e8vk

STATE OF CALIFORNIA

COUNTY OF ________________________________

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Srsd5S6+an5Ql1ov97yAQ+S5SzcBYDl39X2hPj6mq6Uhb9lNq456apLRscEPO66T Wria7MaQqjbiyeLZESJLEw== 0000950123-10-080292.txt : 20100824 0000950123-10-080292.hdr.sgml : 20100824 20100824160521 ACCESSION NUMBER: 0000950123-10-080292 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20100820 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20100824 DATE AS OF CHANGE: 20100824 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC SUNWEAR OF CALIFORNIA INC CENTRAL INDEX KEY: 0000874841 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600] IRS NUMBER: 953759463 STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21296 FILM NUMBER: 101035278 BUSINESS ADDRESS: STREET 1: 3450 EAST MIRALOMA AVENUE CITY: ANAHEIM STATE: CA ZIP: 92806 BUSINESS PHONE: 714-414-4000 MAIL ADDRESS: STREET 1: 3450 EAST MIRALOMA AVENUE CITY: ANAHEIM STATE: CA ZIP: 92806 8-K 1 a57137e8vk.htm FORM 8-K e8vk

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): August 20, 2010

PACIFIC SUNWEAR OF CALIFORNIA, INC.

(Exact Name of Registrant as Specified in Charter)


California (State or Other Jurisdiction of Incorporation)		0-21296 (Commission File Number)		95-3759463 (IRS Employer Identification No.)


3450 East Miraloma Avenue Anaheim, CA (Address of principal executive offices)		92806-2101 (Zip Code)

(714) 414-4000
Registrant’s telephone number, including area code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement

On August 20, 2010, Pacific Sunwear of California, Inc. (the “Company”), through its wholly-owned subsidiaries, Miraloma Borrower Corporation, a Delaware corporation (“Miraloma”), and Pacific Sunwear Stores Corp., a California corporation (“PacSun Stores”), executed two promissory notes pursuant to which borrowings in an aggregate amount of $29.8 million from American National Insurance Company (“Anico”) were incurred. The note executed by Miraloma (the “Miraloma Note”) is in the amount of $16.8 million and bears interest at the rate of 6.50% per annum. Monthly principal and interest payments under the Miraloma Note will commence October 1, 2010, and will be $113,435. The principal and interest payments are based on a 25-year amortization schedule. The remaining principal balance of the Miraloma Note, and any accrued but unpaid interest thereon (estimated to be $14.4 million), will be due in full on September 1, 2017. The Miraloma Note is secured by a deed of trust on the building and land comprising the Company’s principal executive offices in Anaheim, California and is non-recourse to the Company. In connection with the Miraloma Note, the Company transferred the building and related land securing the note to Miraloma and entered into a lease for the building and land with Miraloma. Miraloma paid a prepayment fee to Anico equal to 1% of the principal amount of the note on the closing date of the transaction. As a result, Miraloma may prepay the note, in whole, but not in part, at any time without penalty upon 30 days prior written notice to Anico.

The note executed by PacSun Stores (the “PacSun Stores Note”) is in the amount of $13.0 million and bears interest at the rate of 6.50% per annum. Monthly principal and interest payments under the PacSun Stores Note will commence October 1, 2010, and will be $87,777. The principal and interest payments are based on a 25-year amortization schedule. The remaining principal balance of the PacSun Stores Note, and any accrued but unpaid interest thereon (estimated to be $11.2 million), will be due in full on September 1, 2017. The PacSun Stores Note is secured by a mortgage on the building and land comprising the Company’s distribution center in Olathe, Kansas, and is unconditionally guaranteed by the Company. PacSun Stores paid a prepayment fee to Anico equal to 1% of the principal amount of the note on the closing date of the transaction. As a result, PacSun Stores may prepay the note, in whole, but not in part, at any time without penalty upon 30 days prior written notice to Anico.

The above-referenced documents contain customary representations, covenants, default provisions, conditions and other terms. The descriptions of such documents do not purport to be complete statements of the parties’ rights and obligations thereunder. The above descriptions are qualified in their entirety by reference to the exhibits attached to this Form 8-K.

The documents filed as exhibits to this Form 8-K provide shareholders with information regarding the terms of the above-referenced transactions and are not intended to provide any other factual information about the Company, Miraloma or PacSun Stores. The assertions embodied in the representations and warranties contained in such documents were made for purposes of the applicable agreement and are subject to qualifications and limitations agreed to by the respective parties in connection with negotiating the terms of such agreement. Accordingly, the representations and warranties may not reflect the actual state of facts or circumstances since they were only made as of a specific date and may be subject to a contractual standard of materiality different from what might be viewed as material to shareholders, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters of fact. Moreover, information concerning the subject matter of the

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representations and warranties may change after the date of the applicable agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

Item 2.02 Results of Operations and Financial Condition

On August 24, 2010, the Company announced financial results for the second quarter of fiscal 2010 ended July 31, 2010. The full text of the press release is furnished as Exhibit 99.1 to this report.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off Balance Sheet Arrangement of Registrant

The information provided in Item 1.01 of this Form 8-K is incorporated by reference in this Item 2.03.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.


	10.1			Promissory Note, Secured by a Deed of Trust, dated August 20, 2010, executed by Miraloma in favor of Anico
	10.2			Deed of Trust, Assignment of Rents and Security Agreement, dated August 20, 2010, executed by Miraloma in favor of Anico
	10.3			Promissory Note, dated August 20, 2010, executed by PacSun Stores in favor of Anico
	10.4			Mortgage, Security Agreement, Financing Statement and Fixture Filing, dated August 20, 2010, executed by PacSun Stores in favor of Anico
	10.5			Absolute, Unconditional Guaranty, dated August 20, 2010, executed by the Company in favor of Anico
	99.1			Press Release issued by the Company on August 24, 2010

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: August 24, 2010


	PACIFIC SUNWEAR OF CALIFORNIA, INC.
	/s/ MICHAEL L. HENRY
	Michael L. Henry
	Sr. Vice President, Chief Financial Officer

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EX-10.1 2 a57137exv10w1.htm EX-10.1 exv10w1

Exhibit 10.1

PROMISSORY NOTE
SECURED BY DEED OF TRUST

$16,800,000.00

August 20, 2010
Anaheim, California

FOR VALUE RECEIVED, MIRALOMA BORROWER CORPORATION, a Delaware corporation (“Borrower”), promises to pay to the order of AMERICAN NATIONAL INSURANCE COMPANY, a Texas insurance company, (American National Insurance Company, its successors or assigns being hereinafter called “Lender”) the sum of SIXTEEN MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($16,800,000.00), together with interest on all principal remaining unpaid from time to time from the date of the initial funding of this Note (“Disbursement Date”) at the rate of six and one-half percent (6.5%) per annum (the “Contract Rate”). Interest only accruing from the date of the initial funding of this Note, through and including the last day of the month in which the Disbursement Date occurs, shall be collected upon the date of the recordation of the Deed of Trust (hereinafter defined), and thereafter, principal and interest payments on the Note, based upon a twenty-five (25) year amortization of the principal balance on the date hereof, in monthly installments of ONE HUNDRED THIRTEEN THOUSAND FOUR HUNDRED THIRTY-FOUR AND 80/100 DOLLARS ($113,434.80) shall be payable on the first (1^st) day of each and every month commencing on October 1, 2010 until September 1, 2017 (the “Maturity Date”). As said installments are paid, they are to be applied first to late charges and other fees, costs and charges, if any, reimbursable to Lender as provided herein or in the Loan Documents (hereinafter defined), then to interest accrued, and the balance, if any, to unpaid principal. On the Maturity Date the entire principal amount outstanding on this Note, along with interest accrued but unpaid thereon, and all other amounts due to Lender arising out of this Note, shall be all due and payable.

Both principal and interest are payable at the office of American National Insurance Company, One Moody Plaza, Galveston, Texas, 77550, Attn: Mortgage and Real Estate Investment Department, or at such place as Lender may from time to time designate in writing. All payments of interest, or principal and interest shall be made to Lender not later than 12:00 o’clock noon, local time, on the date designated in the Note and at the place of payment designated by Lender herein, and any payment received after such hour shall be deemed to have been paid to and received by Lender on Lender’s next succeeding business day.

Borrower understands that the monthly installments of interest and principal on this Note referred to above are based upon a hypothetical twenty five (25) year amortization; that such installments will not amortize fully the principal balance by the Maturity Date; that the final installment will be a “balloon” payment; and that Lender has no obligation to refinance such “balloon” payment.

This Note is given for a loan of $16,800,000.00 (“Loan”) to be advanced by Lender to Borrower, and Borrower’s obligations under the Loan and this Note are secured by that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (the “Deed of

Trust”) of even date herewith from Borrower, as Trustor, to First America Title Insurance Company, as Trustee, in favor of Lender, as Beneficiary, encumbering the property located in Orange County, California described in Exhibit “A” attached hereto and made a part hereof (“Property”), and which property is a part of the Property, as that term is defined in the Deed of Trust. This Note, the Deed of Trust, and all other instruments of indebtedness and security executed by Borrower to evidence or secure the Loan represented by this Note shall sometime be collectively referred to as the “Loan Documents.”

It is expressly agreed that if (a) Borrower shall be in default in the payment when due of any principal, interest or installment of interest or principal and interest or any other sums due and payable pursuant to the terms and conditions of this Note or of any other Loan Document; or (b) there shall be an Event of Default under the Deed of Trust, or (c) Borrower shall be in default after the expiration of any applicable grace period expressly provided therein, under the terms, conditions, covenants, agreements, representations or warranties contained in any other Loan Document, including, without limitation, any other document securing this Note; or (d) any Borrower, or any drawer, acceptor, endorser, guarantor, surety or accommodation party or other person liable upon or for the payment of the indebtedness evidenced by this Note (each hereinafter called “Other Liable Party” or “Other Liable Parties”) (i) admits in writing its inability to pay its debts generally as they become due, (ii) files a petition in bankruptcy as a Debtor or seeking reorganization or an arrangement or otherwise to take advantage of any state or federal bankruptcy or insolvency law, (iii) makes an assignment for the benefit of creditors, (iv) files a petition for or consents to the appointment of a receiver of any of its assets or a part thereof, (v) without its consent, a petition in bankruptcy is filed against it, or an order, decree or judgment is entered by a court of competent jurisdiction appointing a receiver over its property, or approving a petition filed against it seeking a reorganization or an arrangement of it under any bankruptcy or insolvency law, and such petition, order, decree or judgment is not vacated, set aside or stayed within ninety (90) days from the date of entry, or (vi) dies, dissolves, or its existence as a legal entity terminates, any or all of the foregoing (a) through (d) hereinafter an “Event of Default.” Lender may, in any of such events, at its option, accelerate the maturity of the Note and declare the entire balance of this Note, both principal and interest, immediately due and payable and/or may enforce such other rights as are available to Lender under the terms and conditions of any document securing this Note or otherwise available at law or in equity. All rights and remedies available to Lender shall be cumulative and not exclusive and the exercise or beginning to exercise of any one of such rights or remedies shall not preclude the simultaneous or later exercise of any or all of such rights or remedies.

Borrower hereby agrees to pay all expenses incurred, including, but not limited to, reasonable attorney’s fees, if placed in the hands of an attorney for collection or if collected through probate, bankruptcy or other judicial proceedings.

Should any regular installment of interest, or principal and interest due under this Note, which shall not include principal and interest due at the Maturity Date, not be paid in full on or before the fifth (5th) day of the month in which such payment is due, Borrower acknowledges that the Lender will incur extra expenses for the handling of the delinquent payment and servicing the indebtedness evidenced hereby, and that the exact amount of these extra expenses is extremely difficult and impractical to ascertain, but that a charge of five percent (5%) of the amount of the delinquent payment (“Late Charge”) would be a fair approximation of the expense

so incurred by Lender. If applicable law requires a lesser charge, however, then the maximum charge permitted by such law may be charged by Lender for said purpose. Therefore, Borrower shall, in such event, without further notice, and without prejudice to the right of Lender to collect any other amounts provided to be paid hereunder or under the Deed of Trust, or any other Loan Document, or to declare an Event of Default, pay to Lender immediately upon demand the Late Charge to compensate Lender for expenses incurred in handling delinquent payments. Borrower acknowledges and agrees that such late payment charge is reasonable, is calculated to reimburse Lender for its administrative costs incurred as a result of such late payment and is not intended as a penalty. Borrower represents and warrants to Lender that it will not seek to, or in fact, challenge the imposition of any such late charge as a penalty or unreasonable change under State or Federal law, and Borrower expressly waives such challenge.

Prior to an Event of Default, unpaid principal shall bear interest from the date hereof at the Contract Rate. From and after any Event of Default and continuing so long as Lender has not agreed in writing to a waiver or cure of such Event of Default, all unpaid principal (whether or not overdue) and unpaid interest shall bear interest at the lesser of “Maximum Nonusurious Rate” (as hereinafter defined) or if there is no Maximum Nonusurious Rate, at a per annum rate equal to Seventeen Percent (17%) (hereinafter referred to as the “Default Rate”), whether or not Lender has exercised its option to accelerate the maturity of this Note and to declare the entire unpaid principal indebtedness and accrued interest due and payable. Provided, however, after any Event of Default, Lender, in its sole and absolute discretion, may elect to charge a rate of interest or impose a handling or late charge which are less than the amount which would result from applying the Default Rate provided for in the preceding sentence. Any such election by Lender to charge such lesser amount shall not constitute a waiver of Lender’s right to impose the Default Rate during the existence of any future defaults. Borrower acknowledges and agrees that the increases in interest rate contemplated herein are expressly designed to cover the additional but unforeseeable costs and risks associated with an event of default under this Note, the Deed of Trust or any other Loan Document, as well as the loss of the use of funds incurred by Lender as a result of untimely payment. Borrower waives any right to challenge such interest rate increased as a penalty under State or Federal law.

Provided that on the Disbursement Date Borrower shall have paid to Lender a prepayment fee equal to one percent (1%) of the original principal amount of this Note contemporaneous with execution and delivery of this Note, this Note may be prepaid in whole but not in part, at any time with thirty (30) days prior written notice to Lender specifying the date of prepayment.

Borrower, and all Other Liable Parties, jointly and severally waive presentment for payment, protest and demand, notice of non-payment, protest, notice of protest, notice of acceleration, notice of the intent to accelerate, the filing of suit, and diligence in collecting this Note or enforcing any of the security herefor, and agree to the substitution, exchange or release of any such security or the release of any party primarily or secondarily liable hereon, and further agree that it will not be necessary for the holder hereof, in order to enforce payment of this Note by it, to first institute suit or exhaust its remedies against Borrower or any Other Liable Party, or to enforce its rights against any security herefor, and consent to any one or more rearrangements, modifications, extensions or postponements of the time, amount or manner of payment of this Note on any terms or any other indulgences with respect thereto, without notice thereof to any of

them and without discharging or reducing any of their liability hereunder. The Lender may transfer this Note, and the rights and privileges of Lender under this Note shall inure to the benefit of the Lender’s representatives, successors, and assigns.

Upon any Event of Default and so long as any such Event of Default is continuing, Lender may apply payments received on any amounts due hereunder or under the terms of any other Loan Document, in such manner as Lender may determine. Upon any such Event of Default, if Lender so elects, notice of election being expressly waived, the principal remaining unpaid with accrued interest shall at once become due and payable.

No single or partial exercise of any power hereunder or any instrument or agreement now or hereafter securing this Note shall preclude other or further exercise thereof or the exercise of any other power. Lender shall at all times have the right to proceed against any portion of the security held for this Note in such order and in such manner as Lender may deem fit, without waiving any rights with respect to any other security. No delay or omission on the part of Lender in exercising any right hereunder or under any instrument now or hereafter securing this Note shall operate as a waiver of such right or of any other right under this Note. The release of any party liable under this Note shall not operate to release any other party liable hereon. No extension of the time for the payment of this Note or any installment hereof made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify, change or affect the original liability under this Note of any of the undersigned not a party to such agreement.

Borrower agrees to pay all costs of collection when incurred, including reasonable attorneys’ fees, whether or not suit is filed, and all costs incurred in realizing upon any collateral securing this Note.

Sections 2.08 and 2.09 of the Deed of Trust provide, among other things, that the following will constitute an Event of Default thereunder:

“2.08 The sale, conveyance, transfer, disposition or further encumbering of the Property, or any part thereof or any interest therein, either voluntarily, involuntarily, or otherwise, or agreement so to do (collectively, a “Transfer”), without the prior written consent of Lender, which consent shall be granted, withheld or conditioned in the sole and entire discretion of Lender. In the event of any request for approval of a Transfer, along with any such request, Borrower shall pay to Lender a transfer fee equal to one percent (1%) of the then outstanding principal balance of the Note (“Transfer Fee”). Lender shall have the right to approve, decline or consent to any such requested Transfer in its sole and entire discretion. Any permitted transferee shall assume all payment and performance obligations under the Note, this Deed of Trust and the other Loan Documents pursuant to an assumption agreement prepared in recordable form by Lender’s legal counsel. Borrower shall pay Lender’s reasonable out-of-pocket expenses in connection with approving and documenting such Transfer, including the fees and costs of Lender’s local legal counsel, premiums for title insurance policies or endorsements, and recordation fees, whether or not the Transfer is completed.

2.09 Except as provided in Section 2.08, in the event Borrower is a corporation or trust, the Transfer of more than five percent (5%) of the issued and outstanding capital stock

of Borrower or of the beneficial interest of such trust without the prior written consent of Lender; or, in the event Borrower is a limited or general partnership or a joint venture, a change of any general partner or any joint venturer, either voluntarily, or otherwise, or the Transfer of any such general partnership or joint venture interests without the prior written consent of Lender; or, in the event Borrower is a limited liability company, a change of Manager (meaning either an actual change of the Manager or a change in ownership or control of the Manager), voluntarily or otherwise, or the Transfer of more than five percent (5%) of the membership interests in Borrower without the prior written consent of Lender; or, any change in Borrower’s form of legal entity, or the form of any legal entity which is the general partner or Manager of Borrower. No Transfer or series of Transfers may be utilized to frustrate Lender’s rights in situations where the substantive effect of such Transfer or series of Transfers amounts to a disposition of the Property, or control thereof, for a valuable consideration to parties other than Borrower. Nothing contained herein shall limit in any manner, and all of the following shall be permitted without Lender’s consent, (i) a sale or transfer of all or substantially all of the assets of Pac Sun that includes the Borrower or (ii) a merger or consolidation or other acquisition of Pac Sun; provided the transferee of such assets or surviving company in such merger or consolidation or other acquisition has a net worth equal to or greater than three hundred million dollars ($300,000,000.00) and further provided that Borrower demonstrates such valuation to Lender’s reasonable satisfaction within fifteen days prior to the occurrence of any such merger, consolidation or other acquisition.”

This Note shall be governed by and construed in accordance with California law and applicable federal law. It is the intention of Lender and Borrower that this Note and all provisions hereof and of all documents securing this Note conform in all respects to the laws of the State of California and applicable federal law pertaining to usury. Notwithstanding any provision in this Note or in any other documents executed in connection therewith to the contrary, it is expressly provided that in no case or event should the aggregate amounts, which by applicable law are deemed to be interest with respect to this Note, the Deed of Trust or any other document securing or executed in connection with this Note ever exceed the “Maximum Nonusurious Rate” (as defined below). In this connection, it is expressly stipulated and agreed that it is the intention of Lender and the Borrower to contract in strict compliance with applicable usury laws of the State of California and/or of the United States (whichever permits the higher rate of interest) from time to time in effect. Nothing in this Note, the Deed of Trust or any other document securing this Note shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Maximum Nonusurious Rate. If under any circumstances the aggregate amounts contracted for, charged or paid with respect to this Note, whether by fulfillment of any provision hereof or of any mortgage, loan agreement or other document now or hereafter evidencing, securing or pertaining to the indebtedness evidenced hereby, which by applicable law are deemed to be interest, would produce an interest rate greater than the Maximum Nonusurious Rate, the Borrower and any other person obligated to pay this Note, stipulates that the amounts will be deemed to have been paid, charged or contracted for as a result of an error on the part of Borrower, any other person obligated for the payment of this Note and the Lender and upon discovery of the error or upon notice thereof from the Borrower or the party making such payment, the Lender or the party receiving such excess payment shall, at its option, refund the amount of such excess payment or credit the excess payment against any other amount due under this Note. In addition, all sums paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of

monies shall be, to the extent permitted by applicable law, amortized, prorated, allocated and spread through the full stated term of this Note so that the amount of interest on account of the indebtedness evidenced hereby does not exceed the maximum permitted by law. The provisions of this paragraph shall control all existing and future agreements between Borrower and Lender. The term “Maximum Nonusurious Rate” as used herein shall mean the highest rate of interest permissible under applicable law, but not more than a per annum rate of seventeen percent (17%). If the Maximum Nonusurious Rate is increased or removed by statute or other governmental action subsequent to the date of this Note, then the new Maximum Nonusurious Rate, if any, will be applicable to this Note from the effective date of the new Maximum Nonusurious Rate, unless such application is precluded by the statute or governmental action or by the general law of the jurisdiction governing this Note.

The Borrower warrants and represents to Lender and all holders of the indebtedness evidenced hereby, that (i) all loans evidenced by this Note shall be “business loans” as that term is used in the Depository Institutions Deregulatory and Monetary Control Act of 1980, as amended, (ii) that this transaction is specifically exempt under Section 226.3(a) of Regulation Z issued by the Board of Governors of the Federal Reserve System, and Title I and Title V of the Consumer Credit Protection Act, and (iii) that such loans are for business, commercial, investment or other similar purposes and not primarily for personal, family, household or agricultural use.

Except as hereinafter provided, Borrower shall not be personally liable for the payment of principal or interest that may become due and payable under the Note, the Deed of Trust, or any other Loan Documents. Lender agrees not to seek, take or obtain against Borrower a deficiency judgment for amounts remaining unpaid under the Note and the other Loan Documents after all the security for the Note (including, without limitation, hazard insurance proceeds and condemnation awards with respect to the Property) has been applied to payment of all amounts due Lender under the Note and the other Loan Documents. Notwithstanding the foregoing limitation of liability, Borrower shall be fully liable (i) for fraud or misrepresentation made in connection with this Note or any instrument governing, securing or pertaining to the payment of this Note or the apparent purpose of which is to deprive Lender of the security for this Note; (ii) for failure to pay taxes, assessments, charges for labor or materials or any other charges which can create liens on any portion of the Property; (iii) for the misapplication of (a) proceeds of insurance covering any portion of the Property, or (b) proceeds of the sale or condemnation of any portion of the Property, or (c) rentals and security deposits received by or on behalf of Borrower subsequent to the date on which Lender gives written notice of the posting of foreclosure notices or the exercise of Lender’s assignment of rents; (iv) for failure to maintain, repair or restore the Property in accordance with any instrument governing, securing, or pertaining to the payment of this Note; (v) for any act or omission knowingly or intentionally committed or permitted by Borrower which results in the waste, damage or destruction to the Property, but only to the extent such events are not covered by insurance proceeds which are received by Lender; (vi) for the return to Lender of all unearned advanced rentals and security deposits paid by tenants of the Property or any guarantors of the leases of such tenants which are not rightfully refunded to or which are forfeited by such tenants or guarantors; (vii) for the return of, or reimbursement for, all personal property included within the Mortgaged Property taken from the Property by or on behalf of Borrower; (viii) for any liability of Borrower pursuant to the provision contained in the Deed of Trust securing this Note pertaining to hazardous or toxic

materials or substances; (ix) for any liability of Borrower pursuant to the Certificate and Indemnity Regarding Hazardous Substances executed by Borrower and delivered to Lender in connection with the indebtedness evidenced by this Note; (x) for any delay, after an Event of Default which is not cured in deeding over the Property to the Lender, or cooperate in a consensual foreclosure within 90 days of Lender’s request; (xi) for failure to maintain or alter the Property in compliance with the Americans with Disabilities Act, as it may be amended from time to time; and (xii) for all court costs and reasonable attorneys’ fees incurred in connection with the enforcement of one or more of the above subparagraphs (i) through (xi), inclusive.

Time is of the essence of this Note. Where the context so requires references to any gender shall include the others and references to the singular shall include the plural and vice versa. If any term, covenant, condition, agreement, representation or warranty of the Note or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Note, or the application of such term, covenant, condition, agreement, representation or warranty to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant, condition, agreement, representation or warranty of this Note shall be valid and enforced to the fullest extent permitted by law.

TO THE FULLEST EXTENT PERMITTED BY LAW BORROWER AND LENDER WAIVE ALL RIGHTS TO TRIAL BY JURY OF ANY SUITS, CLAIMS, COUNTERCLAIMS, ACTIONS OR OTHER PROCEEDINGS OF ANY KIND ARISING UNDER OR RELATING TO THIS NOTE, THE DEED OF TRUST, ANY OF THE OTHER LOAN DOCUMENTS AND THE LOAN SECURED HEREBY, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

[Signature Page Follows]

IN WITNESS WHEREOF, this Note has been executed and delivered as of the day and year first above written.


BORROWER MIRALOMA BORROWER CORPORATION, a Delaware corporation
By:	/s/ Craig E. Gosselin
	Name:	Craig E. Gosselin
	Title:	President

EXHIBIT “A”

LEGAL DESCRIPTION OF PROPERTY

Real property in the City of Anaheim, County of Orange, State of California, described as follows:

PARCEL A:

PARCEL I:

PARCEL 1 OF PARCEL MAP NO. 2008-117, RECORDED IN BOOK 364, PAGES 44 THROUGH 48 INCLUSIVE OF PARCEL MAPS, OF OFFICIAL RECORDS OF THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL II:

INTENTIONALLY DELETED

PARCEL III

NON-EXCLUSIVE EASEMENTS FOR UTILITY SERVICES, SURFACE DRAINAGE, ACCESS, INGRESS AND EGRESS AND THOSE OTHER PURPOSES AS MORE PARTICULARLY DESCRIBED AND SET FORTH IN THE DOCUMENT ENTITLED “EASEMENTS AND COVENANTS AGREEMENT” RECORDED NOVEMBER 21, 2008 AS INSTRUMENT NO. 2008000545184 OF OFFICIAL RECORDS.

PARCEL B:

PARCEL 1:

PARCEL 2 OF LOT LINE ADJUSTMENT NO. LLA-0000667 RECORDED NOVEMBER 21, 2008 AS INSTRUMENT NO. 2008000543923 OF OFFICIAL RECORDS OF SAID COUNTY.

PARCEL 2:

NON-EXCLUSIVE EASEMENT FOR UNDERGROUND WATER LINE MORE PARTICULARLY SET FORTH IN THE DOCUMENT ENTITLED “EASEMENT AGREEMENT” RECORDED NOVEMBER 13, 1997 AS INSTRUMENT NO. 19970579282 OF OFFICIAL RECORDS.

PARCEL 3:

NON-EXCLUSIVE EASEMENTS FOR ABOVE-GROUND PEDESTRIAN INGRESS AND EGRESS AND UNDERGROUND PEDESTRIAN TUNNEL MORE PARTICULARLY SET FORTH IN THE DOCUMENT ENTITLED “RECIPROCAL EASEMENT AGREEMENT” RECORDED NOVEMBER 13, 1997 AS INSTRUMENT NO. 19970579285 OF OFFICIAL RECORDS.

PARCEL 4:

PARCEL 5:

NON-EXCLUSIVE EASEMENTS FOR RIGHT OF WAY WITH THE RIGHT OF INGRESS AND EGRESS FOR THE PURPOSE OF INSTALLING, MAINTAINING, REPAIRING AND USEING COMMON PARKING AREAS, PARKING STALLS AND DRIVEWAYS AND THOSE OTHER PURPOSES AS MORE PARTICULARLY DESCRIBED AND SET FORTH IN THE DOCUMENT ENTITLED “DECLARATION OF USE RESTRICTIONS” RECORDED JUNE 26, 2003 AS INSTRUMENT NO. 203000750065 OF OFFICIAL RECORDS.

