PAYMENT GUARANTY
THIS PAYMENT GUARANTY ("Guaranty") is made effective as of July 21, 2000,
by and between EDISON SCHOOLS INC., a Delaware corporation ("Edison"), 521
Fifth Avenue, 15th Floor, New York, New York 10175, and KEYBANK NATIONAL
ASSOCIATION, a national banking association (the "Bank"), 34 Main Street,
Dayton, Ohio 45402.
RECITALS
A. Pursuant to the terms and conditions contained in a Loan Agreement
dated July 21, 2000, between Alliance Edison LLC, a Delaware limited liability
company (the "Company"), and Bank (the "Loan Agreement"), Bank has agreed to
make the Company a construction loan in an amount not to exceed $1,620,000.00
(the "Loan") to assist the Company in constructing a charter school to be known
as the Dayton View Academy (the "Improvements") upon a parcel of real estate
containing approximately 5.8494 acres of land located at 1415 West Riverview
Avenue, Dayton, Ohio 45407 (the "Premises"). The Company has leased the
Premises pursuant to the terms and conditions contained in a Ground Lease
Agreement dated as of November 23, 1999 as amended by a First Amendment to
Ground Lease dated as of July 21, 2000 (collectively, the "Ground Lease"),
between the Dayton Metropolitan Housing Authority ("DMHA"), as Landlord, and
Alliance Facilities Management, Inc., an Ohio non-profit corporation ("AFM"),
as Tenant. The Ground Lease has been assigned and transferred to the Company by
AFM pursuant to the terms and conditions contained in an Assignment and
Assumption of Ground Lease and Lessor Consent dated as of July 21, 2000 (the
"Ground Lease Assignment), between AFM, as Assignor, the Company, as Assignee,
and DMHA, as Lessor. The Premises and Improvements will be subleased to
Alliance Community Schools, Inc., an Ohio non-profit corporation ("ACS"),
pursuant to the terms and conditions contained in a Sublease Agreement dated as
of March 10, 2000, between AFM, as Sublessor, and ACS, as Sublessee, as amended
by an Amended and Restated Sublease Agreement dated as of July 21, 2000,
between the Company, as Sublessor, and ACS, as Sublessee (collectively, the
"Sublease"). The Sublease has been assigned and transferred to the Company by
AFM pursuant to the terms and conditions contained in an Assignment and
Assumption of Sublease and Sublessee Consent and Acknowledgement dated as of
July 21, 2000 (the "Sublease Assignment"), by and between AFM, as Assignor, the
Company, as Assignee, and ACS, as Sublessee.
B. The Company has executed and delivered to Bank (i) a Promissory Note
dated July 21, 2000 in the face amount of $1,620,000.00 (the "Note") as evidence
of the Loan to be made by Bank to the Company, and (ii) an Open-End Leasehold
Mortgage, Assignment of Leases, Rents and Contracts Rights and Security
Agreement dated July
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21, 2000 (the "Mortgage") in which the Company has mortgaged to Bank its
leasehold estate in the Improvements and Premises as security for the repayment
of the Loan.
C. The Company has also executed and delivered to Bank (i) a Deposit
Assignment dated July 21, 2000 (the "Deposit Assignment") in which the Company
has assigned and transferred to Bank all of its right, title and interest in
its cash security including, but not limited to, all demand deposit accounts
(the "Cash Security") which the Company maintains at Bank as security for the
repayment of the Loan, and (ii) an Environmental Indemnity Agreement dated July
21, 2000 (the "Environmental Indemnity") in which the Company has agreed to
indemnify Bank from certain environmental liabilities in connection with its
leasehold estate in the Premises.
