Loan
Documents; (B) the lender, and any subsequent holder of the note under such
loan, must be an Institutional Lender; (C) Principal shall provide Lender with
(i) no less than thirty (30) days’ prior written notice of such financing, (ii)
copies of all such financing documents and instruments, and (iii) a “non-consolidation
opinion” reasonably satisfactory to Lender.

(c)      Borrower
covenants and agrees that, as a
condition to any Permitted Transfer, (A) there shall then exist no
Default or Event of Default under this Agreement or any of the other Loan
Documents; (B) Borrower shall provide Lender
with thirty (30) days’ prior written notice of such Permitted Transfer; (C)
Borrower shall provide Lender all documents and statements as may be reasonably
requested by Lender in connection with such Permitted Transfer and evidence
confirming that such transaction complies with the requirements of a Permitted
Transfer, and (D) Borrower shall provide updated opinions, including
non-consolidation opinions, in form and substance and delivered by counsel
reasonably acceptable to Lender and each Rating Agency if a Securitization has
occurred, as may be reasonably required by Lender and/or the Rating
Agency.  Borrower’s failure to comply
with the terms of this Section shall constitute an “Event of Default”
hereunder.

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Section 18.2           Prohibition of Transfers in
Violation of ERISA.

In addition to the prohibitions set forth in Section
18.1 above, Borrower shall not assign, sell, pledge, encumber, transfer,
hypothecate or otherwise dispose of its interest or rights in this Agreement or
in the Project, or attempt to do any of the foregoing or suffer any of the
foregoing, nor shall any party owning a direct or indirect interest in Borrower
assign, sell, pledge, mortgage, encumber, transfer, hypothecate or otherwise
dispose of any of its rights or interest (direct or indirect) in Borrower,
attempt to do any of the foregoing or suffer any of the foregoing, if such
action would cause the Loan, or the exercise of any of Lender’s rights in
connection therewith, to constitute a prohibited transaction under ERISA or the
Internal Revenue Code or otherwise result in Lender being deemed in violation
of any applicable provision of ERISA. 
Borrower agrees to indemnify and hold Lender free and harmless from and
against all losses, costs (including attorneys’ fees and expenses), taxes,
damages (including consequential damages) and expenses Lender may suffer by
reason of the investigation, defense and settlement of claims and in obtaining
any prohibited transaction exemption under ERISA necessary or desirable in
Lender’s sole judgment or by reason of a breach of the foregoing
prohibitions.  The foregoing
indemnification shall be a recourse obligation of Borrower and shall survive
repayment of the Note, notwithstanding any limitations on recourse contained
herein or in any of the Loan Documents.

Section 18.3           Successors and Assigns.

Subject to the foregoing restrictions on transfer and
assignment contained in this Article XVIII, this Agreement shall
inure to the benefit of and shall be binding on the parties hereto and their
respective successors and permitted assigns.

ARTICLE XIX

SERVICER

Section 19.1           Servicer.

At the option of Lender, the Loan may be serviced by a
servicer or trustee (the “Servicer”) selected by
Lender and Lender may delegate all or any portion of its responsibilities under
this Agreement and the other Loan Documents to the Servicer pursuant to a
servicing agreement (the “Servicing Agreement”)
between Lender and Servicer.  Borrower
shall not be responsible for any reasonable set-up fees or any other initial
costs relating to or arising under the Servicing Agreement.  Thereafter, Borrower shall reimburse Lender
for the monthly servicing fees payable under the Servicing Agreement (“Servicing
Fees”).  Servicing Fees, along with
the Tax and Insurance Escrow Fund, shall be added together with monthly
installments of principal and interest payable under the Note and paid as an
aggregate sum by Borrower to Lender on each Payment Date.  Borrower shall further reimburse Lender upon
demand for reasonable out-of-pocket costs and expenses incurred by Servicer in
(i) reviewing Borrower’s requisitions for advances of the Loan, (ii) reviewing
proposed Leases and subordination, non-disturbance and attornment agreements,
(iii) conducting inspections of the Project, (iv) applying the provisions of
this Agreement to any casualty or condemnation proceeding affecting the
Project, (v) responding to any Default or Event of Default or (vi) otherwise
incurred in

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connection with this
Agreement, including, without limitation, in connection with the administration
of the Loan.

Section 19.2           Servicer Fees.

Borrower shall pay, monthly, all fees to the Servicer
in respect of servicing the Loan in the amount of twelve and three tenths
(12.3) basis points per annum on the then outstanding Loan amount.  Such fees shall be added to the Monthly
Interest Payment (as defined in the Note) due on the Loan.  In addition, Borrower shall pay all of Servicer’s
out-of-pocket costs and expenses (including, without limitation, legal fees)
incurred in connection with its review of any construction advances or draws,
change orders, construction progress reports, leases, subordination and
non-disturbance agreements, property and construction inspections, casualty or
condemnation matters or loan defaults

ARTICLE XX

EVENTS OF DEFAULT

Section 20.1           Events of Default.

