e8vk

-----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, EoWOPfDMaG6HCjIatF7trq5Awt8IGahmrmSYX803ofmEmJeQxSlK6qRKFc9B9Sad zngUiatRs+gPQEMv/rwAUQ== 0000950137-07-010339.txt : 20070723 0000950137-07-010339.hdr.sgml : 20070723 20070723142117 ACCESSION NUMBER: 0000950137-07-010339 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070717 ITEM INFORMATION: Entry into a Material Definitive Agreement 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: 20070723 DATE AS OF CHANGE: 20070723 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: 0129 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21296 FILM NUMBER: 07993443 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 a32099e8vk.htm FORM 8-K e8vk

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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):
July 17, 2007

Pacific Sunwear of California, Inc.

(Exact name of registrant as specified in its charter)


California	0-21296	95-3759463

(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)


3450 East Miraloma Avenue, Anaheim, CA		92806-2101

(Address of principal executive offices)		(Zip Code)

(714) 414-4000

(Registrant’s telephone number, including area code)

not applicable

(Former name or former address, if changed since last report)

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))

TABLE OF CONTENTS


Item 1.01 Entry into a Material Definitive Agreement
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
Item 9.01 Financial Statements and Exhibits
SIGNATURES
EXHIBIT INDEX
EXHIBIT 10.1
EXHIBIT 10.2

Item 1.01 Entry into a Material Definitive Agreement.

On July 17, 2007, Pacific Sunwear Stores Corp., a wholly-owned subsidiary of Pacific Sunwear of California, Inc. (the “Company”), completed an industrial revenue bond financing with the city of Olathe, Kansas (the “City”), that will provide property tax savings for 10 years on the Company’s new distribution center located there. In the transaction, the City purchased the land and building by issuing approximately $23.3 million in industrial revenue bonds due January 1, 2018 (“Bonds”) and leased the land and building to the Company for an identical term under a capital lease. The Bonds were purchased by the Company. Because the City has assigned the lease to the bond trustee for the Company’s benefit as the sole holder of the Bonds, the Company, in effect, controls enforcement of the lease against itself. The Company can also call the Bonds at any time it chooses, but would lose its property tax benefit in the event this transaction were to be canceled. As a result of the capital lease treatment, the land and building will remain a component of the property, plant and equipment in the Company’s consolidated balance sheet. The investment in the Bonds and the equivalent capital lease liability will also be included in the Company’s consolidated balance sheet. The total amount of Bonds authorized for issuance is $24.5 million.

The Company, as holder of the Bonds, is due interest at 7% per annum with interest payable semi-annually in arrears on January 1 and July 1. This interest income is directly offset by the lease payments on the distribution center, which are due at the same time and in the same amount as the interest income. Both the Bonds and the corresponding capital lease have 10-year terms.

Copies of the trust indenture and the lease agreement entered into in connection with this transaction are filed with this Current Report on Form 8-K as Exhibits 10.1 and 10.2, respectively, and are incorporated herein by reference.

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

The information set forth above in Item 1.01 is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.


Exhibit
Number		Description
10.1		Trust Indenture dated as of July 17, 2007 between the City of Olathe, Kansas and U.S. Bank National Association
10.2		Lease Agreement dated as of July 17, 2007 between the City of Olathe, Kansas and Pacific Sunwear Stores Corp.

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.


	PACIFIC SUNWEAR OF CALIFORNIA, INC.
Date: July 23, 2007	By:	/s/ GERALD M. CHANEY
		Gerald M. Chaney
		Senior Vice President, Chief Financial Officer and Secretary

EXHIBIT INDEX


Exhibit		Description
10.1		Trust Indenture dated as of July 17, 2007 between the City of Olathe, Kansas and U.S. Bank National Association
10.2		Lease Agreement dated as of July 17, 2007 between the City of Olathe, Kansas and Pacific Sunwear Stores Corp.

EX-10.1 2 a32099exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 EXECUTION COPY ================================================================================ CITY OF OLATHE, KANSAS AND U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE ---------------- TRUST INDENTURE DATED AS OF JULY 1, 2007 ---------------- RELATING TO: $24,500,000 (AGGREGATE MAXIMUM PRINCIPAL AMOUNT) CITY OF OLATHE, KANSAS INDUSTRIAL REVENUE BONDS (PACSUN PROJECT) SERIES 2007 ================================================================================ TRUST INDENTURE TABLE OF CONTENTS

(i) ARTICLE V CUSTODY AND APPLICATION OF BOND PROCEEDS Section 501. Creation of Construction Fund..................................................................22 Section 502. Deposits into the Construction Fund............................................................22 Section 503. Disbursements from the Construction Fund.......................................................22 Section 504. Completion of the Project......................................................................22 Section 505. Disposition Upon Acceleration..................................................................23 ARTICLE VI REVENUES AND FUNDS Section 601. Creation of the Bond Fund......................................................................23 Section 602. Deposits Into the Bond Fund....................................................................23 Section 603. Application of Moneys in the Bond Fund.........................................................23 Section 604. Payments Due on Saturdays, Sundays and Holidays................................................24 Section 605. Nonpresentment of Bonds........................................................................24 Section 606. Repayment to the Corporation from the Bond Fund................................................24 ARTICLE VII SECURITY FOR DEPOSITS AND INVESTMENT OF FUNDS Section 701. Moneys to be Held in Trust.....................................................................24 Section 702. Investment of Moneys in Construction Fund and Bond Fund........................................25 Section 703. Record Keeping.................................................................................25 ARTICLE VIII GENERAL COVENANTS AND PROVISIONS Section 801. Payment of Principal and Interest..............................................................25 Section 802. Authority to Execute Indenture and Issue Bonds.................................................26 Section 803. Performance of Covenants.......................................................................26 Section 804. Instruments of Further Assurance...............................................................26 Section 805. Payment of Taxes and Charges...................................................................26 Section 806. Insurance......................................................................................26 Section 807. Maintenance and Repair.........................................................................26 Section 808. Recordings and Filings.........................................................................26 Section 809. Inspection of Project Books....................................................................27 Section 810. Enforcement of Rights Under the Lease..........................................................27 Section 811. Subordination of Indenture to the Lease........................................................27

