LEASE AGREEMENT

 

LEASE AGREEMENT

 

TABLE OF CONTENTS

 

	Page
Parties	1
Recitals	1
ARTICLE I
DEFINITIONS
Section 1.1. Definitions of Words and Terms	2
Section 1.2. Rules of Interpretation	4
ARTICLE II
REPRESENTATIONS
Section 2.1. Representations by the City	5
Section 2.2. Representations by the Company	5
ARTICLE III
GRANTING PROVISIONS
Section 3.1. Granting of Leasehold Estate	6
Section 3.2. Lease Term	7
Section 3.3. Possession and Use of the Project	7
ARTICLE IV
PURCHASE, CONSTRUCTION, INSTALLATION AND
EQUIPPING OF THE PROJECT
Section 4.1. Issuance of the Bonds	7
Section 4.2. Purchase, Construction, Installation and Equipping of the Project	8
Section 4.3. Project Costs	9
Section 4.4. Payment for Project Costs	9
Section 4.5. Establishment of Completion Date	9
Section 4.6. Surplus or Deficiency in Construction Fund	10
Section 4.7. Project Property of City	10
Section 4.8. Machinery and Equipment Purchased by the Company	10

 

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ARTICLE V
RENT PROVISIONS
Section 5.1. Basic Rent	10
Section 5.2. Additional Rent	11
Section 5.3. Obligations of Company Absolute and Unconditional	11
Section 5.4. Prepayment of Basic Rent	12
Section 5.5. Redemption of Bonds	12
ARTICLE VI
MAINTENANCE, TAXES AND UTILITIES
Section 6.1. Maintenance and Repairs	12
Section 6.2. Taxes, Assessments and Other Governmental Charges	12
Section 6.3. Utilities	13
Section 6.4. Ad Valorem Taxes	13
Section 6.5. Reserved	13
Section 6.6. Kansas Retailer’s Sales Tax	13
ARTICLE VII
INSURANCE
Section 7.1. Title Insurance	14
Section 7.2. Casualty Insurance	14
Section 7.3. Public Liability Insurance	15
Section 7.4. Blanket Insurance Policies	15
Section 7.5. Indemnification of Trustee	15
ARTICLE VIII
ALTERATION OF THE PROJECT
Section 8.1. Additions, Modifications and Improvements of the Project	16
Section 8.2. Removal of Project Equipment	16
Section 8.3. Additional Improvements on the Project Site	17
Section 8.4. Permits and Authorizations	18
Section 8.5. Mechanics’ Liens	18
Section 8.6. Option to Purchase Unimproved Portions of the Project Site	18

 

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ARTICLE IX
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 9.1. Damage or Destruction	19
Section 9.2. Condemnation	21
ARTICLE X
SPECIAL COVENANTS
Section 10.1. No Warranty of Condition or Suitability by the City; Exculpation And Indemnification	22
Section 10.2. Surrender of Possession	22
Section 10.3. City’s Right of Access to the Project	23
Section 10.4. Granting of Easements; Leasehold Mortgages	23
Section 10.5. Indemnification of City and Trustee	25
Section 10.6. Depreciation, Investment Tax Credit and Other Tax benefits	27
Section 10.7. Company to Maintain its Corporate Existence	27
Section 10.8. Security Interests	27
ARTICLE XI
OPTION AND OBLIGATION TO PURCHASE THE PROJECT
Section 11.1. Option to Purchase the Project	27
Section 11.2. Conveyance of the Project	27
Section 11.3. Relative Position of Option and Indenture	27
Section 11.4. Obligation to Purchase the Project	27
ARTICLE XII
DEFAULTS AND REMEDIES
Section 12.1. Events of Default	28
Section 12.2. Remedies on Default	28
Section 12.3. Survival of Obligations	29
Section 12.4. Limitation of Liability and Indemnity	29
Section 12.5. Performance of the Company’s Obligations by the City	30
Section 12.6. Rights and Remedies Cumulative	30
Section 12.7. Waiver of Breach	30
Section 12.8. Notice of Defaults Under Section 12.1; Opportunity of Company To Cure Defaults	30
Section 12.9. Trustee’s Exercise of the City’s Remedies	31