The occurrence of any one or more of the following
shall constitute an “Event of Default” as said term is used herein:

(a)      Failure of Borrower: (i)
to make any principal or interest payment when due, (ii) to observe or perform
any of the other covenants or conditions by Borrower to be performed under the
terms of this Agreement or any other Loan Document concerning the payment of
money within ten (10) days after notice, or (iii) for a period of thirty (30)
days after written notice from Lender, to observe or perform any non-monetary
covenant or condition contained in this Agreement or any other Loan Documents;
provided that if any such failure concerning a non-monetary covenant or condition
is susceptible to cure and cannot reasonably be cured within said thirty (30)
day period, then Borrower shall have an additional sixty (60) day period to
cure such failure and no Event of Default shall be deemed to exist hereunder so
long as Borrower commences such cure within the initial thirty (30) day period
and diligently and in good faith pursues such cure to completion within such
resulting ninety (90) day period from the date of Lender’s notice; and provided
further that if a different notice or grace period is specified under any other
subsection of this Section 20.1 with respect to a particular breach, or
if another subsection of this Section 20.1 applies to a particular
breach and does not expressly provide for a notice or grace period, the
specific provision shall control;

(b)      The disapproval by Lender
or Lender’s Consultant at any time of any construction work due to such work
being defective or deviating from the approved Plans and Specifications, and
failure of Borrower to cause the same to be corrected to the reasonable
satisfaction of Lender within the cure period provided in Section
20.1(a)(ii) above;

(c)      A delay or discontinuance
in the Construction for a period of fifteen (15) days for reasons within the
control of Borrower, or up to seventy-five (75) days if occasioned by Force
Majeure Delays, provided that the aggregate of all such time periods shall not
exceed

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one hundred fifty (150) days, and an additional one hundred twenty
(120) days permitted with respect to a tropical storm or hurricane;

(d)      If Borrower fails to
complete the Construction in substantial accordance with the Plans and
Specifications on or before the Completion Date;

(e)      If Borrower fails to
satisfy the final disbursement conditions under Article XIV on or before
the Completion Date;

(f)       If Borrower defaults,
beyond any applicable notice or cure period, under the General Contract, the
Architect’s Agreement, any Major Contract, any of the Marketing Agreements, any
of the ML&P Agreements, the Ground Lease, or the ER Purchase Agreement;

(g)      The bankruptcy or
insolvency of the General Contractor and failure of Borrower to procure a
contract with a new contractor reasonably satisfactory to Lender within ninety
(90) days from the occurrence of such bankruptcy or insolvency;

(h)      Any Transfer or other
disposition in violation of Sections 18.1 or 18.2;

(i)       If any warranty,
representation, statement, report or certificate made now or hereafter by
Borrower or Guarantor is untrue or incorrect in any material respect at the time
made or, subject to the provisions of Section 3.2 hereof, deemed remade;

(j)       Borrower or Guarantor
shall commence a voluntary case concerning Borrower or Guarantor under the
Bankruptcy Code; or an involuntary proceeding is commenced against Borrower or Guarantor
under the Bankruptcy Code and relief is ordered against the applicable party,
or the petition is controverted but not dismissed or stayed within sixty (60)
days after the commencement of the case, or a custodian (as defined in the
Bankruptcy Code) is appointed for or takes charge of all or substantially all
of the property of Borrower or Guarantor; or Borrower or Guarantor commence any
other proceedings under any reorganization, arrangement, readjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar Law of any
jurisdiction whether now or hereafter in effect relating to Borrower or
Guarantor; or there is commenced against Borrower or Guarantor any such
proceeding which remains undismissed or unstayed for a period of sixty (60)
days; or Borrower or Guarantor fails to controvert in a timely manner any such
case under the Bankruptcy Code or any such proceeding, or any order of relief
or other order approving any such case or proceeding is entered; or Borrower or
Guarantor by any act or failure to act indicates its consent to, approval of,
or acquiescence in any such case or proceeding or the appointment of any
custodian or the like of or for it for any substantial part of its property or
suffers any such appointment to continue undischarged or unstayed for a period
of sixty (60) days;

(k)      Borrower or Guarantor
shall make an assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts generally as they become due, or shall
consent to the appointment of a receiver or trustee or liquidator of all of its
property or the major part thereof or if all or a substantial part of the
assets of Borrower or Guarantor are

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attached, seized, subjected to a writ or distress warrant, or are
levied upon, or come into the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors;