D. The Company has also executed and delivered to Bank a Security
Agreement dated July 21, 2000 (the "Security Agreement") in which the Company
has granted Bank a first lien security interest in (i) all accounts, accounts
receivable, contract rights, chattel paper, instruments, general intangibles
and all other obligations and receivables now owned or hereafter acquired by
the Company ("Receivables"), (ii) all inventory, including, but not limited to,
all goods, merchandise, raw materials, goods in process, finished goods and
other tangible personal property now owned or hereafter acquired and held for
sale or lease or to be furnished under contracts of service or to be used or
consumed in the Company's business ("Inventory"), (iii) all machinery,
equipment, furniture, fixtures and tangible personal property of every kind and
description, now owned or hereafter acquired by the Company and wherever
located ("Equipment"), (iv) all replacements of and additions to the Equipment
(the "Replacements and Additions"), and (v) all proceeds of the
Receivables, Inventory and Equipment including, without limitation, all
insurance proceeds (the "Proceeds") as security for the repayment of the Loan.
The Loan Agreement, Note, Mortgage, Security Agreement, Deposit Assignment and
Environmental Indemnity shall hereinafter be referred to collectively as the
"Loan Documents". The term "Collateral" shall mean the Improvements, Premises,
Accounts Receivable, Equipment, Replacements and Additions and Proceeds and
Cash Security.
E. Bank has conditioned its making of the Loan to the Company upon
receipt of this Guaranty in which Edison unconditionally guarantees, subject to
the terms hereof, to Bank (i) the full and prompt repayment of all principal
and interest payments which become due and payable to Bank upon the Loan as
evidenced by the Note, and (ii) the full and prompt payment of all amounts,
obligations and liabilities which become due and payable to Bank upon the Loan
Documents.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Guaranty, Edison and Bank hereby agree as follows:
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ARTICLE I.
REPRESENTATIONS AND WARRANTIES
SECTION 1.1. REPRESENTATIONS AND WARRANTIES. Edison hereby represents
and warrants to Bank the following:
(a) There are no actions, suits or proceedings pending or, to the
knowledge of Edison, threatened against or affecting Edison or involving
the validity or enforceability at law or in equity before any court or
before or by any governmental authority or any other matters which would
materially impair the ability of Edison to pay when due any amounts which
may become payable in respect of the Loan or would reasonably be expected
to result in any material adverse change in the business or condition of
Edison; to the knowledge of Edison, Edison is not in violation of any
applicable statute or regulation of any governmental authorities having
jurisdiction over Edison which would have a materially adverse effect on
Edison's ability to perform its obligations hereunder; and to the best
knowledge of Edison, Edison is not in default with respect to any order,
writ, injunctions, decree or demand of any court or any governmental
authority; and there are not, to its knowledge, any claims against Edison
which would have a materially adverse effect on Edison's ability to perform
its obligations hereunder.
(b) The consummation of the transaction contemplated hereby and the
execution, delivery and performance of this Guaranty will not result in a
breach of, or constitute a default under any agreement or any other
instrument to which Edison is a party or by which Edison may be bound or
any applicable court or governmental order or regulation.
(c) Any and all financial statements heretofore delivered to Bank by
Edison are true and correct in all material respects and fairly present the
financial condition of Edison as of the dates thereof, and no materially
adverse change has occurred in the financial conditions reflected therein
since the respective dates thereof.
SECTION 1.2. COVENANTS. From the date of this Guaranty until the Loan has
been fully paid as to both principal and interest, Edison shall:
(a) Furnish Bank as soon as available, but in any event within sixty
(60) days after the end of each fiscal quarter of Edison, with (i) a
balance sheet of Edison as of the end of such fiscal quarter, (ii) a
statement of income and retained earnings of Edison for such fiscal
quarter, (iii) a cash flow statement of Edison for such fiscal quarter, and
(iv) such other financial information as Bank may reasonably request. These
financial statements shall (i) be prepared in reasonable detail, (ii) state
in comparative form the respective figures for the corresponding
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date and period in the previous fiscal year, (iii) be prepared in
accordance with generally accepted accounting principals consistently
applied, subject to normal year-end adjustments, and (iv) be certified by
the chief financial officer of Edison.