 

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ARTICLE XIII
ASSIGNMENT AND SUBLEASE
Section 13.1. Assignment; Sublease	31
Section 13.2. Assignment of Revenues by City	32
Section 13.3. Prohibition Against Fee Mortgage of Project	32
Section 13.4. Restrictions on Sale or Encumbrance of Project by City	32
ARTICLE XIV
AMENDMENTS, CHANGES AND MODIFICATIONS
Section 14.1. Amendments, Changes and Modifications	32
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.1. Notices	33
Section 15.2. City Shall Not Unreasonably Withhold Consents and Approvals	33
Section 15.3. Net Lease	34
Section 15.4. No Pecuniary Liability	34
Section 15.5. Governing Law	34
Section 15.6. Electronic Storage	34
Section 15.7. Binding Effect	34
Section 15.8. Severability	34
Section 15.9. Execution in Counterparts	34
Signatures and Seals
Acknowledgments
Exhibit A – Excluded Property
Exhibit B – Project Equipment
Exhibit C – Project Improvements
Exhibit D – Project Site
Exhibit E – Form of Requisition Certificate

 

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LEASE AGREEMENT

 

THIS LEASE AGREEMENT , dated as of December 1, 2005 (the “Lease”), between the CITY OF GARNETT, KANSAS , a municipal corporation organized and existing under the laws of the State of Kansas (the “City”), as lessor, and EAST KANSAS AGRI-ENERGY, L.L.C. , a Kansas limited liability company (the “Company”); 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 acquire, purchase, 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. 3602 (the “Ordinance”) on June 14, 2005, authorizing the City to issue its Industrial Revenue Bonds (East Kansas Agri-Energy Project), Series 2005, in the aggregate maximum principal amount of $50,000,000 (the “Bonds”), for the purpose of acquiring, purchasing, constructing, installing and equipping a commercial project, consisting of an ethanol production facility, including land, buildings, structures, improvements, fixtures, machinery and equipment as hereinafter more fully described (the “Project”), and authorizing the City to lease the Project to the Company;

 

WHEREAS , pursuant to such Ordinance, the City is authorized to enter into, a Trust Indenture of even date herewith (the “Indenture”), with Security Bank of Kansas City, a state banking corporation (the “Trustee”), for the purpose of issuing and securing the Bonds, as therein provided, and to enter into this Lease with the Company under which the City will acquire, purchase, construct, improve, equip and remodel the Project and will lease the Project to the Company in consideration of rental payments by the Company 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 Company and the Company 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 Company 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

 

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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 Anderson County Treasurer, if any, 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.

 

“Excluded Property” means the personal property described on Exhibit A attached hereto and by this reference made a part hereof

 

“Full Insurable Value” means 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 December 1, 2005, 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 Company, 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, Assignment of Rents and Leases and Security Agreement, relating to the Project and any other 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.

 

“Mortgage” means the Future Advance Mortgage dated November 23, 2004 from the Company to Home Federal Savings Bank, as supplemented and amended.

 

“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,

 

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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) the Mortgage and 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 Company from time to time prior to the Completion Date, the same being duly certified by the Company, and on file at the principal office of the Company in Olathe, Kansas and which shall be available for reasonable inspection by the City, the Trustee and their duly appointed representatives.

 

“Project Equipment” means all items of machinery, equipment and parts or other personal property installed or acquired or to be acquired for installation in the Project Improvements or elsewhere on the Project Site pursuant to Article IV hereof and paid for in whole or in part from the proceeds of Bonds, as described in Exhibit B attached hereto and by this reference made a part hereof, and all replacements thereof and substitutions therefor made pursuant to this Lease.

