Master Development Agreement

MASTER DEVELOPMENT AGREEMENT


between


EDISON SCHOOLS INC., as Agent for Certain Charter Holders


and


KSIXTEEN LLC,
as Developer 2
TABLE OF CONTENTS


Page


ARTICLE 1 - DEFINED TERMS............................................... 1


ARTICLE 2 - APPOINTMENT AND TERM........................................ 4


2.1 Appointment................................................. 4
2.2 Term........................................................ 5


ARTICLE 3 - RELATIONSHIP................................................ 5


ARTICLE 4 - DEVELOPMENT PROCESS......................................... 5


4.1 Preparation and Approval of Development Proposals........... 5
4.2 Development of a Project.................................... 7
4.3 Construction of a Project................................... 9
4.4 Additional Services......................................... 14
4.5 Additional Obligations...................................... 14
4.6 Employees................................................... 15
4.7 Emergencies................................................. 15
4.8 Lender and Legal Compliance................................. 15
4.9 Project Information......................................... 16
4.10 Edison and Charter Holder Information....................... 16


ARTICLE 5 - DEVELOPER'S AUTHORITY....................................... 16


ARTICLE 6 - INSURANCE AND INDEMNIFICATION............................... 16


6.1 Property Coverage........................................... 16
6.2 Loss of Use of Property..................................... 17
6.3 Liability Coverages......................................... 18
6.4 Fidelity Insurance.......................................... 19
6.5 General Insurance Requirements.............................. 19
6.6 Liability of Developer...................................... 20
6.7 Waiver of Subrogation....................................... 20
6.8 Indemnification............................................. 21


ARTICLE 7 - EDISON'S RIGHT TO INSPECT................................... 21


ARTICLE 8 - TERMINATION................................................. 21


8.1 Termination................................................. 21
8.2 Other Remedies.............................................. 23


ARTICLE 9 - COOPERATION................................................. 23


ARTICLE 10 - DELAYS..................................................... 23


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ARTICLE 11 - CONSENT; APPROVAL.......................................... 24


ARTICLE 12 - NOTICES.................................................... 24


ARTICLE 13 - COMPENSATION............................................... 25


13.1 Development Fee............................................. 25
13.2 Construction Management Fee................................. 26
13.3 Reimbursable Expenses....................................... 26
13.4 Fee for Additional Services................................. 26


ARTICLE 14 - ASSIGNABILITY.............................................. 26


ARTICLE 15 - MISCELLANEOUS.............................................. 27


15.1 Entire Agreement............................................ 27
15.2 Bind and Inure.............................................. 27
15.3 Amendment................................................... 27
15.4 Governing Law; Waiver of Jury Trial......................... 27
15.5 Headings.................................................... 27
15.6 No Waiver................................................... 27
15.7 Counterparts................................................ 27
15.8 Other Interests............................................. 27
15.9 Non-Recourse................................................ 27
15.10 Confidentiality............................................. 28
15.11 Exhibits.................................................... 28


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MASTER DEVELOPMENT AGREEMENT


This Agreement is entered into as of __________, 2000 by and between Edison Schools Inc., a Delaware Corporation as operator of certain charter schools for and on behalf of the respective Charter Holders (as hereinafter defined) ("Edison"), and Ksixteen LLC, a Delaware limited liability company ("Developer").


W I T N E S S E T H:


WHEREAS, Edison operates Charter Schools (as hereinafter defined) in various locations through-out the United States and in connection therewith assists the corporations holding the charter for such schools (individually, a "Charter Holder" and collectively, the "Charter Holders") in finding suitable parcels of land or existing buildings (said parcels being individually referred to herein as a "Parcel") on which to develop such schools and assisting the Charter Holders in the development and construction of the building and other improvements (individually, a "Building") in which such schools will operate; and


WHEREAS, Edison as agent for and on behalf of the Charter Holders desires to enter this contract with Developer under which Developer shall act as developer and construction manager for each of the Charter Holders, providing professional development, construction management and financial advisory services applicable to the planning, development, construction and financing of the Buildings to be developed by the Charter Holders (said Buildings and related improvements on the respective Parcels being referred to individually as a "Project", and collectively as the "Projects"), all on the terms and conditions herein set forth;


NOW, THEREFORE, in consideration of the mutual covenants herein contained and of other good and valuable consideration, the parties hereto agree as follows:


ARTICLE 1


DEFINED TERMS


The following capitalized terms shall have the meanings set forth below:


1.1 "Affiliate" is defined in Article 14.