(l)       Any court enjoins
Borrower from performing Construction, and such injunction is not removed for a
period of  twenty (20) days;

(m)     Borrower fails to make any
Deficiency Deposit with Lender within the time and in the manner required by Article
XII hereof;

(n)      One or more final,
unappealable judgments are entered (i) against Borrower in amounts aggregating
in excess of $500,000.00; (ii) against Exclusive Resorts Development Company,
LLC in amounts aggregating in excess of $250,000.00; (iii) against ML&P or
Ritz-Carlton in amounts aggregating in excess of $2,500,000.00 and said
judgments are not satisfied, stayed or bonded over within thirty (30) days after
entry;

(o)      If Borrower or Guarantor
shall fail to pay any debt owed by it or is in default (beyond any applicable
notice, cure or grace period) under any Loan Document with Lender and such
failure or default continues after any applicable grace period specified in the
instrument or agreement relating thereto;

(p)      If a Material Adverse
Change occurs with respect to Borrower, the Project or Guarantor; or

(q)      The occurrence of any
other event or circumstance denominated as an Event of Default in this Agreement
or under any of the other Loan Documents and the expiration of any applicable
grace or cure periods, if any, specified for such Event of Default herein or
therein, as the case may be.

ARTICLE XXI

LENDER’S REMEDIES IN EVENT OF DEFAULT

Section 21.1           Remedies Conferred Upon Lender.

Upon the occurrence of any Event of Default, Lender
may pursue any one or more of the following remedies concurrently or
successively, it being the intent hereof that none of such remedies shall be to
the exclusion of any other:

(a)      Take
possession of the Project and complete the Construction in accordance with the
Plans and Specifications and do anything which is necessary or appropriate in
its sole judgment to fulfill the obligations of Borrower under this Agreement
and the other Loan Documents, including either the right to avail itself of and
procure performance of existing contracts or let any contracts with the same
contractors or others.  Without
restricting the generality of the foregoing and for the purposes aforesaid, Borrower
hereby appoints and constitutes Lender its lawful attorney in fact with full
power of substitution in the Project to complete the Construction in the name
of Borrower; to use unadvanced funds remaining under the Note or which may be
reserved, escrowed or set aside for any purposes hereunder at any time, or to
advance funds in excess of the face amount of the Note, to complete the
Construction; to make changes in the Plans and Specifications which

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shall be necessary or desirable to complete the Construction in
substantially the manner contemplated by the Plans and Specifications; to
retain or employ new general contractors, subcontractors, architects, engineers
and inspectors as shall be required for said purposes; to pay, settle or
compromise all existing bills and claims which are, or which may become, liens
against the Project; to execute all applications and certificates in the name
of Borrower, prosecute and defend all actions or proceedings in connection with
the Improvements or Project; to take action and require such performance as it
deems necessary under the Bond(s) and to make settlements and compromises with
the surety thereunder, and in connection therewith, to execute instruments of
release and satisfaction; and to do any and every act which Borrower might do
in its own behalf, it being understood and agreed that this power of attorney
shall be a power coupled with an interest and cannot be revoked;

(b)      Withhold further
disbursement of the proceeds of the Loan and/or terminate Lender’s obligations
to make further disbursements hereunder;

(c)      Declare the Note to be
immediately due and payable;

(d)      Sell Units pursuant to
Contracts of Sale;

(e)      Exercise all of Borrower’s
rights under the Condominium Documents; and

(f)       Exercise or pursue any other
remedy or cause of action permitted under this Agreement or any other Loan
Documents, or conferred upon Lender by Law.

ARTICLE XXII

GENERAL PROVISIONS

Section 22.1           Captions.

The captions and headings of various Articles,
Sections and subsections of this Agreement and Exhibits pertaining hereto are
for convenience only and are not to be considered as defining or limiting in
any way the scope or intent of the provisions hereof.

Section 22.2           Modification; Waiver.

No modification, waiver, amendment or discharge of
this Agreement or any other Loan Document shall be valid unless the same is in
writing and signed by the party against which the enforcement of such
modification, waiver, amendment or discharge is sought.

Section 22.3           Governing Law.

THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW
YORK, THE LOAN WAS MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF NEW
YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE AND WILL BE
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

 70
 

 

 

AND PERFORMANCE, THIS
AGREEMENT 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 AND APPLICABLE LAW OF THE UNITED
STATES OF AMERICA.  TO THE FULLEST EXTENT
PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY
CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT,
AND THIS AGREEMENT 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.  NOTWITHSTANDING THE FOREGOING,
PROVISIONS IN THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS WITH RESPECT TO
THE CREATION, PERFECTION, PRIORITY, ENFORCEMENT AND FORECLOSURE OF THE LIENS
AND SECURITY INTERESTS CREATED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAW OF THE STATE IN WHICH THE PROJECT IS LOCATED.