 

“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 hereof, as described in Exhibit C 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 D attached hereto and by this reference made a part hereof.

 

“Trustee” means Security Bank of Kansas City, a state banking corporation, duly organized and existing under the laws of the State of Kansas, 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 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 part 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

 

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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.

 

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. 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 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, equip and remodel or cause to be acquired, purchased, constructed, improved, equipped and remodeled on the Project Site the Project Improvements, and proposes to acquire and install, or cause to be acquired and installed, the Project Equipment in the Project Improvements or on the Project Site. The City proposes to lease the Project to the Company and sell the Project to the Company if the Company 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, equipping 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 Company 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.

 

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(g)                                  The acquisition, purchase, construction, improvement, equipping and remodeling of the Project and the leasing of the Project by the City to the Company 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 Company or in the transactions contemplated hereby.

 

Section 2.2.           Representations by the Company . The Company makes the following representations as the basis for the undertakings on its part herein contained:

 

(a)                                   The Company is a limited liability company validly existing and in good standing under the laws of the State of Kansas and duly qualified to do business in the State of Kansas.

 

(b)                                  The Company has lawful power and authority to enter into this Lease and to carry out its obligations hereunder and by proper corporate action of its Members, the Company has been duly authorized to execute and deliver this Lease.

 

(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 Company 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 Company is a party or by which it or any of its property is bound, or the Company’s Articles of Organization or Operating Agreement or any order, rule or regulation applicable to the Company 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 Company under the terms of any instrument or agreement to which the Company 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 Garnett, Kansas.

 

ARTICLE III

 

GRANTING PROVISIONS

 

Section 3.1.           Granting of Leasehold Estate . The City hereby rents, leases and lets the Project to the Company, subject to Permitted Encumbrances, and the Company 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.

 

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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 June 1, 2016.

 

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 Company 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 Company from having quiet and peaceable possession and enjoyment of the Project during the Lease Term and will, at the request and expense of the Company, cooperate with the Company in order that the Company may have quiet and peaceable possession and enjoyment of the Project and will defend the Company’s enjoyment and possession thereof against all parties

 

(b)           Subject to the provisions of this Section, the Company shall have the right to use the Project for any lawful purpose allowed by law and contemplated by the Act. The Company 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 Company 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 Company 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 Company to comply with the provisions of this Section. Notwithstanding any provision contained in this Section, however, the Company shall have the right, at its own cost and expense, to contest or review by legal or other appropriate procedures the validity or legality 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 Company may refrain from complying therewith.

 

ARTICLE IV

 

PURCHASE, CONSTRUCTION, RENOVATION, INSTALLATION
AND EQUIPPING 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

 

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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 Company is not in default hereunder, the City will, at the request of the Company, from time to time, use its best efforts to issue the amount of Additional Bonds specified by the Company; 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 Company; provided further that the Company and the City shall have entered into an amendment to this Lease to provide 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, Installation and Equipping of the Project . The City and the Company agree that the City will and the Company as the agent of the City shall, but solely from the Construction Fund except as otherwise provided herein, acquire, purchase, construct, improve, equip 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 and Project Equipment located on the Project Site and which the Company desires to convey to the City. In no event will the City acquire title to the Excluded Property. 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 Company 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 in accordance with the Plans and Specifications. The Company may make minor changes in and to the Construction Contracts and the Plans and Specifications incorporated therein without the consent of the City. The Company shall notify the City in writing of major changes. Major changes shall be any change that has an estimated cost (increase or decrease) of $1,000,000. The Company 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 Company for its purposes, and that all real and personal property described therein is necessary in connection with the Project.

 

(c)                                   The Company will, on behalf of the City, purchase and install the Project Equipment in the Project Improvements or on the Project Site in accordance with the Plans and Specifications. The City and the Company recognize that the Project Equipment is subject to change during the Construction Period and thereafter pursuant to the provisions of this Lease, and agree that the

 

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definitive list of the Project Equipment shall be the list maintained by the Trustee pursuant to Section 10.8 of this Lease.