(ii) ARTICLE IX DEFAULT AND REMEDIES Section 901. Events of Default; Notice; Opportunity to Cure.................................................27 Section 902. Acceleration of Maturity in Event of Default...................................................27 Section 903. Surrender of Possession of Trust Estate; Rights and Duties of Trustee in Possession............28 Section 904. Appointment of Receivers in Event of Default...................................................28 Section 905. Exercise of Remedies by the Trustee............................................................28 Section 906. Limitation on Exercise of Remedies by Bondowners...............................................29 Section 907. Right of Bondowners to Direct Proceedings......................................................29 Section 908. Application of Moneys in Event of Default......................................................29 Section 909. Remedies Cumulative............................................................................30 Section 910. Waivers of Events of Default...................................................................30 ARTICLE X THE TRUSTEE Section 1001. Acceptance of the Trusts.......................................................................31 Section 1002. Fees, Charges and Expenses of the Trustee......................................................33 Section 1003. Notice to Bondowners if Default Occurs.........................................................33 Section 1004. Intervention by the Trustee....................................................................33 Section 1005. Successor Trustee Upon Merger, Consolidation or Sale...........................................33 Section 1006. Resignation of Trustee.........................................................................34 Section 1007. Removal of Trustee.............................................................................34 Section 1008. Appointment of Successor Trustee...............................................................34 Section 1009. Vesting of Trusts in Successor Trustee.........................................................34 Section 1010. Right of Trustee to Pay Taxes and Other Charges................................................34 Section 1011. Trust Estate May be Vested in Co-trustee.......................................................35 Section 1012. Annual Accounting..............................................................................35 Section 1013. Performance of Duties Under the Lease..........................................................35 ARTICLE XI SUPPLEMENTAL INDENTURES Section 1101. Supplemental Indentures Not Requiring Consent of Bondowners....................................36 Section 1102. Supplemental Indentures Requiring Consent of Bondowners........................................36 Section 1103. Corporation's Consent to Supplemental Indentures...............................................37 ARTICLE XII SUPPLEMENTAL LEASES Section 1201. Supplemental Leases Not Requiring Consent of Bondowners........................................37 Section 1202. Supplemental Leases Requiring Consent of Bondowners............................................37
(iii) ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE Section 1301. Satisfaction and Discharge of this Indenture...................................................37 Section 1302. Bonds Deemed to be Paid........................................................................38 ARTICLE XIV MISCELLANEOUS PROVISIONS Section 1401. Consents and Other Instruments by Bondowners...................................................39 Section 1402. Limitation of Rights Under this Indenture......................................................39 Section 1403. Notices........................................................................................39 Section 1404. Severability...................................................................................40 Section 1405. Execution in Counterparts......................................................................40 Section 1406. Governing Law..................................................................................40 Section 1407. Electronic Storage.............................................................................40 Signatures and Seals Acknowledgments
(iv) TRUST INDENTURE THIS TRUST INDENTURE dated as of July 1, 2007 (the "Indenture"), between the CITY OF OLATHE, KANSAS, a municipal corporation organized and existing under the laws of the State of Kansas (the "City"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association duly organized and existing and authorized to accept and execute trusts of the character herein set forth under the laws of the United States of America, with its designated corporate trust office located in Los Angeles, California, as Trustee (the "Trustee"); WITNESSETH: WHEREAS, the City is authorized under the provisions of K.S.A. 12-1740 to 12-1749d, inclusive, as amended (the "Act"), to purchase, acquire, construct, improve, equip and remodel certain facilities within its jurisdiction for commercial purposes, and to enter into leases and lease-purchase agreements with any person, firm or corporation for said facilities, and to issue revenue bonds for the purpose of paying the cost of any such facilities, and to pledge the income and revenues to be derived from the operation of such facilities to secure the payment of the principal of and interest on such bonds; WHEREAS, pursuant to the Act, the governing body of the City adopted Resolution No. 06-1085 on June 6, 2006, expressing the intent of the City to issue its industrial revenue bonds in one or more series in an aggregate amount not to exceed $135,000,000 for one or more projects for Waterford Glen, LLC, a Kansas limited liability company, the first series to be issued in a series of Industrial Revenue Bonds (PacSun Project), Series 2007 (the "Bonds"), in the aggregate maximum principal amount of $24,500,000, for the purpose of acquiring, purchasing, constructing, installing a commercial project, consisting of a distribution facility, including land, buildings, structures, improvements and fixtures (the "Project"), and authorizing the City to lease the Project to Pacific Sunwear Stores Corp., a California corporation (the "Corporation"); WHEREAS, pursuant to such Resolution and Ordinance No. 07-34 adopted by the City on May 1, 2007, the City is authorized to execute and deliver this Indenture for the purpose of issuing and securing the Bonds and to enter into the Lease Agreement of even date herewith (the "Lease"), with the Corporation under which the City, as lessor, will acquire, purchase, construct and remodel the Project and will lease the Project to the Corporation, as lessee, in consideration of rentals which will be sufficient to pay the principal of and interest on the Bonds; and WHEREAS, all things necessary to make the Bonds, when authenticated by the Trustee and issued as in this Indenture provided, the valid and legally binding obligations of the City, and to constitute this Indenture a valid and legally binding pledge and assignment of the Trust Estate herein made for the security of the payment of the principal of and interest on the Bonds, have been done and performed, and the execution and delivery of this Indenture and the execution and issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized; NOW, THEREFORE, THIS TRUST INDENTURE WITNESSETH: GRANTING CLAUSES That the City, in consideration of the premises, the acceptance by the Trustee of the trusts hereby created, the purchase and acceptance of the Bonds by the Owners thereof, and of other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to secure the payment of the principal of and interest on all of the Bonds issued and outstanding under this Indenture from time to time according to their tenor and effect, and to secure the performance and observance by the City of all the covenants, agreements and conditions herein and in the Bonds contained, does hereby pledge and assign to the Trustee and its successors and assigns forever (subject to the qualifications set forth herein), the property described in paragraphs (a), (b) and (c) below (said property being herein referred to as the "Trust Estate"), to-wit: (a) All right, title and interest in and to the Project together with the tenements, hereditaments, appurtenances, rights, privileges and immunities thereunto belonging or appertaining; (b) All right, title and interest of the City in, to and under the Lease, and all rents, revenues and receipts derived by the City from the Project including, without limitation, all rentals and other amounts to be received by the City and paid by the Corporation under and pursuant to and subject to the provisions of the Lease; and (c) All moneys and securities from time to time held by the Trustee under the terms of this Indenture, and any and all other real or personal property of every kind and nature from time to time hereafter, by delivery or by writing of any kind, pledged, assigned or transferred as and for additional security hereunder by the City or by anyone in its behalf, or with its written consent, to the Trustee, which is hereby authorized to receive any and all such property at any and all times and to hold and apply the same subject to the terms hereof. TO HAVE AND TO HOLD, all and singular, the Trust Estate with all rights and privileges hereby pledged and assigned or agreed or intended so to be, to the Trustee and its successors and assigns forever; IN TRUST NEVERTHELESS, upon the terms and subject to the conditions herein set forth, for the equal and proportionate benefit, protection and security of all Owners from time to time of the Bonds outstanding under this Indenture, without preference, priority or distinction as to lien or otherwise of any of the Bonds over any other of the Bonds except as expressly provided in or permitted by this Indenture; PROVIDED, HOWEVER, that if the City shall well and truly pay, or cause to be paid, the principal of and interest on the Bonds, at the time and in the manner mentioned in the Bonds, according to the true intent and meaning thereof, or shall provide for the payment thereof (as provided in ARTICLE XIII hereof), and shall pay or cause to be paid to the Trustee all other sums of money due or to become due to it in accordance with the terms and provisions hereof, then upon such final payments this Indenture and the rights thereby granted shall cease, determine and be void; otherwise, this Indenture shall be and remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH, and it is hereby expressly declared, covenanted and agreed by and between the parties hereto, that all Bonds issued and secured hereunder are to be issued, authenticated and delivered and that all the Trust Estate is to be held and applied under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the City does hereby agree and covenant with the Trustee and with the respective Owners from time to time of the Bonds or coupons, as follows: -2- ARTICLE I DEFINITIONS SECTION 101. DEFINITIONS OF WORDS AND TERMS. In addition to words and terms defined in SECTION 1.1 of the Lease, which definitions shall be deemed to be incorporated herein, and terms defined elsewhere in this Indenture, the following words and terms as used in this Indenture shall have the following meanings, unless some other meaning is plainly intended: "ACT" means K.S.A. 12-1740 to 12-1749d, inclusive, as amended. "ADDITIONAL BONDS" means any Bonds issued pursuant to SECTION 209 of this Indenture. "AUTHORIZED CITY REPRESENTATIVE" means the City Manager, Director of Strategic Financial Management, City Clerk or such other person at the time designated to act on behalf of the City as evidenced by a written certificate furnished to the Corporation and the Trustee containing the specimen signature of such person and signed on behalf of the City by its Mayor. Such certificate may designate an alternate or alternates each of whom shall be entitled to perform all duties of the Authorized City Representative. "AUTHORIZED CORPORATION REPRESENTATIVE" means the person at the time designated to act on behalf of the Corporation as evidenced by written certificate furnished to the City and the Trustee containing the specimen signature of such person and signed on behalf of the Corporation by authorized officers. Such certificate may designate an alternate or alternates each of whom shall be entitled to perform all duties of the Authorized Corporation Representative. "BOND" or "BONDS" means the Industrial Revenue Bonds (PacSun Project), Series 2007, in the aggregate maximum principal amount of $24,500,000, issued pursuant to SECTION 208 of this Indenture and any Additional Bonds authenticated and delivered under and pursuant to this Indenture. "BOND FUND" means "The City of Olathe, Kansas, Industrial Revenue Bond Fund - PacSun Project, Series 2007" created in SECTION 601 of this Indenture. "BONDOWNER" means the registered owner of any Bond. "BOND PURCHASE AGREEMENT" means the agreement by that name with respect to the Bonds by and among the City, the Corporation and the purchaser identified therein. "BUSINESS DAY" shall mean a day which is not (a) a Saturday, Sunday or any other day on which banking institutions in New York, New York, or the city or cities in which the corporate trust office of the Trustee is located are required or authorized to close, or (b) a day on which the New York Stock Exchange is closed. "CITY" means the City of Olathe, Kansas, a municipal corporation organized and existing under the laws of the State of Kansas, and its successors and assigns. "CORPORATION" means Pacific Sunwear Stores Corp., a California corporation, and its successors or assigns. -3- "COMPLETION DATE" means the date of execution of the certificate required pursuant to SECTION 504 hereof. "CONSTRUCTION FUND" means "The City of Olathe, Kansas, Construction Fund - PacSun Project, Series 2007" created in SECTION 501 of this Indenture. "CUMULATIVE OUTSTANDING PRINCIPAL AMOUNT" means an amount equal to the aggregate of all amounts paid into the Construction Fund in accordance with the provisions of this Indenture, the Bond Purchase Agreement and the Lease, as reflected in the bond registration records maintained by the Trustee or in the Table of Cumulative Outstanding Principal Amount set forth in the form of Bond in SECTION 402 hereof. "EVENT OF DEFAULT" means any Event of Default as defined in SECTION 901 hereof. "GOVERNMENT SECURITIES" means direct obligations of, or obligations the payment of principal of and interest on which are unconditionally guaranteed by, the United States of America. "INDENTURE" means this Trust Indenture, as from time to time amended and supplemented by Supplemental Indentures in accordance with the provisions of ARTICLE XI hereof. "INVESTMENT SECURITIES" means any of the following securities: (a) any bonds or other obligations which as to principal and interest constitute direct obligations of, or are unconditionally guaranteed by, the United States of America, including obligations of any of the federal agencies set forth in clause (b) below to the extent they are unconditionally guaranteed by the United States of America; (b) obligations of the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Financing Bank, the Federal Intermediate Credit Corporation, Federal Banks for Cooperatives, Federal Land Banks, Federal Home Loan Banks, Farmers Home Administration and Federal Home Loan Mortgage Association; (c) direct and general obligations of any state of the United States of America, to the payment of the principal of and interest on which the full faith and credit of such state is pledged, provided that at the time of their purchase under this Indenture such obligations are rated in either of the two highest rating categories by a nationally-recognized bond rating agency; (d) certificates of deposit, whether negotiable or nonnegotiable, issued by any financial institution organized under the laws of any state of the United States of America or under the laws of the United States of America (including the Trustee), provided that such certificates of deposit shall be either (1) continuously and fully insured by the Federal Deposit Insurance Corporation, or (2) continuously and fully secured by such securities as are described above in clauses (a) through (c), inclusive, which shall have a market value (exclusive of accrued interest) at all times at least equal to the principal amount of such certificates of deposit and shall be lodged with the Trustee or a custodian bank, trust company or national banking association. The bank, trust company or national banking association holding each such certificate of deposit required to be so secured shall furnish the Trustee written evidence satisfactory to it that the aggregate market value of all such obligations securing each such certificate of deposit will at all times be an amount at least equal to the principal -4- amount of each such certificate of deposit and the Trustee shall be entitled to rely on each such undertaking; (e) Shares of a fund registered under the Investment Company Act of 1940, as amended, whose shares are registered under the Securities Act of 1933, as amended, having assets of at least $100,000,000, whose only assets are obligations described in (a) above, and which shares, at the time of purchase, are rated by Standard & Poor's and Moody's in one of the two highest rating categories (without regard to any refinements or gradation of rating category by numerical modifier or otherwise) assigned by such rating agencies for obligations of that nature; and (f) Any other investment approved in writing by the Owner of the Bonds. "LEASE" means the Lease Agreement dated as of July 1, 2007, between the City, as Lessor, and the Corporation, as Lessee, as from time to time amended and supplemented by Supplemental Leases in accordance with the provisions thereof and of ARTICLE XII of this Indenture. "OUTSTANDING," when used with reference to Bonds, means, as of a particular date, all Bonds theretofore authenticated and delivered, except: (a) Bonds theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Bonds deemed to be paid in accordance with the provisions of SECTION 1302 hereof; and (c) Bonds in exchange for or in lieu of which other Bonds have been authenticated and delivered pursuant to this Indenture. "OWNER" shall have the same meaning as Bondowner. "PAYING AGENT" means the Trustee and any other bank or trust company designated by this Indenture upon written notice to the Corporation as paying agent for the Bonds at which the principal of or interest on the Bonds shall be payable. "PROJECT" means the project referred to in the recitals of this Indenture, including the Project Site and the Project Improvements and all additions, modifications, improvements, replacements and substitutions made to the Project pursuant to the Lease as they may at any time exist, exclusive of Excluded Property. "PROJECT COSTS" means all costs of acquisition, purchase, construction, improvement, financing and remodeling of the Project, including, without limitation, the following: (a) all costs and expenses necessary or incident to the acquisition of the Project Site and any Project Improvements located thereon at the execution of the Lease and which the Corporation conveys to the City; (b) fees and expenses of architects, appraisers, surveyors and engineers for estimates, surveys, soil borings and soil tests and other preliminary investigations and items necessary to the commencement of acquisition, purchase, construction, improvement and remodeling, preparation of -5- plans, drawings and specifications and supervision of construction and renovation, as well as for the performance of all other duties of architects, appraisers, surveyors and engineers in relation to the acquisition, purchase, construction, improvement and remodeling of the Project or the issuance of the Bonds; (c) all costs and expenses of every nature incurred in acquisition, purchase, construction, improvement and remodeling the Project Improvements and otherwise improving the Project Site, including the actual cost of labor, materials and furnishings as payable to contractors, builders and materialmen in connection with the acquisition, purchase, construction, improvement and remodeling of the Project; (d) interest accruing on the Bonds during the period of the acquisition, purchase, construction, improvement and remodeling of the Project; (e) the cost of the title insurance policies and the cost of any insurance maintained during the construction period in accordance with ARTICLE VII of the Lease, respectively; (f) reasonable expenses of administration, supervision and inspection properly chargeable to the Project, underwriting expenses, legal fees and expenses, fees and expenses of accountants and other consultants, publication and printing expenses, and initial fees and expenses of the Trustee to the extent that said fees and expenses are necessary or incident to the issuance and sale of the Bonds or the acquisition, purchase, construction, improvement and remodeling of the Project; (g) all other items of expense not elsewhere specified in this definition as may be necessary or incident to: (1) the authorization, issuance and sale of the Bonds; (2) the acquisition, purchase, construction, improvement and remodeling of the Project; and (3) the financing thereof; and (h) reimbursement to the Corporation or those acting for it for any of the above enumerated costs and expenses incurred and paid by them before or after the execution of the Lease; provided, however, the Project Costs shall not include any of the foregoing items if such item was paid or incurred prior to June 6, 2006, with the following two exceptions (i) costs and expenses relating to architectural and engineering services for the Project constitute Project Costs within the meaning of this definition regardless of the date such costs were paid to the extent such costs are properly capitalizable in accordance with generally accepted accounting principles, and (ii) costs and expenses necessary or incidental to the acquisition by the City of the Project Site constitute Project Costs within the meaning of this definition regardless of the date such costs were paid. "REFUNDING BONDS" shall have the meaning set forth in SECTION 209 hereof. "SUPPLEMENTAL INDENTURE" means any indenture supplemental or amendatory to this Indenture entered into by the City and the Trustee pursuant to ARTICLE XI hereof. "SUPPLEMENTAL LEASE" means any supplement or amendment to the Lease entered into pursuant to ARTICLE XII hereof. -6- "TAX ABATEMENT AGREEMENT" means the Performance Agreement dated as of July 1, 2007, by and between the City and the Corporation. "TRUST ESTATE" means the Trust Estate described in the Granting Clauses of this Indenture. "TRUSTEE" means U.S. Bank National Association in the City of Los Angeles, California, a national banking association duly organized and existing under the laws of the United States of America, and its successor or successors and any other corporation which at the time may be substituted in its place pursuant to and at the time serving as Trustee under this Indenture. SECTION 102. RULES OF INTERPRETATION. (a) Unless the context shall otherwise indicate, the words importing the singular number shall include the plural and vice versa, and words importing persons shall include firms, associations and corporations, including public bodies, as well as natural persons. (b) Wherever in this Indenture it is provided that either party shall or will make any payment or perform or refrain from performing any act or obligation, each such provision shall, even though not so expressed, be construed as an express covenant to make such payment or to perform, or not to perform, as the case may be, such act or obligation. (c) All references in this instrument to designated "Articles," "Sections" and other subdivisions are, unless otherwise specified, to the designated Articles, Sections and subdivisions of this instrument as originally executed. The words "herein," "hereof," "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision. (d) The Table of Contents and the Article and Section headings of this Indenture shall not be treated as a part of this Indenture or as affecting the true meaning of the provisions hereof. ARTICLE II THE BONDS SECTION 201. TITLE AND AMOUNT OF BONDS. No Bonds may be issued under this Indenture except in accordance with the provisions of this Article. The Bonds authorized to be issued under this Indenture shall be designated as "City of Olathe, Kansas Industrial Revenue Bonds (PacSun Project), Series 2007." The maximum total principal amount of Bonds that may be issued hereunder is hereby expressly limited to $24,500,000, plus the principal amount of any Additional Bonds. SECTION 202. NATURE OF OBLIGATION. The Bonds and the interest thereon shall be special obligations of the City payable solely out of the rents, revenues and receipts derived by the City from the Project and not from any other fund or source of the City, and are secured by a pledge and assignment of the Trust Estate to the Trustee in favor of the Owners of the Bonds, as provided in this Indenture. The Bonds and the interest thereon shall not constitute general obligations of the City or the State of Kansas, and neither the City nor said State shall be liable thereon, and the Bonds shall not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction, and are not payable in any manner by taxation. -7- SECTION 203. DENOMINATION, NUMBER AND DATING OF BONDS. (a) The Bonds shall be initially issuable in the form of one fully registered Bond without coupons in the maximum principal denomination of up to $24,500,000. The Bond shall be substantially in the form hereinafter set forth in ARTICLE IV of this Indenture. (b) The Bond shall be dated by the Trustee as of the date of initial delivery thereof as provided herein. If the Bond is at any time thereafter transferred, any Bond replacing such Bond shall be dated as of the date of authentication thereof. SECTION 204. METHOD AND PLACE OF PAYMENT OF BONDS. (a) The principal of and interest on the Bonds shall be payable in any coin or currency of the United States of America which on the respective dates of payment thereof is legal tender for payment of public and private debts. (b) Payment of the principal of the Bonds shall be made upon the presentation and surrender of such Bond at the corporate trust office of any Paying Agent named in the Bond; PROVIDED, that so long as the Corporation is the sole Bondowner, the Trustee shall make payments of principal on the Bonds by internal bank transfer or by wire transfer to an account at a commercial bank or savings institution designated by such Bondowner and located in the continental United States; PROVIDED, FURTHER, that upon any payment by internal bank transfer or by wire transfer of principal on the Bonds, the Trustee shall record the amount of such principal payment on the registration books for the Bonds maintained by the Trustee on behalf of the City. If the Bonds are presented to the Trustee together with such payment, the Trustee may enter the amount of such principal payment on the Table of Cumulative Outstanding Principal Amount on the Bonds in the manner provided by SECTION 402 hereof. Notwithstanding the foregoing, the registration books maintained by the Trustee shall be the official record of the Cumulative Outstanding Principal Amount on the Bonds at any time, and the Bondowner is not required to present the Bonds for action by the Trustee, as bond registrar, with each payment of principal on the Bonds. Payment of the interest on the Bonds shall be made by the Trustee on each interest payment date to the person appearing on the registration books of the City hereinafter provided for as the registered owner thereof on the fifteenth day (whether or not a Business Day) of the calendar month next preceding such interest payment date by check or draft mailed to such registered owner at such owner's address as it appears on such registration books. In the event that the Corporation is the sole Bondowner, the Trustee is authorized to make interest payments on the Bonds by internal bank transfer or by wire transfer to an account at a commercial bank or savings institution designated by such Bondowner and located in the continental United States. In addition, at the written request of any registered owner of Bonds in the aggregate principal amount of at least $1,000,000, the principal and interest on the Bonds shall be paid by electronic transfer to such owner upon written notice to the Trustee from such owner containing the electronic transfer instructions (which shall be in the continental United States) to which such owner wishes to have such transfer directed and such written notice is given by such owner to the Trustee not later than the fifteenth day (whether or not a Business Day) of the calendar month next preceding such interest payment date. Any such written notice for electronic transfer shall be signed by such owner and shall include the name of the bank, its address, its ABA routing number and the name, number and contact name related to such owner's account at such bank to which the payment is to be credited. -8- SECTION 205. EXECUTION AND AUTHENTICATION OF BONDS. (a) The Bonds shall be executed on behalf of the City by the manual or facsimile signature of its Mayor and attested by the manual or facsimile signature of its City Clerk, and shall have the corporate seal of the City affixed thereto or imprinted thereon. In case any officer whose signature or facsimile thereof appears on the Bonds shall cease to be such officer before the delivery of the Bonds, such signature or facsimile thereof shall nevertheless be valid and sufficient for all purposes, the same as if such person had remained in office until delivery. Any Bond may be signed by such persons as at the actual time of the execution of such Bond shall be the proper officers to sign such Bond although at the date of such Bond such persons may not have been such officers. (b) The Bonds shall have endorsed thereon a Certificate of Authentication substantially in the form set forth in SECTION 403 hereof, which shall be manually executed by the Trustee. No Bonds shall be entitled to any security or benefit under this Indenture or shall be valid or obligatory for any purposes unless and until such Certificate of Authentication shall have been duly executed by the Trustee. Such executed Certificate of Authentication upon any Bond shall be conclusive evidence that such Bond has been duly authenticated and delivered under this Indenture. The Certificate of Authentication on any Bond shall be deemed to have been duly executed if signed by any authorized officer or employee of the Trustee. SECTION 206. REGISTRATION, TRANSFER AND EXCHANGE OF BONDS. (a) The Trustee shall keep books for the registration and for the transfer of Bonds as provided in this Indenture. (b) The Bonds may be transferred only upon the books kept for the registration and transfer of Bonds upon surrender thereof to the Trustee duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or such owner's attorney or legal representative, in such form as shall be satisfactory to the Trustee. The Bonds have not been registered under the Securities Act of 1933, as amended, or any state securities law, and the Bonds may not be transferred unless (i) the City consents in writing to such transfer, and (ii) and the City and the Trustee are furnished a written legal opinion from counsel acceptable to the City and the Corporation, to the effect that such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities law. The Bonds may be transferred to any successor to the Corporation or any entity owned or under common ownership with the Corporation, as Lessee under the Lease without the necessity of obtaining the City's consent or such an opinion. In connection with any such transfer of the Bonds the Trustee shall receive an executed representation letter signed by the proposed assignee containing substantially the same representations contained in the representation letter delivered to the Trustee from the Owner upon the initial issuance of the Bonds. Upon any such transfer, the City shall execute and the Trustee shall authenticate and deliver in exchange for such Bonds a new fully registered Bond or Bonds, registered in the name of the transferee, of any denomination or denominations authorized by this Indenture, in an aggregate principal amount equal to the outstanding principal amount of such Bonds, of the same maturity and bearing interest at the same rate. (c) In all cases in which Bonds shall be exchanged or transferred hereunder the provisions of any legend restrictions on the Bonds shall be complied with and the City shall execute and the Trustee shall authenticate and deliver at the earliest practicable time Bonds in accordance with the provisions of this Indenture. All Bonds surrendered in any such exchange or transfer shall forthwith be cancelled by the Trustee. The City or the Trustee may make a reasonable charge for every such exchange or transfer of Bonds sufficient to reimburse it for any tax, fee or other governmental charge required to be paid with -9- respect to such exchange or transfer, and such charge shall be paid before any such new Bond shall be delivered. Neither the City nor the Trustee shall be required to make any such exchange or transfer of Bonds during the 15 days immediately preceding an interest payment date on the Bonds or, in the case of any proposed redemption of Bonds, during the 15 days immediately preceding the selection of Bonds for such redemption or after such Bonds or any portion thereof have been selected for redemption. SECTION 207. PERSONS DEEMED OWNERS OF BONDS. As to any Bond, the person in whose name the same shall be registered as shown on the bond registration books required by SECTION 206 hereof shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of the principal of and interest on any such Bond shall be made only to or upon the order of the registered owner thereof or a legal representative thereof. All such payments shall be valid and effectual to satisfy and discharge the liability upon such bond, including the interest thereon, to the extent of the sum or sums so paid. SECTION 208. AUTHORIZATION OF THE BONDS. (a) There shall be issued and secured by this Indenture a series of Bonds in the aggregate maximum principal amount of $24,500,000 for the purpose of providing funds for paying the costs of the Project, which Bonds shall be designated "City of Olathe, Kansas Industrial Revenue Bonds (PacSun Project), Series 2007." The Bonds shall be dated as provided in SECTION 203(b) hereof, shall become due on January 1, 2018 (subject to prior redemption as hereinafter provided in ARTICLE III) and shall bear interest as specified in SECTION 208(e) hereof, payable on the dates specified in SECTION 208(e) hereof. (b) The Trustee is hereby designated as the City's Paying Agent for the payment of the principal of and interest on the Bonds. (c) The Bonds shall be executed without material variance from the form and in the manner set forth in ARTICLE IV hereof and delivered to the Trustee for authentication, but prior to or simultaneously with the authentication and delivery of the Bonds by the Trustee, there shall be filed with the Trustee the following: (1) An original or certified copy of Ordinance No. 07-34 passed by the governing body of the City on May 1, 2007, authorizing the issuance of the Bonds and the execution of this Indenture and the Lease; (2) An original executed counterpart of this Indenture; (3) An original executed counterpart of the Lease; (4) A request and authorization to the Trustee on behalf of the City, executed by the Authorized City Representative, to authenticate the Bonds and deliver the same to the purchaser identified in the Bond Purchase Agreement upon payment to the Trustee, for the account of the City, of the purchase price thereof specified in the Bond Purchase Agreement. The Trustee shall be entitled to conclusively rely upon such request and authorization as to names of the purchaser and the amount of such purchase price; (5) An opinion of counsel nationally recognized on the subject of municipal bonds to the effect that the Bonds constitute valid and legally binding limited and special revenue obligations of the City; and -10- (6) Such other certificates, statements, receipts and documents as the City shall reasonably require for the delivery of the Bonds. (d) When the documents specified in SUBSECTION (c) of this Section shall have been filed with the Trustee, and when the Bonds shall have been executed and authenticated as required by this Indenture, the Trustee shall deliver the Bonds to or upon the order of the purchaser thereof, but only upon payment to the Trustee of the purchase price of the Bonds, as specified in the Bond Purchase Agreement. The proceeds of the sale of the Bonds shall be immediately paid over to the Trustee, and the Trustee shall deposit and apply such proceeds as provided in ARTICLE V hereof. (e) The Bonds shall bear interest at the rate of 7% per annum on the Cumulative Outstanding Principal Amount of the Bonds, and such interest shall be payable in arrears on each January 1 and July 1, commencing on January 1, 2008, and continuing thereafter until the said Cumulative Outstanding Principal Amount is paid in full. Interest shall be calculated on the basis of a year of 360 days consisting of twelve months of 30 days each. Principal shall be payable at maturity unless redeemed prior to said date in accordance with ARTICLE III. SECTION 209. AUTHORIZATION OF ADDITIONAL BONDS. (a) Additional Bonds may be issued under and equally and ratably secured by this Indenture on a parity with the Bonds, and any other Additional Bonds which remain Outstanding after the issuance of such Additional Bonds, at any time or from time to time, upon compliance with the conditions hereinafter provided in this Section, for the purpose of providing funds for (i) refunding all or part of the Bonds then Outstanding, including the payment of any premium thereon and interest to accrue to the designated redemption date and any expenses in connection with such refunding, (ii) to provide funds to pay the costs of completing the Project, (iii) to provide funds to pay all or any part of the costs of repairing, replacing or restoring the Project in the event of damage, destruction or condemnation thereto or thereof, and (iv) to provide funds to pay all or any part of the costs of acquisition, purchase, construction, improvement and remodeling to the Project as the Corporation may deem necessary or desirable. Additional Bonds issued for purposes described in clause (i) above shall also be referred to as "Refunding Bonds." (b) Before any Additional Bonds shall be issued under the provisions of this Section, the City shall (i) pass an ordinance authorizing the issuance of such Additional Bonds, fixing the amount thereof and describing the Bonds to be refunded, authorizing the City to enter into a Supplemental Indenture for the purpose of issuing such Additional Bonds and, if required, authorizing the City to enter into a Supplemental Lease with the Corporation, and (ii) except in the case of Refunding Bonds, for which consent shall not be required, obtain the written consent to the issuance of the proposed Additional Bonds from the Owners of 100% of the Bonds Outstanding as reflected on the bond registration books maintained by the Trustee immediately preceding the issuance of such Additional Bonds. (c) Such Additional Bonds shall be dated, shall be stated to mature in such year or years, shall bear interest at such rate or rates not exceeding the maximum rate then permitted by law, and shall be redeemable at such times and prices, all as may be provided by the Supplemental Indenture authorizing the issuance of such Additional Bonds. Except as to any difference in the date, the maturity or maturities, the rate or rates of interest or the provisions for redemptions, such Additional Bonds shall be on a parity with and shall be entitled to the same benefit and security of this Indenture as the Bonds, and any other Additional Bonds which remain Outstanding after the issuance of such Additional Bonds. -11- (d) Except as provided in this Section, the City will not otherwise issue any obligations on a parity with the Bonds, but the City may, at the written request of the Corporation, issue other obligations specifically subordinate and junior to the Bonds, without the written consent of all or any of the Owners. SECTION 210. MUTILATED, LOST, STOLEN OR DESTROYED BONDS. In the event any Bond shall become mutilated, or be lost, stolen or destroyed, the City shall execute and the Trustee shall authenticate and deliver a new Bond of like series, date and tenor as the Bond mutilated lost, stolen or destroyed; provided that, in the case of any mutilated Bond, such mutilated Bond shall first be surrendered to the Trustee, and in the case of any lost, stolen or destroyed Bond, there shall be first furnished to the City and the Trustee evidence of such loss, theft or destruction satisfactory to the City and the Trustee, together with indemnity satisfactory to them. In the event any such Bond shall have matured, instead of issuing a substitute Bond, the City and the Trustee may require the payment of an amount sufficient to reimburse the City and the Trustee for any tax or other governmental charge that may be imposed in relation thereto and any other reasonable fees and expenses incurred in connection therewith. SECTION 211. CANCELLATION AND DESTRUCTION OF BONDS UPON PAYMENT. (a) All Bonds which have been paid or redeemed or which the Trustee has purchased or which have otherwise been surrendered to the Trustee under this Indenture, either at or before maturity shall be cancelled by the Trustee immediately upon the payment, redemption or purchase of such Bonds and the surrender thereof to the Trustee. (b) All Bonds cancelled under any of the provisions of this Indenture shall be destroyed by the Trustee. The Trustee shall execute a certificate in triplicate describing the Bonds so destroyed, and shall file executed counterparts of such certificate with the City and the Corporation. ARTICLE III REDEMPTION OF BONDS SECTION 301. REDEMPTION OF BONDS GENERALLY. The Bonds shall be subject to redemption prior to maturity in accordance with the terms and provisions set forth in this Article. Additional Bonds shall be subject to redemption prior to maturity in accordance with the