APN: 345-201-24 and 345-201-26

EX-10.2 3 a57137exv10w2.htm EX-10.2 exv10w2

Exhibit 10.2

RECORDING REQUESTED BY:

WHEN RECORDED MAIL TO:

LOCKE LORD BISSELL & LIDDELL LLP
300 South Grand Avenue, 26th Floor
Los Angeles, California 90071
Attn: Alfred M. Clark, III, Esq.

(Space Above For Recorder’s Use)



DATE: August 20, 2010		TRUST DEED

DEED OF TRUST, ASSIGNMENT OF RENTS AND
SECURITY AGREEMENT

MADE BY

MIRALOMA BORROWER CORPORATION, a Delaware corporation
c/o Pacific Sunwear of California, Inc.
3450 East Miraloma Avenue
Anaheim, CA 92806
HEREINAFTER REFERRED TO AS “BORROWER”

FIRST AMERICAN TITLE INSURANCE COMPANY
5 First American Way
Santa Ana, CA 92707
HEREINAFTER REFERRED TO AS “TRUSTEE”

FOR THE BENEFIT OF

AMERICAN NATIONAL INSURANCE COMPANY

One Moody Plaza
Galveston, Texas 77550
Attention: Mortgage and Real Estate Investment Department
HEREINAFTER REFERRED TO AS “LENDER”

NOTE AMOUNT: SIXTEEN MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($16,800,000.00)

California hereinafter referred to as the “Governing Jurisdiction”

THIS DOCUMENT IS ALSO A FIXTURE FILING IN ACCORDANCE WITH
§9502(c) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.

DEED OF TRUST, ASSIGNMENT OF RENTS AND
SECURITY AGREEMENT

Borrower hereby irrevocably grants, transfers, and assigns to Trustee, its successors and assigns, in trust, with power of sale and right of entry and possession, all of Borrower’s estate, right, title and interest in, to and under and grants to Lender a security interest in any and all of the following described property which is (except where the context otherwise requires) herein collectively called the “Property,” whether now owned or held or hereafter acquired:

(A) That certain real property more particularly described in Exhibit “A” attached hereto and incorporated herein by this reference, together with all of the easements, rights, privileges, franchises and appurtenances thereunto belonging or in any wise appertaining (the “Premises”), and all of the estate, right, title, interest, claim and demand whatsoever of Borrower therein or thereto, either at law or in equity, in possession or in expectancy, now or hereafter acquired;

(B) All structures, buildings and improvements of every kind and description now or at any time hereafter located on the Premises (the “Improvements”), including all equipment, apparatus, machinery, fixtures, fittings, and appliances and any additions to, substitutions for, changes in or replacements of the whole or any part thereof, including such of the foregoing as may be used in connection with the generating or distributing of air, water, heat, electricity, light, fuel or refrigeration or for ventilating or sanitary purposes or for the exclusion of vermin or insects, or for the removal of dust, refuse or garbage, now or at any time hereafter affixed to, attached to, placed upon or used in any way in connection with the use, enjoyment, occupancy or operation of the Premises or the Improvements, or any portion thereof;

(C) All articles of personal property (except inventory as defined in Article 9 of the UCC) and any additions to, substitutions for, changes in or replacements of the whole or any part thereof, including without limitation all safes, built-in furniture and installations, shelving, partitions, doors and door-stops, vaults, elevators, dumb-waiters, awnings, window shades, Venetian blinds, light fixtures, fire hoses and brackets and boxes for the same, fire and life safety systems, fire sprinkler systems, alarm systems, drapes and drapery rods and brackets, screens, linoleum, carpets, plumbing, laundry tubs and trays, iceboxes, refrigerators, heating, ventilating and air-conditioning equipment, stoves, ovens, water heaters, incinerators, furniture and furnishings, communication systems, all equipment for the generation or distribution of air, water, heat, electricity, light, fuel or refrigeration or for sanitary or drainage purposes or for the removal of dust, refuse or garbage, all specifically designed installations and furnishings and all of said articles of property, the specific enumerations herein not excluding the general, now or at any time hereafter affixed to, attached to, placed upon or used in any way in connection with the use, enjoyment, occupancy or operation of the Premises or the Improvements, or any portion thereof, and owned by Borrower or in which Borrower now has or hereafter acquires an interest, and all building materials and equipment now or hereafter delivered to and intended to be installed or placed in or about the Premises or the Improvements (all of the foregoing, collectively, being the “Personal Property”);

(D) All right, title and interest of Borrower in and to all streets, roads and public places, opened or proposed, all ways, waters, water courses, water rights and powers, liberties, privileges, sewers, pipes, conduits, wires and other facilities furnishing utility or other services to the Property, and all easements and rights of way, public or private, tenements, hereditaments, rights and appurtenances, now or hereafter used in connection with, belonging or appertaining to, the Premises (all of the foregoing being, collectively, the “Appurtenances”);

(E) All of the rents, royalties, issues, profits, revenue, income and other benefits of the Premises, or arising from the use or enjoyment of all or any portion thereof or from any lease or agreement pertaining thereto including, without limitation, any and all rents, royalties, issues, earnings, profits, revenue, income and other benefits generated by Borrower, any lessee, operator or concessionaire for the letting or other use of any room or space in the Premises or the Improvements, and all right, title and interest of Borrower in and to all leases, subleases, operating and/or concession agreements of, or relating to the Property now or hereafter entered into and all right, title and interest of Borrower thereunder, including, without limitation, cash or securities deposited thereunder to secure performance by the lessees of their obligations thereunder, whether said cash or securities are to be held until the expiration of the terms of said leases or applied to one or more of the installments of rent coming due immediately prior to the expiration of said terms (all of the foregoing being, collectively, the “Rents and Profits”);

(F) All governmental permits relating to construction on the Property (to the extent assignable) (collectively, the “Intangible Property”);

(G) All causes of action, claims, compensation and recoveries for any condemnation or taking of the Property, or any portion thereof, or for any conveyance in lieu thereof, whether direct or consequential, or for any damage or injury to the Property, or any portion thereof, or for any loss or diminution in value of the Property for any reason, whether direct or consequential (all of the foregoing being, collectively, the “Claims”);

(H) All architectural, structural, mechanical and engineering plans and specifications prepared for construction of the Improvements and all studies, data and drawings relating thereto, and also all contracts and agreements of Borrower relating to the aforesaid plans and specifications or to the construction of the Improvements (all of the foregoing being, collectively, the “Plans”);

(I) All deposits and advance payments, and refunds owing therefrom, of any kind or nature paid by or on behalf of Borrower, or owing to Borrower, with respect to the Property, and claims thereto, including, but not limited to, refunds of secured real property taxes and personal property taxes and prepaid insurance premiums, other than prepaid premiums paid under a general policy which covers Borrower and some of its affiliates, (all of the foregoing being, collectively, the “Deposits”);

(J) All proceeds (including claims and demands therefor) of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation awards (all of the foregoing being, collectively, the “Proceeds”).

Notwithstanding the foregoing, the Property shall not include any trademarks or other intellectual property of Pacific Sunwear of California, Inc. or any of its subsidiaries (other than the Intangible Property).

FOR THE PURPOSE OF SECURING, in such order of priority as Lender may elect:

(1) Due, prompt and complete observance, performance and discharge of each and every obligation, covenant and agreement contained in that certain promissory note ( the “Note”) of even date herewith in the face amount as set forth on page 1 hereof, executed by Borrower to the order of Lender and any and all modifications, extensions or renewals thereof, whether hereafter evidenced by the Note or otherwise;

(2) Payment of all other sums, with interest thereon at the rate of interest provided in the Note becoming due or payable under the provisions hereof;

(3) Payment of such additional sums and interest thereon which may hereafter be loaned to Borrower, or its successors or assigns, by Lender, when evidenced by a promissory note or notes reciting that they are secured by this Deed of Trust; and

(4) Due, prompt and complete observance, performance and discharge of each and every obligation, covenant and agreement of Borrower contained herein or in any other instrument heretofore or hereafter executed by Borrower related to or arising out of the indebtedness represented by the Note.

ARTICLE I

COVENANTS OF BORROWER

Borrower covenants, warrants and agrees to and with Lender and Trustee as follows:

1.01 Borrower will pay the principal and interest and all other sums becoming due with respect to the Note at the time and place and in the manner specified in the Note, according to the terms thereof.

1.02 Borrower has, on the date this Deed of Trust is recorded, good and marketable title to the Property subject to no lien, charge or encumbrance except such as are listed as exceptions to title in the title policy or policies, if any, insuring the lien of this Deed of Trust issued by a title company or companies acceptable to Lender (the “Permitted Exceptions”; Borrower owns or, upon acquisition thereof, will own the Personal Property free and clear of liens and claims; and this Deed of Trust is and will remain a valid and enforceable lien on the Property subject only to the exceptions referred to above. Borrower has full power and lawful authority to grant, assign, transfer and mortgage its interest in the Property in the manner and form hereby done or intended. Borrower will preserve its interest in and title to the Property and will forever warrant and defend the same to Trustee and will forever warrant and defend the validity and priority of the lien hereof against the claims of all persons and parties whomsoever, other than Permitted Exceptions. Borrower shall promptly and completely observe, perform and

discharge each and every obligation, covenant and agreement affecting the Property whether the same is prior and superior or subject and subordinate hereto, including, if the security hereunder is or will be a condominium, community apartment, stock co-operative or part of a planned development, each and every provision under any Declaration of Covenants, Conditions and Restrictions pertaining to the condominium, community apartment, stock co-operative or planned development project.

1.03 (a) Borrower will, at its own cost and without expense to Trustee or Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, notices of assignments, transfers and assurances as Trustee or Lender shall from time to time require for the better assuring, conveying, assigning, transferring and confirming unto Trustee and Lender the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Trustee or Lender, or for carrying out the intention or facilitating the performance of the terms of this Deed of Trust, or filing, registering or recording this Deed of Trust and, on demand, Borrower will execute and deliver, and hereby authorizes Trustee or Lender to execute in the name of Borrower to the extent Borrower may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments to evidence more effectively the lien hereof upon the Personal Property, the Appurtenances, the Rents and Profits, the Intangible Property, the Claims, the Plans, the Proceeds and the Deposits.

(b) Borrower forthwith upon the recordation of this Deed of Trust, and thereafter from time to time, will cause this Deed of Trust and any security instruments creating a lien or evidencing the lien hereof upon the Personal Property, the Appurtenances, the Rents and Profits, the Intangible Property, the Claims, the Plans, the Proceeds and the Deposits, and each instrument of further assurance, to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, the title of Trustee to and the security interest of Lender in the Property.

(c) Borrower will pay all filing, registration and recording fees, and all expenses incident to the execution and acknowledgment of this Deed of Trust, and any deed of trust or mortgage supplemental hereto, any security instrument with respect to the Personal Property, the Appurtenances, the Rents and Profits, the Intangible Property, the Claims, the Plans, the Proceeds and the Deposits and any instrument of further assurance, and all federal, state, county and municipal stamp taxes and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of the Note, this Deed of Trust, any deed of trust or mortgage supplemental hereto, any security instrument with respect to the Personal Property or any instrument of further assurance (other than income taxes of Lender).

coinsurance provision, in an amount sufficient to cover principal and interest payments under the Note for a period of not less than twelve (12) months and property tax and insurance expenses for a period of not less than twelve (12) months, and in such form and with such other endorsements as may be approved or required by Lender. In addition, in the event the Department of Housing and Urban Development designates the Property to be in a Special Flood Hazard Area, Borrower hereby undertakes that it will acquire flood insurance in an amount satisfactory to and with loss payable to Lender. Borrower will also carry comprehensive public liability insurance, in such form, amounts (initial minimum $1,000,000) and with such reasonable companies as Lender may from time to time require, with Lender included thereon as a named insured under a standard mortgagee endorsement of the character above described. Notwithstanding anything to the contrary contained in this Deed of Trust, following the recordation of this Deed of Trust, Lender reserves the right to require additional coverages (or changes to current coverages that are commercially reasonable) or endorsements in the future (such as earthquake, tornado, hurricane or terrorism coverages), provided that such coverages or endorsements are commercially reasonable for the area in which the Property is located and available to Borrower on a cost-effective and commercially reasonable basis. All insurance policies shall be issued by companies acceptable to Lender and have a “Best’s Key Rating Guide” financial size rating of Class “A-/X” or higher. Said insurance policies shall be endorsed with a standard non-contributory mortgage clause, shall contain no coinsurance provisions and may only be canceled or modified upon not less than thirty (30) days’ prior written notice to Lender. Loss under said insurance shall be payable to Lender and shall be applied in the same manner as provided in Section 1.05(b) hereof. The original policy or policies evidencing all insurance referred to in this paragraph, together with receipts for the payment of premiums thereon, shall be delivered to and held by Lender. In the event that Lender approves the use of a “blanket” policy, a certified copy of such blanket policy, together with an original certificate approved by Lender indicating Lender to be the insured mortgagee under such policy with coverages in the approved amounts shall be delivered to Lender. Lender shall not, by the fact of approving, disapproving, accepting, preventing, obtaining or failing to obtain any insurance, incur any liability for the form or legal sufficiency of insurance contracts, solvency of insurance companies or payment of lawsuits.

1.05 (a) Borrower, upon obtaining knowledge of the institution of any proceedings for the condemnation of the Premises and Improvements or any portion thereof or knowledge of any casualty damage to the Property or damage of any other kind, will immediately notify Lender. Lender may participate in any proceedings and join Borrower in adjusting any loss covered by insurance. All compensation, awards, proceeds, damages, claims, rights of action and payments to which Borrower may become entitled shall be paid over to Lender. Subject to the provisions of Section 1.05(b) hereof, Lender shall have the sole and absolute discretion, notwithstanding the fact that the security given hereby may not be impaired by a partial condemnation, to apply any part or all of the amount collected in connection with any condemnation proceeding: (i) upon any indebtedness secured hereby and in such order as Lender may determine, or (ii) without reducing the indebtedness secured hereby, to the reimbursement of Lender for expenses incurred by it in the restoration of the Property. Such application shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice. Lender shall be under no obligation to question the amount of any compensation, awards, proceeds, damages, claims, rights of action or payments, and may accept the same in the amount in which the same shall be paid.

(b) Lender shall make available to Borrower any such proceeds for the rebuilding or restoration of the Property so damaged or condemned, provided Lender determines, in its reasonable discretion, that its security under this Deed of Trust has not been impaired, and provided Borrower shall have fulfilled all of the following conditions: (i) no default or Event of Default shall have occurred and be continuing under the Note, this Deed of Trust or any instrument heretofore or hereafter executed by Borrower having reference to or arising out of the Note; (ii) Borrower shall not be in default under any of the terms, covenants and conditions of any of the leases, subleases, licenses or other occupancy agreements affecting the Property which have been approved by Lender; (iii) Borrower shall have in force business interruption insurance covering principal and interest payments under the Note for a period of not less than twelve (12) months and property tax and insurance expenses for a period of not less than twelve (12) months; (iv) Lender, acting reasonably, shall be satisfied that the insurance or award proceeds shall be sufficient to fully restore and rebuild the Property free and clear of all liens except the lien of this Deed of Trust and Permitted Exceptions or, in the event that available proceeds are, in Lender’s reasonable opinion, insufficient to restore and rebuild the Property, Borrower has deposited with Lender funds that, together with the available insurance or award proceeds are sufficient in Lender’s reasonable judgment to restore and rebuild the Property and Borrower at all times thereafter maintains sufficient funds on deposit to complete rebuilding, as certified by a licensed architect approved by Lender, acting reasonably; (v) construction and completion of the restoration and rebuilding of the Property shall be completed in accordance with plans and specifications and drawings submitted to and approved by Lender, which plans, specifications and drawings shall not be modified in any material respect without Lender’s prior written consent which shall not be unreasonably withheld; (vi) Lender shall have timely approved all prime contractors and principal subcontractors, and the general contract and principal subcontracts Borrower proposes to enter into with respect to the restoration and rebuilding; (vii) any and all monies that are made available for restoration and rebuilding hereunder shall be disbursed through Lender, Trustee or a title insurance or trust company satisfactory to Lender, in accordance with standard construction lending practice, including, if requested by Lender, monthly lien waivers and title insurance date-downs, or in any other manner approved by Lender in Lender’s sole discretion, with funds being disbursed not more often than once per month; (viii) Borrower shall provide builder’s risk insurance meeting Lender’s requirements, naming Lender as an additional insured; (ix) if the proceeds derive from insurance, the insurer must not have asserted, and must not subsequently assert, any defense or right of offset against Borrower or any tenant of the Property under the terms of the applicable policy or policies; and (x) Lender, acting reasonably, shall be satisfied that the quality of the materials and workmanship of the repair or reconstruction of the Property will be at least equal to the quality of the materials and workmanship of the repair or reconstruction of the Property prior to such damage or condemnation. The excess of said proceeds above the amount necessary to complete such restoration or rebuilding, if any, shall be disbursed to Lender to be applied against the principal balance of the Note as a partial prepayment thereof to Borrower. Lender’s security hereunder shall be deemed impaired if the value of the Property after restoration and rebuilding is less than the value of the Property prior to such restoration or rebuilding, as determined in Lender’s reasonable discretion.

and special assessments, including assessments on appurtenant water stock, levies, permits, inspection and license fees, imposed upon or assessed against the Property or any part thereof or and all water and sewer rents and charges and all other public charges, whether of a like or different nature, imposed upon or assessed against Borrower or the Property or any part thereof or upon the revenues, rents, issues, income and profits of the Property, or arising in respect of the occupancy, use or possession of the Property. Borrower will, upon the request of Lender, deliver to Lender receipts evidencing the payment of all such taxes, assessments, levies, fees, rents and other public charges.

(b) Borrower will pay to Lender, together with each payment of an installment of principal and/or interest under the Note, a pro rata portion of the taxes, assessments and insurance premiums next to become due, as estimated by the Lender. The determination of the amounts so payable and of the fractional parts thereof to be deposited with Lender, so that the aggregate of such deposits shall be sufficient for this purpose, shall be made by Lender in its reasonable discretion. Said amounts shall be held by Lender without interest and applied to the payment of the obligations in respect of which said amounts were deposited, in such order or priority as Lender shall determine, on or before the respective dates on which the same or any of them would become delinquent. If one (1) month prior to the due date of any of the aforementioned obligations the amount then on deposit therefor shall be insufficient for the payment of such obligation in full, Borrower, within ten (10) days after demand, shall deposit the amount of the deficiency with Lender. Nothing herein contained shall be deemed to affect any right or remedy of Lender under any other provision of this Deed of Trust or under any statute or rule of law to pay any such amount and to add the amount so paid together with interest at the Default Rate to the indebtedness hereby secured. Lender is hereby granted a security interest in the amounts held by it pursuant to this Section 1.06(b) for the purpose of securing payment of impositions and the amounts owing by Borrower and which Lender may pay under this Section 1.06(b) and the sale of the Property, or any interest therein, voluntarily, involuntarily or by operation of law, shall not release said interest or Lender’s right to apply said amounts as herein provided. Notwithstanding anything to the contrary contained herein, so long as the insurance on the Improvements is part of a blanket insurance policy maintained by Pacific Sunwear of California, Inc. (“Pac Sun”), or its affiliate, then provided that the Borrower demonstrates to Lender’s reasonable satisfaction the term of such policy, the amount of such annual insurance premium, the insured value of the Improvements insured by such blanket policy and the amount of the total insured value of all improvements insured by such blanket policy, the amount of the insurance premium to be paid by Borrower during the term of such blanket policy hereunder shall be the “Annual Insurance Percentage”. The “Annual Insurance Percentage” for any such period shall be one hundred three per cent (103%) of the sum of the annual premium (or other periodic premium) for such blanket insurance policy multiplied by the positive fraction that has as its numerator such insured value of the Improvements insured by such blanket policy and as the denominator such amount of the total insured value of all improvements insured by such blanket policy. Borrower shall pay such amount in installments equal 1/12^th each on a monthly basis on the due date for the monthly installment payments under the Note. Within fifteen (15) days after delivery of an invoice for the insurance premium to Lender, then Lender shall disburse to Borrower the lesser of (i) the amount deposited by Borrower for insurance premiums, less previous disbursements for insurance premiums, or (ii) the Annual Insurance Percentage of the amount of the invoice.

(c) Borrower will pay, from time to time when the same shall become due, all lawful claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in or permit the creation of a lien on the Property or any part thereof, or on the revenues, rents, issues, income and profits arising therefrom, and in general will do or cause to be done everything necessary so that the lien hereof shall be fully preserved subject to Permitted Exceptions, at the sole cost of Borrower, without expense to Trustee or Lender.

1.07 All right, title and interest of Borrower in and to all extensions, improvements, betterments, renewals, substitutes and replacements of and all additions and appurtenances to the Property, hereafter acquired by, or released to, Borrower or constructed, assembled or placed by Borrower on the Premises, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further deed of trust, mortgage, conveyance, assignment or other act by Borrower, shall become subject to the lien of this Deed of Trust as fully and completely, and with the same effect, as though now owned by Borrower and specifically described in the granting clause hereof, but at any and all times Borrower will execute and deliver to Trustee any and all such further assurances, deeds of trust, conveyances or assignments thereof as Trustee or Lender may reasonably require for the purpose of expressly and specifically subjecting the same to the lien of this Deed of Trust.

1.08 This Deed of Trust shall be self-operative and constitute a Security Agreement with respect to the Personal Property, the Appurtenances, the Rents and Profits, the Intangible Property, the Claims, the Plans, the Deposits and the Proceeds; provided, however, during an Event of Default Borrower hereby agrees to execute and deliver on demand and hereby irrevocably constitutes and appoints Lender the attorney-in-fact of Borrower, to execute, deliver and, if appropriate, to file with the appropriate filing officer or office such security agreements, financing statements or other instruments as Lender may request or require in order to impose or perfect the lien or security interest hereof more specifically thereon.

1.09 (a) The Rents and Profits are hereby absolutely and unconditionally assigned, transferred, conveyed and set over to Lender to be applied by Lender in payment of the principal and interest and all other sums payable on the Note, and of all other sums payable under this Deed of Trust. Prior to the happening of any Event of Default as set forth in Article II hereof, Borrower shall be entitled to collect and receive all Rents and Profits (including security deposits). Nothing contained in this Section 1.09(a) or elsewhere in this Deed of Trust shall be construed to make Lender a mortgagee in possession unless and until Lender actually takes possession of the Property either in person or through an agent or receiver.

(b) Borrower will not (i) execute an assignment of any of its right, title or interest in the Rents and Profits, other than to Lender, or (ii) except where the lessee is in default thereunder, terminate or consent to the cancellation or surrender of any lease of the Property or of any part thereof, now existing or hereafter to be made, or (iii) modify any lease of the Property or any part thereof so as to shorten the unexpired term thereof or so as to decrease the amount of the rent payable thereunder, or (iv) accept prepayments of any installments of rent to become due under any of said leases in excess of one (1) month’s rental or prepayments in the

nature of security for the performance of the lessee’s obligations thereunder in excess of an amount equal to one (1) month’s rental.

(c) Borrower will at all times, promptly and faithfully perform, or cause to be performed, all of the covenants, conditions and agreements contained in the leases of the Property now or hereafter existing on the part of the lessor, wherein Borrower is the lessor, to be kept and performed. Further, Borrower will not, without the prior written consent of Lender, enter into any lease or other rental or occupancy agreement; provided, however that Lender will not unreasonably withhold its consent to a proposed lease or renewal where the tenant is an independent third party and the terms thereof can reasonably be demonstrated to have been negotiated at arm’s length at then prevailing market values unless the tenant executes a subordination and attornment agreement in a form reasonably acceptable to Lender.

(d) Borrower shall furnish to Lender, within thirty (30) days after a request by Lender to do so, a written statement containing the names of all lessees of the Property with respect to leases where Borrower is the lessor, the terms of their respective leases, the spaces occupied and the rentals payable thereunder and a copy of each such lease.

(e) Borrower shall not enter into any new Lease affecting all or any party of the Property unless and until Borrower has provided to Lender, not later than twenty (20) days prior to the execution thereof, a copy of such proposed new Lease and has obtained Lender’s prior written approval of such new Lease.

1.10 To the extent not provided by applicable law, each lease of the Property or any part thereof shall provide that, in the event of the enforcement by Trustee or Lender of the remedies provided for by law or by this Deed of Trust, the lessee thereunder will, if requested by Lender or by any person succeeding to the interest of Borrower as the result of said enforcement, automatically become the lessee of any such successor in interest, without any change in the terms or other provisions of the respective lease; provided, however, that said successor in interest shall not be bound by (i) any payment of rent or additional rent for more than one (1) month in advance, except prepayments in the nature of security for the performance by said lessee of its obligations under said lease not in excess of an amount equal to one (1) month’s rental, or (ii) any amendment or modification in the lease made without the consent of Lender or any successor in interest. Each lease shall also provide that, upon request by said successor in interest, the lessee shall execute and deliver an instrument or instruments confirming its attornment.

1.11 Without the prior written consent of Lender being first had and obtained, Borrower will not execute or deliver any pledge, security agreement, mortgage or deed of trust covering all or any portion of the Property (“Subordinate Mortgage”). If Lender consents to any other or further Subordinate Mortgage or in the event the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable under the provisions of any applicable law, Borrower will not execute or deliver any Subordinate Mortgage unless it shall contain, among other provisions, express covenants to the effect that:

(a) the Subordinate Mortgage is in all respects subject and subordinate to this Deed of Trust;

(b) if any action or proceeding shall be brought to foreclose the Subordinate Mortgage (regardless of whether the same is a judicial proceeding or pursuant to a power of sale contained therein), no tenant of any portion of the Property will be named as a party defendant, nor will any action be taken with respect to the Property which would terminate any occupancy or tenancy of the Property, or any portion thereof, without the consent of Lender;

(c) The Rents and Profits, if collected through a receiver or by the holder of the Subordinate Mortgage, shall be applied first to the obligations secured by this Deed of Trust, including principal and interest due and owing on or to become due and owing on the Note, and then to the payment of maintenance expenses, operating charges, taxes, assessments and disbursements incurred in connection with the ownership and maintenance of the Property;

(d) if any action or proceeding shall be brought to foreclose the Subordinate Mortgage, prompt notice of the commencement thereof will be given to Lender.

1.12 (a) Borrower will not commit any waste on the Premises or make any change in the use of the Property that will in any way increase any ordinary fire or other hazard arising out of construction of the Improvements or operation of the Property, nor will Borrower make any application to any federal, state or local governmental authority (“Governmental Authority”) for a change in zoning or a change in any other law, ordinance, statute, rule, order, decree, directive or regulation (“Laws”) affecting the Property except changes which benefit the Premises, nor will Borrower consent to any such change without the written consent of Lender. Borrower will at all times comply in all material respects with all Laws of any Governmental Authority having or exercising jurisdiction over construction of the Improvements or otherwise affecting the Property or any portion thereof, including, but not limited to, compliance in full with any legislation and regulations relating to the handicapped and regulations of the Environmental Protection Agency, and maintain and keep the Improvements in good operating order and condition and will promptly make, from time to time, all repairs, renewals, replacements, additions and improvements which are necessary to comply in all material respects with such Laws. After completion of the Improvements, they shall not be removed, demolished or substantially altered, nor shall any additions to the Improvements be made other than the erection or removal of non load-bearing demising walls, without the prior written consent of Lender, which shall not be unreasonably withheld nor shall any of the Personal Property be removed except where appropriate replacements free of superior title, liens and claims are immediately made having a value at least equal to the value of the Personal Property so removed; provided that Borrower may in good faith and the ordinary course of it business make changes to the Improvements that do not adversely affect the structural integrity provided such changes, when taken in the aggregate with all related changes, cost no more than $100,000.

without interest, and shall form a maintenance reserve for the Property (the “Maintenance Reserve”). Upon the written request of Borrower, Lender shall, provided no Event of Default is occurring, allow disbursements from funds held from time to time in the Maintenance Reserve as payments against invoices for capital improvements to the Property made after the date this Deed of Trust is recorded (“capital improvement” meaning, generally, an item that is capitalized for financial accounting purposes rather than being considered an annual expense item). Nothing herein contained shall be deemed to affect any right or remedy of Lender under any other provision of this Deed of Trust or under any statute or rule of law to pay any such amount and to add the amount so paid together with interest at the Default Rate to the indebtedness hereby secured. Lender is hereby granted a security interest in the amounts held by it in the Maintenance Reserve pursuant to this Section 1.12(b) for the purpose of securing payment of impositions and the amounts owing by Borrower and which Lender may pay under this Section 1.12(b) and the sale of the Property, or any interest therein, voluntarily, involuntarily or by operation of law, shall not release said interest or Lender’s right to apply said amounts as herein provided.