 

(d)                                  The Company agrees that it will use its best efforts to cause the acquisition, purchase, construction, improvement, equipping 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 equipping and remodeling commences prior to the receipt of proceeds from the sale of the Bonds, the Company agrees to advance all funds necessary for such purpose. The Company shall seek reimbursement for all such fields advanced.

 

Section 4.3.           Project Costs . The term Project Costs shall have the meaning set forth in the Indenture. 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.

 

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 Company 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 acquisition, purchase, construction, improvement, equipping 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, equipping 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 Company Representative stating (a) that the

 

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acquisition, purchase, construction, improvement, equipping and remodeling of the Project has been completed in accordance with the Plans and Specifications, (b) that all costs and expenses incurred in the acquisition, purchase, construction, improvement, equipping 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 Company, 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 Company 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 Company 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 Company, to the purchase of Bonds at such earlier date or dates as the Company 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. Company 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 Company 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 Company 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 Company 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.

 

Section 4.8.           Machinery and Equipment Purchased by the Company . Any item of machinery or equipment the entire purchase price of which is paid for by the Company with the Company’s own funds, and no part of the purchase price of which is paid for from funds deposited pursuant to the terms of this Lease in the Construction Fund, shall be the property of the Company.

 

ARTICLE V

 

RENT PROVISIONS

 

Section 5.1.           Basic Rent . The Company covenants and agrees to pay to the Trustee in same

 

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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 June 1 and December 1, commencing June 1, 2006, 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 Lease and the Indenture. Subject to the other provisions of this Lease and the Indenture, at any time that the Company is the sole Bondowner, the Company 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 Company shall pay as Additional Rent the following amounts:

 

(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 Company 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

 

(f)                                     all other payments of whatever nature which the Company has agreed to pay or assume under the provisions of this Lease.

 

Section 5.3.                                 Obligations of Company Absolute and Unconditional.

 

(a)                                   The obligations of the Company 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

 

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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 Company’s use thereof, the eviction or constructive eviction of the Company, 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.

 

(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 Company of any rights or claims the Company 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 Company 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 Company 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 Company 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 Company and to take all action necessary to effect the substitution of the Company for the City in any such action or proceeding if the Company shall so request.

 

Section 5.4.           Prepayment of Basic Rent . The Company 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 Company 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 Company, 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 Company, on such redemption date as may be specified by the Company or (b) cause such moneys in the Bond Fund or such part thereof as the Company 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 Company shall, at its own expense, keep the Project in as reasonably safe condition as the operation thereof will permit,

 

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and keep the Project in good repair and in good operating condition, making from time to time all necessary repairs thereto and renewals and replacements thereof.

 

Section 6.2.           Taxes, Assessments and Other Governmental Charges .

 

(a)                                   The Company 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 Company therein) or any buildings, improvements, machinery and equipment at any time installed thereon by the Company, 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, 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 Company shall be obligated to pay only such installments thereof as become due and payable during the Lease Term.

 

(b)                                  The Company shall have the right, in its own name or in the City’s name, to contest the validity or amount of any tax, assessment or other governmental charge which the Company 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 Company, before instituting any such contest, gives the City written notice of its intention so to do, (2) the Company 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 Company 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 Company in connection with any and all administrative or judicial proceedings related to any tax, assessment or other governmental charge. The Company 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 Company in, on or about the Project shall be paid for by the Company and shall be contracted for by the Company in the Company’s own name, and the Company 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 Company acknowledge that under the existing provisions of K.S.A. 79-201a, as amended, the property purchased, acquired, constructed, reconstructed, improved, equipped, 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

 

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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 Company’s request, fully cooperate with the Company in all reasonable ways to prevent any such levy or assessment. The City shall timely file the Application for Exemption to effect the property tax abatement described in K.S.A. 79-201a. The Company agrees to pay any such levies or assessments that are lawful on the Project.

 

Section 6.5.                                 Reserved.