1.2 "Agency Agreement" as defined in Section 2.1.


1.3 "Approval Period" shall mean thirty (30) days from the date a
Development Proposal for a Project is submitted to Edison and the
relevant Charter Holder.


1.4 "Approved Plans and Specifications" is defined in Section 4.2(b).


1.5 "Architect" is defined in Section 4.2(b).


1.6 "Budget" is defined in Section 4.2(e).


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1.7 "Building" is defined in the Recitals.


1.8 "Charter Holder(s)" is defined in the Recitals.


1.9 "Charter School" means a school operated or to be operated by Edison under contract with a Charter Holder.


1.10 "Completion Date" shall mean the date on which the Architect certifies that the work on a Project has been finally completed, including completion of all landscaping, driveways and so-called punchlist items and if issued by the requisite governmental authority having jurisdiction over the Project, a permanent, unconditional certificate of occupancy has been issued from the appropriate governmental authority for such Project.


1.11 "Contractor" is defined in Section 4.2(d).


1.12 "Contract School" means a school operated or to be operated by Edison under contract with a public board of education or school board.


1.13 "Construction Financing" is defined in Section 4.2(f).


1.14 "Development Costs" shall mean with respect to each Project the total of site acquisition costs and all hard and soft costs of developing, financing and constructing the Project, including, without limitation, the Development Fee, building permit fees, consultants' and architects' fees, and costs of bonds, permitting and financing.


1.15 "Development Fee" is defined in Section 13.1.


1.16 "Development Period" shall mean with respect to each Project the period of time beginning on the date of the Notice of Edison Approval and ending on the Completion Date.


1.17 "Development Proposal" shall mean a written proposal given by Developer to Edison and the applicable Charter Holder describing Developer's detailed proposal for site acquisition, planning, developing, financing and constructing a Project, which shall include, without limitation, the following:


(a) Developer's site selection recommendation;


(b) Feasibility and environmental studies for the development of the Project;


(c) A detailed budget setting forth the estimated total Development Costs to be incurred;


(d) A list of proposed contractors to be employed in the construction and development of the Project, if available;


(e) A list of key permits and approvals required for each Project and a schedule for obtaining the same;


(f) A schedule for the construction of the Project;


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(g) A plan for Project financing; and


(h) A staffing plan, naming the Developer's proposed Project Manager for the Project and other staffing as described in Section 4.5.


1.18 "Force Majeure" shall have the meaning set forth in Article 10.


1.19 "Land" is defined in the Recitals.


1.20 Intentionally Omitted.


1.21 "Notice of Disapproval" shall mean a written notice given by Edison or the relevant Charter Holder to Developer stating that Edison or the Charter Holder does not approve the proposal for a Project as set forth in a Development Proposal.


1.22 "Notice of Approval" shall mean a written notice given by Edison and the relevant Charter Holder to Developer stating that Edison and the relevant Charter Holder approve of the Project described in the Development Proposal.


1.23 Intentionally Omitted


1.24 "Parcel" is defined in the Recitals.


1.25 "Permanent Financing" is defined in Section 4.2(f).


1.26 Intentionally Omitted.


1.27 "Progress Schedule" is defined in Section 4.2(e).


1.28 "Project" is defined in the Recitals.


1.29 "Project Manager" is defined in Section 4.5.


1.30 Intentionally Omitted


1.31 "Submitted Plans" is defined in Section 4.2(b).


1.32 "Substantial Completion of Construction" is defined in Section 4.3(c).