1.13 Borrower, if a corporation, partnership (limited or general), limited liability company, or other form of entity that is not a natural person, will, so long as it is the owner of the Property, do all things necessary to preserve and keep in full force and effect its existence under the laws of the state of its organization and will comply in all material respects with all Laws of any Governmental Authority or court applicable to Borrower or the Property or any part thereof.

1.14 (a) Borrower will keep adequate records and books of account on an accrual basis and will permit Trustee and Lender, or their agents, accountants and attorneys, upon five (5) days prior written notice, to visit and inspect the Property and examine Borrower’s records and books of account, and make copies thereof, and to discuss Borrower’s affairs, finances and accounts relating to the Property with the officers, agents or principals of Borrower at such times during normal business hours as may be specified by Trustee or Lender in the written notice.

(b) Borrower will deliver to Lender, within ninety (90) days after the close of each fiscal year, annual audited financial statements of Borrower, including operations for the Property (balance sheet, statements of income and expense, cash flow and utilization of cash) which annual financial statements shall set forth, in comparative form, the annual statement of operations of the Property (balance sheet, income and expenses, cash flow and utilization of cash) for the previous year, including rental from tenants and calculation of tenant expense contributions. During the continuance of an Event of Default Borrower will further deliver to Lender with reasonable promptness such other information with respect to the Property as Lender may reasonably request from time to time, including, without limitation, a schedule of gross receipts collected from each tenant obligated to pay additional rent based on a percentage of gross receipts. All statements submitted shall be prepared in accordance with generally accepted accounting principles, or another format approved by Lender, which approval if granted may be revoked following an Event of Default. All financial statements submitted by Borrower with respect to the Property shall be accompanied by the certificate of Borrower dated within five (5) days of the delivery of such statements to Lender, stating that such annual statements are true and correct in all material respects. Upon the occurrence of an Event of Default, and for so

long thereafter as any sums are owing under the Note, Lender shall have the right to require that the foregoing financial statements be delivered monthly or quarterly on an unaudited basis and the further right to require that such annual statements be audited and certified by a certified public accountant, at the expense of Borrower. Borrower agrees to pay to Lender an administrative charge of $200 for each month, or portion thereof, that any required operating statements are late, in order to compensate Lender for the increased administrative expense and effort occasioned by tardy financial information.

(c) Borrower, within three (3) business days upon request in person or within five (5) business days upon request by mail, will furnish a written statement duly acknowledged of the amount due on the Note, whether for principal or interest, and whether any offsets or defenses exist against the indebtedness secured hereby.

(d) Any change in the property manager that is managing the Property for Borrower as of the date this Deed of Trust is recorded requires the prior consent of Lender, and Borrower agrees to provide any information reasonably requested by Lender as to the reasons for a proposed change in management, the expected benefits to flow therefrom, and the credentials of the proposed new manager.

1.15 Borrower shall pay all reasonable costs, fees and expenses of Trustee, its agents and counsel in connection with the performance of its duties hereunder; Borrower shall pay all taxes (except federal and state income taxes) and any other governmental charges or impositions imposed by any Governmental Authority on Trustee or Lender by reason of their interests in the Note or this Deed of Trust.

1.16 Lender shall be subrogated, notwithstanding their release of record, to any mechanic’s or vendor’s lien or liens, superior titles, mortgages, deeds of trust, liens, encumbrances, rights, equities and charges of all kinds heretofore or hereafter existing on the Property to the extent that the same are paid or discharged from the proceeds of the loan evidenced by the Note.

1.17 Borrower will, if the Note is mutilated, destroyed, lost or stolen, deliver to Lender, in substitution therefor, a new promissory note containing the same terms and conditions as the Note with a notation thereon of the unpaid principal and accrued but unpaid interest. Borrower shall be furnished with satisfactory evidence of the mutilation, destruction, loss or theft of the Note, and also such security or indemnity as may be reasonably requested by Borrower; provided, however, that if the original Lender named herein is the then Lender under this Deed of Trust, an unqualified indemnity from the original Lender named herein shall be deemed to be satisfactory security or indemnification.

1.18 If the Note provides any charge for prepayment, Borrower agrees to pay said charge even if and notwithstanding the fact that Borrower shall have defaulted in payments due under the Note or in the performance of any agreement hereunder and Lender, by reason thereof, shall have declared all sums secured hereby immediately due and payable.

1.19 Without affecting the liability of Borrower or of any other person who is or shall become bound by the terms of this Deed of Trust or who is or shall become liable for the

performance of any obligation secured hereby, Lender may, in such manner upon such terms and at such times as it deems best and without notice or demand, release any party now or hereafter liable for the performance of any such obligation, extend the time for such performance, accept additional security therefor, and alter, substitute or release any property securing such performance. No exercise or non-exercise by Lender of any of its rights under this Deed of Trust, no dealing by Lender with any person, firm or corporation and no change, impairment, loss or suspension of any right or remedy of Lender shall in any way affect any of the obligations of Borrower hereunder or any security furnished by Borrower, or give Borrower any recourse against Lender.

1.20 Borrower covenants that: (a) to the best of Borrower’s knowledge, after due and diligent inquiry (which shall mean Borrower has conducted an inquiry or investigation of matters actually known to Borrower as the owner of the Property, as well as the procuring by Borrower of the investigation and report required by Lender in connection with the making of the loan evidenced by the Note) no substances, including, without limitation, asbestos or any substance containing asbestos and deemed hazardous under any Environmental Law (defined below), the group of organic compounds known as polychlorinated biphenyls, flammable explosives, radioactive materials, chemicals known to cause cancer or reproductive toxicity, pollutants, effluents, contaminants, emissions or related materials and any items included, within the definition of hazardous or toxic waste, materials or substances (“Hazardous Substances”) under any law relating to environmental conditions and industrial hygiene, including, without limitation, the Resource Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C. §6901 et seq., the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), 42 U.S.C. §§9601-9657, the Hazardous Materials Transportation Act, 49 U.S.C. §6901 et seq., the Federal Water Pollution Control Act, 33 U.S.C. §1251 et seq., the Clean Air Act, 42 U.S.C. §741 et seq., the Clean Water Act, 33 U.S.C. §7401 et seq., the Toxic Substances Control Act, 15 U.S.C. §§2601-2629, the Safe Drinking Water Act, 42 U.S.C. §§300f-300j, as any of the foregoing have heretofor or will hereafter be amended, and all similar federal, state and local environmental statutes, ordinances and the regulations, orders and decrees now or hereafter promulgated thereunder (collectively, “Environmental Laws”), shall be installed, used, generated, manufactured, treated, handled, refined, produced, processed, stored or disposed of, by Borrower in, on or under the Property in violation of Environmental Laws; (b) that no activity shall be undertaken on the Property which would cause (i) the Property to become a hazardous waste treatment, storage or disposal facility as such terminology is defined and classified under any Environmental Law, (ii) a release or threatened release of Hazardous Substances from the Property in violation of any Environmental Law, or (iii) the discharge of Hazardous Substances into any watercourse, body of surface or subsurface water or wetland, or the discharge into the atmosphere of any Hazardous Substances which would require a permit under any Environmental Law and for which no such permit has been issued; (c) that no activity shall be undertaken or permitted to be undertaken, by the Borrower on the Property which would result in a violation under any Environmental Law, and (d) to obtain and deliver to Lender, within a reasonable time following completion of the actions as have been required to be taken by the appropriate governmental agency, certifications of engineers or other professionals reasonably acceptable to Lender, in form and substance reasonably satisfactory to Lender, certifying that all necessary and required actions to clean up, remove, contain, prevent and eliminate all releases or threats of release of Hazardous Substances on or about the Property to the levels required by the appropriate governmental agencies have been taken, and that upon completion of such action, the

Property is, to the knowledge of such professional, then in compliance with applicable Environmental Laws as then in effect and applicable to such actions. Notwithstanding the foregoing, Borrower and tenants of Borrower may use and store commercially reasonable quantities of Hazardous Substances on the Property to the extent that such use and storage is necessary for the proper operation of the Property or in the ordinary course of the businesses conducted on the Property by such tenants, provided that the use and storage of such Hazardous Substances is in accordance with Environmental Laws and that no release or threatened release which would violate Environmental Laws occurs.

1.21 Upon no less than three (3) business days notice to the Borrower, Lender shall have the right to enter and inspect the Property during normal business hours, or to cause a licensed environmental engineer to enter and inspect the Property, which inspection shall be conducted to determine the existence, location, nature and magnitude of any past or present release or threatened release of any Hazardous Substances (as that term is defined in Section 1.20 hereof) into, onto, beneath or from the Property on either of the following: (1) upon reasonable belief of the existence of a past or present release or threatened release of any Hazardous Substance into, onto, beneath or from the Property not previously disclosed in writing to the Lender in conjunction with the making, renewal or modification of the Note, or (2) after the commencement of non-judicial or judicial foreclosure proceedings against the Property. Lender shall cause any physical damage to the Property due to the inspection to be promptly repaired and restore the Property to substantially the same condition as it existed prior to such damage. In the case of an emergency, no prior notice for the exercise of the foregoing rights by Lender shall be required. If Lender, or the licensed environmental engineer selected by Lender, is refused the right of entry and inspection by the Borrower, or by a tenant of the Property, or the Lender, or such licensed governmental engineer, is otherwise unable to enter and inspect the Property without a breach of the peace, then Lender may, upon petition, obtain a court order from a court of competent jurisdiction to exercise the Lender’s rights hereunder. In this regard, Borrower hereby consents to the appointment of a receiver by the court empowered by law to appoint a receiver for the Property, in an action brought by Lender to enforce its rights hereunder.

1.22 Except as hereinafter provided, Borrower shall not be personally liable for the payment of principal or interest that may become due and payable under the Note and the other Loan Documents. Lender agrees not to seek, take or obtain against Borrower a deficiency judgment for amounts remaining unpaid under the Note and the other Loan Documents after all the security for the Note (including, without limitation, hazard insurance proceeds and condemnation awards with respect to the Property) has been applied to payment of all amounts due Lender under the Note and the other Loan Documents. Notwithstanding the foregoing limitation of liability, Borrower shall be fully liable (i) for fraud or misrepresentation made in connection with this Note or any instrument governing, securing or pertaining to the payment of the Note or the apparent purpose of which is to deprive Lender of the security for the Note; (ii) for failure to pay taxes, assessments, charges for labor or materials or any other charges which can create liens on any portion of the Property; (iii) for the misapplication of (a) proceeds of insurance covering any portion of the Property, or (b) proceeds of the sale or condemnation of any portion of the Property, or (c) rentals and security deposits received by or on behalf of Borrower subsequent to the date on which Lender gives written notice of the posting of foreclosure notices or the exercise of Lender’s assignment of rents; (iv) for failure to maintain, repair or restore the Premises and the Improvements in accordance with any instrument

governing, securing, or pertaining to the payment of this Note; (v) for any act or omission knowingly or intentionally committed or permitted by Borrower which results in the waste, damage or destruction to the Premises and the Improvements, but only to the extent such events are not covered by insurance proceeds which are received by Lender; (vi) for the return to Lender of all unearned advanced rentals and security deposits paid by tenants of the Premises and the Improvements or any guarantors of the leases of such tenants which are not rightfully refunded to or which are forfeited by such tenants or guarantors; (vii) for the return of, or reimbursement for, all personal property included within the Property taken from the Premises by or on behalf of Borrower; (viii) for any liability of Borrower pursuant to the provision contained in this Deed of Trust pertaining to hazardous or toxic materials or substances; (ix) for any liability of Borrower pursuant to the Certificate and Indemnity Regarding Hazardous Substances executed by Borrower and delivered to Lender in connection with the indebtedness evidenced by this Note; (x) for any delay, after an Event of Default which is not cured in deeding over the Property to the Lender, or cooperate in a consensual foreclosure within 90 days of Lender’s request; (xi) for failure to maintain or alter the Property in compliance with the Americans with Disabilities Act, as it may be amended from time to time; and (xii) for all court costs and reasonable attorneys’ fees incurred in connection with the enforcement of one or more of the above subparagraphs (i) through (xi), inclusive. The foregoing shall not affect Lender’s right to proceed against any Guarantor under any guaranty agreement executed by Guarantor in connection with the Loan.

Nothing in the foregoing shall be deemed to release, affect or impair the indebtedness evidenced by the Note or the security therefor, or Lender’s rights to enforce its remedies under the Loan Documents, including any remedy for injunctive or other equitable relief.

1.23 As of the date of this Deed of Trust, Borrower is and until the obligations of Borrower under the Note and the Loan Documents have been fully paid and performed and this Deed of Trust has been reconveyed, Borrower shall remain, in full compliance with all applicable laws and regulations of the United States of America that prohibit, regulate or restrict financial transactions, including but not limited to, conducting any activity or failing to conduct any activity, if such action or inaction constitutes a money laundering crime, including any money laundering crime prohibited under the Money Laundering Control Act (18 U.S.C. §§ 1956, 1957), or the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq.), and any amendments or successors thereto and any applicable regulations promulgated thereunder. Borrower represents and warrants to Lender, its successors and assigns, that, as of the date hereof: (a)(i) neither Borrower nor any member nor any general partner of such member of Borrower, nor any officer, director, employee or shareholder of Borrower, is or will become a “Person” described by Section 1 of The Anti-Terrorism Executive Order 13,224 of September 23, 2001 blocking property and prohibiting transactions with Persons who commit, threaten to commit, or support terrorism, 66 Fed. Reg. 49,049 (2001), or described in any rule or regulation implementing the same and, (ii) to the best knowledge and belief of the Borrower, neither Borrower nor any general partner or member of Borrower, nor any officer, director, or shareholder of Borrower, engages or will engage in any dealings or transactions, or be otherwise associated with, any such Persons; and (b) Borrower and all general partners and members and any general partner of such members of Borrower, and all officers, directors, employees and shareholders of Borrower, are

in compliance, and will remain in compliance, with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA Patriot Act”). Borrower acknowledges that it understands and has been advised by legal counsel on the requirements of the applicable laws referred to above including, without limitation, the Money Laundering Control Act (18 U.S.C. §§ 1956, 1957), the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq.) and the USA Patriot Act. Borrower shall notify Lender immediately upon receipt of any information indicating a breach of this Section 1.23, of if Borrower or any general partner or member of Borrower, or any officer, director, employee or shareholder of Borrower or the constituent owner of Borrower is custodially detained on charges relating to money laundering, whereupon Lender shall be entitled to take all actions necessary so that Lender is in compliance with all anti-money laundering regulations. Any and all loss, damage, liability, penalty, fine or expense, including reasonable attorneys’ fees and reasonable investigatory expenses, incurred by Lender in connection with any default by Borrower under this Section 1.23 shall be included in the indebtedness secured hereby, and shall immediately become due and payable by Borrower to Lender.

ARTICLE II

EVENTS OF DEFAULT

The following shall constitute events of default (“Events of Default”) hereunder:

2.01 The failure to make any payment of interest on the Note, or to make any payment of an installment of principal, on or before the day the same shall become due and payable, or the failure to make any other payments required under the Note on or before the day the same shall become due and payable, whether at maturity or by acceleration or as part of any prepayment or otherwise, in each case, as is provided in the Note and in this Deed of Trust, or the failure to make the payment of any insurance premium or tax required by Sections 1.04 and 1.06(a) to be paid, or the failure to make the deposits required by Section 1.06(b) or Section 1.12 (b), on or before the day the same shall become due and payable.

2.02 A default by Borrower in the due, prompt and complete observance and performance of any obligation, covenant and agreement contained in Sections 1.03, 1.04, 1.05 or 1.06(c), and the failure to cure said default within ten (10) business days after written notice to Borrower of the occurrence thereof.

2.03 A default by Borrower in the due, prompt and complete observance and performance of any obligation, covenant and agreement contained in the Note or in this Deed of Trust but not specified in Sections 2.01 or 2.02, and the failure to cure said default within thirty (30) days after written notice to Borrower of the occurrence thereof, or if not susceptible of cure during such thirty (30) day period, the failure of Borrower to commence during such thirty (30) day period and to diligently prosecute the cure of same.

2.04 The appointment pursuant to an order of a court of competent jurisdiction of a trustee, receiver or liquidator of Borrower or of the Property or any part thereof.

2.05 The filing by Borrower of a petition in bankruptcy or a petition for an arrangement or a reorganization pursuant to the Federal Bankruptcy Act or any similar law, federal or state, or the adjudication of Borrower as a bankrupt or as insolvent by a decree of a court of competent jurisdiction, and the same is not discharged within 120 days after the date of filing, or the making of an assignment for the benefit of creditors, or the admission by Borrower in writing of its inability to pay its debts generally as they become due, or the giving of consent by Borrower to the appointment of a receiver or receivers of all or any part of its property.

2.06 The filing by any of the creditors of Borrower of a petition in bankruptcy against Borrower or a petition for reorganization of Borrower pursuant to the Federal Bankruptcy Act or any similar law, federal or state, and the same is not discharged within ninety (90) days after the date of filing thereof.

2.07 The occurrence of any of the events enumerated in Sections 2.04 through 2.06 with regard to any guarantor of the Note, or the property of any such guarantor, or the revocation, limitation or termination of the obligations of any guarantor of the Note, except in accordance with the express written terms of the instrument of guaranty; or, if Borrower is a trust or trustee of a trust, the occurrence of any of the events enumerated in Sections 2.04 through 2.06 with regard to such trustee or any owner, or general partner of any owner, of more than ten percent (10%) of the beneficial interests of such trust.

2.08 The sale, conveyance, transfer, disposition or further encumbering of the Property, or any part thereof or any interest therein, either voluntarily, involuntarily, or otherwise, or agreement so to do (collectively, a “Transfer”), without the prior written consent of Lender, which consent shall be granted, withheld or conditioned in the sole and entire discretion of Lender. In the event of any request for approval of a Transfer, along with any such request, Borrower shall pay to Lender a transfer fee equal to one percent (1%) of the then outstanding principal balance of the Note (“Transfer Fee”). Lender shall have the right to approve, decline or consent to any such requested Transfer in its sole and entire discretion. Any permitted transferee shall assume all payment and performance obligations under the Note, this Deed of Trust and the other Loan Documents pursuant to an assumption agreement prepared in recordable form by Lender’s legal counsel. Borrower shall pay Lender’s reasonable out-of-pocket expenses in connection with approving and documenting such Transfer, including the fees and costs of Lender’s local legal counsel, premiums for title insurance policies or endorsements, and recordation fees, whether or not the Transfer is completed.

No Transfer or series of Transfers may be utilized to frustrate Lender’s rights in situations where the substantive effect of such Transfer or series of Transfers amounts to a disposition of the Property, or control thereof, for a valuable consideration to parties other than Borrower. Nothing contained herein shall limit in any manner, and all of the following shall be permitted without Lender’s consent, (i) a sale or transfer of all or substantially all of the assets of Pac Sun that includes the Borrower or (ii) a merger or consolidation or other acquisition of Pac Sun; provided the transferee of such assets or surviving company in such merger or consolidation or other acquisition has a net worth equal to or greater than three hundred million dollars ($300,000,000.00) and further provided that Borrower demonstrates such valuation to Lender’s reasonable satisfaction within fifteen days prior to the occurrence of any such merger, consolidation or other acquisition.

ARTICLE III

REMEDIES

Upon the occurrence of any Event of Default, Trustee and Lender shall have the following rights and remedies:

3.01 Lender may declare the entire principal of the Note then outstanding (if not then due and payable), and accrued but unpaid interest thereon to be due and payable immediately, and, notwithstanding the stated maturity in the Note or any other term or provision of the Note or this Deed of Trust to the contrary, the outstanding principal amount of the Note and the accrued but unpaid interest thereon shall become and be immediately due and payable.

3.02 Whether or not Lender exercises the option provided in Section 3.01 above, Lender in person or by agent may, without any obligation so to do and without notice or demand upon Borrower and without releasing Borrower from any obligation hereunder: (i) make any payment or do any act which Borrower has failed to make or do; (ii) enter upon, take possession of, manage and operate the Property or any part thereof; (iii) make or enforce, or, if the same be subject to modification or cancellation, modify or cancel any leases of the Property or any part thereof upon such terms or conditions as Lender deems proper; (iv) obtain and evict tenants, and fix or modify rents, make repairs and alterations and do any acts which Lender deems proper to protect the security hereof; and (v) with or without taking possession, in its own name or in the name of Borrower, sue for or otherwise collect and receive rents, royalties, issues, profits, revenue, income and other benefits, including those past due and unpaid, and apply the same less costs and expenses of operation and collection, including reasonable attorneys’ fees, upon any indebtedness secured hereby, and in such order as Lender may determine. Upon request of Lender, Borrower shall assemble and make available to Lender at the Premises any of the Property which has been removed therefrom. The entering upon and taking possession of the Property, the collection of any rents, royalties, issues, profits, revenue, income or other benefits and the application thereof as aforesaid shall not cure or waive any default theretofore or thereafter occurring or affect any notice of default hereunder or invalidate any act done pursuant to any such notice; and, notwithstanding continuance in possession of the Property, or any part thereof, by Lender, Trustee or a receiver, and the collection, receipt and application of rents, royalties, issues, profits, revenue, income or other benefits, Lender shall be entitled to exercise

every right provided for in this Deed of Trust or by law upon or after the occurrence of a default, including the right to exercise the power of sale. Any of the actions referred to in this Section 3.02 may be taken by Lender, either in person or by agent, with or without bringing any action or proceeding, or by receiver appointed by a court, and any such action may also be taken irrespective of whether any notice of default or election to sell has been given hereunder and without regard to the adequacy of the security for the indebtedness hereby secured. Further, Lender, at the expense of Borrower, either by purchase, repair or construction, may from time to time maintain and restore the Property or any part thereof and complete construction of the Improvements uncompleted as of the date thereof and in the course of such completion may make such changes in the contemplated Improvements as Lender may reasonably deem desirable and may insure the same.

3.03 Lender shall be entitled to the full extent provided by law, to the appointment by a court having jurisdiction of a receiver to take possession of and protect the Property or any part thereof, and operate the same and collect the Rents and Profits.

3.04 Lender may bring an action in any court of competent jurisdiction to foreclose this Deed of Trust or to enforce any of the covenants and agreements hereof.

3.05 Lender may elect to cause the Property or any part thereof to be sold as follows:

(a) Lender may proceed as if all of the Property were real property in accordance with subparagraph (d) below, or Lender may elect to treat any of the Property which consists of a right in action or which is property that can be severed from the Premises or the Improvements without causing structural damage thereto as if the same were personal property, and dispose of the same in accordance with subparagraph (c) below, separate and apart from the sale of real property, the remainder of the Property being treated as real property.

(b) Lender may cause any such sale or other disposition to be conducted immediately following the expiration of any grace period herein provided (or immediately upon the expiration of any redemption or reinstatement period required by law) or Lender may delay any such sale or other disposition for such period of time as Lender deems to be in its best interest. Should Lender desire that more than one (1) such sale or other disposition be conducted, Lender may, at its option, cause the same to be conducted simultaneously, or successively, on the same day, or at such different days or times and in such order as Lender may deem to be in its best interests.

(c) Should Lender elect to cause any of the Property to be disposed of as personal property as permitted by subparagraph (a) above, it may dispose of any part thereof in any manner now or hereafter permitted by the Uniform Commercial Code of the Governing Jurisdiction or in accordance with any other remedy provided by law. Any such disposition may be conducted by an employee or agent of Lender or Trustee. Both Borrower and Lender shall be eligible to purchase any part or all of such property at any such disposition. Any such disposition may be either public or private as Lender may elect. Subject to the provisions of the Uniform Commercial Code of the Governing Jurisdiction, Lender shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code of the Governing Jurisdiction. Expenses of retaking, holding, preparing for sale, selling or the like shall include Lender’s

reasonable attorneys’ fees and legal expenses, and upon such Event of Default, Borrower, upon demand of Lender, shall assemble such personal property and make it available to Lender at the Premises, a place which is hereby deemed reasonably convenient to Lender and Borrower. Lender shall give Borrower at least five (5) days’ prior written notice of the time and place of any public sale or other disposition of such property or of the time at or after which any private sale or any other intended disposition is to be made, and if such notice is sent to Borrower, in the manner provided for the mailing of notices herein, it shall constitute reasonable notice to Borrower.

(d) Should Lender elect to sell the Property or any part thereof that is real property or that Lender has elected to treat as real property, upon such election, Lender or Trustee shall give such notice of default and election to sell as may then be required by law. Thereafter, upon the expiration of such time and the giving of such notice of sale as may then be required by law, and without the necessity of any demand on Borrower, Trustee, at the time and place specified in the notice of sale, shall sell the Property, or any portion thereof specified by Lender, at public auction to the highest bidder for cash in lawful money of the United States, subject, however, to the provisions of Section 3.07. Trustee may, and upon request of Lender shall, from time to time postpone the sale by public announcement thereof at the time and place noticed therefor. If the Property consists of several lots or parcels, Lender may direct that the same be sold as a unit or be sold separately and, if to be sold separately, Lender may designate the order in which such lots or parcels shall be offered for sale or sold. Any person, including Borrower, Trustee or Lender, may purchase at the sale. Upon any sale, Trustee shall execute and deliver to the purchaser or purchasers a deed or deeds conveying the property so sold, but without any covenant or warranty whatsoever, express or implied, whereupon such purchaser or purchasers shall be let into immediate possession.

(e) In the event of a sale or other disposition of the Property, or any part thereof, and the execution of a deed or other conveyance pursuant thereto, the recitals therein of facts, such as default, the giving of notice of default and notice of sale, demand that such sale should be made, postponement of sale, terms of sale, sale, purchase, payment of purchase money and other facts affecting the regularity or validity of such sale or disposition, shall be conclusive proof of the truth of such facts; and any such deed or conveyance shall be conclusive against all persons as to such facts recited therein.

(f) The acknowledgment of the receipt of the purchase money, contained in any deed or conveyance executed as aforesaid, shall be sufficient discharge to the grantee of all obligations to see to the proper application of the consideration therefor as hereinafter provided. The purchaser at any trustee’s or foreclosure sale hereunder may disaffirm any easement granted or rental or lease contract made in violation of any provision of this Deed of Trust and may take immediate possession of the Property free from, and despite the terms of, such grant of easement and rental or lease contract.

(g) Upon the completion of any sale or sales made by Trustee or Lender, as the case may be, under or by virtue of this Article III, Trustee or any officer of any court empowered to do so, shall execute and deliver to the accepted purchaser or purchasers a good and sufficient instrument, or good and sufficient instruments, conveying, assigning and transferring all estate, right, title and interest in and to the property and rights sold. Trustee is

hereby irrevocably appointed the true and lawful attorney-in-fact of Borrower in its name and stead to make all necessary conveyances, assignments, transfers and deliveries of the Property or any part thereof and the rights so sold and for that purpose Trustee may execute all necessary instruments of conveyance, assignment and transfer, and may substitute one or more persons with like power, Borrower hereby ratifying and confirming all that its said attorney or any substitute or substitutes shall lawfully do by virtue hereof. Nevertheless, Borrower, if so requested by Trustee or Lender, shall ratify and confirm any such sale or sales by executing and delivering to Trustee or to such purchaser or purchasers all such instruments as may be advisable in the judgment of Trustee or Lender, for the purpose as may be designated in such request. Any such sale or sales under or by virtue of this Article III made under the power of sale herein granted shall operate to divest all of the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of Borrower in and to the properties and rights so sold, and shall be a perpetual bar, both at law and in equity, against Borrower and any and all persons claiming or who may claim the same, or any part thereof, from, through or under Borrower. Borrower reserves any equity of redemption to which Borrower is entitled by California law following a sale of the Property by virtue of this Article III pursuant to judicial proceedings or of a judgment or decree of foreclosure.