terms and provisions contained in this Article and as may be specified in the Supplemental Indenture authorizing such Additional Bonds. SECTION 302. REDEMPTION OF BONDS. The Bonds shall be subject to redemption and payment in whole or in part, as follows: (a) At any time prior to the stated maturity thereof, by the City, at the option of and upon written instructions from the Corporation, at a price equal to the principal amount thereof, plus accrued interest thereon, without premium or penalty, to the date of payment. (b) At any time prior to the stated maturity thereof, to the extent amounts are deposited into the Bond Fund in accordance with SECTION 602 hereof, at a price equal to the principal amount thereof, plus accrued interest thereon, without premium or penalty, to the date of payment. SECTION 303. EFFECT OF CALL FOR REDEMPTION. Prior to or on the date fixed for redemption, funds or Government Securities shall be placed with the Trustee which are sufficient to pay the Bonds called for -12- redemption and accrued interest thereon, if any, to the redemption date. Upon the happening of the above conditions and appropriate written notice having been given, the Bonds or the portions of the principal amount of Bonds thus called for redemption shall cease to bear interest on the specified redemption date, and shall no longer be entitled to the protection, benefit or security of this Indenture and shall not be deemed to be Outstanding under the provisions of this Indenture. SECTION 304. NOTICE OF REDEMPTION. In the event the Bonds are to be called for redemption as provided in SECTION 302(a) or (b) hereof, the Corporation shall deliver written notice to the City and the Trustee that it has elected to redeem all or a portion of the Bonds in accordance with SECTION 302(a) or (b) hereof at least ten days prior to the scheduled redemption date. The Trustee shall then deliver written notice to the Owner at least five days prior to the scheduled redemption date by first class mail stating the date upon which the Bonds will be redeemed and paid. ARTICLE IV FORM OF BONDS SECTION 401. FORM GENERALLY. The Bonds and the Trustee's Certificate of Authentication to be endorsed thereon shall be issued in substantially the form set forth in this article. Additional Bonds and the Trustee's Certificate of Authentication to be endorsed thereon shall be in substantially the form set forth in this Article, with such necessary or appropriate variations, omissions and insertions as are permitted or required by this Indenture or any Supplemental Indenture. The Bonds may have endorsed thereon such legends or text as may be necessary or appropriate to conform to any applicable rules and regulations of any governmental authority or any custom, usage or requirements of law with respect thereto. SECTION 402. FORM OF BOND. [Remainder of page intentionally blank.] -13- (FORM OF BOND) This Bond has not been registered under the Securities Act of 1933, as amended, or any state securities laws, and this Bond may not be transferred unless (i) the City consents in writing to such transfer, and (ii) the City and the Trustee are furnished a written legal opinion from counsel acceptable to the City and the Corporation, to the effect that such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws. This Bond may be transferred to any successor of the Corporation or any entity owned by or under common ownership with the Corporation without the necessity of obtaining the City's consent or such an opinion. UNITED STATES OF AMERICA STATE OF KANSAS COUNTY OF JOHNSON CITY OF OLATHE, KANSAS INDUSTRIAL REVENUE BOND (PACSUN PROJECT) SERIES 2007 THE CITY OF OLATHE, KANSAS, a municipal corporation organized and existing under the laws of the State of Kansas (the "City"), for value received, promises to pay, but solely from the source hereinafter referred to, to PACIFIC SUNWEAR STORES CORP. or registered assigns, on January 1, 2018, the principal amount of TWENTY-FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS or such lesser amount as may be outstanding hereunder as reflected in the bond registration books maintained by the Trustee. The registered owner shall note the principal amount outstanding hereunder in the Table of Cumulative Outstanding Principal Amount attached hereto, provided, however, that the registration books maintained by the Trustee shall be the official record of the Cumulative Outstanding Principal Amount of this Bond, in any coin or currency of the United States of America which on the date of payment thereof is legal tender for the payment of public and private debts, and in like manner to pay to the registered owner hereof, either by check or draft mailed to the registered owner at a stated address as it appears on the bond registration books of the City kept by the Trustee under the within mentioned Indenture or, in certain situations authorized in the Indenture, by internal bank transfer or by wire transfer to an account in a commercial bank or savings institution located in the continental United States, interest on the Cumulative Outstanding Principal Amount (as hereinafter defined) at the rate of 7% per annum payable in arrears on each January 1 and July 1, commencing on January 1, 2008, and continuing thereafter until the said Cumulative Outstanding Principal Amount is paid in full. Interest shall be computed on the basis of a year of 360 days consisting of 12 months of 30 days each. Principal on this Bond shall be payable on the maturity date set forth above, unless such principal shall have been paid as a result of a redemption of this Bond prior to such maturity date. -14- As used herein, the term "Cumulative Outstanding Principal Amount" means an amount equal to the aggregate of all amounts paid into the Construction Fund in accordance with the terms of the hereinafter defined Indenture, as reflected in the bond registration books maintained by the Trustee. The Trustee shall keep and maintain a record of the amounts deposited into the Construction Fund pursuant to the terms of the Indenture as "Principal Amount Deposited into Construction Fund" and shall enter the aggregate principal amount of this Bond then outstanding on its records as the "Cumulative Outstanding Principal Amount" on its records maintained for this Bond. On each date upon which a portion of the Cumulative Outstanding Principal Amount is paid to the registered owner hereof, pursuant to the optional redemption provisions of the Indenture, the Trustee shall enter on its records the principal amount paid on the Bond as "Principal Amount Paid Pursuant to Optional Redemption Provisions," and shall enter the then outstanding principal amount of this Bond as "Cumulative Outstanding Principal Amount" on its records. The registered owner may from time to time enter the respective amounts deposited into the Construction Fund pursuant to the terms of the Indenture under the column headed "Principal Amount Deposited Into Construction Fund" on the attached Table of Cumulative Outstanding Principal Amount (the "Table") and may enter the aggregate principal amount of this Bond then outstanding under the column headed "Cumulative Outstanding Principal Amount" on the attached Table. On each date upon which a portion of the Cumulative Outstanding Principal Amount is paid to the registered owner hereof pursuant to the optional redemption provisions of the Indenture, the registered owner may enter the principal amount paid on this Bond under the column headed "Principal Amount Paid Pursuant to Optional Redemption Provisions" on the Table and may enter the then outstanding principal amount of this Bond under the column headed "Cumulative Outstanding Principal Amount" on the Table. However, the records maintained by the Trustee as to amounts deposited into the Construction Fund or principal amounts paid on this Bond shall be the official records of the Cumulative Outstanding Principal Amount for all purposes. THIS BOND is a duly authorized Bond of the City designated "City of Olathe, Kansas Industrial Revenue Bonds (PacSun Project), Series 2007," in the aggregate maximum principal amount of $24,500,000 (the "Bonds"), to be issued for the purpose of providing funds to pay the cost of acquiring, purchasing, constructing, installing and remodeling a commercial project, consisting of a distribution facility, including land, buildings, structures, improvements and fixtures (the "Project"), to be leased to Pacific Sunwear Stores Corp., a California corporation (the "Corporation"), under the terms of a Lease Agreement dated as of July 1, 2007 (said Lease Agreement, as amended and supplemented from time to time in accordance with the provisions thereof, being herein called the "Lease"), between the City and the Corporation, all pursuant to the authority of and in full compliance with the provisions, restrictions and limitations and Constitution and statutes of the State of Kansas, including particularly K.S.A. 12-1740 to 12-1749d, inclusive, as amended, and pursuant to proceedings duly had by the governing body of the City. THE BONDS are issued under and are equally and ratably secured and entitled to the protection given by a Trust Indenture dated as of July 1, 2007 (said Trust Indenture, as amended and supplemented from time to time in accordance with the provisions thereof, being herein called the "Indenture"), between the City and U.S. Bank National Association (the "Trustee"). Subject to the terms and conditions set forth therein, the Indenture permits the City to issue Additional Bonds (as defined therein) secured by the Indenture on a parity with the Bonds. Reference is hereby made to the Indenture for a description of the provisions, among others, with respect to the nature and extent of the security for the Bonds, the rights, duties and obligations of the City, the Trustee and the owners of the Bonds, and the terms upon which the Bonds are issued and secured. -15- THIS BOND shall be subject to redemption and payment in whole or in part, as follows: (a) At any time prior to the stated maturity thereof, by the City, at the option of and upon instructions from the Corporation, at a price equal to the principal amount thereof, plus accrued interest thereon, without premium or penalty, to the date of payment. (b) At any time prior to the stated maturity thereof, to the extent amounts are deposited into the Bond Fund in accordance with SECTION 602 of the Indenture, at a price equal to the principal amount thereof, plus accrued interest thereon, without premium or penalty, to the date of payment. In the event the Bonds are to be called for redemption as provided in paragraphs (a) or (b) above, the Corporation shall deliver written notice to the City and the Trustee that it has elected to redeem all or a portion of the Bonds in accordance with paragraph (a) or (b) above at least ten days prior to the scheduled redemption date. The Trustee shall then deliver written notice to the Owner of this Bond at least five days prior to the scheduled redemption date by first class mail stating the date upon which the Bonds will be redeemed and paid. THE BONDS are special obligations of the City payable solely out of the rents, revenues and receipts derived by the City from the Project and not from any other fund or source of the City, and are secured by a pledge and assignment of the Project and of such rents, revenues and receipts, including all rentals and other amounts to be received by the City under and pursuant to the Lease, all as provided in the Indenture. The Bonds do not constitute general obligations of the City or the State of Kansas, and neither the City nor said State shall be liable thereon, and the Bonds shall not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction, and are not payable in any manner by taxation. Pursuant to the provisions of the Lease, rental payments sufficient for the prompt payment when due of the principal of and interest on the Bonds are to be paid by the Corporation directly to the Trustee for the account of the City and deposited in a special account created by the City and designated the "City of Olathe, Kansas, Industrial Revenue Bond Fund - PacSun Project, Series 2007." THE OWNER of this Bond shall have no right to enforce the provision of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any event of default under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto, except as provided in the Indenture. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all the Bonds issued under the Indenture and then Outstanding may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. Modifications or alterations of this Bond or the Indenture may be made only to the extent and in the circumstances permitted by the Indenture. SUBJECT TO the requirements for transfer set forth above in the legend contained on the face of this Bond, this Bond is transferable, as provided in the Indenture, only upon the books of the City kept for that purpose at the above-mentioned office of the Trustee by the registered owner hereof in person or by such person's duly authorized attorney, upon surrender of this Bond together with a written instrument of transfer satisfactory to the Trustee duly executed by the registered owner or such person's duly authorized attorney, and thereupon a new fully registered Bond or Bonds, without coupons, and in the same aggregate principal amounts, shall be issued to the transferee in exchange therefor as provided in the Indenture, and upon payment of the charges therein prescribed. The City, the Trustee and any Paying Agent may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving payment of, or on account of, the principal or redemption price hereof and interest due hereon and for all other purposes. -16- THE BONDS are issuable in the form of one fully registered Bond without coupons in the maximum principal denomination of $24,500,000. THIS BOND shall not be valid or become obligatory for any purposes or be entitled to any security or benefit under the Indenture until the Certificate of Authentication hereon shall have been executed by the Trustee. IT IS HEREBY CERTIFIED AND DECLARED that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by the Constitution and laws of the State of Kansas. [Remainder of page intentionally blank.] -17- IN WITNESS WHEREOF, the City of Olathe, Kansas, has caused this Bond to be executed in its name by the manual or facsimile signature of its Mayor, attested by the manual or facsimile signature of its City Clerk and its corporate seal to be affixed hereto or imprinted hereon, and has caused this Bond to be dated as of July ____, 2007. CITY OF OLATHE, KANSAS By: --------------------------- Mayor (SEAL) ATTEST: By: --------------------------- City Clerk -18- TABLE OF CUMULATIVE OUTSTANDING PRINCIPAL AMOUNT
Principal Amount Cumulative Principal Amount Paid Pursuant to Outstanding Notation Deposited Into Redemption Principal Made Date Construction Fund Provisions Amount By - ---- ----------------- ---------------- ----------- --------
-19- ================================================================================ (FORM OF ASSIGNMENT) (NOTE RESTRICTIONS ON TRANSFERS) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________________________________________________________ Print or Typewrite Name, Address and Social Security or other Taxpayer Identification Number of Transferee the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints _____________________________ attorney to transfer the within Bond on the books kept by the Trustee for the registration and transfer of Bonds, with full power of substitution in the premises. Dated: ______________________. ___________________________________________ NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular. Signature Guaranteed By: [Seal of Bank] ------------------------------------------- (Name of Bank) By: --------------------------------------- Title: ------------------------------------ ================================================================================ -20- SECTION 403. FORM OF CERTIFICATE OF AUTHENTICATION. (FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION) ================================================================================ CERTIFICATE OF AUTHENTICATION This Bond is the Industrial Revenue Bond (PacSun Project), Series 2007, described in the Trust Indenture. The effective date of registration of this Bond is set forth below. U.S. BANK NATIONAL ASSOCIATION, as Trustee ________________________ By: ---------------------------- Date Name: -------------------------- Title: ------------------------ ================================================================================ (End of ARTICLE IV) -21- ARTICLE V CUSTODY AND APPLICATION OF BOND PROCEEDS SECTION 501. CREATION OF CONSTRUCTION FUND. There is hereby created and ordered to be established in the custody of the Trustee a special trust fund in the name of the City to be designated the "City of Olathe, Kansas, Construction Fund - PacSun Project, Series 2007" (herein called the "Construction Fund"). SECTION 502. DEPOSITS INTO THE CONSTRUCTION FUND. The proceeds of the sale of the Bonds, including Additional Payments provided for in the Bond Purchase Agreement, when received, excluding such amounts required to be paid into the Bond Fund pursuant to SECTION 602 hereof, shall be deposited by the Trustee into the Construction Fund. Any money received by the Trustee from any other source for the purpose of acquisition, purchasing, construction, improving or remodeling of the Project shall also be deposited into the Construction Fund. SECTION 503. DISBURSEMENTS FROM THE CONSTRUCTION FUND. (a) The moneys in the Construction Fund shall be disbursed by the Trustee for the payment of Project Costs upon receipt of requisition certificates signed by the Corporation in accordance with the provisions of ARTICLE IV of the Lease, and the Trustee hereby covenants and agrees to disburse such moneys in accordance with such provisions. All disbursements from the Construction Fund which are payable to the Corporation shall be made by internal bank transfer or wire transfer as designated by the Corporation in writing to the Trustee. The Trustee shall disburse moneys in the Construction Fund in each case within two (2) Business Days after receipt by the Trustee of an executed written requisition certificate. The Trustee shall notify the registered owner of the Bonds by telephone when the Trustee is prepared to disburse moneys pursuant to any requisition certificate. Any moneys received by the Trustee by 11:00 a.m. for deposit in the Construction Fund for which the Trustee has received a requisition certificate shall be disbursed from the Construction Fund on the same Business Day. (b) In paying any requisition under this Section, the Trustee may rely as to the completeness and accuracy of all statements in such requisition certificate if such requisition certificate is signed by the Authorized Corporation Representative. If the City so requests in writing, a copy of each requisition certificate submitted to the Trustee for payment under this Section shall be promptly provided by the Trustee to the City. (c) If required, the City covenants and agrees to take all necessary and appropriate action promptly in approving and ordering all such disbursements. The Trustee is hereby authorized and directed to issue checks for each disbursement in the manner and as provided for by the aforesaid provisions of the Lease. (d) The Trustee shall keep and maintain adequate records pertaining to the Construction Fund and all disbursements therefrom, and shall provide a statement of receipts and disbursements with respect thereto to the Corporation on a monthly basis. After the Project has been completed and a certificate of payment of all costs filed as provided in SECTION 504 hereof, the Trustee shall file a final statement of receipts and disbursements with respect thereto with the City and the Corporation. SECTION 504. COMPLETION OF THE PROJECT. The completion of the Project and payment of all costs and expenses incident thereto shall be evidenced by the filing with the Trustee of the certificate -22- required by the provisions of SECTION 4.5 of the Lease. As soon as practicable any balance remaining in the Construction Fund shall without further authorization be deposited in the Bond Fund. SECTION 505. DISPOSITION UPON ACCELERATION. If the principal of the Bonds shall have become due and payable pursuant to SECTION 902 of this Indenture, upon the date of payment by the Trustee of any moneys due as hereinafter provided in ARTICLE IX provided, any balance remaining in the Construction Fund shall without further authorization be deposited in the Bond Fund by the Trustee with advice to the City and to the Corporation of such action. ARTICLE VI REVENUES AND FUNDS SECTION 601. CREATION OF THE BOND FUND. There is hereby created and ordered established in the custody of the Trustee a special trust fund in the name of the City to be designated the "City of Olathe, Kansas, Industrial Revenue Bond Fund - PacSun Project, Series 2007" (herein called the "Bond Fund"). SECTION 602. DEPOSITS INTO THE BOND FUND. The Trustee shall deposit into the Bond Fund, as and when received, (a) all accrued interest on the Bonds paid by the purchaser of the Bonds; (b) all rent payments payable by the Corporation to the City specified in SECTION 5.1 of the Lease and amounts due under SECTION 5.2 of the Lease; (c) any amount in the Construction Fund to be transferred to the Bond Fund pursuant to SECTION 504 hereof upon completion of the Project; (d) the balance of any Net Proceeds (as defined in the Lease) of condemnation awards or insurance received by the Trustee pursuant to ARTICLE IX of the Lease; (e) the amounts to be deposited in the Bond Fund pursuant to SECTIONS 9.1(b) and 9.1(c) of the Lease; (f) all interest and other income derived from investments of Bond Fund moneys as provided in SECTION 702 hereof; and (g) all other moneys received by the Trustee under and pursuant to any of the provisions of the Lease when accompanied by directions from the person depositing such moneys that such moneys are to be paid into the Bond Fund, including, without limitation, amounts payable into the Bond Fund by the City pursuant to SECTION 801 hereof. SECTION 603. APPLICATION OF MONEYS IN THE BOND FUND. (a) Except as provided in SECTION 606 and SECTION 908 hereof or in SECTION 4.6(a) of the Lease, moneys in the Bond Fund shall be expended solely for the payment of the principal of and the interest on the Bonds as the same mature and become due or upon the redemption thereof prior to maturity; provided, however, that any amounts received by the Trustee as Additional Rent under SECTION 5.2 of the Lease and deposited to the Bond Fund as provided in SECTION 602 above, shall be expended by the Trustee for such items of Additional Rent as they are received or due without further authorization from the City. (b) The City hereby authorizes and directs the Trustee to withdraw sufficient funds from the Bond Fund to pay the principal of and the interest on the Bonds as the same become due and payable and to make said funds so withdrawn available to the Paying Agent for the purpose of paying said principal and interest. (c) Whenever the amount in the Bond Fund from any source whatsoever is sufficient to redeem all of the Bonds Outstanding and to pay interest to accrue thereon prior to such redemption, the City covenants and agrees, upon request of the Corporation, to take and cause to be taken the necessary steps to redeem all such Bonds on the next succeeding redemption date for which the required redemption notice -23- may be given or on such later redemption date as may be specified by the Corporation. The Trustee may use any moneys in the Bond Fund to redeem a part of the Bonds Outstanding in accordance with and to the extent permitted by ARTICLE III hereof so long as the Corporation is not in default (beyond any applicable notice and cure periods) with respect to any payments under the Lease and to the extent said moneys are in excess of the amount required for payment of Bonds theretofore matured or called for redemption and past due interest, if any, in all cases when such Bonds have not been presented for payment. SECTION 604. PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS. In any case where the date of maturity of principal of or interest, if any, on the Bonds or the date fixed for redemption of any Bonds shall be a Saturday, a Sunday or a legal holiday or a day on which banking institutions in the city of payment are authorized by law to close, then payment of principal or interest, if any, need not be made on such date but may be made on the next succeeding Business Day not a Saturday, a Sunday or a legal holiday or a day upon which banking institutions are authorized by law to close with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest, if any, shall continue to accrue for the period from and after such date. SECTION 605. NONPRESENTMENT OF BONDS. In the event any Bond shall not be presented for payment when the principal thereof becomes due, either at maturity or otherwise, or at the date fixed for redemption thereof, if funds sufficient to pay such Bond shall have been made available to the Trustee, all liability of the City to the Owner thereof for the payment of such Bond shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such fund or funds, without liability for interest thereon, for the benefit of the Owner of such Bond who shall thereafter be restricted exclusively to such fund or funds for any claim of whatever nature on his part under this Indenture or on, or with respect to, said Bond. If any Bond shall not be presented for payment within five years following the date when such Bond becomes due, whether by maturity or otherwise, the Trustee shall repay to the Corporation the funds theretofore held by it for payment of such Bond, and such Bond shall, subject to the defense of any applicable statute of limitation, thereafter be an unsecured obligation of the Corporation, and the Owner thereof shall be entitled to look only to the Corporation for payment, and then only to the extent of the amount so repaid, and the Corporation shall not be liable for any interest thereon and shall not be regarded as a trustee of such money. SECTION 606. REPAYMENT TO THE CORPORATION FROM THE BOND FUND. After payment in full of the principal of and interest, if any, on the Bonds (or provision has been made for the payment thereof as provided in this Indenture), and the fees, charges and expenses of the Trustee, the City and any Paying Agent and any other amounts required to be paid under this Indenture and the Lease, all amounts remaining in the Bond Fund shall be paid to the Corporation upon the expiration or sooner termination of the Lease. ARTICLE VII SECURITY FOR DEPOSITS AND INVESTMENT OF FUNDS SECTION 701. MONEYS TO BE HELD IN TRUST. All moneys deposited with or paid to the Trustee for account of the Bond Fund or the Construction Fund under any provision of this Indenture, and all moneys deposited with or paid to any Paying Agent under any provision of this Indenture, shall be held by the Trustee or Paying Agent in trust and shall be applied only in accordance with the provisions of this Indenture and the Lease, and, until used or applied as herein provided, shall constitute part of the Trust Estate and be subject to the lien hereof. Neither the Trustee nor any Paying Agent shall be under any liability for interest or any moneys received hereunder except such as may be agreed upon. -24- SECTION 702. INVESTMENT OF MONEYS IN CONSTRUCTION FUND AND BOND FUND. Moneys held in the Construction Fund and the Bond Fund shall, pursuant to written direction of the Corporation, signed by the Authorized Corporation Representative, be separately invested and reinvested by the Trustee in Investment Securities which mature or are subject to redemption by the owner prior to the date such funds will be needed. In the event the Corporation fails to provide written directions concerning investment of moneys held in the Construction Fund and the Bond Fund, the Trustee shall invest in Investment Securities described in paragraph (e) of the definition of Investment Securities, provided they mature or are subject to redemption prior to the date such funds will be needed. Any such Investment Securities shall be held by or under the control of the Trustee and shall be deemed at all times a part of the fund in which such moneys are originally held, and the interest accruing thereon and any profit realized from such Investment Securities shall be credited to such fund, and any loss resulting from such Investment Securities shall be charged to such fund. After the Trustee has notice pursuant to SECTION 1001(h) of this Indenture of the existence of an Event of Default, the Trustee shall invest moneys in the Bond Fund and the Construction Fund in Investment Securities. The Trustee shall sell and reduce to cash a sufficient amount of such Investment Securities whenever the cash balance in any Fund is insufficient for the purposes of such Fund. In determining the balance in any Fund, investments in such Fund shall be valued at the lower of their original cost or their fair market value as of the most recent Payment Date. The Trustee may make any and all investments permitted by the provisions of this Section through its own bond department or any affiliate or short-term investment department. The City and the Corporation (by its execution of the Lease) acknowledge that to the extent regulations of the Comptroller of the Currency or other applicable regulatory authority grant the City or the Corporation the right to receive brokerage confirmations of the security transactions made by the Trustee as they occur, the City and the Corporation waive receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Corporation and the City (if requested by it) with periodic account transaction statements which will include detail for all investment transactions made by the Trustee hereunder. SECTION 703. RECORD KEEPING. The Trustee shall maintain records designed to show compliance with the provisions of this Article and with the provisions of ARTICLE VI for at least six years after the payment of all of the Outstanding Bonds. ARTICLE VIII GENERAL COVENANTS AND PROVISIONS SECTION 801. PAYMENT OF PRINCIPAL AND INTEREST. The City covenants and agrees that it will, but solely from the rents, revenues and receipts derived from the Project as described herein, deposit or cause to be deposited in the Bond Fund sufficient sums payable under the Lease promptly to meet and pay the principal of and the interest on the Bonds as they become due and payable at the place, on the dates and in the manner provided herein and in the Bonds according to the true intent and meaning thereof, and to this end the City covenants and agrees that it will use its best efforts to cause the Project to be continuously and sufficiently leased as a revenue and income-providing undertaking, and that, should there be a default under the Lease with the result that the right of possession of the Project is returned to the City, the City shall fully cooperate with the Trustee and with the Bondowners to the end of fully protecting the rights and security of the Bondowners and shall diligently proceed in good faith and use its best efforts to secure another tenant for the Project to the end that at all times sufficient rents, revenues and receipts will be derived from the Project promptly to meet and pay the principal of and the interest on the Bonds as they become due and payable. -25- Nothing herein shall be construed as requiring the City to operate the Project as a business other than as lessor or to use any funds or revenues from any source other than funds and revenues derived from the Project. SECTION 802. AUTHORITY TO EXECUTE INDENTURE AND ISSUE BONDS. The City covenants that it is duly authorized under the Constitution and laws of the State of Kansas to execute this Indenture, to issue the Bonds and to pledge and assign the Trust Estate in the manner and to the extent herein set forth; that all action on its part for the execution and delivery of this Indenture and the issuance of the Bonds has been duly and effectively taken; that the Bonds in the hands of the Owners thereof are and will be valid and enforceable obligations of the City according to the import thereof. SECTION 803. PERFORMANCE OF COVENANTS. The City covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in the Bonds and in all proceedings of its governing body pertaining thereto. The Trustee may take such action as it deems appropriate to enforce all such covenants, undertaking, stipulations and provisions of the City hereunder. SECTION 804. INSTRUMENTS OF FURTHER ASSURANCE. The City covenants that it will do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, such Supplemental Indentures and such further acts, instruments, financing statements and other documents as the Trustee may reasonably require for the better pledging and assigning unto the Trustee the property and revenues herein described to the payment of the principal of and interest, if any, on the Bonds. The City covenants and agrees that, except as herein and in the Lease provided, it will not sell, convey, mortgage, encumber or otherwise dispose of any part of the Project or the rents, revenues and receipts derived therefrom or from the Lease, or of its rights under the Lease. SECTION 805. PAYMENT OF TAXES AND CHARGES. The City represents that pursuant and subject to the provisions of SECTION 5.2 of the Lease, the Corporation has agreed to pay, as the same respectively become due, all taxes, assessments and other governmental charges at any time lawfully levied or assessed upon or against the Project or any part thereof. SECTION 806. INSURANCE. The City represents that pursuant and subject to the provisions of ARTICLE VII of the Lease, the Corporation has agreed at its own expense to keep the Project constantly insured to the extent provided for therein. SECTION 807. MAINTENANCE AND REPAIR. The City represents that pursuant and subject to the provisions of SECTION 6.1 of the Lease, the Corporation has agreed at its own expense to cause the Project to be maintained and kept in good condition, repair and working order, and that pursuant and subject to SECTION 8.3 of the Lease the Corporation may, at its own expense, make from time to time additions, changes and alterations to the Project under the terms and conditions set forth therein. SECTION 808. RECORDINGS AND FILINGS. Upon request of the Owner of the Bonds or the Trustee, the City will cooperate in causing this Indenture and all Supplemental Indentures, the Lease and all Supplemental Leases (or, at the Corporation's option, a memorandum thereof) and all appropriate financing and continuation statements and other security instruments to be recorded and filed in such manner and in such places as may be required by law in order to fully preserve and protect the security of the Owners of the Bonds and the rights of the Trustee hereunder. -26- SECTION 809. INSPECTION OF PROJECT BOOKS. The City covenants and agrees that all books and documents in its possession relating to the Project and the rents, revenues and receipts derived from the Project shall at all times be open to inspection by such accountants or other agencies as the Trustee may from time to time designate. SECTION 810. ENFORCEMENT OF RIGHTS UNDER THE LEASE. The City covenants and agrees that it shall enforce all of its rights and all of the obligations of the Corporation (at the expense of the Corporation) under the Lease to the extent necessary to preserve the Project in good order and repair, and to protect the rights of the Trustee and the Bondowners hereunder with respect to the pledge and assignment of the rents, revenues and receipts coming due under the Lease. The City agrees that the Trustee, as assignee of the rentals and other amounts to be received by the City and paid by the Corporation under the Lease, or in its name or in the name of the City, may enforce all rights of the City to receive such rentals and other amounts and all obligations of the Corporation to pay such rentals and other amounts under and pursuant to the Lease for and on behalf of the Bondowners, whether or not the City is in default hereunder, subject to and in accordance with the conditions and limitations set forth in the Lease. SECTION 811. SUBORDINATION OF INDENTURE TO THE LEASE. This Indenture and the rights and privileges hereunder of the Trustee and the Owners of the Bonds are specifically made subject and subordinate to the rights and privileges of the Corporation (as long as no default by the Corporation under the Lease is continuing beyond any applicable grace period) set forth in the Lease. So long as not otherwise provided in this Indenture, the Corporation shall be suffered and permitted to possess, use and enjoy the Project and appurtenances so as to carry out its obligations under the Lease. ARTICLE IX DEFAULT AND REMEDIES SECTION 901. EVENTS OF DEFAULT; NOTICE; OPPORTUNITY TO CURE. If any of the following events occur, it is hereby defined as and declared to be and to constitute an "Event of Default": (a) Default in the due and punctual payment of the principal on any Bond, whether at the stated maturity or accelerated maturity thereof, or at the date fixed for redemption thereof for a period of five (5) business days following written notice to the City and the Corporation by the Trustee or by the Owners of 25% in aggregate principal amount of the Bonds Outstanding; (b) Default in the due and punctual payment of the interest on any Bond, whether at the stated maturity or accelerated maturity thereof, or at the date fixed for redemption thereof for a period of 5 days following written notice to the City and the Corporation by the Trustee or by the Owners of 25% in aggregate principal amount of the Bonds Outstanding; or (c) The occurrence of an Event of Default as specified in SECTION 12.1(b) or (c) of the Lease shall have occurred. SECTION 902. ACCELERATION OF MATURITY IN EVENT OF DEFAULT. If an Event of Default shall have occurred and be continuing, the Trustee may, and upon the written request of the Owners of not less than 25% in aggregate principal amount of Bonds then Outstanding, shall, by notice in writing delivered to the City and the Corporation, declare the principal of all Bonds then Outstanding and the interest accrued -27- thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable. SECTION 903. SURRENDER OF POSSESSION OF TRUST ESTATE; RIGHTS AND DUTIES OF TRUSTEE IN POSSESSION. If an Event of Default shall have occurred and be continuing, the City, upon demand of the Trustee, shall forthwith surrender the possession of, and it shall be lawful for the Trustee, by such officer or agent as it may appoint, to take possession of all or any part of the Trust Estate, together with the books, papers and accounts of the City pertaining thereto, and including the rights and the position of the City under the Lease, and to hold, operate and manage the same, and from time to time make all needful repairs and improvements as shall be deemed wise by the Trustee; the Trustee may lease the Project or any part thereof, in the name and for account of the City, and collect, receive and sequester the rents, revenues and receipts therefrom, and out of the same and any moneys received from any receiver of any part thereof pay, and set up proper reserves for the payment of all proper costs and expenses of so taking, holding and managing the same, including without limitation (a) reasonable compensation to the Trustee, his agents and counsel, (b) any reasonable charges of the Trustee hereunder, (c) any taxes and assessments and other charges prior to the lien of this Indenture, which the Trustee may deem it wise to pay, and (d) all expenses of such repairs and improvements, and the Trustee shall apply the remainder of the moneys so received in accordance with the provisions of SECTION 908 hereof. Whenever all that is due upon the Bonds shall have been paid and all defaults made good, the Trustee shall surrender possession of the Trust Estate to the City, its successors or assigns, the same right of entry, however, to exist upon any subsequent Event of Default. While in possession of such property, the Trustee shall render annually to the City and the Corporation a summarized statement of receipts and expenditures in connection therewith. SECTION 904. APPOINTMENT OF RECEIVERS IN EVENT OF DEFAULT. If an Event of Default shall have occurred and be continuing, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondowners under this Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Trust Estate or any part thereof, pending such proceedings, with such powers as the court making such appointment shall confer. SECTION 905. EXERCISE OF REMEDIES BY THE TRUSTEE. (a) Upon the occurrence of an Event of Default, the Trustee may pursue any available remedy at law or in equity by suit, action, mandamus or other proceeding to enforce the payment of the principal of interest on the Bonds then Outstanding, and to enforce and compel the performance of the duties and obligations of the City as herein set forth. (b) If an Event of Default shall have occurred and be continuing, and if requested to do so by the Owners of 25% in aggregate principal amount of Bonds then Outstanding and indemnified as provided in SECTION 1001(l) hereof, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondowners. (c) All rights of action under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without necessity of joining as plaintiffs or defendants any Owners of the Bonds, and any recovery of judgment shall, subject to the provisions of SECTION 908 hereof, be for the equal benefit of all the Owners of the Outstanding Bonds and coupons. -28- SECTION 906. LIMITATION ON EXERCISE OF REMEDIES BY BONDOWNERS. No Owner of any Bond shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of this Indenture or for the execution of any trust hereunder or for the appointment of a receiver or any other remedy hereunder, unless (a) a default has occurred of which the Trustee has been notified as provided in SECTION 1001(h) or of which by said subsection the Trustee is deemed to have notice, (b) such default shall have become an Event of Default, (c) the Owners of 25% in aggregate principal amount of Bonds then Outstanding shall have made written request to the Trustee, shall have offered it reasonable opportunity either to proceed and to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name, and shall have offered to the Trustee indemnity as provided in SECTION 1001(l), and (d) the Trustee shall thereafter fail or refuse to exercise the powers herein granted or to institute such action, suit or proceeding in its own name; such notification, request and offer of indemnity are hereby declared in every case, at the option of the Trustee, to be conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture, or for the appointment of a receiver or for any other remedy hereunder it being understood and intended that no one or more Owners of the Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice this Indenture by their action or to enforce any right hereunder except in the manner herein provided, and that all proceedings at law or equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of the Owners of all Bonds then Outstanding. Nothing in this Indenture contained shall, however, affect or impair the right of any Bondowner to payment of the principal of and interest on any Bond at and after the maturity thereof or the obligation of the City to pay the principal of and interest on each of the Bonds issued hereunder to the respective Owners thereof at the time, place, from the source and in the manner herein and in the Bonds expressed. SECTION 907. RIGHT OF BONDOWNERS TO DIRECT PROCEEDINGS. Anything in this Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of Bonds then Outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceedings hereunder; provided that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture, including SECTION 1001(l) hereof. SECTION 908. APPLICATION OF MONEYS IN EVENT OF DEFAULT. (a) All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article shall, after payment of the cost and expenses of the proceedings resulting in the collection of such moneys and of the fees, expenses, liabilities and advances incurred or made by the Trustee, be deposited in the Bond Fund and all moneys so deposited in the Bond Fund shall be applied as follows: (1) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: FIRST -- To the payment to the persons entitled thereto of all installments of interest, if any, then due and payable on the Bonds, in the order in which such installments of interest became due and payable, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or privilege; -29- SECOND -- To the payment to the persons entitled thereto of the unpaid principal of any of the Bonds which shall have become due and payable (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in the order of their due dates, and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment, ratably, according to the amount of principal due on such date, to the persons entitled thereto without any discrimination or privilege; (2) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied to the payment of the principal and interest, if any, then due and unpaid on all of the Bonds, without preference or priority of principal over interest or of interest over principal or of any installment of interest over any other installment of interest or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the person entitled thereto, without any discrimination or privilege; and (3) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of SECTION 910, then, subject to the provisions of SUBSECTION (2) of this Section in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of SUBSECTION (1) of this Section. (b) Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times and from time to time as the Trustee shall determine, having due regard to the amount of such moneys available and which may become available for such application in the future. Whenever the Trustee shall apply such moneys, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. (c) Whenever all of the Bonds and interest thereon, if any, have been paid under the provisions of this Section, and all fees, expenses and charges of the City and the Paying Agent have been paid, any balance remaining in the Bond Fund shall be paid to the Corporation as provided in SECTION 606 hereof. SECTION 909. REMEDIES CUMULATIVE. