EXCULPATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(xiv)        Intentionally Deleted

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

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

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

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

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

(xx)          Intentionally Deleted;

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

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

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

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Article 11 - EXCULPATION

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