(h) Borrower hereby expressly waives any right that it may have to direct the order in which any of the Property shall be sold in the event of any sale or sales pursuant hereto.

3.06 The purchase money, proceeds or avails of any sale made under or by virtue of this Article III, together with all other sums that may then be held by Trustee or of this Article III, or otherwise, shall be applied as follows:

FIRST: To the payment of the costs and expenses of the sale, including reasonable compensation to Trustee and Lender, their agents and counsel, and of any judicial proceedings wherein the same may be made and to the payment of all expenses, liabilities and advances made or incurred by Trustee under this Deed of Trust, together with interest at the Default Rate on all advances made by Trustee and all taxes or assessments, except for any taxes, assessments or other charges subject to which the Property shall have been sold, and further including all costs of publishing, recording, mailing and posting notice, the cost of any search and/or other evidence of title procured in connection therewith and the cost of any revenue stamps on any deed of conveyance.

SECOND: To the payment of any and all sums expended under the terms hereof not then repaid, with accrued interest at the rate provided in the Note and all other sums required to be paid by Borrower pursuant to any provisions of this Deed of Trust or of the Note, including all expenses, liabilities and advances made or incurred by Lender under this Deed of Trust or in connection with the enforcement hereof, together with interest at the rate provided in the Note on all advances.

THIRD: To the payment of the principal and interest then due, owing and unpaid upon the Note, with interest on the unpaid principal at the rate provided in the Note from the due date of any such payment of principal until the same is paid.

FOURTH: The remainder, if any, to the person or persons legally entitled thereto.

3.07 Upon any sale or sales made under or by virtue of this Article III, whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, Lender may bid for and acquire the Property or any part thereof and, in lieu of paying cash therefor, may make settlement for the purchase price by crediting upon the indebtedness or other sums secured by this Deed of Trust the net sales price after deducting therefrom the expenses of sale and the costs of the judicial proceedings, if any, and any other sums which Trustee or Lender is authorized to deduct under this Deed of Trust, and, in such event, this Deed of Trust, the Note and documents evidencing expenditures secured hereby shall be presented to the person or persons conducting the sale in order that the amount so used or applied may be credited upon said indebtedness as having been paid.

3.08 (a) Upon the occurrence of any Event of Default and upon written demand by Lender, Borrower will pay to Lender the entire principal of the Note then outstanding, and all accrued but unpaid interest thereon, and, after the happening of said Event of Default, will also pay to Lender interest at the rate provided in the Note on the then unpaid principal of the Note, and the sums required to be paid by Borrower pursuant to any provision of this Deed of Trust, and in addition thereto such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to Trustee and Lender hereunder. Subject to Section 1.22 of this Deed of Trust and any other contractual limitations on recourse or personal liability of Borrower contained in the Note or this Deed of Trust, in the event Borrower shall fail forthwith to pay such amount, upon such demand, Lender shall be entitled and empowered to institute such action or proceedings at law or in equity as may be advised by its counsel for the collection of the sums so due and unpaid, and may prosecute any such action or proceedings to judgment or final decree, and may enforce any such judgment or final decree against Borrower and, collect out of the property of Borrower wherever situated, as well as out of the Property, in any manner provided by law, moneys adjudged or decreed to be payable.

(b) Lender shall be entitled to recover a deficiency judgment as aforesaid during the pendency of any proceedings for judicial enforcement of the provisions of this Deed of Trust, and the right of Lender to recover such deficiency judgment shall not be affected by any entry or sale hereunder, or by the exercise of any other right, power or remedy for the enforcement of the provisions of this Deed of Trust, or the foreclosure of the lien hereof, and in the event of a sale of the Property, and of the application of the proceeds of sale, as in this Deed of Trust provided, to the payment of the debt hereby secured, Lender shall be entitled to seek a deficiency judgment, in the manner provided by California law, for all amounts then remaining due and unpaid upon, the Note, and for all other charges, payments and costs due under this Deed of Trust. In case of proceedings against Borrower in insolvency or bankruptcy or any proceedings for the reorganization of Borrower or involving the liquidation of its assets, Lender shall be entitled, to prove the whole amount of principal and interest due upon the Note to the full amount thereof, and all other payments, charges and costs due under this Deed of Trust, without deducting therefrom any proceeds obtained from the sale of the whole or any part of the Property; provided, however, that in no case shall Lender receive a greater amount than such principal and interest and such other payments, charges and costs from the aggregate

amount of the proceeds of the sale of the Property and distribution from the estate of Borrower. Lender’s entitlement to seek a deficiency judgment against Borrower or to receive distribution of assets from the bankrupt estate of Borrower in excess of the assets which comprise the Property and the proceeds thereof is subject to any contractual limitations on recourse or personal liability of Borrower contained in the Note or this Deed of Trust, including, without limitation, Section 1.22 of this Deed of Trust.

(c) No recovery of any judgment by Lender and no levy of an execution under any judgment upon the Property or upon any other property of Borrower shall affect, in any manner or to any extent, the lien of this Deed of Trust upon the Property or any part thereof, or any liens, rights, powers or remedies of Trustee or Lender hereunder, but such liens, rights, powers and remedies of Trustee and Lender shall continue unimpaired as before.

(d) Any moneys thus collected by Lender under this Section 3.08 shall be applied by Lender in accordance with the provisions of Section 3.06.

3.09 Upon the commencement of any action, suit or other legal proceedings by Lender to obtain judgment for the principal of, or interest on the Note and other sums required to be paid by Borrower pursuant to any provision of the Note or this Deed of Trust, or of any other nature in aid of the enforcement of the Note or of this Deed of Trust, Borrower, to the fullest extent permitted by law, will and does hereby agree that service of process shall be deemed to have been effected upon the delivery of process to Borrower in the manner provided for delivery of notice as set forth in Section 5.03 hereof (other than the manner provided in Section 5.03 (i)), and Borrower will, and does hereby enter its voluntary appearance in such action, suit or proceedings. After the happening of any Event of Default, or upon the commencement of any proceedings to foreclose this Deed of Trust or to enforce the specific performance hereof or in aid thereof or upon the commencement of any other judicial proceedings to enforce any right of Trustee or Lender, Trustee or Lender shall be entitled forthwith, as a matter of right, if either shall so elect, without the giving of notice to any other party and without regard to the adequacy of the security of the Property, either before or after declaring the unpaid principal of the Note to be due and payable, to apply for the appointment of such a receiver or receivers.

3.10 Notwithstanding the appointment of any receiver, liquidator or trustee of Borrower, or of any of its property, or of the Property or any part thereof, Trustee and Lender shall be entitled to retain possession and control of all property now or hereafter held under this Deed of Trust, including, but not limited to, the Rents and Profits.

3.11 No remedy herein conferred upon or reserved to Trustee or Lender is intended to be exclusive of any other remedy herein or by law provided, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission of Trustee or Lender in exercising any right or power accruing upon any Event of Default shall impair any right or power or shall be construed to be a waiver of any Event of Default or any acquiescence therein; and every power and remedy given by this Deed of Trust to Trustee or Lender may be exercised from time to time as often as may be deemed expedient by Trustee or Lender. If there exists additional security for the performance of the obligations secured hereby, the holder of the Note, at its sole option, and without limiting or affecting any of the rights or remedies hereunder, may

exercise any of the rights and remedies to which it may be entitled hereunder either concurrently with whatever rights it may have in connection with such other security or in such order as it may determine. Nothing in this Deed of Trust or in the Note shall affect the obligation of Borrower to pay the principal of, and interest on the Note, or any payment required under the Note or this Deed of Trust, in the manner and at the time and place therein respectively expressed.

3.12 To the fullest extent permitted by applicable law, Borrower will not at any time insist upon, or plead, or in any manner whatever claim or take any benefit or advantage of any stay or extension or moratorium law or law pertaining to the marshaling of assets, the administration of estates of decedents, any exemption from execution or sale of the Property or any part thereof, including exemption of homestead, wherever enacted, now or at any time hereafter in force, which may affect the covenants and terms of performance of this Deed of Trust, nor claim, take or insist upon any benefit or advantage of any law now or hereafter in force providing for the valuation or appraisal of the Property, or any part thereof, prior to any sale or sales thereof which may be made pursuant to any provision herein, or pursuant to the decree, judgment or order of any court of competent jurisdiction; nor after any such sale or sales claim or exercise any right under any statute heretofore or hereafter enacted to redeem the property so sold or any part thereof, and Borrower hereby expressly waives all benefit or advantage of any such law or laws, and covenants not to hinder, delay or impede the execution of any power herein granted or delegated to Trustee or Lender, but to suffer and permit the execution of every power as though no such law or laws had been made or enacted. Borrower, for itself and all who claim under it, hereby waives, to the extent that it lawfully may, all right to have the Property marshaled upon any sale or foreclosure hereunder.

3.13 Upon the occurrence of any Event of Default and pending the exercise by Trustee or Lender or their agents or attorneys of their right to exclude Borrower from all or any part of the Property, Borrower agrees to vacate and surrender possession of the Property to Trustee or Lender, as the case may be, or to a receiver, if any, and in default thereof may be evicted by any summary action or proceeding for the recovery of possession of leased premises for non-payment of rent, however designated.

3.14 In the event ownership of the Property or any portion thereof becomes vested in a person other than the Borrower herein named, Lender may, without notice to the Borrower herein named, whether or not Lender has given written consent to such change in ownership, deal with such successor or successors in interest with reference to this Deed of Trust and the indebtedness secured hereby, and in the same manner as with the Borrower herein named, without in any way vitiating or discharging Borrower’s liability hereunder or for the indebtedness hereby secured.

3.15 In the event that there be a Trustee’s sale hereunder and if at the time of such sale Borrower, or its heir, executor, administrator or assign, be occupying the Premises and Improvements or any part thereof so sold, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either tenant or landlord, at a reasonable rental per day based upon the value of the Premises and Improvements, such rental to be due daily to the purchaser. An action of unlawful detainer shall lie if the tenant holds over after a demand in writing for possession of said

Premises and Improvements; and this agreement and the Trustee’s deed shall constitute a lease and agreement under which any such tenant’s possession arose and continued.

ARTICLE IV

CONCERNING TRUSTEE

4.01 Trustee, by its acceptance hereof, covenants faithfully to perform and fulfill the trusts herein created, being liable, however, only for willful negligence or misconduct, and hereby waives any statutory fee and agrees to accept reasonable compensation, in lieu thereof, for any services rendered by it in accordance with the terms hereof.

4.02 Trustee may resign at any time upon giving thirty (30) days’ notice in writing to Borrower and to Lender.

4.03 In the event of Trustee’s death, removal, resignation, refusal to act or inability to act, or in the sole discretion of Lender for any reason whatsoever, Lender may, at any time or from time to time without notice and without specifying any reason therefor and without applying to any court, select and appoint a successor trustee, and all powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon become vested in such successor without conveyance from the predecessor trustee. Such substitute trustee shall not be required to give bond for the faithful performance of its duties unless required by Lender. Such substitute trustee shall be appointed by written instrument duly recorded in the county where the Premises are located, which appointment may be executed by any authorized agent of Lender and if Lender is a business trust or corporation and such appointment be executed on its behalf by any officer of such business trust or corporation, such appointment shall be conclusively presumed to have been executed with authority and shall be valid and sufficient without proof of any action by the Board of Trustees or Board of Directors or any superior officer of the business trust or corporation. Borrower hereby ratifies and confirms any and all acts which the herein named Trustee, or its successor or successors in this trust, shall do lawfully by virtue hereof. Borrower hereby agrees, on behalf of itself and of its heirs, executors, administrators and assigns, that the recitals contained in any deed or deeds executed in due form by Trustee or any substitute trustee, or its successor or successors in this trust, acting under the provisions of this Deed of Trust, shall be prima facie evidence of the facts recited, and that it shall not be necessary to prove in any court, otherwise than by such recitals, the existence of the facts essential to authorize the execution and delivery of such deed or deeds and the passing of title thereby.

4.04 At any time and from time to time, without liability therefor and without notice, upon written request of Lender, Trustee shall (i) consent in writing to the making of any map or plat of the Property, (ii) join in granting any easement thereon, (iii) join in any extension agreement or any agreement subordinating the lien or charge hereof, or (iv) upon presentation of this Deed of Trust and the Note or notes secured hereby for endorsement, and without affecting the personal liability of any person for the payment of the indebtedness secured hereby or the effect of this Deed of Trust upon the remainder of the Property, reconvey any part of the Property.

4.05 Upon written request of Lender stating that all sums secured hereby have been paid and upon surrender to Trustee of this Deed of Trust and the Note or notes secured hereby for cancellation and retention and upon payment of its fees, Trustee shall reconvey, without warranty, the Property then held hereunder to Borrower. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truth thereof.”

ARTICLE V

MISCELLANEOUS

5.01 In the event any one or more of the provisions contained in this Deed of Trust or in the Note or in any instrument heretofore or hereafter executed by Borrower having reference to or arising out of the indebtedness represented by the Note shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Deed of Trust, but this Deed of Trust shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein.

5.02 Borrower agrees to pay Lender or its authorized loan servicing agent for each and any Lender Statement furnished at Borrower’s request the lesser of the maximum fee allowed by the law of the Governing Jurisdiction or $25.00. Such fee shall be computed as of the time said statement is furnished.

5.03 All notices given under this Agreement shall be in writing, and sent to the other party at its address set forth below or at such other address as such party may designate by notice to the other party and shall be deemed given (i) three (3) Business Days (as defined below) after mailing, by certified or registered U.S. Mail, return receipt requested, postage prepaid, (ii) one (1) Business Day after delivery, fee prepaid, to a national overnight delivery service (such as Federal Express, Purolater Courier, U.P.S. Next Day Air), or (iii) when received, if delivered by hand, as evidenced by a signed receipt:


If to Borrower:		c/o Pacific Sunwear of California, Inc.
		3450 East Miraloma Avenue
		Anaheim, CA 92806
		Attention: Craig Gosselin, SVP and General Counsel

If to Lender:		AMERICAN NATIONAL INSURANCE COMPANY
		One Moody Plaza
		Galveston, Texas 77550
		Attention: Mortgage and Real Estate Investment Department

A “Business Day” is any day on which commercial banks are not authorized or required by law to close in the Governing Jurisdiction. Borrower and Lender reserve the right to change the addresses herein stated for purposes of notice from time to time by serving written notice to the other as provided herein.

5.04 Borrower hereby requests that a copy of any Notice of Default and Notice of Sale as may be required by law be mailed to it at its address herein contained.

5.05 The granting of consent by Lender to any transaction as required by the terms hereunder shall not be deemed a waiver of the right to require consent to future or successive transactions.

5.06 All of the grants, obligations, covenants, agreements, terms, provisions and conditions herein shall run with the land and shall apply to, bind and inure to the benefit of the successors and assigns of Borrower and the successors in trust of Trustee, and the endorsees, transferees, successors and assigns of Lender.

5.07 This Deed of Trust may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same deed.

5.08 This Deed of Trust is to be construed and enforced according to the laws of the Governing Jurisdiction except that, with respect to any portion of the Property located outside of the Governing Jurisdiction, the laws of the state in which such portion of the Property is located shall be applicable thereto but only to the extent required for Lender to exercise its rights and remedies in order to realize upon its interests in the Property.

[Signature Page Follows]

IN WITNESS WHEREOF, this Deed of Trust, Assignment of Rents and Security Agreement has been executed and delivered as of the day and year first above written.


BORROWER MIRALOMA BORROWER CORPORATION, a Delaware corporation
By:	/s/ Craig E. Gosselin
	Name:	Craig E. Gosselin
	Title:	President

NOTARIZED SIGNATURES REQUIRED

LOCAL FORM OF ACKNOWLEDGMENTS


STATE OF CALIFORNIA	)
	)
COUNTY OF _________________________	)

On _______________, 2010, before me, ____________________________________, Notary Public, personally appeared ___________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I swear under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.


Signature				[SEAL]




STATE OF CALIFORNIA	)
	)
COUNTY OF _________________________	)

On , 2010, before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I swear under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.


Signature				[SEAL]

EXHIBIT “A”

LEGAL DESCRIPTION

Real property in the City of Anaheim, County of Orange, State of California, described as follows:

PARCEL A:

PARCEL I:

PARCEL 1 OF PARCEL MAP NO. 2008-117, RECORDED IN BOOK 364, PAGES 44 THROUGH 48 INCLUSIVE OF PARCEL MAPS, OF OFFICIAL RECORDS OF THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL II:

INTENTIONALLY DELETED

PARCEL III

PARCEL B:

PARCEL 1:

PARCEL 2 OF LOT LINE ADJUSTMENT NO. LLA-0000667 RECORDED NOVEMBER 21, 2008 AS INSTRUMENT NO. 2008000543923 OF OFFICIAL RECORDS OF SAID COUNTY.

PARCEL 2:

PARCEL 3:

NON-EXCLUSIVE EASEMENTS FOR ABOVE-GROUND PEDESTRIAN INGRESS AND EGRESS AND UNDERGROUND PEDESTRIAN TUNNEL MORE PARTICULARLY SET FORTH IN THE DOCUMENT ENTITLED “RECIPROCAL EASEMENT AGREEMENT”

RECORDED NOVEMBER 13, 1997 AS INSTRUMENT NO. 19970579285 OF OFFICIAL RECORDS.

PARCEL 4:

PARCEL 5:

APN: 345-201-24 and 345-201-26

EX-10.3 4 a57137exv10w3.htm EX-10.3 exv10w3

Exhibit 10.3

PROMISSORY NOTE

Galveston, Texas


$13,000,000.00		August 20, 2010

FOR VALUE RECEIVED, PACIFIC SUNWEAR STORES CORP., a California corporation (“Borrower”), promises to pay to the order of AMERICAN NATIONAL INSURANCE COMPANY, a Texas insurance company (American National Insurance Company, its successors or assigns being hereinafter called “Lender”) the sum of THIRTEEN MILLION AND NO/100 DOLLARS ($13,000,000.00), together with interest on all principal remaining unpaid from time to time from the date of the initial funding of this Note (“Disbursement Date”) at the rate of six and one-half percent (6.5%) per annum (the “Contract Rate”). Interest only accruing from the date of the initial funding of this Note, through and including the last day of the month in which the Disbursement Date occurs, shall be collected upon the date of the recordation of the Mortgage (hereinafter defined), and thereafter, principal and interest payments on the Note, based upon a twenty-five (25) year amortization of the principal balance on the date hereof, in monthly installments of EIGHTY-SEVEN THOUSAND SEVEN HUNDRED SEVENTY-SIX AND 93/100 DOLLARS ($87,776.93) shall be payable on the first (1^st) day of each and every month commencing on October 1, 2010 until September 1, 2017 (the “Maturity Date”). As said installments are paid, they are to be applied first to late charges and other fees, costs and charges, if any, reimbursable to Lender as provided herein or in the Loan Documents (hereinafter defined), then to interest accrued, and the balance, if any, to unpaid principal. On the Maturity Date the entire principal amount outstanding on this Note, along with interest accrued but unpaid thereon, and all other amounts due to Lender arising out of this Note, shall be all due and payable.

This Note is given for a loan of $13,000,000.00 (“Loan”) to be advanced by Lender to Borrower, and Borrower’s obligations under the Loan and this Note are secured by that certain Mortgage, Security Agreement, Financing Statement and Fixture Filing (the “Mortgage”) of even date herewith from Borrower in favor of Lender encumbering the property located in

Johnson County, Kansas described in Exhibit “A” attached hereto and made a part hereof (“Property”), and which property is a part of the Property, as that term is defined in the Mortgage. This Note, the Mortgage, and all other instruments of indebtedness and security executed by Borrower to evidence or secure the Loan represented by this Note shall sometime be collectively referred to as the “Loan Documents.”

It is expressly agreed that if (a) Borrower shall be in default in the payment when due of any principal, interest or installment of interest or principal and interest or any other sums due and payable pursuant to the terms and conditions of this Note or of any other Loan Document; or (b) there shall be an Event of Default under the Mortgage, or (c) Borrower shall be in default after the expiration of any applicable grace period expressly provided therein, under the terms, conditions, covenants, agreements, representations or warranties contained in any other Loan Document, including, without limitation, any other document securing this Note; or (d) any Borrower, or any drawer, acceptor, endorser, guarantor, surety or accommodation party or other person liable upon or for the payment of the indebtedness evidenced by this Note (each hereinafter called “Other Liable Party” or “Other Liable Parties”) (i) admits in writing its inability to pay its debts generally as they become due, (ii) files a petition in bankruptcy as a Debtor or seeking reorganization or an arrangement or otherwise to take advantage of any state or federal bankruptcy or insolvency law, (iii) makes an assignment for the benefit of creditors, (iv) files a petition for or consents to the appointment of a receiver of any of its assets or a part thereof, (v) without its consent, a petition in bankruptcy is filed against it, or an order, decree or judgment is entered by a court of competent jurisdiction appointing a receiver over its property, or approving a petition filed against it seeking a reorganization or an arrangement of it under any bankruptcy or insolvency law, and such petition, order, decree or judgment is not vacated, set aside or stayed within ninety (90) days from the date of entry, or (vi) dies, dissolves, or its existence as a legal entity terminates, any or all of the foregoing (a) through (d) hereinafter an “Event of Default.” Lender may, in any of such events, at its option, accelerate the maturity of the Note and declare the entire balance of this Note, both principal and interest, immediately due and payable and/or may enforce such other rights as are available to Lender under the terms and conditions of any document securing this Note or otherwise available at law or in equity. All rights and remedies available to Lender shall be cumulative and not exclusive and the exercise or beginning to exercise of any one of such rights or remedies shall not preclude the simultaneous or later exercise of any or all of such rights or remedies.

so incurred by Lender. If applicable law requires a lesser charge, however, then the maximum charge permitted by such law may be charged by Lender for said purpose. Therefore, Borrower shall, in such event, without further notice, and without prejudice to the right of Lender to collect any other amounts provided to be paid hereunder or under the Mortgage, or any other Loan Document, or to declare an Event of Default, pay to Lender immediately upon demand the Late Charge to compensate Lender for expenses incurred in handling delinquent payments. Borrower acknowledges and agrees that such late payment charge is reasonable, is calculated to reimburse Lender for its administrative costs incurred as a result of such late payment and is not intended as a penalty. Borrower represents and warrants to Lender that it will not seek to, or in fact, challenge the imposition of any such late charge as a penalty or unreasonable change under State or Federal law, and Borrower expressly waives such challenge.

Prior to an Event of Default, unpaid principal shall bear interest from the date hereof at the Contract Rate. From and after any Event of Default and continuing so long as Lender has not agreed in writing to a waiver or cure of such Event of Default, all unpaid principal (whether or not overdue) and unpaid interest shall bear interest at the lesser of “Maximum Nonusurious Rate” (as hereinafter defined) or if there is no Maximum Nonusurious Rate, at a per annum rate equal to Seventeen Percent (17%) (hereinafter referred to as the “Default Rate”), whether or not Lender has exercised its option to accelerate the maturity of this Note and to declare the entire unpaid principal indebtedness and accrued interest due and payable. Provided, however, after any Event of Default, Lender, in its sole and absolute discretion, may elect to charge a rate of interest or impose a handling or late charge which are less than the amount which would result from applying the Default Rate provided for in the preceding sentence. Any such election by Lender to charge such lesser amount shall not constitute a waiver of Lender’s right to impose the Default Rate during the existence of any future defaults. Borrower acknowledges and agrees that the increases in interest rate contemplated herein are expressly designed to cover the additional but unforeseeable costs and risks associated with an event of default under this Note, the Mortgage or any other Loan Document, as well as the loss of the use of funds incurred by Lender as a result of untimely payment. Borrower waives any right to challenge such interest rate increased as a penalty under State or Federal law.

modifications, extensions or postponements of the time, amount or manner of payment of this Note on any terms or any other indulgences with respect thereto, without notice thereof to any of them and without discharging or reducing any of their liability hereunder. The Lender may transfer this Note, and the rights and privileges of Lender under this Note shall inure to the benefit of the Lender’s representatives, successors, and assigns.

Upon an Event of Default and so long as any such Event of Default is continuing, Lender may apply payments received on any amounts due hereunder or under the terms of any other Loan Document, in such manner as Lender may determine. Upon any such Event of Default, if Lender so elects, notice of election being expressly waived, the principal remaining unpaid with accrued interest shall at once become due and payable.

This Note shall be governed by and construed in accordance with Kansas law and applicable federal law. It is the intention of Lender and Borrower that this Note and all provisions hereof and of all documents securing this Note conform in all respects to the laws of the State of Kansas and applicable federal law pertaining to usury. Notwithstanding any provision in this Note or in any other documents executed in connection therewith to the contrary, it is expressly provided that in no case or event should the aggregate amounts, which by applicable law are deemed to be interest with respect to this Note, the Mortgage or any other document securing or executed in connection with this Note ever exceed the “Maximum Nonusurious Rate” (as defined below). In this connection, it is expressly stipulated and agreed that it is the intention of Lender and the Borrower to contract in strict compliance with applicable usury laws of the State of Kansas and/or of the United States (whichever permits the higher rate of interest) from time to time in effect. Nothing in this Note, the Mortgage or any other document securing this Note shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Maximum Nonusurious Rate. If under any circumstances the aggregate amounts contracted for, charged or paid with respect to this Note, whether by fulfillment of any provision hereof or of any mortgage,

loan agreement or other document now or hereafter evidencing, securing or pertaining to the indebtedness evidenced hereby, which by applicable law are deemed to be interest, would produce an interest rate greater than the Maximum Nonusurious Rate, Borrower and any other person obligated to pay this Note, stipulates that the amounts will be deemed to have been paid, charged or contracted for as a result of an error on the part of Borrower, any other person obligated for the payment of this Note and the Lender and upon discovery of the error or upon notice thereof from the Borrower or the party making such payment, the Lender or the party receiving such excess payment shall, at its option, refund the amount of such excess payment or credit the excess payment against any other amount due under this Note. In addition, all sums paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of monies shall be, to the extent permitted by applicable law, amortized, prorated, allocated and spread through the full stated term of this Note so that the amount of interest on account of the indebtedness evidenced hereby does not exceed the maximum permitted by law. The provisions of this paragraph shall control all existing and future agreements between Borrower and Lender. The term “Maximum Nonusurious Rate” as used herein shall mean the highest rate of interest permissible under applicable law, but not more than a per annum rate of seventeen percent (17%). If the Maximum Nonusurious Rate is increased or removed by statute or other governmental action subsequent to the date of this Note, then the new Maximum Nonusurious Rate, if any, will be applicable to this Note from the effective date of the new Maximum Nonusurious Rate, unless such application is precluded by the statute or governmental action or by the general law of the jurisdiction governing this Note.

Borrower warrants and represents to Lender and all holders of the indebtedness evidenced hereby, that (i) all loans evidenced by this Note shall be “business loans” as that term is used in the Depository Institutions Deregulatory and Monetary Control Act of 1980, as amended, (ii) that this transaction is specifically exempt under Section 226.3(a) of Regulation Z issued by the Board of Governors of the Federal Reserve System, and Title I and Title V of the Consumer Credit Protection Act, and (iii) that such loans are for business, commercial, investment or other similar purposes and not primarily for personal, family, household or agricultural use.