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee or to the Bondowners is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Bondowners hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right, power or remedy accruing upon any Event of Default shall impair any such right, power or remedy or shall be construed to be a waiver of any such Event of Default or acquiescence therein; every such right, power or remedy may be exercised from time to time and as often as may be deemed expedient. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver, by entry, or otherwise, and such proceedings have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case the City, the Corporation, the Trustee and the Bondowners shall be restored to their former positions and rights hereunder, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken. SECTION 910. WAIVERS OF EVENTS OF DEFAULT. The Trustee may in its discretion waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal of and interest, if any, on Bonds, and shall do so upon the written request of the Owners of at least 50% in aggregate principal amount of all the Bonds then Outstanding, provided, however, that there shall not be -30- waived without the consent of the Owners of all the Bonds Outstanding (a) any Event of Default in the payment of the principal of any Outstanding Bonds when due (whether at the date of maturity or redemption specified therein), or (b) any Event of Default in the payment when due of the interest on any such Bonds, unless prior to such waiver or rescission, all arrears of interest, or all arrears of payments of principal when due, as the case may be, and all reasonable expenses of the Trustee and the City, in connection with such default, shall have been paid or provided for. In case of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the City, the Corporation, the Trustee and the Bondowners shall be restored to their former positions, rights and obligations hereunder, respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon. ARTICLE X THE TRUSTEE SECTION 1001. ACCEPTANCE OF THE TRUSTS. The Trustee hereby accepts the trusts imposed upon it by this Indenture, and agrees to perform said trusts as a corporate trustee ordinarily would perform said trusts under a corporate indenture, but only upon and subject to the following express terms and conditions, and no implied covenants or obligations shall be read into this Indenture against the Trustee: (a) The Trustee, prior to the occurrence of an Event of Default and after the curing or waiver of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. If any Event of Default shall have occurred and be continuing, subject to SECTION 1001(1) below, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and shall use the same degree of care and skill in their exercise, as a prudent corporate trust department would exercise or use under the circumstances in the conduct of its own affairs. (b) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or through agents, attorneys or receivers and shall not be responsible for any misconduct or negligence on the part of any agent, attorney or receiver appointed or chosen by it with due care, and the Trustee shall be entitled to act upon the opinion or advice of counsel, who may be counsel to the City or to the Corporation, concerning all matters of trust hereof and the duties hereunder, and may in all cases pay such reasonable compensation to all such agents, attorneys and receivers as may reasonably be employed in connection with the trusts hereof. The Trustee shall not be responsible for any loss or damage resulting from any action or nonaction by it taken or omitted to be taken in good faith in reliance upon such opinion or advice of counsel. (c) Except as provided in the Lease and particularly SECTION 10.8 thereof, the Trustee shall not be responsible for any recital herein or in the Bonds (except with respect to the Certificate of Authentication of the Trustee endorsed on the Bonds), or for the recording or rerecording, filing or refiling of this Indenture or any security agreement in connection therewith, or for insuring the Project or collecting any insurance moneys, or for the validity of the execution by the City of this Indenture or of any Supplemental Indentures or instruments of further assurance, or for the sufficiency of the security of the Bonds. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with ARTICLE VII hereof. -31- (d) The Trustee shall not be accountable for the use of any Bonds authenticated and delivered hereunder. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Bonds with the same rights which it would have if it were not Trustee. (e) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, affidavit, letter, telegram or other paper or document provided for under this Indenture believed by it to be genuine and correct and to have been signed, presented or sent by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person who, at the time of making such request or giving such authority or consent is the Owner of any Bond, shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or upon transfer or in place thereof. (f) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, or whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee shall be entitled to rely upon a certificate signed by the Authorized City Representative as sufficient evidence of the facts therein contained, and prior to the occurrence of a default of which the Trustee has been notified as provided in SUBSECTION (h) of this Section or of which by said subsection it is deemed to have notice, the Trustee shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed necessary or advisable, but shall in no case be bound to secure the same. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its gross negligence or willful misconduct. (h) The Trustee shall not be required to take notice or be deemed to have notice of any default hereunder except failure by the City to cause to be made any of the payments to the Trustee required to be made in ARTICLE VI hereof, unless the Trustee shall be specifically notified in writing of such default by the City or by the Owners of at least 25% in aggregate principal amount of all Bonds then Outstanding. (i) At any and all reasonable times and subject to the Corporation's reasonable and standard security procedures, the Trustee and its duly authorized agents, attorneys, experts, engineers, accountants and representatives shall have the right, but shall not be required, to inspect any and all of the Project, and all books, papers and records of the City pertaining to the Project and the Bonds, and to take such memoranda from and in regard thereto as may be desired, all subject to the rights of the Corporation under the Lease. The Trustee shall treat all proprietary information of the Corporation as confidential. (j) The Trustee shall not be required to give any bond or surety in respect to the execution of its trusts and powers hereunder or otherwise in respect of the Project. (k) The Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any -32- action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required, as a condition of such action by the Trustee deemed desirable for the purpose of establishing the right of the City to the authentication of any Bonds, the withdrawal of any cash, or the taking of any other action by the Trustee. (l) Before taking any action under this Indenture, the Trustee may require that satisfactory indemnity be furnished to it for the reimbursement of all costs and expenses to which it may be put and to protect it against all liability which it may incur in or by reason of such action, except liability which is adjudicated to have resulted from its negligence or willful misconduct by reason of any action so taken. SECTION 1002. FEES, CHARGES AND EXPENSES OF THE TRUSTEE. The Trustee shall be entitled to payment of and/or reimbursement for reasonable fees for its ordinary services rendered hereunder and all advances, agent and counsel fees and other ordinary expenses reasonably and necessarily made or incurred by the Trustee in connection with such ordinary services and, in the event that it should become necessary that the Trustee perform extraordinary services, it shall be entitled to reasonable extra compensation therefor and to reimbursement for reasonable and necessary extraordinary expenses in connection therewith; provided that if such extraordinary services or extraordinary expenses are occasioned by the neglect or misconduct of the Trustee, it shall not be entitled to compensation or reimbursement therefor. The Trustee shall be entitled to payment and reimbursement for the reasonable fees and charges of the Trustee as Paying Agent for the Bonds. Pursuant to the provisions of SECTION 5.2 of the Lease, the Corporation has agreed to pay to the Trustee all reasonable fees, charges and expenses of the Trustee under this Indenture. The Trustee agrees that the City shall have no liability for any reasonable fees, charges and expenses of the Trustee, and the Trustee agrees to look only to the Corporation for the payment of all reasonable fees, charges and expenses of the Trustee and any Paying Agent as provided in the Lease. Upon the occurrence of an Event of Default and during its continuance, the Trustee shall have a lien with right of payment prior to payment on account of principal of or interest on any Bond, upon all moneys in its possession under any provisions hereof for the foregoing reasonable advances, fees, costs and expenses incurred. SECTION 1003. NOTICE TO BONDOWNERS IF DEFAULT OCCURS. If a default occurs of which the Trustee is by SECTION 1001(h) hereof required to take notice or if notice of default be given as in said SUBSECTION (h) provided, then the Trustee shall give written notice thereof to the last known Owners of all Bonds then Outstanding as shown by the bond registration books required by SECTION 206 to be kept at the principal office of the Trustee. SECTION 1004. INTERVENTION BY THE TRUSTEE. In any judicial proceeding to which the City is a party and which, in the opinion of the Trustee and its counsel, has a substantial bearing on the interests of Owners of the Bonds, the Trustee may intervene on behalf of Bondowners and, subject to the provisions of SECTION 1001(l) hereof, shall do so if requested in writing by the Owners of at least 25% of the aggregate principal amount of Bonds then Outstanding. SECTION 1005. SUCCESSOR TRUSTEE UPON MERGER, CONSOLIDATION OR SALE. Any corporation or association into which the Trustee may be merged or converted or with or into which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any merger, conversion, sale, consolidation or transfer to which it is a party, shall be and become successor Trustee hereunder and shall be vested with all the trusts, powers, rights, obligations, duties, remedies, immunities and privileges hereunder as was its -33- predecessor, without the execution or filing of any instrument or any further act on the part of any of the parties hereto. SECTION 1006. RESIGNATION OF TRUSTEE. The Trustee and any successor Trustee may at any time resign from the trusts hereby created by giving 30 days' written notice to the City, the Corporation and the Bondowners, and such resignation shall take effect at the end of such 30 days, or upon the earlier appointment of a successor Trustee by the Bondowners or by the City. SECTION 1007. REMOVAL OF TRUSTEE. The Trustee may be removed at any time, with or without cause, by an instrument or concurrent instruments in writing delivered to the Trustee, the City and the Corporation and signed by the Owners of a majority in aggregate principal amount of bonds then Outstanding. SECTION 1008. APPOINTMENT OF SUCCESSOR TRUSTEE. In case the Trustee hereunder shall resign or be removed, or shall otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers or of a receiver appointed by a court, a successor Trustee reasonably acceptable to the City and the Corporation may be appointed by the Owners of a majority in aggregate principal amount of Bonds then Outstanding, by an instrument or concurrent instruments in writing; provided, nevertheless, that in case of such vacancy, the City, by an instrument executed and signed by its Mayor and attested by its Clerk under its seal, may appoint a temporary Trustee to fill such vacancy until a successor Trustee shall be appointed by the Bondowners in the manner above provided. Any such temporary Trustee so appointed by the City shall hold such appointment no longer than 90 days without Corporation approval and shall immediately and without further acts be superseded by the successor Trustee so appointed by such Bondowners. Every such Trustee appointed pursuant to the provisions of this Section shall be a trust company or bank in good standing and qualified to accept such trust having a reported capital, surplus and undivided profits of not less than $5,000,000. SECTION 1009. VESTING OF TRUSTS IN SUCCESSOR TRUSTEE. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the City and the Corporation an instrument in writing accepting such appointment hereunder, and thereupon such successor shall, without any further act, deed or conveyance, become fully vested with all the trusts, powers, rights, obligations, duties, remedies, immunities and privileges of its predecessor; but such predecessor shall, nevertheless, on the written request of the City, execute and deliver an instrument transferring to such successor Trustee all the trusts, powers, rights, obligations, duties, remedies, immunities and privileges of such predecessor hereunder; every predecessor Trustee shall deliver all securities and moneys held by it as Trustee hereunder to its successor. Should any instrument in writing from the City be required by any successor Trustee for more fully and certainly vesting in such successor the trusts, powers, rights, obligations, duties, remedies, immunities and privileges hereby vested in the predecessor, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the City. SECTION 1010. RIGHT OF TRUSTEE TO PAY TAXES AND OTHER CHARGES. In case any tax, assessment or governmental or other charge upon, or insurance premium with respect to, any part of the Project is not paid as required herein or in the Lease (subject to applicable notice and cure periods), the Trustee may pay such tax, assessment or governmental charge or insurance premium, without prejudice, however, to any rights of the Trustee or the Bondowners hereunder arising in consequence of such failure; any amount at any time so paid under this Section, with interest thereon from the date of payment at the rate of 10% per annum, shall become an additional obligation secured by this Indenture, and the same shall be given a preference in payment over any payment of principal of or interest on the Bonds, and shall be paid out of the proceeds of rents, revenues and receipts collected from the Project, if not otherwise caused to be paid; but the Trustee -34- shall be under no obligation to make any such payment unless it shall have been requested to do so by the Owners of at least 25% of the aggregate principal amount of Bonds then Outstanding and shall have been provided adequate funds for the purpose of such payment. SECTION 1011. TRUST ESTATE MAY BE VESTED IN CO-TRUSTEE. (a) It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the State of Kansas) denying or restricting the right of banking corporations or associations to transact business as trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or the Lease, and in particular in case of the enforcement of either on default or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee, or take any other action which may be desirable or necessary in connection therewith, it may be necessary or desirable that the Trustee appoint an additional individual or institution as a co-trustee or separate trustee, and the Trustee is hereby authorized to appoint such co-trustee or separate trustee. (b) In the event that the Trustee appoints an additional individual or institution as a co-trustee or separate trustee (which appointment shall be subject to the approval of the Corporation), each and every remedy, power, right, claim, demand, cause of action, immunity, title, interest and lien expressed or intended by this Indenture to be exercised by the Trustee with respect thereto shall be exercisable by such co-trustee or separate trustee but only to the extent necessary to enable such co-trustee or separate trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such co-trustee or separate trustee shall run to and be enforceable by either of them. (c) Should any deed, conveyance or instrument in writing from the City be required by the co-trustee or separate trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to such co-trustee such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the City. (d) In case any co-trustee or separate trustee shall die, become incapable of acting, resign or be removed, all the properties, rights, powers, trusts, duties and obligations of such co-trustee or separate trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a successor to such co-trustee or separate trustee. SECTION 1012. ANNUAL ACCOUNTING. The Trustee shall render an annual accounting to the City, the Corporation and to any Bondowner requesting the same within 90 days following the end of each annual period and, upon the request of the Corporation or the Bondowner, a monthly accounting to the Corporation and the Bondowner within 30 days following the end of each monthly period, showing in reasonable detail all financial transactions relating to the Trust Estate made by the Trustee during the accounting period and the balance in any funds or accounts created by this Indenture as of the beginning and close of such accounting period. SECTION 1013. PERFORMANCE OF DUTIES UNDER THE LEASE. The Trustee hereby accepts and agrees to perform all duties assigned to it under the Lease. -35- ARTICLE XI SUPPLEMENTAL INDENTURES SECTION 1101. SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF BONDOWNERS. The City and the Trustee may from time to time, without the consent of or notice to any of the Bondowners, enter into such Supplemental Indenture or Supplemental Indentures as shall not be inconsistent with the terms and provisions hereof, for any one or more of the following purposes: (a) To cure any ambiguity or formal defect or omission in this Indenture, or to make any other change not prejudicial to the Bondowners; (b) To grant to or confer upon the Trustee for the benefit of the Bondowners any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Bondowners or the Trustee or either of them; (c) To more precisely identify the Project or to substitute or add additional property thereto; (d) To subject to this Indenture additional revenues, properties or collateral; or (e) To issue Refunding Bonds as provided in SECTION 209 hereof, provided such Refunding Bonds contain substantially similar or superior terms than the original Bonds. SECTION 1102. SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF BONDOWNERS. (a) Exclusive of Supplemental Indentures covered by SECTION 1101 hereof and subject to the terms and provisions contained in this Section, and not otherwise, the Owners of not less than 50% in aggregate principal amount of the Bonds then Outstanding shall have the right, from time to time, anything contained in this Indenture to the contrary notwithstanding, to consent to and approve the execution by the City and the Trustee of such other Supplemental Indenture or Supplemental Indentures as shall be deemed necessary and desirable by the City for the purpose of modifying, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Indenture or in any Supplemental Indenture; provided, however, that nothing in this Section contained shall permit or be construed as permitting (1) an extension of the maturity or a shortening of the redemption date of the principal of or the interest, if any, on any Bond issued hereunder, (2) a reduction in the principal amount of any Bond or the rate of interest thereon, if any, (3) a privilege or priority of any Bond or Bonds over any other Bond or Bonds, or (4) a reduction in the aggregate principal amount of Bonds the Owners of which are required for consent to any such Supplemental Indenture. (b) If at the time the City shall request the Trustee to enter into any such Supplemental Indenture for any of the purposes of this Section, the Trustee shall cause notice of the proposed execution of such Supplemental Indenture to be mailed to each Bondowner as shown on the bond registration books required by SECTION 206 hereof. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are on file at the principal corporate trust office of the Trustee for inspection by all Bondowners. If within 60 days or such longer period as may be prescribed by the City following the mailing and final publication of such notice, the Owners of not less than 50% in aggregate principal amount of the Bonds Outstanding at the time of the execution of any such Supplemental Indenture shall have consented to and approved the execution thereof as herein provided, no Owner of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in -36- any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the City from executing the same or from taking any action pursuant to the provisions thereof. SECTION 1103. CORPORATION'S CONSENT TO SUPPLEMENTAL INDENTURES. Anything herein to the contrary notwithstanding, a Supplemental Indenture under this Article which affects any rights of the Corporation shall not become effective unless and until the Corporation shall have consented in writing to the execution and delivery of such Supplemental Indenture, provided that receipt by the Trustee of a Supplemental Lease executed by the Corporation in connection with the issuance of Additional Bonds under SECTION 209 hereof shall be deemed to be the consent of the Corporation to the execution of a Supplemental Indenture pursuant to SECTION 209 hereof, respectively. In this regard, the Trustee shall cause notice of the proposed execution and delivery of any such Supplemental Indenture (other than a Supplemental Indenture proposed to be executed and delivered pursuant to SECTION 209 hereof) together with a copy of the proposed Supplemental Indenture to be mailed to the Corporation at least 15 days prior to the proposed date of execution and delivery of any such Supplemental Indenture. ARTICLE XII SUPPLEMENTAL LEASES SECTION 1201. SUPPLEMENTAL LEASES NOT REQUIRING CONSENT OF BONDOWNERS. The City and the Trustee shall, without the consent of or notice to the Bondowners, consent to the execution of any Supplemental Lease or Supplemental Leases by the City and the Corporation as may be required (a) by the provisions of the Lease and this Indenture, (b) for the purpose of curing any ambiguity or formal defect or omission in the Lease, (c) so as to more precisely identify the Project or substitute or add additional property thereto, (d) in connection with the issuance of Refunding Bonds under SECTION 209 hereof, (e) in connection with any other change therein which, in the judgment of the Trustee, is not to the material prejudice of the Trustee or the Bondowners. SECTION 1202. SUPPLEMENTAL LEASES REQUIRING CONSENT OF BONDOWNERS. Except for Supplemental Leases as provided for in SECTION 1201 hereof, neither the City nor the Trustee shall consent to the execution of any Supplemental Lease or Supplemental Leases by the City or the Corporation without the mailing of notice and the obtaining of the written approval or consent of the Owners of not less than 50% in aggregate principal amount of the Bonds at the time Outstanding given and obtained as provided in SECTION 1102 hereof. If at any time the City and the Corporation shall request the consent of the Trustee to any such proposed Supplemental Lease, the Trustee shall cause notice of such proposed Supplemental Lease to be mailed in the same manner as provided in SECTION 1102 hereof with respect to Supplemental Indentures. Such notice shall briefly set forth the nature of such proposed Supplemental Lease and shall state that copies of the same are on file in the principal office of the Trustee for inspection by all Bondowners. ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE SECTION 1301. SATISFACTION AND DISCHARGE OF THIS INDENTURE. (a) When the principal of and interest on all the Bonds shall have been paid in accordance with their terms or provision has been made for such payment, as provided in SECTION 1302 hereof, and provision -37- shall also be made for paying all other sums payable hereunder, including the reasonable fees and expenses of the Trustee, the City and Paying Agent to the date of retirement of the Bonds, then the right, title and interest of the Trustee in respect hereof shall thereupon cease, determine and be void, and thereupon the Trustee shall cancel, discharge and release this Indenture and shall execute, acknowledge and deliver to the City such instruments of satisfaction and discharge or release as shall be requisite to evidence such release and the satisfaction and discharge of this Indenture, and shall assign and deliver to the City any property at the time subject to this Indenture which may then be in its possession, except amounts in the Bond Fund required to be paid to the Corporation under SECTION 606 hereof and except funds or securities in which such funds are invested held by the Trustee for the payment of the principal of and interest on the Bonds. (b) The City is hereby authorized to accept a certificate by the Trustee that the whole amount of the principal and interest, if any, so due and payable upon all of the Bonds or coupons then Outstanding has been paid or such payment provided for in accordance with SECTION 1302 hereof as evidence of satisfaction of this Indenture, and upon receipt thereof shall cancel and erase the inscription of this Indenture from its records. SECTION 1302. BONDS DEEMED TO BE PAID. (a) Bonds shall be deemed to be paid within the meaning of this Article when payment of the principal of and interest thereon to the due date thereof (whether such due date be by reason of maturity or upon redemption as provided in this Indenture, or otherwise), either (1) shall have been made or caused to be made in accordance with the terms thereof, or (2) shall have been provided for by depositing with the Trustee in trust and irrevocably set aside exclusively for such payment (i) moneys sufficient to make such payment or (ii) Government Securities maturing as to principal and interest in such amount and at such times as will insure the availability of sufficient moneys to make such payment. At such time as a Bond shall be deemed to be paid hereunder, as aforesaid, it shall no longer be secured by or entitled to the benefits of this Indenture, except for the purposes of such payment from such moneys or Government Securities. (b) Notwithstanding the foregoing, in the case of Bonds which by their terms may be redeemed prior to the stated maturities thereof, no deposit under clause (2) of the immediately preceding paragraph shall be deemed a payment of such Bonds as aforesaid until, as to all such Bonds which are to be redeemed prior to their respective stated maturities, proper notice of such redemption shall have been given in accordance with ARTICLE III of this Indenture or irrevocable instructions shall have been given to the Trustee to give such notice. (c) Notwithstanding any provision of any other section of this Indenture which may be contrary to the provisions of this Section, all moneys or Government Securities set aside and held in trust pursuant to the provisions of this Section for the payment of Bonds and coupons shall be applied to and used solely for the payment of the particular Bonds and coupons, if any, with respect to which such moneys and Government Securities have been so set aside in trust. -38- ARTICLE XIV MISCELLANEOUS PROVISIONS SECTION 1401. CONSENTS AND OTHER INSTRUMENTS BY BONDOWNERS. (a) Any consent, request, direction, approval, objection or other instrument required by this Indenture to be signed and executed by the Bondowners may be in any number of concurrent writings of similar tenor and may be signed or executed by such Bondowners in person or by agent appointed in writing. Proof of the execution of any such instrument or of the writing appointing any such agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken, suffered or omitted under any such instrument, namely: (1) The fact and date of the execution by any person of any such instrument may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgements within such jurisdiction that the person signing such instrument acknowledged before him the execution thereof, or by affidavit of any witness to such execution. (2) The fact of ownership of Bonds and the amount or amounts, numbers and other identification of such Bonds, and the date of holding the same shall be proved by the registration books of the City maintained by the Trustee pursuant to SECTION 206 hereof. (b) In determining whether the Owners of the requisite principal amount of Bonds Outstanding have given any request, demand, authorization, direction, notice, consent or waiver under this Indenture, Bonds owned by the Corporation or any affiliate of the Corporation, unless the Corporation or such affiliate own 100% of the Bonds Outstanding, shall be disregarded and deemed not to be Outstanding under this Indenture, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Bonds which the Trustee knows to be so owned shall be so disregarded. For purposes of this paragraph, the word "affiliate" means any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Corporation; for the purposes of this definition, "control" means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms. Notwithstanding the foregoing, Bonds so owned which have been pledged in good faith shall not be disregarded as aforesaid if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Bonds and that the pledgee is not the Corporation or any affiliate of the Corporation. SECTION 1402. LIMITATION OF RIGHTS UNDER THIS INDENTURE. With the exception of rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Indenture or the Bonds is intended or shall be construed to give any person other than the parties hereto, and the Owners of the Bonds, if any, any right, remedy or claim under or in respect to this Indenture, this Indenture and all of the covenants, conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and the Owners of the Bonds, as herein provided. SECTION 1403. NOTICES. It shall be sufficient service of any notice, request, complaint, demand or other paper required by this Indenture to be given or filed with the City, the Trustee, the Corporation or Bondowners if the same shall be duly mailed by registered or certified mail addressed: -39- (a) To the City: City of Olathe, Kansas City Hall 100 East Santa Fe Olathe, Kansas 66061 Attention: City Clerk (b) To the Corporation: Pacific Sunwear Stores Corp. 3450 East Miraloma Avenue Anaheim, California 92806 Attention: Director/Treasurer (c) To the Trustee: U.S. Bank National Association 633 W. Fifth Street, 24th Floor Los Angeles, California 90071 Attention: Corporate Trust Services (d) To the Bondowners if the same shall be duly mailed by registered or certified mail addressed to each of the Owners of Bonds at the time Outstanding as shown by the bond registration books required by SECTION 206 hereof to be kept at the principal corporate trust office of the Trustee. SECTION 1404. SEVERABILITY. If any provision of this Indenture shall be held or deemed to be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatever. SECTION 1405. EXECUTION IN COUNTERPARTS. This Indenture may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 1406. GOVERNING LAW. This Indenture shall be governed exclusively by and construed in accordance with the applicable laws of the State of Kansas. SECTION 1407. ELECTRONIC STORAGE. The parties agree that the transaction described herein may be conducted and related documents may be stored by electronic means. [Remainder of page intentionally blank.] -40- IN WITNESS WHEREOF, the City of Olathe, Kansas, has caused this Indenture to be signed in its name and behalf by its Mayor and the seal of the City to be hereunto affixed and attested by its City Clerk, and to evidence its acceptance of the trusts hereby created, U.S. Bank National Association has caused this Indenture to be signed in its name and behalf by its duly authorized officer and its official seal to be hereunto affixed and attested by its Secretary or Assistant Secretary, all as of the date first above written. CITY OF OLATHE, KANSAS By: /s/ MICHAEL COPELAND -------------------------- Mayor [SEAL] ATTEST: By: /s/ DEBRA S. GRAGG ----------------------------------------- City Clerk Indenture PacSun Project, Series 2007 S-1 U.S. BANK NATIONAL ASSOCIATION, as Trustee By: /s/ CLAUDE ACOBA -------------------------- Claude Acoba Assistant Vice President Indenture PacSun Project, Series 2007 S-2 EX-10.2 3 a32099exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 EXECUTION COPY ================================================================================ CITY OF OLATHE, KANSAS, AS LESSOR AND PACIFIC SUNWEAR STORES CORP., AS LESSEE --------------- LEASE AGREEMENT DATED AS OF JULY 1, 2007 --------------- RELATING TO: $24,500,000 (AGGREGATE MAXIMUM PRINCIPAL AMOUNT) CITY OF OLATHE, KANSAS INDUSTRIAL REVENUE BONDS (PACSUN PROJECT) SERIES 2007 ================================================================================ THE INTEREST OF THE CITY OF OLATHE, KANSAS (THE "CITY") IN THIS LEASE AGREEMENT HAS BEEN PLEDGED AND ASSIGNED TO U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE UNDER THE TRUST INDENTURE DATED AS OF JULY 1, 2007, BETWEEN THE CITY AND THE TRUSTEE. LEASE AGREEMENT TABLE OF CONTENTS
Page ---- Parties................................................................................. 1 Recitals ............................................................................... 1 ARTICLE I DEFINITIONS Section 1.1. Definitions of Words and Terms.......................................................... 1 Section 1.2. Rules of Interpretation................................................................. 3 ARTICLE II REPRESENTATIONS Section 2.1. Representations by the City............................................................. 3 Section 2.2. Representations by the Corporation...................................................... 4 ARTICLE III GRANTING PROVISIONS Section 3.1. Granting of Leasehold Estate............................................................ 5 Section 3.2. Lease Term.............................................................................. 5 Section 3.3. Possession and Use of the Project....................................................... 5 ARTICLE IV PURCHASE, CONSTRUCTION, RENOVATION, INSTALLATION OF THE PROJECT Section 4.1. Issuance of the Bonds................................................................... 6 Section 4.2. Purchase, Construction, Renovation, Installation of the Project......................... 6 Section 4.3. Project Costs........................................................................... 7 Section 4.4. Payment for Project Costs............................................................... 7 Section 4.5. Establishment of Completion Date........................................................ 7 Section 4.6. Surplus or Deficiency in Construction Fund.............................................. 8 Section 4.7. Project Property of City................................................................ 8 ARTICLE V RENT PROVISIONS Section 5.1. Basic Rent.............................................................................. 8 Section 5.2. Additional Rent......................................................................... 9
(i) Section 5.3. Obligations of Corporation Absolute and Unconditional................................... 9 Section 5.4. Prepayment of Basic Rent................................................................ 10 Section 5.5. Redemption of Bonds..................................................................... 10 ARTICLE VI MAINTENANCE, TAXES AND UTILITIES Section 6.1. Maintenance and Repairs................................................................. 10 Section 6.2. Taxes, Assessments and Other Governmental Charges....................................... 10 Section 6.3. Utilities............................................................................... 11 Section 6.4. Ad Valorem Taxes........................................................................ 11 Section 6.5. Payment in Lieu of Taxes................................................................ 11 Section 6.6. Kansas Retailers' Sales Tax............................................................. 11 ARTICLE VII INSURANCE Section 7.1. Title Insurance......................................................................... 12 Section 7.2. Casualty Insurance...................................................................... 12 Section 7.3. Public Liability Insurance.............................................................. 13 Section 7.4. Blanket Insurance Policies.............................................................. 14 Section 7.5. Indemnification of Trustee.............................................................. 14 ARTICLE VIII ALTERATION OF THE PROJECT Section 8.1. Additions, Modifications and Improvements of the Project................................ 14 Section 8.3. Additional Improvements on the Project Site............................................. 14 Section 8.4. Permits and Authorizations.............................................................. 15 Section 8.5. Mechanics' Liens........................................................................ 15 Section 8.6. Option to Purchase Unimproved Portions of the Project Site.............................. 15 ARTICLE IX DAMAGE, DESTRUCTION AND CONDEMNATION Section 9.1. Damage or Destruction................................................................... 16 Section 9.2. Condemnation............................................................................ 18 ARTICLE X SPECIAL COVENANTS Section 10.1. No Warranty of Condition or Suitability by the City; Exculpation and Indemnification.... 19 Section 10.2. Surrender of Possession................................................................. 20 Section 10.3. City's Right of Access to the Project................................................... 20 Section 10.4. Granting of Easements; Leasehold Mortgages.............................................. 20