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ARTICLE 2


APPOINTMENT AND TERM


2.1 Appointment. Except as hereinafter provided, Edison hereby engages Developer to oversee, arrange, supervise and coordinate on behalf of each relevant Charter Holder all development, construction management and financial advisory services for site selection, planning, design, construction and financing of each Project for which a Notice of Approval has been issued, as required and subject to the specifications in this Agreement, and Developer hereby accepts such engagement on the terms and conditions herein contained. Developer accepts the relationship of trust and confidence established by this Agreement and covenants with Edison, on behalf of the Charter Holder, to utilize the Developer's best skill, efforts and judgment in furthering the interests of Edison and the Charter Holders in the performance of the services to be provided by Developer hereunder.


Developer acknowledges and agrees that Edison is acting hereunder as agent for and on behalf of the respective Charter Holders; however, in some cases at Edison's election, Edison may direct Developer in writing to commence work on one or more Projects before the Charter Holders which will own such Projects are organized. Until the Charter Holder for any one or more Projects is organized and executes an Agency Agreement with Edison substantially in the form attached hereto as Exhibit A (each an "Agency Agreement"), Edison shall make all decisions with respect to such Project hereunder (and neither Developer nor Edison need obtain such Charter Holder's consent or approval of any matter in connection with such Project(s) as would otherwise require the Charter Holder's consent or approval hereunder) and Edison shall be solely responsible to Developer for all amounts due with respect to such Project(s) and shall pay all amounts due Developer hereunder in connection with such Project(s). As and when Edison enters an Agency Agreement with the Charter Holder for any such Project(s) and delivers to Developer (i) a copy of such Agency Agreement and (ii) evidence that the Charter Holder has or will obtain necessary construction financing for the Project necessary to pay the Development Costs for the Project set forth in the Project's Budget, the respective Charter Holders shall have all rights of a Charter Holder hereunder as to its Project and such Charter Holder shall be solely responsible for the obligations and liabilities of Edison arising hereunder with respect to such Project(s) and Edison shall be relieved from any further liability for the Development Costs, including, without limitation, the Development Fee payable for such Project(s) hereunder (excepting only obligations and liabilities caused by Edison's gross negligence or willful misconduct). If Developer is not satisfied that the Charter Holder is financially able to discharge its obligations under this Agreement, Developer may notify Edison within ten (10) days after delivery to it of the Agency Agreement, and unless Edison elects (in its sole discretion) in a written notice to Developer to guarantee the obligations of such Charter Holder hereunder, Developer may upon written notice to Edison, withdraw from the affected Project, in which case Developer shall be paid all amounts due to Developer on such Project hereunder as of the date of such notice and Developer shall have no further obligation to perform services in connection therewith, however, this Agreement shall remain in full force and effect in all other respects.


Edison has advised Developer that a number of Projects are currently underway and are in the various stages of development as shown on Exhibit B attached hereto and made a part hereof (the "Existing Projects"). Also shown on Exhibit B is the Charter Holder responsible for


- 4 - 8 each of such Existing Projects together with the stage of completion thereof. As to such Existing Projects, Developer shall assume responsibility for the development, construction management and financial advisory services to be performed from and after the date of this Agreement and in recognition of the fact that development services on such Projects have been partially completed, the Developer shall be paid for each such Project the Development Fee set forth on Exhibit B hereto in lieu of the Development Fee otherwise payable in accordance with Article 13 hereof.


Developer shall perform all development, construction management and financial advisory services required hereunder for the benefit of each of the Charter Holders as if such Charter Holders were parties to this Agreement, however, Edison shall remain the agent for such Charter Holders. Copies of all communications by and between the Charter Holders and Developer with respect to any Project shall be forwarded to Edison. It is understood and agreed that no Charter Holder has any liability or obligation under this Agreement or under its Agency Agreement for obligations or liabilities arising hereunder with respect to any Project other than the Project identified in its Agency Agreement or for costs or liabilities arising from Edison's gross negligence or willful misconduct.


Edison shall diligently endeavor to provide or cause the applicable Charter Holders to provide timely responses to all requests by Developer for Edison's or a Charter Holder's approval or other decisions required of them hereunder.


2.2 Term. Subject to the provisions of Article 8 hereof, this Agreement shall be for a term commencing as of the date of this Agreement and continuing through the later of the fifth anniversary of the date of this Agreement or the Completion Date for the last Project for which Edison has issued a Notice of Edison Approval.