Lender may, as necessary, to foreclose upon the Mortgage given to secure this Note, take a judgment against Borrower. Except as hereinafter provided, Borrower shall not be personally liable for the payment of principal or interest that may become due and payable under the Note, the Mortgage, or any other Loan Documents. Lender agrees not to seek, take or obtain against Borrower a deficiency judgment for amounts remaining unpaid under the Note and the other Loan Documents after all the security for the Note (including, without limitation, hazard insurance proceeds and condemnation awards with respect to the Property) has been applied to payment of all amounts due Lender under the Note and the other Loan Documents. Notwithstanding the foregoing limitation of liability, Borrower shall be fully liable (i) for fraud or misrepresentation made in connection with this Note or any instrument governing, securing or pertaining to the payment of this Note or the apparent purpose of which is to deprive Lender of the security for this Note; (ii) for failure to pay taxes, assessments, charges for labor or materials or any other charges which can create liens on any portion of the Property; (iii) for the misapplication of (a) proceeds of insurance covering any portion of the Property, or (b) proceeds

of the sale or condemnation of any portion of the Property, or (c) rentals and security deposits received by or on behalf of Borrower subsequent to the date on which Lender gives written notice of the posting of foreclosure notices or the exercise of Lender’s assignment of rents; (iv) for failure to maintain, repair or restore the Property in accordance with any instrument governing, securing, or pertaining to the payment of this Note; (v) for any act or omission knowingly or intentionally committed or permitted by Borrower which results in the waste, damage or destruction to the Property, but only to the extent such events are not covered by insurance proceeds which are received by Lender; (vi) for the return to Lender of all unearned advanced rentals and security deposits paid by tenants of the Property or any guarantors of the leases of such tenants which are not rightfully refunded to or which are forfeited by such tenants or guarantors; (vii) for the return of, or reimbursement for, all personal property included within the Mortgaged Property taken from the Property by or on behalf of Borrower; (viii) for any liability of Borrower pursuant to the provision contained in the Mortgage securing this Note pertaining to hazardous or toxic materials or substances; (ix) for any liability of Borrower pursuant to the Certificate and Indemnity Regarding Hazardous Substances executed by Borrower and delivered to Lender in connection with the indebtedness evidenced by this Note; (x) for any delay, after an Event of Default which is not cured in deeding over the Property to the Lender, or cooperate in a consensual foreclosure within 90 days of Lender’s request; (xi) for failure to maintain or alter the Property in compliance with the Americans with Disabilities Act, as it may be amended from time to time; and (xii) for all court costs and reasonable attorneys’ fees incurred in connection with the enforcement of one or more of the above subparagraphs (i) through (xi), inclusive.

TO THE FULLEST EXTENT PERMITTED BY LAW BORROWER AND LENDER WAIVE ALL RIGHTS TO TRIAL BY JURY OF ANY SUITS, CLAIMS, COUNTERCLAIMS, ACTIONS OR OTHER PROCEEDINGS OF ANY KIND ARISING UNDER OR RELATING TO THIS NOTE, THE MORTGAGE, ANY OF THE OTHER LOAN DOCUMENTS AND THE LOAN SECURED HEREBY, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO, IN

EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

[Signature Page Follows]

IN WITNESS WHEREOF, this Note has been executed and delivered as of the day and year first above written.

BORROWER:


PACIFIC SUNWEAR STORES CORP., a California corporation
By:	/s/ Craig E. Gosselin
	Name:	Craig E. Gosselin
	Title:	President

EXHIBIT “A”

LEGAL DESCRIPTION OF PROPERTY

LOT 1, PACIFIC SUNWEAR, AMENDED 1ST PLAT A SUBDIVISION IN THE CITY OF OLATHE, JOHNSON COUNTY, KANSAS.

APN: DP557300000001

EX-10.4 5 a57137exv10w4.htm EX-10.4 exv10w4

Exhibit 10.4

MORTGAGE, SECURITY AGREEMENT, FINANCING
STATEMENT AND FIXTURE FILING

This Mortgage, Security Agreement, Financing Statement and Fixture Filing (hereinafter termed “Mortgage”) is entered into by PACIFIC SUNWEAR STORES CORP., a California corporation, having a mailing address of 3450 East Miraloma Avenue, Anaheim, California 92806, Attn: Craig Gosselin (hereinafter termed “Borrower”), in favor of AMERICAN NATIONAL INSURANCE COMPANY, a Texas insurance company, having a mailing address of One Moody Plaza, Galveston, Texas 77550, Attn: Mortgage and Real Estate Investments (hereinafter termed “Lender”).

Borrower does by these presents irrevocably grant, bargain, sell, convey, mortgage, and warrant unto Lender all of Borrower’s estate, right, title and interest in, to and under and grants to Lender a security interest in any and all of the following described property which is (except where the context otherwise requires) herein collectively called the “Property,” whether now owned or held or hereafter acquired:

may be used in connection with the generating or distributing of air, water, heat, electricity, light, fuel or refrigeration or for ventilating or sanitary purposes or for the exclusion of vermin or insects, or for the removal of dust, refuse or garbage, now or at any time hereafter affixed to, attached to, placed upon or used in any way in connection with the use, enjoyment, occupancy or operation of the Premises or the Improvements, or any portion thereof;

(E) All of the rents, royalties, issues, profits, revenue, income and other benefits of the Premises, or arising from the use or enjoyment of all or any portion thereof or from any lease or agreement pertaining thereto, including, without limitation, any and all rents, royalties, issues, earnings, profits, revenue, income and other benefits generated by Borrower, any lessee, operator or concessionaire for the letting or other use of any room or space in the Premises or the Improvements, and all right, title and interest of Borrower in and to all leases, subleases, operating and/or concession agreements of, or relating to the Property now or hereafter entered into and all right, title and interest of Borrower thereunder, including, without limitation, cash or securities deposited thereunder to secure performance by the lessees of their obligations thereunder, whether said cash or securities are to be held until the expiration of the terms of said leases or applied to one or more of the installments of rent coming due immediately prior to the expiration of said terms (all of the foregoing being, collectively, the “Rents and Profits”);

(F) All governmental permits relating to construction on the Property (to the extent assignable) (collectively, the “Intangible Property”);

Notwithstanding the foregoing, the Property shall not include any trademarks or other intellectual property of Pacific Sunwear of California, Inc., or any of its subsidiaries (other than the Intangible Property).

FOR THE PURPOSE OF SECURING, in such order of priority as Lender may elect:

(1) Due, prompt and complete observance, performance and discharge of each and every obligation, covenant and agreement contained in that certain promissory note (the “Note”) of even date herewith in the face amount of $13,000,000.00, executed by Borrower to the order of Lender and any and all modifications, extensions or renewals thereof, whether hereafter evidenced by the Note or otherwise;

(2) Payment of all other sums, with interest thereon at the rate of interest provided in the Note becoming due or payable under the provisions hereof;

ARTICLE I
COVENANTS OF BORROWER

Borrower covenants, warrants and agrees to and with Lender as follows:

1.02 Borrower has, on the date this Mortgage is recorded, good and marketable leasehold title to the Property subject to no lien, charge or encumbrance except such as are listed on the attached “Exhibit”B”, which is incorporated herein by reference for all purposes (the “Permitted Exceptions”). Borrower owns or, upon acquisition thereof, will own the Personal Property free and clear of liens and claims; and this Mortgage is and will remain a valid and enforceable lien on the Property subject only to the exceptions referred to above. Borrower has full power and lawful authority to grant, assign, transfer and mortgage its interest in the Property in the manner and form hereby done or intended. Borrower will preserve its interest in and title to the Property and will forever warrant and defend the same to Lender and will forever warrant and defend the validity and priority of the lien hereof against the claims of all persons and parties whomsoever, other than Permitted Exceptions. Borrower shall promptly and completely observe, perform and discharge each and every obligation, covenant and agreement affecting the Property whether the same is prior and superior or subject and subordinate hereto, including, if the security hereunder is or will be a condominium, community apartment, stock co-operative or part of a planned development, each and every provision under any Declaration of Covenants, Conditions and Restrictions pertaining to the condominium, community apartment, stock co-operative or planned development project.

1.03 (a) Borrower will, at its own cost and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, notices of assignments, transfers and assurances as Lender shall from time to time require for the better assuring, conveying, assigning, transferring and confirming unto Lender the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Mortgage, or filing, registering or recording this Mortgage and, on demand, Borrower will execute and deliver, and hereby authorizes Lender to execute in the name of Borrower to the extent Borrower may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments to evidence more effectively the lien hereof upon the Personal Property, the Appurtenances, the Rents and Profits, the Intangible Property, the Claims, the Plans, the Proceeds and the Deposits.

(b) Borrower forthwith upon the recordation of this Mortgage, and thereafter from time to time, will cause this Mortgage and any security instruments creating a lien or evidencing the lien hereof upon the Personal Property, the Appurtenances, the Rents and Profits, the Intangible Property, the Claims, the Plans, the Proceeds and the Deposits, and each instrument of further assurance, to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon the title and the security interest of Lender in and to the Property.

(c) Borrower will pay all filing, registration and recording fees, and all expenses incident to the execution and acknowledgment of this Mortgage, and any deed of trust or mortgage supplemental hereto, any security instrument with respect to the Personal Property, the Appurtenances, the Rents and Profits, the Intangible Property, the Claims, the Plans, the Proceeds and the Deposits and any instrument of further assurance, and all federal, state, county and municipal stamp taxes and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of the Note, this Mortgage, any deed of trust or mortgage supplemental hereto, any security instrument with respect to the Personal Property or any instrument of further assurance (other than income taxes of Lender).

1.04 Borrower will keep the Property insured against loss or damage with fire and extended coverage property damage insurance on an all-risks basis, and insurance against any other risks or hazards that, in the opinion of Lender, should be insured against to the amount of the full insurable value thereof on a replacement cost basis, excluding land value, with a replacement cost endorsement without deduction for depreciation, and in such form and with such other coverages and endorsements as may be approved or required by Lender from time to time. Borrower shall also carry and maintain business interruption insurance, without a coinsurance provision, in an amount sufficient to cover principal and interest payments under the Note for a period of not less than twelve (12) months and property tax and insurance expenses for a period of not less than twelve (12) months, and in such form and with such other endorsements as may be approved or required by Lender. In addition, in the event the Department of Housing and Urban Development designates the Property to be in a Special Flood Hazard Area, Borrower hereby undertakes that it will acquire flood insurance in an amount satisfactory to and with loss payable to Lender. Borrower will also carry comprehensive public liability insurance, in such form, amounts (initial minimum $1,000,000) and with such reasonable companies as Lender may from time to time require, with Lender included thereon as a named insured under a standard mortgagee endorsement of the character above described. Notwithstanding anything to the contrary contained in this Mortgage, following the recordation of this Mortgage, Lender reserves the right to require additional coverages (or changes to current coverages that are commercially reasonable) or endorsements in the future (such as earthquake, tornado, hurricane or terrorism coverages), provided that such coverages or endorsements are commercially reasonable for the area in which the Property is located and available to Borrower on a cost-effective and commercially reasonable basis. All insurance policies shall be issued by companies acceptable to Lender and have a “Best’s Key Rating Guide” financial size rating of Class “A-/X” or higher. Said insurance policies shall be endorsed with a standard non-contributory mortgage clause, shall contain no coinsurance provisions and may only be canceled or modified upon not less than thirty (30) days’ prior written notice to Lender. Loss under said insurance shall be payable to Lender and shall be applied in the same manner as provided in

Section 1.05(b) hereof. The original policy or policies evidencing all insurance referred to in this paragraph, together with receipts for the payment of premiums thereon, shall be delivered to and held by Lender. In the event that Lender approves the use of a “blanket” policy, a certified copy of such blanket policy, together with an original certificate approved by Lender indicating Lender to be the insured mortgagee under such policy with coverages in the approved amounts shall be delivered to Lender. Lender shall not, by the fact of approving, disapproving, accepting, preventing, obtaining or failing to obtain any insurance, incur any liability for the form or legal sufficiency of insurance contracts, solvency of insurance companies or payment of lawsuits.

specifications and drawings submitted to and approved by Lender, which plans, specifications and drawings shall not be modified in any material respect without Lender’s prior written consent which shall not be unreasonably withheld; (vi) Lender shall have timely approved all prime contractors and principal subcontractors, and the general contract and principal subcontracts Borrower proposes to enter into with respect to the restoration and rebuilding; (vii) any and all monies that are made available for restoration and rebuilding hereunder shall be disbursed through Lender or a title insurance or trust company satisfactory to Lender, in accordance with standard construction lending practice, including, if requested by Lender, monthly lien waivers and title insurance date-downs, or in any other manner approved by Lender in Lender’s sole discretion, with funds being disbursed not more often than once per month; (viii) Borrower shall provide builder’s risk insurance meeting Lender’s requirements, naming Lender as an additional insured; (ix) if the proceeds derive from insurance, the insurer must not have asserted, and must not subsequently assert, any defense or right of offset against Borrower or any tenant of the Property under the terms of the applicable policy or policies; and (x) Lender, acting reasonably, shall be satisfied that the quality of the materials and workmanship of the repair or reconstruction of the Property will be at least equal to the quality of the materials and workmanship of the repair or reconstruction of the Property prior to such damage or condemnation. The excess of said proceeds above the amount necessary to complete such restoration or rebuilding, if any, shall be disbursed to Lender to be applied against the principal balance of the Note as a partial prepayment thereof to Borrower. Lender’s security hereunder shall be deemed impaired if the value of the Property after restoration and rebuilding is less than the value of the Property prior to such restoration or rebuilding, as determined in Lender’s reasonable discretion.

1.06 (a) Borrower, from time to time prior to when the same shall become delinquent, will pay and discharge all taxes of every kind and nature, including real and personal property taxes and income, franchise, withholding, profits and gross receipts taxes, all general and special assessments, including assessments on appurtenant water stock, levies, permits, inspection and license fees, imposed upon or assessed against the Property or any part thereof or and all water and sewer rents and charges and all other public charges, whether of a like or different nature, imposed upon or assessed against Borrower or the Property or any part thereof or upon the revenues, rents, issues, income and profits of the Property, or arising in respect of the occupancy, use or possession of the Property. Borrower will, upon the request of Lender, deliver to Lender receipts evidencing the payment of all such taxes, assessments, levies, fees, rents and other public charges.

payment of such obligation in full, Borrower, within ten (10) days after demand, shall deposit the amount of the deficiency with Lender. Nothing herein contained shall be deemed to affect any right or remedy of Lender under any other provision of this Mortgage or under any statute or rule of law to pay any such amount and to add the amount so paid together with interest at the Default Rate to the indebtedness hereby secured. Lender is hereby granted a security interest in the amounts held by it pursuant to this Section 1.06(b) for the purpose of securing payment of impositions and the amounts owing by Borrower and which Lender may pay under this Section 1.06(b) and the sale of the Property, or any interest therein, voluntarily, involuntarily or by operation of law, shall not release said interest or Lender’s right to apply said amounts as herein provided. Notwithstanding anything to the contrary contained herein, so long as the insurance on the Improvements is part of a blanket insurance policy maintained by Pacific Sunwear of California, Inc. (“Pac Sun”), or its affiliate, then provided that Borrower demonstrates to Lender’s reasonable satisfaction the term of such policy, the amount of such annual insurance premium, the insured value of the Improvements insured by such blanket policy and the amount of the total insured value of all improvements insured by such blanket policy, the amount of the insurance premium to be paid by Borrower during the term of such blanket policy hereunder shall be the “Annual Insurance Percentage”. The “Annual Insurance Percentage” for any such period shall be one hundred three percent (103%) of the sum of the annual premium (or other periodic premium) for such blanket insurance policy multiplied by the positive fraction that has as its numerator such insured value of the Improvements insured by such blanket policy and as the denominator such amount of the total insured value of all improvements insured by such blanket policy. Borrower shall pay such amount in installments equal 1/12th each on a monthly basis on the due date for the monthly installment payments under the Note. Within fifteen (15) days after delivery of an invoice for the insurance premium to Lender, then Lender shall disburse to Borrower the lesser of (i) the amount deposited by Borrower for insurance premiums, less previous disbursements for insurance premiums, or (ii) the Annual Insurance Percentage of the amount of the invoice.

1.07 All right, title and interest of Borrower in and to all extensions, improvements, betterments, renewals, substitutes and replacements of and all additions and appurtenances to the Property, hereafter acquired by, or released to, Borrower or constructed, assembled or placed by Borrower on the Premises, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further deed of trust, mortgage, conveyance, assignment or other act by Borrower, shall become subject to the lien of this Mortgage as fully and completely, and with the same effect, as though now owned by Borrower and specifically described in the granting clause hereof, but at any and all times Borrower will execute and deliver to Lender any and all such further assurances, mortgages, deeds of trust, conveyances or

assignments thereof as Lender may reasonably require for the purpose of expressly and specifically subjecting the same to the lien of this Mortgage.

1.08 Pursuant to K.S.A. 84-9-502, upon recording this Mortgage, this Mortgage shall also constitute a “fixture filing” for the purposes of the UCC (as defined herein) against all of the Premises which is or is to become fixtures. Information concerning the security interest granted may be obtained at the addresses of Debtor (Borrower) and Secured Party (Lender) set forth in the first paragraph of this Mortgage. For purposes of this Mortgage constituting a fixture filing, the City of Olathe, Kansas is the record owner of the Premises. This Mortgage shall be self-operative and constitute a Security Agreement with respect to the Personal Property, the Appurtenances, the Rents and Profits, the Intangible Property, the Claims, the Plans, the Deposits and the Proceeds; provided, however, during an Event of Default Borrower hereby agrees to execute and deliver on demand and hereby irrevocably constitutes and appoints Lender the attorney-in-fact of Borrower, to execute, deliver and, if appropriate, to file with the appropriate filing officer or office such security agreements, financing statements or other instruments as Lender may request or require in order to impose or perfect the lien or security interest hereof more specifically thereon.

1.09 (a) The Rents and Profits are hereby absolutely and unconditionally assigned, transferred, conveyed and set over to Lender to be applied by Lender in payment of the principal and interest and all other sums payable on the Note, and of all other sums payable under this Mortgage. Prior to the happening of any Event of Default as set forth in Article II hereof, Borrower shall be entitled to collect and receive all Rents and Profits (including security deposits). Nothing contained in this Section 1.09(a) or elsewhere in this Mortgage shall be construed to make Lender a mortgagee in possession unless and until Lender actually takes possession of the Property either in person or through an agent or receiver.

(b) Borrower will not, without Lender’s prior written consent: (i) execute an assignment of any of its right, title or interest in the Rents and Profits, other than to Lender, or (ii) except where the lessee is in default thereunder, terminate or consent to the cancellation or surrender of any lease of the Property or of any part thereof, now existing or hereafter to be made, or (iii) modify any lease of the Property or any part thereof so as to shorten the unexpired term thereof or so as to decrease the amount of the rent payable thereunder, or (iv) accept prepayments of any installments of rent to become due under any of said leases in excess of one (1) month’s rental or prepayments in the nature of security for the performance of the lessee’s obligations thereunder in excess of an amount equal to one (1) month’s rental.

(e) Borrower shall not enter into any new lease affecting all or any part of the Property unless and until Borrower has provided to Lender, not later than twenty (20) days prior to the execution thereof, a copy of such proposed new lease and has obtained Lender’s prior written approval of such new lease.

1.10 To the extent not provided by applicable law, each lease of the Property or any part thereof shall provide that, in the event of the enforcement by Lender of the remedies provided for by law or by this Mortgage, the lessee thereunder will, if requested by Lender or by any person succeeding to the interest of Borrower as the result of said enforcement, automatically become the lessee of any such successor in interest, without any change in the terms or other provisions of the respective lease; provided, however, that said successor in interest shall not be bound by (i) any payment of rent or additional rent for more than one (1) month in advance, except prepayments in the nature of security for the performance by said lessee of its obligations under said lease not in excess of an amount equal to one (1) month’s rental, or (ii) any amendment or modification in the lease made without the consent of Lender or any successor in interest. Each lease shall also provide that, upon request by said successor in interest, the lessee shall execute and deliver an instrument or instruments confirming its attornment.

(a) the Subordinate Mortgage is in all respects subject and subordinate to this Mortgage;

(c) The Rents and Profits, if collected through a receiver or by the holder of the Subordinate Mortgage, shall be applied first to the obligations secured by this Mortgage, including principal and interest due and owing on or to become due and owing on the Note, and

then to the payment of maintenance expenses, operating charges, taxes, assessments and disbursements incurred in connection with the ownership and maintenance of the Property;

(d) if any action or proceeding shall be brought to foreclose the Subordinate Mortgage, prompt notice of the commencement thereof will be given to Lender.

1.12 (a) Borrower will not commit any waste on the Premises or make any change in the use of the Property that will in any way increase any ordinary fire or other hazard arising out of construction of the Improvements or operation of the Property, nor will Borrower make any application to any federal, state or local governmental authority (“Governmental Authority”) for a change in zoning or a change in any other law, ordinance, statute, rule, order, decree, directive or regulation (“Laws”) affecting the Property except changes which benefit the Premises, nor will Borrower consent to any such change without the written consent of Lender. Borrower will at all times comply in all material respects with all Laws of any Governmental Authority having or exercising jurisdiction over construction of the Improvements or otherwise affecting the Property or any portion thereof, including, but not limited to, compliance in full with any legislation and regulations relating to the handicapped and regulations of the Environmental Protection Agency, and maintain and keep the Improvements in good operating order and condition and will promptly make, from time to time, all repairs, renewals, replacements, additions and improvements which are necessary to comply in all material respects with such Laws. After completion of the Improvements, they shall not be removed, demolished or substantially altered, nor shall any additions to the Improvements be made other than the erection or removal of non load-bearing demising walls, without the prior written consent of Lender, which shall not be unreasonably withheld, nor shall any of the Personal Property be removed except where appropriate replacements free of superior title, liens and claims are immediately made having a value at least equal to the value of the Personal Property so removed; provided that Borrower may in good faith and the ordinary course of it business make changes to the Improvements that do not adversely affect the structural integrity provided such changes, when taken in the aggregate with all related changes, cost no more than $100,000.

(b) Upon the occurrence of an Event of Default, or in the event Lender, in its reasonable discretion, determines that the Property is not being properly maintained and Borrower fails to cure within 30 days, Borrower will pay to Lender, together with each payment of an installment of principal and/or interest under the Note, a maintenance reserve deposit in such amount as Lender reasonably concludes is appropriate for the purpose of funding needed capital improvements to the Property. Said amounts shall be held by Lender, without interest, and shall form a maintenance reserve for the Property (the “Maintenance Reserve”). Upon the written request of Borrower, Lender shall, provided no Event of Default is occurring, allow disbursements from funds held from time to time in the Maintenance Reserve as payments against invoices for capital improvements to the Property made after the date this Mortgage is recorded (“capital improvement” meaning, generally, an item that is capitalized for financial accounting purposes rather than being considered an annual expense item). Nothing herein contained shall be deemed to affect any right or remedy of Lender under any other provision of this Mortgage or under any statute or rule of law to pay any such amount and to add the amount so paid together with interest at the Default Rate to the indebtedness hereby secured. Lender is hereby granted a security interest in the amounts held by it in the Maintenance Reserve pursuant

to this Section 1.12(b) for the purpose of securing payment of impositions and the amounts owing by Borrower and which Lender may pay under this Section 1.12(b) and the sale of the Property, or any interest therein, voluntarily, involuntarily or by operation of law, shall not release said interest or Lender’s right to apply said amounts as herein provided.

1.14 (a) Borrower will keep adequate records and books of account on an accrual basis and will permit Lender, or their agents, accountants and attorneys, upon five (5) days prior written notice, to visit and inspect the Property and examine Borrower’s records and books of account, and make copies thereof, and to discuss Borrower’s affairs, finances and accounts relating to the Property with the officers, agents or principals of Borrower at such times during normal business hours as may be specified by Lender in the written notice.

(b) Borrower will deliver to Lender, within ninety (90) days after the close of each fiscal year, annual audited financial statements of Borrower, including operations for the Property (balance sheet, statements of income and expense, cash flow and utilization of cash) which annual financial statements shall set forth, in comparative form, the annual statement of operations of the Property (balance sheet, income and expenses, cash flow and utilization of cash) for the previous year, including rental from tenants and calculation of tenant expense contributions. During the continuation of an Event of Default, Borrower will further deliver to Lender with reasonable promptness such other information with respect to the Property as Lender may reasonably request from time to time, including, without limitation, a schedule of gross receipts collected from each tenant obligated to pay additional rent based on a percentage of gross receipts. All statements submitted shall be prepared in accordance with generally accepted accounting principles, or another format approved by Lender, which approval if granted may be revoked following an Event of Default. All financial statements submitted by Borrower with respect to the Property shall be accompanied by the certificate of Borrower dated within five (5) days of the delivery of such statements to Lender, stating that such annual statements are true and correct in all material respects. Upon the occurrence of an Event of Default, and for so long thereafter as any sums are owing under the Note, Lender shall have the right to require that the foregoing financial statements be delivered monthly or quarterly on an unaudited basis and the further right to require that such annual statements be audited and certified by a certified public accountant, at the expense of Borrower. Borrower agrees to pay to Lender an administrative charge of $200 for each month, or portion thereof, that any required operating statements are late, in order to compensate Lender for the increased administrative expense and effort occasioned by tardy financial information.

(d) Any change in the property manager that is managing the Property for Borrower as of the date this Mortgage is recorded requires the prior consent of Lender, and Borrower agrees to provide any information reasonably requested by Lender as to the reasons for a proposed change in management, the expected benefits to flow therefrom, and the credentials of the proposed new manager.

1.15 Borrower shall pay all taxes (except federal and state income taxes) and any other governmental charges or impositions imposed by any Governmental Authority on Lender by reason of their interests in the Note or this Mortgage.

1.17 Borrower will, if the Note is mutilated, destroyed, lost or stolen, deliver to Lender, in substitution therefor, a new promissory note containing the same terms and conditions as the Note with a notation thereon of the unpaid principal and accrued but unpaid interest. Borrower shall be furnished with satisfactory evidence of the mutilation, destruction, loss or theft of the Note, and also such security or indemnity as may be reasonably requested by Borrower; provided, however, that if the original Lender named herein is the then Lender under this Mortgage, an unqualified indemnity from the original Lender named herein shall be deemed to be satisfactory security or indemnification.