 

Section 6.6.                                 Kansas Retailers’ Sales Tax.

 

(a)                                   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 acquisition, purchase, construction, improving, equipping or remodeling of the Project are entitled to exemption from the tax imposed by the Kansas Retailers’ Sales Tax Act. The parties agree that the City shall, upon the request of and with the Company’s assistance, promptly obtain from the State and furnish to the contractors and suppliers an exemption certificate for the acquisition, purchase, construction, improving, equipping or remodeling of the Project. The Company 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.

 

(b)                                  The parties further acknowledge that, under the existing provisions of K.S.A. 79-3603(h), a tax may be levied at the currently lawful rate upon the gross receipts derived by the City from the renting or leasing of personal property, if any, purchased from the proceeds of the Bonds. The Company agrees to pay, as Additional Rent hereunder, the full amount of any such tax as hereinafter determined. Such payments, if required, shall be made at the same time as the installments of Rent provided for hereby, and shall be made directly to the City, or in such other manner as the City may from time to time direct in writing. It shall be the duty of the City to promptly file any returns and remit any such taxes to the State, or to make suitable provision therefor, in accordance with applicable laws, rulings and regulations. The City’s taxable gross receipts shall be determined by multiplying that portion of each installment of Basic Rent which represents the payment of principal of the Bonds by a fraction in which the total proceeds of the Bonds is the denominator, and the amount expended from Bond proceeds for the acquisition of personal property, which amount shall be determined by the Company and set forth in a certificate delivered to the City, the Company and the Trustee immediately following completion of acquisition, purchase, construction, improving, equipping or remodeling of the Project, is the numerator. The amount of each installment of tax due shall be determined by multiplying the City’s taxable gross receipts determined in accordance with the preceding sentence (unless a different determination has been made in a judicial or administrative proceeding as hereinafter provided), by such other tax rate percentage as may from time to time be imposed by applicable law. Notwithstanding the foregoing provisions, if it shall be determined in any judicial or administrative proceeding that the City’s taxable gross receipts are in an amount other than the amount determined by applying the foregoing provisions, the Company shall be obligated to pay and hereby agrees to pay the full amount of such tax, based upon such judicially or administratively determined gross receipts, it being the intent of this provision that the Company shall pay in full the amount of any such tax, but no more than such amount, which the City is obligated to collect under

 

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the present or any fixture laws of the State.

 

ARTICLE VII

 

INSURANCE

 

Section 7.1.                                 Title Insurance . The Company has elected not to have the City obtain an owner’s policy of title insurance.

 

Section 7.2.                                 Casualty Insurance .

 

(a)                                   Subject to the right of the Company to increase the deductibles described herein and to provide for self-insurance as provided in subparagraph (c) of this Section, the Company 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 $100,000).

 

Subject to the rights of the Company provided in subparagraph (c) of this Section, prior to or simultaneously with the expiration of said Builder’s Risk Insurance, the Company 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 $100,000). 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 Company Representative or the chief financial officer of the Company. The insurance required pursuant to this Section shall be maintained at the Company’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 Company. Copies of the insurance policies required under this Section, or originals or certificates thereof, shall be delivered by the Company to the Trustee. All such policies of insurance pursuant to this Section, and all renewals thereof, shall name the City, the Company 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 Company 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.

 

(c)                                   In lieu of obtaining all or any part of the insurance required by subparagraph (a) hereof, the Company 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 Company to increase the deductibles on such

 

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policies to an amount not to exceed $500,000 provided the Company complies with each of the following: (i) the Company 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 Company, the Company 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) 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).

 

Section 7.3.                                 Public Liability Insurance .

 

(a)                                   Subject to the right of the Company to increase the deductibles described herein and to provide for self-insurance as provided in subparagraph (c) of this Section, the Company 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 Company and the Trustee shall be named as additional insureds, properly protecting and indemnifying the City and the Trustee, in an amount not less than $2,000,000 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 Company 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