Section 22.4           Acquiescence Not to Constitute
Waiver of Lender’s Requirements.

Each and every covenant and condition for the benefit
of Lender contained in this Agreement may be waived by Lender, provided,
however, that to the extent that Lender may have acquiesced in any
noncompliance with any construction or nonconstruction conditions precedent to
the Initial Advance under the Loan or to any subsequent disbursement of Loan
proceeds, such acquiescence shall not be deemed to constitute a waiver by
Lender of such requirements with respect to any future disbursements of Loan
proceeds.

Section 22.5           Disclaimer by Lender.

(a)      This Agreement is made for
the sole benefit of Borrower and Lender, and no other Person shall have any
benefits, rights or remedies under or by reason of this Agreement, or by reason
of any actions taken by Lender pursuant to this Agreement.  Lender shall not be liable to any contractors,
subcontractors, supplier, architect, engineer, tenant or other party for labor
or services performed or materials supplied in connection with the
Construction.  Lender shall not be liable
for any debts or claims accruing in favor of any such parties against Borrower
or others or against the Project. 
Lender, by making the Loan or taking any action pursuant to any of the
Loan Documents, shall not be deemed a partner or a joint venturer with Borrower
or fiduciary of Borrower.  No payment of
funds directly to a contractor or subcontractor or provider of services shall
be deemed to create any third party beneficiary status or recognition of same
by Lender.  Without limiting the
generality of the foregoing:

(i)            Lender
shall have no liability, obligation or responsibility whatsoever with respect
to the Construction.  Any inspections of
the Construction made by or through Lender are for purposes of administration
of the Loan only and neither Borrower nor any third party is entitled to rely
upon the same with respect to the quality, adequacy or suitability of materials
or workmanship, conformity to the Plans and Specifications, state of completion
or otherwise; and

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(ii)           Lender
neither undertakes nor assumes any responsibility or duty to Borrower to
select, review, inspect, supervise, pass judgment upon or inform Borrower of
any matter in connection with the Project, including matters relating to the
quality, adequacy or suitability of:  (x)
the Plans and Specifications, (y) architects, contractors, subcontractors and
material suppliers employed or utilized in connection with the Construction, or
the workmanship of or the materials used by any of them or (z) the progress or
course of Construction and its conformity or nonconformity with the Plans and
Specifications; Borrower shall rely entirely upon its own judgment with respect
to such matters, and any review, inspection, supervision, exercise of judgment
or supply of information to Borrower by Lender in connection with such matters
is for the protection of Lender only, and neither Borrower nor any third party
is entitled to rely thereon.

Section 22.6           Partial Invalidity; Severability.

If any of the provisions of this Agreement, or the
application thereof to any person, party or circumstances, shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement, or the
application of such provision or provisions to persons, parties or
circumstances other than those as to whom or which it is held invalid or
unenforceable, shall not be affected thereby, and every provision of this
Agreement shall be valid and enforceable to the fullest extent permitted by
law.

Section 22.7           Definitions Include Amendments.

Definitions contained in this Agreement which identify
documents, including, but not limited to, the Loan Documents, shall be deemed
to include all amendments and supplements to such documents from the date
hereof, and all future amendments, modifications, and supplements thereto
entered into from time to time to satisfy the requirements of this Agreement or
otherwise with the consent of Lender. 
Reference to this Agreement contained in any of the foregoing documents
shall be deemed to include all amendments and supplements to this Agreement.

Section 22.8           Execution in Counterparts.

This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

Section 22.9           Entire Agreement.

This Agreement, taken together with all of the other
Loan Documents and all certificates and other documents delivered by Borrower
to Lender, embody the entire agreement and supersede all prior agreements,
written or oral, relating to the subject matter hereof.

Section 22.10         Waiver of Damages.

In no event shall Lender be liable to Borrower for
punitive, exemplary or consequential damages, including, without limitation,
lost profits, whatever the nature of a breach by Lender of

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its obligations under
this Agreement or any of the Loan Documents, and Borrower for itself and its
Guarantor waives all claims for punitive, exemplary or consequential damages.

Section 22.11         Jurisdiction.