1.19 Without affecting the liability of Borrower or of any other person who is or shall become bound by the terms of this Mortgage or who is or shall become liable for the performance of any obligation secured hereby, Lender may, in such manner upon such terms and at such times as it deems best and without notice or demand, release any party now or hereafter liable for the performance of any such obligation, extend the time for such performance, accept additional security therefor, and alter, substitute or release any property securing such performance. No exercise or non-exercise by Lender of any of its rights under this Mortgage, no dealing by Lender with any person, firm or corporation and no change, impairment, loss or suspension of any right or remedy of Lender shall in any way affect any of the obligations of Borrower hereunder or any security furnished by Borrower, or give Borrower any recourse against Lender.

of the investigation and report required by Lender in connection with the making of the loan evidenced by the Note) no substances, including, without limitation, asbestos or any substance containing asbestos and deemed hazardous under any Environmental Law (defined below), the group of organic compounds known as polychlorinated biphenyls, flammable explosives, radioactive materials, chemicals known to cause cancer or reproductive toxicity, pollutants, effluents, contaminants, emissions or related materials and any items included, within the definition of hazardous or toxic waste, materials or substances (“Hazardous Substances”) under any law relating to environmental conditions and industrial hygiene, including, without limitation, the Resource Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C. §6901 et seq., the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), 42 U.S.C. §§9601-9657, the Hazardous Materials Transportation Act, 49 U.S.C. §6901 et seq., the Federal Water Pollution Control Act, 33 U.S.C. §1251 et seq., the Clean Air Act, 42 U.S.C. §741 et seq., the Clean Water Act, 33 U.S.C. §7401 et seq., the Toxic Substances Control Act, 15 U.S.C. §§2601-2629, the Safe Drinking Water Act, 42 U.S.C. §§300f-300j, the Air Quality Control Act, K.S.A. 65-3001 et seq., the Water Pollution Control Act, K.S.A. 65-3301 et seq., the Solid and Hazardous Waste Act, K.S.A. 65-3401 et seq., the Central Interstate Low-Level Radioactive Waste Compact, K.S.A. 65-34a01, the Asbestos Control Act, K.S.A. 65-5301 et seq., and the Kansas Storage Tank Act, K.S.A. 34,100 et seq., as any of the foregoing have heretofor or will hereafter be amended, and all similar federal, state and local environmental statutes, ordinances and the regulations, orders and decrees now or hereafter promulgated thereunder (collectively, “Environmental Laws”), shall be installed, used, generated, manufactured, treated, handled, refined, produced, processed, stored or disposed of, by Borrower in, on or under the Property in violation of Environmental Laws; (b) that no activity shall be undertaken on the Property which would cause (i) the Property to become a hazardous waste treatment, storage or disposal facility as such terminology is defined and classified under any Environmental Law, (ii) a release or threatened release of Hazardous Substances from the Property in violation of any Environmental Law, or (iii) the discharge of Hazardous Substances into any watercourse, body of surface or subsurface water or wetland, or the discharge into the atmosphere of any Hazardous Substances which would require a permit under any Environmental Law and for which no such permit has been issued; (c) that no activity shall be undertaken or permitted to be undertaken, by the Borrower on the Property which would result in a violation under any Environmental Law, and (d) to obtain and deliver to Lender, within a reasonable time following completion of the actions as have been required to be taken by the appropriate governmental agency, certifications of engineers or other professionals reasonably acceptable to Lender, in form and substance reasonably satisfactory to Lender, certifying that all necessary and required actions to clean up, remove, contain, prevent and eliminate all releases or threats of release of Hazardous Substances on or about the Property to the levels required by the appropriate governmental agencies have been taken, and that upon completion of such action, the Property is, to the knowledge of such professional, then in compliance with applicable Environmental Laws as then in effect and applicable to such actions. Notwithstanding the foregoing, Borrower and tenants of Borrower may use and store commercially reasonable quantities of Hazardous Substances on the Property to the extent that such use and storage is necessary for the proper operation of the Property or in the ordinary course of the businesses conducted on the Property by such tenants, provided that the use and storage of such Hazardous Substances is in accordance with Environmental Laws and that no release or threatened release which would violate Environmental Laws occurs.

In the case of an emergency, no prior notice for the exercise of the foregoing rights by Lender shall be required. If Lender, or the licensed environmental engineer selected by Lender, is refused the right of entry and inspection by the Borrower, or by a tenant of the Property, or the Lender, or such licensed governmental engineer, is otherwise unable to enter and inspect the Property without a breach of the peace, then Lender may, upon petition, obtain a court order from a court of competent jurisdiction to exercise the Lender’s rights hereunder. In this regard, Borrower hereby consents to the appointment of a receiver by the court empowered by law to appoint a receiver for the Property, in an action brought by Lender to enforce its rights hereunder.

1.22 Except as hereinafter provided, Borrower shall not be personally liable for the payment of principal or interest that may become due and payable under the Note and the other Loan Documents. Lender agrees not to seek, take or obtain against Borrower a deficiency judgment for amounts remaining unpaid under the Note and the other Loan Documents after all the security for the Note (including, without limitation, hazard insurance proceeds and condemnation awards with respect to the Property) has been applied to payment of all amounts due Lender under the Note and the other Loan Documents. Notwithstanding the foregoing limitation of liability, Borrower shall be fully liable (i) for fraud or misrepresentation made in connection with the Note or any instrument governing, securing or pertaining to the payment of the Note or the apparent purpose of which is to deprive Lender of the security for the Note; (ii) for failure to pay taxes, assessments, charges for labor or materials or any other charges which can create liens on any portion of the Property; (iii) for the misapplication of (a) proceeds of insurance covering any portion of the Property, or (b) proceeds of the sale or condemnation of any portion of the Property, or (c) rentals and security deposits received by or on behalf of Borrower subsequent to the date on which Lender gives written notice of the posting of foreclosure notices or the exercise of Lender’s assignment of rents; (iv) for failure to maintain, repair or restore the Premises and the Improvements in accordance with any instrument governing, securing, or pertaining to the payment of this Note; (v) for any act or omission knowingly or intentionally committed or permitted by Borrower which results in the waste, damage or destruction to the Premises and the Improvements, but only to the extent such events are not covered by insurance proceeds which are received by Lender; (vi) for the return to Lender of all unearned advanced rentals and security deposits paid by tenants of the Premises

and the Improvements or any guarantors of the leases of such tenants which are not rightfully refunded to or which are forfeited by such tenants or guarantors; (vii) for the return of, or reimbursement for, all personal property included within the Property taken from the Premises by or on behalf of Borrower; (viii) for any liability of Borrower pursuant to the provision contained in this Mortgage pertaining to Hazardous Substances; (ix) for any liability of Borrower pursuant to the Certificate and Indemnity Regarding Hazardous Substances executed by Borrower and delivered to Lender in connection with the indebtedness evidenced by this Note; (x) for any delay, after an Event of Default which is not cured in deeding over the Property to the Lender, or cooperate in a consensual foreclosure within 90 days of Lender’s request; (xi) for failure to maintain or alter the Property in compliance with the Americans with Disabilities Act, as it may be amended from time to time; and (xii) for all court costs and reasonable attorneys’ fees incurred in connection with the enforcement of one or more of the above subparagraphs (i) through (xi), inclusive. The foregoing shall not affect Lender’s right to proceed against by any such guarantor under any guaranty agreement executed by any such guarantor in connection with the loan indebtedness evidenced by the Note (the “Loan”).

Nothing in the foregoing shall be deemed to release, affect or impair the indebtedness evidenced by the Note or the security therefor, or Lender’s rights to enforce its remedies under the documents executed in connection with the Loan (the “Loan Documents”), including any remedy for injunctive or other equitable relief.

1.23 As of the date of this Mortgage, Borrower is and until the obligations of Borrower under the Note and the Loan Documents have been fully paid and performed and this Mortgage has been reconveyed, Borrower shall remain, in full compliance with all applicable laws and regulations of the United States of America that prohibit, regulate or restrict financial transactions, including but not limited to, conducting any activity or failing to conduct any activity, if such action or inaction constitutes a money laundering crime, including any money laundering crime prohibited under the Money Laundering Control Act (18 U.S.C. §§ 1956, 1957), or the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq.), and any amendments or successors thereto and any applicable regulations promulgated thereunder. Borrower represents and warrants to Lender, its successors and assigns, that, as of the date hereof: (a)(i) neither Borrower nor any member nor any general partner of such member of Borrower, nor any officer, director or shareholder of Borrower, is or will become a “Person” described by Section 1 of The Anti-Terrorism Executive Order 13,224 of September 23, 2001 blocking property and prohibiting transactions with Persons who commit, threaten to commit, or support terrorism, 66 Fed. Reg. 49,049 (2001), or described in any rule or regulation implementing the same and, (ii) to the best knowledge and belief of the Borrower, neither Borrower nor any general partner or member of Borrower, nor any officer, director, or shareholder of Borrower, engages or will engage in any dealings or transactions, or be otherwise associated with, any such Persons; and (b) Borrower and all general partners and members and any general partner of such members of Borrower, and all officers, directors, and shareholders of Borrower, are in compliance, and will remain in compliance, with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA Patriot Act”). Borrower acknowledges that it understands and has been advised by legal counsel on the requirements of the applicable laws referred to above including, without limitation, the Money Laundering Control Act (18 U.S.C. §§ 1956, 1957), the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq.) and

the USA Patriot Act. Borrower shall notify Lender immediately upon receipt of any information indicating a breach of this Section 1.23, of if Borrower or any general partner or member of Borrower, or any officer, director or shareholder of Borrower or the constituent owner of Borrower is custodially detained on charges relating to money laundering, whereupon Lender shall be entitled to take all actions necessary so that Lender is in compliance with all anti-money laundering regulations. Any and all loss, damage, liability, penalty, fine or expense, including reasonable attorneys’ fees and reasonable investigatory expenses incurred by Lender in connection with any default by Borrower under this Section 1.23, shall be included in the indebtedness secured hereby, and shall immediately become due and payable by Borrower to Lender.

1.24 City Lease Provisions. Borrower hereby covenants and agrees that Borrower shall at all times fully perform and comply with all agreements, covenants, terms and conditions required to be performed or complied with by it pursuant to that certain Lease Agreement dated as of July 1, 2007 by and between the City of Olathe, Kansas, as Lessor and Borrower, as Lessee (the “City Lease”). Borrower further covenants and agrees:

(a) Any default, past any applicable notice and/or cure period, by Borrower under the City Lease shall be an Event of Default under this Mortgage.

(b) Borrower shall pay or cause to be paid, not later than the date upon which the same becomes due and payable by Borrower pursuant to the provisions of the City Lease (i) all base rent, additional rent and other payments required to be paid by the lessee under the City Lease and (ii) all real estate taxes, assessments, water and sewer rates and charges, and all other governmental levies and charges of every kind whatsoever, general and special, ordinary and extraordinary, unforeseen as well as foreseen, which shall be assessed, levied, confirmed, imposed, or become a lien upon or against the property demised by the City Lease, or which shall become payable with respect thereto (collectively the “Impositions”), provided that nothing contained herein shall limit the right of Lender to require that deposits be made into an escrow for real estate taxes, regular or special assessments, and insurance premiums pursuant to Section 1.06 of this Mortgage. Within ten (10) days after demand by Lender, Borrower shall deliver to Lender a copy of the official receipt evidencing such payment or other proof of payment of such rent and Impositions satisfactory to Lender, and failure of Borrower to deliver to Lender the receipts or to submit other proof satisfactory to Lender shall constitute a default under this Mortgage. Lender will accept as proof of payment of rent payable under the City Lease a certification executed by an officer of Borrower to the effect that such rent has been paid. To the extent that the City Lease or this Borrower shall grant to Borrower the privilege to postpone or defer the payment of any Impositions, the failure of Borrower to pay the same shall not constitute a default under this Mortgage so long as Borrower shall faithfully comply with all of the terms, covenants and conditions under the City Lease and this Mortgage with respect to the exercise of such privilege.

(c) Borrower shall promptly perform and observe all of the terms, covenants and conditions required to be performed and observed by Borrower, under the City Lease within the stated opportunity to cure periods provided in the City Lease, or such lesser opportunity to

cure periods as are provided in the default provisions of this Mortgage, and shall do all things necessary to preserve and to keep unimpaired Borrower’s rights under the City Lease.

(d) If Borrower shall fail to pay any base rent or additional rent required under the City Lease or any Impositions, or to make any other payment required to be paid by Borrower under the City Lease at the time or in the manner provided in the City Lease, or if Borrower shall fail to perform or observe any other term, covenant, condition required to be performed or observed by Borrower under the City Lease, without limiting the generality of any other provision of this Mortgage and without releasing Borrower from any of its obligations under this Mortgage, Lender shall have the right, but not the obligation, to pay base rent or additional rent and/or any Impositions, or other payment, and may take such action as may be appropriate to cause such other term, covenant or condition to be promptly performed or observed on behalf of Borrower, to the end that Borrower’s rights under the City Lease shall be kept unimpaired from default, and Borrower shall permit Lender to enter upon the property demised by the City Lease with or without notice and to do anything which Lender shall deem necessary or prudent for such purpose.

(e) If Lender shall make any payment or take action in accordance with the preceding paragraph, Lender, within thirty (30) days thereafter, shall give to Borrower written notice of the making of any such payment or the taking of any such action. All moneys expended by Lender in connection therewith including, but not limited to, legal expenses, together with interest thereon at the Default Rate (as defined in the Note) compounded monthly from the date of each such expenditure, shall be paid by Borrower to Lender upon demand by Lender, and shall be secured by this Mortgage. Lender shall have, in addition to any other right or remedy of Lender, the same rights .and remedies in the event of nonpayment of any such sums by Borrower as in the case of a default by Borrower in the payment of the Note. If, pursuant to the City Lease, lessor under the City Lease shall deliver to Lender a duplicate copy of any notice given by such landlord to Borrower, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender, in good faith, in reliance thereon.

(f) Borrower shall (i) promptly notify Lender in writing of any default by Borrower under the City Lease or of the receipt by Borrower of any notice (other than notices customarily sent on a regular periodic basis) from the lessor under the City Lease including, without limitation, any notice claiming any default by Borrower in the performance or observance of any of the terms, covenants, or conditions to be performed or observed by Borrower under the City Lease; (2) promptly notify Lender in writing of the receipt by Borrower of any notice from the lessor under the City Lease of termination of the City Lease pursuant to the provisions of the City Lease; and (iii) promptly cause a copy of each such notice received by Borrower to be delivered to Lender.

(g) If the City Lease provides for arbitration, Borrower shall promptly notify Lender in writing of any request made by either party to the City Lease for arbitration proceedings pursuant to the City Lease and of the institution of any arbitration proceedings, as well as of all proceedings thereunder, and shall promptly deliver to Lender a copy of the determination of the arbitrators in each such arbitration proceeding. Lender shall have the right

to participate in such arbitration proceedings in association with Borrower or on its own behalf as an interested party.

(h) Borrower, shall, from time to time, but not more often than once every six (6) months, within thirty (30) days after written demand from Lender, obtain from the lessor under the City Lease and deliver to Lender a certificate stating that such City Lease is in full force and effect, is unmodified, that no notice of default or termination has been given to Borrower, stating the date to which all rent and charges have been paid and stating whether or not there are any defaults thereunder and specifying the nature of such defaults, if any.

(i) Borrower shall not, without the prior written consent of Lender, consent to any agreement which releases the Borrower from any of its obligations under the City Lease, or consent to or permit any waiver or modification or cancellation of any provision of the City Lease nor to the subordination of the City Lease to any mortgage of the fee interest of the lessor of the property demised by the City Lease. Notwithstanding the foregoing or anything else to the contrary herein, Borrower may, without the prior written consent of Lender, exercise any option or obligation to purchase the property demised by the City Lease, through payment in full of the Bonds (as defined in the Lease).

(j) If at any time Borrower, or any party claiming by, through or under Borrower and/or any trustee in bankruptcy, shall have the right to assume or reject the City Lease pursuant to Section 365, 11 U.S.C. sec. 101 et seq., as the same may be amended (the “Code”) or any successor statute, then Lender shall have (and is hereby granted) the exclusive right to exercise such right to assume or reject. In the event that the foregoing grant is held to be unenforceable by a court of competent jurisdiction, then and in such case Borrower hereby covenants and agrees that Borrower, any party claiming by, through and under Borrower, and/or any trustee in bankruptcy shall not exercise any rights to assume or reject the City Lease without having first obtained the prior written consent of Lender.

(k) Borrower shall irrevocably and unconditionally assign, transfer and set over to Lender all of Borrower’s claims and rights to the payment of damages arising under the Code from any rejection of the City Lease by the lessor under the City Lease. This Mortgage and all the liens, terms, covenants, conditions of this Borrower shall extend to and cover Borrower’s possessory rights under Section 365(h) of the Code and to any claim for damages due to the rejection or disaffirmance of the City Lease or other termination of the City Lease. Lender shall have the right to proceed in its own name or in the name of Borrower in respect to any claim, suit, action or proceeding relating to the rejection of the City Lease, including but not limited to the right to file and prosecute, to the exclusion of Borrower, any proofs of claim, complaints, motions, applications, notices and other documents. Borrower shall agree to execute any and all powers, authorizations, consents and other documents required by Lender in connection with any such litigation. Borrower shall not commence any suit, action, proceeding or case, or file any application or make any motion, in respect of the City Lease in any such case under the Code without the prior written consent of Lender. Borrower shall, upon demand, pay to Lender all costs and expenses (including but not limited to attorneys’ fees) paid or incurred by Lender in connection with the prosecution or conduct of each such litigation.

(l) Borrower, irrevocably, hereby designates, makes, constitutes and appoints Lender (and all persons designated by Lender) as Borrower’s true and lawful attorney and agent-in-fact, with power upon the occurrence of an Event of Default under this Mortgage or default under the City Lease, without notice to Borrower and at such time or times thereafter as Lender, at its sole election, may determine, in the name of Borrower, Lender or in both names: (i) to exercise all of the Borrower’s rights, interests and remedies in and under the City Lease; (ii) to acquire the land and other property subject to the City Lease in the manner provided for in the City Lease; (iii) to initiate such legal proceedings and to settle, adjust or compromise any legal proceedings deemed necessary by Lender in its sole discretion in order to enforce the provisions of the City Lease or prevent the termination thereof; (iv) to commence or institute arbitration proceedings, or to participate in any arbitration proceedings commenced or instituted, pursuant to the City Lease deemed commenced or instituted; (v) to approve all arbitration determinations, awards or findings made pursuant to the provisions of the City Lease; (vi) to do any and all things necessary, in Lender’s sole opinion, to preserve and keep unimpaired Lender’s rights under this Mortgage and/or the City Lease; and (vii) to do all acts and things necessary, in Lender’s sole discretion, to carry out any or all of the foregoing.

(m) Borrower shall execute and deliver, on request of Lender such instruments as Lender may deem useful or required to permit Lender to cure any default under the City Lease or to permit lender to take such other action as Lender considers desirable to cure or remedy the matter in default and preserve the interest of Lender in the property demised by the City Lease.

(n) If the City Lease shall be terminated prior to the natural expiration of its term due to default by Borrower, and if Lender shall acquire from the lessor under the City Lease a new City Lease, Borrower shall have no right, title, or interest in or to such new City Lease or the leasehold estate created thereby.

(o) Borrower shall not sell, transfer or assign the City Lease or any portion of Borrower’s interest therein without the prior written consent of Lender.

(p) In case of a sale in foreclosure, any such sale may be made subject to the requirement that the purchaser shall assume the performance of all of the terms, covenants, and conditions of the City Lease by instrument in writing to be delivered to the lessor under the City Lease. Any such sale shall also be made subject to all of the provisions of the City Lease and to any curable default or defaults then existing thereunder.

(q) Unless Lender shall expressly consent in writing, the leasehold title to the property demised by the City Lease and the fee estate shall not merge, but they shall always remain separate and distinct, notwithstanding the union of said estates in the lessor under the City Lease, Borrower, or in a third party by purchase or otherwise.

(r) Any greater or additional interest or estate that Borrower shall acquire in the property demised by the City Lease, such as the fee estate, shall ipso facto be encumbered by this Mortgage with the same force and effect as if part of the mortgaged estate on the date hereof.

(s) Borrower shall exercise any and all applicable renewal options under the City Lease during the term of the Note and shall provide Lender with evidence, reasonably satisfactory to Lender, of the acceptance of Borrower’s exercise of such renewal options at least nine (9) months prior to the last day of the then existing term of the City Lease.

(t) Borrower agrees to deposit with Lender, upon Lender’s request therefor, Borrower’s original copy of said City Lease, and all amendments thereto, to be retained by Lender until all indebtedness secured hereby has been fully paid.

(u) The generality of the provisions of sections in this Mortgage relating to the City Lease shall not be limited by other provisions of this Mortgage setting forth particular obligations of Borrower which are also required of the Borrower as the lessee under the City Lease.

(v) The improvements on the property demised by the City Lease shall not be demolished without the prior written consent of Lender. Borrower further covenants that, except as otherwise permitted pursuant to the terms of this Mortgage, it will not make, authorize, or permit to be made any material alterations to the Buildings without the prior written approval of the Lender and that all such permitted material alterations, if any, shall be performed by Borrower in the manner set forth in the City Lease, and subject to the further condition that no structural alteration shall be undertaken without the prior written consent of Lender consistent with the terms of this Mortgage. Any bond for the completion or payment of any such material alteration, furnished to or for the benefit of the lessor under the City Lease shall also name Lender as a party for whose benefit such bond is issued, or a similar bond shall be furnished to and for the benefit of Lender.

(w) Borrower shall warrant and defend the leasehold estate created by the City Lease for the entire remainder of the term set forth in the City Lease, against each and every person or persons lawfully claiming, or who may claim the same or any part of the City Lease, subject only to the payment of the rents reserved in the City Lease and to the performance and observance of all the terms, covenants, conditions and warranties of the City Lease.

ARTICLE II
EVENTS OF DEFAULT

The following shall constitute events of default (“Events of Default”) hereunder:

2.01 The failure to make any payment of interest on the Note, or to make any payment of an installment of principal, on or before the day the same shall become due and payable, or the failure to make any other payments required under the Note on or before the day the same shall become due and payable, whether at maturity or by acceleration or as part of any prepayment or otherwise, in each case, as is provided in the Note and in this Mortgage, or the failure to make the payment of any insurance premium or tax required by Sections 1.04 and 1.06(a) to be paid, or the failure to make the deposits required by Section 1.06(b) or Section 1.12 (b), on or before the day the same shall become due and payable.

2.03 A default by Borrower in the due, prompt and complete observance and performance of any obligation, covenant and agreement contained in the Note or in this Mortgage but not specified in Sections 2.01 or 2.02, and the failure to cure said default within thirty (30) days after written notice to Borrower of the occurrence thereof, or if not susceptible of cure during such thirty (30) day period, the failure of Borrower to commence during such thirty (30) day period and to diligently prosecute the cure of same.

2.04 The appointment pursuant to an order of a court of competent jurisdiction of a trustee, receiver or liquidator of Borrower or of the Property or any part thereof.

2.08 The sale, conveyance, transfer, disposition or further encumbering of the Property, or any part thereof or any interest therein, either voluntarily, involuntarily, or otherwise, or agreement so to do (collectively, a “Transfer”), without the prior written consent of Lender, which consent shall be granted, withheld or conditioned in the sole and entire discretion of Lender. In the event of any request for approval of a Transfer, along with any such request, Borrower shall pay to Lender a transfer fee equal to one percent (1%) of the then outstanding principal balance of the Note (“Transfer Fee”). Lender shall have the right to approve, decline or consent to any such requested Transfer in its sole and entire discretion. Any permitted transferee shall assume all payment and performance obligations under the Note, this Mortgage and the other Loan Documents pursuant to an assumption agreement prepared in recordable form by

Lender’s legal counsel. Borrower shall pay Lender’s reasonable out-of-pocket expenses in connection with approving and documenting such Transfer, including the fees and costs of Lender’s local legal counsel, premiums for title insurance policies or endorsements, and recordation fees, whether or not the Transfer is completed.

2.09 Except as provided in Section 2.08, in the event Borrower is a corporation or trust, the Transfer of more than five percent (5%) of the issued and outstanding capital stock of Borrower or of the beneficial interest of such trust without the prior written consent of Lender; or, in the event Borrower is a limited or general partnership or a joint venture, a change of any general partner or any joint venturer, either voluntarily, or otherwise, or the Transfer of any such general partnership or joint venture interests without the prior written consent of Lender; or, in the event Borrower is a limited liability company, a change of Manager (meaning either an actual change of the Manager or a change in ownership or control of the Manager), voluntarily or otherwise, or the Transfer of more than five percent (5%) of the membership interests in Borrower without the prior written consent of Lender; or, any change in Borrower’s form of legal entity, or the form of any legal entity which is the general partner or Manager of Borrower. No Transfer or series of Transfers may be utilized to frustrate Lender’s rights in situations where the substantive effect of such Transfer or series of Transfers amounts to a disposition of the Property, or control thereof, for a valuable consideration to parties other than Borrower. Nothing contained herein shall limit in any manner, and all of the following shall be permitted without Lender’s consent, (i) a sale or transfer of all or substantially all of the assets of Pac Sun that includes the Borrower or (ii) a merger or consolidation or other acquisition of Pac Sun; provided the transferee of such assets or surviving company in such merger or consolidation or other acquisition has a net worth equal to or greater than three hundred million dollars ($300,000,000.00) and further provided that Borrower demonstrates such valuation to Lender’s reasonable satisfaction within fifteen days prior to the occurrence of any such merger, consolidation or other acquisition.

ARTICLE III
REMEDIES

Upon the occurrence of any Event of Default, Lender may shall have the following rights and remedies:

3.01 Acceleration of Indebtedness. Upon occurrence of an Event of Default or at any time thereafter, Lender may at its option and without demand or notice to Borrower, accelerate the maturity of the Note and declare the indebtedness secured hereby immediately due and payable. Unless otherwise provided herein, Borrower hereby waives presentment for payment, protest and demand, notice of protest, demand, dishonor and default, notice of intent to declare the indebtedness secured hereby immediately due and payable and notice of the declaration that the Indebtedness is immediately due and payable, and any and all rights Borrower may have to a hearing before any judicial authority prior to the exercise by Lender of any of its rights under this Mortgage or any other agreements securing or executed in connection with the Indebtedness, all to the extent authorized by law.

3.02 Foreclosure; Waiver of Redemption Laws. Lender may institute an action of mortgage foreclosure, or take such other action at law or in equity for the enforcement of this Mortgage and realization on the Premises or any other security herein or elsewhere provided for, as the law may allow, and may proceed therein to final judgment and execution for the entire unpaid balance of the Indebtedness with interest at the rate(s) stipulated in the Note together with all other sums due by Borrower in accordance with the provisions of the Note and this Mortgage, including, without limitation, all sums which may have been loaned by Lender to Borrower after the date of this Mortgage with respect to the Premises, and all sums which may have been advanced by Lender for taxes, water or sewer rents, other lienable charges or claims, insurance or repairs or maintenance, and all costs of suit. Borrower authorizes Lender at its option to foreclose this Mortgage subject to the rights of any tenants and the failure to make any such tenants parties defendant to any such foreclosure proceedings and to foreclose their rights will not be asserted by Borrower as a defense to any proceedings instituted by Lender to recover the Indebtedness secured hereby or any deficiency remaining unpaid after the foreclosure sale of the Premises. Borrower hereby waives the benefit of all laws now existing or hereafter enacted providing for redemption or a right of redemption from any sale made in collecting the indebtedness secured hereby.

3.03 Appointment of a Receiver; Possession/Operation of Property by Lender or Receiver. Upon the occurrence of an Event of Default, Lender shall have the right, after such notice to Borrower as is required by applicable law, to the appointment of a receiver for the Property. Either Lender or a receiver appointed at any time thereafter, in addition to all other rights herein conferred upon them may, but will not be obligated to, enter upon and take into possession of any or all of the Property, and exclude Borrower therefrom, and hold, use, administer, manage and operate the same to the full extent that Borrower could do so, with or without legal action, or, in the alternative, Lender or such receiver shall be entitled as of right to appointment of a receiver without regard to the solvency of Borrower, or any other person liable for the debt secured hereby, and without regard to the value of the Property in relation to the indebtedness secured hereby, and waiving all rights for any valuation with respect thereto, and regardless of whether Lender has an adequate remedy at law; either Lender or said receiver, as the case may be, may rent the Property, or any part thereof, for such term or terms and on such other terms and conditions as Lender or such receiver may see fit, collect all rentals (which term shall also include sums payable for use and occupation) and, after deducting all costs of collection and administration expense, apply the net rentals to the payment of taxes, water and sewer rents, other lienable charges and claims, insurance premiums and all other carrying charges, and to the reasonable costs of maintenance, repair or restoration of the Property, or in reduction of the principal or interest, or both, in such order and amounts as Lender or said receiver may elect; and for that purpose and without limiting any other assignment contained herein or in the other loan documents Borrower hereby grants, grants a security interest in and assigns to Lender all rentals due and to become due under any existing or future lease or leases or rights to use and occupation of the Property, as well as all rights and remedies provided in such lease or leases or at law or in equity for the collection of the rentals. Any lease or leases, or modifications thereof, entered into by Lender or said receiver pursuant to this paragraph shall survive foreclosure of this Mortgage and/or the repayment of the debt, except to the extent any applicable lease may provide otherwise. If the Property includes any type of business enterprise, the Lender or such receiver may operate and manage such business without any liability of

Lender or such receiver to Borrower resulting therefrom (excepting failure to use ordinary care in the operation and management of the Property); and Lender or its designee or such receiver may collect, receive and receipt for all proceeds accruing from such operation and management, and, at Borrower’s expense, make repairs and purchase needed additional property, and exercise every power, right and privilege of Borrower with respect to the Mortgaged Property. When and if the expenses of such operation and management have been paid and the Indebtedness has been paid, the Property shall be returned to Borrower (providing there has been no foreclosure sale). This provision is a right created by this Mortgage and cumulative of, and is not in any way to affect, the right of the Lender to the appointment of a receiver or any other right given the Lender by law.