(ii) Section 10.5. Indemnification of City and Trustee..................................................... 23 Section 10.6. Depreciation, Investment Tax Credit and Other Tax Benefits.............................. 24 Section 10.7. Corporation to Maintain its Corporate Existence......................................... 24 Section 10.8. Security Interests...................................................................... 24 ARTICLE XI OPTION AND OBLIGATION TO PURCHASE THE PROJECT Section 11.1. Option to Purchase the Project.......................................................... 24 Section 11.2. Conveyance of the Project............................................................... 25 Section 11.3. Relative Position of Option and Indenture............................................... 25 Section 11.4. Obligation to Purchase the Project...................................................... 25 ARTICLE XII DEFAULTS AND REMEDIES Section 12.1. Events of Default....................................................................... 26 Section 12.2. Remedies on Default..................................................................... 26 Section 12.3. Survival of Obligations................................................................. 27 Section 12.4. Limitation of Liability and Indemnity................................................... 28 Section 12.5. Performance of the Corporation's Obligations by the City................................ 28 Section 12.6. Rights and Remedies Cumulative.......................................................... 28 Section 12.7. Waiver of Breach........................................................................ 28 Section 12.8. Notice of Defaults Under Section 12.1; Opportunity of Corporation to Cure Defaults...... 28 Section 12.9. Trustee's Exercise of the City's Remedies............................................... 29 ARTICLE XIII ASSIGNMENT AND SUBLEASE Section 13.1. Assignment; Sublease.................................................................... 29 Section 13.2. Assignment of Revenues by City.......................................................... 30 Section 13.3. Prohibition Against Fee Mortgage of Project............................................. 30 Section 13.4. Restrictions on Sale or Encumbrance of Project by City.................................. 30 ARTICLE XIV AMENDMENTS, CHANGES AND MODIFICATIONS Section 14.1. Amendments, Changes and Modifications................................................... 31 ARTICLE XV MISCELLANEOUS PROVISIONS Section 15.1. Notices................................................................................. 31 Section 15.2. City Shall Not Unreasonably Withhold Consents and Approvals............................. 31 Section 15.3. Net Lease............................................................................... 32