(b) Furnish Bank as soon as available, but in any event within one
hundred twenty (120) days after the end of each fiscal year of Edison, with
(i) a balance sheet of Edison as of the end of such fiscal year, (ii) a
statement of income and retained earnings of Edison for such fiscal year,
and (iii) a cash flow statement of Edison for such fiscal year. These
financial statements shall (i) be prepared in reasonable detail, (ii) state
in comparative form the respective figures for the corresponding date and
period in the previous fiscal year, (iii) be prepared in accordance with
generally accepted accounting principles consistently applied, and (iv) be
audited by an independent certified public accounting firm selected by
Edison and reasonably acceptable to Bank.
ARTICLE II.
GUARANTY
SECTION 2.1. PAYMENT GUARANTY. Edison hereby unconditionally guarantees to
Bank the repayment of the following liabilities:
(a) The full and prompt payment of all principal and interest payments
which become due and payable, whether by acceleration, or otherwise, to
Bank from the Company upon the Loan as evidenced by the Note; and
(b) The full and prompt payment of all amounts, obligations and
liabilities which become due and payable to Bank from the Company pursuant
to the Loan Documents including, but not limited to, all obligations to
Bank under the Environmental indemnity.
The term "Liabilities" as used in this Guaranty shall mean all liabilities as
described in Section 2.1(a) and 2.1(b) of this Guaranty. If the Company shall
fail to pay all or any part of the Liabilities when due, whether by acceleration
or otherwise, Edison shall pay Bank, upon Bank's written demand, the amount due
and unpaid by the Company in a like manner as if such amount constituted the
direct obligation of Edison. Bank's failure to provide Edison with a written
demand for payment shall not be construed as a waiver of Bank's rights against
Edison under this Guaranty. Prior to any demand upon Edison, Bank shall not
be required to make any demand upon or pursue or exhaust any of its rights or
remedies against the Company or any other guarantors of the Liabilities or to
pursue or exhaust any of its rights or remedies under the Mortgage, Security
Agreement or Deposit Assignment with respect to the Collateral. Edison shall
have no right of subrogation with respect to the Liabilities unless and until
Bank shall have received full payment of all Liabilities. Upon payment in full
of the Liabilities by Edison after a default in payment by
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the Company, Bank shall assign and transfer to Edison all of Bank's right,
title and interest in the Loan Documents.
SECTION 2.2. TERMINATION OF GUARANTY. The obligations of Edison under this
Guaranty shall be absolute and unconditional and shall remain in full force and
effect until all Liabilities have been paid in full and all of the Company's
obligations to Bank under the Loan Documents have been fully satisfied
including, but not limited to, all of the Company's obligations to Bank under
the Environmental Indemnity. Edison acknowledges that the Company's obligations
to Bank under the Environmental Indemnity shall survive the payment of the
Loan. Upon termination of Edison's liability to Bank under this Guaranty, Bank
shall either (i) provide Edison with a separate cancellation of this Guaranty,
or (ii) return to Edison the original of this Guaranty with a notation that
this Guaranty has been either paid or satisfied by the payment of the
Liabilities.
SECTION 2.3. WAIVER. Edison hereby expressly waives:
(a) Notice from Bank that Bank has accepted and is relying upon this
Guaranty;
(b) Notice from Bank that Bank has made the Loan to the Company;
(c) Notice from Bank that the Company has defaulted in the payment of
principal or interest upon the Liabilities; and
(d) Any and all set offs, counterclaims and defenses, including, but
not limited to, the impairment of collateral defense and the defense that
the Company has no personal liability to repay the Loan which either the
Company or Edison may have against Bank.
SECTION 2.4 CONSENT. Edison hereby expressly agrees that without its
consent:
(a) The Company and Bank may modify the terms and conditions of the
Liabilities, including, but not limited to, extending the time for payment
or changing the interest rate or the amount of the principal payments due
upon the Loan as evidenced by the Note.