3.04 Related Judicial Proceedings. Upon the occurrence of an Event of Default, or at any time thereafter, or upon the breach of any covenant, term or condition herein contained, Lender, in lieu of or in addition to its other rights and remedies hereunder, may sue Borrower for damages on, arising out of said default or breach, or for specific performance of any provision contained herein, or to enforce any other appropriate legal or equitable right.

3.05 Action for Sums Due. Lender shall have the right, from time to time, to bring an appropriate action to recover any sums required to be paid by Borrower under the terms of this Agreement as they become due, without regard to whether or not the principal Indebtedness or any other sums secured by the Note and this Mortgage shall be due, and without prejudice to the right of Lender thereafter to bring an action to foreclose this Agreement or any other action for any default by Borrower existing at the time the earlier action was commenced.

3.06 Sale. Any real estate or interest or estate therein sold to satisfy the Indebtedness may be sold in one parcel, as an entirety, or in such parcels and in such manner or order as Lender, in its sole discretion, may elect.

3.07 UCC Rights. On the happening of any Event of Default or at any time thereafter, Lender shall have and may exercise with respect to the Collateral all rights, remedies and powers of a Secured Party under the Uniform Commercial Code as adopted in the State of Kansas (“UCC”) with reference to the Property, as applicable, or any other items in which a security interest has been granted herein, including without limitation the right and power to sell at public or private sale or sales or otherwise dispose of, lease or utilize the Property, as applicable, and any part or parts thereof in any manner to the fullest extent authorized or permitted under the UCC after default by Borrower without regard to preservation of the Collateral or its value and without the necessity of a court order, and apply the proceeds thereof first toward the payment of all costs and expenses and reasonable attorneys’ fees incurred by Lender and the balance toward the payment of the Indebtedness whether or not then due, and in such order or manner as Lender may elect. Upon any Event of Default, Lender shall have, among other rights, the right to take possession of the Property, as applicable, and to enter upon any premises where the same may be situated for the purpose of repossessing the same, without being guilty of trespass and without liability for damages occasioned thereby, as long as Lender does not commit a breach of peace, and to take any action deemed appropriate or desirable by Lender, at its option and its sole discretion, to repair, restore or otherwise prepare the Property, as applicable, for sale or lease or other use or disposition as authorized herein. To the extent permitted by law, Borrower

expressly waives any notice of sale or any other disposition of the Property, as applicable, and any rights or remedies of Borrower or the formalities subscribed by law relative to the sale or disposition of the Property, as applicable, or to the exercise of any other right or remedy of Lender existing after default. To the extent that such notice is required and cannot be waived, Borrower agrees that if such notice is mailed postage prepaid to Borrower at the address shown herein at least ten (10) days before the time of the sale or disposition, such notice shall be deemed reasonable and shall fully satisfy any requirement for giving said notice.

Borrower agrees that Lender may proceed to sell or dispose of both the real and personal property covered herein in accordance with the rights and remedies granted under this Agreement with respect to the real property covered hereby. Borrower hereby grants Lender the right, at its option, after default by Borrower to transfer at any time to itself or its nominee the Property, as applicable, or any part thereof and to receive the monies, income, proceeds and benefits attributable to the same and to hold the same as Property, as applicable, or to apply it on the Indebtedness, whether or not then due, and in such order and manner as Lender may elect. Borrower covenants and agrees that all recitals and any document transferring, assigning, leasing or making other disposition of the Property, as applicable, or any part thereof shall be full proof of the matters stated therein and no other proof shall be required to establish the legal propriety of the sale or other action taken by Lender and that all prerequisites of sale shall be presumed conclusively to have been performed or to have occurred.

3.08 Marshaling. All rights to a marshaling of the assets of Borrower, including, without limitation, such rights with respect to the Property, as applicable, and the Premises, are hereby waived.

3.09 Application of Proceeds. Unless otherwise required by applicable law, the proceeds of any and all foreclosure sales of the Property shall be applied as follows: (a) to the payment of all necessary actions and expenses incident to the execution of said sale or sales, and to the actions and expenses of any receiver with respect to the Property; (b) to the payment of the Indebtedness in such order as determined by Lender, to the amount of the accrued interest and principal legally due thereon and all other sums secured hereby, and to the payment of reasonable attorneys’ fees as in the Note provided; and (c) the remainder, if any, shall be paid to Borrower or such other person or persons entitled thereto by law.

3.10 Waiver of Appraisement Laws. To the extent permitted by applicable law, Borrower waives the benefit of all laws now existing or hereafter enacted providing for (a) any appraisement before sale of any portion of the Property (commonly known as Appraisement Laws), or (b) any extension of time for the enforcement of the collection of the Indebtedness or any creation or extension of a period of redemption from any sale made in collecting the Indebtedness (commonly known as Stay Laws and Redemption Laws).

3.11 Prerequisites of Sales. In case of any foreclosure sale of the Property, all prerequisites to the sale shall be presumed to have been performed, and in any conveyance given hereunder, all statements of facts, or other recitals therein made as to the nonpayment of money secured or as to the request of the Lender or any receiver, or as to the advertisement of sale, or

time, place and manner of sale, or as to any other preliminary fact or thing, shall be taken in all courts of law or equity as prima facie evidence that the facts so stated or recited are true.

ARTICLE IV
DEFEASANCE OF MORTGAGE

If Borrower shall well and truly pay, or cause to be paid, all of the indebtedness evidenced and secured hereby and does keep and perform each and every covenant, duty, condition, and stipulation herein imposed on Borrower, in the Note contained, or in any other document securing, evidencing or relating to the indebtedness evidenced and secured hereby, then this Mortgage and the grants and conveyances contained herein shall become null and void, and the Property shall revert to Borrower and the entire estate, right, title and interest of Lender will thereupon cease; and Lender in such case shall, upon the request of Borrower, deliver to Borrower proper documents acknowledging satisfaction of this document; otherwise, this Mortgage shall remain in full force and effect.

ARTICLE V
MISCELLANEOUS

5.01 In the event any one or more of the provisions contained in this Mortgage or in the Note or in any instrument heretofore or hereafter executed by Borrower having reference to or arising out of the indebtedness represented by the Note shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Mortgage, but this Mortgage shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein.

5.02 Borrower agrees to pay Lender or its authorized loan servicing agent for each and any Lender Statement furnished at Borrower’s request the lesser of the maximum fee allowed by the law of the Governing Jurisdiction (as defined below) or $25.00. Such fee shall be computed as of the time said statement is furnished.


		If to Borrower:		c/o Pacific Sunwear of California, Inc.
				3450 East Miraloma Avenue
				Anaheim, CA 92806
				Attention: Craig Gosselin, SVP and General Counsel


		If to Lender:		AMERICAN NATIONAL INSURANCE COMPANY
				One Moody Plaza
				Galveston, Texas 77550
				Attention: Mortgage and Real Estate Investment Department

5.04 Borrower hereby requests that a copy of any Notice of Default and Notice of Sale as may be required by law be mailed to it at its address herein contained.

5.05 The granting of consent by Lender to any transaction as required by the terms hereunder shall not be deemed a waiver of the right to require consent to future or successive transactions.

5.06 All of the grants, obligations, covenants, agreements, terms, provisions and conditions herein shall run with the land and shall apply to, bind and inure to the benefit of the successors and assigns of Borrower and the endorsees, transferees, successors and assigns of Lender.

5.07 This Mortgage may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same deed.

5.08 This Mortgage is to be construed and enforced according to the laws of the Governing Jurisdiction except that, with respect to any portion of the Property located outside of the Governing Jurisdiction, the laws of the state in which such portion of the Property is located shall be applicable thereto but only to the extent required for Lender to exercise its rights and remedies in order to realize upon its interests in the Property.

5.09 This Mortgaged shall be governed in all respects by the laws of the State of Kansas (“Governing Jurisdiction”), without regarding to any conflicts of law provisions.

5.10 Notwithstanding anything to the contrary in this Mortgage or the other Loan Documents to the contrary, the maximum principal amount of the Indebtedness and other obligations secured by this Mortgage (not including the costs of protecting and preserving the Premises and the lien of this Mortgage paid by Lender pursuant to this Mortgage and the other Loan Documents) shall not exceed the sum of $13,000,000.00.

[Signature Page Follows]

IN WITNESS WHEREOF, this Mortgage, Security Agreement, Financing Statement and Fixture Filing has been executed and delivered as of the day and year first above written.


BORROWER: PACIFIC SUNWEAR STORES CORP., a California corporation
By:	/s/ Craig E. Gosselin
	Name:	Craig E. Gosselin
	Title:	President
NOTARIZED SIGNATURES REQUIRED

LOCAL FORM OF ACKNOWLEDGMENT

On ____________, 2010, before me, ______________________________, Notary Public, personally appeared ________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I swear under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature ________________________ [SEAL]

EXHIBIT “A”

LEGAL DESCRIPTION

LEASEHOLD INTEREST IN AND TO LOT 1, PACIFIC SUNWEAR, AMENDED 1ST PLAT A SUBDIVISION IN THE CITY OF OLATHE, JOHNSON COUNTY, KANSAS.

APN: DP557300000001

EXHIBIT “B”

PERMITTED EXCEPTIONS

1. Taxes and assessments for the year 2010 and subsequent years, none now due and payable.

2. Easements, restrictions and setback lines as per plat, recorded in Plat Book 121, Page 48, Book 200610, Page 000560 and Book 200704, Page 004309.

3. An easement granted to Cities Services Gas Company in the document recorded in Book of Misc. 35, Page 10, partially disclaimed in Volume 1989, Page 853 of Official Records.

4. Terms and conditions of the Development Agreement by and between Board of Johnson County Commission, to Alan W. Stevens and Theresa A. Black, husband and wife, as evidenced by the document filed August 1, 2001 in Book 7197, Page 630.

5. Terms and conditions of the Sewer District Agreement and Covenants by and between Board of Johnson County Commission, to Alan W. Stevens and Theresa A. Black, husband and wife, as evidenced by the document filed August 1, 2001 in Book 7197, Page 646.

6. An easement granted to Kansas City Power & Light Company in the document recorded in Book 7283, Page 209 of Official Records.

7. Sanitary Sewer Easement granted to the City of Olathe, Kansas filed September 13, 2005, in Book 200509, Page 004235.

8. An easement for Kansas City Power & Light Company in the document recorded in Book 200702, Page 004585 of Official Records.

9. A document entitled “Statement of Planned Zoning by City of Olathe” recorded in Book 200609, Page 000239 of Official Records.

10. A document entitled “Main Extension Petition and Agreement” creating a benefit area recorded in Book 200705, Page 011197 of Official Records.

11. Permanent Sewer Easement granted to Sun Life Assurance Company of Canada in the document recorded October 8, 2007 in Book 200710, Page 002364 of Official Records.

Corrected Permanent Sewer Easement to Sun Life Assurance Company of Canada recorded May 22, 2008 in Book 200805, Page 006991.

12. The following matters disclosed by an ALTA/ACSM survey made by George Butler Associates, Inc. on July 16, 2010, designated Job No. 12253: None

13. Terms and provisions of Lease Agreement with purchase rights and options dated July 1, 2007, by and between City of Olathe, Kansas, a municipal corporation, and Pacific Sunwear Stores Corp., a California corporation, notice of which is given by Memorandum of Lease Agreement dated July 17, 2007, recorded August 20, 2007, in Book 200708, Page 006496, as amended and subordinated by Subjection of Fee To Mortgage Instrument, Modification to Mortgage, Amendment to Lease Agreement and Subordination of Bond Documents recorded _________, in Book ___, Page ___.

Assignment of Lease Agreement to U.S. Bank National Association, as Trustee, recorded August 20, 2007, in Book 200708, Page 006497.

14. Terms and provisions of Trust Indenture dated as of July 1, 2007, by and between City of Olathe, Kansas and U.S. Bank National Association, as Trustee, as subordinated by Subjection of Fee To Mortgage Instrument, Modification to Mortgage, Amendment to Lease Agreement and Subordination of Bond Documents recorded _________, in Book ___, Page ___.

EX-10.5 6 a57137exv10w5.htm EX-10.5 exv10w5

Exhibit 10.5

ABSOLUTE, UNCONDITIONAL GUARANTY

This ABSOLUTE, UNCONDITIONAL GUARANTY (“Guaranty”) is executed effective as of the 20th day of August, 2010, by PACIFIC SUNWEAR OF CALIFORNIA, INC., a California corporation ( “Guarantor”), for the benefit of AMERICAN NATIONAL INSURANCE COMPANY, a Texas insurance company (“Noteholder”).

WITNESSETH:

WHEREAS, Noteholder has made a loan of $13,000,000.00 (the “Loan”) to PACIFIC SUNWEAR STORES CORP., a California corporation (“Maker”), on or about the same date hereof, pursuant to which Maker has executed that certain Promissory Note of even date herewith in the original principal amount of $13,000,000.00, made payable to the order of Noteholder (together with any and all renewals, modifications, increases, extensions, consolidations and rearrangements, thereof, the “Note”); and under the Note, Maker has become indebted, and may from time to time be further indebted, to Noteholder with respect to the Loan, which is secured by the liens and security interests of that certain Mortgage, Security Agreement, Financing Statement and Fixture Filing (together with all renewals, modifications, increases, extensions, consolidations and rearrangements, thereof, the “Mortgage”) of even date herewith, for the benefit of Noteholder concerning that parcel of real property located in Johnson County, Kansas more particularly described in Exhibit “A” attached hereto and made a part hereof for all purposes (the “Mortgaged Property”), and further evidenced or secured by such other documents executed in connection with or which relate to or secure the Loan (individually and collectively, together with the Note and the Mortgage, the “Loan Documents”); and

WHEREAS, Noteholder is not willing to make the Loan, or otherwise extend credit, to Maker unless Guarantor unconditionally guarantees, jointly and severally, payment and performance to Noteholder of the Guaranteed Debt (as herein defined) pursuant to the terms and conditions herein provided; and

WHEREAS, Guarantor is the owner of a direct or indirect interest in Maker, and Guarantor will materially and directly benefit from Noteholder’s making of the Loan to Maker, and such Loan and this Guaranty are in the best interests of Guarantor; and

WHEREAS, Noteholder has made or agreed to make the Loan to Maker upon the inducement and representation that Guarantor shall be jointly and severally liable for and personally guarantee (a) the payment in full of the Guaranteed Debt and (b) the performance of any and all other obligations of Maker under the Loan Documents.

NOW, THEREFORE, as an inducement to Noteholder to enter in to the Loan Agreement and make the Loan to Maker as described therein, and to extend such additional credit as Noteholder may from time to time agree to extend, and for Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE I

NATURE AND SCOPE OF GUARANTY

1.1 Guaranty of Obligations. Guarantor hereby irrevocably and unconditionally, and jointly and severally, guarantees to Noteholder and its successors and assigns the payment and performance of the Guaranteed Debt as and when the same shall be due and payable or performable, whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Debt as a primary obligor.

1.2 Definition of Guaranteed Debt. As used herein, the term “Guaranteed Debt” shall mean any and all of the following:

(a) any and all principal, interest, reasonable attorneys’ fees, commitment fees, liabilities for costs and expenses and other indebtedness, obligations and liabilities of Maker to Noteholder at any time created or arising in connection with the Note, or any amendment thereto or substitution therefor, including, but not limited to, all indebtedness, obligations and liabilities of Maker to Noteholder arising under any renewals, modifications, increases, extensions, consolidations and rearrangements of the Note, or under the Loan Documents;

(b) any and all indebtedness, liabilities, obligations and duties of Maker for future advances, extensions of credit, sales on account or other value at any time given or made by Noteholder to Maker arising under any of the Loan Documents, whether or not the advances, extensions of credit, sales on account or other value are given pursuant to a loan commitment or otherwise;

(c) any and all other indebtedness, liabilities, obligations and duties of every kind and character of Maker to Noteholder arising under any of the Loan Documents, whether now or hereafter existing or arising, regardless of whether such present or future indebtedness, liabilities, obligations or duties be direct or indirect, related or unrelated, liquidated or unliquidated, primary or secondary, joint, several or joint and several or fixed or contingent; and

(d) any and all post-petition interest, reasonable costs, expenses and fees, including, but not limited to, court costs and reasonable attorneys’ fees, incurred by Noteholder in connection with the collection of any or all amounts, indebtedness, obligations and liabilities of Maker to Noteholder described in items (a) through (c) above.

1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, unconditional continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Debt arising or created after any attempted revocation by Guarantor and after (if Guarantor is a natural person) Guarantor’s death (in which event this Guaranty shall be binding upon Guarantor’s estate and Guarantor’s administrator’s, executors, legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Debt may be increased, reduced or paid in full shall not release, discharge or reduce the obligation of Guarantor to Noteholder with respect to the indebtedness or obligations of Maker thereafter incurred (or other Guaranteed Debt thereafter arising) under the Note or otherwise for so long as the Note remains outstanding. This Guaranty may be enforced by Noteholder and any subsequent holder of all or any portion of the Guaranteed Debt and shall not be discharged by the assignment or negotiation of all or part of the Guaranteed Debt.

1.4 Guaranteed Debt Not Reduced by Offset. The Guaranteed Debt and the liabilities and obligations of Guarantor to Noteholder hereunder shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Maker, or any other party, against Noteholder or against payment or performance of the Guaranteed Debt, whether such offset, claim or defense arises in connection with the Guaranteed Debt (or the transactions creating the Guaranteed Debt) or otherwise. Without limiting the foregoing or Guarantor’s liability hereunder, to the extent that Noteholder advances funds or extends credit to Maker, and does not receive payments, performances or benefits thereon in the amounts and at the times required or provided by the Loan Documents or applicable laws, Guarantor is absolutely liable to make such payments and performances to (and confer such benefits on) Noteholder, on a timely basis.

1.5 Payment by Guarantor. If all or any portion of the Guaranteed Debt shall not be punctually paid or performed when due, whether at maturity or earlier by acceleration or otherwise, Guarantor shall, immediately upon demand by Noteholder, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity or any other notice whatsoever, pay in lawful money of the United States of America the amount due on the Guaranteed Debt to Noteholder at Noteholder’s address as set forth herein and perform such other unperformed obligations as may be required pursuant to the Loan Documents. Such demand(s) may be made at any time coincident with or after the time for payment or performance of all or part of the Guaranteed Debt, and may be made from time to time with respect to the same or different items of Guaranteed Debt. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

1.6 No Duty to Pursue Others. Except as may be required by applicable law, it shall not be necessary for Noteholder (and Guarantor hereby waives any rights which Guarantor may have to require Noteholder), in order to enforce such payment or performance by Guarantor, first to (i) institute suit or exhaust its rights or remedies against Maker, the Mortgaged Property or others liable on the Guaranteed Debt or any other person or entity; (ii) enforce or exhaust Noteholder’s rights or remedies against any collateral or security which shall ever have been given to secure the Guaranteed Debt; (iii) enforce Noteholder’s rights or remedies against any other guarantors of the Guaranteed Debt; (iv) join Maker or any others liable on the Guaranteed Debt in any action seeking to enforce this Guaranty; (v) exhaust any rights or remedies available to Noteholder against any collateral or security which shall ever have been given to secure the Guaranteed Debt; or (vi) resort to any other means of obtaining payment or performance of the Guaranteed Debt.

1.7 Guaranty Independent; Waivers.

(a) Guarantor agrees that:

(i) the obligations under this Guaranty are independent of and in addition to the undertakings of Maker pursuant to the Loan Documents, any evidence of indebtedness issued in connection with the Loan, any mortgage or security agreement given to secure the Loan, any other guaranties given in connection with the Loan, and any other obligations of Guarantor to Noteholder;

(ii) a separate action may be brought to enforce the provisions of this Guaranty, whether Maker is a party in any action or not;

(iii) Noteholder may at any time, or from time to time, in its sole discretion:

(A) extend or change the time of payment or performance or the manner, place, or terms of payment or performance of any of the Guaranteed Debt;

(B) exchange, release, or surrender any of the Mortgaged Property, or any part of it, by whomever deposited, which is now or may later be held by Noteholder in connection with any of the Guaranteed Debt;

(C) sell or purchase any of the collateral at public or private sale, or at any broker’s board, in the manner permitted by law, and after all costs and expenses of every kind for collection, sale, or delivery, the net proceeds of any sale may be applied by Noteholder on any of the Guaranteed Debt; and

(D) settle or compromise with Maker, or any other person liable, any of the Guaranteed Debt, or subordinate the payment of it, or any part of it, to the payment of any other debts or claims, that may at any time be due or owing to Noteholder or any other person or corporation; and

(iv) Noteholder will be under no obligation to marshal any assets in favor of Guarantor or in payment of any of the Guaranteed Debt.

(b) Guarantor waives:

(i) presentment, demand, protest, notice of acceptance, notice of dishonor, notice of nonperformance, and any other notice with respect to any of the Guaranteed Debt and this Guaranty, and promptness in commencing suit against any party, or in giving any notice to or making any claim or demand on any other guarantor;

(ii) any right to require Noteholder to proceed against Maker, proceed against or exhaust any security held from Maker or pursue any remedy in Noteholder’s power;

(iii) any defense based on any legal disability or other defense of Maker, any other guarantor, or other person or by reason of the cessation or limitation of the liability of Maker from any cause other than full payment of all sums payable under the Note and the performance of the other Guaranteed Debt;

(iv) any defense based on any lack of authority of the officers, directors, partners, or agents purporting to act on behalf of Maker or any principal of Maker or any defect in the formation of Maker or any principal of Maker;

(v) to the fullest extent permitted by law, all rights and benefits granted to a guarantor purporting to reduce a guarantor’s obligations in proportion to the principal obligation;

(vi) any defense based on the application by Maker of the proceeds of the Loan for purposes other than the purposes represented by Maker to Noteholder or intended or understood by Noteholder or Guarantor;

(vii) any defense Guarantor may acquire by reason of Noteholder’s election of any remedy against Guarantor or Maker or both, even though that election of remedies has destroyed any rights of subrogation and/or reimbursement Guarantor may have against Maker by law or otherwise;

(viii) any defense based on Noteholder’s failure to disclose to Guarantor any information concerning Maker’s financial condition or any other circumstances bearing on Maker’s ability to pay all sums payable under the Note or any of the other Guaranteed Debt;

(ix) any defense based on any statute or rule of law that provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal;

(x) any defense based on Noteholder’s election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal Bankruptcy Code or any successor statute;

(xi) any defense based on any borrowing or any grant of a security interest under Section 364 of the Federal Bankruptcy Code; and

(xii) until the Guaranteed Debt has been satisfied in full, any right of subrogation, contribution or reimbursement against Maker, any right to enforce any remedy that Noteholder has or may in the future have against Maker, any other right that Noteholder may now or later acquire against Maker that arises from the existence or performance of Guarantor’s obligations under this Guaranty or would arise with respect to the Guaranteed Debt, and any benefit of, and any right to participate in, any security for the Guaranteed Debt now or in the future held by Noteholder.

1.8 Payment of Expenses. In the event that Guarantor should breach or fail to timely pay or perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Noteholder, pay Noteholder any and all costs and reasonable expenses (including, without limitation, court costs and reasonable attorneys’ fees) incurred by Noteholder in the enforcement hereof or the preservation of Noteholder’s rights hereunder. The covenant contained in this Section 1.8 shall survive until the payment and performance of the Guaranteed Debt and all costs and fees, including, without limitation, court costs and reasonable attorneys’ fees incurred by Noteholder with respect to Maker and/or Guarantor are paid in full.

1.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Noteholder must rescind or restore any payment, or any part thereof, received by Noteholder in satisfaction of the Guaranteed Debt, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Noteholder shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Maker and Guarantor that

Guarantor’s obligations hereunder shall not be discharged except by Guarantor’s full performance of such obligations and then only to the extent of such performance.

1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, so long as any portion of the Guaranteed Debt remains unpaid, Guarantor hereby unconditionally and irrevocably agrees that any and all rights and remedies it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating Guarantor to the rights of Noteholder) to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Maker or any other party liable for any payment or performance of any or all of the Guaranteed Debt shall at all times be and remain subordinate in all respects to the Guaranteed Debt.

1.11 Maker. The term “Maker” as used herein shall include any new or successor corporation, association, partnership (general or limited), joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Maker or any interest in Maker.

1.12 Intentionally Omitted.

1.13 Recourse Limitations Do Not Apply. It is understood and agreed that any limitations of liability provided in the Note and any of the other Loan Documents shall not apply with respect to Guarantor, and that, notwithstanding anything to the contrary in the Note or any of the other Loan Documents, Noteholder shall have full and personal recourse against the assets of Guarantor with respect to the satisfaction of the Guaranteed Debt, and such limitations of liability shall not apply for purposes of enforcing this Guaranty.

ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR’S OBLIGATIONS

Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice), which Guarantor might otherwise have as a result of or in connection with any of the following:

2.1 Modifications. Any renewal, extension, increase, modification, consolidation, alteration or rearrangement of all or any part of the Guaranteed Debt, the Note, the other Loan Documents or any other document, contract or understanding between Maker and Noteholder, or any other parties, pertaining to the Guaranteed Debt or any failure of Noteholder to notify Guarantor of any such action.

2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Noteholder to Maker or any guarantor.

2.3 Condition of Maker or Guarantor. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Maker, Guarantor or any other party at any time liable for the payment or performance of all or part of the Guaranteed Debt; or any dissolution of Maker or Guarantor, or any sale, lease or transfer of any or all of the assets of Maker or Guarantor, or any changes in the shareholders, partners, trustees, beneficiaries or members of Maker or Guarantor; or any reorganization of Maker or Guarantor.

2.4 Invalidity of Guaranteed Debt. The assertion of or any finding of the invalidity, illegality or unenforceability of all or any part of the Guaranteed Debt, or any document or agreement executed in connection with the Guaranteed Debt, for any reason whatsoever, including, without limitation, the fact that (i) the Guaranteed Debt, or any part thereof, exceeds the amount permitted by law or in equity; (ii) the act of creating the Guaranteed Debt or any part thereof is ultra vires; (iii) the officers or representatives executing the Note or the other Loan Documents or otherwise creating the Guaranteed Debt acted in excess of their authority; (iv) the Guaranteed Debt violates applicable usury laws; (v) Maker has valid defenses, claims or offsets (whether at law, in equity or by agreement), which render the Guaranteed Debt wholly or partially uncollectible from Maker; (vi) the creation, performance or repayment of the Guaranteed Debt (or the execution, delivery and performance of any document representing part of the Guaranteed Debt or executed in connection with the Guaranteed Debt, or given to secure the repayment of the Guaranteed Debt) is uncollectible or unenforceable; or (vii) the Note or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic, Guarantor shall remain fully liable hereon regardless of whether Maker or any other person be found not liable on the Guaranteed Debt or any part thereof for any reason.

2.5 Release of Obligor. Any full or partial release of the liability of Maker on the Guaranteed Debt, or any part thereof, or of any guarantor, co-guarantors or any other person or entity now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment or performance of the Guaranteed Debt, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay and perform the Guaranteed Debt in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Debt, or that Noteholder will look to other parties to pay or perform the Guaranteed Debt.

2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty or other assurance of payment or performance, for all or any part of the Guaranteed Debt.

2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) by Maker of any collateral or security, at any time existing in connection with, or assuring or securing payment or performance of all, or any part of the Guaranteed Debt.