(iii) Section 15.4. No Pecuniary Liability.................................................................. 31 Section 15.5. Governing Law........................................................................... 32 Section 15.6. Binding Effect.......................................................................... 32 Section 15.7. Electronic Storage...................................................................... 32 Section 15.8. Severability............................................................................ 32 Section 15.9. Execution in Counterparts............................................................... 32 Signatures and Seals Acknowledgments Exhibit A Project Improvements Exhibit B Project Site Exhibit C Form of Requisition Certificate

(iv) LEASE AGREEMENT THIS LEASE AGREEMENT dated as of July 1, 2007 (the "Lease"), between the CITY OF OLATHE, KANSAS, a municipal corporation organized and existing under the laws of the State of Kansas (the "City"), as lessor, and PACIFIC SUNWEAR STORES CORP., a California corporation (the "Corporation"), as lessee; WITNESSETH: WHEREAS, the City is authorized under the provisions of K.S.A. 12-1740 to 12-1749d, inclusive, as amended (the "Act"), to purchase, acquire, construct, improve, equip, remodel, sell and lease certain facilities within its jurisdiction for commercial purposes, and to issue revenue bonds for the purpose of paying the cost of such facilities, and to pledge the income and revenues to be derived from the operation of such facilities to secure the payment of the principal of and interest on such bonds; WHEREAS, pursuant to the Act, the governing body of the City has heretofore passed Ordinance No. 07-34 (the "Ordinance") authorizing the City to issue its Industrial Revenue Bonds (PacSun Project), Series 2007 (the "Bonds"), the Bonds to be issued in the aggregate maximum principal amount of $24,500,000 for the purpose of acquiring, purchasing, constructing and installing a commercial project, consisting of a distribution facility, including land, buildings, structures, improvements and fixtures as hereinafter more fully described (the "Project"), and authorizing the City to lease the Project to the Corporation; WHEREAS, pursuant to the Ordinance, the City is authorized to enter into a Trust Indenture of even date herewith (the "Indenture"), with U.S. Bank National Association, a national banking association, as trustee (the "Trustee"), for the purpose of issuing and securing the Bonds, as therein provided, and to enter into this Lease with the Corporation under which the City will acquire, purchase, construct, improve and remodel the Project and will lease the Project to the Corporation in consideration of rental payments by the Corporation which will be sufficient to pay the principal of and interest on the Bonds; and WHEREAS, pursuant to the foregoing, the City desires to lease the Project to the Corporation and the Corporation desires to lease the Project from the City, for the rentals and upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual representations, covenants and agreements herein contained, the City and the Corporation do hereby represent, covenant and agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. DEFINITIONS OF WORDS AND TERMS. In addition to any words and terms defined elsewhere in this Lease and the words and terms defined in SECTION 101 of the Indenture which definitions are hereby incorporated herein by reference, and terms defined, the following words and terms as used in this Lease shall have the following meanings: "ADDITIONAL RENT" means the additional rental described in SECTIONS 5.2 and 6.2 of this Lease and, in addition, all payments required to be made to the Johnson County Treasurer in lieu of general ad valorem and personal property taxes pursuant to the Tax Abatement Agreement. "BASIC RENT" means the rental described in SECTION 5.1 of this Lease. "EVENT OF DEFAULT" means any Event of Default as described in SECTION 12.1 of this Lease. "FULL INSURABLE VALUE" means the lesser of: (i) the actual replacement cost of the Project less physical depreciation and exclusive of land, excavations, footings, foundation and parking lots as determined in accordance with SECTION 7.2(a) hereof, or (ii) an amount at least sufficient to avoid the effect of any coinsurance provisions of the applicable fire and casualty insurance policy. "INDENTURE" means the Trust Indenture dated as of July 1, 2007, between the City and the Trustee, as from time to time amended and supplemented in accordance with the provisions thereof. "LEASE" means this Lease Agreement, between the City and the Corporation, as from time to time amended and supplemented in accordance with the provisions of this Lease and ARTICLE XII of the Indenture. "LEASEHOLD MORTGAGE" means any leasehold mortgage permitted pursuant to the provisions of SECTION 10.4(b) hereof. "LEASE TERM" means the period from the effective date of this Lease until the expiration thereof pursuant to SECTION 3.2 of this Lease. "NET PROCEEDS" means, when used with respect to any insurance or condemnation award with respect to the Project, the gross proceeds from the insurance or condemnation award with respect to which that term is used remaining after payment of all expenses (including attorneys' fees, trustee's fees and any extraordinary expenses of the City and the Trustee) incurred in the collection of such gross proceeds. "PERMITTED ENCUMBRANCES" means, as of any particular time (a) liens for ad valorem taxes and special assessments not then delinquent, (b) the Indenture, (c) this Lease, (d) utility, access and other easements and rights-of-way, mineral rights, restrictions, exceptions and encumbrances that will not materially interfere with or impair the operations being conducted on the Project Site or easements granted to the City, (e) such minor defects, irregularities, encumbrances, easements, mechanic's liens, rights-of-way and clouds on title as normally exist with respect to properties similar in character to the Project and as do not in the aggregate materially impair the property affected thereby for the purpose for which it was acquired or is held by the City, (f) any Leasehold Mortgage, and (g) any other lien, encumbrance, lease, easements, restrictions or covenants consented to by the Owner of 100% of the principal amount of the Bonds. "PLANS AND SPECIFICATIONS" means the plans and specifications prepared for and showing the Project, as amended by the Corporation from time to time prior to the Completion Date, the same being duly certified by the Corporation, and on file at the principal office of the Corporation in Olathe, Kansas and which shall be available for reasonable inspection by the City, the Trustee and their duly appointed representatives. "PROJECT IMPROVEMENTS" means all buildings, structures, improvements and fixtures located on or to be acquired, purchased, constructed, improved or remodeled on the Project Site pursuant to ARTICLE IV -2- hereof, as described in EXHIBIT A attached hereto and by this reference made a part hereof, and all additions, alterations, modifications and improvements thereof made pursuant to this Lease. "PROJECT SITE" means all of the real estate described in EXHIBIT B attached hereto and by this reference made a part hereof. "TRUSTEE" means U.S. Bank National Association in the City of Los Angeles, California, a national banking association, duly organized and existing under the laws of the United States of America, and its successor or successors and any other corporation which at the time may be substituted in its place pursuant to and at the time serving as Trustee under the Indenture. SECTION 1.2. RULES OF INTERPRETATION. (a) Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. (b) Unless the context shall otherwise indicate, words importing the singular number shall include the plural and vice versa, and words importing persons shall include firms, associations and corporations, including governmental entities, as well as natural persons. (c) Wherever in this Lease it is provided that either party shall or will make any payment or perform or refrain from performing any act or obligation, each such provision shall, even though not so expressed, be construed as an express covenant to make such payment or to perform, or not to perform, as the case may be, such act or obligation. (d) All references in this instrument to designated "Articles," "Sections" and other subdivisions are, unless otherwise specified, to the designated Articles, Sections and subdivisions of this instrument as originally executed. The words "herein," "hereof," "hereunder" and other words of similar import refer to this Lease Agreement as a whole and not to any particular Article, Section or other subdivision. (e) The Table of Contents and the Article and Section headings of this Lease shall not be treated as a part of this Lease or as affecting the true meaning of the provisions hereof. (f) Wherever in this Lease the words "the Corporation shall" are used, such words shall obligate the Corporation to take such action or to cause such action to be taken or not taken to the extent such action is not directly within the control of the Corporation. ARTICLE II REPRESENTATIONS SECTION 2.1. REPRESENTATIONS BY THE CITY. The City makes the following representations as the basis for the undertakings on its part herein contained: (a) The City is a municipal corporation duly organized and validly existing under the laws of the State of Kansas (the "State"). Under the provisions of the Act, the City has lawful power and authority to enter into the transactions contemplated by this Lease and to carry out its obligations hereunder. By -3- proper action of its governing body, the City has been duly authorized to execute and deliver this Lease, acting by and through its duly authorized officers. (b) The City proposes to acquire the Project Site, subject to Permitted Encumbrances, and proposes to acquire, purchase, construct, improve and remodel or cause to be acquired, purchased, constructed, improved and remodeled on the Project Site the Project Improvements. The City proposes to lease the Project to the Corporation and sell the Project to the Corporation if the Corporation exercises its option to purchase the Project, all for the purpose of furthering the public purposes of the Act, and the governing body of the City has found and determined that the acquisition, purchase, construction, improving and remodeling of the Project will further the public purposes of the Act. (c) To finance the costs of the Project, the City proposes to issue the Bonds which will be scheduled to mature as set forth in ARTICLE II of the Indenture and will be subject to redemption prior to maturity in accordance with the provisions of ARTICLE III of the Indenture. (d) The Bonds are to be issued under and secured by the Indenture, pursuant to which the Project and the net earnings therefrom, including all rents, revenues and receipts to be derived by the City from the leasing or sale of the Project, will be pledged and assigned to the Trustee as security for payment of the principal of and interest on the Bonds. (e) The City will not mortgage the Project or pledge the revenues derived therefrom for any bonds or other obligations other than the Bonds except with the written consent of the Authorized Corporation Representative. (f) The City shall have no authority to operate the Project as a business or in any other manner except as the lessor thereof. (g) The acquisition, purchase, construction, improvement and remodeling of the Project and the leasing of the Project by the City to the Corporation will further the public purposes of the Act. (h) No member of the governing body of the City or any other officer of the City has any significant or conflicting interest, financial, employment or otherwise, in the Corporation or in the transactions contemplated hereby. SECTION 2.2. REPRESENTATIONS BY THE CORPORATION. The Corporation makes the following representations as the basis for the undertakings on its part herein contained: (a) The Corporation is a corporation validly existing and in good standing under the laws of the State of California and duly qualified to do business in the State of Kansas. (b) The Corporation has lawful power and authority to enter into this Lease and to carry out its obligations hereunder and by proper corporate action of its Board of Directors, the Corporation has been duly authorized to execute and deliver this Lease, acting by and through its duly authorized officers. (c) The execution and delivery of this Lease, the consummation of the transactions contemplated hereby, and the performance of or compliance with the terms and conditions of this Lease by the Corporation will not conflict with or result in a material breach of any of the terms, conditions or provisions of, or constitute a material default under, any mortgage, deed of trust, lease or any other corporate restrictions or any agreement or instrument to which the Corporation is a party or by which it or any of its -4- property is bound, or the Corporation's Articles of Incorporation or Bylaws or any order, rule or regulation applicable to the Corporation or any of its property of any court or governmental body, or constitute a material default under any of the foregoing, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Corporation under the terms of any instrument or agreement to which the Corporation is a party. (d) The Project will comply with all presently applicable building and zoning, health, environmental and safety ordinances and laws, and to the best of its knowledge, without independent investigation, the Project will comply with all other applicable laws, rules and regulations. (e) The Project is located wholly within the corporate limits of the City of Olathe, Kansas. ARTICLE III GRANTING PROVISIONS SECTION 3.1. GRANTING OF LEASEHOLD ESTATE. The City hereby rents, leases and lets the Project to the Corporation, subject to Permitted Encumbrances, and the Corporation hereby rents, leases and hires the Project from the City, subject to Permitted Encumbrances, for the rentals and upon and subject to the terms and conditions herein contained. SECTION 3.2. LEASE TERM. This Lease shall become effective upon its delivery, and subject to sooner termination pursuant to the provisions of this Lease, shall have an initial term commencing as of the date of this Lease and terminating on January 1, 2018. SECTION 3.3. POSSESSION AND USE OF THE PROJECT. (a) The City covenants and agrees that as long as neither the City nor the Trustee has exercised any of the remedies set forth in SECTION 12.2(c) following the occurrence and continuance of an Event of Default, the Corporation shall have sole and exclusive possession of the Project (subject to Permitted Encumbrances and the City's and the Trustee's right of access pursuant to SECTION 10.3 hereof) and shall and may peaceably and quietly have, hold and enjoy the Project during the Lease Term. The City covenants and agrees that it will not take any action, other than expressly pursuant to ARTICLE XII of this Lease, to prevent the Corporation from having quiet and peaceable possession and enjoyment of the Project during the Lease Term and will, at the request and expense of the Corporation, cooperate with the Corporation in order that the Corporation may have quiet and peaceable possession and enjoyment of the Project and will defend the Corporation's enjoyment and possession thereof against all parties. (b) Subject to the provisions of this Section, the Corporation shall have the right to use the Project for any lawful purpose allowed by law and contemplated by the Act. The Corporation shall comply with all statutes, laws, ordinances, orders, judgments, decrees, regulations, directions and requirements of all federal, state, local and other governments or governmental authorities, now or hereafter applicable to the Project or to any adjoining public ways, as to the manner of use or the condition of the Project or of adjoining public ways. The Corporation shall also comply with the mandatory requirements, rules and regulations of all insurers under the policies carried under the provisions of ARTICLE VII hereof. The Corporation shall pay all costs, expenses, claims, fines, penalties and damages that may in any manner arise out of, or be imposed as a result of, the failure of the Corporation to comply with the provisions of this Section. Notwithstanding any provision contained in this Section, however, the Corporation shall have the -5- right, at its own cost and expense, to contest or review by legal or other appropriate procedures the validity, legality or application of any such governmental statute, law, ordinance, order, judgment, decree, regulation, direction or requirement, or any such requirement, rule or regulation of an insurer, and during such contest or review the Corporation may refrain from complying therewith. ARTICLE IV PURCHASE, CONSTRUCTION, RENOVATION AND INSTALLATION OF THE PROJECT SECTION 4.1. ISSUANCE OF THE BONDS. (a) In order to provide funds for the payment of the Project Costs, the City agrees that it will issue, sell and cause to be delivered to the purchaser thereof the Bonds in accordance with the provisions of the Indenture and the Bond Purchase Agreement. The proceeds of the sale of the Bonds, when received, shall be paid over to the Trustee for the account of the City. The Trustee shall promptly deposit such proceeds, when received, as provided in the Indenture, to be used and applied as hereinafter provided in this Article and in the Indenture. (b) The City may authorize the issuance of Additional Bonds from time to time upon the terms and conditions provided in SECTION 209 of the Indenture for the purposes described therein. (c) If the Corporation is not in default hereunder, the City will, at the request of the Corporation, from time to time, use its best efforts to issue the amount of Additional Bonds specified by the Corporation; provided that the terms of such Additional Bonds, the purchase price to be paid therefor and the manner in which the proceeds therefrom are to be disbursed shall have been approved in writing by the Corporation; provided further that the Corporation and the City shall have entered into an amendment to this Lease to provide an increase in for rent in an amount at least sufficient to pay principal and interest on the Additional Bonds when due and the City shall have otherwise complied with the provisions of the Indenture with respect to the issuance of such Additional Bonds. SECTION 4.2. PURCHASE, CONSTRUCTION, RENOVATION AND INSTALLATION OF THE PROJECT. The City and the Corporation agree that the City will and the Corporation as the agent of the City shall, but solely from the Construction Fund except as otherwise provided herein, acquire, purchase, construct, improve and remodel the Project as follows: (a) Concurrently with the execution of this Lease, the City will acquire the Project Site and any Project Improvements located on the Project Site and which the Corporation desires to convey to the City, subject to the Permitted Encumbrances. Concurrently with the execution of this Lease (1) a deed and any other necessary instruments of transfer will be delivered to the City, (2) said deed will be placed of record, and (3) the title insurance policies required by ARTICLE VII hereof or commitments to issue such policies will be delivered to the Trustee. (b) The Corporation will, on behalf of the City, acquire, purchase, construct, improve and remodel the Project Improvements on the Project Site and otherwise improve the Project Site substantially in accordance with the Plans and Specifications. The Corporation may make minor changes in and to the construction contracts and the Plans and Specifications incorporated therein without the consent of the City. The Corporation shall notify the City in writing of major changes. "Major changes" shall be any change that -6- has an estimated cost (increase or decrease) of $1,000,000. The Corporation agrees that the aforesaid acquisition, purchase, construction, improvement and remodeling will, with such changes and additions as may be made hereunder, result in a project suitable for use by the Corporation for its purposes, and that all real property described therein is necessary in connection with the Project. (c) The Corporation agrees that it will use commercially reasonable and good faith efforts to cause the acquisition, purchase, construction, improvement and remodeling of the Project to be completed as soon as practicable with all reasonable dispatch. In the event such acquisition, purchase, construction, improvement and remodeling commences prior to the receipt of proceeds from the sale of the Bonds, the Corporation agrees to advance all funds necessary for such purpose. The Corporation shall seek reimbursement for all such funds advanced. SECTION 4.3. PROJECT COSTS. The City hereby agrees to pay for, but solely from the Construction Fund, and hereby authorizes and directs the Trustee to pay for, but solely from the Construction Fund, all Project Costs upon receipt by the Trustee of a certificate pursuant to SECTION 4.4 hereof. The term Project Costs shall have the meaning set forth in the Indenture. SECTION 4.4. PAYMENT FOR PROJECT COSTS. All Project Costs as specified in SECTION 4.3 hereof shall be paid by the Trustee from the Construction Fund as more fully provided in the Indenture. The City hereby authorizes and directs the Trustee to make disbursements from the Construction Fund, upon receipt by the Trustee of certificates in substantially the form attached hereto as EXHIBIT E, signed by an Authorized Corporation Representative: (a) requesting payment of a specified amount of such funds and directing to whom such amount shall be paid (whose name and address shall be stated); (b) describing in reasonable detail each item of Project Costs for which payment is being requested; (c) stating that each item for which payment is requested is or was necessary and appropriate in connection with the purchase, acquisition, construction, improvement or remodeling of the Project, has been properly incurred and is a proper charge against the Construction Fund, that the amount requested either has been paid, or is justly due, and has not been the basis of any previous requisition from the Construction Fund; and (d) stating that, except for the amounts, if any, stated in said certificate, to the best of their knowledge there are no outstanding statements which are then due and payable for labor, wages, materials, supplies or services in connection with the purchase, acquisition, construction, improving or remodeling of the Project which, if unpaid, might become the basis of a vendors', mechanics', laborers' or materialmen's statutory or other similar lien upon the Project or any part thereof, or setting out (i) all disputed statements and the reason for such disputes, and (ii) all statements in process but not yet presented to the Trustee for payment. The Trustee may rely conclusively on any such certificate and shall not be required to make any independent investigation in connection therewith. SECTION 4.5. ESTABLISHMENT OF COMPLETION DATE. The Completion Date shall be evidenced to the Trustee by a certificate signed by the Authorized Corporation Representative stating (a) that the acquisition, purchase, construction, improvement and remodeling of the Project has been completed -7- substantially in accordance with the Plans and Specifications in all material respects, (b) that all costs and expenses incurred in the acquisition, purchase, construction, improvement and remodeling of the Project have been paid except costs and expenses the payment of which is not yet due or is being retained or contested in good faith by the Corporation, and (c) amounts to be retained by Trustee with respect to item (b) above. Notwithstanding the foregoing, such certificate shall state that it is given without prejudice to any rights against third parties which exist at the date of such certificate or which may subsequently come into being. The Corporation and the City agree to cooperate in causing such certificate to be furnished to the Trustee. SECTION 4.6. SURPLUS OR DEFICIENCY IN CONSTRUCTION FUND. (a) Upon receipt of the certificate described in SECTION 4.5 hereof, the Trustee shall, as provided in SECTION 504 of the Indenture, transfer any remaining moneys then in the Construction Fund to the Bond Fund to be applied as directed by the Corporation solely to (1) the payment of principal and premium, if any, of the Bonds through the payment (including regularly scheduled principal payments, if any) or redemption thereof at the earliest date permissible under the terms of the Indenture, or (2) at the option of the Corporation, to the purchase of Bonds at such earlier date or dates as the Corporation may elect. Any amount so deposited in the Bond Fund may be invested as permitted by SECTION 702 of the Indenture. (b) If the Construction Fund shall be insufficient to pay fully all Project Costs and to complete the Project lien free, the Corporation shall pay, in cash, the full amount of any such deficiency by making payments thereof directly to the contractors and to the suppliers of materials and services as the same shall become due, and the Corporation shall save the City and the Trustee whole and harmless from any obligation to pay such deficiency. SECTION 4.7. PROJECT PROPERTY OF CITY. The Project Site and all Project Improvements located thereon at the execution hereof and which the Corporation desires to convey to the City, all work and materials on the Project Improvements as such work progresses, and all additions or enlargements thereto or thereof, the Project as fully completed, anything under this Lease which becomes, is deemed to be, or constitutes a part of the Project, and the Project as repaired, rebuilt, rearranged, restored or replaced by the Corporation under the provisions of this Lease, except as otherwise specifically provided herein, shall immediately when erected or installed become the absolute property of the City, subject only to Permitted Encumbrances. ARTICLE V RENT PROVISIONS SECTION 5.1. BASIC RENT. The Corporation covenants and agrees to pay to the Trustee in same day funds for the account of the City during this Lease Term, for deposit in the Bond Fund on or before 11:00 A.M., Trustee's local time, on each January 1 and July 1, commencing January 1, 2008, the amount of principal of and the interest on the Bonds then due in accordance with the provisions of the Indenture, as Basic Rent for the Project, in an amount which, when added to any collected funds then on deposit in the Bond Fund and available for the payment of principal on the Bonds and the interest thereon on such payment date, shall be equal to the amount payable on such payment date as principal of the Bonds and the interest thereon as provided in the Indenture. All payments of Basic Rent provided for in this Section shall be paid directly to the Trustee and shall be deposited in accordance with the provisions of the Indenture into the Bond Fund and shall be used and applied by the Trustee in the manner and for the purposes set forth in this -8- Lease and the Indenture. Subject to the other provisions of this Lease and the Indenture, at any time that the Corporation is the sole Bondowner, the Corporation may, at its option, make payments of Basic Rent by tendering a portion of the principal amount of the Bonds equal to such principal payment thereon to the Trustee for cancellation. SECTION 5.2. ADDITIONAL RENT. The Corporation shall pay as Additional Rent the following amounts (to the extent such amounts have not already been paid pursuant to other provisions under this Lease): (a) all reasonable fees, charges and expenses, including agent and counsel fees, of the Trustee and the Paying Agent incurred under the Indenture, as and when the same become due; (b) all costs incident to the payment of the principal of and interest on the Bonds as the same becomes due and payable, including all costs and expenses in connection with the call, redemption and payment of all Outstanding Bonds; (c) all expenses reasonably incurred in connection with the enforcement of any rights against the Corporation or the Project under this Lease or the Indenture by the City, the Trustee or the Bondowners, except for such expenses as may be incurred solely as a result of the gross negligence or wrongful misconduct of the City, the Trustee or both; (d) an amount sufficient to reimburse the City for all expenses reasonably incurred by the City hereunder and in connection with the performance of its obligations under this Lease, the Indenture or the Tax Abatement Agreement; (e) all amounts payable under the Tax Abatement Agreement; (f) all annual fees of the City or the Kansas Board of Tax Appeals; and (g) all other payments of whatever nature which the Corporation has agreed to pay or assume under the provisions of this Lease. SECTION 5.3. OBLIGATIONS OF CORPORATION ABSOLUTE AND UNCONDITIONAL. (a) Except as expressly provided herein, the obligations of the Corporation under this Lease to make payments of Basic Rent and Additional Rent on or before the date the same become due, and to perform all of its other obligations, covenants and agreements hereunder shall be absolute and unconditional, without notice or demand, and without abatement, deduction, set-off, counterclaim, recoupment or defense or any right of termination or cancellation arising from any circumstance whatsoever, whether now existing or hereafter arising, and irrespective of whether the Project shall have been started or completed, or whether the City's title thereto or to any part thereof is defective or nonexistent, and notwithstanding any damage to, loss, theft or destruction of, the Project or any part thereof, any failure of consideration or frustration of commercial purpose, the taking by eminent domain of title to or of the right of temporary use of all or any part of the Project, legal curtailment of the Corporation's use thereof, the eviction or constructive eviction of the Corporation, any change in the tax or other laws of the United States of America, the State of Kansas or any political subdivision thereof, any change in the City's legal organization or status, or any default of the City hereunder, and regardless of the invalidity of any action of the City, and regardless of the invalidity of any portion of this Lease. -9- (b) Nothing in this Lease shall be construed to release the City from the performance of any agreement on its part herein contained or as a waiver by the Corporation of any rights or claims the Corporation may have against City under this Lease or otherwise, but any recovery upon such rights and claims shall be had from the City separately, it being the intent of this Lease that the Corporation shall be unconditionally and absolutely obligated to perform fully all of its obligations, agreements and covenants under this Lease (including the obligation to pay Basic Rent and Additional Rent) for the benefit of the Bondowners. The Corporation may, however, at its own cost and expense and in its own name or in the name of the City, prosecute or defend any action or proceeding or take any other action involving third persons which the Corporation deems reasonably necessary in order to secure or protect its right of possession, occupancy and use hereunder, and in such event the City hereby agrees to cooperate fully with the Corporation and to take all action necessary to effect the substitution of the Corporation for the City in any such action or proceeding if the Corporation shall so request. SECTION 5.4. PREPAYMENT OF BASIC RENT. The Corporation may at any time prepay all or any part of the Basic Rent provided for hereunder. During such times as the amount held by the Trustee in the Bond Fund shall be sufficient to pay, at the time required, the principal of and interest on all the Bonds then remaining unpaid, the Corporation shall not be obligated to make payments of Basic Rent under the provisions of this Lease. SECTION 5.5. REDEMPTION OF BONDS. The City and the Trustee, at the written direction of the Corporation, at any time the aggregate moneys in the Bond Fund are sufficient for such purposes, shall (a) if the same are then redeemable under the provision of ARTICLE III of the Indenture, take all steps that may be necessary under the applicable redemption provisions of the Indenture to effect the redemption of all or such part of the then Outstanding Bonds as may be specified by the Corporation, on such redemption date as may be specified by the Corporation or (b) cause such moneys in the Bond Fund or such part thereof as the Corporation shall direct, to be applied by the Trustee for the purchase of Bonds in the open market for the purpose of cancellation at prices not exceeding the principal amount thereof, or (c) a combination of (a) and (b) as provided in such direction. ARTICLE VI MAINTENANCE, TAXES AND UTILITIES SECTION 6.1. MAINTENANCE AND REPAIRS. Throughout the Lease Term the Corporation shall, at its own expense, keep the Project in as reasonably safe condition as the operation thereof will permit, and keep the Project in good repair and in good operating condition, making from time to time such repairs thereto and renewals and replacements thereof as the Corporation deems necessary. SECTION 6.2. TAXES, ASSESSMENTS AND OTHER GOVERNMENTAL CHARGES. (a) The Corporation shall promptly pay and discharge, as the same become due, all taxes and assessments, general and special, and other governmental charges of any kind whatsoever that may be lawfully taxed, charged, levied, assessed or imposed upon or against the Project, or any part thereof or interest therein (including the leasehold estate of the Corporation therein) or any buildings, improvements at any time installed thereon by the Corporation, or the income therefrom or Basic Rent and other amounts payable under this Lease, including any new taxes and assessments not of the kind enumerated above to the extent that the same are lawfully made, levied or assessed in lieu of or in addition to taxes or assessments now customarily levied against real or personal property, and further including all utility charges, -10- assessments and other general governmental charges and impositions whatsoever, foreseen or unforeseen, which if not paid when due would materially impair the security of the Bonds or materially encumber the City's title to the Project; provided that with respect to any special assessments or other governmental charges that are lawfully levied and assessed which may be paid in installments, the Corporation shall be obligated to pay only such installments thereof as become due and payable during the Lease Term. (b) The Corporation shall have the right, in its own name or in the City's name, to contest the validity, application or amount of any tax, assessment or other governmental charge which the Corporation is required to bear, pay and discharge pursuant to the terms of this Article by appropriate legal proceedings instituted before the tax, assessment or other governmental charge complained of becomes delinquent if and provided (1) the Corporation, before instituting any such contest, gives the City written notice of its intention so to do, (2) the Corporation diligently prosecutes any such contest, at all times effectively stays or prevents any official or judicial sale therefor, under execution or otherwise, and (3) the Corporation promptly pays any final judgment enforcing the tax, assessment or other governmental charge so contested and thereafter promptly procures record release or satisfaction thereof. The City agrees to cooperate fully with the Corporation in connection with any and all administrative or judicial proceedings related to any tax, assessment or other governmental charge. The Corporation shall hold the City whole and harmless from any costs and expenses the City may incur related to any of the above. SECTION 6.3. UTILITIES. All utilities and utility services used by the Corporation in, on or about the Project shall be paid for by the Corporation and shall be contracted for by the Corporation in the Corporation's own name, and the Corporation shall, at its sole cost and expense, procure any and all permits, licenses or authorizations necessary in connection therewith. SECTION 6.4. AD VALOREM TAXES. The City and the Corporation acknowledge that under the existing provisions of K.S.A. 79-201a, as amended, the property purchased, acquired, constructed, reconstructed, improved, furnished, repaired, enlarged or remodeled with the proceeds of the Bonds is entitled to exemption from general ad valorem and property taxes (other than special assessments levied on account of special benefits) on real and personal property, other than inventory, for a period of ten (10) calendar years after the calendar year in which the Bonds are issued, provided proper application is made therefor. The City covenants that it will not voluntarily take any action which may be reasonably construed as tending to cause or induce the levy or assessment of such ad valorem or property taxes on the Project so long as any of the Bonds are Outstanding and unpaid or for said ten (10) year period, whichever shall be the shorter time, and at the Corporation's request, fully cooperate with the Corporation in all reasonable ways to prevent any such levy or assessment. The City shall file the Application for Exemption to effect the property tax abatement described in K.S.A. 79-201a using information to be provided by the Corporation. The Corporation agrees to pay any such levies or assessments that are lawful on the Project. SECTION 6.5. PAYMENT IN LIEU OF TAXES. The Corporation agrees that, during each year the Project is exempt from ad valorem and personal property taxes by reason thereof, the Corporation will make a payment in lieu of taxes to the City in the amounts and at the times set forth in the Tax Abatement Agreement providing for payments in lieu of such ad valorem and personal property taxes. Such payment shall be made each year at the time ad valorem taxes on the Project would first be due and payable but for such exemption. SECTION 6.6. KANSAS RETAILERS' SALES TAX. The parties have entered into this Lease Agreement in contemplation that, under the existing provisions of K.S.A. 79-3606(d) and other applicable laws, sales of tangible personal property or services purchased in connection with the acquisition, purchase, construction, improving or remodeling of the Project are entitled to exemption from the tax imposed by the Kansas -11- Retailers' Sales Tax Act. The parties agree that the City shall, upon the request of and with the Corporation's assistance, promptly obtain from the State and furnish to the contractors and suppliers an exemption certificate for the acquisition, purchase, construction, improving or remodeling of the Project. The Corporation covenants that said exemption shall be used only in connection with the purchase of tangible personal property or services becoming a part of the Project. ARTICLE VII INSURANCE SECTION 7.1. TITLE INSURANCE. The Corporation will purchase, on behalf of the City and the Trustee, at its expense, from a Corporation duly qualified to issue such insurance in the State of Kansas, an owner's policy of title insurance in the amount of at least $1,000,000. Copies of said policy or a commitment therefor will be delivered to the Trustee by the Corporation on or before the date of issuance of the Bonds. SECTION 7.2. CASUALTY INSURANCE. (a) Subject to the right of the Corporation to increase the deductibles described herein and to provide for self-insurance as provided in subparagraph (c) of this Section, the Corporation shall at all times during the construction period maintain at its sole cost and expense, or cause the contractors under the construction contracts to maintain, in full force and effect a policy or policies of Builder's Risk-Completed