TO THE GREATEST EXTENT PERMITTED BY LAW, BORROWER
HEREBY WAIVES ANY AND ALL RIGHTS TO REQUIRE MARSHALLING OF ASSETS BY
LENDER.  WITH RESPECT TO ANY SUIT, ACTION
OR PROCEEDINGS RELATING TO THIS AGREEMENT (EACH, A “PROCEEDING”),
BORROWER IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
CIRCUIT COURT OF THE SECOND CIRCUIT, STATE OF HAWAII, THE FEDERAL DISTRICT
COURT FOR THE DISTRICT OF HAWAII, OR ANY FEDERAL OR STATE COURT SITTING IN NEW
YORK COUNTY, NEW YORK, AND (B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY
TIME TO THE LAYING OF VENUE OF ANY PROCEEDING BROUGHT IN ANY SUCH COURT, WAIVES
ANY CLAIM THAT ANY PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND
FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDING, THAT SUCH
COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY.  NOTHING IN THIS AGREEMENT SHALL PRECLUDE
LENDER FROM BRINGING A PROCEEDING IN ANY OTHER JURISDICTION NOR WILL THE
BRINGING OF A PROCEEDING IN ANY ONE OR MORE JURISDICTIONS PRECLUDE THE BRINGING
OF A PROCEEDING IN ANY OTHER JURISDICTION. 
BORROWER FURTHER AGREES AND CONSENTS THAT, IN ADDITION TO ANY METHODS OF
SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN
ANY PROCEEDING IN THE CIRCUIT COURT OF THE SECOND CIRCUIT, STATE OF HAWAII, THE
FEDERAL DISTRICT COURT FOR THE DISTRICT OF HAWAII, OR ANY FEDERAL OR STATE
COURT SITTING IN NEW YORK COUNTY, NEW YORK, MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO BORROWER AT THE ADDRESS
INDICATED BELOW, AND SERVICE SO MADE SHALL BE COMPLETE UPON RECEIPT; EXCEPT
THAT IF BORROWER SHALL REFUSE TO ACCEPT DELIVERY, SERVICE SHALL BE DEEMED
COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED.

Section 22.12         Set-Offs.

After the occurrence and during the continuance of an
Event of Default, Borrower hereby irrevocably authorizes and directs Lender
from time to time to charge Borrower’s accounts and deposits with Lender (or
its Affiliates), and to pay over to Lender an amount equal to any amounts from
time to time due and payable to Lender hereunder, under the Note or under any
other Loan Document.  Borrower hereby
grants to Lender a security interest in and to all such accounts and deposits
maintained by Borrower with Lender (or its Affiliates).

Section 22.13         Authorized Representative.

The Authorized Representative shall deal with Lender
on behalf of Borrower in respect of any and all matters in connection with this
Agreement, the other Loan Documents, and the Loan.  The Authorized Representative shall have the
power, in his or her discretion, to give and

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receive all notices,
monies, approvals, and other documents and instruments, and to take any other
action on behalf of Borrower.  All
actions by the Authorized Representative shall be final and binding on
Borrower.  Lender may rely on the
authority given to the Authorized Representative until actual receipt by Lender
of a duly authorized resolution depriving such Authorized Representative of his
authority.  No more than one person shall
serve as Authorized Representative at any given time.

Section 22.14         Non-Recourse Provisions.

The provisions of Article IX of the Note
pertaining to the personal liability of Borrower and its members, officers,
directors and employees are hereby incorporated herein by reference.

Section 22.15         Time is of the Essence.

Time is of the essence under this Agreement.

Section 22.16         Sole Discretion of Lender and Deemed
Consent.

Wherever pursuant to this Agreement (a) Lender
exercises any right given to it to approve, disapprove or consent, (b) any
arrangement or term is to be satisfactory to Lender, or (c) any other decision
or determination is to be made by Lender, the decision of Lender to approve,
disapprove or consent, all decisions that arrangements or terms are
satisfactory or not satisfactory and all other decisions and determinations
made by Lender, shall be in the sole and absolute discretion of Lender and
shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein, and any such decision or determination to be made
in  “the sole discretion of Lender” or in
or at “Lender’s sole discretion” under this Agreement shall be deemed to be in
the sole and absolute discretion of Lender and shall be final and conclusive.

With respect to any consent that is a Standard  Consent such consent shall be deemed given by
Lender if Lender (or Servicer acting on behalf of Lender) fails to object
(which objection may consist solely of a request for additional information or
documentation) within ten (10) Business Days of receipt of a written request by
Borrower for such consent and receipt by Lender and Servicer of all information
reasonably necessary for Lender to make an informed decision, all delivered in
accordance with Article XXIV hereof and marked on the consent request and on
the envelope transmitting same “NOTICE THAT MAY TRIGGER
DEEMED CONSENT - KAPALUA BAY”.

Section 22.17         Conflict; Construction of Documents;
Reliance.