ARTICLE 3


RELATIONSHIP


Developer shall at all times be an independent contractor and neither Developer nor its employees shall be agents or employees of Edison or any Charter Holder. Nothing herein shall be deemed to create a partnership or joint venture between Developer and Edison or any Charter Holder.


Edison acknowledges that this Agreement is not an exclusive engagement of Developer and Developer may provide similar or other real estates services to parochial, public or private schools unrelated to Edison or any of the Charter Holders.


ARTICLE 4


DEVELOPMENT PROCESS


4.1 Preparation and Approval of Development Proposals. Edison may from time to time during the term of this Agreement request that Developer perform the following pre-development services:


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(a) Intentionally Omitted.


(b) Preparation of Development Proposal. In the event Edison and the relevant Charter Holder authorize Developer in writing to prepare a Development Proposal for a Project, the Developer shall deliver a Development Proposal for such Project to Edison and the relevant Charter Holder within sixty (60) days after the date of such written authorization or within such additional time (not to exceed ninety (90) days in the aggregate) as Developer may request in writing. The third party costs and expenses to be incurred by Developer and fees and charges payable to Developer in the preparation of any such Development Proposal shall not exceed the Retainer paid to Developer therefor in accordance with Section 13.1(a) hereof. If Developer wishes to incur any cost or expense which together with its fee shall cause all costs of the Development Proposal to exceed the Retainer, Developer shall provide Edison and the relevant Charter Holder with such information as Edison or the relevant Charter Holder shall reasonably require in order to approve the proposed excess costs. Edison or the relevant Charter Holder shall have the right to approve or disapprove the Development Proposal for such Project in Edison's or the relevant Charter Holder's sole discretion.


(c) Intentionally Omitted.


(d) Timing for Approval. Edison and the relevant Charter Holder may send Developer a Notice of Approval or a Notice of Disapproval within the applicable Approval Period. If Edison and the relevant Charter Holder send a Notice of Approval, Developer shall commence the development of the Project described in the Development Proposal subject to and in accordance with the provisions of Section 4.2 hereof. If the Approval Period expires and Edison and the relevant Charter Holder have not sent a Notice of Approval, as the case may be, the Project described in the Development Proposal, as the case may be, shall be deemed disapproved. The parties may agree in writing to extend the Approval Period to permit the Developer to submit additional information, documents and plans reasonably requested by Edison or to revise same.


(e) Reimbursement for Certain Costs. Developer may charge 1.1 times all third party out-of-pocket costs and expenses reasonably incurred by Developer in connection with the preparation of a Development Proposal against the Retainer paid to Developer in accordance with Section 13.1(a) hereof, provided that the sum of such reimbursements plus the Developer's fee in connection with the preparation of any Development Proposal do not exceed in the aggregate the Retainer. Upon completion of the Development Proposal, Developer shall submit to Edison a detailed accounting (supported by documentation as Edison shall reasonably request) of all such costs and fees charged against the Retainer and any amounts in excess of the Retainer that were approved in writing in advance by Edison and the applicable Charter Holder in accordance with Section 4.1(b). Amounts in excess of the Retainer approved by Edison and the applicable Charter Holder shall be paid within fifteen (15) days following submission of Developer's invoice therefor together with such additional documentation as Edison may reasonably require.


(f) Ownership of Development Proposals. Each Development Proposal shall be made in the name of Edison, or, if an Agency Agreement has been signed, in the name of the relevant Charter Holder. Edison, or, if an Agency Agreement has been signed, the relevant


- 6 - 10 Charter Holder, shall have title to and the right to rely upon any and all of the contents thereof, and such materials may not be used for any other purpose by Developer without prior written approval from Edison or the relevant Charter Holder's, as the case may be, which approval shall not be unreasonably withheld, conditioned or delayed.


4.2 Development of a Project. In the event Edison and the relevant Charter Holder approve a Development Proposal, the Developer shall perform the following development services:


(a) Site Acquisition. Developer shall work with legal counsel reasonably selected by Edison to negotiate a contract to purchase or a suitable lease of the selected Parcel on the most favorable terms reasonably achievable, and thereafter assist Edison in conducting all necessary or appropriate due diligence with respect to the selected Parcel including, analysis of applicable zoning and subdivision laws and regulations, title searches, site surveys and environmental assessments.