2.8 Care and Diligence. The failure of Noteholder or any other party to exercise diligence in the enforcement or sale of all or any part of such collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Noteholder to (i) take or prosecute any action for the collection of any of the Guaranteed Debt; (ii) foreclose or initiate any action to foreclose or once commenced, prosecute to completion any action to foreclose upon any collateral or

security therefor; or (iii) take or prosecute any action in connection with any document or agreement evidencing, securing or relating to all or any part of the Guaranteed Debt.

2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Debt, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of the validity, enforceability, collectability or value of any of the collateral or security for the Guaranteed Debt.

2.10 Offset. The Note, the Guaranteed Debt and the liabilities and obligations of Guarantor to Noteholder hereunder, shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense of Maker against Noteholder, or any other party, or against the payment or performance of the Guaranteed Debt, whether such right of offset, claim or defense arises in connection with the Guaranteed Debt (or the transactions creating the Guaranteed Debt) or otherwise.

2.11 Merger. The reorganization, merger or consolidation of Maker into or with any other corporation or entity.

2.12 Preference. Any payment by Maker to Noteholder is held to constitute a preference under bankruptcy laws, or for any reason Noteholder is required to refund such payment or pay such amount to Maker or someone else.

2.13 Other Actions Taken or Omitted. Any other action taken or omitted to be taken by Maker with respect to any of the Loan Documents, the Guaranteed Debt or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay or perform the Guaranteed Debt pursuant to the terms hereof, it being the unambiguous and unequivocal intention of Guarantor and Noteholder that Guarantor shall be obligated to pay and perform the Guaranteed Debt when due, notwithstanding any occurrence, circumstance, event, action or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and performance and satisfaction of the Guaranteed Debt.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

To induce Noteholder to enter into the Loan Documents and extend credit to Maker, Guarantor represents and warrants to Noteholder as follows:

3.1 Benefit. Guarantor is a related party to Maker and is the owner of a direct or indirect interest in Maker, and has received, or will receive, direct or indirect material benefit from the making of this Guaranty with respect to the Guaranteed Debt.

3.2 Familiarity and Reliance. Guarantor is familiar with, and has independently reviewed the books and records regarding the financial condition of Maker and is familiar with the value of any and all collateral or security intended to be given as security for the payment of the Note or the Guaranteed Debt; provided, however, that Guarantor is not relying on such financial condition or the collateral or security as an inducement to enter into this Guaranty.

3.3 No Representation by Noteholder. Neither Noteholder nor any other party has made any representation, warranty or statement to Guarantor, express or implied, in order to induce Guarantor to execute this Guaranty.

3.4 Legality. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject, or constitute a default (or an event with which notice or the lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, deed of trust, charge, lien or any contract, agreement or other document to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

3.5 Financial Information. All of the financial information provided by Guarantor to Noteholder is true and correct in all material respects. Guarantor shall furnish to Noteholder annual financial statements of Guarantor certified by such Guarantor as true and correct prepared in accordance with generally accepted accounting principles consistently applied. Each such annual financial statement shall be delivered to Noteholder within one hundred twenty (120) days after the end of Guarantor’s fiscal year.

3.6 Survival. Any and all representations and warranties made by Guarantor herein shall survive the execution hereof until the Guaranteed Debt has been satisfied.

ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS

4.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean any and all debts and liabilities of Maker to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Maker thereon be direct, contingent, primary, secondary, joint, several, joint and several or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. Guarantor Claims shall include, without limitation, any and all rights and claims of Guarantor against Maker (arising as a result of subrogation or otherwise) as a result of Guarantor’s payment or performance of all or a portion of the Guaranteed Debt. Upon the occurrence of an Event of Default (as defined in the Loan Documents), Guarantor shall not receive or collect, directly or indirectly, from Maker or any other party any amount upon the Guarantor Claims.

4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving Guarantor as debtor, Noteholder shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Noteholder. Should Noteholder receive, for application upon the Guaranteed Debt, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Maker and Guarantor, shall constitute a credit upon Guarantor Claims, then upon payment or performance to Noteholder in full of the Guaranteed Debt, Guarantor shall become subrogated to the rights of Noteholder to the extent that such payment or performances to Noteholder on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Debt, and such subrogation shall be with respect to that proportion of the Guaranteed Debt, which would have been unpaid if Noteholder had not received dividends or payments upon the Guarantor Claims.

4.3 Payments Held in Trust. Notwithstanding anything to the contrary in this Guaranty, in the event that Guarantor should receive any funds, payments, claims or distributions which would be prohibited by this Guaranty, Guarantor agrees to hold in trust for Noteholder an amount equal to the amount of all such funds, payments, claims or distributions so received, and agrees that Guarantor shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Noteholder, and Guarantor covenants promptly to pay the same to Noteholder.

4.4 Liens Subordinate. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Maker’s assets securing payment of Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Maker’s assets securing payment or performance of the Guaranteed Debt (the “Collateral”), regardless of whether such encumbrances in favor of Guarantor or Noteholder presently exist or are hereafter created or attach. Without the prior written consent of Noteholder, Guarantor shall not (i) exercise or enforce any creditor’s right it may have against Maker, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on any Collateral.

4.5 Default. The occurrence of any of the following events shall, at the election of Noteholder, be deemed a default by such Guarantor (“Event of Default”) under this Guaranty:

(a) if Guarantor fails to pay any of the Guaranteed Debt when due and payable or properly declared due and payable and Guarantor shall fail to remedy such failure within ten (10) days after written notice of such failure (which cure period may run concurrently with any cure period afforded to Maker);

(b) if Guarantor fails or neglects to perform, keep or observe any term, provision, condition, covenant, warranty or representation contained in this Guaranty, which is required to be performed, kept or observed by Guarantor and Guarantor shall fail to remedy such within thirty (30) days of the date such term, provision, condition, covenant, warranty or representation is required to be performed and Guarantor’s receipt of written notice of such failure (which cure period may run concurrently with any cure period afforded to Maker);

(c) if any of Guarantor’s assets are attached, seized, subjected to a writ of distress warrant, are levied upon, come under a federal tax lien or come within the possession of any receiver, conservator, trustee, custodian or assignee for the benefit of creditors;

(d) if a petition under Title 11, United States Code (the “Bankruptcy Code”) or any similar law or regulation shall be filed by Guarantor (which is not discharged within 120 days of the date of filing), or if Guarantor shall make any assignment for the benefit of its creditors or if any case or proceeding is filed by Guarantor for its dissolution or liquidation;

(e) if a petition under the Bankruptcy Code or any similar law or regulation shall be filed against Guarantor, or if such a case or proceeding is filed against Guarantor and such proceeding shall not be dismissed within one hundred twenty (120) days of its filing, during which time Guarantor shall be diligently contesting such action or proceeding;

(f) if any material statement, report or certificate made or delivered to Noteholder by such Guarantor is not true and correct in any material respect;

(g) the occurrence of a default or Event of Default under any other agreement, instrument and/or document executed and delivered by such Guarantor to Noteholder, which is not cured by Guarantor within any applicable cure period set forth in any such agreement, instrument and/or document;

(h) the occurrence of a default or Event of Default under any the Note, Deed of Trust or any other Loan Document;

(i) if such Guarantor attempts to cancel, revoke or disclaim this Guaranty; or

(j) the failure by such Guarantor to timely provide the financial information required pursuant to Section 3.5 of this Agreement.

4.6 Remedies. Upon the occurrence of an Event of Default, which is not cured within any applicable cure period, without notice thereof to such Guarantor, the Guaranteed Debt shall be due and payable and enforceable against Guarantor, forthwith, at Noteholder’s principal place of business, to the extent the Guaranteed Debt is then due and payable (whether by acceleration or otherwise), and Noteholder may, in its sole and absolute discretion, exercise any one or more of the following remedies which are cumulative and non-exclusive:

(a) proceed to suit against Guarantor if the Guaranteed Debt is not immediately paid by Guarantor to Noteholder at Noteholder’s principal place of business. At Noteholder’s election, one

or more successive or concurrent suits may be brought hereunder by Noteholder against such Guarantor, whether suit has been commenced against Maker, and in any such suit Maker may be joined (but need not be joined) as a party with Guarantor;

(b) reduce to cash or the like any of such Guarantor’s assets of any kind or nature in the possession, control or custody of Noteholder, and, without notice to such Guarantor, apply such proceeds in reduction or payment of such Guaranteed Debt; and/or

Guarantor recognizes that in the event of an Event of Default under this Guaranty, no remedy at law will provide adequate relief to Noteholder, and agrees that Noteholder shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damage.

ARTICLE V
MISCELLANEOUS

5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Noteholder, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies of Noteholder hereunder shall be in addition to all other rights and remedies provided by law or in equity. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take any other action in the same, similar or other instances without such notice or demand. To the maximum extent permitted by law, Guarantor specifically waives any and all rights and remedies to which Guarantor may become entitled under applicable Kansas statutes, and to any and all other defenses available to sureties or guarantors at law or in equity.

5.2 Notices. Any and all notices or other communications required or permitted to be given pursuant hereto shall be in writing and shall be deemed properly given if (i) mailed by first class United States mail, postage prepaid, registered or certified with return receipt requested; (ii) by delivering same in person to the intended addressee; (iii) by delivery to an independent third party commercial delivery service for same day or next day delivery and providing for evidence of receipt at the office of the intended addressee; or (iv) by or by facsimile transmission, with executed copy forwarded by one of the other alternatives for notice as herein provided. Notice so mailed shall be effective three (3) days after deposit with the United States Postal Service or any successor thereto; notice sent by a commercial delivery service shall be effective upon delivery to such commercial delivery service; notice given by personal delivery shall be effective only if and when received by the addressee; and notice given by other means shall be effective only if and when received at the designated address of the intended addressee. Either party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving of thirty (30) days notice to the other party in the manner set forth herein. For purposes of such notices, the addresses of the parties shall be as follows:


Noteholder:		American National Insurance Company One Moody Plaza Galveston, Texas 77550 Attn: Mortgage and Real Estate Investments Department Fax: (281) 538-4824

Guarantor:		Pacific Sunwear of California, Inc. Attn: Craig E. Gosselin SVP and General Counsel 3450 East Miraloma Avenue Anaheim, California 92806 Fax: (714) 414-4251

with a copy to:		Sonnenschein Nath & Rosenthal LLP Attention: John L. Snyder, Esq. 4520 Main Street, Suite 1100 Kansas City, MO 64111 Fax: (816) 531-7545

5.3 GOVERNING LAW. THIS GUARANTY IS EXECUTED AND DELIVERED AS AN INCIDENT TO A LENDING TRANSACTION NEGOTIATED, CONSUMMATED AND PERFORMABLE IN JOHNSON COUNTY, KANSAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF KANSAS. ANY ACTION OR PROCEEDING AGAINST GUARANTOR UNDER OR IN CONNECTION WITH THIS GUARANTY MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN JOHNSON COUNTY, KANSAS. TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. GUARANTOR AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF NOTEHOLDER TO SERVE PROCESS IN ANY OTHER MATTER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF NOTEHOLDER TO BRING ANY ACTION OR PROCEEDING AGAINST GUARANTOR OR WITH RESPECT TO ANY OF GUARANTOR’S PROPERTY IN COURTS IN OTHER JURISDICTIONS. TO THE MAXIMUM EXTENT PERMITTED BY LAW, IN NOTEHOLDER’S SOLE AND ABSOLUTE DISCRETION, ANY ACTION OR PROCEEDING BY GUARANTOR AGAINST NOTEHOLDER SHALL BE BROUGHT ONLY IN A COURT LOCATED IN JOHNSON COUNTY, KANSAS.

5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable, and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining

provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by such provision’s severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

5.5 Amendments. This Guaranty may be amended only by a document in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

5.6 Parties Bound: Assignment. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Noteholder, in Noteholder’s sole and absolute discretion, assign any of its rights, powers, duties or obligations hereunder. Notwithstanding the foregoing, nothing contained herein shall limit in any manner the rights provided to Guarantor pertaining to the sale or transfer of its assets or its merger, consolidation or other acquisition as provided for in Section 2.09 of the Mortgage. Without limiting the generality of the foregoing, all provisions in this Guaranty shall inure to the benefit of any participating lender with Noteholder.

5.7 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

5.8 Recitals. The recitals and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

5.9 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature or acknowledgment of, or on behalf of, each party, or that the signature of all persons required to bind any party, or the acknowledgment of such party, appear on each counterpart. All counterparts shall collectively constitute a single document. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signature of, or on behalf of, and the respective acknowledgments of, each of the parties hereto. Any signature or acknowledgment page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures or acknowledgments thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature or acknowledgment pages.

5.10 Rights and Remedies. If Guarantor becomes liable for any indebtedness owing by Maker to Noteholder, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights and remedies of Noteholder hereunder shall be cumulative of any and all other rights and remedies that Noteholder may ever have against Guarantor. The exercise by Noteholder of any right or remedy hereunder or under any other Loan Document, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

5.11 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTOR AND NOTEHOLDER WITH RESPECT TO GUARANTOR’S GUARANTY OF THE GUARANTEED DEBT AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND NOTEHOLDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND NOTEHOLDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND NOTEHOLDER REGARDING THE SUBJECT MATTER HEREIN.

5.12 WAIVER OF RIGHT TO TRIAL BY JURY. TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM THAT RELATES TO OR ARISES OUT OF ANY OF THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR THE ACTS OR FAILURE TO ACT OF OR BY NOTEHOLDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS.

5.13 Time. Time is of the essence of this Guaranty.

5.14 Number and Gender. All references to the singular shall include the plural and vice versa and all references to any gender shall include the others, wherever appropriate.

5.15 Definition. Any capitalized term used herein, unless otherwise defined, shall have the same meaning as provided in the Mortgage.

[THE REMAINDER OF THIS PAGE INTENTIONALLY RESERVED]

ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (MAKER/BORROWER(S)) AND US (NOTEHOLDER/CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.

THE PARTIES AGREE AND DO HEREBY AFFIRM THAT NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES EXIST.

INITIAL HERE: (NOTEHOLDER) ___(MAKER/BORROWER) ___(GUARANTOR) ___.

EXECUTED as of the day and year first above written.


GUARANTOR: PACIFIC SUNWEAR OF CALIFORNIA, INC., a California corporation
By:	/s/ Craig E. Gosselin
	Name:	Craig E. Gosselin
	Title:	SVP and General Counsel


STATE OF CALIFORNIA	)
	)
COUNTY OF	)

I swear under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature [SEAL]

EXHIBIT “A”

MORTGAGED PROPERTY

LOT 1, PACIFIC SUNWEAR, AMENDED 1ST PLAT A SUBDIVISION IN THE CITY OF OLATHE, JOHNSON COUNTY, KANSAS.

APN: DP557300000001

EX-99.1 7 a57137exv99w1.htm EX-99.1 exv99w1

Exhibit 99.1

CONTACT:
Michael L. Henry
Chief Financial Officer
(714) 414-4003

FOR IMMEDIATE RELEASE

PACIFIC SUNWEAR ANNOUNCES
SECOND QUARTER EARNINGS RESULTS; ISSUES THIRD
QUARTER EARNINGS GUIDANCE

ANAHEIM, CA/August 24, 2010 — Pacific Sunwear of California, Inc. (NASDAQ:PSUN) (the “Company”) today announced that net sales for the second quarter of fiscal 2010 ended July 31, 2010, were $218 million versus net sales of $243 million for the second quarter of fiscal 2009 ended August 1, 2009. Total Company same-store sales decreased 10% during the period.

For the second quarter of fiscal 2010, the Company reported a net loss of $23 million, or $(0.36) per share, compared to a net loss of $14 million, or $(0.22) per share, for the second quarter of fiscal 2009. Results for the second quarter of fiscal 2010 reflect the continuing impact of a valuation allowance against the Company’s deferred tax assets. On a non-GAAP basis, using a normalized 37% income tax rate, the Company’s net loss for the second quarter was $15 million, or $(0.22) per share.

“Our second quarter results were led by our fourth consecutive quarter of improving comp trends in young mens and a return to positive comps for this critical piece of our business,” said Gary H. Schoenfeld, President and Chief Executive Officer. “Our young men’s customers are responding well to the renewed prominence of great brands at PacSun. As we progress through the second half of the year, we look forward to continuing to achieve positive comps in young mens and the beginnings of trend improvements in juniors as well.”

The Company also announced that it has completed two mortgage transactions regarding its primary real estate assets, its corporate offices in Anaheim, California and its distribution center in Olathe, Kansas. The transactions generated total net cash proceeds of approximately $28.3 million for the Company subsequent to the end of the second quarter of fiscal 2010. A description of these transactions is included in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission today.

Commenting on the transactions, Mr. Schoenfeld said, “Shortly after I joined PacSun, we began looking at options for monetizing these real estate assets. Given the current attractiveness of interest rates, the mortgage transactions we completed proved to be the most efficient and economically beneficial way to do so giving us added flexibility as we plan for the long term growth of our business.”

3450 East Miraloma Avenue • Anaheim, CA 92806 • (714) 414-4000

The Company also reported in a separate press release that it has entered into an exclusive agreement with Mossimo Giannulli and Dirty Bird Productions, Inc. to license the Modern Amusement brand for apparel, footwear and accessories.

Financial Outlook

For the 3^rd Quarter

The Company’s guidance range for the third quarter of fiscal 2010 contemplates a GAAP net loss per share of $(0.15) to $(0.25) for the third quarter of fiscal 2010 which will reflect the continuing impact of maintaining a valuation allowance against deferred tax assets and a very low effective tax rate. On a non-GAAP basis, using a normalized income tax rate of approximately 36% to 37%, the Company’s guidance range translates to a net loss of $(0.09) to $(0.16) per share for the third quarter of fiscal 2010. The forecasted third quarter GAAP earnings range is based on the following significant assumptions:

	•		Same-store sales decline of 4% to 9%;

	•		Gross margin rate, including buying, distribution and occupancy costs, of 24% to 26%;

	•		SG&A expenses in the range of $74 million to $76 million;

	•		As the Company no longer records income tax benefits against its operating losses, tax expense is expected to be less than $100,000 due to taxable income projected to be generated in certain state and local tax jurisdictions.

For the Full Year

The Company also updated certain of its targets for the full fiscal year ending January 29, 2011 as follows:

	•		The Company continues to target sequential quarterly improvements in comparable store sales and the prospect of reaching a positive comp in the fourth quarter;

	•		Merchandise margins are forecasted to improve materially over 2009 but may not be sufficient to fully offset deleveraging of occupancy costs;

	•		SG&A is now projected at $305 million to $310 million compared to a previous range of $310 million to $320 million;

	•		Capital expenditures are now projected at the lower end of the Company’s previous guidance range of $20 million to $30 million.

About Pacific Sunwear of California, Inc.

Pacific Sunwear of California, Inc. and its subsidiaries (collectively, the “Company”) is a leading specialty retailer rooted in the action sports, fashion and music influences of the California lifestyle. The Company sells a combination of branded and proprietary casual apparel, accessories and footwear designed to appeal to teens and young adults. As of July 31, 2010, the Company operates 880 stores in 50 states and Puerto Rico. PacSun’s website address is www.pacsun.com.

The Company will be hosting a conference call today at 4:30 pm Eastern time to review the results. A telephonic replay of the conference call will be available, beginning

3450 East Miraloma Avenue • Anaheim, CA 92806 • (714) 414-4000

approximately two hours following the call, for one week and can be accessed in the United States/Canada at (800) 642-1687 or internationally at (706) 645-9291; pass code: 93436717. For those unable to listen to the live Web broadcast or utilize the call-in replay, an archived version will be available on the Company’s investor relations website through midnight, November 15, 2010.

About Non-GAAP Financial Measures

This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles, please see the accompanying table titled “Reconciliation of Selected GAAP Measures to Non-GAAP Measures” and the section following such table titled “About Non-GAAP Financial Measures.”

Pacific Sunwear Safe Harbor

This press release contains “forward-looking statements” including, without limitation, the statements by Mr. Schoenfeld in the third and fifth paragraphs and all statements under the headings “Financial Outlook for the 3rd Quarter” and “Financial Outlook for the Full Year.” In each case, these statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company intends that these forward-looking statements be subject to the safe harbors created thereby. These statements are not historical facts and involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Uncertainties that could adversely affect the Company’s business and results include, among others, the following factors: adverse changes in economic conditions generally; adverse changes in consumer spending; changes in consumer demands and preferences; higher than expected same-store sales declines; higher than anticipated markdowns and/or higher than estimated selling, general and administrative costs; competition from other retailers and uncertainties generally associated with apparel retailing; merchandising/fashion sensitivity; sales from private label merchandise; reliance on key personnel; economic impact of natural disasters, terrorist attacks or war/threat of war; shortages of supplies and/or contractors as a result of natural disasters or terrorist acts, which could cause unexpected delays in store relocations, renovations or expansions; reliance on foreign sources of production; and other risks outlined in the Company’s filings with the Securities and Exchange Commission (“SEC”), including but not limited to the Company’s Annual Report on Form 10-K for the year ended January 30, 2010 and subsequent periodic reports filed with the SEC. Historical results achieved are not necessarily indicative of future prospects of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur after such statements are made. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

3450 East Miraloma Avenue • Anaheim, CA 92806 • (714) 414-4000

PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share data)


	Second Quarter Ended						First Half Ended
	07/31/10			08/01/09			07/31/10			08/01/09
Net sales	$	218,336		$	242,794		$	408,644		$	446,260
Gross margin		50,758			57,708			93,223			118,982
SG&A expenses		73,945			79,343			147,099			156,112

Operating loss		(23,187	)		(21,635	)		(53,876	)		(37,130	)
Other expense/(income), net		76			(66	)		77			163

Loss before income taxes		(23,263	)		(21,569	)		(53,953	)		(37,293	)
Income tax expense/(benefit)		202			(7,414	)		540			(14,395	)

Net loss	$	(23,465	)	$	(14,155	)	$	(54,493	)	$	(22,898	)


Net loss per share:
Basic	$	(0.36	)	$	(0.22	)	$	(0.83	)	$	(0.35	)

Diluted	$	(0.36	)	$	(0.22	)	$	(0.83	)	$	(0.35	)


Weighted average shares outstanding:
Basic		65,950,825			65,370,465			65,894,376			65,241,888

Diluted		65,950,825			65,370,465			65,894,376			65,241,888

PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)


	07/31/10		01/31/10		08/01/09
ASSETS
Current assets:
Cash & cash equivalents	$	25,041	$	93,091	$	26,176
Inventories		174,790		89,665		174,995
Prepaid expenses		13,394		10,801		10,956
Other current assets		3,009		5,365		3,750

Total current assets		216,234		198,922		215,877
Property and equipment, net		224,821		249,000		296,053
Other long-term assets		29,492		29,296		59,584

Total assets	$	470,547	$	477,218	$	571,514


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	88,193	$	38,481	$	82,191
Other current liabilities		46,089		43,742		42,573

Total current liabilities		134,282		82,223		124,764
Deferred lease incentives		34,090		39,207		45,635
Deferred rent		20,635		21,396		22,337
Other long-term liabilities		27,087		27,714		28,498

Total liabilities		216,094		170,540		221,234
Total shareholders’ equity		254,453		306,678		350,280

Total liabilities and shareholders’ equity	$	470,547	$	477,218	$	571,514

3450 East Miraloma Avenue • Anaheim, CA 92806 • (714) 414-4000

PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED CASH FLOWS
(unaudited, in thousands)


	First Half Ended
	07/31/10			08/01/09
Cash flows from operating activities:
Net loss	$	(54,493	)	$	(22,898	)
Depreciation and amortization		28,105			34,529
Asset impairment		6,307			7,526
Non-cash stock based compensation		2,112			2,426
Tax deficiencies related to exercise of stock options		—			(1,599	)
Loss on disposal of property and equipment		632			30
Changes in operating assets and liabilities:
Inventories		(85,125	)		(67,790	)
Accounts payable and other current liabilities		52,068			32,867
Other assets and liabilities		(6,882	)		27,991

Net cash (used in)/provided by operating activities		(57,276	)		13,082

Cash flows from investing activities:
Capital expenditures		(10,917	)		(15,784	)
Proceeds from sale of property and equipment		—			28
Proceeds from sale of land		—			3,705

Net cash used in investing activities		(10,917	)		(12,051	)

Cash flows from financing activities:
Proceeds from exercise of stock options		303			373
Repayments under capital leases		(160	)		(4	)

Net cash provided by financing activities		143			369


Net (decrease)/increase in cash and cash equivalents		(68,050	)		1,400
Cash and cash equivalents, beginning of period		93,091			24,776

Cash and cash equivalents, end of period	$	25,041		$	26,176

PACIFIC SUNWEAR OF CALIFORNIA, INC.
SELECTED STORE OPERATING DATA


	07/31/10			08/01/09
Stores open at beginning of fiscal year		894			932
Stores opened during the period		2			—
Stores closed during the period		(16	)		(16	)

Stores open at end of period		880			916

07/31/10

08/01/09

Square

# of

Footage

# of

Footage

Stores

(000s)

Stores

(000s)

PacSun stores

755

2,906

790

3,028

PacSun Outlet stores

125

505

126

508

Total stores

880

3,411

916

3,536

3450 East Miraloma Avenue • Anaheim, CA 92806 • (714) 414-4000

PACIFIC SUNWEAR OF CALIFORNIA, INC.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(unaudited, in thousands except share and per share data)


	Second Quarter Ended						First Half Ended
	07/31/10			08/01/09			07/31/10			08/01/09
GAAP net loss	$	(23,465	)	$	(14,155	)	$	(54,493	)	$	(22,898	)
Valuation allowance		8,778			—			20,287			—

Non-GAAP net loss	$	(14,687	)	$	(14,155	)	$	(34,206	)	$	(22,898	)


GAAP net loss per share	$	(0.36	)	$	(0.22	)	$	(0.83	)	$	(0.35	)
Valuation allowance per share		0.13			—			0.31			—

Non-GAAP net loss per share	$	(0.22	)	$	(0.22	)	$	(0.52	)	$	(0.35	)


Shares used in calculation		65,950,825			65,370,465			65,894,376			65,241,888

Forward-Looking Earnings GAAP to Non-GAAP Reconciliation:


	Guidance for the
	third quarter of
	fiscal 2010
GAAP net loss per share guidance	$	(0.15) - $(0.25	)

Income tax benefit, excluding valuation allowance¹	$	0.06 - $0.09

Non-GAAP net loss per share guidance	$	(0.09) - $(0.16	)


¹		The Company assumed a normalized effective income tax rate of approximately 36% to 37% against pre-tax operating losses which represents the expected effective tax rate for fiscal 2010 exclusive of any impact from valuation allowances.

ABOUT NON-GAAP FINANCIAL MEASURES

The accompanying press release dated August 24, 2010 contains non-GAAP financial measures. These non-GAAP financial measures include non-GAAP net loss and non-GAAP net loss per share for the second quarter and first half of fiscal 2010 and non-GAAP net loss per share guidance for the third quarter of fiscal 2010. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same names and may differ from non-GAAP financial measures with the same or similar names that are used by other companies. The Company computes non-GAAP financial measures using the same consistent method from quarter to quarter and year to year. The Company may consider whether other significant items that arise in the future should be excluded from the non-GAAP financial measures. The Company has excluded the following item from all of its non-GAAP financial measures:

•

Deferred tax asset valuation allowance charges

The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company’s operating results primarily because they exclude amounts that are not considered part of ongoing operating results when planning and forecasting and when assessing the performance of the organization, individual operating segments or its senior management. In addition, the Company believes that non-GAAP financial information is used by analysts and others in the investment community to analyze the Company’s historical results and in providing estimates of future performance and that failure to report these non-GAAP measures could result in confusion among analysts and others and a misplaced perception that the Company’s results have underperformed or exceeded expectations.

3450 East Miraloma Avenue • Anaheim, CA 92806 • (714) 414-4000

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