In the event of any conflict between the provisions of
this Agreement and any of the other Loan Documents, the provisions of this
Agreement shall control.  The parties
hereto acknowledge that they were represented by competent counsel in
connection with the negotiation, drafting and execution of the Loan Documents
and that such Loan Documents shall not be subject to the principle of
construing their meaning against the party which drafted same.  Borrower acknowledges that, with respect to
the Loan, Borrower shall rely solely on its own judgment and advisors in
entering into the Loan without relying in any manner on any statements,
representations or recommendations of Lender or any parent, subsidiary or
Affiliate of Lender.  Lender shall not be
subject to any limitation whatsoever in the exercise of any rights

 74
 

 

 

or remedies available to
it under any of the Loan Documents or any other agreements or instruments which
govern the Loan by virtue of the ownership by it or any parent, subsidiary or
Affiliate of Lender of any equity interest any of them may acquire in Borrower,
and Borrower hereby irrevocably waives the right to raise any defense or take
any action on the basis of the foregoing with respect to Lender’s exercise of
any such rights or remedies.  Borrower
acknowledges that Lender engages in the business of real estate financings and
other real estate transactions and investments which may be viewed as adverse
to or competitive with the business of Borrower or its Affiliates.

ARTICLE XXIII

NOTICES

Any notice, demand, request or other communication
which any party hereto may be required or may desire to give hereunder shall be
in writing and shall be deemed to have been properly given (a) if hand
delivered, when delivered, (b) if mailed by United States Certified Mail
(postage prepaid, return receipt requested), three Business Days after mailing
(c) if by Federal Express or other reliable overnight courier service, on the
next Business Day after delivered to such courier service or (d) if by
telecopier on the day of transmission so long as copy is sent on the same day
by overnight courier as set forth below:

If to Borrower:

Kapalua Bay, LLC

c/o Maui Land & Pineapple Company, Inc.

120 Kane Street

Kapalua, Maui, Hawaii 69732

Attention:  Ryan Churchill

Telecopy:  (808) 669-5454

With a copy to:

Teel, Palmer & Roeper, LLP

ICW Plaza at Torrey Reserve

11455 El Camino Real, Suite 300

San Diego, CA 92130

Attention:  Dean E. Roeper, Esq.

Telecopy:  (858) 794-2909

If to Lender:

Lehman Brothers Holdings Inc.

399 Park Avenue

New York, New York 10022

Attention:  Joseph J. Flannery

Telecopy:  646-758-1938

 75
 

 

 

With a copy to:

TriMont Real
Estate Advisors, Inc.

Monarch Tower 

3424 Peachtree Road NE, Suite 2200, 

Atlanta, Georgia  30326 

Attention:  Tim Dick

Telecopy: 404 420-5610

And a copy to:

Herrick, Feinstein LLP

Two Park Avenue

New York, New York 10016

Attention:  Paul Shapses, Esq.

Telecopy:  (212) 545-3443

or at such other address as the party to be served
with notice may have furnished in writing to the party seeking or desiring to
serve notice as a place for the service of notice.

ARTICLE XXIV

WAIVER OF JURY TRIAL

BORROWER AND LENDER EACH WAIVE ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS OR RELATING THERETO OR ARISING FROM THE
LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT AND AGREE THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

ARTICLE XXV

SALE OF NOTE AND SECURITIZATION.

Section 25.1           Cooperation.

Borrower
acknowledges that Lender may sell the Loan to a party who may pool the Loan
with a number of other loans and grant participations therein or issue one or
more classes of Mortgage Backed, Pass-Through Certificates or other securities
evidencing a beneficial interest in a rated or unrated public offering or
private placement (such sale and/or securitization, a “Securitization”;
the securities evidencing such Securitization the “Securities”) or
syndicate the Loan to one or more third parties.  In connection therewith, Borrower agrees to
make available to Lender such financial and other information with respect to
the Project, Borrower, Borrower’s members and Guarantor that was provided to
Lender in the course of its underwriting and origination of the Loan as well as
such financial and other non-confidential information with respect to the
Project, Borrower, Borrower’s members and Guarantor as Lender reasonably
requests (collectively, the “Provided Information”).  The Provided Information shall be provided by
Borrower to Lender at Lender’s cost and expense, provided that Borrower’s
attorneys’ costs

 76
 

 

 

and
expenses payable by Lender shall not exceed Five Thousand and 00/100 Dollars
($5,000.00).  The Securities and/or the
Loan may be rated by one or more of the Rating Agencies.  Lender may share the Provided Information
with the investment banking firms, Rating Agencies, accounting firms, law firms
and other third-party advisory firms involved with the Loan or the
Securities.  The Provided Information may
ultimately be incorporated into the offering documents for the Securities or in
connection with a syndication and thus such information may be disclosed to
various investors.  Lender and all of the
aforesaid third-party advisors and professional firms may reasonably rely on
the information supplied by, or on behalf of, Borrower.  Lender, at its sole option, may also elect to
split the Loan into two or more loans, each secured by liens on the Project,
and sell, assign, pledge or otherwise hypothecate one or more of such loans to
third parties.  Borrower shall cooperate
in all such efforts by executing and delivering all such documents, certificates,
instruments and other things reasonably necessary to evidence or confirm
Borrower’s obligations hereunder, provided, however, that in no event shall the
Debt or Borrower’s obligations hereunder be increased as a result thereof.