(b) Engagement and Supervision of Architect. Developer shall, on behalf of Edison as agent for the relevant Charter Holder, solicit and recommend a reputable and licensed architect (the "Architect") and such other engineers, designers, experts and consultants, as necessary or appropriate, to provide design services for the construction and operation of the Project. Before engaging any such persons, Developer shall obtain the prior written consent of Edison (not to be unreasonably withheld) as to the identity of the person to be engaged and as to the form and substance of the contract therefor which shall be entered into and executed by Edison as agent for the applicable Charter Holder. In no event, however, shall Edison have any liability or obligation under such contracts except to the extent that Edison elects, in its sole discretion, in writing to guarantee the obligations of the Charter Holder thereunder. Developer shall cause the parties engaged pursuant to this Section 4.2(b) to prepare and submit to Edison, Developer and the relevant Charter Holder, for Edison's, Developer's and the relevant Charter Holder's review and approval (not to be unreasonably withheld), complete plans, specifications and working drawings for the construction of the Project in such form as Edison may reasonably require (the "Submitted Plans"). Developer shall supervise all of such architectural/engineering and design services such that the Submitted Plans will be prepared and be substantially consistent with the conceptual plans identified in the Development Proposal. Edison and the relevant Charter Holder shall provide their written approval or notice of any modifications required to such plans, specifications and drawings within thirty (30) days after receipt thereof. The Architect shall make any required modifications within thirty (30) days of receiving comments from Edison or the relevant Charter Holder. Such plans, specifications and drawings, when approved by Edison in writing, shall be referred to herein as the "Approved Plans and Specifications." The Approved Plans and Specifications shall not be revised in any material respect without the prior written consent of Edison and the relevant Charter Holder (which consent shall not be unreasonably withheld).


(c) Procuring Entitlements, Permits and Approvals. Immediately following the engagement of the Architect provided above, Developer shall process, procure and maintain in the name of Edison or the applicable Charter Holder all necessary entitlements and governmental approvals for the design, development, construction, completion, equipping, occupancy, operation, and use of the Project, including, without limitation, any special permits,


- 7 - 11 rezoning, subdivisions, variances or authorizations required by applicable law. Developer shall maintain true and complete copies of all such permits and authorizations and, at the request of Edison or the relevant Charter Holder, promptly provide copies of same to Edison or the relevant Charter Holder. In addition, Developer shall make all requisite arrangements with public and/or private utilities to ensure that water, sewer, electric, gas and other utilities, in appropriate capacities, will be available to serve the Project.


(d) Engagement of Contractor. Following completion of the Approved Plans and Specifications, Developer shall negotiate and submit to Edison for its review and approval (not to be unreasonably withheld), all necessary construction and other contracts for the construction of the Project, all of which shall be consistent with the Approved Plans and Specifications. The total amounts payable under all such contracts which relate to the construction of the Project shall not exceed the amounts set forth in the Development Proposal, without prior written approval from Edison and the relevant Charter Holder. Developer shall obtain the prior written consent of Edison (not to be unreasonably withheld) as to the selection of the general contractor (the "Contractor") to be engaged. The construction contract shall be in a form reasonably satisfactory to Edison and shall be subject to the prior written approval (not to be unreasonably withheld) of Edison and shall be consistent with the Budget. Edison (and, in the case of any change order which will cause an increase in the Budget, the relevant Charter Holder) shall have the right to approve any change order for a single change in excess of $50,000 and all change orders after more than $250,000 of change orders of any type have been requested per Project.


(e) Budget and Progress Schedule. Developer shall prepare and submit to Edison and the relevant Charter Holder for their approval (i) a final development budget (the "Budget") for each Project setting forth in detail on a line item basis reasonably satisfactory to Edison the Development Costs of the Project and which shall substantially conform to the budget contained in the Development Proposal except as otherwise approved by Edison and the relevant Charter Holder, and (ii) a "Progress Schedule" for the Project which shall set forth the d ...