(b) Bank may release or permit substitution of either the Collateral
or any additional collateral now or hereafter held by Bank as security for
the repayment of the Liabilities upon such terms and conditions which are
satisfactory to Bank in its sole discretion. Bank may release the
Collateral with or without any consideration being paid to Bank.
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SECTION 2.5. ATTORNEY FEES AND COSTS. Edison shall pay all reasonable
costs, expenses and fees, including all reasonable attorneys' fees, which Bank
incurs in enforcing or attempting to enforce this Guaranty following any
default by Edison in the performance of its obligations as contained in this
Guaranty.
ARTICLE III.
GENERAL PROVISIONS
SECTION 3.1. AMENDMENTS. This Guaranty shall not be modified or amended
except by a written agreement duly executed by Bank and Edison or their
successors or assigns; provided, however, Edison may not assign its obligations
as contained in this Guaranty.
SECTION 3.2. NOTICES. Except as otherwise provided in this Guaranty, any
notice required or permitted to be given pursuant to this Guaranty, or in
connection with this Guaranty, shall be in writing and shall be deemed to have
been received (i) when personally delivered, or (ii) two (2) days after
delivery to any national overnight courier or express mail, or (iii) three (3)
days after placed in the United States mail, registered or certified mail,
return receipt requested, with adequate postage affixed thereto, addressed to
Bank or Edison, as the case may be, at the following addresses, or such other
address as either of them may from time to time designate in a notice given to
the other:
Bank:
KeyBank National Association
34 North Main Street
Dayton, Ohio 45402
Attention: Gary R. Roan
Vice President
Edison:
Edison Schools, Inc.
521 Fifth Avenue, 15th Floor
New York, New York 10175
Attention: H. Christopher Whittle
President, Chief Executive Officer & Director
With a copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036-7703
Attention: Joseph D. Farrell, Esq.
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SECTION 3.3. ARTICLE AND SECTION HEADINGS. The headings or titles of the
several articles and sections of this Guaranty shall be solely for convenience
of reference and shall not affect the meaning, construction or effect of the
provisions hereof.
SECTION 3.4. INTERPRETATION. The singular form of any word used herein,
shall include the plural, and vice versa, if applicable. The use of a word of
any gender shall include all genders if applicable.
SECTION 3.5. CONSTRUCTION. This Guaranty and all related documents shall
be deemed to be contracts made and delivered in the State of Ohio, and shall be
governed and construed in accordance with the laws of the State of Ohio.
SECTION 3.6. SEVERABILITY. If any provision of this Guaranty shall be held
or deemed to be or shall, in fact, be illegal, inoperative or unenforceable,
the same shall not affect any other provision or provisions herein contained or
render the same invalid, inoperative or unenforceable to any extent whatsoever.
SECTION 3.7. COGNOVIT GUARANTY. Edison hereby authorizes any attorney at
law, including any attorney retained by Bank, to appear in any court of record
within the State of Ohio if this Guaranty is not paid when due, whether or not
by acceleration, to waive issuance and service of process, to confess judgment
against Edison for the amount of principal and interest then appearing due,
together with costs of suit, and to release all errors and right to review.
Edison hereby expressly (i) waives a conflict of interest in an attorney
retained by Bank confessing judgment against Edison upon this Guaranty, and
(ii) consents to the attorney retained by Bank in receiving a legal fee from
Bank for legal services rendered for confessing judgment against Edison upon
this Guaranty. A copy of this Guaranty, certified by Bank, may be filed in each
such proceeding in place of filing the original as warrant of attorney.
IN WITNESS WHEREOF, Edison Schools Inc., by its duly authorized officer,
has executed this Payment Guaranty as of the day and year first above written.
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WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE, AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
EDISON SCHOOLS INC.,
a Delaware corporation
By
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ACCEPTED THIS 21st DAY OF JULY 2000
KEYBANK NATIONAL ASSOCIATION,
a national banking association
By /s/ Gary R. Roan
--------------------------
Gary R. Roan
Vice President
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Payment Guaranty - Edison Schools Inc. and KeyBank NA
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