Value Form Insurance insuring the Project against fire, lightning and all other risks covered by the extended coverage endorsement then in use in the State of Kansas to the Full Insurable Value of the Project (subject to reasonable loss deductible clauses not to exceed $1,000,000). Subject to the rights of the Corporation provided in subparagraph (c) of this Section, prior to or simultaneously with the expiration of said Builder's Risk Insurance, the Corporation shall at its sole cost and expense obtain and shall maintain throughout the Lease Term, a policy or policies of insurance to keep the Project constantly insured against loss or damage by fire, lightning and all other risks covered by the extended coverage insurance endorsement then in use in the State of Kansas in an amount equal to the Full Insurable Value thereof (subject to reasonable loss deductible clauses not to exceed $1,000,000). The initial determination of Full Insurable Value shall be made at the Completion Date, and thereafter, the Full Insurable Value of the Project shall be provided from time to time at the written request of the City or the Trustee (but not more frequently than once in every three years) by the certificate of an Authorized Corporation Representative or the chief financial officer of the Corporation. The insurance required pursuant to this Section shall be maintained at the Corporation's sole cost and expense, shall be maintained with generally recognized responsible insurance company or companies authorized to do business in the State of Kansas as may be selected by the Corporation. Copies of the insurance policies required under this Section, or originals or certificates thereof, shall be delivered by the Corporation to the Trustee. All such policies of insurance pursuant to this Section, and all renewals thereof, shall name the City, the Corporation and the Trustee as insureds as their respective interests may appear, and shall contain a provision that such insurance may not be canceled by the issuer thereof without at least 30 days' advance written notice to the City, the Corporation and the Trustee, and shall be payable to the Trustee. (b) In the event of loss or damage to the Project, the Net Proceeds of casualty insurance carried pursuant to this Section shall be paid over to the Trustee and shall be applied as provided in ARTICLE IX of this Lease. -12- (c) In lieu of obtaining all or any part of the insurance required by subparagraph (a) hereof, the Corporation may elect to be self-insured for all or any part of the foregoing requirements (which right to self insure shall include the right of the Corporation to increase the deductibles on such policies to an amount not to exceed $1,000,000) provided the Corporation complies with each of the following: (i) the Corporation notifies the City and the Trustee in writing that it has elected to increase one or more of the deductibles on such policies or to provide such coverages through a self-insurance program, (ii) if the self-insurance program is maintained by a legal entity other than the Corporation, the Corporation notifies the City and the Trustee in writing of an address to which the City and the Trustee may submit claims under such self-insurance program, and (iii) if the self-insurance program is maintained by a legal entity other than the Corporation, the provider of such self insurance program is rated in one of the three highest rating categories by a nationally recognized rating agency (without regard to any rating modifiers) or if the self-insurance program is maintained by the Corporation or an affiliate of the Corporation, the consolidated net worth of such entity is at least equal to $100,000,000 based upon audited financial statements submitted to the City and the Trustee prior to the effective date of such self-insurance program. SECTION 7.3. PUBLIC LIABILITY INSURANCE. (a) Subject to the right of the Corporation to increase the deductibles described herein and to provide for self-insurance as provided in subparagraph (c) of this Section, the Corporation shall at its sole cost and expense maintain or cause to be maintained at all times during the Lease Term general accident and public liability insurance (including but not limited to coverage for all losses whatsoever arising from the ownership, maintenance, operation or use of any automobile, truck or other motor vehicle), under which the City, the Corporation and the Trustee shall be named as additional insureds, properly protecting and indemnifying the City and the Trustee, in an amount not less than $1,000,000 for bodily injury (including death) in any one occurrence (subject to reasonable loss deductible clauses not to exceed $100,000)), and not less than $1,000,000 for property damage in any one occurrence (subject to reasonable loss deductible clauses not to exceed $100,000). The policies of said insurance shall contain a provision that such insurance may not be canceled by the issuer thereof without at least 30 days' advance written notice to the City, the Corporation and the Trustee. Such policies or copies or certificates thereof shall be furnished to the Trustee. (b) In the event of a public liability occurrence, the Net Proceeds of liability insurance carried pursuant to this Section shall be applied toward the extinguishment or satisfaction of the liability with respect to which such proceeds have been paid. (c) In lieu of obtaining all or any part of the insurance required by subparagraph (a) hereof, the Corporation may elect to be self-insured for all or any part of the foregoing requirements (which right to self insure shall include the right of the Corporation to increase the deductibles on such policies to an amount not to exceed $1,000,000) provided the Corporation complies with each of the following: (i) the Corporation notifies the City and the Trustee in writing that it has elected to increase one or more of the deductibles on such policies or to provide such coverages through a self-insurance program, (ii) if the self-insurance program is maintained by a legal entity other than the Corporation, the Corporation notifies the City and the Trustee in writing of an address to which the City and the Trustee may submit claims under such self-insurance program, and (iii) if the self-insurance program is maintained by a legal entity other than the Corporation, the provider of such self insurance program is rated in one of the three highest rating categories by a nationally recognized rating agency (without regard to any rating modifiers) or if the self-insurance program is maintained by the Corporation or an affiliate of the Corporation, the consolidated net worth of such entity is at least equal to $100,000,000 based upon audited financial statements submitted to the City and the Trustee prior to the effective date of such self-insurance program. -13- SECTION 7.4. BLANKET INSURANCE POLICIES. The Corporation may satisfy any of the insurance requirements set forth in this Article by using blanket policies of insurance, provided each and all of the requirements and specifications of this Article respecting insurance are complied with. SECTION 7.5. INDEMNIFICATION OF TRUSTEE. The Corporation agrees to indemnify and save the Trustee harmless against and from all claims by or on behalf of any person, firm or corporation arising from the conduct or management of, or from any work or thing done on, the Project during the Lease Term, and against and from all claims arising during the Lease Term from (a) any condition of the Project caused or permitted by the Corporation, (b) any breach or default on the part of the Corporation in the performance of any of its obligations under this Lease, (c) any contract entered into by the Corporation, its agents, employees or contracting obligees in connection with the acquisition, purchase, construction, improving, equipping or remodeling of the Project, (d) any act of negligence of the Corporation or of any of its agents, contractors, servants, employees or licensees, (e) any act of negligence of any assignee or sublessee of the Corporation, or of any agents, contractors, servants, employees or licensees of any assignee or sublessee of the Corporation and (f) the acceptance of, and administration of the duties and obligations of the Trustee under the Indenture and the documents related thereto, including without limitation, this Lease; provided, however, that the indemnification contained in this SECTION 7.5 shall not extend to the Trustee to the extent that such claim is (i) the result of work being performed at the Project by employees, agents or contractors of the Trustee; (ii) the result of the negligence or willful misconduct of the Trustee, their employees, agents or contractors; or (iii) is for consequential, punitive or similar type damages. As a condition to such indemnification, the Trustee will tender the defense of any claim for which it believes it is entitled to indemnification to the Corporation in sufficient time to avoid a default on the claim, and will cooperate in the contest or settlement of the claim so long as it incurs no cost on that account. ARTICLE VIII ALTERATION OF THE PROJECT SECTION 8.1. ADDITIONS, MODIFICATIONS AND IMPROVEMENTS OF THE PROJECT. The Corporation shall have and is hereby given the right, at its sole cost and expense, to make such additions, modifications and improvements in and to any part of the Project as the Corporation from time to time may deem necessary or desirable for its business purposes. All additions, modifications and improvements made by the Corporation pursuant to the authority of this Section shall (a) be made in workmanlike manner and in strict compliance with all laws and ordinances applicable thereto, (b) when commenced, be prosecuted to completion with due diligence, and (c) when completed, be deemed a part of the Project; provided, however, that additions of machinery and equipment installed in the Project by the Corporation shall remain the property of the Corporation and may be removed by the Corporation. SECTION 8.2. ADDITIONAL IMPROVEMENTS ON THE PROJECT SITE. The Corporation shall have and is hereby given the right, at its sole cost and expense, to construct on portions of the Project Site not theretofore occupied by buildings or improvements such additional buildings and improvements as the Corporation from time to time may deem necessary or desirable for its business purposes. All additional buildings and improvements constructed on the Project Site by the Corporation pursuant to the authority of this Section shall, during the life of this Lease, remain the property of the Corporation and may be added to, altered or razed and removed by the Corporation at any time. The Corporation covenants and agrees (a) to make any repairs and restorations required to be made to the Project because of the construction of, addition to, alteration or removal of said additional -14- buildings or improvements, (b) to keep and maintain said additional buildings and improvements in good condition and repair, ordinary wear and tear excepted, and (c) to promptly and with due diligence either raze and remove in a good and workmanlike manner, or repair, replace or restore any of said additional buildings and improvements as may from time to time be damaged by fire or other casualty. SECTION 8.3. PERMITS AND AUTHORIZATIONS. The Corporation shall not do or permit others under its control to do any work on the Project related to any repair, rebuilding, restoration, replacement, modification or addition to the Project, or any part thereof, unless all requisite municipal and other governmental permits and authorizations shall have been first procured. All such work shall be done in a good and workmanlike manner and in compliance with all applicable building, zoning and other laws, ordinances, governmental regulations and requirements and in accordance with the requirements, rules and regulations of all insurers under the policies required to be carried under the provisions of ARTICLE VII hereof. SECTION 8.4. MECHANICS' LIENS. (a) Neither the City nor the Corporation shall do or suffer anything to be done whereby the Project, or any part thereof, may be encumbered by any mechanics' or other similar lien. Whenever and as often as any mechanics' or other similar lien is filed against the Project, or any part thereof, purporting to be for or on account of any labor done or materials or services furnished in connection with any work in or about the Project, the Corporation shall discharge the same of record within 90 days after the date of filing. Notice is hereby given that the City shall not be liable for any labor or materials furnished the Corporation or anyone claiming by, through or under the Corporation upon credit, and that no mechanics' or other similar lien for any such labor, services or materials shall attach to or affect the reversionary or other estate of the City in and to the Project or any part thereof. (b) Notwithstanding paragraph (a) above, the Corporation shall have the right to contest any such mechanics' or other similar lien if within said 90-day period stated above it notifies the City and the Trustee in writing of its intention so to do, and provided the Corporation diligently prosecutes such contest, at all times effectively stays or prevents any official or judicial sale of the Project, or any part thereof or interest therein, under execution or otherwise, and pays or otherwise satisfies any final judgment enforcing such contested lien claim and thereafter promptly procures record release or satisfaction thereof. The Corporation shall hold the City whole and harmless from any loss, costs or expenses the City may incur related to any such contest. The City shall cooperate fully with the Corporation in any such contest. SECTION 8.5. OPTION TO PURCHASE UNIMPROVED PORTIONS OF THE PROJECT SITE. The City hereby grants to the Corporation the right at any time and from time to time to purchase any unimproved portion or portions of the Project Site. For the purposes of this Section "unimproved" shall mean real property upon which no improvements are located, excluding improvements relating to streets, sidewalks, bridges, stormwater, grading, utility or other similar improvements. As conditions to such purchase the City and the Trustee shall receive from the Corporation at least 30 days prior to the proposed date for completing the purchase the following (1) a written certificate from the Corporation to the effect (i) that the Corporation desires to purchase an unimproved portion of the Project Site, (ii) the proposed date for completing the purchase, and (iii) that the Corporation is not in default (beyond the expiration of any applicable grace or cure period) under any of the provisions of this Lease, (2) providing the City and the Trustee with an adequate legal description of that portion (together with the interest in such portion) of the property to be purchased and a copy of a title commitment with respect to such property, (3) a certificate of an independent engineer or surveyor, dated not more than 30 days prior to the date of the request stating that, in the opinion of the person signing such certificate, (i) the unimproved portion of the Project Site is unimproved within the -15- definition contained in this Section, (ii) the unimproved portion of the Project Site so proposed to be purchased is not needed for the operation of the Project, and (iii) the proposed purchase will not impair the usefulness of the Project for its intended purposes and will not destroy the means of ingress thereto and egress therefrom, and (4) the written consent of the Owners of all of the Bonds. The purchase price for such unimproved portion of the Project Site shall be determined by the Owners of all of the Bonds and shall be received in writing by the City and the Trustee at least 10 days prior to the proposed date for completing the purchase. Such purchase price shall be paid to the Trustee at the time the City executes and delivers a Special Warranty Deed conveying the property which is to be purchased to the Corporation. The Trustee shall deposit such amount (if any) into the Bond Fund. If such amount is more than $1,000, such amount shall be used by the Trustee to redeem Bonds in accordance with SECTION 302(a) of the Indenture. If such amount is $1,000 or less the Trustee shall apply such amount to the next interest payment on the Bonds. Upon the City's receipt of written notice from the Trustee that the Trustee has received all of the items required by this Section, the Mayor and City Clerk of the City shall execute a Special Warranty Deed conveying such property to the Corporation and shall deliver such deed to the Corporation. Such Special Warranty Deed shall be subject to the following: (1) those liens and encumbrances, if any, to which title to that portion of the Project Site was subject when conveyed to the City; (2) those liens and encumbrances created by the Corporation or to the creation or suffering of which the Corporation consented; (3) those liens and encumbrances resulting from the failure of the Corporation to perform or observe any of the agreement on its part contained in this Lease; (4) Permitted Encumbrances other than the Indenture and this Lease; and (5) if the unimproved portion of the Project Site or any part thereof is being condemned, the rights and title of any condemning authority. Upon any purchase of portions of the Project Site pursuant to this Section, the portions of the Project Site so purchased shall no longer be entitled to the benefits of the Tax Abatement Agreement. ARTICLE IX DAMAGE, DESTRUCTION AND CONDEMNATION SECTION 9.1. DAMAGE OR DESTRUCTION. (a) Subject to the provisions of any mortgage, if the Project shall be damaged or destroyed by fire or any other casualty, whether or not covered by insurance, the Corporation, as promptly as practicable, shall select one of the following options: (1) repair, restore, replace or rebuild the same to as nearly as may be practicable their condition and character immediately prior to such damage or destruction, and so that upon completion of such repairs, restoration, replacement or rebuilding the Project shall be of a value not less than the value thereof immediately prior to the occurrence of such damage or destruction; or (2) construct upon the Project Site new buildings and improvements thereafter together with all new fixtures which are to be attached thereto, provided that (i) the value thereof shall not be less than the value of such destroyed or damaged Project Improvements immediately prior to the occurrence of such damage or destruction and (ii) the nature of such new buildings, improvements and fixtures will not impair the character of the Project as an enterprise permitted by the Act; or -16- (3) provide for the redemption and/or cancellation of all of the Outstanding Bonds, in which event the Corporation shall not be required to restore rebuild, repair, replace or reconstruct any portion of the Project If the Corporation shall elect to construct any such new buildings and improvements, for all purposes of this Lease, any reference to the words "Project Improvements" shall be deemed to also include any such new buildings and improvements and all additions thereto and all replacements and alterations thereof. The Net Proceeds of casualty insurance required by ARTICLE VII hereof received with respect to such damage or loss to the Project shall be disbursed in accordance with the Leasehold Mortgages (in the order of priority) so long as the Leasehold Mortgages contain provisions governing the disbursement of casualty insurance proceeds. If there is no Leasehold Mortgage, or if the Leasehold Mortgage does not contain provisions governing the disbursement of casualty insurance proceeds, then (i) if such Net Proceeds are less than $250,000, the Net Proceeds shall be paid to the Corporation to be used in accordance with this Lease, and (ii) if such Net Proceeds equal or exceed $250,000, the Net Proceeds shall be paid to the Trustee and shall be applied in the following manner: (A) there shall be paid to the Corporation from the Net Proceeds such part thereof as shall equal the cost to the Corporation of making such temporary repairs or doing such other work, as, in the Corporation's reasonable opinion, may be necessary in order to protect the Project pending adjustment of the insurance loss or the making of permanent repairs, restoration, replacement or rebuilding; (B) there shall be paid to the Corporation from the Net Proceeds such part thereof as shall equal the cost to the Corporation of repairing, restoring, replacing or rebuilding the Project or any part thereof; (C) payment to the Corporation pursuant to subdivisions (A) or (B) of this subsection (a)(ii) from such Net Proceeds shall be made to the Corporation from time to time as the work progresses, in amounts equal to the cost of labor and material incorporated into and used in such work, the architects' and engineers' fees, and other charges in connection with such work, upon delivery to the City and the Trustee of a certificate of the Corporation's architect or general contractor, as the case may be, in charge of such work, certifying: (1) that the amounts so to be paid to the Corporation are payable to the Corporation in accordance with the provisions of this Article and that such amounts are then due and payable by the Corporation or have theretofore been paid by the Corporation; (2) the progress of the work; (3) that the work has been done in accordance with the plans and specifications therefor and all insurance requirements of ARTICLE VII hereof; (4) that the sum requested when added to all sums previously paid out under this Article for the work does not exceed the value of the work done to the date of such certificate; (5) the estimated cost of completing the work, in reasonable detail; and (6) that the remaining Net Proceeds are sufficient to pay the estimated cost of completing the work; (D) at the request of the City or the Trustee, the Corporation shall furnish to the person requesting the same, at the time of any such payment, with an official search, or other evidence reasonably satisfactory to such person, that there has not been filed with respect to the Project Site or the Project Improvements any mechanic's or other lien which has not been discharged of record, in respect of any work, labor, services or materials performed, furnished or supplied, in connection -17- with the work and that all of said materials have been purchased free and clear of all security interest or other encumbrances. The Trustee shall not pay out any such sum when the Project Site or the Project Improvements shall be encumbered with any such security interest or encumbrance. Upon the termination of this Lease and the payment in full of the Bonds, any monies then held by the Trustee shall be paid over to the Corporation. (b) The insurance monies, if any, paid to the Corporation as provided under this Article, on account of any loss or destruction to the Project, shall be held by it in trust and applied only for the purposes of repairing, reconstructing or restoring the Project or constructing new buildings and improvements. (c) If any of the insurance monies paid by the insurance company to the Trustee or the Corporation as hereinabove provided, shall remain after the completion of such repairs, restoration, replacement or rebuilding, and this Lease shall not have terminated, the excess shall be deposited in the Bond Fund, subject to the rights of any beneficiary. If the Net Proceeds shall be insufficient to pay the entire cost of such repairs, restoration, replacement or rebuilding, the Corporation shall pay the deficiency. (d) Except as otherwise provided in this Lease, in the event of any such damage by fire or any other casualty, the provisions of this Lease shall be unaffected and the Corporation shall remain and continue liable for the payment of all Basic Rent and Additional Rental and all other charges required hereunder to be paid by the Corporation, as though no damage by fire or any other casualty has occurred. (e) The City and the Corporation agree that they will cooperate with each other, to such extent as such other party may reasonably require, in connection with the prosecution or defense of any action or proceeding arising out of, or for the collection of any insurance monies that may be due in the event of, any loss or damage, and that they will execute and deliver to such other parties such instruments as may be required to facilitate the recovery of any insurance monies. (f) The Corporation agrees to give prompt notice to the City and the Trustee with respect to all fires and any other casualties occurring in, on, at or about the Project. (g) If the Corporation shall determine that rebuilding, repairing, restoring or replacing the Project is not practicable and desirable, any Net Proceeds of casualty insurance required by ARTICLE VII hereof received with respect to such damage or loss shall be paid into the Bond Fund and shall be used to redeem Bonds on the earliest practicable redemption date or to pay the principal of any Bonds as the same become due. The Corporation agrees to be reasonable in exercising its judgment pursuant to this subsection (g). (h) The Corporation shall not, by reason of its inability to use all or any part of the Project during any period in which the Project is damaged or destroyed or is being repaired, rebuilt, restored or replaced, nor by reason of the payment of the costs of such rebuilding, repairing, restoring or replacing, be entitled to any reimbursement from the City, the Trustee or the Bondowners or to any abatement or diminution of the rentals payable by the Corporation under this Lease or of any other obligations of the Corporation under this Lease except as expressly provided in this Section. SECTION 9.2. CONDEMNATION. (a) If during the Lease Term, title to, or the temporary use of, all or any part of the Project shall be condemned by or sold under threat of condemnation to any authority possessing the power of eminent domain, to such extent that the claim or loss resulting from such condemnation is greater than $1,000,000, -18- the Corporation shall, within 90 days after the date of entry of a final order in any eminent domain proceedings granting condemnation or the date of sale under threat of condemnation, notify the City, the Trustee and the mortgagee under any Leasehold Mortgage (if any) in writing as to the nature and extent of such condemnation or loss of title and whether it is practicable and desirable to acquire or construct substitute improvements. (b) If the Corporation shall determine that such substitution is practicable and desirable, the Corporation shall proceed promptly with and complete with reasonable dispatch the acquisition or construction of such substitute improvements, so as to place the Project in substantially the same condition as existed prior to the exercise of the said power of eminent domain, including the acquisition or construction of other improvements suitable for the Corporation's operations at the Project (which improvements will be deemed a part of the Project and available for use and occupancy by the Corporation without the payment of any rent other than herein provided, to the same extent as if such other improvements were specifically described herein and demised hereby); provided, that such improvements will be acquired by the City subject to no liens, security interests or encumbrances prior to the lien and/or security interest afforded by the Indenture other than Permitted Encumbrances. In such case, any Net Proceeds received from any award or awards with respect to the Project or any part thereof made in such condemnation or eminent domain proceedings, or of the sale proceeds, shall be applied in the same manner as provided in SECTION 9.1 hereof (with respect to the receipt of casualty insurance proceeds). (c) If the Corporation shall determine that it is not practicable and desirable to acquire or construct substitute improvements, any Net Proceeds of condemnation awards received by the Corporation shall be paid into the Bond Fund and shall be used to redeem Bonds on the earliest practicable redemption date or to pay the principal of any Bonds as the same becomes due and payable, all subject to the rights of the mortgagees under the Leasehold Mortgage, if any. (d) The Corporation shall not, by reason of its inability to use all or any part of the Project during any such period of restoration or acquisition nor by reason of the payment of the costs of such restoration or acquisition, be entitled to any reimbursement from the City, the Trustee or the Bondowners or to any abatement or diminution of the rentals payable by the Corporation under this Lease nor of any other obligations hereunder except as expressly provided in this Section. (e) The City shall cooperate fully with the Corporation in the handling and conduct of any prospective or pending condemnation proceedings with respect to the Project or any part thereof, and shall, to the extent it may lawfully do so, permit the Corporation to litigate in any such proceeding in the name and on behalf of the City. In no event will the City voluntarily settle or consent to the settlement of any prospective or pending condemnation proceedings with respect to the Project or any part thereof without the prior written consent of the Corporation. (f) In no event will the City voluntarily settle or consent to the settlement of any prospective or pending condemnation proceedings with respect to the Project or any part thereof without the prior written consent of the Corporation. (g) The City irrevocably assigns to the Corporation all of its rights to any condemnation proceeds received in its capacity as landlord under this Lease. -19- ARTICLE X SPECIAL COVENANTS SECTION 10.1. NO WARRANTY OF CONDITION OR SUITABILITY BY THE CITY; EXCULPATION AND INDEMNIFICATION. The City makes no warranty, either express or implied, as to the condition of the Project or that it will be suitable for the Corporation's purposes or needs. The Corporation releases the City from, agrees that the City shall not be liable for and agrees to hold the City harmless against, any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever pertaining to the Project or the use thereof; except to the extent that such loss is the result of the gross negligence or willful misconduct of the City, its employees, agents or contractors. SECTION 10.2. SURRENDER OF POSSESSION. Upon accrual of the City's right of re-entry because of the Corporation's default hereunder (beyond any applicable grace or cure period) or upon the cancellation or termination of this Lease for any reason other than the Corporation's purchase of the Project pursuant to ARTICLE XI hereof, the Corporation shall peacefully surrender possession of the Project to the City in good condition and repair, ordinary wear and tear excepted; provided, however, the Corporation shall have the right within 90 days (or such later date as the City may agree to) after the termination of this Lease to remove from the Project Site any buildings, improvements, furniture, trade fixtures, machinery and equipment owned by the Corporation and not constituting part of the Project. All repairs to and restorations of the Project required to be made because of such removal shall be made by and at the sole cost and expense of the Corporation, and during said 90-day (or extended) period the Corporation shall bear the sole responsibility for and bear the sole risk of loss for said buildings, improvements, furniture, trade fixtures, machinery and equipment. All buildings, improvements, furniture, trade fixtures, machinery and equipment owned by the Corporation and which are not so removed from the Project prior to the expiration of said period shall be the separate and absolute property of the City. SECTION 10.3. CITY'S RIGHT OF ACCESS TO THE PROJECT. In addition to the inspection rights of the City pursuant to SECTION 3.1 of the Tax Abatement Agreement, the Corporation agrees that the City and the Trustee and their duly authorized agents shall have the right at reasonable times during business hours, subject to the Corporation's usual safety and security requirements, to enter upon the Project Site after delivering written notice to the Corporation (a) as may be reasonably necessary to cause to be completed the acquisition, purchase, construction, improving or remodeling provided for in SECTION 4.2 hereof, (b) to perform such work in and about the Project made necessary by reason of the Corporation's default (following notice and the expiration of applicable grace or cure periods) under any of the provisions of this Lease, and (c) following an Event of Default, to exhibit the Project to prospective purchasers, lessees or trustees. SECTION 10.4. GRANTING OF EASEMENTS; LEASEHOLD MORTGAGES (a) If no Event of Default under this Lease shall have happened and be continuing, the Corporation may at any time or times (1) grant easements, licenses, rights-of-way (including the dedication of public highways) and other rights or privileges in the nature of easements that are for the direct use of the Project, or part thereof, by the grantee, (2) release existing easements, licenses, rights-of-way and other rights or privileges, all with or without consideration and upon such terms and conditions as the Corporation shall determine, or (3) grant or permit the Permitted Encumbrances. The City agrees that it will execute and deliver and will cause and direct the Trustee to execute and deliver any instrument necessary or appropriate to confirm and grant or release any such easement, license, right-of-way or other right or privilege or any such agreement or other arrangement, upon receipt by the City and the Trustee of: (i) a copy of the -20- instrument of grant or release or of the agreement or other arrangement, (ii) a written application signed by an Authorized Corporation Representative requesting such instrument, and (iii) a certificate executed by an Authorized Corporation Representative stating that such grant or release is not detrimental to the proper conduct of the business of the Corporation, will not impair the effective use or interfere with the efficient and economical operation of the Project, and will not materially adversely affect the security intended to be given by or under the Indenture. If no Event of Default shall have happened and be continuing beyond any applicable grace period, any payments or other consideration received by the Corporation for any such grant or with respect to or under any such agreement or other arrangement shall be and remain the property of the Corporation, but, in the event of the termination of this Lease or during the continuation of an Event of Default, all rights then existing of the Corporation with respect to or under such grant shall inure to the benefit of and be exercisable by the City and the Trustee. (b) The Corporation may mortgage the leasehold estate created by this Lease, without the City's consent, provided and upon condition that: (i) a duplicate original or certified copy or photostatic copy of each such Leasehold Mortgage, and the note or other obligation secured thereby, is delivered to the City within thirty (30) days after the execution thereof; and (ii) such Leasehold Mortgage shall contain a covenant to the effect that the net proceeds of all insurance policies and the condemnation award shall be held, used and applied for the purposes and in the manner provided for in this Lease. (c) Notwithstanding anything contained to the contrary in this Lease, (i) the Corporation shall have the right to assign this Lease and any subleases to any leasehold mortgagee or to the designee or nominee of such leasehold mortgagee, without the consent of the City, and (ii) if the leasehold mortgagee or its designee or nominee shall acquire ownership of the leasehold estate, either following foreclosure of such Leasehold Mortgage or in liquidation of the indebtedness and in lieu of foreclosure thereof, the leasehold mortgagee or its designee or nominee shall have the further right to further assign this Lease and any subleases and any purchase money mortgage accepted in connection therewith, without the consent of the City and such assignee shall enjoy all rights, powers and privileges granted herein to leasehold mortgagees. (d) If (1) the Corporation shall execute and deliver a Leasehold Mortgage, and (2) the provisions and conditions of subsection (b) above shall have been fully complied with and observed with respect to such Leasehold Mortgage, and (3) the Corporation or the mortgagee under such Leasehold Mortgage shall have notified the City in writing of the making thereof and of the name and address of such leasehold mortgagee; then: (i) this Lease may not be modified, amended, canceled or surrendered by agreement between the City and the Corporation, without the prior written consent of such leasehold mortgagee; (ii) there shall be no merger of this Lease or of the leasehold estate created hereby with the fee title to the Project, notwithstanding that this Lease or said leasehold estate and said fee title shall be owned by the same person or persons, without the prior written consent of such leasehold mortgagee; (iii) the City shall serve upon each such leasehold mortgagee a copy of each notice of default and each notice of termination given to the Corporation under this Lease, at the same time as -21- such notice is served upon the Corporation. No such notice to the Corporation shall be effective unless a copy thereof is thus served upon each leasehold mortgagee; (iv) each leasehold mortgagee shall have the same period of time after the service of such notice upon it within which the Corporation may remedy or cause to be remedied the default which is the basis of the notice plus sixty (60) days; and the City shall accept performance by such leasehold mortgagee as timely performance by the Corporation; (v) such leasehold mortgagee shall not be required to continue possession or continue foreclosure proceedings under paragraph (vii) of this subsection if the particular default has been cured; (vi) the City may exercise any of its rights or remedies with respect to any other default by the Corporation occurring during the period of such forbearance provided for under said paragraph (g), subject to the rights of the leasehold mortgagee under this Section as to such other defaults; (vii) in case of default by the Corporation under this Lease, other than a default in the payment of money, the City shall take no action to effect a termination of this Lease by service of a notice or otherwise, without first giving to such leasehold mortgagee a reasonable time within which either to obtain possession of the Project and to remedy such default in the case of a default which is susceptible of being cured when such leasehold mortgagee has obtained possession of the Project, or to institute and with reasonable diligence to complete foreclosure proceedings or otherwise acquire the Corporation's leasehold estate under this Lease in the case of a default which is not so susceptible of being remedied by such leasehold mortgagee, provided that the leasehold mortgagee shall deliver to the City within thirty (30) days after the expiration of the grace period applicable to the particular default, an instrument unconditionally agreeing to remedy such default other than a default not susceptible of being remedied by such leasehold mortgagee. The City's right to terminate this Lease by reason of a default which is not susceptible of being remedied by such leasehold mortgagee shall end with respect to such default when the leasehold mortgagee obtains possession of the Project as aforesaid, which possession shall be deemed to include possession by a receiver; (viii) if this Lease shall terminate prior to the expiration of the Lease Term, the City shall enter into a new lease for the Project with any such leasehold mortgagee, or its designee or nominee, for