Section 25.2           Non-Consolidation Opinion; Independent Director.

If Lender securitizes, sells,
participates, syndicates or hypothecates the Loan, Lender may require that (i)
Borrower cause its counsel to deliver to Lender, any Rating Agency and such
other Persons as Lender deems necessary or appropriate, an update of, or
supplement to, the Non-Consolidation Opinion, in form and substance
satisfactory to Lender and (ii) Borrower cause Member to appoint an Independent
Director to Member.

Section 25.3           Loan Components.

Borrower agrees that in connection with any
Securitization or syndication of the Loan, upon Lender’s reasonable request and
at Lender’s sole cost and expense (excluding Borrower’s legal counsels’ fees
and expenses), Borrower shall deliver one or more new component notes to
replace the original Note or modify the original Note to reflect multiple
components of the Loan.  The initial new
Notes or modified Note shall have the same weighted average coupon as the
original Note for the duration of the term of the Note, without regard to any
differing amortization or payment schedules or permitted prepayments.  In the event of a prepayment of the Loan,
Lender shall be entitled to apply the amount of such prepayment to one or more
of the new component notes as Lender in its sole discretion decides, subject to
the provisions of the foregoing sentence

Section 25.4           Intentionally Deleted.

Section 25.5           Conversion of Loan and Creation of
Subordinate Debt.

Lender shall have the right, at Lender’s sole cost and
expense, to convert a portion of the Loan into subordinate financing,
including, but not limited to, mezzanine debt, subordinate debt or
participations in the Loan (collectively, the “Subordinate Loan”),
provided that (i) the aggregate principal amount of the Loan and the Subordinate
Loan on the date of such adjustment shall equal the aggregate outstanding
principal balance of the Loan immediately prior to such adjustment, (ii) the
Note evidencing the Loan and the Subordinate Loan shall have the same weighted
average coupon as the original Note for the duration of the term of the Note,
without

 77
 

 

 

regard to any different
amortization or schedules or any permitted prepayments and (iii) the other
terms and provisions of the Loan and the Subordinate Loan shall substantially
remain unchanged, except for changes which are customary with respect to
subordinate loan financing.  Borrower
shall cooperate with all reasonable requests of Lender in connection with any
such adjustment of the Loan and shall execute and deliver such documents as
shall reasonably be required by Lender at no cost to Borrower in connection
therewith provided that Borrower’s
attorneys’ costs and expenses payable by Lender shall not exceed Five Thousand
and 00/100 Dollars ($5,000.00).

Section 25.6           Securitization Indemnification.

(a)      Borrower understands that
certain of the Provided Information may be included in disclosure documents in
connection with the Securitization, including, without limitation, a
prospectus, prospectus supplement or private placement memorandum (each, a “Disclosure Document”)
and may also be included in filings with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the “Securities Act”),
or the Securities and Exchange Act of 1934, as amended (the “Exchange Act”),
or provided or made available to investors or prospective investors in the
Securities, the Rating Agencies, and service providers relating to the
Securitization.  In the event that the
Disclosure Document is required to be revised prior to the sale of all
Securities, Borrower will cooperate with the holder of the Note in updating the
Disclosure Document by providing all current information necessary to keep the
Disclosure Document accurate and complete in all material respects.

(b)      Borrower agrees to provide in connection
with each of (i) a preliminary and a private placement memorandum or (ii) a
preliminary and final prospectus or prospectus supplement, as applicable, an
indemnification certificate (A) certifying that Borrower has carefully examined
such memorandum or prospectus, as applicable, including without limitation, the
sections entitled “Special Considerations,” “Description of the Mortgages,”
“Description of the Mortgage Loans and Mortgaged Property,” “The Manager,” “The
Borrower” and “Certain Legal Aspects of the Mortgage Loan,” and such sections
(and any other sections reasonably requested) do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in the light of the circumstances under
which they were made, not misleading, (B) indemnifying Lender (and for purposes
of this Section 25.6(b), Lender hereunder shall include its officers,
employees and directors), the Affiliate of Lehman Brothers Inc. (“Lehman”)
that has filed the registration statement relating to the securitization (the “Registration
Statement”), each of its directors, each of its officers who have signed
the Registration Statement and each Person who controls the Affiliate within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act (collectively, the “Lehman Group”), and Lehman, each of its
directors and each Person who controls Lehman within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act (collectively, the “Underwriter
Group”) for any losses, claims, damages or liabilities (collectively, the “Liabilities”)
to which Lender, the Lehman Group or the Underwriter Group may become subject
insofar as the Liabilities arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in such sections or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated in such sections or necessary in
order to make the statements in such sections or in light of the circumstances
under which they were made, not misleading and (C) agreeing to reimburse
Lender, the Lehman Group and the Underwriter Group for any