the remainder of the term, effective as of the date of such termination, at the same rent and upon the same terms, covenants and conditions contained herein, except that such new lease shall not guarantee possession of the Project to the new tenant as against the Corporation and/or anyone claiming under the Corporation, and the City, simultaneously with the execution and delivery of such new lease, shall turn over to the new tenant all monies, if any, then held by the City under this Lease on behalf of the Corporation, on condition that: (A) such leasehold mortgagee shall make written request for such new lease within thirty (30) days after the date of such termination, and (B) on the commencement date of the term of the new lease, such leasehold mortgagee shall cure all defaults of the Corporation under this Lease (susceptible of being cured by such leasehold mortgagee) which remain uncured on that date, and shall pay or cause to be paid all unpaid sums which at such time would have been payable under this -22- Lease but for such termination, and shall pay or cause to be paid to the City on that date all expenses, including reasonable counsel fees, court costs and disbursements, incurred by the City in connection with any such default and termination as well as in connection with the execution and delivery of such new lease; (ix) if such leasehold mortgagee or its designee or nominee shall become the owner of this Lease either following foreclosure of such Leasehold Mortgage or in liquidation of the indebtedness and in lieu of foreclosure thereof and such leasehold mortgagee or its designee or nominee shall have assigned this Lease, such leasehold mortgagee or its designee or nominee so assigning shall be released from all liability accruing from and after the date of such assignment. If more that one leasehold mortgagee shall request such new lease, such new lease shall be made with and delivered to the leasehold mortgagee (or its nominee or designee) whose mortgage has priority to those of any others. The opinion of a reputable title insurance company, licensed to insure title to real property in the State of Kansas, setting forth the order of priority of such mortgage liens, may be relied on by the City as conclusive evidence of such priority. SECTION 10.5. INDEMNIFICATION OF CITY AND TRUSTEE. The Corporation shall indemnify and save the City and the Trustee harmless from and against all claims by or on behalf of any person, firm or corporation arising from the conduct or management of, or from any work or thing done in, on or about, the Project during the Lease Term, and against and from all claims arising during the Lease Term from (a) any condition of the Project caused by the Corporation, (b) any breach or default on the part of the Corporation in the performance of any of its obligations under this Lease, (c) any contract entered into in by the Corporation or its sublessee, if any, in connection with the acquisition, purchase, construction, improving or remodeling of the Project, (d) any act of negligence of the Corporation or of any of its agents, contractors, servants, employees or licensees, and (e) any act of negligence of any assignee or sublessee of the Corporation, or of any agents, contractors, servants, employees or licensees of any assignee or sublessee of the Corporation; provided, however, the indemnification contained in this SECTION 10.5 shall not extend to the City or the Trustee if (i) such claim is the result of work being performed at the Project by employees, agents or contractors of the City, or (ii) such claim is the result of the gross negligence or willful misconduct of the City or its employees, agents or contractors, or (iii) with respect to the Trustee, such claim is the result of the negligence or willful misconduct of the Trustee or its employees, agents or contractors. The Corporation shall indemnify and save the City and the Trustee harmless from and against all costs and expenses (except those which have arisen from the willful misconduct or gross negligence of the City or the Trustee) incurred in or in connection with any action or proceeding brought in connection with claims arising from circumstances described in clauses (a) through (e), and upon notice from the City or the Trustee, the Corporation shall defend them or either of them in any such action or proceeding. If a claim is made or any action is brought against the City or the Trustee (collectively, the "Indemnified Parties") for which indemnification may be sought against the Corporation under this Section 10.5, the Indemnified Parties will promptly notify the Corporation in writing, and the Corporation will promptly assume the defense thereof, including with the consent of the Indemnified Party, which consent may not be unreasonably withheld, the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties will have the right to employ separate counsel with respect to any such claim or in any such action and to participate in the defense thereof, but the fees and expenses of that counsel will be at the expense of the Indemnified Party or Indemnified Parties unless the employment of such counsel has been specifically authorized, in writing, by the Corporation or there is a conflict of interest that would prevent counsel for the Corporation from adequately representing both the Corporation and the Indemnified Parties. The Corporation will not be -23- liable for any settlement of any action effected without its written consent, but if settled with the written consent of the Corporation or if there is a final judgment for the plaintiff in any such action of which the Corporation is required to assume the defense, the Corporation agrees to indemnify and hold harmless the Indemnified Parties from and against any loss or liability by reason of the settlement or judgment. SECTION 10.6. DEPRECIATION, INVESTMENT TAX CREDIT AND OTHER TAX BENEFITS. The City agrees that any depreciation, investment tax credit or any other tax benefits with respect to the Project or any part thereof shall be made available to the Corporation, and the City will fully cooperate with the Corporation in any effort by the Corporation to avail itself of any such depreciation, investment tax credit or other tax benefits. SECTION 10.7. CORPORATION TO MAINTAIN ITS CORPORATE EXISTENCE. The Corporation agrees that until the Bonds are paid or payment is provided for in accordance with the terms of the Indenture, it will maintain its corporate existence, and will not dissolve or otherwise dispose of all or substantially all of its assets; provided, however, that the Corporation may, without violating the agreement contained in this Section, consolidate with or merge into another domestic corporation (i.e., a corporation incorporated and existing under the laws of one of the states of the United States) or permit one or more other domestic corporations to consolidate with or merge into it, or may sell or otherwise transfer to another domestic corporation all or substantially all of its assets as an entirety and thereafter dissolve, provided, the surviving, resulting or transferee corporation expressly assumes in writing all the obligations of the Corporation contained in this Lease; and, further provided, that the surviving, resulting or transferee corporation, as the case may be, has a consolidated net worth (after giving effect to said consolidation, merger or transfer) at least equal to or greater than that of the Corporation immediately prior to said consolidation, merger or transfer. The term "net worth", as used in this Section, shall mean the difference obtained by subtracting total liabilities (not including as a liability any capital or surplus item) from total assets of the Corporation and all of its subsidiaries. In any such consolidation, merger or transfer the Corporation shall comply with the provisions of SECTION 10.1 hereof to the extent applicable. SECTION 10.8. SECURITY INTERESTS. At the written request of the Owner of the Bonds, the City and the Corporation agree to enter into all instruments (including financing statements and statements of continuation) necessary for perfection of and continuance of the perfection of the security interests of the City and the Trustee in the Project. Upon the written instructions of the Owner of the Bonds, the Trustee, at the expense of the Corporation, shall file all instruments the Owner of the Bonds shall deem necessary to be filed and shall continue or cause to be continued the liens of such instruments for so long as the Bonds shall be Outstanding. The City and the Corporation shall cooperate with the Trustee in this regard by executing such continuation statements and providing such information as the Trustee may require to renew such liens. ARTICLE XI OPTION AND OBLIGATION TO PURCHASE THE PROJECT SECTION 11.1. OPTION TO PURCHASE THE PROJECT. The Corporation shall have, and is hereby granted, the option to purchase the Project at any time, prior to the expiration of the Lease Term upon payment in full of all Bonds then Outstanding or provision for their payment having been made pursuant to ARTICLE XIII of the Indenture. To exercise such option the Corporation shall give written notice to the City and to the Trustee, if any, of the Bonds as shall then be unpaid or provision for their payment shall not have been made in accordance with the provisions of the Indenture, and shall specify therein the date of closing such purchase, which date shall be not less than 30 nor more than 180 days from the date such notice is -24- mailed, and in case of a redemption of the Bonds in accordance with the provisions of the Indenture the Corporation shall make arrangements satisfactory to the Trustee for the giving of the required notice of redemption. The purchase price payable by the Corporation in the event of its exercise of the option granted in this Section shall be the sum of the following: (a) an amount of money which, when added to the amount then on deposit in the Bond Fund, will be sufficient to redeem all the then Outstanding Bonds on the earliest redemption date next succeeding the closing date, including, without limitation, principal and interest to accrue to said redemption date and redemption expense; plus (b) an amount of money equal to the Trustee's and the Paying Agent's agreed to and reasonable fees and expenses under the Indenture accrued and to accrue until such redemption of the Bonds; plus (c) the sum of $100. SECTION 11.2. CONVEYANCE OF THE PROJECT. At the closing of the purchase of the Project pursuant to this Article, the City will upon receipt of the purchase price deliver to the Corporation the following: (a) If the Indenture shall not at the time have been satisfied in full, a release from the Trustee of the Project from the lien and/or security interest of the Indenture. (b) Documents conveying to the Corporation legal title to the Project, as it then exists, subject to the following: (1) those liens and encumbrances, if any, to which title to the Project was subject when conveyed to the City; (2) those liens and encumbrances created by the Corporation or to the creation or suffering of which the Corporation consented; (3) those liens and encumbrances resulting from the failure of the Corporation to perform or observe any of the agreement on its part contained in this Lease; (4) Permitted Encumbrances other than the Indenture and this Lease; and (5) if the Project or any part thereof is being condemned, the rights and title of any condemning authority. SECTION 11.3. RELATIVE POSITION OF OPTION AND INDENTURE. The options and obligation to purchase the Project granted to the Corporation in this Article shall be and remain prior and superior to the Indenture and may be exercised whether or not the Corporation is in default under this Lease, provided that such default will not result in nonfulfillment of any condition to the exercise of any such option and further provided that all options herein granted shall terminate upon the termination of this Lease. SECTION 11.4. OBLIGATION TO PURCHASE THE PROJECT. The Corporation hereby agrees to purchase, and the City hereby agrees to sell, the Project for the sum of $100 at the expiration of the Lease Term following full payment of the Bonds or provision for payment thereof having been made in accordance with the provisions of the Indenture. -25- ARTICLE XII DEFAULTS AND REMEDIES SECTION 12.1. EVENTS OF DEFAULT. If any one or more of the following events shall occur and be continuing, it is hereby defined as and declared to be and to constitute an "Event of Default" or "default" under this Lease: (a) Default in the due and punctual payment of Basic Rent for a period of five (5) business days following written notice to the Corporation by the City or the Trustee or default in the due and punctual payment Additional Rent for a period of 30 days following written notice to the Corporation by the City or the Trustee; or (b) Default in the due observance or performance of any other covenant, agreement, obligation or provision of this Lease on the Corporation's part to be observed or performed, and such default shall continue for 60 days after the City or the Trustee has given the Corporation written notice specifying such default (or such longer period as shall be reasonably required to cure such default; provided that (1) the Corporation has commenced such cure within said 60-day period, and (2) the Corporation diligently prosecutes such cure to completion); or (c) The Corporation shall: (1) admit in writing its inability to pay its debts as they become due; or (2) file a petition in bankruptcy or for reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Bankruptcy Code as now or in the future amended or any other similar present or future federal or state statute or regulation, or file a pleading asking for such relief; or (3) make an assignment for the benefit of creditors; or (4) consent to the appointment of a trustee, receiver or liquidator for all or a major portion of its property or shall fail to have the appointment of any trustee, receiver or liquidator made without the Corporation's consent or acquiescence, vacated or set aside; or (5) be finally adjudicated as bankrupt or insolvent under any federal or state law; or (6) be subject to any proceeding, or suffer the entry of a final and non-appealable court order, under any federal or state law appointing a trustee, receiver or liquidator for all or a major part of its property or ordering the winding-up or liquidation of its affairs, or approving a petition filed against it under the Bankruptcy Code, as now or in the future amended, which order or proceeding, if not consented to by it, shall not be dismissed, vacated, denied, set aside or stayed within 60 days after the day of entry or commencement; or (7) suffer a writ or warrant of attachment or any similar process to be issued by any court against all or any substantial portion of its property, and such writ or warrant of attachment or any similar process is not contested, stayed, or is not released within 60 days after the final entry, or levy or after any contest is finally adjudicated or any stay is vacated or set aside; or (d) The Corporation shall vacate or abandon the Project, or shall have been ejected from the Project or any portion thereof by reason of a defect in title to the Project, and the same shall remain uncured for and unoccupied for a period of 60 days; or (e) The occurrence and continuance of an "Event of Default" by the Corporation under the Tax Abatement Agreement following any applicable notice and grace period provided therein or in this Lease. SECTION 12.2. REMEDIES ON DEFAULT. If any Event of Default referred to in SECTION 12.1 hereof shall have occurred and be continuing, then the City may at the City's election (subject, however, to any -26- restrictions against acceleration of the maturity of the Bonds or termination of this Lease in the Indenture), then or at any time thereafter, and while such default shall continue, take any one or more of the following actions: (a) cause all amounts payable with respect to the Bonds for the remainder of the term of this Lease to become due and payable, as provided in the Indenture; (b) give the Corporation written notice of intention to terminate this Lease on a date specified therein, which date shall not be earlier than 30 days after such notice is given, and if all defaults have not then been cured, on the date so specified, the Corporation's rights to possession of the Project shall cease and this Lease shall thereupon be terminated, and the City may re-enter and take possession of the Project; or (c) without terminating this Lease, re-enter the Project to take possession thereof pursuant to legal proceedings or pursuant to any notice provided for by law, and having elected to re-enter or take possession of the Project without terminating this Lease, the City shall use reasonable diligence to relet the Project, or parts thereof, for such term or terms and at such rental and upon such other terms and conditions as the City may deem advisable, with the right to make alterations and repairs to the Project (but without liability on the part of the Corporation to pay for any such alterations), and no such re-entry or taking of possession of the Project by the City shall be construed as an election on the City's part to terminate this Lease, and no such re-entry or taking of possession by the City shall relieve the Corporation of its obligation to pay Basic Rent or Additional Rent (at the time or times provided herein), or any of its other obligations under this Lease, all of which shall survive such re-entry or taking of possession, and the Corporation shall continue to pay the Basic Rent and Additional Rent provided for in this Lease until the end of this Lease Term, whether or not the Project shall have been relet, less the Net Proceeds, if any, of any reletting of the Project after deducting all of the City's reasonable expenses in or in connection with such reletting, including without limitation all repossession costs, brokerage commissions, legal expenses, expenses of employees, alteration costs and expenses of preparation for reletting. Said Net Proceeds of any reletting shall be deposited in the Bond Fund. Having elected to re-enter or take possession of the Project without terminating this Lease, the City may (subject, however, to any restrictions against termination of this Lease in the Indenture), by notice to the Corporation given at any time thereafter following an Event of Default, elect to terminate this Lease on a date to be specified in such notice, which date shall be not earlier than 30 days after re-entry under (c) above, and if all defaults shall not have then been cured, on the date so specified this Lease shall thereupon be terminated. If in accordance with any of the foregoing provisions of this Article the City shall have the right to elect to re-enter and take possession of the Project, the City may enter and expel the Corporation and those claiming through or under the Corporation and remove the property and effects of both or either (forcibly if necessary) without being guilty of any manner of trespass and without prejudice to any remedies for arrears of rent or preceding breach of covenant. The City may take whatever action at law or in equity which may appear necessary or desirable to collect rent then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Corporation under this Lease, and in all events, the City shall take such action as directed to by the Owners of a majority of the Bonds. SECTION 12.3. SURVIVAL OF OBLIGATIONS. The Corporation covenants and agrees with the City and Bondowners that its obligations under this Lease shall survive the cancellation and termination of this Lease, for any cause, and that the Corporation shall continue to pay the Basic Rent and Additional Rent and perform all other obligations provided for in this Lease, all at the time or times provided in this Lease; provided, however, that upon the payment of all Basic Rent and Additional Rent required under ARTICLE V hereof, and upon the satisfaction and discharge of the Indenture under SECTION 1301 thereof, the Corporation's obligation under this Lease shall thereupon cease and terminate in full. -27- SECTION 12.4. LIMITATION OF LIABILITY AND INDEMNITY. Notwithstanding anything contained to the contrary in this Lease, it is agreed that the City will look only to the Corporation's interest in and to the Project and any sublease with respect thereto for the collection of any judgment (or other judicial process) requiring the payment of money or the making of any performance by the Corporation in the event of a breach or default under this Lease by the Corporation, and no other property or assets of the Corporation or its officers, shareholders, partners or principal, disclosed or undisclosed, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any such judgment (or other judicial process). SECTION 12.5. PERFORMANCE OF THE CORPORATION'S OBLIGATIONS BY THE CITY. If the Corporation shall fail to keep or perform any of its obligations as provided in this Lease in the making of any payment or performance of any obligation, then the City, or the Trustee in the City's name, may (but shall not be obligated so to do) upon the continuance of such failure on the Corporation's part for 30 days after written notice of such failure is given the Corporation by the City or the Trustee, and without waiving or releasing the Corporation from any obligation hereunder, as an additional but not exclusive remedy, make any such payment or perform any such obligation, and all reasonable sums so paid by the City or the Trustee and all necessary incidental reasonable costs and expenses incurred by the City or the Trustee in performing such obligations shall be deemed Additional Rent and shall be paid to the City or the Trustee on demand, and if not so paid by the Corporation, the City or the Trustee shall have the same rights and remedies provided for in SECTION 12.2 hereof in the case of default by the Corporation in the payment of Basic Rent. SECTION 12.6. RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies reserved by the City and the Corporation hereunder and those provided by law shall be construed as cumulative and continuing rights. No one of them shall be exhausted by the exercise thereof on one or more occasions. The City and the Corporation shall each be entitled to specific performance and injunctive or other equitable relief for any breach or threatened breach of any of the provisions of this Lease, notwithstanding availability of an adequate remedy at law, and each party hereby waives the right to raise such defense in any proceeding in equity. SECTION 12.7. WAIVER OF BREACH. No waiver of any breach of any covenant or agreement herein contained shall operate as a waiver of any subsequent breach of the same covenant or agreement or as a waiver of any breach of any other covenant or agreement, and in case of a breach by the Corporation of any covenant, agreement or undertaking by the Corporation, the City may nevertheless accept from the Corporation any payment or payments hereunder without in any way waiving City's right to exercise any of its rights and remedies provided for herein with respect to any such breach or breaches of the Corporation which were in existence at the time such payment or payments were accepted by the City. SECTION 12.8. NOTICE OF DEFAULTS UNDER SECTION 12.1; OPPORTUNITY OF CORPORATION TO CURE DEFAULTS. (a) Anything herein to the contrary notwithstanding, no default specified in SECTION 12.1(c) through (e) shall constitute an Event of Default until actual notice of such default by registered or certified mail shall be given by the Trustee or by the Owners of 25% in aggregate principal amount of all Bonds Outstanding to the Corporation and the Corporation shall have had 30 days after receipt of such notice to correct said default or cause said default to be corrected, and shall not have corrected said default or caused said default to be corrected within such period; provided, however, if any such default shall be such that it cannot be corrected within such period, it shall not constitute an Event of Default if corrective action is instituted by the Corporation within such period and diligently pursued until the default is corrected. -28- (b) Anything herein to the contrary notwithstanding, no default specified in SECTION 12.1(b) shall constitute an Event of Default until actual notice of such default by registered or certified mail shall be given (i) at any time the Corporation is the Owner of 100% in aggregate principal amount of all Bonds Outstanding, by the Owner of 100% in aggregate principal amount of all Bonds Outstanding, and (ii) at any time the Corporation is not the Owner of 100% in aggregate principal amount of all Bonds Outstanding, the Trustee or by the Owners of 25% in aggregate principal amount of all Bonds Outstanding, to the Corporation and the Corporation shall have had 30 days after receipt of such notice to correct said default or cause said default to be corrected, and shall not have corrected said default or caused said default to be corrected within such period; provided, however, if any such default shall be such that it cannot be corrected within such period, it shall not constitute an Event of Default if corrective action is instituted by the Corporation within such period and diligently pursued until the default is corrected. (c) With regard to any alleged default concerning which notice is given to the Corporation under the provisions of this Section, the City hereby grants the Corporation full authority for account of the City to perform any covenant or obligation, the nonperformance of which is alleged in said notice to constitute a default, in the name and stead of the City, with full power to do any and all things and acts to the same extent that the City could do and perform any such things and acts in order to remedy such default. SECTION 12.9. TRUSTEE'S EXERCISE OF THE CITY'S REMEDIES. Whenever any Event of Default shall have occurred and be continuing, the Trustee may, but except as otherwise provided in the Indenture shall not be obliged to, exercise any or all of the rights of the City under this Article, upon notice as required of the City unless the City has already given the required notice. In addition, the Trustee shall have available to it all of the remedies prescribed by the Indenture. ARTICLE XIII ASSIGNMENT AND SUBLEASE SECTION 13.1. ASSIGNMENT; SUBLEASE. (a) The Corporation shall have the right to assign, transfer, encumber or dispose of this Lease or any interest therein or part thereof, with the written consent of the City, for any lawful purpose under the Act. With respect to any assignment, the Corporation shall comply with the following conditions: (1) Such assignment shall be in writing, duly executed and acknowledged by the assignor and in proper form for recording; (2) Such assignment shall include the entire then unexpired term of this Lease; (3) A duplicate original of such assignment shall be delivered to the City within ten (10) days after the execution thereof, together with an assumption agreement, duly executed and acknowledged by the assignee in proper form for recording, by which the assignee shall assume all of the terms, covenants and conditions of this Lease on the part of the Corporation to be performed and observed; and (4) At the time of any such assignment there shall be no damage or destruction to the Project which has not been repaired, restored and replaced in accordance with the provisions of this -29- Lease, unless any funds then held by the Corporation for the purposes of such repair, restoration and replacement are simultaneously transferred to the assignee. Upon the satisfaction of the conditions set forth herein, the assignor shall be relieved of all further liability occurring on and after the effective date of such assignment. The consent of the City to any assignment, transfer, encumbrance or disposition described in this subsection (a) shall not be unreasonably withheld or delayed. (b) The Corporation shall have the right, with the written consent of the City, to sublet all of the Project to a single entity for any lawful purpose under the Act. The Corporation shall have the right, without the consent of the City, to sublet any part of the Project to more than one entity in the ordinary course of its business for any lawful purpose under the Act. No sublease of the Project shall release or discharge the Corporation from its primary liability for the payment of the Basic Rent and Additional Rent hereunder and the performance of each and all of the covenants and agreements herein contained, and its duties and obligations under this Lease shall continue as if no such sublease had been made. The Corporation shall, within 10 days after the delivery thereof, furnish or cause to be furnished to the City and the Trustee a true and correct copy of each such sublease. Any sublease may provide, at the Corporation's option, that the City's consent shall not be required in respect of any further subletting thereunder if such further subletting is for a similar purpose as the original sublease and is for a purpose permissible under the Act. If for any reason this Lease and the leasehold estate of the Corporation hereunder is terminated by the City by summary proceedings or otherwise in accordance with the terms of this Lease, the City covenants and agrees that such termination of this Lease shall not result in a termination of any sublease affecting the Project or any part or parts thereof and that they shall all continue for the duration of their respective terms and any extensions thereof as a direct lease between the City hereunder and the sublessee thereunder, with the same force and effect as if the City hereunder had originally entered into such sublease as landlord thereunder. Any such sublessee shall not be named or joined in any action or proceeding by the City under this Lease to recover possession of the Project or for any other relief if such sublessee is not then in default under the terms of its sublease beyond any applicable grace period for curing the same. The City shall, upon request, execute, acknowledge and deliver such agreements evidencing and agreeing to the foregoing in a form reasonably satisfactory to the Corporation. Any consent of the City required by this subsection (b) shall not be unreasonably withheld or delayed. SECTION 13.2. ASSIGNMENT OF REVENUES BY CITY. The City shall assign and pledge any rents, revenues and receipts receivable under this Lease, to the Trustee pursuant to the Indenture as security for payment of the principal of, interest and premium, if any, on the Bonds and the Corporation hereby consents to such pledge and assignment. SECTION 13.3. PROHIBITION AGAINST FEE MORTGAGE OF PROJECT. The City shall not mortgage its fee interest in the Project, but may assign its interest in and pledge any moneys receivable under this Lease to the Trustee pursuant to the Indenture as security for payment of the principal of and interest on the Bonds. SECTION 13.4. RESTRICTIONS ON SALE OR ENCUMBRANCE OF PROJECT BY CITY. During the Lease Term, the City agrees that, except to secure the Bonds to be issued pursuant to the Indenture, it will not sell, assign, encumber, mortgage, transfer or convey the Project or any interest therein. -30- ARTICLE XIV AMENDMENTS, CHANGES AND MODIFICATIONS SECTION 14.1. AMENDMENTS, CHANGES AND MODIFICATIONS. Except as otherwise provided in this Lease or in the Indenture, subsequent to the issuance of Bonds and prior to the payment in full of the Bonds (or provision for the payment thereof having been made in accordance with the provisions of the Indenture), this Lease may not be effectively amended, changed, modified, altered or terminated without the prior written consent of the Trustee, given in accordance with the provisions of the Indenture. ARTICLE XV MISCELLANEOUS PROVISIONS SECTION 15.1. NOTICES. All notices, certificates or other communications required or desired to be given hereunder shall be in writing and shall be deemed duly given when (i) mailed by registered or certified mail, postage prepaid, or (ii) sent by overnight delivery or other delivery service which requires written acknowledgment of receipt by the addressee, addressed as follows: (a) To the City: City of Olathe, Kansas City Hall 100 East Santa Fe Olathe, Kansas 66061 Attention: City Clerk (b) To the Corporation: Pacific Sunwear Stores Corp. 3450 East Miraloma Avenue Anaheim, California 92806 Attention: Director/Treasurer (c) To the Trustee: U.S. Bank National Association Corporate Trust Services 633 W. Fifth Street, 24th Floor Los Angeles, California 90071 All notices given by certified or registered mail as aforesaid shall be deemed fully given as of the date they are so mailed. A duplicate copy of each notice, certificate or other communication given hereunder by either the City or the Corporation to the other shall also be given to the Trustee. The City, the Corporation and the Trustee may from time to time designate, by notice given hereunder to the others of such parties, such other address to which subsequent notices, certificates or other communications shall be sent. Any notice may be given by the attorney for such party. SECTION 15.2. CITY SHALL NOT UNREASONABLY WITHHOLD CONSENTS AND APPROVALS. Wherever in this Lease it is provided that the City shall, may or must give its approval or consent, exercise its discretion, or execute supplemental agreements or schedules, the City shall not unreasonably, arbitrarily or unnecessarily withhold, delay, condition, or refuse to give such approvals or consents, exercise its discretion, or refuse to execute such supplemental agreements or schedules and the City shall act in a good faith manner in administering and enforcing this Lease. -31- SECTION 15.3. NET LEASE. The parties hereto agree (a) that this Lease shall be deemed and construed to be a net lease, (b) that the payments of Basic Rent are designed to provide the City and the Trustee funds adequate in amount to pay all principal of and interest accruing on the Bonds as the same become due and payable, and (c) that if after the principal of and interest on the Bonds and all costs incident to the payment of the Bonds have been paid in full the Trustee or the City holds unexpended funds received in accordance with the terms hereof such unexpended funds shall, after payment therefrom of all sums then due and owing by the Corporation under the terms of this Lease, and except as otherwise provided in this Lease and the Indenture, become the absolute property of and be paid over forthwith to the Corporation. SECTION 15.4. NO PECUNIARY LIABILITY. No provision, covenant or agreement contained in this Lease, the Indenture or the Bonds, or any obligation herein or therein imposed upon the City, or the breach thereof, shall constitute or give rise to or impose upon the City a pecuniary liability or a charge upon the general credit or taxing powers of the City of Olathe or the State of Kansas. Such limitation shall not apply to any liability or charge directly resulting from the City's breach of any provision, covenant or agreement contained herein. In no event shall either the City or the Corporation be liable for any consequential, punitive or similar damages resulting from the breach of any provision, covenant or agreement contained herein or otherwise arising under this Lease. SECTION 15.5. GOVERNING LAW. This Lease shall be construed in accordance with and governed by the laws of Kansas. SECTION 15.6. BINDING EFFECT. This Lease shall be binding upon and shall inure to the benefit of the City and the Corporation and their respective successors and assigns. SECTION 15.7. ELECTRONIC STORAGE. The parties agree that the transactions described herein may be conducted and related documents may be stored by electronic means. SECTION 15.8. SEVERABILITY. If for any reason any provision of this Lease shall be determined to be invalid or unenforceable, the validity and enforceability of the other provisions hereof shall not be affected thereby. SECTION 15.9. EXECUTION IN COUNTERPARTS. This Lease may be executed simultaneously in several counterparts, each of which shall be deemed to be an original and all of which shall constitute but one and the same instrument. [Remainder of page intentionally blank.] -32- IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed in their respective corporate names and their respective corporate seals to be hereunto affixed and attested by their duly authorized officers, all as of the date first above written. CITY OF OLATHE, KANSAS By: /s/ MICHAEL COPELAND ------------------------------- Mayor (Seal) ATTEST: By: /s/ DEBRA S. GRAGG ---------------------------- City Clerk Lease Agreement PacSun Project, Series 2007 S-1 PACIFIC SUNWEAR STORES CORP., a California corporation By: /s/ GERALD M. CHANEY ------------------------------- Gerald M. Chaney Senior Vice President and Chief Financial Officer Lease Agreement PacSun Project, Series 2007 S-2 EXHIBIT A PROJECT IMPROVEMENTS All buildings, structures, improvements and fixtures located on or to be acquired or purchased for the construction, improvement or remodeling of the Project Site pursuant to ARTICLE IV hereof and paid for in whole or in part from the proceeds of Bonds and all additions, alterations, modifications and improvements thereof made pursuant to this Lease. A-1 EXHIBIT B PROJECT SITE Lot 1, PACIFIC SUNWEAR AMENDED 1ST PLAT, a subdivision in the City of Olathe, Johnson County, Kansas B-1 EXHIBIT C [FORM OF REQUISITION CERTIFICATE] Requisition No. ________ Date: __________________ REQUISITION CERTIFICATE TO: U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE UNDER A TRUST INDENTURE DATED AS OF JULY 1, 2007, BETWEEN THE CITY OF OLATHE, KANSAS, AND THE TRUSTEE, AND LEASE AGREEMENT DATED AS OF JULY 1, 2007, BETWEEN THE CITY OF OLATHE, KANSAS, AND PACIFIC SUNWEAR STORES CORP. The undersigned hereby requests that a total of $_____________ be paid for Project Costs (as defined in said Lease) in such amounts, to such payees and for such purposes as set forth on SCHEDULE 1 attached hereto. I hereby state and certify that: (i) the amounts requested are or were necessary and appropriate in connection with the acquisition, purchase, construction, improving or remodeling of the Project, have been properly incurred and are a proper charge against the Construction Fund, and have been paid by or are justly due to the persons whose names and addresses are stated on Schedule 1, and have not been the basis of any previous requisition from the Construction Fund; (ii) as of this date, except for the amounts referred to above, there are no, to the best of my knowledge, outstanding statements which are due and payable for labor, wages, materials, supplies or services in connection with the acquisition, purchase, construction, improving or remodeling of said buildings and improvements which, if unpaid, might become the basis of a vendors', mechanics', laborers' or materialmen's statutory or similar lien upon the Project or any part thereof; and (iii) no part of the several amounts paid or due as stated above has been or is being made the basis for the withdrawal of any moneys from the Construction Fund in any previous or pending application for payment made pursuant to said Lease. For any payee which is the Corporation the undersigned hereby instructs the Trustee to make such payment by wire transfer to the following account: _____________________________, ABA No. ______________, Credit Account No. _______________ (Pacific Sunwear Stores Corp.). PACIFIC SUNWEAR STORES CORP. By: ____________________________________ Name: __________________________________ Title: _________________________________ C-1 SCHEDULE 1 TO REQUISITION CERTIFICATE
Amount Payee and Address Description of Project Costs - ------ ----------------- ---------------------------- ~~$ - -------~~
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