 78
 

 

 

legal or other expenses reasonably incurred by Lender and Lehman in
connection with investigating or defending the Liabilities; provided, however, that
Borrower will be liable in any such case under clauses (B) or (C) above only to
the extent that any such loss claim, damage or liability arises out of or is
based upon any such untrue statement or omission made therein in reliance upon
and in conformity with information furnished to Lender by or on behalf of
Borrower in connection with the preparation of the memorandum or prospectus or
in connection with the underwriting of the Debt, including, without limitation,
financial statements of Borrower, operating statements, rent rolls,
environmental site assessment reports and property condition reports with
respect to the Project.  This indemnity
agreement will be in addition to any liability which Borrower may otherwise
have.  Moreover, the indemnification
provided for in Clauses (B) and (C) above shall be effective whether or not an
indemnification certificate described in (A) above is provided and shall be applicable
based on information previously provided by Borrower or its Affiliates if
Borrower does not provide the indemnification certificate.

(c)      In connection with
filings under the Exchange Act, Borrower agrees to indemnify (i) Lender, the
Lehman Group and the Underwriter Group for Liabilities to which Lender, the
Lehman Group or the Underwriter Group may become subject insofar as the
Liabilities arise out of or are based upon the omission or alleged omission to
state in the Provided Information a material fact required to be stated in the
Provided Information in order to make the statements in the Provided
Information, in light of the circumstances under which they were made not
misleading and (ii) reimburse Lender, the Lehman Group or the Underwriter Group
for any legal or other expenses reasonably incurred by Lender, the Lehman Group
or the Underwriter Group in connection with defending or investigating the
Liabilities.

(d)      Promptly after receipt by
an indemnified party under this Section 25.6 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 25.6,
notify the indemnifying party in writing of the commencement thereof, but the
omission to so notify the indemnifying party will not relieve the indemnifying
party from any liability which the indemnifying party may have to any
indemnified party hereunder except to the extent that failure to notify causes
prejudice to the indemnifying party.  In
the event that any action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled, jointly with any other indemnifying party, to
participate therein and, to the extent that it (or they) may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel satisfactory to such indemnified party.  After notice from the indemnifying party to
such indemnified party under this Section 25.6, the indemnifying party
shall not be responsible for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there are any legal
defenses available to it and/or other indemnified parties that are different
from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assert such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties.  The indemnifying party shall not be liable
for

 79
 

 

 

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.

(e)      In order to provide for
just and equitable contribution in circumstances in which the indemnity
agreements provided for in Sections 25.6(b) or (c) is or are for any
reason held to be unenforceable by an indemnified party in respect of any
losses, claims, damages or liabilities (or action in respect thereof) referred
to therein which would otherwise be indemnifiable under Sections 25.6(b) or
(c), the indemnifying party shall contribute to the amount paid or payable
by the indemnified party as a result of such losses, claims, damages or
liabilities (or action in respect thereof); provided,
however, that no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. 
In determining the amount of contribution to which the respective
parties are entitled, the following factors shall be considered:  (i) Lehman’s and Borrower’s relative
knowledge and access to information concerning the matter with respect to which
claim was asserted; (ii) the opportunity to correct and prevent any statement
or omission; and (iii) any other equitable considerations appropriate in the
circumstances.  Lender and Borrower
hereby agree that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation.

(f)       The liabilities and
obligations of both Borrower and Lender under this Section 25.6 shall
survive the termination of this Agreement and the satisfaction and discharge of
the Debt.

Section 25.7           Rating Surveillance.

Borrower will retain the Rating Agencies to provide
rating surveillance services on any certificates issued in a
Securitization.  Such rating surveillance
will be at the expense of Borrower in an amount determined by Lender in its
reasonable discretion prior to the occurrence of a Securitization.  Such expense will be paid in monthly
installments.

[Signature page follows]

 80
 

 

 

IN WITNESS WHEREOF, this
Agreement has been executed by the undersigned as of the date first set forth
above.

 

	
  

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  LEHMAN BROTHERS HOLDINGS INC., a Delaware
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ JOSEPH J.
  FLANNERY

  
	
   

  	
  Name:

  	
  Joseph J. Flannery

  
	
   

  	
  Title:

  	
  Authorized Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  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:

  	
  VP

  
								

 

 81

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